<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 000-21755
MASTECH CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1802235
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1004 McKee Road 15071
Oakdale, Pennsylvania (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (412) 787-2100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the registrant's Common Stock, par value $0.01 per
share, outstanding as of April 30, 1999 was 50,357,171.
<PAGE>
MASTECH CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION 3
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF
INCOME FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1999 AND MARCH 31,1998 3
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998 4
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF
SHAREHOLDERS' EQUITY AS OF MARCH 31, 1999 5
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS FOR EACH OF THE THREE MONTH PERIODS
ENDED MARCH 31, 1999 AND MARCH 31, 1998 6
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS 7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
EXHIBIT INDEX 21
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MASTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
1999 1998 (1)
---- --------
<S> <C> <C>
Revenues $ 121,377 $ 83,749
Cost of revenues 81,562 56,882
----------------- -----------------
Gross profit 39,815 26,867
Selling, general and administrative 22,621 15,887
----------------- -----------------
Income from operations 17,194 10,980
Interest income (542) (673)
Merger-related expenses 1,727 -
----------------- -----------------
Income before income taxes 16,009 11,653
Provision for income taxes 5,905 4,667
----------------- -----------------
Net income $ 10,104 $ 6,986
================= =================
Net income per common share, basic and diluted $ 0.20 $ 0.14
================= =================
</TABLE>
(1) Restated for pooling of interests transaction. (See Note 5.)
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
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MASTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 (1)
----------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (cost approximates market value) $ 27,855 $ 35,493
Investments 46,934 47,153
Accounts receivable, net 79,140 73,313
Unbilled receivables 19,948 12,261
Prepaid and other assets 7,202 8,484
Deferred income taxes 1,149 2,312
----------- ------------
Total current assets 182,228 179,016
Equipment and leasehold improvements, net 18,824 17,234
Intangible assets, net 29,745 21,208
----------- ------------
Total assets $ 230,797 $ 217,458
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,101 $ 8,523
Accrued payroll and related costs 27,181 29,367
Other accrued liabilities 12,781 10,292
Deferred revenue 11 723
Accrued income taxes 2,372 -
----------- ------------
Total current liabilities 51,446 48,905
Other long term liabilities 5,211 4,563
Deferred income taxes 3,640 5,455
Shareholders' equity:
Preferred Stock, without par value - -
Common Stock, par value $0.01 per share 503 502
Additional paid-in capital 113,451 111,508
Retained earnings 57,200 47,096
Accumulated other comprehensive income (654) (571)
----------- ------------
Total shareholders' equity 170,500 158,535
----------- ------------
Total liabilities and shareholders' equity $ 230,797 $ 217,458
=========== ============
</TABLE>
(1) Restated for pooling of interests transaction. (See Note 5.)
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
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MASTECH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Stock Series A Preferred Paid-in Retained Comprehensive Shareholders'
Shares Par Value Shares Par Value Capital Earnings Income Equity
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 (1) 50,236,080 $ 502 1 - $111,508 $ 47,096 $ (571) $ 158,535
Exercise of stock options,
includes effect of tax
benefit recognized 110,159 1 - - 1,943 - - 1,944
Comprehensive income:
Net unrealized loss
on investments - - - - - - (73) (73)
Currency translation
adjustment - - - - - - (10) (10)
Net income - - - - - 10,104 - 10,104
-----------------------------------------------------------------------------------------------
Balance, March 31, 1999 50,346,239 $ 503 1 - $113,451 $ 57,200 $ (654) $ 170,500
===============================================================================================
<CAPTION>
Comprehensive
Income
-------------
<S> <C>
Balance, December 31, 1998 (1)
Exercise of stock options,
includes effect of tax
benefit recognized
Comprehensive income:
Net unrealized loss
on investments $ (73)
Currency translation
adjustment (10)
Net income 10,104
-----------
$ 10,021
===========
Balance, March 31, 1999
</TABLE>
(1) Restated for pooling of interests transaction. (See Note 5.)
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
MASTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998 (1)
---- -------
<S> <C> <C>
Net cash flows provided by (used in) operations $ 2,111 $ (337)
Cash flows from investing activities
Acquisitions, net of cash acquired (9,055) (48)
Additions to equipment and leasehold improvements (2,774) (2,289)
Other 146 -
------------ -------------
Net cash flows used in investing activities (11,683) (2,337)
Cash Flows from financing activities
Proceeds from exercise of stock options 1,944 2,190
Other (10) 749
------------ -------------
Net cash flows provided by financing activities 1,934 2,939
Net change in cash and cash equivalents (7,638) 265
Cash and cash equivalents, beginning of period 35,493 83,152
------------ -------------
Cash and cash equivalents, end of period $ 27,855 $ 83,417
============ =============
</TABLE>
(1) Restated for pooling of interests transaction. (See Note 5.)
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements included
herein have been prepared by Mastech Corporation (the "Company") in accordance
with generally accepted accounting principles for the interim financial
information and Article 10 of Regulation S-X under the Securities Exchange Act
of 1934, as amended. The consolidated condensed financial statements as of and
for the quarter ended March 31, 1999 should be read in conjunction with the
Company's consolidated financial statements (and notes thereto) included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Accordingly, the accompanying consolidated condensed financial statements do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, all adjustments considered necessary for a fair
presentation of the accompanying consolidated condensed financial statements
have been included, and all adjustments are of a normal and recurring nature.
