<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ___ to ___
COMMISSION FILE NUMBER 0-27555
ILLUMINET HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4042177
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4501 Intelco Loop, Lacey, Washington 98503
(Address of principal executive office) (Zip code)
(360) 493-6000
(Issuer'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 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 past 90 days. Yes [ ] No [X]
At November 1, 1999, 4,485,000 shares of Common Stock, $0.01 par value per
share, and 6,342,195 shares of Class A Common Stock, $0.01 par value per share
were outstanding.
<PAGE> 2
ILLUMINET HOLDINGS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998 1
Consolidated Statements of Income for the three months and nine
months ended September 30, 1999 and 1998 2
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 3
Notes to Consolidated Financial Statements - September 30, 1999 4
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk 13
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings 14
ITEM 2: Changes in Securities and Use of Proceeds 14
ITEM 3: Defaults Upon Senior Securities 14
ITEM 4: Submission of Matters to a Vote of Security Holders 14
ITEM 5: Other Information 15
ITEM 6: Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1: Financial Statements
ILLUMINET HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 16,442 $ 11,967
Accounts receivable, less allowance for doubtful accounts
of $2,358 ($1,133 in 1998) .................................. 30,790 27,155
Deferred income taxes .......................................... -- 2,101
Prepaid expenses and other ..................................... 1,009 784
------------ ------------
Total current assets ................................... 48,241 42,007
Property and equipment, net ...................................... 44,485 43,747
Computer software product costs, less accumulated
amortization of $2,205 ($1,784 in 1998) ........................ 654 1,075
Other assets ..................................................... 2,982 2,621
------------ ------------
Total assets ........................................... $ 96,362 $ 89,450
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ......................................... $ 4,200 $ 3,923
Accrued expenses ............................................... 4,642 3,378
Due to customers ............................................... 14,899 16,622
Current portion of obligations under capital leases ............ 2,379 1,706
Current portion of long-term debt .............................. 2,269 3,458
------------ ------------
Total current liabilities .............................. 28,389 29,087
------------ ------------
Deferred income taxes ............................................ 3,429 3,429
Obligations under capital leases, less current portion ........... 5,615 5,146
Long-term debt, less current portion ............................. 14,273 15,596
Stockholders' equity:
Preferred Stock, par value $.01 per share, authorized 100,000
shares, 4,416 shares designated as Series A and 7,000
shares designated as Series B ............................... -- --
Series A Convertible Preferred Stock, par value $.01 per
share, issued and outstanding 2,408 (2,408 in 1998),
aggregate liquidation preference $2,408 ................... -- --
Series B Participating Cumulative Preference Stock, par
value $.01 per share, none issued or outstanding .......... -- --
Common Stock, par value $.01 per share, authorized
150,000,000 shares, none outstanding ........................ -- --
Class A Common Stock, par value $.01 per share, authorized
7,200,000 shares, issued and outstanding 5,376,730
(5,365,605 in 1998) ......................................... 54 54
Additional paid-in capital ..................................... 16,931 12,712
Deferred stock-based compensation .............................. (4,128) (394)
Retained earnings .............................................. 31,799 23,820
------------ ------------
Total stockholders' equity ............................. 44,656 36,192
------------ ------------
Total liabilities and stockholders' equity ............. $ 96,362 $ 89,450
============ ============
</TABLE>
1
<PAGE> 4
ILLUMINET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Network services ............................ $ 24,958 $ 16,053 $ 66,520 $ 42,653
Clearinghouse services ...................... 1,540 1,430 4,592 4,893
Network usage software applications ......... 271 1,252 773 2,775
----------- ----------- ----------- -----------
Total revenues ...................... 26,769 18,735 71,885 50,321
Expenses:
Carrier costs ............................... 7,369 6,173 20,967 16,925
Operating ................................... 6,733 5,297 19,220 13,845
Selling, general and administrative ......... 3,784 2,500 9,912 7,039
Depreciation and amortization ............... 3,008 2,356 8,325 6,140
----------- ----------- ----------- -----------
Total expenses ...................... 20,894 16,326 58,424 43,949
----------- ----------- ----------- -----------
Operating income .............................. 5,875 2,409 13,461 6,372
Interest expense, net ......................... 201 267 593 491
----------- ----------- ----------- -----------
Income before income taxes .................... 5,674 2,142 12,868 5,881
Income tax provision .......................... 2,156 847 4,890 2,235
----------- ----------- ----------- -----------
Net income .................................... $ 3,518 $ 1,295 $ 7,978 $ 3,646
=========== =========== =========== ===========
Earnings per share -- basic ................... $ 0.66 $ 0.24 $ 1.49 $ 0.68
=========== =========== =========== ===========
Earnings per share -- diluted ................. $ 0.54 $ 0.22 $ 1.26 $ 0.61
=========== =========== =========== ===========
Weighted-average common shares -- basic ....... 5,368,360 5,365,505 5,367,036 5,353,290
=========== =========== =========== ===========
Weighted-average common shares -- diluted ..... 6,651,550 6,495,746 6,571,303 6,501,910
=========== =========== =========== ===========
Pro forma earnings per share -- basic ......... $ 0.16 $ 0.06 $ 0.37 $ 0.17
=========== =========== =========== ===========
Pro forma earnings per share -- diluted ....... $ 0.14 $ 0.05 $ 0.31 $ 0.15
=========== =========== =========== ===========
Pro forma weighted-average common shares --
basic ....................................... 21,473,440 21,462,020 21,468,144 21,413,160
=========== =========== =========== ===========
Pro forma weighted-average common shares --
