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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended April 30, 1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
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Commission file number 0-21342
WIND RIVER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2873391
(State of incorporation) (I.R.S. Employer Identification No.)
1010 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94501
(Address of principal executive office)
(510) 748-4100
(Telephone number)
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
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Indicate the number of shares outstanding of each of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock: 25,317,484 shares outstanding as of May 29, 1997
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WIND RIVER SYSTEMS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying financial information is unaudited but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary for a fair presentation of the results for the periods
shown. The unaudited consolidated financial statements and analyses should be
read in conjunction with the audited consolidated financial statements and notes
thereto for the year ended January 31, 1997 included in the Annual Report on
Form 10-K previously filed with the Securities and Exchange Commission.
The results for the three months ended April 30, 1997, are not necessarily
indicative of the results to be expected for the entire year.
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WIND RIVER SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
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APRIL 30,
------------------------
1997 1996
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(UNAUDITED)
Revenues:
Products $ 13,257 $ 8,531
Services 5,143 4,069
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Total revenues 18,400 12,600
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Cost of revenues:
Products 1,406 1,089
Services 1,938 1,561
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Total cost of revenues 3,344 2,650
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Gross profit 15,056 9,950
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Operating expenses:
Sales and marketing 7,255 5,139
Product development 2,434 1,595
General and administrative 1,537 1,018
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Total operating expenses 11,226 7,752
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Operating income 3,830 2,198
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Other income (expense):
Interest income 808 190
Minority interest in consolidated subsidiary (28) 2
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Total other income 780 192
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Income before income taxes 4,610 2,390
Provision for income taxes 1,660 920
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Net income $ 2,950 $ 1,470
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Net income per share $ 0.11 $ 0.06
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Weighted average common and common equivalent shares 27,974 23,988
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See accompanying notes to the consolidated financial statements.
3
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WIND RIVER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
APRIL 30, JANUARY 31,
1997 1997
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 13,581 $ 9,848
Short-term investments 26,511 46,895
Accounts receivable, net of allowances
of $1,064 and $1,204 12,474 13,296
Prepaid and other current assets 5,029 4,780
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Total current assets 57,595 74,819
Investments 62,929 43,004
Equipment and furniture, net of
accumulated depreciation of $7,991 and $7,328 10,152 8,426
Capitalized software costs, net of
accumulated amortization of $2,532 and $2,382 857 828
Deposits and other assets 2,100 1,584
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Total assets $ 133,633 $ 128,661
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,232 $ 1,340
Accrued liabilities 4,189 5,530
Accrued compensation 3,589 4,391
Income taxes payable 3,623 1,941
Deferred revenue 9,896 6,271
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Total current liabilities 23,529 19,473
Deferred rent 124 127
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Total liabilities 23,653 19,600
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Minority interest in consolidated subsidiary 340 312
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Stockholders' equity:
Common stock, par value $.001, 75,000
shares authorized 25,521 and 25,382 shares issued,
and 25,308 and 25,269 shares outstanding 26 25
Additional paid in capital 90,339 89,890
Cumulative translation adjustments (470) (310)
Unrealized loss on securities (452) (353)
Retained earnings 25,568 22,618
Less treasury stock, 213 and 113 shares, at cost (5,371) (3,121)
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Total stockholders' equity 109,640 108,749
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Total liabilities and stockholders' equity $ 133,633 $ 128,661
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See accompanying notes to the consolidated financial statements.
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WIND RIVER SYSTEMS, INC.