All significant intercompany accounts and transactions have been eliminated in
consolidation. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
As discussed in Note 5, on January 4, 1999, the Company acquired all of the
issued and outstanding capital stock of the Amber Group. The transaction was
accounted for as a pooling of interests and, accordingly, the Company's
historical consolidated condensed financial statements have been restated to
include results for Amber for all periods presented.
The use of generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. INVESTMENTS
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". The Company has determined that all of its
investments are to be classified as available-for-sale and recorded at fair
value.
7
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3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1999 1998
---- -----
<S> <C> <C>
Basic earnings per share:
Net income $ 10,104 $ 6,986
============ =============
Divided by:
Weighted average common shares 50,313,932 49,983,168
============ =============
Basic earnings per share $0.20 $0.14
============ =============
Diluted earnings per share:
Net income $ 10,104 $ 6,986
============ =============
Divided by the sum of:
Weighted average common shares 50,313,932 49,983,168
Dilutive effect of common stock equivalents 736,068 881,832
------------ -------------
Diluted average common shares 51,050,000 50,865,000
============ =============
Diluted earnings per share $0.20 $0.14
============ =============
</TABLE>
4. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. Companies may also
implement the Statement as of the beginning of any fiscal quarter after issuance
(that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS No. 133
cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the company's election, before January 1, 1998).
The Company has not yet quantified the impacts of adopting SFAS No. 133 on its
financial statements and have not determined the timing of or method of adoption
of SFAS No. 133. The Company does not significantly participate in derivative
contracts or participate in contracts with derivative instruments embedded in
other contracts; however, the statement may increase volatility in earnings and
other comprehensive income.
8
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5. BUSINESS COMBINATIONS
Purchases
- ---------
The following is a discussion of the Company's acquisitions accounted for as
purchases. Operating results for each of the respective acquisitions have been
included in the Company's operations since the date of acquisition. Pro forma
disclosure regarding these purchase acquisitions have not been provided because
they are not material to the operations of the Company. On January 29, 1999,
the Company acquired Global Resource Management ("GRM"), located in
Jacksonville, Florida. On January 9, 1999, the Company acquired Direct
Resources Scotland Limited ("Direct Resources"), of Edinburgh, Scotland.
The GRM and Direct Resources acquisitions had combined revenues of approximately
$15.7 million for the year ended December 31, 1998. Additionally, the assets of
these two companies as of December 31, 1998 were approximately $3.2 million.
The excess of purchase price over the fair value of net assets acquired will be
recorded as goodwill and will amortized over a thirty-year life using the
straight-line method. Future payments for each acquisition will be made based
upon an agreed upon calculation for the years ending 1999 and 2000. The
aggregate amount of these payments related to these independent agreements will
not exceed $2.9 million.
On October 26, 1998, the Company acquired International MIS, Inc. ("IMIS"),
located in San Francisco, California. On July 1, 1998, the Company acquired MC
Computer Services Pty Limited ("MCCS") of Canberra, Australia. As part of these
two independent agreements, an agreed upon amount was recorded as a long-term
liability which represents the unpaid purchase price related to these
acquisitions. Additionally, goodwill has been recorded for these two purchases
and will be adjusted based upon the finalization of the fair value studies of
assets acquired and may be adjusted based upon future payments. Any such
adjustments will not materially affect the overall financial position or results
of operations of the Company. Future payments will be made based upon an agreed
upon calculation for the years ending 1999, 2000 and 2001. Future payments will
not exceed $8.0 million under the terms of one agreement.
Pooling of Interests
- --------------------
From June 1, 1998 to March 31, 1999, the Company consummated the following
business combinations accounted for as pooling of interests:
On January 5, 1999 the Company acquired all the issued and outstanding stock of
the Amber Group ("Amber") in exchange for 1,095,001 of the Company's common
stock. The revenues related to Amber were $10.5 million as of December 31,
1998. The Company's consolidated condensed financial statements have been
restated to include results for Amber for all periods presented. In connection
with the merger, the Company incurred approximately $1.7 million of merger
related costs which were expensed in the first quarter of 1999.
On June 1, 1998, the Company acquired all of the issued and outstanding stock of
Quantum Information Resources Limited ("Quantum"), a Canadian corporation, in
exchange for 1,623,000 shares of the Company's Common Stock. PNC Bank, National
Association, acting as trustee for the shareholders of Quantum received 1 share
of Series A Preferred Stock pursuant to the merger. The Company's consolidated
condensed financial statements have been restated to include results for Quantum
for all periods presented. In connection with the merger, the Company incurred
approximately $3.2 million of merger related costs which were expensed in second
quarter of 1998.
6. SEGMENT INFORMATION
The Company is a provider of IT services, and is organized into office locations
throughout the world. The Company has three reportable segments: the U.S.
Client Services group, the High Value Services group, and the International
Client Services group. The chief operating decision-makers evaluate each
segment's performance based primarily on their
9
<PAGE>
revenues, gross margin and operating income. The accounting policies of the
operating segments are the same as those of the entire Company.
