<PAGE>
Filed pursuant to Rule 424(b)(4)
Registration No. 333-16165
PROSPECTUS
135,857 SHARES
CAMBRIDGE TECHNOLOGY PARTNERS
COMMON STOCK
-----------------------
This Prospectus relates to the sale of up to 135,857 shares (the "Shares") of
the common stock, par value $.01 per share (the "Common Stock"), of Cambridge
Technology Partners (Massachusetts), Inc. ("Cambridge Technology Partners" or
the "Company") by certain stockholders of the Company (collectively, the
"Selling Stockholders"). The Selling Stockholders may sell the Shares from time
to time at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. The Selling Stockholders
may effect these transactions by selling the Shares to or through broker-
dealers, who may receive compensation in the form of discounts or commissions
from the Selling Stockholders or from the purchasers of the Shares for whom the
broker-dealers may act as an agent or to whom they may sell as principal, or
both. See "Selling Stockholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the Shares.
The Company has agreed to bear all of the expenses in connection with the
registration and sale of the Shares (other than selling commissions).
The Common Stock of the Company is quoted on the Nasdaq National Market under
the symbol "CATP." On November 7, 1996, the last reported sale price for the
Common Stock on the Nasdaq National Market was $30.00 per share.
---------------
See "Risk Factors" on page 5 for information that should be considered by
prospective investors.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO OR SOLICITATION OF ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT BE LAWFULLY MADE.
The date of this Prospectus is December 4, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices located at
7 World Trade Center, New York, New York 10048, and at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock
of the Company is traded on the Nasdaq National Market. Reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the National Association of Securities Dealers, Inc. located at 1735
K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form S-3
(including all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock offered hereby. This Prospectus does not contain all information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information regarding the Company and the Common Stock offered hereby, reference
is hereby made to the Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any agreement or other document filed as an exhibit to the Registration
Statement are necessarily summaries of such documents, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement for a more complete description of the matters involved.
The Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and copies of all or any part thereof
may be obtained from such office upon payment of the prescribed fees. In
addition, the Commission maintains a Web site (http://www.sec.gov.) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Company will provide without charge to each person to whom a Prospectus is
delivered, on the written or oral request of any such person, a copy of any or
all of the documents incorporated by reference herein (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into such documents). Requests for such copies should be directed to Arthur M.
Toscanini, Chief Financial Officer, Cambridge Technology Partners, 304 Vassar
Street, Cambridge, Massachusetts 02139.
2
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated in this Prospectus by reference (File
No. 0-21040):
1. The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
5. The Company's Current Report on Form 8-K dated November 18, 1996.
6. The description of the Company's Common Stock, $.01 par value per
share, contained in the Registration Statement on Form 8-A filed
under the Exchange Act on December 24, 1992, including any
amendment or report filed for the purpose of updating such
description.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
offering of the Shares, shall be deemed to be incorporated by reference in
this Prospectus and made a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference in this Prospectus shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein or in any
Prospectus Supplement modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
3
<PAGE>
THE COMPANY
Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge
Technology Partners" or 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 provides its software design and development
services on a fixed-price, fixed-timetable basis with client involvement at
all stages of the process. In performing its services, the Company employs
a rapid development methodology utilizing client/server architectures. Open
systems computing environments offer end-users a computing environment that
is more flexible and more easily accessible than centralized, mainframe-
based computer systems. As client/server has become the preferred computing
environment, the Company believes that businesses will continue to migrate
to open systems and continue to utilize information technology service
organizations to address the challenges presented by this move.
The Company's information technology and management consulting
services are offered at the enterprise-wide, specific business process and
application software levels of an organization, and include Business
Renewal/TM/, a proprietary methodology developed by Axiom Management
Consulting, Inc., a wholly-owned subsidiary of the Company, for evaluating
strategic business change. Upon the completion of consulting services, the
Company typically designs and develops one or more strategic software
applications, which may include custom and third-party package software,
and then rolls-out such applications to the organization's end-users. These
software applications are selected and designed to achieve a competitive
advantage, enhance the efficiency and functionality of specific business
processes, and support financial goals. The Company may also assist its
clients in providing end-user training for managing the organizational
changes that accompany the roll-out of new applications and the
assimilation of such applications into production environments. Cambridge
Technology Partners provides network analysis, design and deployment
services to assist its clients in successfully implementing the
applications in an open systems environment. The Company also provides
package software evaluation and implementation as independent service
offerings. To date, revenues have been generated principally from the
Company's custom software design and development activities.
The Company's principal offices are located at 304 Vassar Street,
Cambridge, Massachusetts and the Company's telephone number is (617) 374-
9800.
4
<PAGE>
RECENT DEVELOPMENTS
On October 15, 1996, the Company acquired all of the outstanding
shares of capital stock of NatSoft S.A. ("NatSoft"), a Swiss corporation
(the "NatSoft Acquisition"). The NatSoft Acquisition was accomplished
through an exchange of up to 272,000 shares of the Company's common stock
for all outstanding shares of capital stock of NatSoft. The NatSoft
Acquisition has been accounted for under the pooling-of-interests method.
The purchase price and terms for the transaction were determined in arms-
length negotiations.
Formed in 1986, NatSoft had 1995 revenues of $12.3 million for the 12
months ended December 31, 1996 and has approximately 105 employees at its
office in Geneva, Switzerland. NatSoft is an information technology
consulting and software implementation firm. NatSoft will be operated as a
wholly-owned subsidiary of the Company.
On October 31, 1996, the Company entered into a definitive agreement to
acquire all of the outstanding capital stock of Ramos & Associates, Inc.
("Ramos"), a California corporation (the "Ramos Acquisition"). The
acquisition was accomplished through a merger of the Company's acquisition
subsidiary and Ramos in an exchange of approximately 1,175,200 shares of
the Company's common stock for all the outstanding shares of capital stock
of Ramos. Ramos, founded in 1991 and based in San Ramon, California, is an
information technology consulting and software implementation firm which
specializes in the Enterprise Resource Planning service market. With
offices in San Ramon, Dallas, Islia, New Jersey, and Chicago, Ramos has
approximately 215 employees worldwide. This acquisition was completed
November 18, 1996.
RISK FACTORS
This Prospectus includes forward-looking statements which involve risks and
uncertainties, particularly as to capital expenditures, future liquidity
needs, working capital needs, and projected personnel costs, general and
administrative expenses, sales and marketing expenses, and other costs as a
percentage of net revenues. 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, in addition to the other information in this Prospectus,
and the information incorporated in this Prospectus by reference, the
following investment considerations should be considered carefully in
evaluating the Company and its business before purchasing the Common Stock
offered hereby.
Difficulty of Integrating The Companies. The NatSoft Acquisition was
---------------------------------------
completed on October 15, 1996. The Ramos Acquisition is expected to be
completed the week of November 18, 1996. The successful integration of the
Company, NatSoft and Ramos is important to the future financial performance
of the combined enterprise. The anticipated benefits of the NatSoft
Acquisition and Ramos Acquisition may not be achieved unless, among other
things, the operations of NatSoft and Ramos are successfully combined with
those of the Company in a timely manner. The diversion of the attention of
management, and any difficulties encountered in the transition process,
could have an adverse impact on the revenues and operating results of the
combined enterprise. There can be no assurance that the Company will be
able to successfully integrate NatSoft or Ramos into the Company's
operations.
Management of Growth. The Company is currently experiencing a period of
--------------------
growth which has placed, and could continue to place, a strain on the
Company's financial and other resources. The Company's ability to manage
its staff and facilities growth effectively will require it to continue to
improve its operational, financial, and other internal systems, and to
train, motivate and
5
<PAGE>
manage its employees. If the Company's management is unable to manage
growth effectively and new employees are unable to achieve anticipated
performance levels, the Company's results of operations could be adversely
affected. Potential investors should consider the risks, expenses and
difficulties frequently encountered in connection with the operation and
development of a new and expanding business.
Attraction and Retention of Employees. The Company's business involves the
-------------------------------------
delivery of professional services and is labor-intensive. The Company's
success will depend in large part upon its ability to attract, retain and
motivate highly skilled employees, particularly project managers and client
managers and other senior personnel. Qualified project managers are in
particularly great demand and are likely to remain a limited resource for
the foreseeable future. Although the Company expects to continue to
attract sufficient numbers of highly skilled employees and to retain
existing project managers, client managers and other senior personnel for
the foreseeable future, there can be no assurance that the Company will be
able to do so. The loss of some or all of the Company's project managers,
client managers and other senior personnel could have a material adverse
impact on the Company, including its ability to secure and complete
engagements.
Variability of Quarterly Operating 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, 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
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 and could result in losses. The Company's
engagements generally are terminable without client penalty. An
unanticipated termination of a major project could require the Company to
maintain or terminate under-utilized employees, resulting in a higher than
expected number of unassigned persons or higher severance expenses. While
professional staff must be adjusted to reflect active projects, the Company
must maintain a sufficient number of senior professionals to oversee
existing client projects and participate with the Company's sales force in
securing new client assignments. Because substantially all of the
Company's engagements are performanced on a fixed-price basis, the Company
also bears the risk of cost overruns and inflation. In addition, in order
to meet client demand, the Company expects to continue to increase its
professional staff and to open additional sales and operations offices in
1997 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 consulting and software
development 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.
6
<PAGE>
Competition. The information technology consulting and software
-----------
development market comprises a large number of participants, is subject to
rapid changes, and is highly competitive. The market includes participants
from a variety of market segments, including systems consulting and
integration firms, contract programming companies, application software
firms, the professional service groups of computer equipment companies such
as Hewlett-Packard Company, Unisys Corporation, IBM, and Digital Equipment
Corporation, facilities management and MIS outsourcing companies, "Big Six"
accounting firms, and general management consulting firms. The Company's
competitors also include companies such as Andersen Consulting, Technology
Solutions Corporation, SHL Systemhouse, Inc., Innovative Information
Systems Inc., Cap Gemini America, Business System Group, the consulting
division of Computer Sciences Corporation, and Electronic Data Systems
Corporation. The Company also faces competition from information services
organizations within potential clients. Many participants in the
information technology consulting and software development market have
significantly greater financial, technical and marketing resources and,
given the Company's brief history, greater name recognition than the
Company, and generate greater systems consulting and integration revenues
than does the Company. In addition, the custom software development and
systems integration market is highly fragmented and served by numerous
firms, many of which serve only their respective local markets. The Company
believes that its ability to compete also depends in part on a number of
competitive factors outside its control, including the ability of its
competitors to hire, retain and motivate senior project managers, the
ownership by competitors of software used by potential clients, the
development by others of software that is competitive with the Company's
products and services, the price at which others offer comparable services,
and the extent of its competitors' responsiveness to customer needs.
International Operations. The Company derived approximately $28.6 million
------------------------
and $32.7 million, or 22% and 23% of its total revenues, from customers
outside of the United States in 1995 and in the nine months ended September
30, 1996, respectively. The Company's international business is subject to
a number of risks, including difficulties in building and managing foreign
operations, difficulties in translating its methodologies into foreign
languages, fluctuations in the value of foreign currencies, and unexpected
regulatory, economic or political changes in foreign markets. There can be
no assurance that these factors will not adversely affect the Company and
its financial results.
Intellectual Property Rights. The Company's success is dependent upon its
----------------------------
software development methodology and other proprietary intellectual
property rights. The Company relies upon a combination of trade secret,
nondisclosure and other contractual arrangements and technical measures,
and copyright and trademark laws to protect its proprietary rights. The
Company presently holds no patents or registered copyrights. The Company
generally enters into confidentiality agreements with its employees,
consultants, clients and potential clients and limits access to, and
distribution of, its proprietary information. There can be no assurance
that the steps taken by the Company in this regard will be adequate to
deter misappropriation of its proprietary information or that the Company
will be able to detect unauthorized use and take
7
<PAGE>
appropriate steps to enforce its intellectual property rights. The
Company's business includes the development of custom software in
connection with specific client engagements. Ownership of such software is
generally assigned to the client. The Company also develops object-oriented
software components that can be reused in software application development,
certain foundation and application software projects, or software "tools,"
most of which remain the property of the Company. Although the Company
believes that its services and products do not infringe on the intellectual
property rights of others, there can be no assurance that such a claim will
not be asserted against the Company in the future.
USE OF PROCEEDS
The proceeds from the sale of each Selling Stockholder's Shares will belong
to the Selling Stockholder. The Company will not receive any of the
proceeds from such sales of the Shares.
