<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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)
8 Cambridge Center
Cambridge, Massachusetts 02142
(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 July 31, 2000, there were 63,062,865 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 June 30, 2000 and
December 31, 1999 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20
PART II - OTHER INFORMATION:
ITEM 1: LEGAL PROCEEDINGS 21
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
EXHIBIT INDEX 24
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
------- --------------------
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 61,982 $ 62,288
Investments held to maturity 27,932 28,659
Accounts receivable, less allowance of $14,631 and $10,287
at June 30, 2000 and December 31, 1999, respectively 152,596 126,842
Unbilled revenue on contracts 10,880 13,181
Deferred income taxes 247 247
Prepaid expenses and other current assets 53,103 38,465
-------- --------
Total current assets 306,740 269,682
Property and equipment, net 50,049 53,127
Deferred income taxes 2,310 3,619
Other assets 24,058 41,246
-------- --------
Total assets $383,157 $367,674
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,633 $ 13,845
Accrued expenses 81,195 54,971
Deferred revenue 15,554 9,594
Income taxes payable 1,416 12,054
Obligations under capital leases, current 41 71
-------- --------
Total current liabilities 110,839 90,535
Obligations under capital lease 48 103
Other long term liabilities 1,750 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share, 2,000,000 shares
authorized and none issued and outstanding
at June 30, 2000 and December 31,1999, respectively - -
Common stock, $.01 par value, authorized 250,000,000
shares; issued and outstanding 62,769,025 and 62,065,028 shares
at June 30, 2000 and December 31, 1999, respectively 628 621
Additional paid-in capital 168,662 159,738
Retained earnings 114,396 129,670
Accumulated other comprehensive loss (10,504) (9,331)
Deferred compensation (2,662) (3,662)
-------- --------
Total stockholders' equity 270,520 277,036
-------- --------
Total liabilities and stockholders' equity $383,157 $367,674
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $159,850 $163,496 $307,442 $314,869
Costs and expenses:
Project personnel 72,938 81,667 150,945 153,235
General and administration 31,056 21,525 55,127 37,967
Sales and marketing 20,850 16,025 39,892 30,290
Other costs 50,432 45,817 97,599 83,777
-------- -------- -------- --------
Total operating expenses 175,276 165,034 343,563 305,269
-------- -------- -------- --------
Income/(loss) from
operations (15,426) (1,538) (36,121) 9,600
Other income/(expense):
Interest income, net 706 478 1,412 1,163
Gain/(loss) on investments (3,925) 3,367 1,188 3,649
Gain on sale of assets - - 7,661 -
Foreign exchange
gain/(loss) 313 (390) 403 (464)
-------- -------- -------- --------
Total other
income/(expense) (2,906) 3,455 10,664 4,348
-------- -------- -------- --------
Income/(loss) before
income taxes (18,332) 1,917 (25,457) 13,948
Provision/(benefit) for
income taxes (7,333) 728 (10,183) 5,300
-------- -------- -------- --------
Net income/(loss) $(10,999) $ 1,189 $(15,274) $ 8,648
======== ======== ======== ========
Basic net income/(loss)
per share $(0.18) $0.02 $(0.25) $0.15
======== ======== ======== ========
Diluted net income/(loss)
per share $(0.18) $0.02 $(0.25) $0.14
======== ======== ======== ========
Weighted average number of
common shares outstanding 62,426 59,654 62,347 59,480
======== ======== ======== ========
Weighted average number of
common and common equivalent
shares outstanding 62,426 60,813 62,347 62,588
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $(15,274) $ 8,648
Amounts that reconcile net income/(loss) to net cash
used in operating activities:
Depreciation and amortization 9,158 7,775
Stock based compensation 1,000 -
Tax benefit from exercise of stock options - 1,589
Gain on equity investment in Cambridge Technology Capital Fund (7,287) (1,421)
Gain on sale of marketable equity securities - (2,228)
Gain on sale of assets (7,661) -
Loss on sale of Cambridge Technology Capital Fund
distribution in kind 6,099 -
Change in deferred income taxes 1,307 -
Changes in assets and liabilities:
Increase in accounts receivable (27,389) (14,623)
Decrease/(increase) in unbilled revenue on contracts 2,080 (9,475)
Increase in prepaid expenses and other current assets (12,465) (4,416)
Decrease in other assets 7,295 1,769
Decrease in accounts payable (1,104) (3,293)
Increase in accrued expenses 26,883 2,420
Increase in deferred revenue 5,975 4,132
Decrease in income taxes payable (10,717) (8,487)
Increase in other long-term liabilities 1,750 -
-------- --------
Net cash used in operating activities (20,350) (17,610)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (6,294) (13,263)
Purchase of investments held to maturity (10,437) (7,231)
Maturity of investments held to maturity 11,164 4,815
Investment in equity securities (1,000)
Proceeds from Cambridge Technology Capital
Fund cash distribution 5,927 -
Proceeds from sale of Cambridge Technology Capital
Fund distributions in kind 8,881 -
Investment in Cambridge Technology Capital Fund (630) (1,409)
Proceeds from sale of marketable equity securities - 2,324
Proceeds from sale of assets 4,656 -
-------- --------
Net cash provided by/(used in) investing activities 12,267 (14,764)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt and capital leases (55) (110)
Proceeds from employee stock purchase plan 6,105 4,768
Proceeds from exercise of stock options 2,826 8,998
-------- --------
Net cash provided by financing activities 8,876 13,656
-------- --------
Effect of foreign exchange rate changes on cash (1,099) (887)
Net decrease in cash and cash equivalents (306) (19,605)
Cash and cash equivalents at beginning of period 62,288 80,051
-------- --------
Cash and cash equivalents at end of period $ 61,982 $ 60,446
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
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., a Delaware corporation (the "Company"), include
the accounts of the Company and all of its wholly owned subsidiaries. All
intercompany transactions and balances have been eliminated in consolidation.