diluted ..................................... 26,606,200 25,982,984 26,285,212 26,007,640
=========== =========== =========== ===========
</TABLE>
2
<PAGE> 5
ILLUMINET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---------- ----------
<S> <C> <C>
(UNAUDITED)
Operating activities:
Net income .................................. $ 7,978 $ 3,646
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............... 8,325 6,140
Stock-based compensation expense ............ 387 319
Deferred income taxes ....................... 2,101 2,235
Change in:
Accounts receivable ...................... (3,635) (2,022)
Trade accounts payable ................... 277 1,473
Accrued expenses ......................... 1,264 (1,235)
Due to customers ......................... (1,723) (44)
Other .................................... (598) (320)
---------- ----------
Net cash provided by operating
activities ............................... 14,376 10,192
---------- ----------
Investing activities:
Capital purchases ........................... (6,100) (7,996)
---------- ----------
Net cash used in investing activities .... (6,100) (7,996)
---------- ----------
Financing activities:
Purchase of subordinated capital
certificates related to notes payable .... -- (68)
Proceeds from issuance of notes payable ..... -- 1,368
Proceeds from issuance of Class A Common
Stock .................................... 98 --
Principal payments on notes payable and
capital leases ........................... (3,899) (1,817)
---------- ----------
Net cash used in financing activities .... (3,801) (517)
---------- ----------
Net increase in cash and cash equivalents ..... 4,475 1,679
Cash and cash equivalents at:
Beginning of period ......................... 11,967 11,167
---------- ----------
End of period ............................... $ 16,442 $ 12,846
========== ==========
Supplemental cash flow disclosure:
Income taxes paid ........................... $ 3,014 $ 221
========== ==========
Interest paid, net .......................... $ 880 $ 666
========== ==========
Capital acquisitions financed through
capital leases ........................... $ 2,530 $ 5,972
========== ==========
</TABLE>
3
<PAGE> 6
ILLUMINET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Illuminet Holdings, Inc. and its wholly-owned subsidiary Illuminet, Inc.
(collectively referred to as "Illuminet") are engaged in the business of
developing, managing and marketing a Signaling System 7 ("SS7") network and
related products and services based on SS7 technology to the entire
telecommunications marketplace. SS7 is a telecommunications industry-standard
system of protocols and procedures that is used to control telephone
communications and provide routing information in association with vertical
calling features, such as calling card validation, advanced intelligent network
services, local number portability, wireless services, toll-free number database
access, and caller identification. Additionally, Illuminet provides advanced
database services, billing-and-collection services, calling card services, and
network usage software applications to a range of telephone companies as well as
interexchange carriers, operator service providers and other telecommunications
companies and providers of telecommunications services.
Illuminet has its corporate headquarters and a portion of its operations
located in Lacey, Washington; a network control center and related operations
located in Overland Park, Kansas; and additional SS7 Signal Transfer Points
located in Rock Hill, South Carolina; Mattoon, Illinois; Las Vegas, Nevada;
Akron, Pennsylvania, and Waynesboro, Virginia.
Illuminet Holdings, Inc. (formerly USTN Holdings, Inc. through May 1997) and
Illuminet, Inc. (formerly USTN Services, Inc. through May 1997) were
incorporated in the State of Delaware on August 2, 1995.
BASIS OF PRESENTATION
The consolidated financial statements of Illuminet as of September 30, 1999
and 1998 and for the three and the nine months ended September 30, 1999 and 1998
presented in this Form 10-Q are unaudited, and in the opinion of management,
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for the fair presentation of Illuminet's financial position, results
of its operations and its cash flows for each period presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. Illuminet believes that the disclosures made are adequate
to make the information presented not misleading. The results of the interim
periods are not necessarily indicative of future results. These consolidated
financial statements and notes thereto should be read in conjunction with
Illuminet's Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on August 23, 1999, as amended on September 16, 1999 and
October 7, 1999.
EARNINGS PER SHARE
The computation of earnings per share-basic is based on net income and the
weighted average number of Class A common shares outstanding. The computation of
earnings per share-diluted includes the dilutive effect of outstanding preferred
stock, convertible debentures, and Class A Common Stock options calculated using
the treasury stock method.
In connection with the amendment to the Certificate of Incorporation, as
further described in Note 2, Illuminet has provided that each share of Class A
Common Stock will be converted into shares of a new class of Common Stock on
April 5, 2000, 181 days after the date of the final prospectus for the initial
public offering. Pro forma earnings per share and pro forma weighted-average
common share amounts reflect amounts that would have been reported after giving
effect to the assumed automatic conversion of Class A Common Stock into four
shares of Common Stock as if the conversion had occurred at the beginning of
each period presented.
4
<PAGE> 7
NOTE 2. INITIAL PUBLIC OFFERING
On May 26, 1999, the Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit
Illuminet to offer its common stock to the public (the "Offering"). The Offering
became effective on October 7, 1999.
On June 21, 1999, the stockholders approved an amendment that would
automatically convert each share of Illuminet Series A Convertible Preferred
Stock ("Series A Stock") into Class A Common Stock upon a public offering of
Illuminet's Common Stock.
On August 20, 1999, the Board of Directors authorized management to call all
outstanding convertible redeemable subordinated debentures ("Debentures") and
related accrued interest payable. Holders of the Debentures had the right until
October 4, 1999 to convert the Debentures and the related accrued interest
payable into Class A Common Stock at the exchange rate of $11.11 per share.
