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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-21040
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1320610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
304 VASSAR STREET,
Cambridge, Massachusetts 02139
(Address of principal executive offices) (Zip Code)
(617) 374-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
As of April 30, 1998, there were 56,315,578 shares of common stock
outstanding.
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION:
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION:
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
2
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,945 $ 39,496
Investments held to maturity 20,031 15,824
Accounts receivable, less allowance of $3,181 and $2,607
at March 31, 1998 and December 31, 1997, respectively 116,409 101,887
Unbilled revenue on contracts 11,305 8,231
Deferred income taxes 950 950
Prepaid expenses and other current assets 30,652 27,733
-------- --------
Total current assets 215,292 194,121
Property and equipment, net 39,096 35,403
Other assets 5,722 5,624
Goodwill, net 1,891 2,094
-------- --------
Total assets $262,001 $237,242
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,760 $ 18,998
Accrued expenses 29,429 36,235
Deferred revenue 11,863 9,502
Income taxes payable 26,514 19,361
Obligations under capital leases, current 126 143
Other current liabilities - 1,952
-------- --------
Total current liabilities 86,692 86,191
Obligations under capital leases 238 341
Deferred income taxes 923 923
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 120,000,000
shares; issued and outstanding 56,067,498 and 54,969,004
at March 31, 1998 and December 31, 1997, respectively 561 550
Additional paid-in capital 89,202 75,253
Retained earnings 88,519 76,445
Accumulated other comprehensive loss (4,134) (2,461)
-------- --------
Total stockholders' equity 174,148 149,787
-------- --------
Total liabilities and stockholders' equity $262,001 $237,242
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
--------- --------
<S> <C> <C>
Net revenues $133,486 $82,222
Costs and expenses:
Project personnel 60,021 36,420
General and Administration 14,981 9,426
Sales and marketing 12,473 7,906
Other costs 26,312 15,424
-------- -------
Total operating expenses 113,787 69,176
-------- -------
Income from operations 19,699 13,046
Other income (expense):
Interest income 602 342
Interest expense (45) (33)
Foreign exchange loss (133) (31)
-------- -------
Income before income taxes 20,123 13,324
Provision for income taxes 8,049 5,370
-------- -------
Net income $ 12,074 $ 7,954
======== =======
Basic net income per share $ .22 $ .15
======== =======
Diluted net income per share $ .20 $ .14
======== =======
Weighted average common shares outstanding 55,537 51,997
======== =======
Weighted average common and common
equivalent shares outstanding 60,979 57,896
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,074 $ 7,954
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 3,033 1,852
Tax benefit from exercise of stock options 2,256 1,197
Changes in assets and liabilities:
Increase in accounts receivable (14,811) (16,868)
(Increase) decrease in unbilled revenue on contracts (3,181) 892
Increase in prepaid expenses and other current assets (3,337) (2,906)
Decrease in accounts payable (163) (323)
Decrease in accrued expenses (6,815) (1,281)
Increase in deferred revenue 2,376 6,309
Increase in income taxes payable 6,065 3,316
-------- --------
Net cash (used in) provided by operating activities (2,503) 142
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (6,382) (3,896)
Purchase of investments held to maturity (6,157) (2,185)
Maturity of investments 1,950 1,259
-------- --------
Net cash used in investing activities (10,589) (4,822)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loan (823) -
Obligations under capital leases (108) (18)
Dividend distribution to Peter Chadwick stockholders (1,129) -
Proceeds from exercise of stock options 8,315 1,412
Proceeds from employee stock purchase plan 3,389 2,140
-------- --------
Net cash provided by financing activities 9,644 3,534
-------- --------
Effect of foreign exchange rate changes on cash (103) (280)
Net decrease in cash and cash equivalents (3,551) (1,426)
Cash and cash equivalents at beginning of period 39,496 26,087
-------- --------
Cash and cash equivalents at end of period $ 35,945 $ 24,661
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. BASIS OF REPORTING
------------------
The accompanying consolidated financial statements of Cambridge Technology
Partners (Massachusetts), Inc. (the "Company") include the accounts of the
Company and all of its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. In November
1997, the Company acquired all of the outstanding capital stock of Peter
Chadwick Holdings Limited ("Peter Chadwick"). The acquisition of Peter Chadwick
was accounted for using the pooling of interests method of accounting. All prior
period historical consolidated financial statements presented herein have been
restated to include the financial position, results of operations, and cash
flows of Peter Chadwick. 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. The consolidated results of operations for the three
months ended March 31, 1998, are not necessarily indicative of results for the
full year.