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 or 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 the year ended December 31, 1999
for additional disclosures, including a summary of the Company's accounting
policies. The consolidated results of operations for the three and six months
ended June 30, 2000 are not necessarily indicative of results for the full year.
B. NET INCOME PER SHARE
--------------------
The following table presents the calculation of earnings per share for the three
and six months ended June 30, 2000 and 1999 (in thousands except per share
data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income/(loss) $(10,999) $ 1,189 $(15,274) $ 8,648
======== ======= ======== =======
Basic:
Weighted average number of common shares outstanding 62,426 59,654 62,347 59,480
======== ======= ======== =======
Net income/(loss) per share $ (0.18) $ .02 $ (0.25) $ .15
======== ======= ======== =======
Diluted:
Weighted average number of common shares outstanding 62,426 59,654 62,347 59,480
Dilutive effects of stock options - 1,159 - 3,108
-------- ------- -------- -------
Weighted average number of common and common
equivalent shares outstanding 62,426 60,813 62,347 62,588
======== ======= ======== =======
Net income/(loss) per share $ (0.18) $ .02 $ (0.25) $ .14
======== ======= ======== =======
</TABLE>
For the three and six month periods ended June 30, 2000, basic and diluted EPS
were calculated based solely on weighted average number of common shares
outstanding. For the three month and six month periods ended June 30, 2000,
common stock equivalents of 16.3 million shares were excluded from the
computation of diluted EPS because the effects of these shares were anti-
dilutive. The number of common stock equivalents excluded from the computation
of diluted EPS for the three and six months ended June 30, 1999 was 5.4 million
and 4.2 million shares, respectively.
6
<PAGE>
C. FOREIGN EXCHANGE CONTRACTS
--------------------------
The Company maintains foreign exchange contracts in an attempt to mitigate the
risk of changes in foreign exchange rates associated with intercompany balances.
The contracts 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 June 30, 2000, the Company held foreign exchange forward contracts of
approximately $4.3 million and there were no related deferred gains or losses.
As of June 30, 2000, the Company maintained foreign exchange contracts to
mitigate the risk of changes in Swiss francs, British pounds, and French francs.
The Company does not hold foreign exchange contracts for trading purposes.
D. COMPREHENSIVE INCOME
--------------------
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" 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. The following table presents the
calculation of comprehensive income and its components for the three and six
months ended June 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
2000 1999 2000 1999
-------- --------- ---------- -------
<S> <C> <C> <C> <C>
Comprehensive income/(loss):
Net income/(loss) $(10,999) $ 1,189 $(15,274) $ 8,648
Other comprehensive income/(loss):
Unrealized gain/(loss) on marketable equity
securities, net of taxes of
$1,491 and $(1,034) for
the three and six month periods ended
June 30, 2000, respectively and
net of taxes of $165 for the six
months periods ended June 30, 1999 2,237 - (1,551) 267
Reclassification adjustment for (gain)/loss
on marketable equity securities included
in net income/(loss), net of taxes of $2,340
for the three and six month periods ended
June 30, 2000 and net of taxes of $(920)
and $(753) for the three and six month
periods ended June 30, 1999, respectively 3,509 (1,521) 3,509 (1,255)
Foreign currency translation adjustment (1,805) (2,472) (3,131) (5,935)
-------- ------- -------- -------
Other comprehensive income/(loss) 3,941 (3,993) (1,173) (6,923)
-------- ------- -------- -------
Comprehensive income/(loss) $ (7,058) $(2,804) $(16,447) $ 1,725
======== ======= ======== =======
</TABLE>
7
<PAGE>
E. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, recorded as a
gain or loss, depends on the intended use of the derivative and its resulting
designation. The statement initially was to be effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. In July 1999, the Financial
Accounting Standards Board issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activites-deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133." SFAS 137 defers the
implementation of SFAS 133 by one year. SFAS 133, as amended by SFAS 137, is
effective for the Company's fiscal quarters beginning after January 1, 2001. The
Company has determined that SFAS 137 will not have a material impact on its
financial position and results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation - an interpretation of APB Opinion No. 25." FIN 44
is effective July 1, 2000, but certain conclusions in this Interpretation cover
specific events that occur after either December 15, 1998, or January 12, 2000.
To the extent that this Interpretation covers events occurring during the period
after December 15, 1998, or January 12, 2000, but before the effective date of
July 1, 2000, the effects of applying this Interpretation are required to be
recognized on a prospective basis from July 1, 2000. The Company has determined
that this interpretation will not have a material impact on its financial
position and results of operations.