Debentureholders holding an aggregate of $8.4 million in principal and accrued
interest elected to convert their Debentures into 760,838 shares of Class A
Common Stock. The remaining $0.1 million of Debentures and accrued interest were
redeemed.
On September 9, 1999, the stockholders of Illuminet authorized Illuminet to
file an amendment to its Certificate of Incorporation with the Delaware
Secretary of State prior to the effectiveness of a registration statement to
offer its Common Stock to the public. This amendment created a new class of
Common Stock with 150,000,000 authorized shares, renamed the existing Common
Stock as Class A Common Stock, decreased the number of authorized shares of
Class A Common Stock to 7,200,000, and provided for the automatic conversion of
each share of Class A Common Stock into the new class of Common Stock 181 days
after the date of the final prospectus for the Offering. The amendment was filed
and effective on October 7, 1999. In connection with the renaming of the
Illuminet Common Stock, all references to existing Common Stock have been
changed to be referred to as Class A Common Stock in the accompanying financial
statements and the changes to the amounts of authorized shares have been
retroactively adjusted.
On September 9, 1999, the Board of Directors reserved for issuance under the
1997 Equity Incentive Plan 13% of Illuminet's Common Stock outstanding from time
to time.
On September 13, 1999, the Board of Directors of Illuminet approved a
conversion ratio of one share of Class A Common Stock for four shares of Common
Stock.
On October 4, 1999, the Board of Directors approved an employee stock
purchase plan. Any employee who meets certain service requirements is eligible
to participate in the plan and can purchase Common Stock for an amount equal to
85% of the lower of the initial public offering price or the closing price of
the Common Stock on the last day of each six month period that the plan is in
effect. Illuminet has reserved 700,000 shares for issuance under this plan. The
plan will terminate in two years.
On October 14, 1999, Illuminet completed its initial public offering and
issued 4,485,000 shares of its Common Stock at a price of $19.00 per share.
Illuminet received approximately $78.3 million in cash, net of underwriter
discounts, commissions and other offering costs. Simultaneously with the closing
of the initial public offering, all Series A Stock was automatically converted
into 204,941 shares of Class A Common Stock.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Land .............................. $ 912 $ 912
Building and leasehold improvements 7,240 7,156
Equipment and furniture ........... 3,864 3,435
Network assets .................... 57,886 51,799
Computer hardware and software .... 23,262 21,231
------------ ------------
93,164 84,533
Less: Accumulated depreciation .... (48,679) (40,786)
------------ ------------
Property and equipment, net ..... $ 44,485 $ 43,747
============ ============
</TABLE>
5
<PAGE> 8
NOTE 4. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share-basic
and diluted (in thousands, except share and per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for earnings per
share-basic -- net income ..... $ 3,518 $ 1,295 $ 7,978 $ 3,646
Effect of dilutive
securities -- Debenture
interest, net of tax .......... 97 111 291 334
---------- ---------- ---------- ----------
Numerator for earnings per
share-diluted -- net
income after assumed
conversions ................... $ 3,615 $ 1,406 $ 8,269 $ 3,980
========== ========== ========== ==========
Denominator:
Denominator for earnings per
share-basic --
weighted-average shares ........ 5,368,360 5,365,505 5,367,036 5,353,290
Weighted-average effect of
dilutive securities:
Stock options ................. 316,676 138,582 231,231 138,938
Debentures .................... 761,545 786,690 768,067 802,286
Series A Stock ................ 204,969 204,969 204,969 207,396
---------- ---------- ---------- ----------
Dilutive potential common
shares ...................... 1,283,190 1,130,241 1,204,267 1,148,620
---------- ---------- ---------- ----------
Denominator for earnings per
share-diluted -- adjusted
weighted-average shares and
assumed conversions ... 6,651,550 6,495,746 6,571,303 6,501,910
========== ========== ========== ==========
Earnings per share-- basic ......... $ 0.66 $ 0.24 $ 1.49 $ 0.68
========== ========== ========== ==========
Earnings per share-- diluted ....... $ 0.54 $ 0.22 $ 1.26 $ 0.61
========== ========== ========== ==========
</TABLE>
6
<PAGE> 9
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the consolidated financial condition and results
of operations of Illuminet Holdings, Inc. and its wholly-owned subsidiary
Illuminet, Inc. (collectively referred to as "Illuminet") should be read in
conjunction with the Financial Statements and the related Notes thereto included
in this Form 10-Q. This discussion contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
Illuminet's actual results could differ materially from the results discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below under
"Forward Looking Statements". Illuminet disclaims any obligation to update
information contained in any forward-looking statement.
OVERVIEW
We operate the largest unaffiliated SS7 network in the United States and are
a leading provider of complementary intelligent network and SS7 services to
telecommunications carriers. Connection to our network gives carriers access to
the system of signaling networks of nearly the entire U.S. public-switched
telecommunications infrastructure through a single source.
SS7 is the industry standard used by almost every switched telephone network
operator in the United States and Canada to identify available network routes
and designate the circuits to be used for each individual telephone call. SS7
networks also provide access to intelligent network services, such as caller
identification, calling card validation and other specialized database access
functions, all of which are performed in the seconds it takes to complete a
call. SS7 networks are specialized packet-switched data networks that provide
these control functions and services in parallel with separate voice networks.
Our network is composed of specialized SS7 switches, sophisticated computers
and databases strategically located across the country. These elements
interconnect our customers and all of the largest U.S. telecommunications
carriers through leased lines. As of September 30, 1999, our network serves over
600 network customers, including incumbent local exchange carriers, competitive
local exchange carriers, long distance companies, wireless telecommunications
providers and Internet service providers.