The following table summarizes selected financial information of the Company's
operations by segment:
(dollars in thousands)
<TABLE>
<CAPTION>
U.S. High International
Client Value Client Corporate
Three Months Ended March 31, 1999 Services Services Services Activities (1) Total
- ---------------------------------------- ---------------- ---------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 42,051 $ 50,420 $ 30,133 $ - $ 122,604
Intersegment sales - (1,227) - - (1,227)
---------------- ---------------- --------------- ---------------- -------------
Reported revenues 42,051 49,193 30,133 - 121,377
---------------- ---------------- --------------- ---------------- -------------
Expenses - - - 111,273 111,273
---------------- ---------------- --------------- ---------------- ------------
Net income $ 10,104
=============
</TABLE>
<TABLE>
<CAPTION>
U.S. High International
Client Value Client Corporate
Three Months Ended March 31, 1998 Services Services Services Activities (1) Total
- ---------------------------------------- ---------------- ---------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 33,179 $ 29,282 $ 22,214 $ - $ 84,675
Intersegment sales - (926) - - (926)
---------------- ---------------- --------------- ---------------- -------------
Reported revenues 33,179 28,356 22,214 - 83,749
---------------- ---------------- --------------- ---------------- -------------
Expenses - - - 76,763 76,763
---------------- ---------------- --------------- ---------------- -------------
Net income $ 6,986
=============
</TABLE>
(1) Corporate activities include all general and selling expenses as well as
merger-related expenses. This line item also includes interest income and
other unallocated charges. Since all expenses have not been allocated to
the business segments, this basis is not necessarily a measure computed in
accordance with generally accepted accounting priniciples and may not be
comparible to other companies.
There have been no material changes in total assets from the amount disclosed in
the 1998 annual report on Form 10-K. Additionally, there have been no changes
to the basis of measurements of segments between the 1998 annual report on Form
10-K and the first quarter 1999.
7. MERGER-RELATED EXPENSES
In connection with the acquisition of Amber, $1.7 million or $0.03 per share of
merger-related costs and expenses were incurred and have been charged to expense
in the first quarter of 1999. These expenses consisted primarily of severance
payments, office closures, and related professional fees. The Company assessed
its workforce as part of the acquisition of Amber and concluded that the
additional layer of management that would have been formed was not consistent
with the Company's long-range business plan.
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Mastech Corporation:
We have reviewed the accompanying consolidated condensed balance sheet of
Mastech Corporation (a Pennsylvania Corporation) and subsidiaries as of March
31, 1999, and the related consolidated condensed statements of income,
shareholders' equity and cash flows for the three month periods ended March 31,
1999 and 1998. These consolidated condensed financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Mastech Corporation and
subsidiaries as of December 31, 1998, (not presented herein) prior to the
restatement of the consolidated balance sheet in connection with the pooling of
interests transaction described in Note 1, and, in our report dated February 9,
1999, we expressed an unqualified opinion on that statement. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1998, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/S/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
April 30, 1999
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Part I, Item 2 of this report should be read in conjunction with Part II, Item 7
of Mastech's Annual Report to the United States Securities and Exchange
Commission ("SEC") on Form 10-K for the year ended December 31, 1998. The
information contained herein is not a comprehensive management overview and
analysis of the financial condition and results of operations of the Company,
but rather updates disclosures made in the aforementioned filing. The following
discussion should also be read in conjunction with the consolidated condensed
financial statements and notes thereto appearing elsewhere in this report. As
used herein, "Mastech" or the "Company" shall mean Mastech Corporation and each
of its consolidated subsidiaries.
This Form 10-Q contains certain "forward-looking statements" (statements which
are not historical facts) such as statements about future financial performance,
capital expenditures, liquidity sources and needs, the Year 2000 ("Y2K") problem
and certain other operations matters. Words or phrases denoting the anticipated
results of future events--such as "anticipate," "believe," "estimate," "expect,"
"will likely," "are expected to," "will continue," "project," and similar
expressions that denote uncertainty--are intended to identify such forward-
looking statements. These forward-looking statements are subject to several
risks and uncertainties, and the Company's actual future results may differ
significantly from those stated in any forward-looking statements. While it is
impossible to identify each factor and event that could affect the Company's
results, variations in the Company's revenues and operating results occur from
time to time as a result of a number of factors, such as the significance of
client engagements commenced and completed during a quarter or a year, the
number of working days in a quarter or a year, employee hiring, retention, and
utilization rates, acceptance and profitability of the Company's services in new
territories, integration of companies acquired, competition, general economic
conditions and economic conditions specific to the information technology
industry, which are discussed in Mastech's 1998 Annual Report to the SEC
Form 10-K under the caption "Risk Factors". Many of these factors are beyond the
Company's ability to predict or control. As a result of these and other factors,
quarterly revenues and operating results are difficult to forecast, and the
Company may experience significant quarterly and yearly variations in operating
results.
OVERVIEW
Mastech Corporation was incorporated in Pennsylvania on November 12, 1996.
Mastech Systems, a Pennsylvania corporation through which the business of the
Company has been conducted since its inception in July 1986, is an indirect,
wholly owned subsidiary of the Company. In December 1996, Mastech completed the
initial public offering of its Common Stock, and in December 1997, completed a
secondary offering of its Common Stock. Subsequent to the initial public
offering, Mascot Systems and Scott Systems, both of which are corporations
organized under the laws of India, became wholly owned subsidiaries of Mastech
Systems.