F. COMMITMENTS AND CONTINGENCIES
-----------------------------
On November 18, 1998, certain of the former stockholders of Excell Data
Corporation ("Excell") filed a lawsuit against the Company in the United States
District Court for the District of Massachusetts ("District Court"). The
complaint alleged breach of contract, violation of federal securities laws,
common law fraud, and negligent misrepresentation in connection with the Excell
acquisition and sought unspecified damages. In February 1999, the Company filed
a counterclaim against the former stockholders of Excell which alleges breach of
contract. On March 1, 2000, the District Court granted the Company's motion for
summary judgement, dismissing the complaints of the former shareholders of
Excell in their entirety.
In March and April 1999, certain stockholders of the Company filed ten separate
class action lawsuits against the Company and certain of the Company's officers
in United States District Court for the District of Massachusetts ("District
Court"). These suits have since been consolidated by the District Court. The
suits allege misrepresentations and omissions regarding the Company's future
growth prospects and progress of the Company's reorganization in violation of
federal securities laws. The suits seek unspecified damages. The Company
believes that the plaintiffs' claims are without merit and intends to vigorously
defend the lawsuits. The Company has moved to dismiss the plaintiffs'
consolidated complaint. The motion is currently pending, with oral argument
before the District Court scheduled for September 18, 2000.
The Company is involved in litigation and various other legal matters, which
have arisen in the ordinary course of business. The Company does not believe
that the ultimate resolution of any such existing matter will have a material
adverse effect on its financial condition, results of operations, or cash flows.
8
<PAGE>
G. CAMBRIDGE TECHNOLOGY CAPITAL FUND I L.P. (THE "FUND")
------------------------------------------------------
The Fund was formed in October 1997 as a limited partnership with committed
capital of approximately $25.3 million. The Fund's goal is capital appreciation
and is intended to invest in expansion-stage, private companies providing
products and services within the technology industry. The Company's ownership
interest in the Fund, of approximately 24%, is accounted for using the equity
method of accounting. The Company's total capital commitment to the Fund is
approximately $6.0 million, of which $5.6 million has been contributed through
June 30, 2000. The carrying value of the Company's investment in the Fund was
approximately $14.7 million and $33.2 million at June 30, 2000 and December 31,
1999 respectively, and is included in other assets in the consolidated balance
sheet. The decrease in the carrying value of the Company's investment in the
Fund in 2000 is primarily a result of the distribution of assets from the Fund's
investment portfolio. For the six months ended June 30, 2000, the Company
received $5.9 million in cash distributions from the Fund, none of which were
received during the three months ended June 30, 2000. For the six months ended
June 30, 2000, the Company also received $20.9 million of distributions in-kind
in the form of marketable equity securities, $6.7 million of these distributions
were received in the three months ended June 30, 2000. No cash distributions
were received for the six months ended June 30, 1999. For the six months ended
June 30, 1999, the Company received $1.0 million of distributions in-kind in the
form of marketable equity securities, none of which were received in the three
months ended June 30, 1999.
The gain on the Company's equity investment in the Fund totaled $2.2 million and
$1.1 million for the three months ended June 30, 2000 and 1999, respectively.
The gain on the Company's equity investment in the Fund totaled $7.3 million and
$1.4 million for the six months ended June 30, 2000 and 1999, respectively. The
gain on the Company's equity investment in the Fund for 2000 primarily resulted
from realized gains due to the Fund's distributions of equity securities while
the gain on the Company's equity investment in the Fund for 1999 primarily
resulted from unrealized changes in the fair value of the Fund's investment
portfolio. The amount of gain allocated each period is based on the allocation
of the Fund's income as determined by the Fund's partnership agreement. The
allocation methodology may vary at times and may not be solely based on
contribution percentage.
Summarized financial information of the Fund is presented as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
2000 1999 2000 1999
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Net realized gains $ 22,239 $ 450 $ 92,206 $3,814
Net (decrease)/increase in
unrealized appreciation of
investments (32,108) 4,596 (84,097) 3,295
Net loss from operations (185) (241) (341) (437)
-------- ------ -------- ------
Net increase/(decrease) in partners'
capital $(10,054) $4,805 $ 7,768 $6,672
======== ====== ======== ======
</TABLE>
9
<PAGE>
H. OPERATING SEGMENT INFORMATION
-----------------------------
The Company is managed in two operating segments: North America and
International. The North American operating segment consists of e-business,
systems integration, and consulting services in the United States and Canada,
while the International operating segment consists of e-business, systems
integration, and consulting services outside of North America.
The Company evaluates each segment's performance based on revenues and income
from operations. For segment reporting purposes, total corporate revenues,
income from operations, and assets have been included in North America. The
carrying value of the investment in the Fund of $14.7 million and $33.2 million
is included in total assets for North America at June 30, 2000 and December 31,
1999, respectively.