8
<PAGE>
PRICE RANGE OF COMMON STOCK
From April 12, 1993, until May 24, 1993, CTP's common stock traded on
the Nasdaq SmallCap Market. On May 24, 1993, CTP's Common Stock began trading on
the Nasdaq National Market. The following table sets forth, on a per share basis
for the periods shown, the range of high and low sale prices of CTP's Common
Stock as reported by Nasdaq. All share prices prior to June 19, 1996 have been
adjusted to reflect a three-for-one stock split completed on June 19, 1996.
<TABLE>
<CAPTION>
1993 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
Second Quarter (from April 12, 1993) $ 3.92 $ 2.33
Third Quarter 5.33 3.08
Fourth Quarter 5.91 4.92
================================================================================
1994
- --------------------------------------------------------------------------------
First Quarter $ 6.08 $ 4.92
Second Quarter 5.91 4.67
Third Quarter 5.91 4.83
Fourth Quarter 7.92 4.67
================================================================================
1995
- --------------------------------------------------------------------------------
First Quarter $10.00 $ 7.08
Second Quarter 12.00 9.08
Third Quarter 17.58 10.33
Fourth Quarter 20.33 13.83
================================================================================
1996
- --------------------------------------------------------------------------------
First Quarter $19.25 $14.625
Second Quarter 30.75 17.75
Third Quarter 37.25 22.25
================================================================================
</TABLE>
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The Company's
current borrowing arrangements prohibit the payment of dividends without the
lender's prior consent. The Company currently intends to retain future earnings
for use in its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
9
<PAGE>
SELLING STOCKHOLDERS
The Shares are to be offered by and for the respective accounts of the Selling
Stockholders. The number of Shares which each Selling Stockholder may offer is
as follows:
<TABLE>
<CAPTION>
Shares Shares Shares Percentage
Beneficially Offered Beneficially of
Owned Pursuant Owned Ownership
before to this after after the
Selling Stockholders Offering Prospectus Offering/(1)/ Offering
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jane Royston 130,178 58,578 71,600 *
Rolf Spring 84,911 38,208 46,703 *
Christophe Martin 45,295 33,972 11,323 *
Anita O'Neil 11,330 5,099 6,231 *
TOTAL 271,714 135,857 135,857 *
</TABLE>
- ----------------------
* Less than 1%
/(1)/ Assumes that all of the Shares owned by each Selling Stockholder and
registered under this registration statement are sold during the
distribution period described below.
All of the Selling Stockholders acquired his or her Shares in connection with
the NatSoft Acquisition described under "Recent Developments." None of the
Selling Stockholders has had any material relationship with the Company or any
of its affiliates within the past three years except as described under "Recent
Developments".
Each Selling Stockholder represented to the Company that it was acquiring its
Shares without any present intention of effecting a distribution of those
Shares. In recognition of the fact, however, that investors may want to be able
to sell their Shares when they consider it appropriate, in connection with the
NatSoft Acquisition, the Company agreed to file the Registration Statement with
the Commission to permit the public sale of the Shares and to use all reasonable
efforts to keep the Registration Statement effective until the earlier of
October 15, 1998 or the sale of all of the Shares pursuant to Rule 144 under the
Securities Act or the Registration Statement. The Company will prepare and file
such amendments and supplements to the Registration Statement as may be
necessary to keep it effective until all of the Shares have been sold pursuant
to the Registration Statement or until registration of the Shares is no longer
required by reason of Rule 144(k) under the Securities Act or other rules of
similar effect.
10
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold from time to time by the Selling
Stockholders for their own accounts, subject to any contractual agreements by
the Selling Stockholders with respect to sales and the requirements for the
"pooling-of-interests" accounting method. The Company will receive none of the
proceeds from this offering. The Selling Stockholders will pay or assume
brokerage commissions or other charges and expenses incurred in the sale of the
Shares.
The distribution of the Shares by the Selling Stockholders is not subject to any
underwriting agreement. The Shares covered by this Prospectus may be sold by the
Selling Stockholders or by pledgees, donees, transferees or other successors in
interest. The Shares offered by the Selling Stockholders may be sold from time
to time at market prices prevailing at the time of sale, at prices relating to
such prevailing market prices or at negotiated prices. In addition, the Selling
Stockholders may sell their Shares covered by this Prospectus through customary
brokerage channels, either through broker-dealers acting as agents or brokers,
or through broker-dealers acting as principals, who may then resell the Shares,
or at private sale or otherwise, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Stockholders may effect such transactions by selling Shares
to or through broker-dealers, and such broker-dealers may receive compensation
in the form of underwriting discounts, concessions, commissions, or fees from
the Selling Stockholders and/or purchasers of the Shares for whom such broker-
dealers may act as agent or to whom they sell as principal, or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions). Any broker-dealers that participate with the Selling Stockholders
in the distribution of Shares may be deemed to be underwriters and any
commissions received by them and any profit on the resale of Shares placed by
them might be deemed to be underwriting discounts and commissions within the
meaning of the Securities Act, in connection with such sales.
Any shares covered by the Prospectus that qualify for sale pursuant to Rule 144
under the Securities Act may be sold under Rule 144 rather than pursuant to this
Prospectus.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The supplemental consolidated financial statements of the Company included in
this Prospectus have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The consolidated financial statements and schedule of the Company incorporated
by reference in this Prospectus have been so incorporated in reliance on the
reports of Coopers & Lybrand
11
<PAGE>
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The financial statements of NatSoft S.A. included in this Prospectus have been
included herein in reliance on the report of STG-Coopers & Lybrand S.A.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
12
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
- ----
(a) NatSoft Consolidated Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Operations for the Years Ended F-4
December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the Years Ended F-5
December 31, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity for the Years F-6
Ended December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements F-7
(b) Supplemental Consolidated Financial Statements
Report of Independent Accountants F-13
Supplemental Consolidated Balance Sheets as of December 31, F-14
1995 and 1994
Supplemental Consolidated Statements of Operations for the F-15
Years Ended December 31, 1995, 1994, and 1993
Supplemental Consolidated Statements of Stockholders' Equity F-16
for the Years Ended December 31, 1995, 1994, and 1993
Supplemental Consolidated Statements of Cash Flows for the F-17
Years Ended December 31, 1995, 1994, and 1993
Notes to Supplemental Consolidated Financial Statements F-18
(c) Supplemental Unaudited Interim Consolidated Financial Statements
Supplemental Consolidated Balance Sheets as of September 30, 1996 S-1
and December 31, 1995
Supplemental Consolidated Statements of Operations for the S-2
Three and Nine Months Ended September 30, 1996 and 1995
Supplemental Consolidated Statements of Cash Flows for the Nine S-3
Months Ended September 30, 1996 and 1995
Notes to Supplemental Interim Unaudited Consolidated Financial S-4
Statements
F-1
<PAGE>
To the Board of Directors
NatSoft S.A.
We have audited the accompanying consolidated balance sheets of NATSOFT S.A. and
subsidiary as of December 31, 1995, 1994 and 1993, and the related consolidated
statements of operations, cash flows and shareholders' equity for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United State of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the consolidated financial position of NatSoft
S.A. and subsidiary as of December 31, 1995, 1994 and 1993, and the consolidated
results of their operations and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
Geneva, Switzerland
October 14, 1996
STG-Coopers & Lybrand SA
F.H. Heerde T. Loth
Partner Manager
F-2
<PAGE>
<TABLE>
<CAPTION>
NATSOFT S.A. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 1994 1993
USD USD USD
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents 1,112,961 640,906 247,769
Accounts receivable, less
allowance of USD 132,170,
USD 103,217 and USD 60,753
at December 31, 1995, 1994
and 1993, respectively 1,420,203 848,036 496,910
Unbilled revenue on contracts 930,152 1,322,137 795,270
Other current assets 65,300 12,801 16,546
TOTAL CURRENT ASSETS 3,528,616 2,823,880 1,556,495
Property and equipment, net 526,957 479,653 220,543
Other Assets 133,508 48,770 33,784
TOTAL ASSETS 4,189,081 3,352,303 1,810,822
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable 124,324 384,819 151,926
Due to shareholders 28,503 267,838 10,131
Accrued liabilities 2,075,327 1,185,198 683,503
Deferred income taxes 191,992 159,096 135,678
TOTAL CURRENT LIABILITIES 2,420,146 1,996,951 981,238
Deferred income taxes 136,491 103,817 32,051
TOTAL LIABILITIES 2,556,637 2,100,768 1,013,289
Commitments and contingencies
(Notes 5 and 8)
Shares capital (217 shares
authorized and issued 84,635 84,635 84,635
Retained Earnings 1,297,027 1,091,918 756,005
Foreign currency translation adjustment 250,782 74,982 -43,107
TOTAL SHAREHOLDERS' EQUITY 1,632,444 1,251,535 797,533
TOTAL LIABILITIES AND SHAREHOLDERS' 4,189,081 3,352,303 1,810,822
EQUITY
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
NATSOFT S.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YERAS ENDED DECEMBER 31, 1995 1994 1993
USD USD USD
<S> <C> <C> <C>
Net revenues 12,253,908 7,825,162 5,341,795
Costs and expenses
Project personnel 7,749,526 4,536,137 3,610,006
General administration 2,476,179 1,344,404 821,005
Sales and marketing 844,271 971,067 557,745
Other costs 851,452 497,115 223,581
TOTAL OPERATING EXPENSES 11,921,428 7,348,723 5,212,337
OPERATING INCOME 332,480 476,439 129,458
Other income (expense)
Interest income 5,870 -- 3,749
Financial expense -19,699 -2,767 -2,614
Foreign exchange gain (loss) -18,220 -6,406 6,816
INCOME BEFORE INCOME TAXES 300,431 467,266 137,409
Provision for income taxes -95,322 -131,353 -11,953
NET INCOME 205,109 335,913 125,456
Net income per share
Nominal share value USD 348
- 210 shares 854.62 1,399.64 522.73
Nominal share value USD 772
- 5 shares 1,709.24 2,799.27 1,045.47
Nominal share value USD
3,861 - 2 shares 8,546.22 13,996.36 5,227.33
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
NATSOFT S.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 1995 1994 1993
USD USD USD
<S> <C> <C> <C>
Net income 205,109 335,913 125,456
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 256,386 99,503 53,065
Provision for deferred
income taxes 28,894 70,315 -15,393
(Increase) decrease in
accounts receivable and
Unbilled revenue 113,459 -680,290 -354,440
(Increase) decrease in
other current assets -49,471 5,644 -9,149
(Increase) decrease in
other assets -76,105 -10,154 -20,145
Increase (decrease) in
accounts payable -305,192 204,169 11,508
Increase (decrease) in
accrued liabilities 709,807 395,543 444,990
Increase (decrease) due to
shareholders -268,982 245,557 --
NET CASH PROVIDED BY OPERATING 613,905 666,200 235,892
ACTIVITIES
Addition to property and equipment -282,719 -320,252 -221,824
Disposals of property and equipment 44,118 -- 8,850
NET CASH USED BY INVESTING ACTIVITIES -238,601 -320,252 -212,974
Effect of exchange rate changes on cash 96,751 47,190 -3,555
NET INCREASE IN CASH AND CASH 472,055 393,137 19,363
EQUIVALENTS
Cash and cash equivalents, beginning of
period 640,906 247,769 228,406
CASH AND CASH EQUIVALENTS, END OF PERIOD 1,112,961 640,906 247,769
Cash interest paid 3,597 2,723 2,614
Cash income taxes paid 24,897 78,837 23,769
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
NATSOFT S.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
NUMBER CURRENCY TOTAL
OF SHARE RETAINED TRANSLATION SHAREHOLDERS'
SHARES CAPITAL EARNINGS ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1993 217 84,635 630,549 -33,257 681,927
Net income 125,456 125,456
Currency translation
adjustment -9,850 -9,850
BALANCES, DECEMBER 31, 1993 217 84,635 756,005 -43,107 797,533
Net income 335,913 335,913
Currency translation
adjustment 118,089 118,089
BALANCES, DECEMBER 31, 1994 217 84,635 1,091,918 74,982 1,251,535
Net income 205,109 205,109
Currency translation
adjustment 175,800 175,800
BALANCES, DECEMBER 31, 1995 217 84,635 1,297,027 250,782 1,632,444
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
NATSOFT S.A. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company is engaged in one business segment - information systems
consulting services.
