<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 June 30, 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
Oakdale, Pennsylvania 15071
(Address of principal executive offices) (Zip Code)
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 July 30, 1999 was 50,435,989.
<PAGE>
MASTECH CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION 3
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR EACH OF THE
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND JUNE 30,1998 3
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF JUNE 30, 1999 (UNAUDITED)
AND DECEMBER 31, 1998 4
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY AS OF
JUNE 30, 1999 5
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR EACH OF
THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND JUNE 30, 1998 6
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 13
OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 19
ABOUT MARKET RISK
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
</TABLE>
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 June 30, Six Months Ended June 30,
--------------------------- ----------------------------
1999 1998(1) 1999 1998(1)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 124,514 $ 95,195 $ 245,891 $ 178,944
Cost of revenues 83,109 63,737 164,671 120,619
---------- ---------- ---------- ----------
Gross profit 41,405 31,458 81,220 58,325
Selling, general and administrative 22,963 18,495 45,584 34,382
---------- ---------- ---------- ----------
Income from operations 18,442 12,963 35,636 23,943
Other income, net (794) (732) (1,336) (1,405)
Merger-related expenses - 3,212 1,727 3,212
---------- ---------- ---------- ----------
Income before income taxes 19,236 10,483 35,245 22,136
Provision for income taxes 6,733 4,627 12,638 9,294
---------- ---------- ---------- ----------
Net income $ 12,503 $ 5,856 $ 22,607 $ 12,842
========== ========== ========== ==========
Net income per common share, basic and diluted $ 0.25 $ 0.12 $ 0.44 $ 0.25
========== ========== ========== ==========
</TABLE>
(1) Restated for pooling of interests transaction as discussed in 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>
June 30, December 31,
1999 1998(1)
---------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (cost approximates market value) $ 39,881 $ 35,493
Investments 48,937 47,153
Accounts receivable, net 77,042 73,313
Unbilled receivables 27,360 12,261
Prepaid and other assets 8,267 8,484
Deferred income taxes 1,648 2,312
-------- --------
Total current assets 203,135 179,016
Equipment and leasehold improvements, net 18,440 17,234
Intangible assets, net 29,530 21,208
-------- --------
Total assets $251,105 $217,458
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,218 $ 8,523
Accrued payroll and related costs 31,008 29,367
Other accrued liabilities 10,320 11,015
Accrued income taxes 8,617 -
-------- --------
Total current liabilities 58,163 48,905
Other long term liabilities 5,893 4,563
Deferred income taxes 3,420 5,455
Shareholders' equity:
Preferred Stock, without par value - -
Common Stock, par value $0.01 per share 504 502
Additional paid-in capital 114,482 111,508
Retained earnings 69,703 47,096
Accumulated other comprehensive income (1,060) (571)
-------- --------
Total shareholders' equity 183,629 158,535
-------- --------
Total liabilities and shareholders' equity $251,105 $217,458
======== ========
</TABLE>
(1) Restated for pooling of interests transaction as discussed in Note 5.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
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MASTECH CORPORATION
CONSOLIDATED STATEMENT 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 199,909 2 - - 2,974 - - 2,976
Comprehensive income:
Net unrealized loss
on investments - - - - - - (210) (210)
Currency translation
adjustment - - - - - - (279) (279)
Net income - - - - - 22,607 - 22,607
-------------------------------------------------------------------------------------------------
Balance, June 30, 1999 50,435,989 $ 504 1 - $114,482 $ 69,703 $ (1,060) $ 183,629
=================================================================================================
<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 $ (210)
Currency translation
adjustment (279)
Net income 22,607
----------
$ 22,118
==========
Balance, June 30, 1999
</TABLE>
(1) Restated for pooling of interests transaction as discussed in 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>
Six Months Ended June 30,
------------------------------
1999 1998 (1)
---- --------
<S> <C> <C>
Net cash flows provided by operations $ 16,427 $ 4,778
Cash flows from investing activities:
Acquisitions, net of cash acquired (9,055) -
Additions to equipment and leasehold improvements (3,687) (5,772)
Purchases of Investments (1,994) (65,229)
------------- --------
Net cash flows used in investing activities (14,736) (71,001)
Cash flows from financing activities:
Net payments under revolving credit facilities - (6,605)
Proceeds from exercise of stock options, net of tax benefit 2,976 2,775
Dividends paid - (749)
Other (279) (834)
------------- --------
Net cash flows provided by (used in) financing activities 2,697 (5,413)
Net change in cash and cash equivalents 4,388 (71,636)
Cash and cash equivalents, beginning of period 35,493 83,152
------------- --------
Cash and cash equivalents, end of period $ 39,881 $ 11,516
============= ========
</TABLE>
(1) Restated for pooling of interests transaction as discussed in Note 5.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
<PAGE>
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 and six months ended June 30, 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.