Information about the Company's operating segments is presented as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenues:
North America $ 99,917 $109,369 $191,153 $206,656
International 59,933 54,127 116,289 108,213
-------- -------- -------- --------
Consolidated $159,850 $163,496 $307,442 $314,869
======== ======== ======== ========
Income/(loss) from operations:
North America $(15,613) $ (5,557) $(38,676) $ (2,715)
International 187 4,019 2,555 12,315
-------- -------- -------- --------
Consolidated income/(loss)
from operations (15,426) (1,538) (36,121) 9,600
Other income/(loss) (2,906) 3,455 10,664 4,348
-------- -------- -------- --------
Consolidated income/(loss)
before income taxes $(18,332) $ 1,917 $(25,457) $ 13,948
======== ======== ======== ========
<CAPTION>
June 30, December 31,
2000 1999
-------- -----------
<S> <C> <C>
Total assets:
North America $270,819 $270,749
International 112,338 96,925
-------- --------
Consolidated $367,674 $364,125
======== ========
</TABLE>
10
<PAGE>
I. GAIN ON SALE OF ASSETS
----------------------
On February 10, 2000, the Company announced that it had sold its Cambridge
Information Network ("CIN") to EarthWeb Inc. ("EarthWeb") for $8.0 million in a
combination of cash and EarthWeb common stock, as determined by EarthWeb. During
the first quarter of 2000, the Company recorded a gain on the sale of assets,
net of transaction costs related to this transaction, of approximately $7.7
million. In conjunction with the sale of CIN to EarthWeb, the Company entered
into a services agreement with EarthWeb to purchase a combination of web site
sponsorships and service from EarthWeb's sites for $1.0 million per year for
three years.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
OVERVIEW
Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge" or the
"Company") performs technology and consulting services to help its clients
develop and accelerate their transition to Internet-based e-business solutions
and processes - the information technology that defines the "New Economy."
Founded in 1991, the Company combines electronic business and digital (Internet)
strategy consulting and cross-enterprise, software integration services to
"Global 1000" organizations worldwide, delivering rapid end-to-end business
solutions.
Electronic commerce business solutions delivered to clients have become and will
likely continue to become more integrated with clients' value chains and legacy
systems. This market trend represents a growth opportunity for Cambridge.
Starting in 2000, Cambridge groups its services into three lines of business,
"e-Solutions," "Traditional" and "Change Management Consulting." The Company's
e-Solutions service offering is comprised of e-Business and e-Integration, and
generally includes digital business strategies, e-commerce technical solutions
consulting, Internet user experience design and advanced software application
integration. Traditional services generally include custom client/server
application solutions and implementations of software such as call centers and
enterprise resource planning (ERP) applications. The Company's Change Management
Consulting practice includes integrated management consulting across various
industrial sectors and the entire scope of the value chain of the Company's
clients.
The Company provides the majority of its services on a fixed-time, fixed-price
model, with client involvement at all stages of the process. For software
development services, the Company and its clients generally agree on a
contractually fixed price for each phase of a project. In performing its
services, the Company brings together key client users, executives, and IT
professionals in interactive sessions to achieve consensus on the business case,
strategic objectives, and functionality of a business solution. In many cases,
the Company employs a rapid deployment methodology that features an iterative
approach. The Company believes that these techniques permit the delivery of
results in rapid time frames - typically within three to twelve months.
Revenues for the second quarter of 2000 decreased 2% to $159.9 million compared
to $163.5 million for the same period in 1999. Net loss for the quarter ended
June 30, 2000 was $11.0 million, or $.18 per share (basic and diluted). Included
in net loss for the second quarter of 2000 is a $3.9 million loss, or $.04 per
share (basic and diluted), related to the Company's equity investment in the
Cambridge Technology Capital Fund I L.P. (the "Fund"). This compares to net
income of $1.2 million, or $.02 per share (basic and diluted), for the second
quarter of 1999. Included in net income for the second quarter of 1999 is a $3.4
million gain, or $.03 per share (diluted), on equity investment related to the
Company's investment in the Fund.
For the second quarter of 2000, e-Solutions revenues increased 60% to $92.4
million compared to $57.6 million for the same period in 1999. Sequentially, e-
Solutions revenues increased 20% compared to $77.0 million for the quarter ended
March 31, 2000. Growth in e-Solutions revenues for the second quarter of 2000 is
primarily attributable to increased demand for the Company's e-Business and e-
Integration services worldwide. Revenues for Traditional decreased 55% to $34.0
million for the second quarter of 2000 compared to $75.8 million for the same
period in 1999. The decrease in revenues from Traditional services
12
<PAGE>
was primarily due to the elevated levels at which clients invested in such
projects in prior periods in conjunction with Year 2000 prevention plans and the
transition of the Company's focus to providing e-Solutions services. Traditional
services remain a part of the Company's service offerings in support of
e-Solutions. Change Management Consulting revenues for the second quarter of
2000 increased 12% to $33.5 million from $30.1 million due primarily to
increased demand in North America within the energy and chemical sectors and the
development of the financial sector in Europe.
North American revenues decreased 9% to $99.9 million for the quarter ended June
30, 2000 compared to $109.4 million for the same period in 1999, while
International revenues increased 11% to $60.0 million in the second quarter of
2000 compared to $54.1 million in the second quarter of 1999. North American
revenues for the second quarter of 2000 represented 62% of total revenues while
International revenues represented 38% of total revenues for the same period.
North American revenues for the second quarter of 1999 represented 67% of total
revenues while International revenues represented 33% of total revenues for the
same period. The decrease in North American revenues for the quarter ended June
30, 2000 compared to the same period in 1999 was due primarily to a decrease in
revenues from Traditional services, which are concentrated more heavily in North
America than International. The increase in International revenues for the
quarter ended June 30, 2000 compared to the same period in 1999 was due
primarily to increased revenues from e-Solutions.
