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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-21040
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1320610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
304 Vassar Street,
Cambridge, Massachusetts 02139
(Address of principal executive offices) (Zip Code)
(617) 374-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of April 30, 1996, there were 15,093,791 shares of common
stock outstanding.
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION:
Item 1: Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995...................................................3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1996 and 1995.......................................4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1995.......................................5
Notes to Consolidated Financial Statements............................6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................7
PART II - OTHER INFORMATION:
Item 6: Exhibits and Reports on Form 8-K...............................11
SIGNATURES..............................................................12
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION> March 31, December 31,
1996 1995
----------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,457 $ 6,338
Investments held to maturity 9,256 8,544
Accounts receivable, less allowance of $625 and $600
at March 31, 1996 and December 31, 1995, respectively 38,618 35,958
Unbilled revenue on contracts 2,158 1,115
Prepaid expenses and other current assets 3,277 2,261
------- -------
Total current assets 60,766 54,216
Property and equipment, net 12,780 11,278
Other assets 1,579 1,529
Deferred income taxes 60 60
Goodwill, net 3,111 3,311
------- -------
Total assets $78,296 $70,394
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,854 $ 6,502
Accrued expenses 8,652 8,719
Deferred revenue 2,975 2,993
Deferred income taxes 251 251
Income taxes payable 2,776 2,163
Obligations under capital leases, current 126 163
------- -------
Total current liabilities 21,634 20,791
Obligations under capital leases 155 204
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.01 par value, authorized 30,000,000
shares; issued and outstanding 14,944,027 and
14,716,206 at March 31, 1996 and December 31, 1995,
respectively 149 147
Additional paid-in capital 27,100 23,938
Retained earnings 29,136 25,046
Foreign currency translation adjustment 122 268
------- -------
Total stockholders' equity 56,507 49,399
------- -------
Total liabilities and stockholders' equity $78,296 $70,394
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
-------- --------
<S> <C> <C>
Net revenues $39,631 $27,230
Costs and expenses:
Project personnel 17,848 12,979
General and administration 4,365 3,580
Sales and marketing 3,060 2,649
Other costs 7,653 4,302
------- -------
Total operating expenses 32,926 23,510
------- -------
Income from operations 6,705 3,720
Other income (expense):
Interest income 134 168
Interest expense (10) (45)
Foreign exchange (loss) gain (12) 187
------- -------
Income before income taxes 6,817 4,030
Provision for income taxes 2,727 1,674
------- -------
Net income $ 4,090 $ 2,356
======= =======
Net income per share $ .24 $ .14
======= =======
Pro forma data:
Historical income before taxes $ 6,817 $ 4,030
Provision for income taxes:
Historical income taxes 2,727 1,674
Pro forma increase to
historical income taxes - 2
------- -------
Pro forma net income $ 4,090 $ 2,354
======= =======
Pro forma net income per share $ .24 $ .14
======= =======
Weighted average number of common and
common equivalent shares outstanding 17,123 16,419
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION> Three Months
Ended March 31,
1996 1995
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,090 $ 2,356
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 994 658
Increase in accounts receivable (2,594) (3,704)
Increase in unbilled revenue on contracts (1,053) (348)
Increase in prepaid expenses and other current assets (1,029) (37)
Increase in accounts payable 378 1,315
(Decrease) increase in accrued expenses (143) 544
Increase in deferred revenue 192 607
Increase in income taxes payable 631 667
Other, net (449) 391
------- -------
Net cash provided by operating activities 1,017 2,449
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,340) (2,518)
Purchase of investments held to maturity (3,209) (9,908)
Maturity of investments held to maturity 2,496 11,101
------- -------
Net cash used in investing activities (3,053) (1,325)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under credit arrangements - (327)
Obligations under capital leases (85) (34)
Proceeds from exercise of stock options and
related income tax benefits 2,408 1,369
Proceeds from employee stock purchase plan 756 -
------- ------
Net cash provided by financing activities 3,079 1,008
------- ------
Effect of foreign exchange rate changes on cash 76 (45)
Net increase in cash and cash equivalents 1,119 2,087
Cash and cash equivalents at beginning of period 6,338 3,365
------- -------
Cash and cash equivalents at end of period $ 7,457 $ 5,452
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Basis of Presentation
The accompanying consolidated financial statements of Cambridge Technology
Partners (Massachusetts), Inc. (the "Company") include the accounts of all
of the Company's wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated. Certain prior period
amounts have been reclassified to conform with current period
presentation. In the opinion of management, the consolidated financial
statements reflect all normal and recurring adjustments, which are
necessary for a fair presentation of the Company's financial position,
results of operations, and cash flows as of the dates and for the periods
presented. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Consequently, these statements do not include all
the disclosures normally required by generally accepted accounting
principles for annual financial statements nor those normally made in the
Company's Annual Report on Form 10-K. Accordingly, reference should be
made to the Company's Annual Report on Form 10-K for additional
disclosures, including a summary of the Company's accounting policies,
which have not changed. The consolidated results of operations for the
three months ended March 31, 1996, are not necessarily indicative of
results for the full year.