B. OTHER CURRENT LIABILITIES
-------------------------
In April 1997, Peter Chadwick acquired the assets of a training facility located
in the United Kingdom. Peter Chadwick entered into a loan agreement with
National Westminister Bank (the "Loan Agreement") to finance this acquisition.
In March 1998, the Company terminated the Loan Agreement and repaid the
outstanding principal balance of approximately $823,000.
C. NET INCOME PER SHARE
--------------------
The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share," ("SFAS 128") for the year ended December 31, 1997, which
included retroactively restating earnings per share for all prior periods for
which earnings per share (EPS) data is presented. SFAS 128 requires the
presentation of basic and diluted EPS. Basic net income per share is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted net income per share is
computed using the weighted average number of common shares outstanding plus the
dilutive effect of common stock equivalents (using the treasury stock method).
The
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following table presents the calculation of earnings per share for the three
months ended March 31, 1998 and 1997 (in thousands except per share data):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net income $12,074 $ 7,954
======= =======
Basic:
Weighted average common shares outstanding 55,537 51,997
======= =======
Net income per share $ .22 $ .15
======= =======
Diluted:
Weighted average common shares outstanding 55,537 51,997
Dilutive effects of stock options and warrants 5,442 5,899
------- -------
Weighted average common and
common equivalent shares outstanding 60,979 57,896
======= =======
Net income per share $ .20 $ .14
======= =======
</TABLE>
D. FOREIGN EXCHANGE CONTRACTS
--------------------------
The Company maintains foreign exchange contracts to mitigate the risk of changes
in foreign exchange rates associated with intercompany balances. The contracts
relate primarily to European currencies and generally have maturities of one
month. The impact of exchange rate movements on contracts is recorded in other
income in the period in which the exchange rates change, generally consistent
with the term of the contract. As of March 31, 1998, the Company held foreign
exchange forward contracts of approximately $7.9 million and there were no
related deferred gains and losses. The Company does not hold foreign exchange
contracts for trading purposes.
E. COMPREHENSIVE INCOME
--------------------
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires the
presentation of comprehensive income and its components. Comprehensive income
presents a measure of all changes in equity that result from recognized
transactions and other economic events during the period other than transactions
with stockholders. SFAS 130 requires restatement of all prior period financial
statements presented and is effective for the periods beginning after December
15, 1997. The Company has elected to disclose this information in the Statement
of Stockholders' Equity. The following table presents the calculation of
comprehensive income and its components:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1998 1997
------------ -----------
(in thousands)
<S> <C> <C>
Comprehensive income:
Net income $12,074 $ 7,954
Foreign currency translation adjustments (1,673) (1,175)
------- -------
Comprehensive income $10,401 $ 6,779
======= =======
</TABLE>
7
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F. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In March 1998, Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), was issued which
provides guidance on applying generally accepted accounting principles in
addressing whether and under what condition the costs of internal-use software
should be capitalized. SOP 98-1 is effective for transactions entered into in
fiscal years beginning after December 15, 1998, however earlier adoption is
encouraged. The Company adopted the guidelines of SOP 98-1 as of January 1,
1998, and the impact of such adoption was not material to results of operations
or cash flows for the quarter ended March 31, 1998.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal
years beginning after December 15, 1997. Interim reporting disclosures are not
required in the first year of adoption. SFAS 131 specifies revised guidelines
for determining an entity's operating segments and the type and level of
financial information to be disclosed. SFAS 131 changes current practice under
SFAS 14 by establishing a new framework on which to base segment reporting. The
management approach expands the required disclosures for each segment. The
Company will adopt SFAS 131 in the fourth quarter of 1998 and is currently
determining the impact of such adoption on its reporting as currently presented.