Annualized employee turnover was approximately 38.7%, excluding forced turnover,
for the second quarter of 2000 compared to approximately 40.0%, excluding forced
turnover, for the first quarter of 2000. The Company, along with the rest of the
technology industry, continues to be challenged by employee turnover as
companies compete for employees with the skill sets required to fulfill client
demand. Company headcount totaled 3,905 at June 30, 2000 compared to 3,942 at
March 31, 2000.
On July 27, 2000, the Company announced that it is exploring strategic options
to allow Cambridge Management Consulting, its change management consulting unit,
to operate as a more independent but majority-owned business of the Company.
Options being considered include finding a strategic partner and listing on a
European stock exchange. The changes the Company is considering are designed to
enable Cambridge Management Consulting to grow faster and to recruit and retain
the best personnel with share option and incentive programs directly aligned
with the unit's performance.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1999
Total revenues for the second quarter of 2000 decreased 2% to $159.9 million
compared to $163.5 million for the same period in 1999. North American revenues
decreased 9% to $99.9 million for the quarter ended June 30, 2000 compared to
$109.4 million for the same period in 1999. International revenues increased 11%
to $60.0 million in the second quarter of 2000 compared to $54.1 million in the
second quarter of 1999. The decrease in worldwide total revenues for the second
quarter of 2000 compared to the second quarter of 1999 was principally due to a
55% decrease in the revenues from Traditional services to $34.0 million from
$75.8 million. This decrease was partially offset by an increase in the revenues
from e-Solutions of 60% to $92.4 million for the second quarter of 2000 from
$57.6 million for the same period in 1999 and an increase of 12% in revenues
from Change Management Consulting to $33.5 million for the quarter ended June
30, 2000 from $30.1 million for the same period in 1999. The decrease in
revenues from Traditional services was
13
<PAGE>
primarily due the elevated levels at which the clients invested in such projects
in prior periods in conjunction with Year 2000 prevention plans and the
transition of the Company's focus to providing e-Solutions services. Traditional
services remain a part of the Company's service offerings in support of
e-Solutions. Growth in e-Solutions revenues for the second quarter of 2000 is
primarily attributable to increased demand for the Company's e-Business and
e-Integration services worldwide. The increase in Change Management Consulting
revenues was primarily due to increased demand in North America within the
energy and chemical sectors and the development of the financial sector in
Europe.
Project personnel costs consist principally of payroll and payroll-related
expenses for personnel dedicated to client assignments and are directly related
to the amount of client services being delivered. Project personnel costs were
$72.9 million, or 46% of revenues, for the second quarter of 2000 compared to
$81.7 million, or 50% of revenues, for the second quarter of 1999. The dollar
and percentage decrease resulted primarily from a decrease in payroll and
payroll-related expenses due to a lower level of headcount and was partially
offset by wage increases in an initiative to transition the Company's salary
scale to the top end of the market. Worldwide project personnel headcount
decreased 15% to 2,890 full-time employees at June 30, 2000 from 3,390 full-time
employees at June 30, 1999. 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 in an attempt to cover the
expected increase in project personnel costs.
General and administration expenses were $31.1 million, or 19% of revenues, for
the second quarter of 2000 compared to $21.5 million, or 13% of revenues, for
the second quarter of 1999. The dollar and percentage increase resulted
primarily from an increase in payroll and payroll-related expenses associated
with increased wages and recruiting of additional personnel, including senior
executives, to support the Company's business, higher levels of expenses related
to the use of outside professional services, and an increased bad debt reserve
related to credit issues with certain dot-com customers. Worldwide general and
administrative personnel headcount increased 6% to 759 full-time employees at
June 30, 2000 from 714 full-time employees at June 30, 1999.
Sales and marketing expenses were $20.9 million, or 13% of revenues, for the
second quarter of 2000 compared to $16.0 million, or 10% of revenues, for the
second quarter of 1999. The dollar and percentage increase resulted primarily
from costs associated with enhancing the Company's brand recognition through
advertising and the sponsorship of major forums and an increase in payroll and
payroll-related expenses associated with increased wages, partially offset by a
decrease in headcount. Worldwide sales and marketing personnel headcount
decreased 15% to 258 employees at June 30, 2000 from 305 employees at June 30,
1999.
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, non-billable project personnel
costs, and training costs. Other costs were $50.4 million, or 32% of revenues,
for the second quarter of 2000 compared to $45.8 million, or 28% of revenues,
for the second quarter of 1999. The dollar and percentage increase from 1999
resulted primarily from increased equipment and telecommunications costs. The
increase was also caused by a decrease in staff utilization due to employee
turnover and additional training required to transition project personnel to e-
Business solutions. The Company continues to assess its hiring plans based upon
a review of the skill sets required to reflect the evolving needs of its
clients.