The accompanying consolidated financial statements of the Company have
been prepared to give retroactive effect to the Company's 1995
acquisitions of The Systems Consulting Group, Inc. ("SCG") and Axiom
Management Consulting, Inc. ("Axiom"). All prior period historical
consolidated financial statements presented herein have been restated to
include the financial position, results of operations, and cash flows of
SCG and Axiom.
B. Net Income Per Share
Net income per share data is computed using the weighted average number of
common shares outstanding and the assumed exercise of stock options and
warrants (using the treasury stock method). The 1995 net income per share
data also reflects the assumed issuance, at the beginning of the period,
of 722,764 shares of common stock and an option to purchase 35,234 shares
of the Company's common stock in connection with the acquisition of SCG,
and the assumed issuance, at the beginning of the period, of 326,120
shares of common stock and options to purchase 9,846 shares of the
Company's common stock in connection with the acquisition of Axiom.
Primary and fully diluted income per share are the same for each period
presented.
C. Stock Split
On March 19, 1996, the Board of Directors approved a three-for-one stock
split of the Company's common stock. This stock split is subject to
stockholder approval of a proposed amendment to the Company's corporate
charter to increase authorized common stock from 30 million to 120 million
shares to be approved at the Company's Annual Meeting of Stockholders
scheduled for May 15, 1996. Upon stockholder approval of the proposed
increase in the Company's authorized shares and implementation of the
stock split, the number of shares of common stock outstanding will
increase by 200% and per share data for all periods presented will be
retroactively restated.
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
- - --------
Cambridge Technology Partners (Massachusetts), Inc. (the "Company")
provides information technology and management consulting and software
development and evaluation services to organizations with large-scale
information processing and distribution needs that are utilizing or
migrating to open systems computing environments. The Company achieved
strong operating results in the first quarter ended March 31, 1996, by
increasing net revenues and net income by 46% and 74%, respectively,
compared to the same period in 1995. First quarter 1996 results reflect
increased demand for the Company's services, in both North America and
Europe, while the Company continued to focus on the integration of its two
1995 acquisitions, SCG and Axiom. In addition, the Company achieved 99%
revenue growth in its European operations in the first quarter of 1996
compared to the same period in 1995. Furthermore, the Company has begun
to build a presence in Latin America in the first quarter of 1996. In
order to meet increased demand for the Company's services, total Company
staff was increased to 1,122 employees at March 31, 1996, from 1,062
employees at December 31, 1995.
Results of Operations
- - ---------------------
Three Months Ended March 31, 1996, Compared to
Three Months Ended March 31, 1995
Net revenues increased 46% to $39.6 million in 1996 compared to $27.2
million in 1995 due principally from an increase in the volume of services
delivered to new clients, as well as leveraging the client base by
undertaking additional projects for existing clients. North American net
revenues grew 33% to $30.0 million from $22.5 million in 1995. European
operations continued to make significant contributions to net revenues,
accounting for $9.4 million or 24% of consolidated net revenues, up from
$4.7 million or 17% for the same period a year ago.
Project personnel costs consist principally of payroll and payroll related
expenses for personnel dedicated to client assignments and are directly
related to the level of client services being delivered. Project
personnel costs were $17.8 million or 45% of net revenues in 1996 compared
to $13.0 million or 48% of net revenues in 1995. The dollar increase
resulted from hiring of additional project personnel over 1995 staff
levels to support the increased volume of services delivered to clients
and the related increase in payroll and payroll related expenses over
1995. Worldwide project personnel headcount increased 41% to 971
employees at March 31, 1996, from 690 employees at March 31, 1995. The
percentage decrease is primarily due to improvements in project personnel
costs as a percentage of net revenues in the Company's European operations
and the Company's newly acquired companies, SCG and Axiom.