The consolidated financial statements include NatSoft S.A., based in
Vernier, Switzerland, and its subsidiary, NatSoft S.a.r.l., based in Ferney
Voltaire, France. All intercompany transactions and balances have been
eliminated in consolidation. The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America (US GAAP) requires management to make estimates and
assumptions that affect the reported amount 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 periods. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
with maturities of three months or less at the date of purchase.
PROPERTY AND EQUIPMENT
Property and equipment, which consists principally of computer equipment,
furniture and fixtures and vehicles, are stated at cost. Repairs and
maintenance costs are charged to operations when incurred. Depreciation is
recorded using the straight-line method over the estimated useful lives of
the assets. Upon sale or disposal of property and equipment, the related
costs and accumulated depreciation are removed from the accounts, and the
resulting gain or loss is included in income.
REVENUE RECOGNITION
The Company derives substantially all of its revenues from providing
services for which it charges fees, generally based on time incurred at
hourly rates agreed upon with its clients, plus out-of-pocket expenses.
Revenues are recognized at the agreed-upon rates based on time incurred
through the balance sheet date, plus out-of-pocket expenses. Recognized
revenues not yet billed to clients are reported as unbilled revenue on
contracts.
F-7
<PAGE>
NATSOFT S.A. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of accounts receivable. For the years
ended December 31, 1995, 1994 and 1993, two customers accounted for
approximately 56%, 57% and 45% of total revenues, respectively. As of
December 31, 1995, the Company has not experienced any material losses
resulting from these concentrations of credit risk.
CURRENCY TRANSLATION
The Company maintains its books and records in Swiss francs (CHF). Assets
and liabilities are translated into United States dollars (USD) at year-end
exchange rates. Revenues and expenses are translated into USD using
average exchange rates during the year. Adjustments arising from the
translation of CHF accounts into USD are recorded in a separate component
of shareholders' equity. The functional currency of NatSoft S.A. is the
CHF. The functional currency of NatSoft S.a.r.l. is the French franc.
Exchange gains and losses arising from transactions denominated in a
currency other than the functional currency are reported in income.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109. Deferred taxes are recognized for
temporary differences between the values of assets and liabilities reported
in the financial statements and those reported for income tax purposes.
Such temporary differences relate principally to revenue recognition,
depreciation, and estimates of contingent liabilities.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (USD in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1995 1994 1993
<S> <C> <C> <C> <C>
Computer equipment 4 years 502 333 76
Vehicles 5 years 302 325 223
Furniture and Fixtures 5 years 216 93 76
TOTAL COST 1,020 751 375
Less, accumulated depreciation 493 271 154
527 480 221
</TABLE>
F-8
<PAGE>
NATSOFT S.A. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (USD in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Accrued payroll expenses 649 596 251
Accrued incentive compensation 460 333 306
Value added tax payable 176 -- --
Provision for claims 569 149 --
Other accrued expenses 221 107 127
2,075 1,185 684
</TABLE>
4. AMOUNTS DUE TO SHAREHOLDERS
Amounts due to shareholders represent deferred payments of salaries and
travel expenses incurred in the ordinary course of business by certain of
the Company's executives who are also shareholders.
5. LEASE COMMITMENTS
The Company leases office facilities under an operating lease that expires
August 31, 2005. At December 31, 1995, the minimum future rental
commitments under this lease were as follows (USD in thousands):
<TABLE>
<S> <C>
1996 283
1997 283
1998 283
1999 283
2000 and thereafter 1,605
2,737
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, rent expense under
all leases was USD 390,948, USD 219,088 and USD 126,691, respectively.
6. RETIREMENT PLANS
The Company sponsors a defined contribution retirement plan (the "Plan")
for employees. The Plan provides for retirement benefits for male
employees at age 65, for female employees at age 62, and for other benefits
in case of earlier death or incapacity.
Under the Plan, employees contribute between 5 to 11% of insured salary
depending on age and other individual factors. All employee contributions
are matched by the
F-9
<PAGE>
NATSOFT S.A. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company. The Company's matching expense under the Plan was USD 180,591, USD
98,805 and USD 78,502 for the years ended December 31, 1995, 1994 and 1993,
respectively.
The Company also sponsors a defined contributions retirement plan for three
Company executives who are also shareholders. The Company's contributions
to this plan were USD 149,999, USD 295,892 and USD 230,271 for the years
ended December 31, 1995, 1994 and 1993, respectively.
7. INCOME TAXES
The income tax provision consisted of the following (USD in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current income tax expense
Federal 8 14 27
Cantonal and communal 59 47 --
67 61 27
Deferred income tax expense
Federal 7 18 -4
Cantonal and communal 21 52 -11
28 70 -15
TOTAL INCOME TAX PROVISION 95 131 12
</TABLE>
Deferred tax liabilities and (assets) at December 31 were as follows (USD
in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenue recognized at cost for tax 125 121 184
purposes
Accelerated depreciation for tax 137 104 32
purposes
Contingencies recognized in different 4 -52 --
periods for tax purposes
Other 62 90 -48
TOTAL NET DEFERRED TAX LIABILITY 328 263 168
</TABLE>
There are no significant differences between the combined Swiss federal,
cantonal and communal statutory tax rates and the Company's effective tax
rate.
F-10
<PAGE>
NATSOFT S.A. SUBSIDIARY
NOTES TO CONSOLIDATED FINACIAL STATEMENTS
8. CONTINGENCIES
In October 1995, a former officer of the Company filed a claim against the
Company charging the Company with wrongful dismissal. In February 1996, a
customer filed claims against the Company charging the Company with failure
to complete work in accordance with the contract and seeking recovery of
certain fees paid to the Company in 1994 and 1995. Management has provided
for the estimated costs of resolving these claims in the financial
statements as of December 31, 1995. Management believes that the ultimate
outcome of these claims will not be significantly different from the
amounts provided.
9. SHARE CAPITAL
At December 31, 1995, 1994 and 1993 the Company had 217 shares outstanding,
consisting of three classes of nominal value per share, with each share
having one vote. The number of shares outstanding in each class and their
nominal values are as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING NOMINAL VALUE PER SHARE SHARE CAPITAL
<S> <C> <C>
210 348 73,052
5 772 3,861
2 3,861 7,722
217 84,635
</TABLE>
10. RETAINED EARNINGS
Under Swiss company law, the Company must allocate 5% of its statutory net
earnings to a general reserve included within retained earnings, until such
reserve equals 20% of share capital. In addition, the Company must
allocate an amount equal to 10% of dividends in excess of 5% of share
capital to the general reserve. The Company is restricted from paying
dividends from the general reserve that would reduce it to less than 50% of
share capital.
The general reserve within retained earnings totaled USD 17,255, USD 17,255
and USD 15,223 as of December 31, 1995, 1994 and 1993, respectively.
F-11
<PAGE>
NATSOFT S.A. SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SUBSEQUENT EVENT
On September 3, 1996 the Company signed a non-binding letter of
understanding with Cambridge Technology Partners (Massachusetts), Inc.
(CTP) under which CTP would acquire all of the Company's capital shares for
newly issued common shares of CTP, in a transaction to be accounted for as
a pooling of interests. Closing of the transaction, which is subject to a
number of terms and conditions, is scheduled to take place on October 15,
1996.
F-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Cambridge Technology Partners (Massachusetts), Inc.:
We have audited the accompanying supplemental consolidated balance sheets of
Cambridge Technology Partners (Massachusetts), Inc. as of December 31, 1995 and
1994, and the related supplemental consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of Cambridge Technology Partners (Massachusetts), Inc. and NatSoft
S.A. completed on October 15, 1996, which has been accounted for as a pooling of
interests as described in Note A to the supplemental consolidated financial
statements. Generally accepted accounting principles proscribe giving effect to
a consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation;
however, they will become the historical consolidated financial statements of
Cambridge Technology Partners (Massachusetts), Inc. after financial statements
covering the date of consummation of the business combination are issued.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cambridge
Technology Partners (Massachusetts), Inc., as of December 31, 1995 and 1994, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles applicable after financial statements are issued
for a period which includes the date of consummation of the business
combination.
As discussed in Note M of Notes to the supplemental consolidated financial
statements, effective January 1, 1993, the Company changed its method of
accounting for income taxes.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 11, 1996
F-13
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,451 $ 4,006
Investments held to maturity 8,544 10,311
Accounts receivable, less allowance of $732 and $552
at December 31, 1995 and 1994, respectively 37,378 20,414
Unbilled revenue on contracts 2,045 2,620
Prepaid expenses and other current assets 2,326 2,204
------- -------
Total current assets 57,744 39,555
Property and equipment, net 11,805 5,823
Other assets 1,663 1,531
Deferred income taxes - 112
Goodwill, net 3,311 4,109
------- -------
Total assets $74,523 $51,130
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,626 $ 3,678
Accrued expenses 10,794 8,312
Deferred revenue 2,993 2,295
Deferred income taxes 443 439
Borrowings under revolving credit facility - 1,501
Income taxes payable 2,163 858
Obligations under capital leases, current 163 123
Other current liabilities 29 461
------- -------
Total current liabilities 23,211 17,667
Obligations under capital leases 204 72
Other liabilities - 1,023
Deferred income taxes 76 -
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.01 par value, authorized 120,000,000 shares;
issued and outstanding 44,420,332 and 43,305,229
at December 31, 1995 and 1994, respectively 444 433
Additional paid-in capital 23,726 15,769
Unamortized portion of deferred compensation - (9)
Note receivable from officer - (8)
Retained earnings 26,343 16,133
Foreign currency translation adjustment 519 50
------- -------
Total stockholders' equity 51,032 32,368
------- -------
Total liabilities and stockholders' equity $74,523 $51,130
======= =======
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
F-14
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Net revenues $144,670 $91,302 $55,303
Costs and expenses:
Project personnel 66,754 42,283 26,311
General and administration 18,213 11,612 7,293
Sales and marketing 14,833 10,535 7,001
Other costs 23,856 14,657 8,492
Business combination costs 1,333 - -
------- ------- -------
Total operating expenses 124,989 79,087 49,097
------- ------- -------
Income from operations 19,681 12,215 6,206
Other income (expense):
Interest income 712 368 101
Interest expense (318) (148) (123)
Gain on sale of AdValue 909 - -
Foreign exchange gain 106 42 7
------- ------- -------
Income before income taxes 21,090 12,477 6,191
Provision for income taxes 8,202 4,584 2,229
------- ------- -------
Income before cumulative effect of change in
accounting principle 12,888 7,893 3,962
Cumulative effect of change in accounting for
income taxes - - 1,204
------- ------- -------
Net income $ 12,888 $ 7,893 $ 5,166
======= ======= =======
Net income per share:
Income before cumulative effect of change in
accounting principle $ .25 $ .17 $ .09
Cumulative effect of change in accounting for
income taxes - - .03
------- ------- -------
Net income $ .25 $ .17 $ .12
======= ======= =======
Pro forma data (unaudited) (Note M):
Historical income before income taxes $21,090 $12,477 $ 6,191
Provision for income taxes:
Historical income taxes 8,202 4,584 2,229
Pro forma increase to historical income taxes 215 517 225
------- ------- -------
Income before cumulative effect of change in
accounting principle 12,673 7,376 3,737
Cumulative effect of change in accounting for
income taxes - - 1,204
------- ------- -------
Pro forma net income $ 12,673 $ 7,376 $ 4,941
======= ======= =======
Pro forma net income per share (unaudited):
Income before cumulative effect of change in
accounting principle $ .25 $ .16 $ .08
Cumulative effect of change in accounting for
income taxes - - .03
------- ------- -------
Pro forma net income $ .25 $ .16 $ .11
======= ======= =======
Weighted average number of common and
common equivalent shares outstanding 50,687 46,952 43,004
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
F-15
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
FOREIGN
NUMBER ADDITIONAL RECEIVABLE CURRENCY
OF PAR PAID-IN UNEARNED FROM TRANSLATION RETAINED
SHARES VALUE CAPITAL COMPENSATION OFFICER ADJUSTMENT EARNINGS
---------- ----- ----------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992, as reported 12,460,400 $124 $ 577 $ (122) $ (115) $ - $ 3,182
Pooling of interests with NatSoft S.A. 271,714 3 82 - - (33) 631
---------- ---- ------- ------------ ---------- ----------- -------
Balance, December 31, 1992, as restated 12,732,114 127 659 (122) (115) (33) 3,813
Issuance of common stock in rights
offering, net of issuance cost 800,000 8 3,656 - - - -
Exercise of stock options 60,995 1 75 - - - -