Our products and services can be grouped into three general categories:
- network services, which includes SS7 connectivity, switching and the
transport of messages used to route calls and query databases, and
intelligent network services, such as database access, including local
number portability and support for roaming between carriers;
- clearinghouse services that facilitate payments among telecommunications
carriers; and
- network usage software applications.
Our SS7 network connectivity, switching and transport services provide
telecommunications carriers access to the signaling networks of nearly the
entire U.S. public-switched telecommunications infrastructure through a single
source. Once connected, customers use our network to route and complete voice
and data transmissions and access related and complementary services and
applications available from us or from third party vendors. Once a customer is
connected to our network, we continue to provide support services to maintain
and upgrade its connection on a 24 hour a day, seven day a week basis.
Intelligent network services encompass a number of database query functions,
including caller identification, toll-free calling, calling card validation,
local number portability and seamless wireless roaming. Each of these services
uses our SS7 network to access databases, some maintained by us and others
maintained by third parties.
Our clearinghouse services include serving as a distribution and collection
point for billing information and payment collection for services provided by
one carrier to customers billed by another. For example, we receive a monthly
report from a long distance carrier detailing the long distance calls made by
the customers of another carrier. We prepare statements to each billing carrier
of its customers' usage, which the billing carrier then uses to bill its
customers. The billing carrier remits the payments received from its customers
to us. We aggregate these payments and remit them to the long distance carrier,
net of our servicing fee.
7
<PAGE> 10
Network usage software applications are commercial applications derived
primarily from software we developed to create billing data for the use of our
network and services. This software is licensed to carriers and allows them to
create billing data to bill another carrier for use of their signaling network
or their underlying public-switched telecommunications network.
REVENUES
Most of our revenues come from the sale of network services, including SS7
connectivity, switching and transport and the provision of intelligent network
services. To a lesser extent, we derive revenues from our clearinghouse services
and network usage software applications.
Customers generally are charged for connectivity to our SS7 network on a
monthly "per link" basis. If we provision the network facilities that provide
their connection to our network, they pay us for establishing the initial
connections that link them to our network and pay a separate monthly fee to
maintain those links. We generally price these connectivity links on a cost-plus
basis based on our facility lease costs. In addition, customers are charged for
network switching (the transmission of signaling traffic throughout the network)
based on the number of switches to which they signal.
Our intelligent network services are delivered through our network and a
substantial majority of our customers purchase both SS7 network connectivity and
intelligent network services. Our intelligent network services fall into two
general categories: database administration and database query services. In
addition to paying monthly fees for SS7 connectivity, our customers pay a per
use or per query fee for database services. For example, we price local number
portability service order administration on a per-ported number basis, and
obtain volume-based revenue for accessing the local number portability database
on a per-query basis.
Clearinghouse services are provided on a per message billed basis. Our
revenues vary based on the number of messages provided to us by
telecommunications companies and other message providers for aggregation and
distribution by us to the carrier who will bill to and collect from its
customers. Clearinghouse services are relatively mature and are experiencing
competitive pricing pressures.
Revenues from network usage software applications are derived from licenses
of our software products and continuing software maintenance fees. These
products have a long sales cycle, with each individual license normally
contributing significant revenue to the product line, approximately 50% of which
is recognized when the product is delivered and 50% when the end user approves
the product. New sales opportunities for these products in their current form
are limited, as many of the customers in the top tier market, consisting
primarily of regional Bell operating companies, have already licensed our
product. Therefore, revenues may change significantly from period to period,
depending on the mix of license and maintenance fees in any given period.
The table below indicates the portion of our revenues attributable to
network services, clearinghouse services and network usage software applications
for the three months ended September 30, 1999 and 1998 and the first nine months
of 1999 and 1998, together with the percentage change in revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ---------------------------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- -------- -------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Network services ......... $ 24,958 $ 16,053 55% $ 66,520 $ 42,653 56%
Clearinghouse services ... 1,540 1,430 8 4,592 4,893 (6)
Network usage software
applications ........... 271 1,252 (78) 773 2,775 (72)
-------- -------- -------- --------
$ 26,769 $ 18,735 43% $ 71,885 $ 50,321 43%
======== ======== ======== ========
</TABLE>
8
<PAGE> 11
EXPENSES
Our costs and expenses, which we do not attribute directly to individual
product lines, consist generally of the following:
- Carrier costs, which include recurring payments to telecommunications
carriers for leased lines and signal transfer point ports. These lines
and ports provide connections (1) between our customers and our network,
(2) among our own network locations and (3) between our network and
nearly all other SS7 networks in the United States. Cost of links and
ports to our customers is variable, relating directly to the number of
links and ports we provide to our customers. Cost of links and ports
among our own network locations and to other SS7 networks is primarily
fixed. We generally lease lines and ports under tariffs with volume
discounts;
- Operating expenses, which include the cost of providing network
services, clearinghouse services and network usage software
applications. Such costs primarily include personnel costs and hardware
and software maintenance costs to monitor and maintain our network on a
24 hour a day, seven day a week basis, maintain and operate our
databases, process our clearinghouse messages, and develop and maintain
our network usage software applications;
- Selling, general and administrative, which consist primarily of
executive and administrative personnel and professional services
expense; and
- Depreciation and amortization, which relate primarily to our installed
network equipment, our computer hardware and software, our corporate
facilities and our network usage software applications.