Included in other income/(loss) for the second quarter of 2000 is a loss on
investments of $3.9 million, which is comprised of a $6.1 million loss on the
sale of securities distributed from the Fund, partially off set by a $2.2 gain
related to the Company's equity investment in the Fund compared to a $3.4
million equity
14
<PAGE>
investment gain for the second quarter of 1999. The gain on the Company's equity
investment in the Fund for the second quarter of 2000 primarily resulted from
realized gains due the the Fund's distribution of equity securities while the
gain on the Company's equity investment in the Fund for the second quarter of
1999 primarily resulted from unrealized appreciation of the Fund's portfolio of
securities.
The Company maintains monthly foreign exchange forward contracts in an attempt
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. The exchange rate gains
and losses are directly related to the accuracy of such forecasted amounts. As
of June 30, 2000, the Company held foreign exchange contracts of approximately
$4.3 million. As the Company grows, it becomes increasingly subject to the risks
associated with international operations, including fluctuations in foreign
currency exchange rates. The Company continues to monitor the impact of foreign
currency exchange rates on revenues.
The Company's effective income tax rate for the second quarter of 2000 was 40%
compared to 38% for the same period 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, its
geographic mix of revenue and income, and the effects of varying compensation
arrangements.
Net loss for the quarter ended June 30, 2000 was $11.0 million, or $.18 per
share (basic and diluted). Included in net loss for the second quarter of 2000
is a $3.9 million loss, or $.04 per share (basic and diluted), on investments
related to the Company's equity investment in the Fund. This compares to net
income of $1.2 million, or $.02 per share (basic and diluted), for the second
quarter of 1999. Included in net income for the second quarter of 1999 is a $3.4
million gain, or $.03 per share (diluted), on investments related to the
Company's equity investment in the Fund.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1999
Total revenues in 2000 decreased 2% to $307.4 million compared to $314.9 million
for the same period in 1999. North American revenues decreased 8% to $191.1
million in 2000 compared to $206.7 million for the same period in 1999.
International revenues increased 7% to $116.3 million in 2000 compared to $108.2
million in 1999. The decrease in worldwide total revenues in 2000 compared to
1999 was principally due to a 51% decrease in the revenues from Traditional
services to $72.8 million from $149.7 million. This decrease was partially
offset by an increase in the revenues from e-Solutions of 60% to $169.3 million
in 2000 from $105.9 million in 1999 and an increase of 10% in revenues from
Change Management Consulting to $65.3 million in 2000 from $59.2 million in
1999. The decrease in revenues from Traditional services was primarily due the
elevated levels at which the clients invested in such projects in prior periods
in conjunction with Year 2000 prevention plans and the transition of the
Company's focus to providing e-Solutions services. Traditional services remain a
part of the Company's service offerings in support of e-Solutions. Growth in e-
Solutions revenues for 2000 is primarily attributable to increased demand for
the Company's e-Business and e-Integration services worldwide. The increase in
Change Management Consulting revenues was primarily due to increased demand in
North America within the energy and chemical sectors and the development of the
financial sector in Europe.
Project personnel costs were $150.9 million in 2000 compared to $153.2 million
in 1999, or 49% of revenues for both periods. The dollar decrease resulted
primarily from a decrease in payroll and payroll-related expenses due to a lower
amount of headcount and was partially offset by wage increases in an initiative
to
15
<PAGE>
transition the Company's salary scale to the top end of the market place and
bonus costs associated with the Company's incentive bonus program.
General and administration expenses were $55.1 million, or 18% of revenues in
2000 compared to $38.0 million, or 12% of revenues, in 1999. The dollar and
percentage increase resulted primarily from an incentive bonus program, an
increase in payroll and payroll-related expenses associated with increased wages
and recruiting of additional personnel, including senior executives, to support
the Company's business, higher levels of expenses related to the use of outside
professional services and in increase in bad debt expense.
Sales and marketing expenses were $39.9 million, or 13% of revenues, in 2000
compared to $30.3 million, or 10% of revenues, in 1999. The dollar and
percentage increase resulted primarily from costs associated with enhancing the
Company's brand recognition through advertising and the sponsorship of major
forums and an increase in payroll and payroll-related expenses associated with
increased wages and headcount.
Other costs were $97.6 million, or 32% of revenues, in 2000 compared to $83.8
million, or 27% of revenues, in 1999. The dollar and percentage increase from
1999 resulted principally from increased facilities, equipment and
telecommunications costs. The increase was also caused by a decrease in staff
utilization due to employee turnover and additional training required to
transition project personnel to e-Business solutions.
Included in other income in 2000 is a gain on investments of $1.2 million
related to the Company's equity investment in the Fund compared to a gain of
$3.6 million in 1999. The gain on the Company's equity investment in the Fund
for 2000 primarily resulted from realized gains due the the Fund's distribution
of equity securities while the gain on the Company's equity investment in the
Fund for 1999 primarily resulted from unrealized appreciation of the Fund's
portfolio of securities. Also included in other income in 2000 is a gain on the
sale the Company's Cambridge Information Network of $7.7 million.
The Company's effective income tax rate for 2000 was 40% compared to 38% for the
same period 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, its geographic mix of revenue and
income, and the effects of varying compensation arrangements.
Net loss for 2000 was $15.3 million, or $.25 per share (basic and diluted).