Mastech's revenues are derived from fees paid by clients for professional
services. Historically, a substantial majority of the Company's projects have
been client-managed. On client-managed projects, Mastech provides professional
services as a member of the project team on a time-and-materials basis. The
Company recognizes revenues on time-and-materials projects as the services are
performed. On Mastech-managed projects, Mastech assumes responsibility for
project management and bills the client on a time-and-materials or fixed-price
basis. Revenues on fixed-price contracts are recognized by the percentage of
completion method. Revenues generated through offshore software development
centers on U.S. Client engagements are included in U.S. revenues.
Mastech's most significant cost is its personnel expense, which consists
primarily of salaries and benefits of the Company's billable personnel. The
number of information technology ("IT") professionals assigned to projects may
vary depending on the size and duration of each engagement. Moreover, project
terminations, project completions and scheduling delays may result in periods
when personnel are not assigned to active projects. Mastech manages its
personnel costs by closely monitoring client needs and basing personnel
increases on specific project engagements. While the number of IT professionals
may be adjusted to reflect active projects, the Company must maintain a
sufficient number of professionals to respond to demand for the Company's
services on both existing projects and new engagements.
12
<PAGE>
The Company has incurred significant incremental expenses to help ensure that
the Company has both an adequate number of skilled IT professionals and the
infrastructure necessary to sustain the Company's growth. These expenditures
were incurred in connection with: (i) the development and launch of
additional service offerings, including E-Business and Enterprise Network
Solutions; (ii) the establishment of a recruiting division to recruit IT
professionals in the U.S. and worldwide; (iii) the opening of foreign sales
offices to provide better access to the global market; (iv) the development of
three offshore software development centers in India; (v) the hiring of
additional managers to support a larger organization; (vi) the relocation of the
Company's headquarters to larger, more efficient office space; and (vii) the
establishment of a training center to improve the skill levels of new and
current employees. While these expenses have increased the Company's selling,
general and administrative expenses, the Company believes that the revenues
expected to be derived as a result of these expenditures have not yet been fully
realized.
Mastech sells its services to large and medium-sized organizations. The
Company's sales force is organized to meet the needs of the marketplace through
three primary groups: (i) the U.S. Client Services group; (ii) the High Value
Services group; and (iii) the International Client Services group.
The U.S. Client Services group is divided into geographic regions, each of which
is directed by a Manager or Regional Director. Each region includes multiple new
business development managers. These individuals use a proprietary database of
several thousand prospects to telemarket Mastech's services nationally. The
Company subsequently sends interested prospective clients a written proposal
providing information about the Company, its approach and methodology,
schedules, team members, pricing and terms.
The U.S. Client Services group also focuses on developing national and global
relationships with major systems integrators such as EDS, IBM, KPMG, Ernst &
Young and Oracle. Mastech assists these integrators in meeting their customers'
needs by providing specialized technical expertise and complementary
capabilities such as offshore development.
The High Value Services group provides IT professionals trained in ERP
implementations, E-business consulting, network services, and Year 2000
services, in addition to managing engagements in the aforementioned services.
Additionally, this group provides services through offshore software development
centers which are connected via secure, high-speed satellite links to the
Company's headquarters and client sites. This group works directly with the end-
user clients and also partners with a wide array of software companies, ranging
from ERP to supply-chain and custom-interaction vendors, and systems integrators
on teamed implementation efforts.
The International Client Services group operates through offices in nine
different countries. Each office is supervised by a Country Manager and
supported by dedicated sales personnel who sell directly to new clients using an
approach similar to the Company's U.S. sales approach. Additionally, these
offices focus on leveraging Mastech's existing relationships with its U.S.-based
multinational clients.
Financial results for the three months ended March 31, 1998 have been restated
to reflect the acquisitions of Quantum and Amber in business combinations that
were accounted for as a pooling of interests.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED
WITH THE THREE MONTHS ENDED MARCH 31, 1998
Revenues. The Company's revenues increased 44.9%, or $37.6 million, to
$121.4 million in the first quarter of 1999 from $83.7 million in the first
quarter of 1998. Of this continued growth in revenues, the U.S. Client Services
group, High Value Services group, and the International Client Services group
contributed $8.9 million, $20.8 million and $7.9 million, respectively, to this
increase. The increases in the U.S. Client Services group and High Value
Services group can be attributed to additional services provided to existing
clients and continued market penetration. The increase in the International
Client Services group is primarily the result of the continued increase in
market penetration in Australia and Europe.
Gross Profit. Gross profit consists of revenues less cost of revenues.