8
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CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Cambridge Technology Partners (Massachusetts), Inc. (the "Company") is an
international management consulting and systems integration firm. The Company
combines management consulting, information technology ("IT") strategy, process
innovation and implementation, custom and package software deployment, network
services, and educational services to rapidly deliver end-to-end business
systems for clients. In performing its services, the Company employs a rapid
development methodology that features an iterative approach and conducts
facilitated workshops that bring together key client users, executives, and IT
professionals to achieve consensus on the business case, strategic objectives,
and functionality of a business solution. The Company believes that this
approach permits the delivery of results in unprecedented time frames, typically
within three to twelve months. Working primarily with a fixed-price, fixed-
timetable model with client involvement at all stages of the process, the
Company continued to post strong operating results for the quarter ended March
31, 1998. Net revenues for the first quarter of 1998 increased 62% to $133.5
million compared to $82.2 million for the same period in 1997, reflecting
increased demand for the Company's services worldwide. Net income for the
quarter ended March 31, 1998, increased 52% to $12.1 million, or $.20 per share
(diluted), compared to $8.0 million, or $.14 per share (diluted), for the
comparable period in 1997.
In the first quarter of 1998, the Company continued to experience increased
demand for its services worldwide. North American net revenues grew 67% for the
quarter ended March 31, 1998, compared to the same period in 1997. This growth
in North American net revenues was fueled by increased demand, across all
geographic areas, for the Company's services, including custom and package
client/server applications, enterprise resource planning ("ERP") solutions,
management consulting services, and interactive solutions. Internationally, net
revenues grew 54% in the first quarter of 1998 compared to the same period a
year ago. In the first quarter of 1998, the Company commenced over 200 new
engagements worldwide. In order to support the increased demand for the
Company's services, total company headcount increased to 3,322 at March 31,
1998, from 3,071 at December 31, 1997. The Company will continue to focus on
hiring and assimilating appropriate personnel to service its clients in the
upcoming quarters.
In January 1998, the Company introduced a fixed-time/fixed price offering of
integrated manufacturing and supply chain solutions to provide manufacturers
with a total enterprise management solution. Further investing in its service
line expansion, the Company also developed and introduced a rapid, fixed-
time/fixed-price ERP deployment strategy for middle-market organizations.
Initial customer response to these new service offerings has been positive.
During the first quarter of 1998, the Company strengthened its operations in
Europe by adding offices in Utrecht, the Netherlands and Brussels, Belgium,
bringing worldwide total office count to 47 locations, at March 31, 1998.
Committed to investing in the global expansion of the Company, management
believes that the Company is well positioned for business growth going into the
second quarter of 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, COMPARED TO
THREE MONTHS ENDED MARCH 31, 1997
Net revenues increased 62% to $133.5 million in 1998 compared to $82.2 million
in 1997 due principally
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to an increase in the volume of services delivered to new clients, leveraging
the existing client base by undertaking additional projects, and increased
demand for the Company's expanded service offerings. North American net
revenues remained strong, growing 67% to $92.8 million in 1998 from $55.7
million in 1997. First quarter 1998 international net revenues grew 54% to
$40.7 million from $26.5 million in 1997. International net revenue results were
negatively impacted by the strengthening of the U.S. dollar against
international currencies primarily in the Netherlands and Scandinavia. Excluding
a $1.0 million negative impact related to changes in foreign exchange rates, net
revenues for the quarter ended march 31, 1998, would have been $134.5 million,
or a 64% increase in net revenues compared to the same period in 1997.
Project personnel costs consist principally of payroll and payroll related
expenses for personnel dedicated to client assignments and are directly related
to the level of client services being delivered. Project personnel costs were
$60.0 million or 45% of net revenues in 1998 compared to $36.4 million or 44% of
net revenues in 1997. The dollar and percentage increase resulted from the
hiring of additional project personnel over 1997 staff levels, the related
increase in payroll and payroll-related expenses, and increased usage of skilled
subcontractors on projects. Worldwide project personnel headcount increased 53%
to 2,767 employees at march 31, 1998, from 1,808 employees at march 31, 1997.
while the Company anticipates meeting its hiring goals for the remainder of
fiscal 1998, competition for personnel with IT skills is intense and the Company
expects salaries and wages to continue to increase. The company periodically
reviews and updates its billing rates to cover the expected increase in costs.
The Company currently expects that project personnel costs as a percentage of
annual net revenues will increase to approximately 46% for the remainder of 1998
as the Company invests in hiring and assimilating its employees to support its
business growth.