Included in net loss in 2000 is a $1.2 million gain, or $.01 per share (basic
and diluted), on investments related to the Company's equity investment in the
Fund, and a $7.7 million gain, or $.07 per share (basic and diluted), on sale
of assets. This compares to net income of $8.6 million, or $.14 per share
(diluted), in 1999, including a $3.6 million gain, or $.04 (diluted),on
investments related to the Company's equity investment in the Fund.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to operate essentially debt-free and working capital
increased to $195.9 million at June 30, 2000 from $179.1 million at December 31,
1999. This increase was primarily due to increases in accounts receivable,
prepaid expenses and other current assets, and a decrease in taxes payable,
partially offset by an increase in accrued expenses. The Company's days sales
outstanding in accounts receivable was 86 days for the quarter ended June 30,
2000 compared to 81 days for the quarter ended March 31, 2000 and 79 days for
the quarter ended December 31, 1999. The increase in days sales outstanding in
accounts receivable for the second quarter of 2000 was due to an increase in
accounts receivable while revenues increased slightly. The increase in accounts
receivable is primarily due to longer collection periods resulting
16
<PAGE>
from employee turnover which caused the discontinuity of project teams. The
Company actively assesses and monitors the collectability of its accounts
receivable and has included days sales outstanding as a measurement criteria to
calculate certain employees incentive bonuses for 2000.
Net cash used in operating activities was $20.4 million in the first six months
of 2000, compared to net cash used in operating activities of $17.6 million for
the same period in 1999. The increase in net cash used in operating activities
in first six months of 2000 compared to the same period in 1999 was primarily
caused by a net loss in the first six months 2000 compared to net income for the
same period in 1999, and an increase in accounts receivable, prepaid expenses
and other current assets partially offset by a decrease in unbilled revenue on
contracts and an increase in accrued expenses. In addition, the net loss for
2000 includes investment gains from the Fund and the sale of CIN, partially
offset by an investment loss related to a loss on the sale of securities
distributed by the Fund.
Capital expenditures of $6.3 million for the first six months of 2000 were used
principally for computer equipment to support the Company's operations, employee
workstations, telecommunications equipment, and leasehold improvements. Capital
expenditures for the full year of 2000 are expected to approximate $20 million,
consisting principally of leasehold improvements, personal computers, employee
workstations, telecommunications equipment, and other equipment to support both
current and anticipated levels of customer activities worldwide. The actual
amount of capital expenditures may vary from management's estimates as capital
needs arise and actual expenditures are made.
The Company evaluates, on an ongoing basis, potential acquisitions of companies
or technologies that may complement or enhance the Company's global growth
initiatives. The Company cannot be certain that it will be able to identify
suitable acquisition opportunities at an acceptable cost, if at all. Liquidity
may also be effected by acquisitions of companies or technology.
In December 1999, the Company announced a new investment strategy that is
intended to create and build New Economy companies (NEWCOs) using the knowledge
and skills of its consultants, funding from internal sources and venture capital
firms, and distributions from the Fund. The Company has invested $1 million for
the six months ended June 30, 2000 and expects to invest approximately $15
million in NEWCOs during the six months ended December 31, 2000, subject to
market conditions and the availability of investment opportunities.
The Company maintains a $50.0 million unsecured senior revolving credit facility
(the "Facility") through a syndication arrangement committed equally by The
Chase Manhattan Bank ("Chase") and Fleet National Bank. The Facility, which
expires on September 10, 2001, is administered by Chase and carries a commitment
fee, payable quarterly in arrears, calculated based on the unused portion of the
Facility and a price grid as set forth in the credit agreement. The Facility
permits the Company to elect any one of three possible interest rate formulas as
defined in the credit agreement. Interest is payable in arrears based on an
interest period determined by the interest rate elected by the Company. The
Facility requires, among other things, the Company to maintain certain financial
ratios, including debt service coverage, debt to capital, and net worth. For
the quarter ended June 30, 2000 the Company was in compliance with the debt to
capital and net worth ratio requirements but was not in compliance with the debt
service coverage ratio. The Company is in the process of renegotiating the
terms of the Facility. As of June 30, 2000 and December 31, 1999, the Company
had no balance outstanding under the Facility.
The Fund was formed in October 1997 as a limited partnership with committed
capital of approximately $25.3 million. The Fund's goal is capital appreciation
and is intended to invest in expansion-stage, private
17
<PAGE>
companies providing products and services within the technology industry. A
wholly owned subsidiary of the Company acts as the general partner of the Fund's
general partner, and the Company's investment is accounted for using the equity
method of accounting. The Company's capital commitment to the Fund is
approximately $6.0 million. At June 30, 2000, the Company's cumulative capital
contribution to the Fund amounted to approximately $5.6 million. The Company's
investment in the Fund resulted in a net gain of approximately $1.2 million for
the six months ended June 30, 2000.
The Company expects that cash flows from operations will provide the principal
source of future liquidity for the Company. The Company anticipates that
existing cash and investment balances combined with cash generated from
operations will be sufficient to meet the Company's working capital requirements
for at least the next 12 months and to fund the transition of the Company's
business to one more focused on Internet oriented solutions. However, the
Company's strategy to transition its business to Internet oriented solutions
could place a strain on the Company's financial resources. 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, or regulatory conditions could also adversely affect future
results and liquidity.