Cost of revenues consists primarily of salaries and employee benefits for
billable IT professionals and the associated travel and relocation costs of
these professionals, as
13
<PAGE>
well as the cost of the independent contractors used by the Company. Gross
profit increased 48.2%, or in $12.9 million to $39.8 million in the first
quarter of 1999 from $26.9 million in the first quarter in 1998. Gross profit as
a percentage of revenues increased to 32.8% in the first quarter of 1999 from
32.1% in the first quarter of 1998. The primary reason for the increase in gross
profits as a percentage of revenues was higher margins in the High Value
Services and U.S. Client Services groups. The number of IT professionals
(including independent contractors) used by the Company increased 28% to over
5,000 as of March 31, 1999 from approximately 3,900 as of March 31, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses consist of costs associated with the Company's
sales and marketing efforts, executive management, finance and human resource
functions, facilities and telecommunication costs and other general overhead
expenses. Selling, general and administrative expenses increased 42.4%, or $6.7
million, to $22.6 million in the first quarter of 1999 from $15.9 million in the
first quarter of 1998. The increase in selling, general and administrative
expenses reflects the Company's continued investment in infrastructure and in
the initiatives required to implement the Company's marketing strategies. These
costs include the development of additional service offerings, the expansion of
its global recruiting capabilities, the opening of additional international
offices, the establishment of training centers and the continued expansion of
its offshore software development centers. As a percentage of revenues, selling,
general and administrative expenses decreased to 18.6% for the first quarter of
1999 from 19.0% in the first quarter of 1998. This decrease is a result of the
Company's continued monitoring of its SG&A costs and expenses.
Merger Related Expenses. The Company incurred $1.7 million of merger-
related related expenses in connection with the Amber acquisition during the
first quarter of 1999. These expenses consisted primarily of severance payments,
office closures, and related professional fees. There were no merger related
expenses in the three months ended March 31, 1998.
Interest and Other (Income) Expense, Net. Other income was $542,000 in
the first quarter of 1999 compared to other income of $673,000 in the first
quarter of 1998. This decrease of $131,000 in other income was the result of a
slight reduction in the levels of cash held as investments.
Income taxes. Provision for income taxes was $5.9 million, or an
effective tax rate of 36.9% for the first quarter ended March 31, 1999 compared
to $4.7 million, or an effective tax rate of 40.0% for the quarter ended March
31, 1998. The primary factors contributing to the reduction in the effective tax
rate included a reduction in state income taxes and foreign income taxes, tax-
exempt interest income generated by the Company's municipal bond portfolio and
the tax holiday for the Company's Indian operations, offset by the effect of
non-deductible one-time acquisition charges.
Outlook. The Company believes that the IT services industry remains
strong and growth oriented. Furthermore, the Company believes that the breadth
of the services and solutions that it offers positions it to continue to
increase its revenues and operating profits in 1999. The Company anticipates
that it will experience a shift in the demand for certain of its services in
1999 as a result of Year 2000 (Y2K) related factors. Although Y2K related
projects represented only 10% of Company revenues for the year ended 1998, the
Company believes that as customers focus on completing their Y2K readiness
efforts in 1999, the demand for other IT services may be affected. The Company's
percentage of revenues related to Y2K fell to 8% of total revenues for the first
quarter of 1999. The Company believes that the percentage of revenues derived
from Y2K will continue to decline, as a percentage of total revenues, for the
remainder of 1999. Reductions or shifts in the timing or demand for Company
services could result in fluctuations in the Company's quarterly revenues or
operating results and could result in differences between actual and expected
results.
In order to meet client demand for the Company's services, the Company expects
to continue to increase its professional staff and may open additional sales and
operations offices in North America and internationally. Although the Company's
plans to hire personnel and to possibly open additional offices are in response
to increased demand for the Company's services, a portion of these expenses will
be incurred in anticipation of increased demand. Operating results and liquidity
may be adversely affected if market demand and revenues do not increase as
anticipated. As the Company expands its international operations, a number of
factors, including market acceptance of the Company's services, significant
fluctuations in currency exchange rates, and changes in general economic,
political, and regulatory conditions, could adversely affect future results and
liquidity.
14
<PAGE>
Liquidity and Capital Resources
The Company continued to generate cash flow from operations to fund its business
growth. The Company has continued to operate primarily debt free while
enhancing its working capital position. At March 31, 1999, the Company had cash
and short-term investments of $74.8 million, consisting of cash of $27.9 million
and short-term investments of $46.9 million. This compares to cash and short-
term investments of $82.6 million, consisting of cash of $35.5 million and
short-term investments of $47.1 million at December 31, 1998. Cash provided by
operating activities was $2.1 million for the three months ended March 31, 1999
as compared to cash used by operating activities of $337,000 for the three
months ended March 31, 1998. The increase of $2.4 million resulted from
increases in net income, accrued liabilities, and decreases in prepaid assets
due to increasing focus on cash management.
At March 31, 1999, the Company's days sales outstanding ("DSO") was 73 compared
to 70 DSO at December 31, 1998. The December 31, 1998 DSO has been restated to
reflect the acquisition of Amber. This increase was primarily a result of the
acquisitions of companies with higher DSO. The Company continues to focus on
collecting on its receivables, involving several management departments.
Cash used in investing activities was $11.6 million for the three months ended
March 31, 1999. Acquisitions, net of cash acquired totaled approximately $9.1
million. Capital expenditures for the three months ended March 31, 1999 and 1998
were approximately $2.8 million and $2.3 million, respectively. These capital
expenditures consisted primarily of computer and related equipment to support
its technical, consulting and administrative functions.