The table below indicates our expenses in the three months ended September
30, 1999 and 1998 and the first nine months of 1999 and 1998, together with the
percentage change in expenses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------- ------------------------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
Carrier costs ......... $ 7,369 $ 6,173 19% $20,967 $16,925 24%
Operating ............. 6,733 5,297 27 19,220 13,845 39
Selling, general and
administrative ..... 3,784 2,500 51 9,912 7,039 41
Depreciation and
amortization ....... 3,008 2,356 28 8,325 6,140 36
------- ------- ------- -------
$20,894 $16,326 28% $58,424 $43,949 33%
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
The table below indicates the results of our operations expressed as a
percentage of total revenues. The historical results are not necessarily
indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Network services .................. 93% 86% 93% 85%
Clearinghouse services ............ 6 8 6 10
Network usage software applications 1 6 1 5
---------- ---------- ---------- ----------
Total revenues ................. 100 100 100 100
Expenses:
Carrier costs ..................... 28 33 29 34
Operating ......................... 25 28 27 27
Selling, general and administrative 14 13 14 14
Depreciation and amortization ..... 11 13 11 12
---------- ---------- ---------- ----------
Total expenses ................. 78 87 81 87
---------- ---------- ---------- ----------
Operating income .................... 22 13 19 13
Interest expense, net ............... 1 1 1 1
---------- ---------- ---------- ----------
Income before income taxes .......... 21 12 18 12
Income tax provision ................ 8 5 7 5
---------- ---------- ---------- ----------
Net income .......................... 13% 7% 11% 7%
========== ========== ========== ==========
</TABLE>
9
<PAGE> 12
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES
Network services. Network services, comprised of network connectivity, which
includes message switch and transport, and intelligent network services,
revenues increased by $8.9 million, or 55%, to $25.0 million for the three
months ended September 30, 1999 from $16.1 million for the same period in 1998,
and by $23.8 million, or 56%, to $66.5 million for the nine months ended
September 30, 1999 from $42.7 million in the same period in 1998. These
increases were due to increased customer connections and signaling across our
network, substantial growth in queries processed in the line information, caller
identification or calling name delivery and toll-free databases, and the rollout
of local number portability.
Network connectivity revenues increased by $3.7 million, or 37%, to $13.4
million for the three months ended September 30, 1999 from $9.7 million for the
same period in 1998, and by $10.4 million, or 41%, to $36.0 million for the nine
months ended September 30, 1999 from $25.6 million for the same period in 1998.
Intelligent network services revenues increased by $5.3 million, or 83%, to
$11.6 million for the three months ended September 30, 1999 from $6.3 million
for the same period in 1998, and by $13.5 million, or 79%, to $30.5 million for
the nine months ended September 30, 1999 from $17.0 million for the same period
in 1998. These increases include a one-time increment to revenue of
approximately $1.0 million in the third quarter of 1999 as a result of our
internal implementation of a new system to collect billing data. During the
fourth quarter of 1998, our customer base increased and we obtained access to
additional caller information maintained in third-party databases. The remainder
of the increase is due to continued growth in local number portability.
Clearinghouse services. Clearinghouse services revenues increased by $0.1
million, or 8%, to $1.5 million for the three months ended September 30, 1999
from $1.4 million for the same period in 1998, and decreased by $0.3 million, or
6%, to $4.6 million for the nine months ended September 30, 1999 from $4.9
million for the same period in 1998. The increase for the three months ended
September 30, 1999 over the same period in 1998 was caused by the implementation
of cycle-billing system capabilities in 1998 which resulted in lower than normal
volume processing during conversion. The decrease for the nine months ended
September 30, 1999 from the same period in 1998 was caused by a continued
decline in messages processed during the period.
Network usage software applications. Network usage software applications
revenues decreased by $1.0 million, or 78%, to $0.3 million for the three months
ended September 30, 1999 from $1.3 million for the same period in 1998, and by
$2.0 million, or 72%, to $0.8 million for the nine months ended September 30,
1999 from $2.8 million for the same period in 1998. These decreases were due to
the inclusion in the 1998 periods of license fees, while revenues in the 1999
periods represented only software maintenance fees.
EXPENSES
Carrier costs. Carrier costs increased by $1.2 million, or 19%, to $7.4
million for the three months ended September 30, 1999 from $6.2 million for the
same period in 1998, and by $4.1 million, or 24%, to $21.0 million for the nine
months ended September 30, 1999 from $16.9 million for the same period in 1998.
These increases were due to the growth in leased network connectivity and link
and local access and transport area access charges incurred to support increased
customer use of our network. Local access and transport area access charges
increased significantly due to our decision to build links directly into local
access and transport areas instead of relying on third-party intermediaries.
While the cost of building direct links exceeds that of our prior arrangements,
the reliability of our network is enhanced as we gain increased link control and
monitoring capabilities. Over the reported periods, carrier costs have decreased
as percentage of revenue as network capacity has been leveraged to support
increasing revenues.
Operating. Operating expenses increased by $1.4 million, or 27%, to $6.7
million for the three months ended September 30, 1999 from $5.3 million for the
same period in 1998, and by $5.4 million, or 39%, to $19.2 million for the nine
months ended September 30, 1999 from $13.8 million for the same period in 1998.
These increases resulted mainly from higher personnel expenses related to an
expansion of the customer support, operations and engineering functions and
increased maintenance costs for new network and systems hardware and software.
Additionally, we recorded a reserve of $0.7 million for the three months ended
September 30, 1999, and $1.8 million for the nine months ended September 30,
1999 for a loss on a clearinghouse services contract. We have entered into a new
contract with this customer and recently began arbitration proceedings to settle
items in dispute under the prior contract.