The information contained herein is not a comprehensive management overview and
analysis of the financial condition and results of operations of Mastech
Corporation, but rather updates disclosures made in the Company's Annual Report
on Form 10-K. All significant intercompany accounts and transactions have been
eliminated in consolidation. Operating results for the three months and six
months ended June 30, 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 ("Amber"). 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. These investments are carried at market value, with the unrealized gains
or losses, net of tax, reported as a component of comprehensive income in the
statement of shareholders' equity. Realized gains or losses on securities sold
are based upon the specific identification method.
7
<PAGE>
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
---------------------- ----------------------
<S> <C> <C>
Basic earnings per share:
Net income $ 12,503 $ 22,607
======================= =======================
Divided by:
Weighted average common shares 50,388,892 50,351,619
======================= =======================
Basic earnings per share $ 0.25 $ 0.44
======================= =======================
Diluted earnings per share:
Net income $ 12,503 $ 22,607
======================= =======================
Divided by the sum of:
Weighted average common shares 50,388,892 50,351,619
Dilutive effect of common stock equivalents 521,108 628,381
----------------------- -----------------------
Diluted average common shares 50,910,000 50,980,000
======================= =======================
Diluted earnings per share $ 0.25 $ 0.44
======================= =======================
</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 was
originally 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).
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133" ("SFAS 137") delaying the
effective date of SFAS 133 for all fiscal quarters of all fiscal years beginning
after June 15, 2000.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on its
financial statements and has 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
8
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contracts with derivative instruments embedded in other contracts; however, the
statement may increase volatility in earnings and other comprehensive income.
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 has been
recorded as goodwill and will be 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 the payments related to the 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
- --------------------
On January 4, 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.
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 revenues, gross margin and
operating income. The accounting policies of the operating segments are the same
as those of the entire Company.
9
<PAGE>
The following table summarizes selected financial information of the Company's
operations by segment:
<TABLE>
<CAPTION>
(dollars in thousands)
U.S. High International
Client Value Client Corporate
Six Months Ended June 30, 1999 Services Services Services Activities (1) Total
- ------------------------------------- ---------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 74,520 $ 111,144 $ 62,431 $ - $ 248,095
Intersegment sales - (2,204) - - (2,204)
---------------- ------------- -------------- -------------- -------------
Reported revenues 74,520 108,940 62,431 - 245,891
---------------- ------------- -------------- -------------- -------------
Expenses - - - 223,284 223,284
---------------- ------------- -------------- -------------- --------------
Net income $ 22,607
=============
<CAPTION>
U.S. High International
Client Value Client Corporate
Six Months Ended June 30, 1998 (2) Services Services Services Activities (1) Total
- ------------------------------------- ---------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 61,568 $ 73,734 $ 46,647 $ - $ 181,949
Intersegment sales - (3,005) - - (3,005)
---------------- ------------- -------------- -------------- -------------
Reported revenues 61,568 70,729 46,647 - 178,944
---------------- ------------- -------------- -------------- -------------
Expenses - - - 166,102 166,102
---------------- ------------- -------------- -------------- -------------
Net income $ 12,842
=============
<CAPTION>
U.S. High International
Client Value Client Corporate
Three Months Ended June 30, 1999 Services Services Services Activities (1) Total
- ------------------------------------- ---------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 32,469 $ 60,724 $ 32,298 $ - $ 125,491
Intersegment sales - (977) - - (977)
---------------- ------------- -------------- -------------- -------------
Reported revenues 32,469 59,747 32,298 - 124,514
---------------- ------------- -------------- -------------- -------------
Expenses - - - 112,011 112,011
---------------- ------------- -------------- -------------- -------------
Net income $ 12,503
=============
<CAPTION>
U.S. High International
Client Value Client Corporate
Three Months Ended June 30, 1998 (2) Services Services Services Activities (1) Total
- ------------------------------------- ---------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 28,389 $ 44,452 $ 24,433 $ - $ 97,274
Intersegment sales - (2,079) - - (2,079)
---------------- ------------- -------------- -------------- -------------
Reported revenues 28,389 42,373 24,433 - 95,195
---------------- ------------- -------------- -------------- -------------
Expenses - - - 89,339 89,339
---------------- ------------- -------------- -------------- -------------
Net income $ 5,856
=============
</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
comparable to other companies.