CONSOLIDATED CASH FLOWS STATEMENTS
(IN THOUSANDS)
THREE MONTHS ENDED
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APRIL 30,
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1997 1996
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(UNAUDITED)
Cash flows from operating activities:
Net income $ 2,950 $ 1,470
Adjustments to reconcile net income to net cash
provided by operations:
Provision for doubtful accounts receivables (140) -
Depreciation and amortization 663 435
Amortization of capitalized software costs 150 150
Unrealized loss on securities (99) -
Deferred rent (3) 11
Minority interest in consolidated subsidiary 28 4
Change in assets and liabilities:
Accounts receivable 962 (2,091)
Prepaid and other assets (765) (221)
Accounts payable 892 (6)
Accrued liabilities (1,341) (190)
Accrued compensation (802) (208)
Income taxes payable 1,682 (62)
Deferred revenue 3,625 1,418
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Net cash provided by operating activities 7,802 710
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Cash flows from investing activities:
Capital expenditures (2,389) (1,006)
Capitalized software costs (179) (179)
Investment sales 49,537 19,206
Investment purchases (49,078) (17,340)
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Net cash provided by (used in) investing activities (2,109) 681
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Cash flows from financing activities:
Common stock issuances 450 238
Treasury stock purchases (2,250) (1,567)
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Net cash used in financing activities (1,800) (1,329)
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Effect of exchange rate changes on cash (160) (124)
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Net increase (decrease) in cash and cash equivalents 3,733 (62)
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Cash and cash equivalents at beginning of period 9,848 9,205
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Cash and cash equivalents at end of period $ 13,581 $ 9,143
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Supplemental disclosures of cash flow information:
Cash paid for interest $ - $ 1
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Cash paid for income taxes $ 827 $ 1,513
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See accompanying notes to the consolidated financial statements.
5
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WIND RIVER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with the rules and regulations of the Securities and Exchange
Commission, the unaudited consolidated financial statements omit or condense
certain information and footnote disclosures normally required for complete
financial statements prepared in accordance with generally accepted accounting
principles.
Certain reclassifications have been made to prior year balances to conform to
current classifications.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding. Dilutive common equivalent
shares are calculated using the treasury stock method and consist of common
stock issuable upon the exercise of stock options and warrants.
3. COMMON STOCK TRANSACTIONS
On March 10, 1997, the Company effected a three-for-two stock split by means of
a stock dividend, with respect to all of the Company's Common Stock outstanding
on February 24, 1997. All share numbers and prices in this document have been
retroactively adjusted to give effect to the stock split.
The Company repurchased and held as treasury stock, 100,000 shares of common
stock at a cost of $2.3 million in the first quarter of fiscal year 1998.
4. RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 (FAS 128), "Earnings per Share." The statement simplifies the standards for
computing earnings per share (EPS) previously found in APB Opinion No. 15,
"Earnings per Share," and makes them more comparable to international EPS
standards. The Standard replaces the presentation of
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primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the financial statements
for all entities with complex capital structures. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS is computed similarly to fully diluted EPS under APB Opinion No. 15. FAS
128 must be adopted in connection with the Company's annual financial statements
for the year ending January 31, 1998. The following table represents unaudited,
pro forma disclosures of basic and diluted earnings per share in accordance with
FAS 128 assuming the standard was applied during all periods presented below:
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Three months ended
April 30,
1997 1996
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Net income per common share, as reported $0.11 $0.06
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Basic net income per common share, pro forma $0.12 $0.07
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Diluted net income per common share, pro forma $0.11 $0.06
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7
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WIND RIVER SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below, as well as in the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1997.
RESULTS OF OPERATIONS
THREE MONTHS OF FISCAL YEAR 1998 COMPARED TO
THREE MONTHS OF FISCAL YEAR 1997
REVENUES
Total revenues increased 46% to $18.4 million for the first quarter of fiscal
year 1998 from $12.6 million in the first quarter of fiscal year 1997. Revenue
from the sale of products increased by $4.7 million for the three-month period
ended April 1997. This increase was due primarily to incremental increases in
run-time license revenues and the continued market acceptance of the Company's
flagship product, Tornado-TM-.
Service revenues for the first quarter of fiscal 1998 increased $1.1 million,
which represents an increase of 26% over the comparable quarter in fiscal 1997.