Cash provided by financing activities was $1.9 million for the three months
ended March 31, 1999, mainly due to the proceeds from the exercise of employee
stock options.
The Company has in place a $75.0 million revolving credit facility with PNC
Bank, National Association ("the Credit Facility"). This Credit Facility bears
interest at a rate per annum equal to a base rate (which is adjusted by a change
in the prime rate or the Federal Funds Effective Rate at the Company's option)
that is equal to the sum of the Euro-rate plus an applicable Euro-rate margin.
The Credit Facility contains certain restrictive covenants and financial ratio
requirements which would limit distributions to shareholders and additional
borrowings. There were no borrowings outstanding under this arrangement at
March 31, 1999 or at December 31, 1998.
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented. On an ongoing basis,
the Company attempts to minimize any effects of inflation on its operating
results by controlling operating costs and, whenever possible, seeking to insure
that billing rates reflect increases in costs due to inflation.
Management believes that the Company will be able to meet its liquidity and cash
needs for the next twelve months through a combination of cash flows from
operating activities, cash balances and unused borrowing capacities (see above).
The Company generally invoices its clients in the local currency of the country
in which the client is located. The functional currency of the international
offices and foreign subsidiaries is the currency of the country in which the
office or subsidiary is located. Translation gains and losses arising from
differences between the functional and billing currencies are recognized in the
consolidated condensed income statements and have not had a significant impact
on the results of operations. Gains and losses as a result of fluctuations in
foreign currency exchange rates are recognized in shareholders' equity as a
component of comprehensive income. The Company continually evaluates the
economic conditions of each country in which it operates and bases its foreign
currency accounting policies on those assessments.
Year 2000 ("Y2K")
The Y2K problem refers to problems which may occur because some computer systems
currently record years in a two-digit format. These computer systems may have
difficulty recognizing or processing date information after December 31,
15
<PAGE>
1999. The Y2K problem may also occur with embedded chips. The Company has been
working to evaluate the potential effect of the Y2K problem on the Company's
operations.
Internal Systems
The Company developed a plan to evaluate its key internal computer systems. The
plan consisted of the following four phases: Inventory; Evaluation/Assessment of
Y2K Risk; Remediation and Testing. The Company has completed all phases of
evaluation for the internal financial and operational systems located at the
corporate headquarters of the Company. Based upon written documentation and
information available on vendor websites, certain testing procedures for
business critical hardware and software were developed and implemented by the
Company. An independent third party reviewed both vendor information and testing
results and conducted other tests to validate work performed. As a result of
this, the Company does not believe that the internal computer systems at its
corporate headquarters will experience significant Y2K problems.
The Company has also completed the evaluation of the internal financial and
operational systems of its other U.S. locations and international operations,
excluding certain systems involving operations of companies recently acquired by
the Company. The Company is currently evaluating the internal financial and
operational systems of the companies recently acquired and expects to complete
this evaluation by June 30, 1999.
Cost of Year 2000 Compliance Efforts
The Company does not expect to incur substantial costs with respect to its Y2K
compliance efforts and the Company has not deferred other information technology
projects as a result of the Y2K problem. To date, the Company has incurred
expenses totaling $124,000 and anticipates that its total expenses will not
exceed $250,000 These figures are primarily reflective of the costs associated
with the use of third parties to review and validate work performed and the
costs assessing Y2K problems relating to or arising with respect to third
parties. The cost estimates do not include the cost of internal efforts by
Company personnel. The Company has not separately accounted for these internal
costs.
Third Party Relationships
The Company has contacted its key vendors regarding their Y2K compliance
efforts. Although the Company has received some information from its vendors
regarding their Y2K compliance efforts, there can be no assurance that the
Company will not experience disruptions in its ability to conduct its business
because of Y2K problems experienced by the Company's vendors.
In addition, the Company has contacted its key customers regarding their Y2K
compliance efforts. Although the Company has received some information from its
customers regarding their Y2K compliance efforts, there can be no assurance that
such customers will not experience disruptions in their business which would
result in material adverse affects to the Company. One example of a worst case
scenario would be a failure in the accounting systems of a significant number of
the Company's key clients due to the Y2K problem that resulted in a delay in the
payment of invoices issued by the Company for services and expenses.
Potential Liability to Third Parties
The Company has participated in Y2K remediation projects for some of its
customers. Although the Company has no reason to believe that any such work will
result in litigation against the Company, it is possible that the Company could
be materially adversely affected by litigation in connection with the Y2K
remediation services provided by the Company.
16
<PAGE>
The Company's policy has been to attempt to include provisions in client
contracts that, among other things, disclaim implied warranties, limit the
duration of express warranties, limit the Company's liability to predetermined
amounts, and disclaim any liability arising from third-party software that is
implemented or installed by the Company. The Company also maintains insurance
to protect against potential liability in connection with Y2K remediation
services provided by the Company. There can be no assurance that the Company
will be able to obtain the desired contractual protections in agreements or that
any such contractual provisions will prevent clients from asserting claims
against the Company with respect to the Y2K issue. There also can be no
assurance that the contractual protections, if any, obtained by the Company or
the insurance coverage will operate to protect the Company from, or adequately
limit the amount of, any liability arising from claims asserted against the
Company.