(2) Restated for pooling of interests transaction as discussed in Note 5.
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 six months ended 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
10
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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.
In connection with the acquisition of Quantum Information Resources ("Quantum"),
$3.2 million or $0.06 per share of merger-related costs and expenses were
incurred and were charged to expense in the second quarter of 1998.
8. SUBSEQUENT EVENTS
On July 22, 1999, Mastech completed a private placement of a $30,000,000
Convertible Promissory Note (the "Note") with one of the Company's ten largest
customers. The entire principal amount of the Note is due July 22, 2004. The
Note accrues interest at the rate of 6.30% per annum, payable semi-annually in
arrears on the last day of each July and January. The Note is convertible after
July 22, 2003 through maturity, at the option of the holder, into shares of
Mastech common stock at an initial conversion price of $21.64 per share in the
event that the customer satisfies certain performance targets.
11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Mastech Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Mastech Corporation (a Pennsylvania Corporation) and subsidiaries as of June
30, 1999, the related condensed consolidated statements of income for the three
and six month periods ended June 30, 1999 and 1998 and the condensed
consolidated statement of shareholders' equity and cash flows for the six month
periods ended June 30, 1999 and 1998. These condensed consolidated 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 condensed consolidated 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,
July 23, 1999
12
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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.
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.
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
13
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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 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 six months ended June 30, 1998 have been restated to
reflect the acquisition of Amber in a business combination that was accounted
for as a pooling of interests, which is discussed in Note 5 to the consolidated
condensed financial statements.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED
WITH THE THREE MONTHS ENDED JUNE 30, 1998
Revenues. The Company's revenues increased 30.8%, or $29.3 million, to
$124.5 million in the second quarter of 1999 from $95.2 million in the second
quarter of 1998. The U.S. Client Services group, High Value Services group, and
the International Client Services group contributed $4.0 million, $17.4 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 and strong
market demand 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 well as the cost of the independent contractors used by the
Company. Gross profit increased 31.6%, or $9.9 million to $41.4 million in the
second quarter of 1999 from $31.5 million in the second quarter in 1998. Gross
profit as a percentage
14
<PAGE>
of revenues increased slightly to 33.3% in the second quarter of 1999 from 33.0%
in the second quarter of 1998. The primary reason for the slight increase in
gross profits as a percentage of revenues was that a significant portion of new
revenues from the expansion of new business areas such as E-Business services,
network solutions and Customer relationship management offset by aggressive
initiatives to improve IT-professional utilization.
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. SG&A expenses increased 24.2%, or $4.5 million, to $23.0 million in
the second quarter of 1999 from $18.5 million in the second quarter of 1998. The
increase in SG&A expenses reflects the costs of supporting the Company's
continued revenue growth and expansion into new business lines and geographic
regions. As a percentage of revenues, SG&A expenses decreased to 18.4% for the
second quarter of 1999 from 19.4% for the second quarter of 1998. This
percentage of revenue decrease reflects the Company's continued monitoring of
its SG&A costs and expenses through an aggressive focus on utilizing cost saving
technologies.
Merger-Related Expenses. There were no merger-related expenses in the second
quarter of 1999. The Company incurred $3.2 million of merger-related related
expenses in connection with the Quantum acquisition during the second quarter of
1998. These expenses consisted primarily of severance payments, office closures,
and related professional fees.