Increases in service revenues were due to an increased number of customers under
maintenance agreements and to increases in consulting and custom software design
services. In addition, increases in object development license sales, due to
the popularity of Tornado-TM-, resulted in a 32% increase in training revenue in
the first quarter of fiscal 1998, compared with the same quarter of fiscal 1997.
COSTS AND EXPENSES
The overall cost of products and services as a percentage of total revenues
decreased to 18% in the first quarter of fiscal 1998 from 21% in the same period
of fiscal 1997. This decrease was primarily the result of an increase in product
revenues as a percentage of total revenues. Product-related cost of sales
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decreased as a percentage of product revenue to 11% in the first quarter of
fiscal 1998 from 13% in the first quarter of fiscal 1997. Third party product
revenue was lower as a percentage of total revenue which resulted in a
proportionately lower royalty expense in the first quarter fiscal 1998 compared
with the same period fiscal 1997. Service-related cost of sales remained steady
at 38% of services revenue in the first quarter of both fiscal years 1998 and
1997.
Sales and marketing expenses decreased as a percentage of total revenues to 39%
in the first quarter of fiscal 1998 from 41% in the first quarter of fiscal
1997. However, in overall dollars, sales and marketing expenses increased $2.1
million, or 41%, in the first quarter of fiscal year 1998 over the comparable
period in the prior fiscal year. The decrease in the percentage was due to
revenues increasing at a faster rate than sales and marketing costs. The
increase in overall dollars resulted primarily from increases in sales personnel
and increases in marketing and advertising programs. Management expects to
continue investing heavily in sales and marketing over the current year to
expand its customer base and introduce new products.
Product development expenses, which consist primarily of personnel costs,
remained at 13% of total revenues for the first quarter of both fiscal years
1998 and 1997. In overall dollars, such expenses increased $839,000, or 53%, in
the first quarter of fiscal 1998 over the comparable quarter of fiscal 1997. The
Company believes it will continue to be necessary to make significant
investments in engineering and product development for the foreseeable future.
General and administrative expenses remained at 8% of total revenues for the
first quarter of both fiscal years 1998 and 1997. In overall dollars, these
expenses increased $519,000 in the first quarter of fiscal 1998 compared to the
same quarter of fiscal 1997. This increase was primarily due to the growth in
worldwide staff and infrastructure investments in the areas of information
systems, finance and administration.
The effective tax rate in the first quarter of fiscal 1998 decreased to 36% from
38% in the same period of fiscal 1997. The provision for income taxes is an
estimate based on the Company's anticipated effective tax rate at the end of the
fiscal year. The decrease in the effective tax rate between the first quarters
of fiscal 1998 and 1997 was due to increased income from tax-free investment
instruments.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company typically charges a one-time fee for a development license and a
run-time license fee for each copy of the Company's operating system embedded in
the customer's product. A key component of the Company's strategy is to
increase revenue through run-time license fees. Any increase in the percentage
of revenues attributable to run-time licenses will depend on the Company's
successful negotiation of run-time license agreements and on the successful
commercialization by the Company's customers of the underlying products. In
addition, the Company has experienced significant period-to-period fluctuations
in revenues and operating results and anticipates that such fluctuations will
continue. These fluctuations have been caused by a number of factors, including
customer buying patterns, product development cycles, delays in shipments of new
products and the timing of significant sales of the Company's products.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its results of operations may not be meaningful and should not be
relied upon as an indication of future performance. It is likely that, in some
future quarters, the Company's operating results will be below the expectations
of stock market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected.
RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 (FAS 128), "Earnings per Share." The statement simplifies the standards for
computing earnings per share (EPS) previously found in APB Opinion No. 15,
"Earnings per Share," and makes them more comparable to international EPS
standards. The Standard replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the financial statements for all entities with
complex capital structures. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS is computed similarly
to fully diluted EPS under APB Opinion No. 15. FAS 128 must be adopted in
connection with the Company's annual financial statements for the year ending
January 31, 1998. The following table
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represents unaudited, pro forma disclosures of basic and diluted earnings per
share in accordance with FAS 128 assuming the standard was applied during all
periods presented below:
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Three months ended
April 30,
1997 1996
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Net income per common share, as reported $0.11 $0.06
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Basic net income per common share, pro forma $0.12 $0.07
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Diluted net income per common share, pro forma $0.11 $0.06
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LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1997, the Company had working capital in excess of $34 million, and
approximately $40 million in cash and short-term investments. The Company also
had long-term investments in excess of $62 million.
Net cash provided by operating activities in the first quarter of fiscal years
1998 and 1997 totaled $7.8 million and $710,000, respectively. In the first
quarter of fiscal 1998, net income and changes in depreciation and amortization,
accounts receivable, accrued taxes payable, and deferred revenue were partially
offset by changes in prepaid and other assets, accounts payable, accrued
liabilities, and accrued compensation. In the first quarter of fiscal 1997, net
income and changes in depreciation and amortization and deferred revenue were
partially offset by changes in accounts receivable.
Net cash used in investing activities in the first quarter of fiscal 1998
totaled $2.1 million. Net cash provided by investing activities in the first
quarter of fiscal 1997 totaled $681,000. In the first quarter of fiscal 1998,
capital expenditures, capitalized software costs, and purchases of security
investments were partially offset by sales of security investments. In the
first quarter of fiscal 1997, sales of security investments were partially
offset by capital expenditures and purchases of security investments. Capital
expenditures were $2.4 million in the first three months of fiscal 1998 compared
to $1.0 million in the same period of fiscal 1997. The Company will
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continue to invest in capital resources to support its anticipated revenue
growth.
Net cash used in financing activities in the first quarter of fiscal years 1998
and 1997 totaled $1.8 million and $1.3 million, respectively. In the first
quarter of fiscal 1998, the Company repurchased and held as treasury stock
100,000 shares at a cost of $2.3 million. The purchases of treasury stock were
partially offset by the issuance of common stock for employee stock option
exercises in the first quarter of both fiscal years 1998 and 1997.
On March 10, 1997, the Company effected a three-for-two stock split by means of
a stock dividend to all holders of the Company's Common Stock on February 24,
1997. All share numbers and prices in this document have been retroactively
adjusted to give effect to the stock split.
During the quarter, the Company entered into negotiations regarding an option to
purchase real property in the City of Alameda, California. The property is
currently undeveloped land that can be developed for future expansion of
customer support, engineering and administrative operations. If the option is
exercised, the Company may use existing liquid resources or borrow on a new
credit facility to fund the purchase.
Management believes that the Company's working capital and the cash flow
generated from operations are sufficient to meet its working capital
requirements for planned expansion, product development and capital expenditures
through fiscal 1998.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - none
(b) No reports on form 8-K have been filed for the quarter ended
April 30, 1997.
No other items.
SIGNATURE
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto authorized.
WIND RIVER SYSTEMS, INC.
Date: June 16, 1997 RICHARD W. KRABER
----------------------------------
Richard W. Kraber
Chief Financial Officer
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<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 13,581
<SECURITIES> 26,511
<RECEIVABLES> 27,575
<ALLOWANCES> 1,064
<INVENTORY> 0
<CURRENT-ASSETS> 57,595
<PP&E> 18,143
<DEPRECIATION> 7,991
<TOTAL-ASSETS> 133,633
<CURRENT-LIABILITIES> 23,529
<BONDS> 0
0
0
<COMMON> 90,365
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<TOTAL-LIABILITY-AND-EQUITY> 133,633
<SALES> 13,257
<TOTAL-REVENUES> 18,400
<CGS> 1,406
<TOTAL-COSTS> 3,344
<OTHER-EXPENSES> 28
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<INCOME-TAX> 1,660
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