General and administration expenses were $4.4 million or 11% of net
revenues in 1996 compared to $3.6 million or 13% of net revenues in 1995.
The percentage decrease from 1995 is primarily due to the significant
increase in net revenues and the Company's continued focus on cost
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containment. The dollar increase reflects expenses associated with
increased staff headcount to support the Company's continued growth and
geopraphic expansion in both North America and Europe. The Company
expects general and administration expenses to increase as the integration
of the newly acquired companies is fully implemented and as the Company
continues its global expansion strategy.
Sales and marketing expenses were $3.1 million or 8% of net revenues in
1996 compared to $2.6 million or 10% of net revenues in 1995. The dollar
increase is primarily attributable to an increase in payroll and payroll
related expenses associated with the increase in sales and marketing
personnel from 50 in 1995 to 55 in 1996. In addition, the Company
continued its investment in maintaining marketing initiatives and
educational and training programs that provide clients with an
opportunity to learn about new technologies and client/server trends,
such as seminars for chief information officers and interactive management
lab programs. The percentage decrease is due principally to the
significant increase in net revenues from 1995 and the addition of the
Company's newly acquired companies whose sales and marketing expenses as
a percentage of net revenues are lower than the Company's historical
level. In order to successfully intergrate the Company's 1995
acquisitions, the Company expects that sales and marketing expenses will
increase in future periods, due to anticipated hiring of additional sales
and marketing staff and the anticipated increase in marketing programs as
the Company continues to market its combined service offering.
Other costs consists primarily of non-billable expenses directly incurred
for client projects and other associated business costs, including
facilities costs and related expenses, non-billable staff travel and staff
training. Other costs were $7.7 million or 19% of net revenues in 1996
compared to $4.3 million or 16% of net revenues in 1995. The dollar and
percentage increase from 1995 resulted principally from increased
facility, travel, and employee training costs, including costs related to
opening of new offices and expansion of existing offices in both North
America and Europe as the Company continues to execute its global
expansion strategy.
Interest income decreased to $134,000 in 1996 from $168,000 in 1995. This
decrease is principally due to lower average interest rates in 1996
compared to 1995. The average interest rate was 5.1% in 1996 compared to
5.7% in 1995.
Interest expense was $10,000, consisting primarily of facility costs to
maintain the Company's credit facility, in 1996 compared to $45,000 in
1995. Interest expense in 1995, consisted primarily of interest on
amounts outstanding under lines of credit maintained by SCG and Axiom.
Following the acquisitions, all outstanding amounts were repaid and the
Company terminated these revolving credit facilities.
Foreign exchange loss amounted to $12,000 in 1996 compared to a $187,000
gain in 1995. The gain in 1995 is primarily due to weakening of the U.S.
dollar against European currencies related to intercompany balances. In
May 1995, the Company began entering into foreign exchange forward
contracts to hedge against the risk of changes in foreign currency
exchange rates to the Company associated with intercompany balances. As
of March 31, 1996, the Company held foreign exchange contracts of
approximately $4.4 million.
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Net income was $4.1 million or $.24 per share for the 1996 period as
compared to $2.4 million or $.14 per share for the same period in 1995.
The Company increased its net income per share despite a 4% increase in
the number of common and common equivalent shares outstanding primarily
due to options granted to employees and shares issued under the employee
stock purchase plan.
Liquidity and Capital Resources
- - -------------------------------
Working capital increased to $39.1 million at March 31, 1996, from $33.4
million at December 31, 1995. This increase was primarily due to an
increase in accounts receivable and proceeds and related income tax
benefits resulting from exercise of stock options, partially offset by
cash used for capital expenditures. The Company's days sales in accounts
receivable was 77 days during the first quarter of 1996 compared to 71
days for the same period in 1995. The increase is primarily due to the
Company performing larger projects for major corporations in 1996. The
outstanding receivable balances from these clients are greater as a result
of higher billing amounts per project compared to smaller projects in 1995
coupled with more time consuming payment process of these major
corporations. The Company will continue its focus on strong client
partnering relationships to expedite payments. In February 1996, the
Company established a treasury function whose primary responsibility is to
focus on the Company's worldwide collection efforts. During the first
quarter of 1996, the Company reduced its receivable balances over sixty
days to 14.3% of gross receivables compared to 17.4% at December 31, 1995.