Contingency Plan
The Company is developing a contingency plan to address various situations which
may result if the Company experiences Y2K problems. The plan will include
identification of major systems, dependencies on third parties and resources and
strategies necessary to restore operations or work around failures. It is
expected that the contingency plan will be approved by the Board of Directors on
June 1, 1999. There can be no assurance that the contingency plan developed by
the Company will adequately protect the Company from internal Y2K problems or
prevent service interruption or failures experienced by customers and suppliers
from having a material adverse effect on the Company.
Demand for Year 2000 Services
Many of the Company's clients have needed to repair or replace their legacy
systems because of Y2K issues. The Company believes this has favorably impacted
the demand for its services and products. Mastech expects that the demand for
its related Y2K problem will diminish significantly over time and will
eventually disappear. The Company also believes that as companies focus on Y2K
issues, other less critical projects have not been and may not be initiated or
may be suspended. Although the Company provides a broad range of information
technology services, Mastech believes that the reduction in demand for its
services that may result from these Y2K-related factors could have an adverse
impact on its future performance.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK SENSITIVE
INSTRUMENTS
On June 30, 1998, the Company entered into a foreign exchange contract with PNC
Bank, National Association to hedge its foreign exchange exposure on certain
intercompany debt. This contract matured on each of September 30, 1998,
December 31, 1998, and March 31, 1999, and was extended for an additional three
months each time. The Company realized interim gains on the contract extensions
at each of September 30, 1998 and December 31, 1998 and realized an interim loss
on the contract extension at March 31, 1999. Gains or losses were recognized
under hedge accounting in Shareholder's Equity as Currency Translation
Adjustment. Such gains and losses are essentially offset in Currency Translation
Adjustment by gains or losses on the translation of the related debt. In March
1999, the contract was extended to June 30, 1999.
The outstanding contract is the far end of a swap for the sale by the Company of
7 million Canadian dollars at 1.5149 (US $4,620,767). It is the intention of the
Company to continue to extend the contract on a quarterly basis until ultimate
repayment of the intercompany loan. If the Canadian dollar weakens resulting in
a higher USD/CAD exchange rate than 1.5149 on June 30, 1999, the Company will
record an interim gain upon extension of the contract. If the Canadian dollar
strengthens resulting in a lower USD/CAD exchange rate than 1.5149 on June 30,
1999, the Company will record an interim loss upon extension of the contract. At
March 31, 1999, the USD/CAD exchange rate was 1.5087.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is party to any litigation that
is expected to have a material or adverse effect on the Company or its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 5, 1998, the Company issued 1,095,001 shares of its common stock in a
business combination accounted for as a pooling of interests to the former
shareholders of the Amber Group. The shares were issued in reliance upon
Section 4(2) of the Securities Act of 1933, as amended. No underwriters were
involved in such issuance of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of the Shareholders was held on February 1, 1999.
Only holders of common stock of record at the close of business on
December 21, 1998 were entitled to notice of and to vote at the
Annual Meeting. As of that date, the Company had 49,135,286 shares
of common stock outstanding.
(b) The matter brought before the shareholders involved an amendment to
the 1996 Stock Incentive Plan ("the Plan") to increase the number
of shares covered by the Plan. Votes for this proposal were cast in
the following manner:
Votes For: 36,480,755
Votes Against: 4,824,570
Abstentions: 187,975
Broker Non-Votes: 7,641,986
18
<PAGE>
ITEM 5. OTHER INFORMATION
Government Regulation of Immigration
The Company recruits its IT professionals on a global basis and, therefore, must
comply with the immigration laws in the countries in which it operates,
particularly the United States. As of March 31, 1999, approximately 35% of the
Company's worldwide workforce were working under H-1B temporary work permits in
the United States. Government regulation limits the number of new H-1B permits
that may be approved in a fiscal year. On October 22, 1998, the "American
Competitiveness and Workforce Improvement Act" was signed into law. The H-1B
annual quota for fiscal year 1999 was increased from 65,000 to 115,000. The
quota for fiscal years 2000 and 2001 will be 115,000 and 107,500 respectively.
If the Company is unable to obtain H-1B visas for its employees in sufficient
quantities or at a sufficient rate for a significant period of time, the
Company's business, operating results and financial condition could be adversely
affected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are being filed with this report:
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
27.1 Financial Data Schedule for the three months ended March 31, 1999.
27.2 Restated Financial Data Schedules for: the three months ended March 31,
1998; the six months ended June 30, 1998; the nine months ended
September 30, 1998; and the year ended December 31, 1998.
27.3 Restated Financial Data Schedules for: the three months ended March 31,
1997; the six months ended June 30, 1997; the nine months ended
September 30, 1997; and the year ended December 31, 1997.
27.4 Restated Financial Data Schedule for the year ended December 31, 1996.
</TABLE>
(b) Reports on Form 8-K:
The Company did not file any Current Report on Form 8-K during the
quarter ended March 31, 1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MASTECH CORPORATION
(REGISTRANT)
Dated: May 14, 1999 /s/ Sunil Wadhwani
-------------------------------------------------
Co-Chairman, Chief Executive Officer and Director
Dated: May 14, 1999 /s/ Jeffrey A. McCandless
-------------------------------------------------
Vice President, Finance and Chief Financial Officer
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
27.1 Financial Data Schedule for the three months ended March 31, 1999.
27.2 Restated Financial Data Schedules for: the three months ended March 31,
1998; the six months ended June 30, 1998; the nine months ended
September 30, 1998; and the year ended December 31, 1998.