Income tax benefit related to stock
option exercises - - 249 - - - -
Repayment of notes receivable
from employees for stock purchased
under employee stock purchase plan - - 182 - - - -
Amortization of unearned compensation
associated with stock options - - - 56 - - -
Amortization of note receivable
from officer - - - - 53 - -
Foreign currency translation
adjustment - - - - - 1 -
Issuance of Axiom stock under
restricted stock plan - - 6 - - - -
Dividend distribution - - - - - - (280)
Axiom's conversion to C Corporation - - (335) - - - (379)
Net income - - - - - - 5,166
---------- ---- ------- ------------ ---------- ----------- -------
Balance, December 31, 1993 13,593,109 $136 $ 4,492 $ (66) $ (62) $(32) $ 8,320
Issuance of common stock in public
offering, net of issuance cost 500,000 5 6,895 - - - -
Issuance of common stock through
acquisition of IOS Group AB, net
of issuance cost 425,000 4 4,217 - - - -
Exercise of stock options 98,110 1 304 - - - -
Income tax benefit related to
stock option exercises - - 537 - - - -
Repayment of notes receivable from
employees for stock purchased under
employee stock purchase plan - - 14 - - - -
Amortization of unearned compensation
associated with stock options - - - 57 - - -
Amortization of note receivable
from officer - - - - 54 - -
Foreign currency translation adjustment - - - - - 82 -
Issuance of Axiom stock under restricted
stock plan - - 25 - - - -
Issuance of Axiom stock under stock
agreement - - 297 - - - -
Repurchase of Axiom common stock - - (725) - - - -
Dividend distribution - - - - - - (80)
Net income - - - - - - 7,893
---------- ---- ------- ------------ ---------- ----------- -------
Balance, December 31, 1994 14,616,219 $146 $16,056 $ (9) $ (8) $ 50 $16,133
Exercise of stock options 342,051 4 1,788 - - - -
Income tax benefit related to stock
option exercises - - 3,753 - - - -
Shares issued under employee stock
purchase plan 29,650 - 579 - - - -
Repurchase of Axiom common stock - - (53) - - - -
Repurchase of note payable related
to repurchase of Axiom common stock - - (284) - - - -
Issuance of Axiom stock under stock
agreement - - 66 - - - -
Payment on note receivable from
employees for stock purchased under
employee stock purchase plan - - 36 - - - -
Amortization of unearned comepnsation
associated with stock options - - - 9 - - -
Amortization of note receivable from
officer - - - - 8 - -
SCG conversion to C Corporation - - 2,079 - - - (2,079)
Foreign currency translation adjustment - - - - - 469 -
Dividend distribution - - - - - - (599)
Net income - - - - - - 12,888
---------- ---- ------- ------------ ---------- ----------- -------
Balance, December 31, 1995 14,987,920 $150 $24,020 $ - $ - $519 $26,343
========== ==== ======= ============ ========== =========== =======
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
F-16
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,888 $ 7,893 $ 5,166
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,738 1,808 609
Tax benefit from exercise of stock options 3,753 537 249
Cumulative effect of change in accounting
for income taxes - - (1,204)
Provision for deferred income taxes 115 121 240
Amortization of unearned compensation 9 57 56
Note receivable from officer 8 54 53
Gain on sale of AdValue (909) - -
Increase in accounts receivable (15,529) (6,946) (4,415)
(Increase) decrease in unbilled revenue on contracts (232) (1,636) 187
Increase in prepaid expenses and other current assets (218) (1,035) (93)
Increase in other assets (191) (657) (368)
Increase in accounts payable 2,847 1,837 527
Increase in accrued expenses 1,883 4,139 783
Increase (decrease) in deferred revenue 1,161 1,278 (1,440)
Increase (decrease) in income taxes payable 1,316 (1,005) 1,683
Other, net (325) 606 (137)
-------- -------- -------
Net cash provided by operating activities 10,314 7,051 1,896
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (8,687) (4,067) (1,424)
Purchase of investments held to maturity (22,140) (23,136) (500)
Maturity of investments held to maturity 24,075 13,376 -
Proceeds from sale of AdValue 909 - -
Cash used in acquisition of business, net of cash acquired - (251) -
-------- -------- -------
Net cash used in investing activities (5,843) (14,078) (1,924)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under credit arrangements, net (1,501) 101 195
Issuance of common stock, net of issuance costs - 6,900 3,664
Repayment of promissory note payable to stockholder - - (2,682)
Proceeds from long-term debt - 183 2,500
Repayment of long-term debt and capital leases (1,128) (125) (2,560)
Dividend distributions (599) (80) (280)
Proceeds from repayment of notes under employee
stock purchase plan - - 182
Proceeds from employee stock purchase plan 579 - -
Proceeds from exercise of stock options 1,792 305 76
Other, net (235) (50) -
-------- -------- -------
Net cash (used in) provided by financing activities (1,092) 7,234 1,095
-------- -------- -------
Effect of foreign exchange rate changes on cash 66 39 (4)
Net increase in cash and cash equivalents 3,445 246 1,063
Cash and cash equivalents at beginning of period 4,006 3,760 2,697
-------- -------- -------
Cash and cash equivalents at end of period $ 7,451 $ 4,006 $ 3,760
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
F-17
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF REPORTING
------------------
The accompanying supplemental consolidated financial statements of Cambridge
Technology Partners (Massachusetts), Inc. (the "Company") have been prepared to
give retroactive effect to the acquisition of NatSoft S.A. ("NatSoft"), a
Switzerland-based information technology consulting and software implementation
firm. Generally accepted accounting principles proscribe giving effect to
consummated business combinations accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
The supplemental consolidated financial statements presented herein do not
extend through the date of consummation, however, they will become the
historical consolidated financial statements of the Company after financial
statements covering the date of consummation of the business combination are
issued. Costs related to this acquisition of approximately $500,000, which
consist primarily of accounting and legal fees, are not included in the
accompanying supplemental consolidated results of operations as they will be
charged to operating expenses in the fourth quarter of 1996.
The accompanying supplemental consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated. Certain prior period amounts
have been reclassified to conform with current period presentation. In December
1994, Cambridge Technology Partners International, Inc., a wholly owned
subsidiary of the Company, was formed to hold 1%, with the Company holding 99%,
of Cambridge Technology Partners Deutschland GmbH which was formed in January
1995 to conduct the Company's services in Germany.
In June 1996, the Company completed a three-for-one stock split via a 200% stock
dividend to stockholders of record on May 29, 1996. Accordingly, stockholders'
equity in the supplemental consolidated balance sheets has been restated to give
retroactive recognition to the stock split for all periods presented by
reclassifying from paid-in-capital to common stock the par value of the
additional shares arising from the stock split. All references in the
accompanying footnotes to supplemental consolidated financial statements to the
applicable share and per share data, stock option data, and market prices of the
Company's common stock, for all periods presented, have been retroactively
restated to reflect the stock split (see Note J).
B. POOLING OF INTERESTS
--------------------
On October 15, 1996, the Company acquired all of the outstanding shares of
capital stock of NatSoft. This acquisition was accomplished through an exchange
of 271,714 shares of the Company's common stock for all outstanding shares of
capital stock of NatSoft. With approximately 105 employees at the time of
acquisition, NatSoft establishes the Company's entry into the Swiss market and
provides the Company with a pool of multi-lingual professionals who can support
projects in Southern Europe. This acquisition has been accounted for using the
pooling of interests method of accounting. NatSoft currently operates as a
wholly owned subsidiary of the Company.
F-18
<PAGE>
On October 17, 1995, the Company acquired all of the outstanding shares of
capital stock of Axiom Management Consulting, Inc. ("Axiom"). The acquisition
was accomplished through an exchange of 1,007,898 shares (consisting of 978,360
shares of the Company's common stock and options to purchase 29,538 shares of
the Company's common stock) of the Company's common stock for all of the
outstanding shares of capital stock of Axiom and the assumption of all
outstanding options to acquire shares of capital stock of Axiom. This
transaction has been accounted for using the pooling of interests method of
accounting. Axiom, formed in 1988, is a California-based management consulting
firm with approximately 100 employees at the time of acquisition and specializes
in business process renewal services for primarily Fortune 1000 companies.
Axiom currently operates as a wholly owned subsidiary of the Company.
On August 14, 1995, the Company acquired all of the outstanding shares of
capital stock of the Systems Consulting Group, Inc. ("SCG"). The acquisition
was accomplished through an exchange of 2,273,994 shares (consisting of
2,168,292 shares of the Company's common stock and an option to purchase 105,702
shares of the Company's common stock) of the Company's common stock for all of
the outstanding shares of capital stock of SCG and the assumption of all
outstanding options to acquire shares of capital stock of SCG. This transaction
has been accounted for using the pooling of interests method of accounting.
SCG, founded in 1988, had offices in Miami and Chicago and approximately 200
employees at the time of acquisition. SCG focuses on evaluation and
implementation of software packages for financial reporting and consolidation,
human resources/payroll, remote work force automation, manufacturing, and retail
distribution. SCG also specializes in emerging technologies and techniques,
such as imaging, cooperative processing, and wireless communications. SCG
operated as a wholly owned subsidiary of the Company in 1995. Effective January
1996, the Company integrated SCG into its operational structure and service
offering, and therefore, it is no longer operating as a subsidiary.
The Company's previously issued historical consolidated financial statements
include the financial position, results of operations, and cash flows of SCG and
Axiom in accordance with pooling of interests requirements. Costs related to
the acquisitions of SCG and Axiom have been charged as business combination
costs in the consolidated statement of operations.
The following information presents certain statement of operations data of the
Company, SCG, Axiom, and NatSoft for the periods prior to the acquisitions. SCG
and Axiom information are
F-19
<PAGE>
presented through September 30, 1995, which represents the interim period end
nearest to the date of the combinations.
<TABLE>
<CAPTION>
Cambridge
Technology Combined
Partners SCG Axiom NatSoft Total
---------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenues for:
Year ended
December 31, 1993 $ 32,719 $ 5,500 $11,742 $ 5,342 $ 55,303
December 31, 1994 $ 59,679 $10,315 $13,483 $ 7,825 $ 91,302
Nine months ended
September 30, 1995 $ 70,052 $13,484 $10,723 $ 9,211 $103,470
Year ended
December 31, 1995 $132,416 $12,254 $144,670
Net income (loss) for:
Year ended
December 31, 1993 $ 4,574 $ 563 $ (96) $ 125 $ 5,166
December 31, 1994 $ 6,611 $ 1,261 $ (315) $ 336 $ 7,893
Nine months ended
September 30, 1995 $ 7,632 $ 1,381 $ 57 $ 141 $ 9,211
Year ended
December 31, 1995 $ 12,683 $ 205 $ 12,888
</TABLE>
C. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
maturities of three months or less from the date of purchase and whose carrying
amount approximate market value due to the short maturity of the investments.
INVESTMENTS
The Company accounts for its investments under the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company's investments are classified as
investments held to maturity and mature within one year from the date of
purchase. At December 31, 1995 and 1994, amortized cost of investments
approximate market value and consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1995 1994
------ -------
<S> <C> <C>
Municipal bonds $8,544 $ 7,271
Certificates of deposit - 1,551
Treasury bills - 1,489
------ -------
$8,544 $10,311
====== =======
</TABLE>
F-20
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Repairs and maintenance costs are
charged to operations when incurred, while betterments are capitalized.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the various assets which range from four to fifteen years. Upon
retirement or disposal, the cost of the asset disposed of and the related
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in income.
INTANGIBLE ASSETS
Organization costs, included in other assets, are being amortized on a straight-
line basis over five years. For each of the years ended December 31, 1995,
1994, and 1993, the Company recorded amortization expense of $25,000. At
December 31, 1995 and 1994, accumulated amortization was $119,000 and $94,000,
respectively.
Goodwill, related to the acquisition of CTP Scandinavia in February 1994, is
being amortized over six years on a straight-line basis. For the years ended
December 31, 1995 and 1994, the Company recorded amortization expense of
$798,000 and $682,000, respectively. As of December 31, 1995 and 1994,
accumulated amortization was $1.5 million and $682,000, respectively. The
carrying value of goodwill is subject to periodic review of realizability.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"). FAS 121
requires that an impairment loss be recognized for long-lived assets and certain
identified intangibles when the carrying amount of these assets may not be
recoverable. The Company has adopted FAS 121 in 1996 and does not expect the
adoption to have a material impact on the consolidated results of operations or
financial position of the Company. Additionally, adoption of FAS 121 will have
no cash flow impact on the Company.