Furthermore, in January 1998, the Company introduced staffing control
initiatives to better monitor its subcontractor costs. While subcontractor costs
continued to be a notable component of project personnel costs, subcontractor
costs were reduced in the first quarter of 1998 compared to the third and fourth
quarters of 1997 and was within management's expectations. Other initiatives
that are part of the Company's focus on containing project personnel costs
include the continuous review and measurement of utilization, employee
retention, and billability. In January 1998, the Company implemented an
improved worldwide time entry system to serve as the basis for its productivity
measurements.
General and administration expenses were $15.0 million in 1998 compared to $9.4
million in 1997, reflecting 11% of net revenues for both periods. The dollar
increase reflects increased payroll and payroll-related expenses associated with
increased staff headcount and increased costs related to travel and company wide
recruiting expenses to support the Company's continued growth and geographic
expansion in North America and internationally. The Company currently expects
to maintain general and administration expenses as a percentage of net revenues
at a range between 10% and 11% for the remainder of 1998, while continuing to
provide sufficient support for the Company's global growth strategy.
Sales and marketing expenses were $12.5 million or 9% of net revenues in 1998
compared to $7.9 million or 10% of net revenues in 1997. The dollar increase is
primarily attributable to an increase in payroll and payroll-related expenses
associated with the increase in sales and marketing personnel from 156 at March
31, 1997, to 228 at March 31, 1998, the increase in sales commissions related to
the significant increase in net revenues, and travel related expenses for the
field sales and marketing groups. The increased sales and marketing headcount
enables the Company to maximize potential client lead generation through its
regional field marketing staff with subsequent services coordinated by its sales
personnel. The dollar increase also resulted from increased participation in
trade shows and marketing publications in order to provide existing and
potential clients with essential information about the Company and its service
offerings. The decrease as a percentage of net revenues is primarily due to the
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significant increase in net revenues. The Company continued its investment in
marketing initiatives and educational and training programs through those
conducted by its Management Lab and the Cambridge Information Network (CIN). The
Management Lab and CIN enable clients to participate in both physical and
virtual interactive forums to discuss issues associated with adopting advanced
information technology, as well as key business, technology, and career
management issues. The Company expects to maintain sales and marketing expenses
as a percentage of net revenues at a range between 9% and 10% for the remainder
of 1998.
Other costs consist of non-billable expenses directly incurred for client
projects and other associated business costs, including facilities costs and
related expenses, non-billable staff travel, and staff training. Other costs
were $26.3 million or 20% of net revenues in 1998 compared to $15.4 million or
19% of net revenues in 1997. The dollar and percentage increase from 1997
resulted principally from increased facility, travel, and employee training
costs. As the Company continues its headcount and facilities growth to support
current and anticipated increases in demand for its services, the Company
expects other costs as a percentage of net revenues to remain at the current
level for the remainder of 1998.
Interest income increased to $602,000 in 1998 from $342,000 in 1997. This
increase is principally due to increased cash and investment balances during the
first quarter of 1998 compared to 1997. The Company's cash and investments
consist primarily of tax exempt investment grade municipal bonds which mature
within one year from the date of purchase, overnight repurchase agreements, and
short-term commercial paper.
Foreign exchange loss was $133,000 in 1998 compared to $31,000 in 1997, which
losses were related to foreign currency exchange rate fluctuations associated
with intercompany balances. The increase in foreign exchange loss is due
primarily to unfavorable fluctuations in European currencies in the first
quarter of 1998. The Company maintains monthly foreign exchange forward
contracts to hedge against the risk of changes in foreign exchange rates
associated with intercompany balances. This risk coverage is dependent upon
forecasted intercompany activities at the beginning of each month and the
exchange rate gains and losses are directly related to the accuracy of such
forecasted amounts. As of March 31, 1998, the Company held foreign exchange
contracts of approximately $7.9 million.
The Company's effective income tax rate in 1998 decreased to 40.0% from 40.3% a
year ago. The Company's effective tax rate may vary from period to period based
on the Company's future expansion into areas of varying country, state, and
local statutory income tax rates.