10
<PAGE> 13
Selling, general and administrative. Selling, general and administrative
expenses increased by $1.3 million, or 51%, to $3.8 million for the three months
ended September 30, 1999 from $2.5 million for the same period in 1998, and by
$2.9 million, or 41%, to $9.9 million for the nine months ended September 30,
1999 from $7.0 million for the same period in 1998. These increases were
primarily due to the addition of personnel necessary to support the overall
growth of our business and an increase in the general provision for bad debts in
the three months ended September 30, 1999 to $0.6 million from $0.1 million in
1998. The increase in the bad debts provision reflects increased revenues and an
increase in emerging carrier customers with limited financial history.
Depreciation and amortization. Depreciation and amortization expenses
increased by $0.6 million, or 28%, to $3.0 million for the three months ended
September 30, 1999 from $2.4 million for the same period in 1998, and by $2.2
million, or 36%, to $8.3 million for the nine months ended September 30, 1999
from $6.1 million for the same period in 1998. These increases reflect the
significant investment made in the last 18 months for network monitoring and
data collection hardware and software, database applications, and signal
transfer point switches.
Interest expense, net. Interest expense, net decreased by $0.1 million, or
25%, to $0.2 million for the three months ended September 30, 1999 from $0.3
million for the same period in 1998, and increased by $0.1 million, or 21%, to
$0.6 million for the nine months ended September 30, 1999 from $0.5 million for
the same period in 1998. These changes reflect increased interest expense from
capital leases completed in late 1998 offset by increased interest income
beginning in mid-1999 on higher cash balances generated from operations.
Income taxes. Income tax expense increased by $1.4 million, or 155%, to $2.2
million for the three months ended September 30, 1999 from $0.8 million for the
same period in 1998, and by $2.7 million, or 119%, to $4.9 million for the nine
months ended September 30, 1999 from $2.2 million for the same period in 1998.
These increases were driven by our increase in income.
LIQUIDITY AND CAPITAL RESOURCES
We rely on a combination of cash generated from operations, commercial
borrowings, vendor financing and the issuance of debt and equity securities to
fund our operations and capital needs. Currently, our operating activities
generate positive cash flows. We anticipate continued high levels of investment
in our infrastructure over the next several years to manage increased network
volumes, to enhance customer support systems and to continue to improve network
and service reliability. Additionally, we anticipate continued investments in
the development and acquisition of new services and products related to our
network, database and clearinghouse services in order to address changing
markets and customer needs.
Our working capital (current assets in excess of current liabilities) was
$19.9 million at September 30, 1999. Our cash and cash equivalent balances
included $3.7 million required as working capital to service our clearinghouse
services customers. Clearinghouse funds are received and disbursed on a monthly
basis. The growth in working capital of $7.0 million, or 54%, from $12.9 million
at December 31, 1998, reflects the increase in accounts receivable attributable
to increased revenue and decreased payables related to our clearinghouse
services function.
Our property and equipment acquisitions were $8.6 million for the first nine
months of 1999. Expenditures for property and equipment are primarily for
network equipment to expand capacity and enhance reliability, including network
monitoring equipment and local number portability service-related assets. We
currently anticipate additional capital expenditures of approximately $8.1
million in the remainder of 1999 and approximately $25.0 million in 2000.
At September 30, 1999, we had a secured line of credit expiring August 15,
2001 with Rural Telephone Finance Cooperative ("Cooperative") that permits us,
subject to certain conditions, to borrow up to $7.3 million, not to exceed 80%
of accounts receivable. There were no borrowings against this line of credit at
that date. Additionally, at September 30, 1999, we had $3.8 million of unused
loan facilities established or committed with the Cooperative, expiring in the
years 2000 and 2001. Long-term secured notes payable to the Cooperative were
$8.3 million at June 30, 1999, with various maturity dates ranging from August
2000 to March 2015. Also, during 1999, we obtained vendor financing for capital
leases related to a purchase of $2.5 million of new network equipment and
applications to enhance monitoring, data collection and troubleshooting
capabilities.
At September 30, 1999 we had approximately $8.4 million in principal amount
and accrued interest related to outstanding 7.5% Debentures. During August,
1999, we notified our debentureholders that we would redeem all outstanding
Debentures plus accrued interest. On October 4, 1999, an additional 760,838
shares of Class A Common Stock were issued to debentureholders who elected
11
<PAGE> 14
to convert. A remaining amount of $0.1 million was paid during October for
redemption of the principal amount and accrued interest that was not converted
to Class A Common Stock.
On October 14, 1999, we completed our initial public offering and issued
4,485,000 shares of common stock and received approximately $78.3 million in
cash, net of underwriter discounts, commissions and other offering costs. This
amount is not reflected in the September 30, 1999 balance sheet.
We believe that our existing cash balances, funds generated from our
operations, borrowings available under our existing credit agreements and
proceeds from our initial public offering will be sufficient to meet our
anticipated capital expenditure and working capital needs for the foreseeable
future. However, acquisitions of complementary businesses or technologies may
require significant capital beyond our current expectations, which would require
us to issue additional equity securities and/or incur additional long-term debt.
We currently do not have any agreements, and are not involved in any
negotiations, with respect to any acquisition.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of some information and operating systems
being written using two digits rather than four to define the applicable year.
Any computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculation causing
disruptions of operations, including, among other things, a temporary inability
to process database or network transactions, send invoices or engage in similar
normal business activities.
We have conducted a comprehensive review of our hardware and software
systems to identify those systems that could be affected by the Year 2000 issue
and we have developed an implementation plan to resolve the identified issues.