Net cash provided by operating activities during the first quarter of 1996
decreased $1.4 million to $1.0 million from $2.4 million for the
comparable period in 1995. The significant increase in net income was
more than offset by the increase in prepaid expenses and other current
assets and unbilled revenue on contracts.
Capital expenditures of $2.3 million in the first quarter of 1996 were
used principally for computer equipment and employee workstations to
support the Company's expanding operations and expanding regional offices.
Total capital expenditures for 1996 are expected to approximate $16.0
million, principally for leasehold improvements, personal computers,
employee workstations, telecommunication and video conferencing equipment,
and other equipment to support both current and anticipated levels of
customer activities in North America and Europe. Capital expenditures
could vary from quarter to quarter, as the Company evaluates potential
acquisitions of companies or technologies that may complement its
business.
The Company maintains a $10.0 million uncollateralized revolving credit
facility (the "Facility"), with Fleet Bank of Massachusetts, N.A. ("Fleet
Bank"). The Facility, which expires on June 30, 1996, bears interest at
a rate per annum equal to Fleet Bank's prime rate in affect from time to
time, payable monthly in arrears commencing with the advance of funds.
The Facility requires, among other things, the Company to maintain certain
financial ratios. At March 31, 1996 and December 31, 1995, the Company was
in compliance with these financial ratio requirements. As of March 31,
1996 and December 31, 1995, no borrowings have been made under the
Facility. The Company expects to increase the amount available under the
Facility and to extend the Facility at least through June 1997.
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<PAGE>
The Company expects that cash flows from operations will provide the
principal source of future liquidity for the Company. However, the
Company is currently experiencing a period of growth which could place a
strain on the Company's financial resources. In order to meet client
demand, the Company expects to continue to increase its professional staff
and to open additional sales and operating offices in 1996 in both North
America and Europe. Although the Company's plans to open offices and hire
personnel are driven in response to increased demand for the Company's
information technology and management consulting, and software development
and evaluation 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 conditions could also adversely affect future results and
liquidity.
The Company currently anticipates that existing cash and investment
balances combined with cash generated from operations, and amounts
available under the Company's Facility will be sufficient, at least
through 1997, to meet the Company's short-term and long-term working
capital requirements and to fund the expansion of the Company's business.
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 the quarter, the number
of working days in a quarter and employee hiring and utilization rates.
The timing of revenues is difficult to forecast because the Company's
sales cycle is relatively long in the case of new clients and may depend
on factors such as the size and scope of the assignments and general
economic conditions. Because a high percentage of the Company's expenses
are relatively fixed, a variation in the timing of the initiation or the
completion of client assignments, particularly at or near the end of any
quarter, can cause significant variations in operating results from
quarter to quarter.
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Statement Regarding Computation of Earnings Per Share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
------- -------
(in thousands, except per share data)
<S> <C> <C>
Net income $ 4,090 $ 2,356
======= =======
Pro forma net income $ 4,090 $ 2,354
======= =======
Weighted average number of
common shares outstanding 14,836 14,392
Dilutive effect of common equivalent
shares of stock options and warrants 2,287 2,027
Weighted average number of common and ------- -------
common equivalent shares outstanding 17,123 16,419
======= =======
Net income per share (1) $ .24 $ .14
======= =======
Pro forma net income per share (1) $ .24 $ .14
======= =======
</TABLE>
(1) Primary and fully diluted income per share are the same for all
periods presented.
b. There were no reports on Form 8-K filed for the quarter ended
March 31, 1996.
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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.
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
Date: May 11, 1996 By: /s/ Arthur M. Toscanini
---------------------------
Arthur M. Toscanini
Senior Vice President
-Finance and Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7457
<SECURITIES> 9256
<RECEIVABLES> 39243
<ALLOWANCES> 625
<INVENTORY> 0
<CURRENT-ASSETS> 60766
<PP&E> 18563
<DEPRECIATION> 5783
<TOTAL-ASSETS> 78296
<CURRENT-LIABILITIES> 21634
<BONDS> 0
0
0
<COMMON> 149
<OTHER-SE> 56358
<TOTAL-LIABILITY-AND-EQUITY> 78296
<SALES> 39631
<TOTAL-REVENUES> 39631
<CGS> 0
<TOTAL-COSTS> 32926
<OTHER-EXPENSES> 122
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 6817
<INCOME-TAX> 2727
<INCOME-CONTINUING> 4090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4090
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