REVENUE RECOGNITION
The Company derives substantially all of its revenues from information
technology consulting and software development and implementation services. The
Company operates in one industry segment, software development and
implementation services. Revenues derived from any maintenance and support
services are immaterial to the consolidated financial statements of the Company.
Revenues from software development and implementation contracts are recognized
primarily on the percentage of completion method. The cumulative impact of any
revision in estimates of the percent complete is reflected in the period in
which the changes become known. Losses on projects in progress are recognized
when known. Net revenues exclude reimbursable expenses charged to clients.
Revenues from business process consulting and package implementation services
are recognized as the service is provided, principally on a time and materials
basis.
Deferred revenue consists principally of amounts received in advance of services
to be provided which will be recognized upon performance and amounts invoiced
in excess of revenue recognized to date.
F-21
<PAGE>
TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS
For non-U.S. operations, the functional currency is the applicable local
currency. The translation of the functional currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using average rates
of exchange prevailing during the reporting period. Adjustments resulting from
the translation of foreign currency financial statements are accumulated in a
separate component of stockholders' equity until the entity is sold or
substantially liquidated. Gains or losses resulting from foreign currency
transactions are included in the results of operations.
FOREIGN EXCHANGE CONTRACTS
The Company maintains monthly foreign exchange forward contracts to hedge
against the risk of changes in foreign exchange rates associated with
intercompany balances. The related gains and losses are recorded as exchange
rate gain or loss in the consolidated statements of operations. The Company
does not hold foreign exchange contracts or other derivative financial
instruments for trading or any other purpose. As of December 31, 1995, the
Company held foreign exchange forward contracts of approximately $3.9 million.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to provide estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and would impact future results
of operations and cash flows.
The Company provides its services primarily to Fortune 1000 companies. The
Company performs ongoing credit evaluations of its major customers and maintains
reserves for potential credit losses, and such losses have been immaterial and
are within management's expectation. No single customer accounted for 10% or
more of total net revenues for the years ended 1995, 1994, and 1993.
D. ACQUISITION
-----------
In February 1994, the Company acquired all of the outstanding capital stock of
IOS Group AB (now CTP Scandinavia) for 1,275,000 shares of the Company's common
stock, valued on the date of acquisition at $4.2 million and $1,000 in cash.
CTP Scandinavia is a Swedish-based corporation which provides open systems
information technology and software development services in an enterprise-wide,
client/server environment.
The 1,275,000 shares of common stock issued were restricted, as to sale or
transfer, for eighteen months from the date of acquisition. The acquisition has
been accounted for as a purchase and, accordingly, the results of CTP
Scandinavia have been included in the Company's consolidated statements of
operations from the date of acquisition. In connection with the acquisition,
the Company guaranteed the payment of bank loans of two senior managers in
principal amounts totaling $3.0 million due February 1996. The bank loans were
collateralized by 675,000 shares
F-22
<PAGE>
of the Company's common stock issued at the time of the acquisition. In February
1996, these bank loans were repaid in full and the Company's guarantees are no
longer in effect.
The Company has allocated the purchase price of $4.6 million, which includes
associated costs of $370,000, to the underlying assets and liabilities of CTP
Scandinavia based upon their respective fair values at the time of the
acquisition. The excess (approximately $4.8 million) of the purchase price over
the fair value of net assets acquired is being amortized on a straight-line
basis over six years.
The following unaudited pro forma information combines the consolidated results
of operations of the Company and CTP Scandinavia as if the acquisition had
occurred at the beginning of the periods. The pro forma results do not purport
to be indicative of what would have occurred had the acquisition been
consummated as of the beginning of the respective periods or of future
operations of the combined company.
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------
1994 1993
------- -------
(in thousands)
<S> <C> <C>
Net revenues $92,116 $61,312
======= =======
Income before cumulative effect of
change in accounting principle $ 7,707 $ 3,391
Cumulative effect of change in
accounting for income taxes - 1,204
------- -------
Net income $ 7,707 $ 4,595
======= =======
Net income per share:
Income before cumulative effect of
change in accounting principle $ .16 $ .08
Cumulative effect of change in
accounting for income taxes - .03
------- -------
Net income $ .16 $ .11
======= =======
E. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable consist of the following (in thousands):
December 31,
-------------------
1995 1994
------- -------
Contracts in process $25,712 $15,477
Completed contracts 12,398 5,489
------- -------
38,110 20,966
Less: Allowance for doubtful accounts 732 552
------- -------
$37,378 $20,414
======= =======
</TABLE>
In accordance with state government practices, a governmental client withholds a
percentage of invoiced receivables as retention. At December 31, 1995 and 1994,
retention receivable totaled $1.4 million and $1.3 million, respectively, and
were included in other assets. Due to the contractual time period given to the
governmental client for final review of completed projects,
F-23
<PAGE>
the Company expects to receive payments on the retention receivable outstanding
as of December 31, 1995, in 1997.
F. INVESTMENT IN AFFILIATES
------------------------
The Company had a 6.3% investment interest in AdValue Media Technologies, Inc.
("AdValue") (formerly AdValue Network ("AVN"), a partnership which was formed in
1991 to develop, test, and market a centralized spot advertising computer
software package). AdValue was incorporated in December 1993 to serve as the
successor entity to AVN. The investment was accounted for using the equity
method. On May 19, 1995, the Company sold its interest in AdValue for $909,000
in cash. The investment balance in AdValue at December 31, 1993 and 1994 and at
the time of the sale was zero. Accordingly, the Company recognized a gain of
$909,000 for the period ended December 31, 1995.
G. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1995 1994
------- ------
<S> <C> <C>
Equipment $12,473 $7,255
Furniture and fixtures 3,791 1,141
Leasehold improvements 1,382 434
Motor Vehicles 366 446
Computer software 230 145
------- ------
Total cost 18,242 9,421
Less accumulated depreciation 6,437 3,598
------- ------
$11,805 $5,823
======= ======
</TABLE>
Depreciation expense for 1995, 1994, and 1993 was $2.9 million, $1.1 million,
and $585,000, respectively.
Equipment under capital leases, included in property and equipment, amounted to
$685,000 and $356,000 at December 31, 1995 and 1994, respectively, and the
related accumulated depreciation was $278,000 and $160,000 at December 31, 1995
and 1994, respectively.
H. ACCRUED EXPENSES
----------------
Accrued expenses consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1995 1994
------- -----
<S> <C> <C>
Accrued payroll and payroll related expenses $ 6,531 $4,227
Other accrued expenses 2,717 3,114
Accrued value added tax 1,034 677
Deferred rent 512 294
------- ------
$10,794 $8,312
======= ======
</TABLE>
F-24
<PAGE>
I. REVOLVING CREDIT FACILITY
-------------------------
The Company maintained a $10.0 million uncollateralized revolving credit
facility (the "Facility"), Fleet National Bank ("Fleet Bank"). The Facility
bore interest at a rate per annum equal to Fleet Bank's prime rate in effect
from time to time, payable monthly in arrears commencing with the advance of
funds. The Facility carried a facility fee of .25% and expired on June 30,
1996. The Facility required, among other things, the Company to maintain
certain financial ratios. Failure to maintain compliance would entitle Fleet
Bank to demand immediate repayment of any amounts drawn on the Facility. As of
December 31, 1995 and 1994, no borrowings had been made under the Facility and
the Company was in compliance all financial ratio requirements. In June 1996,
the Company amended the Facility, among other things, to increase the amount
available under the Facility and to extend the expiration through June 1998
(see Note S).
In connection with the Company's initial revolving credit facility with Fleet
Bank entered into on February 1, 1993, the Company also obtained a $2.5 million
term note. The Company used the proceeds from the $2.5 million term note plus
$182,000 in cash to repay a $2.7 million promissory note to Safeguard
Scientifics, Inc. ("Safeguard") (a stockholder of the Company). In May 1993,
the term note was repaid with proceeds from the Company's public offering of
common stock.
SCG maintained a $1.0 million revolving credit facility with Barnett Bank of
South Florida, N.A. ("Barnett Bank"). This revolving credit facility bore
interest at a rate per annum equal to Barnett Bank's prime rate in effect from
time to time plus 1.50%, payable monthly. The maximum borrowing was limited to
seventy-five percent of SCG's eligible accounts receivable, as defined in the
agreement. The revolving credit facility was collateralized by all non-realty
assets of SCG and the former stockholders of SCG had extended joint and several
personal guarantees. The revolving credit facility also subjected SCG to
certain restrictions and covenants related to, among other things, tangible net
worth, leverage ratio, and interest coverage. SCG was in compliance with these
financial ratio requirements for all periods presented. At December 31, 1994,
amounts outstanding under this revolving credit facility were $1.0 million. On
June 13, 1995, the term under this revolving credit facility was extended to
June 30, 1996, with maximum allowable borrowings increased to $2.5 million. In
September 1995, the Company terminated this revolving credit facility and repaid
all outstanding amounts.
Axiom maintained a $1.25 million revolving credit facility with Wells Fargo
Bank, N.A. This revolving credit facility bore interest at a rate per annum
equal to the prime rate in effect from time to time plus .25%, payable monthly.
Axiom's revolving credit facility was collateralized by all accounts receivable
and equipment and certain former stockholders of Axiom had extended personal
guarantees. Upon consummation of the acquisition, the personal guarantees were
no longer in effect. The revolving credit facility also subjected Axiom to
certain financial restrictions and covenants related to, among other things,
tangible net worth, debt to tangible net worth, and earnings before interest,
taxes, depreciation, and amortization. Axiom was in compliance with these
financial restrictions and covenants for all periods presented. At December 31,
1994, amounts outstanding under Axiom's revolving credit facility was $501,000.
In December 1995, the Company repaid all outstanding amounts and terminate this
revolving credit facility.
F-25
<PAGE>
J. STOCKHOLDERS' EQUITY AND OTHER STOCK RELATED INFORMATION
--------------------------------------------------------
STOCK SPLIT
In March 1996, the Board of Directors approved a three-for-one stock split of
the Company's common stock and an amendment to the Company's corporate charter
to increase authorized common stock from 30 million to 120 million shares. Upon
stockholder approval in May 1996, the stock split was completed on June 19,
1996, via a 200% stock dividend to stockholders of record on May 29, 1996.
Accordingly, stockholders' equity in the supplemental consolidated balance
sheets has been restated to give retroactive recognition to the stock split for
all periods presented by reclassifying from paid-in-capital to common stock the
par value of the additional shares arising from the stock split. All references
in the accompanying footnotes to supplemental consolidated financial statements
to the applicable share and per share data, stock option data, and market prices
of the Company's common stock, for all periods presented, have been
retroactively restated to reflect the stock split.
RIGHTS OFFERING
On May 24, 1993, the Company and its principal stockholder completed a rights
offering involving the sale of 2,400,000 shares of common stock
which were issued by the Company and approximately 5.4 million shares of the
Company's common stock which were held by the principal stockholder. Prior to
this offering, there had been no public market for the Company's common stock or
rights. The net proceeds to the Company from the sale of the 2,400,000 shares
of common stock sold by the Company were $3.7 million after deducting offering
expenses of $216,000 allocable to the Company. The Company used a portion of
the proceeds to repay the outstanding principal balance of a $2.5 million term
note with Fleet Bank entered into on February 1, 1993.
COMMON STOCK OFFERING
On April 6, 1994, the Company and certain stockholders of the Company completed
a public offering of common stock involving the sale of 1,500,000 shares of the
Company's common stock issued by the Company and six million shares of the
Company's common stock held by the existing stockholders. The net proceeds to
the Company from the sale of the 1,500,000 shares of common stock sold by the
Company were $6.9 million, after deducting offering expenses. The Company has
invested the proceeds since the offering primarily in investment grade municipal
bonds and expects to use the proceeds for general corporate purposes, including
working capital to support the expansion of its North America and international
operations and to fund capital expenditures and possible acquisitions.
STOCK OPTION PLANS
Under the Company's 1991 Stock Option Plan (the "Option Plan"), the Company may
grant incentive stock options to employees and nonqualified stock options to
employees, directors, officers, and other key individuals. The Management
Resource Committee of the Board of Directors administers the Option Plan.
Options generally vest ratably over a four year period and expire ten years from
the date of grant.