Net income increased 52% to $12.1 million or $.20 per share (diluted) for the
1998 period as compared to $8.0 million or $.14 per share (diluted) for the same
period in 1997. The Company increased its net income per share by 43% despite a
5% increase in the number of common and common equivalent shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to operate primarily debt-free and enhance its working
capital position. Working capital increased to $128.6 million at March 31,
1998, from $107.9 million at December 31, 1997. This increase was primarily due
to increases in accounts receivable and unbilled revenue on contracts, proceeds
from exercise of stock options, and proceeds from shares issued under the
employee stock purchase plan, partially offset by cash used for capital
expenditures related to office expansions and computer equipment for new
employees. The Company's days sales in accounts receivable was 74 days during
the first quarter of 1998 compared to 75 days for the same period in 1997. In
1998, the Company began to include the reduction in days sales outstanding as an
individual metric for its employee bonus program. In addition, the Company's
treasury function, which is primarily responsible for worldwide
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collection and cash management efforts, continues to focus on its outstanding
receivables by involving the Company's project management staff in the
collection process. This continued collection effort has reduced the Company's
accounts receivable balance greater than 60 days as a percentage the
consolidated balance in the first quarter of 1998 compared to the fourth quarter
of 1997.
Net cash used in operating activities was $2.5 million in 1998 compared to net
cash provided by operating activities of $142,000 for the comparable period in
1997. The increases in net income, tax benefit from exercise of stock options,
income taxes payable, and deferred revenue were more than offset by the
increases in accounts receivable, unbilled revenue on contracts, and prepaid
expenses and other current assets and a decrease in accrued expenses. The
decrease in accrued expenses is primarily due to bonus payments made in the
first quarter of 1998 under the Company's 1997 employee bonus plan.
Capital expenditures of $6.4 million in 1998 were used principally for computer
equipment to support the Company's expanding operations and employee
workstations and leasehold improvements related to the Company's expanding and
new offices worldwide. Capital expenditures for 1998 are expected to
approximate $30.0 million, principally for leasehold improvements, personal
computers, employee workstations, telecommunication and video conferencing
equipment, and other equipment to support both current and anticipated levels of
customer activities worldwide. In accordance with the Company's strategic
acquisition plans, the Company evaluates, on an ongoing basis, potential
acquisitions of companies or technologies that may complement its business.
The Company maintains a $20.0 million uncollateralized revolving credit facility
(the "Facility") with Fleet National Bank ("Fleet Bank"). The Facility, which
expires on June 30, 1998, allows 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 including tangible net worth, debt to equity, and operating
profitability. At March 31, 1998 and December 31, 1997, the Company was in
compliance with these financial ratio requirements and no borrowings have been
made under the Facility. Currently, the Company expects to extend and increase
the amount available under the Facility in June 1998.
In the first quarter of 1998, the Company repaid the outstanding principal
balance of approximately $823,000 under a loan agreement entered into by Peter
Chadwick to finance the purchase of a training facility located in the United
Kingdom. This loan agreement was then terminated. (see Note B of the Notes to
the Consolidated Financial Statements).
In January 1998, the Company entered into an agreement with Boston Properties
Limited Partnership ("Boston Properties") to lease a building to be constructed
and developed by Boston Properties. This approximately 177,000 square foot
building, which will be located in Cambridge, Massachusetts, will serve as the
corporate headquarters for the Company. The lease agreement is for a ten-year
period, which is expected to commence in June 1999. Pursuant to the terms of
the lease agreement, the Company paid a $1.3 million security deposit in January
1998. The Company's current headquarters building is expected to continue to be
used for project development and other activities through its lease term.
The Company expects that cash flows from operations will provide the principal
source of future liquidity for the Company. However, the Company is currently
experiencing a period of growth, which could place a strain on the Company's
financial resources. The Company currently anticipates that existing cash and
investment balances combined with cash generated from operations and amounts
available under the Facility will be sufficient, at least through 1998, to meet
the Company's working capital requirements and to fund the expansion of the
Company's business. In order to meet client demand for the Company's services
in 1998, the Company expects to continue to increase its professional staff and
to open additional
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sales and operations offices in North America and internationally. Although the
Company's plans to open offices and hire personnel are in response to increased
demand for the Company's services, a portion of these expenses will be incurred
in anticipation of increased demand. Operating results and liquidity may be
adversely affected if market demand and revenues do not increase as anticipated.