27.3 Restated Financial Data Schedules for: the three months ended March 31,
1997; the six months ended June 30, 1997; the nine months ended
September 30, 1997; and the year ended December 31, 1997.
27.4 Restated Financial Data Schedule for the year ended December 31, 1996.
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY TO REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 27,855
<SECURITIES> 46,934
<RECEIVABLES> 81,086
<ALLOWANCES> 1,946
<INVENTORY> 0
<CURRENT-ASSETS> 182,228
<PP&E> 25,917
<DEPRECIATION> 7,093
<TOTAL-ASSETS> 230,797
<CURRENT-LIABILITIES> 51,446
<BONDS> 0
0
0
<COMMON> 503
<OTHER-SE> 169,997
<TOTAL-LIABILITY-AND-EQUITY> 230,797
<SALES> 0
<TOTAL-REVENUES> 121,377
<CGS> 81,562
<TOTAL-COSTS> 104,183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 117
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,009
<INCOME-TAX> 5,905
<INCOME-CONTINUING> 10,104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,104
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY TO REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> DEC-31-1998 SEP-30-1998 JUN-30-1998 MAR-31-1998
<CASH> 35,493 23,776 11,516 83,417
<SECURITIES> 47,153 58,500 65,229 0
<RECEIVABLES> 75,041 73,102 74,788 70,880
<ALLOWANCES> 1,728 1,541 1,203 1,311
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 179,016 176,769 163,315 167,633
<PP&E> 23,143 19,742 17,478 13,961
<DEPRECIATION> 5,909 4,949 4,034 3,259
<TOTAL-ASSETS> 217,458 197,544 178,607 180,264
<CURRENT-LIABILITIES> 48,905 49,172 42,192 48,422
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 502 501 501 501
<OTHER-SE> 158,033 146,520 134,421 129,485
<TOTAL-LIABILITY-AND-EQUITY> 217,458 197,544 178,607 180,264
<SALES> 0 0 0 0
<TOTAL-REVENUES> 401,371 285,442 17,944 83,749
<CGS> 270,790 191,882 120,619 56,882
<TOTAL-COSTS> 348,456 246,671 155,001 72,769
<OTHER-EXPENSES> 3,470 516 258 0
<LOSS-PROVISION> 1,413 787 333 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 53,015 37,694 22,136 11,653
<INCOME-TAX> 20,459 14,789 9,294 4,667
<INCOME-CONTINUING> 32,556 22,905 12,842 6,986
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 32,556 22,905 12,842 6,986
<EPS-PRIMARY> 0.62 0.46 0.26 0.14
<EPS-DILUTED> 0.62 0.46 0.26 0.14
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY TO REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-30-1997
<CASH> 83,153 32,853 36,594 43,799
<SECURITIES> 0 0 0 0
<RECEIVABLES> 61,684 53,746 43,984 40,789
<ALLOWANCES> 1,215 1,267 1,132 869
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 152,990 93,347 88,035 91,068
<PP&E> 11,672 9,963 8,574 7,565
<DEPRECIATION> 2,580 2,670 2,123 1,794
<TOTAL-ASSETS> 164,007 102,939 95,278 97,550
<CURRENT-LIABILITIES> 41,177 36,634 35,465 41,033
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 263 244 244 244
<OTHER-SE> 120,367 102,695 95,034 97,306
<TOTAL-LIABILITY-AND-EQUITY> 164,007 102,939 95,278 97,550
<SALES> 0 0 0 0
<TOTAL-REVENUES> 247,176 173,009 107,205 49,714
<CGS> 172,274 121,726 76,256 35,642
<TOTAL-COSTS> 221,009 155,606 9,415 46,098
<OTHER-EXPENSES> 518 389 258 0
<LOSS-PROVISION> 1,000 447 312 250
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 27,379 18,293 10,561 4,024
<INCOME-TAX> 11,231 7,354 4,206 1,698
<INCOME-CONTINUING> 16,148 10,939 6,355 2,326
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 16,148 10,939 6,355 2,326
<EPS-PRIMARY> 0.34 0.24 0.14 0.05
<EPS-DILUTED> 0.34 0.24 0.14 0.05
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY TO REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 46,790
<SECURITIES> 0
<RECEIVABLES> 33,731
<ALLOWANCES> 675
<INVENTORY> 0
<CURRENT-ASSETS> 86,360
<PP&E> 5,709
<DEPRECIATION> 1,524
<TOTAL-ASSETS> 90,551
<CURRENT-LIABILITIES> 36,690
<BONDS> 0
0
0
<COMMON> 222
<OTHER-SE> 49,355
<TOTAL-LIABILITY-AND-EQUITY> 90,551
<SALES> 0
<TOTAL-REVENUES> 165,682
<CGS> 121,053
<TOTAL-COSTS> 151,506
<OTHER-EXPENSES> 875
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,712
<INCOME-TAX> 5,291
<INCOME-CONTINUING> 4,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,421
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