F-26
<PAGE>
Stock option activity, both incentive and nonqualified, under the Option Plan is
presented as follows:
<TABLE>
<CAPTION>
Option Option
Shares Price
---------- -------------
<S> <C> <C>
Outstanding at December 31, 1992 4,094,250 $ .03-$ 1.33
Granted 2,213,910 $1.67-$ 5.92
Exercised 182,985 $ .33-$ .67
Canceled 336,327 $ .33-$ 5.71
---------- -------------
Outstanding at December 31, 1993 5,788,848 $ .03-$ 5.92
Granted 3,301,713 $4.92-$ 6.31
Exercised 294,330 $ .33-$ 5.17
Canceled 247,251 $ .33-$ 5.50
---------- -------------
Outstanding at December 31, 1994 8,548,980 $ .03-$ 6.31
Granted 3,860,175 $10.00-$17.25
Exercised 1,025,820 $ .33-$ 6.31
Canceled 283,215 $ .33-$17.25
---------- -------------
Outstanding at December 31, 1995 11,100,120 $ .03-$17.25
========== =============
</TABLE>
At December 31, 1995, 1994, and 1993, 4,288,638, 3,116,247, and 1,609,104
options were exercisable, respectively, under the Option Plan. In December 1993
and 1994, the Company's Board of Directors amended the Option Plan, with
subsequent stockholder approval, to increase the number of shares of common
stock authorized for issuance under the Option Plan from six million to nine
million shares in 1993 and nine million to twelve million shares in 1994. On
December 14, 1995, the Company's Board of Directors further amended the Option
Plan, which was approved by stockholders, to increase the number of shares of
common stock authorized for issuance under the Option Plan from twelve million
to fifteen million.
During 1991, the Company granted, under the Option Plan, 750,000 nonqualified
stock options to a key employee at an exercise price of $.03 per share, which
vested over a four year period. Upon grant, unearned compensation equivalent to
the market value of these options at the date of grant was charged to
stockholders' equity and subsequently amortized over the vesting period.
Amortization expense of $9,000, $57,000, and $56,000 was recorded for the years
ended December, 1995, 1994, and 1993, respectively.
In October 1995, the Financial Accounting Standards Board issued statement No.
123 "Accounting for Stock-Based Compensation" ("FAS 123"), which will be
effective for the year ending December 31, 1996. FAS 123 encourages, but does
not require companies to recognize compensation expense for employee stock based
compensation arrangements using a fair value method of accounting. The Company
has determined that it will elect the disclosure only alternative and,
accordingly, will be required to disclose the pro forma net income or loss and
per share amounts in the notes to the consolidated financial statements using
the fair value based method beginning in 1996. The adoption of FAS 123 will
have no cash flow impact to the Company.
F-27
<PAGE>
SCG entered into a stock option agreement with one employee during 1989. This
agreement granted an option to purchase thirty-nine shares of SCG common stock
at an exercise price equal to the fair market value of the stock on the date of
grant, which was $50 per share. This option vested ratably over four years and
was fully vested at December 31, 1993. In connection with the Company's
acquisition of SCG, the Company assumed all outstanding options to purchase
shares of capital stock of SCG and such option was converted into an option to
purchase 105,702 shares of the Company's common stock at an exercise price of
$.02 per share. As of December 31, 1995, this option was outstanding.
During 1993, Axiom established an Incentive and Non-statutory Stock Option Plan
(the "Axiom Option Plan") to provide selected eligible employees the right to
purchase common stock of Axiom. The Axiom Option Plan provided for the granting
of options to purchase up to 240,000 shares issuable as either Incentive Stock
Options or Non-statutory Stock Options, as approved by Axiom's former Board of
Directors. The exercise price, determined by Axiom's former Board of Directors,
could not be less than the fair market value of the stock at the date of
issuance. A summary of the Axiom Option Plan activity for the years ended
December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Axiom Option
Option Shares Price
------------- -------------
<S> <C> <C>
Outstanding at December 31, 1992 - -
Granted 24,575 $0.20 - $5.00
Exercised - -
Canceled - -
------ -------------
Outstanding at December 31, 1993 24,575 $0.20 - $5.00
Granted 13,250 $0.20 - $5.00
Exercised - -
Canceled 1,075 $0.20 - $5.00
------ -------------
Outstanding at December 31, 1994 36,750 $0.20 - $5.00
====== =============
</TABLE>
As of December 31, 1994, 4,915 options were exercisable under the Axiom Option
Plan. No shares were exercisable at December 31, 1993.
In connection with the Company's acquisition of Axiom, the Company assumed all
outstanding options to purchase shares of capital stock of Axiom and converted
them into options to purchase 29,538 shares of the Company's common stock, as of
October 17, 1995, at an exercise price of $.16 per share. As of December 31,
1995, options to purchase 24,684 shares of the Company's common stock were
exercisable. A summary of the option activity for options converted from the
Axiom Option Plan is presented below:
<TABLE>
<CAPTION>
Option Option
Shares Price
------ ------
<S> <C> <C>
Converted from Axiom options 29,538 $.16
Exercised 1,086 $.16
Canceled - -
------ ----
Outstanding at December 31, 1995 28,452 $.16
====== ====
</TABLE>
F-28
<PAGE>
During 1995, the Company established the 1995 Non-employee Director Stock Option
Plan ("Non-employee Director Option Plan"). The Non-employee Director Option
Plan authorizes the grant of options for up to 150,000 shares of the Company's
common stock. Each member of the Company's Board of Directors who is neither
(i) an employee nor an officer of the Company or Safeguard, nor (II) an
affiliate of Technology Leaders II L.P. or any related entity serving on the
Board of Directors on March 21, 1995, was granted an option to purchase 30,000
shares of the Company's common stock. Each person who is neither (I) an
employee nor an officer of the Company or Safeguard nor (II) an affiliate of
Technology Leaders II L.P. or any related entity who is first elected to the
Board of Director after March 21, 1995, shall be automatically granted, on the
date of such election without further action by the Board of Directors, an
option to purchase 30,000 shares of the Company's common stock. The options
were granted with an exercise price equal to the fair value on the date of
grant. Options generally vest ratably over a four year period and expire ten
years from the date of grant. As of December 31, 1995, options to purchase
120,000 shares of common stock were granted and outstanding and none were
exercisable.
EMPLOYEE STOCK PURCHASE PLANS
On December 14, 1994, the Board of Directors adopted the Company's 1994 Employee
Stock Purchase Plan (the "Stock Purchase Plan"), which was subsequently approved
by stockholders in the annual meeting of stockholders in May 1995. The Company
has authorized 1,500,000 shares of the Company's common stock for purchases
under the Stock Purchase Plan. The Stock Purchase Plan permits eligible
employees to purchase up to 1,500 shares of common stock per payment period,
subject to limitations provided by Section 423(b) of the Internal Revenue Code,
through accumulated payroll deductions. The purchases are made twice per year
at a price equal to the lesser of (i) 85% of the average market price of the
Company' common stock on the first business day of the payment period and (ii)
85% of the average market price of the Company's common stock on the last day of
the payment period. Annual payment periods consists of two six-month periods,
January 15 through July 14 and July 15 through January 14.
NOTE RECEIVABLE FROM OFFICER
During 1991, the Company issued 1,578,948 shares of common stock to an officer
of the Company and charged $347,000 to compensation expense. The Company, at
the date of the issuance and in April 1992, approved a $104,000 note receivable
and a $49,000 note receivable, respectively, to the officer to finance a portion
of the tax liabilities arising from the purchase of the common stock. The notes
are due the earlier of (i) the date the officer is no longer employed by the
Company or (ii) February 28, 1995. The notes bore interest at an annual rate of
7.1% and 5.2%, respectively, which was payable at maturity. The amount of the
notes was expensed through February 28, 1995, as the officer had received a
bonus of $153,000 for continued employment through such date.
PREFERRED STOCK
The certificate of incorporation was amended and restated, in December 1992, to
increase the number of authorized shares of capital stock to include two million
shares of preferred stock, par value $.01 per share, in one or more series.
The Board of Directors is authorized, subject to certain limitations prescribed
by law to fix or alter the designations, preferences, rights and any
F-29
<PAGE>
qualifications, limitations or restrictions of the shares of each such series.
The Company has not issued and has no present plans to issue any shares of
preferred stock.
WARRANTS
In December 1992, the Company issued warrants to Safeguard for the purchase of
900,000 shares of common stock at a price of $2.00 per share. The warrants are
exercisable for a five year period from the date of issuance. As of December
31, 1995, no warrants were exercised. The warrants were issued in consideration
of Safeguard's commitment to guarantee a credit facility and a term note
totaling $3.5 million for the Company. Under the Company's Facility,
Safeguard's guarantee was subsequently released.
DIVIDENDS
The Facility with Fleet Bank prohibits the Company from paying any dividends or
making any distributions either in cash or in kind on any class of its capital
stock without Fleet Bank's prior consent. The Company currently intends to
retain future earnings for use in its business and, therefore, does not expect
to pay dividends in the foreseeable future.
Dividend distributions made by SCG, prior to the acquisition, were principally
for reimbursement of income tax liabilities of its former stockholders due to
SCG's S-Corporation tax status. Effective in January 1996, the Company has
integrated SCG into its operational structure and service offering, and
therefore, future earnings will be retained for use in the Company's business.
K. LEASE COMMITMENTS
-----------------
On June 4, 1992, the Company entered into, among other building and equipment
leases, a lease for a building in Cambridge, Massachusetts, that is used as its
corporate headquarters. The building is owned by a trust, the sole beneficiary
of which is the Chairman of the Company. The initial lease expires in August
2007, and is renewable for two additional five year terms. The lease provides
for increases, which began in September 1995, based upon increases in the
Consumer Price Index-Urban Wage Earners and Clerical Workers, U.S. City Average,
All Items ("CPI").
Minimum future lease commitments under noncancelable operating leases for
buildings and equipment in effect at December 31, 1995, are presented as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 4,328
1997 3,705
1998 3,619
1999 3,048
2000 2,977
Thereafter 8,926
-------
Total minimum lease payments $26,603
=======
</TABLE>
For the years ended December 31, 1995, 1994, and 1993, rental expense under all
leases was approximately $4.3 million, $2.8 million, and $1.6 million,
respectively, of which approximately $765,000, $775,000, and $752,000,
respectively, related to the trust described above.
F-30
<PAGE>
Minimum future lease commitments under noncancelable capital leases for
equipment at December 31, 1995, are presented as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 189
1997 80
1998 76
1999 76
2000 31
------
Total minimum payments 452
Less amounts representing interest (85)
------
Present value of minimum lease payments 367
Current portion 163
------
Long-term obligation $ 204
======
L. OTHER COSTS
-----------
Other costs consist of the following (in thousands):
1995 1994 1993
------- ------- ------
Facility costs and related expenses $11,876 $ 6,047 $3,329
Non-billable project expenses 5,662 4,316 3,343
Non-billable staff travel 5,178 3,714 1,471
Education and training 1,140 580 258
Third party commissions - - 91
------- ------- ------
$23,856 $14,657 $8,492
======= ======= ======
</TABLE>
M. INCOME TAXES
------------
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109) effective January 1,
1993. Deferred income taxes under the liability method required by FAS 109
reflect the net tax effect of temporary differences between the carrying amount
of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. A valuation allowance is recognized if it is more
likely than not that some portion of the deferred tax asset will not be
realized. The cumulative effect of the adoption of FAS 109 as of January 1,
1993, was to increase net income by $1,204,000, or $.03 per share. The adoption
of FAS 109 had no cash flow impact to the Company.