Interest Income, Net. Other income was $794,000 in the second quarter of
1999 compared to other income of $732,000 in the second quarter of 1998. This
decrease of $62,000 in other income was the result of a slight reduction in
interest income due to market conditions.
Income taxes. Provision for income taxes was $6.7 million, or an effective
tax rate of 35.0% for the second quarter ended June 30, 1999 compared to $4.6
million, or an effective tax rate of 44.1% for the second quarter ended June 30,
1998. The primary factor for this decrease includes the effect of non-deductible
one-time acquisition charges recognized in the second quarter of 1998. Other
factors contributing to the reduction in the effective tax rate included an
increase in the amounts of permanent book to tax differences which consist
primarily of goodwill and amortization; changes in tax status of acquired
businesses; tax-exempt interest income generated by the Company's municipal bond
portfolio; and the tax holiday for the Company's Indian operations.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED
WITH THE SIX MONTHS ENDED JUNE 30, 1998
Revenues. The Company's revenues increased 37.4%, or $66.9 million, to
$245.9 million in the first six months of 1999 from $178.9 million in the first
six months ended 1998. The U.S. Client Services group, High Value Services
group, and the International Client Services group contributed $12.9 million,
$38.2 million and $15.8 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 and strong
market demand in Australia and Europe.
Gross Profit. Gross profit increased 39.3%, or $22.9 million to $81.2 million
in the first six months of 1999 from $58.3 million of the first six months ended
1998. Gross profit as a percentage of revenues increased to 33.0% in the first
six months of 1999 from 32.6% in the first six months of 1998. The primary
reason for the slight increase in gross profits as a percentage of revenues was
that a significant portion of new revenues from the expansion of new business
areas such as E-Business services, network solutions and Customer relationship
management offset by aggressive initiatives to improve IT-professional
utilization.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 32.6%, or $11.2 million, to $45.6 million in
the first six months of 1999 from $34.4 million in the first six months of 1998.
The increase in selling, general and administrative expenses reflects the costs
of supporting the Company's continued revenue growth and expansion into new
business lines and geographic regions. As a percentage of revenues, selling,
general and
15
<PAGE>
administrative expenses decreased to 18.5% in the first six months of 1999 from
19.2% in the first six months of 1998. This percentage of revenue decrease
reflects the Company's continued monitoring of its SG&A costs and expenses
through an aggressive focus on utilizing cost saving technologies.
Merger-Related Expenses. The Company incurred $1.7 million of merger-related
related expenses in connection with the Amber acquisition during the first six
months of 1999. The Company also incurred $3.2 million of merger-related
expenses in connection with the Quantum acquisition during the first six months
of 1998. These expenses consisted primarily of severance payments, office
closures, and related professional fees.
Interest Income, Net. Other income was $1.3 million in the first six months
of 1999 compared to other income of $1.4 million in the first six months of
1998. This decrease of $100,000 in other income was the result of a slight
reduction in interest income due to market rate conditions.
Income taxes. Provision for income taxes was $12.6 million, or an effective
tax rate of 35.9% for the first six months of 1999 compared to $9.3 million, or
an effective tax rate of 41.9% for the first six months of 1998. The primary
factor for this decrease includes the effect of non-deductible one-time
acquisition charges recognized in the second quarter of 1998. Other factors
contributing to the reduction in the effective tax rate included an increase in
the amounts of permanent book to tax differences which consist primarily of
goodwill and amortization; changes in tax status of acquired businesses; tax-
exempt interest income generated by the Company's municipal bond portfolio; and
the tax holiday for the Company's Indian operations.
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
strengthening its working capital position. At June 30, 1999, the Company had
cash and short-term investments of $88.8 million, consisting of cash of $39.9
million and short-term investments of $48.9 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 $16.4 million for the six months ended June 30, 1999 as
compared to cash provided by operating activities of $4.8 million for the six
months ended June 30, 1998. The increase of $11.6 million resulted from
increases in net income, accrued liabilities, and decreases in prepaid assets
due to an increased focus on cash management. Operating cash flow was sufficient
to finance investing activities in the first six months of 1999, including
acquisitions of $9.1 million, fixed asset additions and leasehold improvements
of $3.7 million, as well as increases in cash and investments of $6.2 million.