As the Company expands its international operations, a number of factors,
including market acceptance of the Company's services, significant fluctuations
in currency exchange rates, and changes in general economic, political, and
regulatory conditions, could also adversely affect future results and liquidity.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements (statements that are not
historical facts) such as statements about future net revenues and profits,
capital expenditures, liquidity sources and needs, working capital needs,
increase in personnel and related costs, opening additional offices, general and
administrative expenses, sales and marketing expenses, and other costs as a
percentage of net revenues. These forward-looking statements are subject to
several risks and uncertainties and the Company's actual future results may
differ significantly from those stated in any forward looking statements. While
it is impossible to identify each factor and event that could affect the
Company's results, variations in the Company's revenues and operating results
occur from time to time as a result of a number of factors, such as the
significance of client engagements commenced and completed during the period,
the number of working days in a period, employee hiring, retention, and
utilization rates, acceptance and profitability of the Company's services in new
territories, and integration of companies acquired. The timing of revenues is
difficult to forecast because the Company's sales cycle is relatively long in
the case of new clients and may depend on factors such as the size and scope of
the assignments and general economic conditions. Because a high percentage of
the Company's expenses are relatively fixed, a variation in the timing of the
initiation or the completion of client assignments, particularly at or near the
end of any quarter, can cause significant variations in operating results from
period to period.
13
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
a. Exhibits:
3.1 Amended and Restated Certificate of Incorporation of the Company, as
amended. (Incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (File No. 333-43127)).
3.2 Amended and Restated By-laws of the Company. (Incorporated herein
by reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1 (File No. 33-56338)).
4 Rights Agreements dated June 23, 1997 between the Company and
ChaseMellon Shareholder Services, LLC. (Incorporated herein by
reference to Exhibit 4.1 to the Company's Report on Form 8-K dated
June 23, 1997, and filed on July 1, 1997).
11 Statement Regarding Computation of Earnings Per Share.
27 Financial Data Schedule.
b. Reports on Form 8-K:
On February 17, 1998, the Company filed a report on Form 8-K which contains
the financial results of the Company for the year ended December 31, 1997,
consisting of the consolidated statements of operations for the Company for
the twelve month periods ended December 31, 1996 and 1997, respectively,
and the condensed consolidated balance sheets for the Company as of
December 31, 1996 and 1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
Date: May 11, 1998 By:/s/ Arthur M. Toscanini
-------------------------------
Arthur M. Toscanini
Executive Vice President and
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation of the Company, as
amended. (Incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (File No. 333-43127)).
3.2 Amended and Restated By-laws of the Company. (Incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement on Form
S-1 (File No. 33-56338)).
4 Rights Agreement dated June 23, 1997, between the Company and ChaseMellon
Shareholders Services, LLC. (Incorporated herein by reference to Exhibit
4.1 to the Company's Report on Form 8-K dated June 23, 1997, and filed on
July 1, 1997).
11 Statement Regarding Computation of Earnings Per Share.
27 Financial Data Schedule.
16
<PAGE>
EXHIBIT 11
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
STAEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
-------------- ------------
<S> <C> <C>
Net income $12,074 $ 7,954
======= =======
Basic:
Weighted average common shares outstanding 55,537 51,997
======= =======
Net income per share $ .22 $ .15
======= =======
Diluted:
Weighted average common shares outstanding 55,537 51,997
Dilutive effects of stock options and warrants 5,442 5,899
------- -------
Weighted average common and
common equivalent shares outstanding 60,979 57,896
======= =======
Net income per share $ .20 $ .14
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 35,945
<SECURITIES> 20,031
<RECEIVABLES> 119,590
<ALLOWANCES> 3,181
<INVENTORY> 0
<CURRENT-ASSETS> 215,292
<PP&E> 61,387
<DEPRECIATION> 22,291
<TOTAL-ASSETS> 262,001
<CURRENT-LIABILITIES> 86,692
<BONDS> 0
561
0
<COMMON> 0
<OTHER-SE> 173,587
<TOTAL-LIABILITY-AND-EQUITY> 262,001
<SALES> 0
<TOTAL-REVENUES> 133,486
<CGS> 0
<TOTAL-COSTS> 113,787
<OTHER-EXPENSES> (469)
<LOSS-PROVISION> 574
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 20,123
<INCOME-TAX> 8,049
<INCOME-CONTINUING> 12,074
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,074
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.20
</TABLE>