F-31
<PAGE>
The components of income before income taxes and the related provision for
income taxes for the years ended December 31, 1995, 1994, and 1993, are
presented below (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income before income taxes:
Domestic $19,007 $12,000 $6,531
Foreign 2,083 477 (340)
------- ------- ------
$21,090 $12,477 $6,191
======= ======= ======
Provision for income taxes:
Current:
Federal $ 5,844 $ 3,495 $1,462
Foreign 655 61 27
State 1,589 907 500
------- ------- ------
8,088 4,463 1,989
Deferred:
Federal 71 45 195
Foreign 28 70 (15)
State 15 6 60
------- ------- ------
114 121 240
------- ------- ------
Total $ 8,202 $ 4,584 $2,229
======= ======= ======
</TABLE>
The Company's deferred tax assets and (liabilities) are comprised of the
following as of December 31, 1995 and 1994, respectively (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Tax basis of software technology $ 50 $ 296
Fixed asset depreciation (375) (315)
Other (194) (308)
----- -----
$(519) $(327)
===== =====
</TABLE>
The table below reconciles the expected U.S. federal income tax provision to the
recorded income tax provision (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected"
tax provision $7,382 35.0% $4,242 34.0% $2,105 34.0%
State income taxes, net of
federal income tax benefit 1,129 5.4 545 4.4 349 5.6
Goodwill amortization 240 1.1 191 1.5 - -
Change in valuation allowance - - - - (101) (1.6)
Non-taxable S-Corporation income (215) (1.0) (517) (4.1) (225) (3.6)
Other, net (334) (1.6) 123 0.9 101 1.6
------ ---- ------ ---- ------ ----
$8,202 38.9% $4,584 36.7% $2,229 36.0%
====== ==== ====== ==== ====== ====
</TABLE>
Prior to the acquisition on August 14, 1995, SCG had elected to be treated as an
S-Corporation for income tax reporting purposes. Under this election, the
individual stockholders are deemed to have received a pro rata distribution of
taxable income of SCG (whether or not an actual distribution was made), which is
included in their taxable income. Accordingly, SCG did not provide for income
taxes. Pro forma net income per share, which reflects the provision for pro
forma income taxes to the net income of SCG, is presented in the pro forma data
section of the
F-32
<PAGE>
accompanying consolidated statements of operations. In addition, SCG's S-
Corporation tax reporting status was terminated on the date of the acquisition
and therefore, the undistributed earnings of $2.1 million as of the date of
acquisition has been reclassified to additional paid-in-capital.
The provision for income taxes on a pro forma basis is as follows (in thousands)
(unaudited):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Current:
Federal $6,013 $3,556 $1,569
Foreign 655 61 27
State 1,635 914 517
------ ------ ------
8,303 4,531 2,113
Deferred:
Federal 71 428 281
Foreign 28 70 (15)
State 15 72 75
------ ------ ------
114 570 341
------ ------ ------
Total $8,417 $5,101 $2,454
====== ====== ======
</TABLE>
Axiom elected S-Corporation tax reporting status effective January 1, 1992, and
therefore, no provision for income taxes was provided in 1992 and net deferred
liabilities for Axiom at December 31, 1991 of $335,000 were adjusted to
stockholders' equity in 1992. Effective January 1, 1993, Axiom elected C-
Corporation tax reporting status and the cumulative deferred tax liabilities of
$714,000 at December 31, 1992, were recorded with a charge to additional paid-
in-capital of $335,000 and a charge to retained earnings of $379,000 in 1993.
N. NET INCOME PER SHARE
--------------------
Net income per share data is computed using the weighted average number of
common shares outstanding, the assumed exercise of stock options and warrants
(using the treasury stock method), and the assumed issuance of a stock dividend
at the beginning of each period to effect a stock split (see Notes J and S).
Net income per share data also reflects, when applicable, the assumed issuance,
at the beginning of each period, of 2,168,292 shares of common stock and an
option to purchase 105,702 shares of the Company's common stock in connection
with the acquisition of SCG, the assumed issuance, at the beginning of the
period, of 978,360 shares of common stock and options to purchase 29,538 shares
of the Company's common stock in connection with the acquisition of Axiom, and
the assumed issuance, at the beginning of the period, 271,714 shares of the
Company's common stock in relation to the acquisition of NatSoft. Primary and
fully diluted income per share are the same for each period presented.
O. EMPLOYEE BENEFIT PLANS
----------------------
In 1992, the Company established a savings and profit-sharing plan (the "401(k)
Plan") covering substantially all of the Company's employees. The 401(k) Plan
is qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended. The Company may elect to make contributions under the 401(k) Plan. In
1994, the Company elected to make matching contributions based on a percentage
of employees' contributions, subject to limitations as defined
F-33
<PAGE>
in the 401(k) Plan. Company matching contributions amounted to $215,000 and
$135,000 in 1995 and 1994, respectively.
In 1990, SCG establish a savings and profit-sharing plan (the "SCG Profit-
sharing Plan") covering substantially all of SCG's employees. The SCG Profit-
sharing Plan is qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended. SCG could elect to make contributions under the SCG Profit-
sharing Plan. Company matching contributions amounted to $156,000, $71,000, and
$53,000 in 1995, 1994, and 1993, respectively. Effective January 1996, all
participants of the SCG Profit-sharing Plan is now participating in the 401(k)
Plan. The Company completed the rollover of assets held under the SCG Profit-
sharing Plan to the 401(k) Plan in the second quarter of 1996.
In 1990, Axiom established a savings and profit-sharing plan (the "Axiom Profit-
sharing Plan") covering substantially all employees of Axiom. The Axiom Profit-
sharing Plan is qualified under Section 401 (a) of the Internal Revenue Code of
1986, as amended. Company matching contributions amounted to $128,000, $123,000,
and $104,000 in 1995, 1994, and 1993, respectively. Effective January 1996, all
participants of the Axiom Profit-sharing Plan is now participating in the 401(k)
Plan. The Company completed the rollover of assets held under the Axiom Profit-
sharing Plan to the 401(k) Plan in the second quarter of 1996.
NatSoft sponsors a defined contribution retirement plan (the "NatSoft Plan") for
its employees. Under the NatSoft Plan, employees can contribute between 5% to
11% of insured salary depending on age and other factors. All employee
contributions are matched by NatSoft. Employer matching contribution amounted
to $180,591, $98,805, and $78,502 for the years ended December 31, 1995, 1994,
and 1993, respectively. NatSoft also sponsors a defined contribution retirement
plan for three executives who are also stockholders. NatSoft's contribution to
this plan amounted to $149,999, $295,892, and $230,271 for the years ended
December 31, 1995, 1994, and 1993, respectively.
P. COMMITMENTS AND CONTINGENCIES
-----------------------------
In connection with the acquisition of CTP Scandinavia, the Company guaranteed
the payment of bank loans totaling $3.0 million, which are no longer in effect
beginning in February 1996 (see Note D).
In December 1994, Axiom repurchased 200,000 shares of its common stock from a
former officer for an aggregate purchase price of $1.0 million. The purchase
price was based on fair market value of this stock in accordance with terms of
the related agreements. The payments were scheduled to be made in various
installments for a period of eight years. The present value of this obligation
totaled $725,000. Axiom also agreed to pay the former officer $325,000 for
alleged general and compensatory damages arising from tort claims for personal
injury and claims for a breach of an implied contract of employment. These
payments are due in monthly installments for a period of two years and were
expensed in 1994. Axiom recorded the present value of these obligations using
an imputed interest rate 9.25%. Payments under these obligations at December
31, 1994, are included in other liabilities. Following the acquisition of
Axiom, the Company repaid the remaining balances of these obligations totaling
$1.0 million, in accordance with the terms of the related agreements. The
amount representing interest of approximately $284,000 was recorded as a
reduction to additional paid-in-capital.
F-34
<PAGE>
In 1993, SCG entered into a noncancelable purchase agreement with a vendor to
purchase $1.6 million of package software for resale. Pursuant to this
agreement, SCG was obligated to purchase $200,000 of product per quarter through
the second quarter of 1996. As of December 31, 1995, this agreement is no
longer in effect.
See Note S for discussion of legal matters.
Q. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Supplemental disclosures of cash flow information are presented as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 303 $ 189 $ 237
Income taxes 3,133 4,896 69
</TABLE>
During 1995, capital lease obligations of $329,000 were incurred by SCG and
Axiom for the acquisition of certain equipment. During 1994, the Company
exchanged 1,275,000 shares of its common stock for 100% of the outstanding
shares of CTP Scandinavia. Also in 1994, Axiom repurchased 200,000 shares of
its common stock for $725,000 (see Note P). During 1993, capital lease
obligations of $356,000 were incurred by the Axiom for the acquisition of
certain equipment.
R. GEOGRAPHIC INFORMATION
----------------------
Information about the Company's operations and total assets in North America and
Europe is presented as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Net revenues:
North America $103,834 $71,664 $49,786
Europe 40,836 19,638 5,517
-------- ------- -------
Consolidated $144,670 $91,302 $55,303
======== ======= =======
Income (loss) from operations:
North America $ 17,589 $11,698 $ 6,549
Europe 2,092 517 (343)
-------- ------- -------
Consolidated $ 19,681 $12,215 $ 6,206
======== ======= =======
Total assets at December 31:
North America $ 57,112 $37,594 $20,165
Europe 17,411 13,536 2,053
-------- ------- -------
Consolidated $ 74,523 $51,130 $22,218
======== ======= =======
</TABLE>
North American operations consist primarily of information technology consulting
and software development and implementation services in the United States.
European operations consist of information technology consulting and software
development services principally in the United Kingdom, the Netherlands,
Switzerland, Sweden, Norway, Ireland, and Germany, which have similar business
environments. There are no intraenterprise sales for the periods presented.
F-35
<PAGE>
S. SUBSEQUENT EVENTS
-----------------
In March 1996, the Board of Directors approved a three-for-one stock split of
the Company's common stock and an amendment to the Company's corporate charter
to increase authorized common stock from 30 million to 120 million shares. Upon
stockholder approval in May 1996, the stock split was completed on June 19,
1996, via a 200% stock dividend to stockholders of record on May 29, 1996.
Accordingly, stockholders' equity in the supplemental consolidated balance
sheets has been restated to give retroactive recognition to the stock split for
all periods presented by reclassifying from paid-in-capital to common stock the
par value of the additional shares arising from the stock split. All references
in the accompanying footnotes to supplemental consolidated financial statements
to the applicable share and per share data, stock option data, and market prices
of the Company's common stock, for all periods presented, have been
retroactively restated to reflect the stock split.
On June 26, 1996, the Company amended the Facility with Fleet Bank, among other
things, to increase the amount available under the Facility from $10.0 million
to $20.0 million, to extend the expiration date to June 30, 1998, from June 30,
1996, and to decrease the facility cost to .15% from .25%. In addition, the
Facility was also amended to permit the Company to elect an interest rate of
either, Fleet Bank's prime rate in effect from time to time or a eurodollar
rate, as defined, payable monthly in arrears commencing with the advance of
funds. The Facility requires, among other things, the Company to maintain
certain financial ratios. At September 30, 1996, and December 31, 1995, the
Company was in compliance with these financial ratio requirements and no
borrowings have been made under the Facility.
In July 1996, a suit was filed against the Company in the United States District
Court for the District of Colorado in Denver by Rocky Mountain Healthcare
Corporation ("RMHC"). RMHC is seeking, among other things, a refund of
$1,772,212 of contract payments and related damages arising from the Company's
alleged breach of an agreement pursuant to which the Company provided software
system design and consulting services to RMHC. The suit includes breach of
contract and tort claims. The Company plans to vigorously defend itself against
the suit and anticipates bringing counterclaims against RMHC.
In July 1996, Axiom was served a demand for arbitration by a former shareholder
of Axiom. The American Arbitration Association arbitration is currently pending
in northern California. The claims arise from Axiom's alleged failure to inform
such shareholder of the Company's interest in acquiring Axiom at the time he
sold his stock back to Axiom. The demand seeks damages in excess of $3.3
million plus punitive damages, costs and attorney's fees. The Company plans to
vigorously defend itself in this arbitration.
As discussed in Note A, the Company acquired all of the outstanding shares of
capital stock of NatSoft on October 15, 1996.
On October 31, 1996, the Company entered into a definitive agreement to acquire
all of the outstanding capital stock of Ramos & Associates, Inc. ("Ramos"). The
acquisition will be accomplished through a merger of the Company's acquisition
subsidiary and Ramos in an exchange of approximately 1,175,200 shares of the
Company's common stock for all the outstanding shares of capital stock of Ramos.
Ramos, founded in 1991 and based in San Ramon, California, is an information
technology consulting and software implementation firm which
F-36
<PAGE>
specializes in the Enterprise Resource Planning service market. With offices in
San Ramon, Dallas, Islia, New Jersey, and Chicago, Ramos has approximately 215
employees worldwide at October 31, 1996. This acquisition will be accounted for
using the pooling of interests method of accounting and is expected to be
completed in early December 1996. Costs relating to this acquisition will
approximate $700,000 and will be charged to operating expenses in the fourth
quarter of 1996.
T. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------
The following table presents the unaudited quarterly financial information for
the years 1995 and 1994 (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------- --------------- ---------------- ----------------
1995 1994 1995 1994 1995 1994 1995 1994
------- ------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $29,839 $18,647 $35,684 $20,810 $37,947 $24,102 $41,200 $27,743
Income from operations 3,999 3,140 4,825 3,047 4,928 3,143 5,929 2,885
Income before income taxes 4,308 3,150 5,767 3,151 5,014 3,253 6,001 2,923
Net income 2,539 1,977 3,558 2,083 3,114 2,112 3,677 1,721
Net income per share .05 .04 .07 .04 .06 .05 .07 .04
</TABLE>
F-37
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
============== ============
1996 1995
-------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,024 $ 7,451
Investments held to maturity 12,248 8,544
Accounts receivable, less allowance of $868 and $732 at
September 30, 1996 and December 31, 1995, respectively 63,120 37,378
Unbilled revenue on contracts 4,265 2,045
Prepaid expenses and other current assets 2,144 2,326
-------- -------
Total current assets 93,801 57,744
Property and equipment, net 18,606 11,805
Other assets 2,402 1,663
Goodwill, net 2,712 3,311
-------- -------
Total assets $117,521 $74,523
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,523 $ 6,626
Accrued expenses 16,060 10,794
Deferred revenue 9,113 2,993
Deferred income taxes 481 443
Income taxes payable 3,441 2,163
Other current liabilities 159 192
-------- -------
Total current liabilities 39,777 23,211
Other liabilities 98 204
Deferred income taxes 18 76
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.01 par value, authorized 120,000,000
shares; issued and outstanding 46,348,536 and 44,420,332
at September 30, 1996 and December 31, 1995, respectively 464 444
Additional paid-in capital 36,860 23,726
Retained earnings 40,533 26,343
Foreign currency translation adjustment (229) 519
-------- -------
Total stockholders' equity 77,628 51,032
-------- -------
Total liabilities and stockholders' equity $117,521 $74,523
======== =======
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
S-1
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- --------------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $56,904 $37,947 $149,908 $103,470
Costs and expenses:
Project personnel 25,646 16,652 68,187 48,425
General and administration 6,620 4,568 17,934 13,155
Sales and marketing 4,460 4,420 11,544 10,743
Other costs 11,642 6,679 29,112 16,695
Business combination costs - 700 - 700
------- ------- -------- --------
Total operating expenses 48,368 33,019 126,777 89,718
------- ------- -------- --------
Income from operations 8,536 4,928 23,131 13,752
Other income (expense):
Interest income 255 210 655 520
Interest expense (8) (147) (33) (257)
Gain on sale of AdValue - - - 909
Foreign exchange (loss) gain (66) 23 (82) 165
------- ------- -------- --------
Income before income taxes 8,717 5,014 23,671 15,089
Provision for income taxes 3,504 1,900 9,466 5,878
------- ------- -------- --------
Net income $ 5,213 $ 3,114 $ 14,205 $ 9,211
======= ======= ======== ========
Net income per share $ .10 $ .06 $ .27 $ .18
======= ======= ======== ========
Pro forma data:
Historical income before taxes $ 8,717 $ 5,014 $ 23,671 $ 15,089
Provision for income taxes:
Historical income taxes 3,504 1,900 9,466 5,878
Pro forma increase to
historical income taxes - 107 - 215
------- ------- -------- --------
Pro forma net income $ 5,213 $ 3,007 $ 14,205 $ 8,996
======= ======= ======== ========
Pro forma net income per share $ .10 $ .06 $ .27 $.18
======= ======= ======== ========
Weighted average number of common and
common equivalent shares outstanding 54,130 50,810 53,056 50,128
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
S-2
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,205 $ 9,211
Amounts that reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,001 2,686
Tax benefit from exercise of stock options 5,498 2,936
Provision for deferred income taxes 10 (207)
Gain on Sale of AdValue - (909)
Increase in accounts receivable (26,148) (13,637)
Increase in unbilled revenue on contracts (2,060) (2,153)
Increase in prepaid expenses and other current assets (630) (321)
Increase in accounts payable 3,943 1,582
Increase in accrued expenses 5,461 6,364
Increase in deferred revenue 6,144 716
Increase in income taxes payable 1,278 845
Other, net 5 (193)
-------- --------
Net cash provided by operating activities 10,707 6,920
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (9,335) (7,594)
Purchase of investments held to maturity (15,450) (13,429)
Maturity of investments held to maturity 11,746 15,201
Proceeds from Sale of AdValue - 909
-------- --------
Net cash used in investing activities (13,039) (4,913)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under credit arrangements - (916)
Obligations under capitalized leases (106) (102)
Proceeds from employee stock purchase plan 2,071 579
Dividend distributions (15) (599)
Proceeds from exercise of stock options 5,584 1,302
-------- --------
Net cash provided by financing activities 7,534 264
-------- --------
Effect of foreign exchange rate changes on cash (629) 128
Net increase in cash and cash equivalents 4,573 2,399
Cash and cash equivalents at beginning of period 7,451 4,006
-------- --------
Cash and cash equivalents at end of period $ 12,024 $ 6,405
======== ========
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
S-3
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. BASIS OF REPORTING
------------------
The accompanying supplemental consolidated financial statements of Cambridge
Technology Partners (Massachusetts), Inc. (the "Company") have been prepared to
give retroactive effect to the acquisition of NatSoft S.A. ("NatSoft"), a
Switzerland-based information technology consulting and software implementation
firm. Generally accepted accounting principles proscribe giving effect to
consummated business combinations accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
The supplemental consolidated financial statements presented herein do not
extend through the date of consummation, however, they will become the
historical consolidated financial statements of the Company after financial
statements covering the date of consummation of the business combination are
issued. Costs related to this acquisition of approximately $500,000, which
consist primarily of accounting and legal fees, are not included in the
accompanying supplemental consolidated results of operations as they will be
charged to operating expenses in the fourth quarter of 1996.
The accompanying supplemental consolidated financial statements of 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 supplemental consolidated results of
operations for the three and nine months ended September 30, 1996, are not
necessarily indicative of results for the full year.
In June 1996, the Company completed a three-for-one stock split via a 200% stock
dividend to stockholders of record on May 29, 1996. Accordingly, stockholders'
equity in the supplemental consolidated balance sheets has been restated to give
retroactive recognition to the stock split for all periods presented by
reclassifying from paid-in-capital to common stock the par value of the
additional shares arising from the stock split. All references in the
accompanying footnotes to supplemental consolidated financial statements to the
applicable share and per share data of the Company's common stock, for all
periods presented, have been retroactively restated to reflect the stock split
(see note D).
S-4
<PAGE>
B. POOLING OF INTERESTS
--------------------
On October 15, 1996, the Company acquired all of the outstanding shares of
capital stock of NatSoft. This acquisition was accomplished through an exchange
of 271,714 shares of the Company's common stock for all outstanding shares of
capital stock of NatSoft. With approximately 105 employees at the time of
acquisition, NatSoft establishes the Company's entry into the Swiss market and
provides the Company with a pool of multi-lingual professionals who can support
projects in Southern Europe. This acquisition has been accounted for using the
pooling of interests method of accounting. NatSoft currently operates as a
wholly owned subsidiary of the Company.
The Company's previously issued historical consolidated financial statements
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"), in accordance with pooling of interests requirements.
C. REVOLVING CREDIT FACILITY
-------------------------
On June 26, 1996, the Company amended its uncollateralized revolving credit
facility (the "Facility") with Fleet National Bank, the successor to Fleet Bank
of Massachusetts, N.A. ("Fleet Bank"). The Facility was amended, among other
things, to increase the amount available under the Facility from $10.0 million
to $20.0 million, to extend the expiration date to June 30, 1998, from June 30,
1996, and to decrease the facility cost to .15% from .25%. In addition, the
Facility was also amended to permit the Company to elect an interest rate of
either, Fleet Bank's prime rate in effect from time to time or a eurodollar
rate, as defined, payable monthly in arrears commencing with the advance of
funds. The Facility requires, among other things, the Company to maintain
certain financial ratios. At September 30, 1996, and December 31, 1995, the
Company was in compliance with these financial ratio requirements and no
borrowings have been made under the Facility.
D. STOCK SPLIT
-----------
In March 1996, the Board of Directors approved a three-for-one stock split of
the Company's common stock and an amendment to the Company's corporate charter
to increase authorized common stock from 30 million to 120 million shares. Upon
stockholder approval in May 1996, the stock split was completed on June 19,
1996, via a 200% stock dividend to stockholders of record on May 29, 1996.
Accordingly, stockholders' equity in the supplemental consolidated balance
sheets has been restated to give retroactive recognition to the stock split for
all periods presented by reclassifying from paid-in-capital to common stock the
par value of the additional shares arising from the stock split. All references
in the accompanying footnotes to supplemental consolidated financial statements
to the applicable share and per share data of the Company's common stock, for
all periods presented, have been retroactively restated to reflect the stock
split.
E. NET INCOME PER SHARE
--------------------
Net income per share data is computed using the weighted average number of
common shares outstanding, the assumed exercise of stock options and warrants
(using the treasury stock
S-5
<PAGE>
method), and the assumed issuance of a stock dividend at the beginning of each
period to effect a stock split. Net income per share data also reflects, when
applicable, the assumed issuance, at the beginning of the period, of 2,168,292
shares of common stock and an option to purchase 105,702 shares of the Company's
common stock in connection with the acquisition of SCG, the assumed issuance, at
the beginning of the period, of 978,360 shares of common stock and options to
purchase 29,538 shares of the Company's common stock in connection with the
acquisition of Axiom, and the assumed issuance, at the beginning of the period,
271,714 shares of the Company's common stock in relation to the acquisition of
NatSoft. Primary and fully diluted income per share are the same for each period
presented.
F. LEGAL PROCEEDINGS
-----------------
In July 1996, a suit was filed against the Company in the United States District
Court for the District of Colorado in Denver by Rocky Mountain Healthcare
Corporation ("RMHC"). RMHC is seeking, among other things, a refund of
$1,772,212 of contract payments and related damages arising from the Company's
alleged breach of an agreement pursuant to which the Company provided software
system design and consulting services to RMHC. The suit includes breach of
contract and tort claims. The Company plans to vigorously defend itself against
the suit and anticipates bringing counterclaims against RMHC.
In July 1996, Axiom was served a demand for arbitration by a former shareholder
of Axiom. The American Arbitration Association arbitration is currently pending
in northern California. The claims arise from Axiom's alleged failure to inform
such shareholder of the Company's interest in acquiring Axiom at the time he
sold his stock back to Axiom. The demand seeks damages in excess of $3.3
million plus punitive damages, costs and attorney's fees. The Company plans to
vigorously defend itself in this arbitration.
G. SUBSEQUENT EVENTS
-----------------
As discussed in Note B, the Company acquired all of the outstanding shares of
capital stock of NatSoft on October 15, 1996.
On October 31, 1996, the Company entered into a definitive agreement to acquire
all of the outstanding capital stock of Ramos & Associates, Inc. ("Ramos"). The
acquisition will be accomplished through a merger of the Company's acquisition
subsidiary and Ramos in an exchange of approximately 1,175,200 shares of the
Company's common stock for all the outstanding shares of capital stock of Ramos.
Ramos, founded in 1991 and based in San Ramon, California, is an information
technology consulting and software implementation firm which specializes in the
Enterprise Resource Planning service market. With offices in San Ramon, Dallas,
Islia, New Jersey, and Chicago, Ramos has approximately 215 employees worldwide
at October 31, 1996. This acquisition will be accounted for using the pooling
of interests method of accounting and is expected to be completed in early
December 1996. Costs relating to the acquisition will approximate $700,000 and
will be charged to operating expenses in the fourth quarter of 1996.
S-6
<PAGE>
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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company, any Selling Stockholder or any other person. This
Prospectus does not constitute an offer to sell or a solicitation of an offer in
any jurisdiction in which such offer or solicitation would be unlawful or to any
person to whom it is unlawful. Neither the delivery of this Prospectus nor offer
of any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of the Company or that information
contained herein is correct as of any time subsequent to this date hereof.
----------------
TABLE OF CONTENTS
Page
----
Available Information 2
Incorporation of Certain Information by
Reference 3
The Company 4
Recent Developments 5
Risk Factors 5
Use of Proceeds 8
Price Range of Common Stock 9
Dividend Policy 9
Selling Stockholders 10
Plan of Distribution 11
Legal Matters 11
Experts 11
Index to Consolidated Financial
Statements F-1
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135,857 Shares
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
COMMON STOCK
--------------
PROSPECTUS
--------------
December 4, 1996
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