Systems that interact with customers and that focus on our core business
functions of SS7 network signaling, database information and network usage
software applications have been given the highest priority. We presently believe
that with modifications or replacements of existing software and affected
hardware, updates by vendors and conversion to new software, we can avoid any
material adverse impact on our operations from the Year 2000 issue. However, if
the modifications and replacements or vendor updates are not made or are not
completed in a timely manner, the Year 2000 issue could have a material adverse
impact on our operations.
Our plan to resolve the Year 2000 issue involved the following four phases:
assessment, conversion, testing and implementation. To date, we have fully
completed our assessment of all critical systems and hardware that could be
affected by the Year 2000 issue. We have completed reprogramming and/or
upgrading the software we maintain. To date, we have completed our testing and
have implemented all of our converted systems.
We used both internal and external resources to implement our Year 2000
compliance plan. To date, we have spent $993,000 to remedy the Year 2000 issue
and at this time, do not expect to incur further significant expenditures.
Approximately 90% of these expenses were capitalized because the costs related
to Year 2000 modifications were only an incremental part of overall software and
hardware upgrades.
All non-information technology that uses or might use date sensitive
embedded software chips, such as security systems, climate controls and other
electronic devices used in daily business operations, have been inventoried and
assessed. All identified non-compliant systems have been upgraded.
Our SS7 network interfaces directly with significant third-party networks
and databases. We are currently working with these and other third-party vendors
to ensure that their systems and interfaces that are relevant to us are Year
2000 compliant by December 31, 1999. To date, we have been advised by over 85%
of our significant third-party vendors that they expect to be Year 2000
compliant by the end of 1999. In addition, we are participating with national
industry groups such as the Network Reliability and Interoperability Council and
committees of the Alliance for Telecommunications Industry Solutions to assess
Year 2000 network reliability and we will continue to monitor the compliance of
our third-party vendors. Failure to address the Year 2000 issue by a third-party
on whom our systems or services rely could have a material adverse impact on us
or our customers.
We believe the necessary programs are in place for a smooth Year 2000
transition. However, unanticipated problems may arise and we may be unable to
operate our SS7 network or informational databases. Additionally, we could be
subject to litigation for product or service failure. We cannot reasonably
estimate at this time the amount of our potential liability and lost revenue.
12
<PAGE> 15
We are in the process of completing our contingency plans. To date we have
completed identifying teams to be on call during the change in year to monitor
our network, critical systems, operations centers and business processes, and
have completed developing data retention and recovery procedures for critical
business data. During the fourth quarter of 1999, we plan to complete reviewing,
assessing and updating existing business recovery plans, developing alternate
processes to support critical customer functions, and developing alternatives
for critical suppliers that fail to meet Year 2000 compliance commitment
schedules.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires capitalization of certain costs incurred in
connection with developing or obtaining internal use software. In April 1998,
the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities." SOP
98-5 requires that all start-up costs related to new operations must be expensed
as incurred. The provisions of SOP 98-1 and SOP 98-5 were adopted in 1999 and
are generally consistent with our past accounting policies and, therefore, there
has been no material impact on our financial condition or operating results.
FORWARD LOOKING STATEMENTS
Certain information included in this document may be deemed to be "forward
looking statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act. All statements of historical facts,
that address activities, events or developments that Illuminet intends, expects,
projects, believes or anticipates will or may occur in the future are forward
looking statements. Such statements are characterized by terminology such as
"believe," "anticipate," "should," "intend," "plan," "will," "expects,"
"estimates," "projects," "positioned," "strategy," and similar expressions.
These statements are based on assumptions and assessments made by Illuminet's
management in light of its experience and perception of historical trends,
current conditions, expected future developments and other factors it believes
to be appropriate. These forward looking statements are subject to a number of
risks and uncertainties, including but not limited to our ability to provide
reliable services, ability of third-party communications infrastructure
suppliers to maintain operational integrity of our connections and to continue
to provide and expand service to us, our ability to efficiently and cost
effectively acquire and integrate complementary businesses and technologies,
continued acceptance of our SS7 network and the telecommunications market's
continuing use of SS7 technology, our ability to attract and retain employees
with requisite skills to execute our growth plans, and the impact of the Year
2000 issue. All written and oral forward looking statements made in connection
with this Form 10-Q which are attributable to Illuminet or persons acting on its
behalf are expressly qualified in their entirety by "Risk Factors" and other
cautionary statements and disclosures regarding Illuminet's business included
herein and in Illuminet's Registration Statement on Form S-1 (File No.
333-85779) filed on August 23, 1999, as amended on September 16, 1999 and
October 7, 1999. Illuminet disclaims any obligation to update information
contained in any forward looking statement.
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk
Our market risks relate primarily to changes in interest rates. We are
exposed to this risk in two specific ways. First, we have debt outstanding. Our
secured notes payable to the Cooperative, which had average borrowings of $11.0
million during 1998 and was $10.6 million at the end of 1998 had a variable
interest rate, which exposed our income statement and cash flows to changes in
interest rates. The rate of these secured notes is based on the lender's cost of
funds. We also have a variable rate revolving line of credit for up to $7.3
million that has not been used. The interest rate on this line of credit is
based on the prevailing bank prime rate plus a margin of one and one-half
percent per year. The lender may, at its discretion, fix a lower rate from time
to time. If market interest rates were to increase immediately and uniformly by
10% from levels at September 30, 1999, our net income and cash flows would
decrease by an immaterial amount.