At June 30, 1999, the Company's billed days sales outstanding ("DSO") based upon
billed receivables was 59 compared to 60 billed DSO at December 31, 1998. The
Company continues to focus on collecting on its receivables, involving several
management departments.
Cash used in investing activities was $14.7 million and $71.0 million for the
six months ended June 30, 1999 and 1998, respectively. Acquisitions, net of
cash acquired totaled approximately $9.1 million during the first six months of
1999. Capital expenditures for the six months ended June 30, 1999 and 1998 were
approximately $3.7 million and $5.7 million, respectively. These capital
expenditures consisted primarily of computer and related equipment to support
its technical, consulting and administrative functions. Cash used to purchase
investments were $1.9 million during the first six months of 1999. During the
first six months of 1998, the Company recorded its net purchase of investments
of $65.2 million. These investments are classified as available-for-sale and
recorded at fair value.
Cash provided by financing activities was $2.7 million for the first six months
ended June 30, 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
16
<PAGE>
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 June 30, 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 local 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, 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 September 30, 1999. At this time, the Company does not
believe that the internal financial and operational systems of its other U.S.
location computer systems will experience significant Y2K problems.
17
<PAGE>
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 $128,000 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.
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
September 13, 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.
18
<PAGE>
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 Y2K related services 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.
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 fiscal quarter end 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 extensions at each of March
31, 1999 and June 30, 1999. Gains or losses were recognized under hedge
accounting in Shareholder's Equity as a component of 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 June
1999, the contract was extended to September 30, 1999.
The outstanding contract is the far end of a swap for the sale by the Company of
7 million Canadian dollars at 1.4732 (US $4,751,561). 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 1.4732 on September 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 1.4732 on
September 30, 1999, the Company will record an interim loss upon extension of
the contract. At June 30, 1999, the USD/CAD exchange rate was 1.4730.
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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of the Shareholders was held on June 1, 1999.
Only holders of common stock of record at the close of business on
March 26, 1999 were entitled to notice of and to vote at the
Annual Meeting. As of that date, the Company had 50,352,671 shares
of common stock outstanding.
(b) The matter brought before the shareholders involved the election
of Sunil Wadhwani to the Board of Directors for a term of three
years, or until the successor is elected and qualified. Sunil
Wadhwani is a Class
19
<PAGE>
"C" Board Member. Votes for this proposal were cast in the
following manner: Votes for 45,964,790; votes against 51,149;
abstentions 0; and broker non-votes 4,336,732.
Continuing to serve on the Board are Michel Berty and J. Gordon Garrett, Class
"A" Board members, whose terms expire in 2000. Class "B" Board members also
continuing terms include Ashok Trivedi and Ed Yourdon, whose terms expire in
2001.
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 June 30, 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:
Exhibit Number Description
- -------------- -----------
27.1 Financial Data Schedule for the three months ended June 30, 1999
(b) Reports on Form 8-K:
The Company did not file any Current Report on Form 8-K during the
quarter ended June 30, 1999.
20
<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: August 13, 1999 /s/ Sunil Wadhwani
-----------------------------------------------
Co-Chairman, Chief Executive Officer and Director
Dated: August 13, 1999 /s/ Jeffrey A. McCandless
-------------------------
Vice President, Finance and Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- --------------- ------------
<S> <C>
27.1 Financial Data Schedule for the three months ended June 30, 1999
</TABLE>
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 39,881
<SECURITIES> 48,937
<RECEIVABLES> 78,936
<ALLOWANCES> (1,894)
<INVENTORY> 0
<CURRENT-ASSETS> 203,135
<PP&E> 26,911
<DEPRECIATION> (8,471)
<TOTAL-ASSETS> 251,105
<CURRENT-LIABILITIES> 58,163
<BONDS> 0
0
0
<COMMON> 504
<OTHER-SE> 183,125
<TOTAL-LIABILITY-AND-EQUITY> 251,105
<SALES> 0
<TOTAL-REVENUES> 245,891
<CGS> 0
<TOTAL-COSTS> 210,255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,336)
<INCOME-PRETAX> 35,245
<INCOME-TAX> 12,638
<INCOME-CONTINUING> 22,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,607
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.44
</TABLE>