The second component of interest rate risk involves the short-term
investment of excess cash. Such risk affects fair values, earnings and cash
flows. Excess cash is primarily invested in overnight repurchase agreements
backed by U.S. government securities. These are considered to be cash
equivalents and are shown that way on our balance sheet. Our average balance in
those securities was approximately $10.6 million over the past year.
13
<PAGE> 16
Earnings from these cash equivalents totaled $0.5 million for the year ended
December 31, 1998.
Approximately 17% of our total expenses in 1998 were related to access lines
that we lease for our customers. These charges are set by tariff. To date, we
have been able to pass through changes in these charges to our customers. At
this point in time, our operations outside of the United States are immaterial.
Accordingly, we are not exposed to substantial risks arising from foreign
currency exchange rates.
PART II
OTHER INFORMATION
ITEM 1: Legal Proceedings
We are a party to various legal proceedings arising in the ordinary course
of business. We do not believe that those claims, individually or combined, will
have a material adverse effect on our business, financial condition or operating
results.
ITEM 2: Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) On September 16, 1999, 10,000 shares of Class A Common Stock were issued
to a former employee upon exercise of options. The aggregate consideration
for such shares was $88,000. The issuance was exempt pursuant to Rule 701 as
a transaction pursuant to a compensatory benefit plan.
On October 4, 1999, Illuminet issued 760,838 shares of Class A Common
Stock upon the conversion of certain Debentures. On October 14, 1999,
simultaneously with the closing of the initial public offering, all Series A
Preferred Stock was automatically converted into 204,941 shares of Class A
Common Stock. These issuances were exempt pursuant to Section 3(a)(9) as
exchange transactions.
(d) Illuminet's registration statement (File No. 333-85779) under the
Securities Act of 1933, as amended, for its initial public offering became
effective on October 7, 1999. The offering commenced on October 7, 1999 and
was completed, with all securities sold, on October 14, 1999. Illuminet
registered and sold 4,485,000 shares of common stock for an aggregate
offering price of approximately $85.2 million. The net proceeds, after
deducting underwriting discounts and commissions of approximately $6
million, and aggregate offering expenses estimated at $0.9 million, were
approximately $78.3 million. These payments were direct payments to persons
other than officers, directors, affiliates or persons owning 10%, or more,
of the securities of Illuminet. The managing underwriters for the offering
were Morgan Stanley Dean Witter, BancBoston Robertson Stevens, and
Donaldson, Lufkin & Jenrette.
Illuminet expects to use the net offering proceeds to fund potential
acquisitions, to develop new and improved services, to maintain and expand
its network and for general corporate purposes. To date, none of the net
proceeds from the initial public offering have been disbursed.
ITEM 3: Defaults Upon Senior Securities
None.
ITEM 4: Submission of Matters to a Vote of Security Holders
At a Special Meeting of Stockholders of Illuminet Holdings, Inc.
("Illuminet") held on September 9, 1999, the following numbers of votes were
cast for the matters indicated:
14
<PAGE> 17
1. Proposal to amend Illuminet's Certificate of Incorporation to authorize
capital stock, to establish a new class of common stock designated as
Class A Common Stock, and to provide that all common stock outstanding
on the date of the amendment shall be reclassified into Class A Common
Stock:
<TABLE>
<CAPTION>
Broker
Stock Class For Against Abstain Non-Vote
----------- --- ------- ------- --------
<S> <C> <C> <C> <C>
Common 3,050,353 7,889 0 2,308,488
Series A Preferred 1,086 1 0 601
</TABLE>
2. Proposal to amend Illuminet's Certificate of Designations of Illuminet's
Series A Convertible Preferred Stock to provide that the Series A
Convertible Preferred Stock is convertible into Class A Common Stock:
<TABLE>
<CAPTION>
Broker
Stock Class For Against Abstain Non-Vote
----------- --- ------- ------- --------
<S> <C> <C> <C> <C>
Common 3,050,353 7,889 0 2,308,488
Series A Preferred 1,086 1 0 601
</TABLE>
3. Proposal to amend Illuminet's Certificate of Incorporation to classify
the board of directors into three classes, each with a term of three
years:
<TABLE>
<CAPTION>
Broker
Stock Class For Against Abstain Non-Vote
----------- --- ------- ------- --------
<S> <C> <C> <C> <C>
Common 3,050,353 7,889 0 2,308,488
Series A Preferred 1,086 1 0 601
</TABLE>
ITEM 5: Other Information
None.
ITEM 6: Exhibits and Reports on Form 8-K
(a) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K
Exhibit 27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1999.
15
<PAGE> 18
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.
ILLUMINET HOLDINGS, INC.
Date: November 12, 1999 By: /s/ Daniel E. Weiss
--------------------------------------------
Daniel E. Weiss, Chief Financial Officer,
Secretary (Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 16,442
<SECURITIES> 0
<RECEIVABLES> 33,148
<ALLOWANCES> (2,358)
<INVENTORY> 0
<CURRENT-ASSETS> 48,241
<PP&E> 93,164
<DEPRECIATION> (48,679)
<TOTAL-ASSETS> 96,362
<CURRENT-LIABILITIES> 28,389
<BONDS> 19,888
0
0
<COMMON> 54
<OTHER-SE> 44,602
<TOTAL-LIABILITY-AND-EQUITY> 96,362
<SALES> 0
<TOTAL-REVENUES> 71,885
<CGS> 0
<TOTAL-COSTS> 58,424
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 738
<INTEREST-EXPENSE> 593
<INCOME-PRETAX> 12,868
<INCOME-TAX> 4,890
<INCOME-CONTINUING> 7,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,978
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.26
</TABLE>