THE YEAR 2000 ISSUE
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
In addition to the Company's internal systems, the Company relies on third party
relationships in the conduct of its business. For example, third party vendors
handle the payroll function for the Company, and the Company also relies on the
services of landlords of its facilities, telecommunication companies, banks,
utilities, and commercial airlines, among others. In addition, the failure on
the part of the accounting systems of the Company's clients due to the Year 2000
issue could result in a delay in the payment of invoices issued by the Company
for services and expenses.
The Company has recommended, implemented and customized various third-party
software packages for its clients, certain of which may not be Year 2000
compliant. Because the Company has designed, developed and implemented software
and systems for a large number of clients since 1991, there can be no way of
assuring that all such software programs and systems are Year 2000 compliant.
There also can be no assurance that the contractual protections, if any,
obtained by the Company will operate to protect the Company from, or limit the
amount of, any liability arising from claims asserted against the Company.
To date, the Company's software and services have not revealed any significant
Year 2000 problems. As of August 11, 2000, the Company has not experienced any
significant issues as a result of Year 2000 problems and does not anticipate
incurring material incremental costs in future periods due to such issues.
18
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, recorded as a
gain or loss, depends on the intended use of the derivative and its resulting
designation. The statement initially was to be effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. In July 1999, the Financial
Accounting Standards Board issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities-deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133." SFAS 137 defers the
implementation of SFAS 133 by one year. SFAS 133, as amended by SFAS 137, is
effective for the Company's fiscal quarters beginning after January 1, 2001. The
Company has determined that SFAS 137 will not have a material impact on its
financial position and results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation - an interpretation of APB Opinion No. 25." FIN 44
is effective July 1, 2000, but certain conclusions in this Interpretation cover
specific events that occur after either December 15, 1998, or January 12, 2000.
To the extent that this Interpretation covers events occurring during the period
after December 15, 1998, or January 12, 2000, but before the effective date of
July 1, 2000, the effects of applying this Interpretation are required to be
recognized on a prospective basis from July 1, 2000. The Company has determined
that this interpretation will not have a material impact on its financial
position and results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements (statements that are not
historical facts), including, without limitation: statements about future net
revenues and profits; capital expenditures; liquidity sources and needs; working
capital needs; e-Business initiatives undertaken in response to customer demand
and anticipated market growth opportunities; the transition of personnel to e-
Solutions from Traditional services; estimated costs for additional retention
programs; the Company's hiring efforts; increases in wages for the Company's
personnel; the impact of varying compensation arrangements; strategic options,
future strategies and the anticipated benefits of these strategies; and
litigation involving the Company. These forward-looking statements are subject
to several risks and uncertainties. While it is impossible to identify each
factor and event that could affect the Company's results, there are a number of
important factors that could cause the Company's actual results to differ
materially from those indicated by the forward-looking statements and that could
have an impact on the Company's operating results. These factors include,
without limitation:
. risks associated with the Company's transition to an e-Business company,
including the orientation of new management teams within the new structure
and the need to develop reliable forecasting tools for each e-Business
service offering;
. the success of the Company's human resources repositioning and retention
programs;
. employee hiring, retention, billability and utilization;
. anticipated increased wages;
. the number and significance of client engagements commenced and completed
during a period;
19
<PAGE>
. the number of working days in a period;
. the Company's ability to manage its growth;
. the Company's ability to manage the cost of its engagements and operating
costs;
. changes in demand for the Company's services and third party products or
solutions for which the Company performs integration services;
. future initiatives in an attempt to adapt to changing market dynamics;
. estimated costs for additional retention programs;
. changes in market conditions that could impact the value of securities owned
by the Company or the Company's investment in the Cambridge Technology
Capital Fund I;
. turnover in senior management;
. competition;
. risks associated with international operations;
. the acceptance and profitability of the Company's services in new locations;
. the integration of acquired businesses;
. unanticipated negative outcomes of litigation involving the Company;
. misappropriation of, or lack or loss of protection of, the Company's
intellectual property;
. risks associated with NEWCO investments; and
. the early stage of Cambridge's consideration strategic options and
strategies in respect to Cambridge Management Consulting, the possibility
that Cambridge may decide not to implement any particular strategy, the
ability of Cambridge to successfully implement these strategies if and when
Cambridge decides to implement them or any of them, and the possibility that
the anticipated benefits of these strategies are not achieved.
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 client 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------- ----------------------------------------------------------
The Company is exposed to market risk from changes in interest rates and foreign
currency exchange rates due to investments in instruments made for non-trading
purposes. The interest rate risk relates primarily to the Company's portfolio of
short-term, investment grade municipal securities. The Company is also subject
to risk relating to fluctuating interest rates to the extent that it incurs any
borrowings under its credit facility. The foreign exchange rate risk relates to
the Company's investment in foreign exchange contracts which are entered into in
an attempt to mitigate the risk of changes in foreign exchange rates associated
with intercompany balances. The Company believes that interest rate risk and
foreign currency exchange rate risk are both not material to the Company.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
------- -----------------
On November 18, 1998, certain of the former stockholders of Excell Data
Corporation ("Excell") filed a lawsuit against the Company in the United States
District Court for the District of Massachusetts ("District Court"). The
complaint alleged breach of contract, violation of federal securities laws,
common law fraud, and negligent misrepresentation in connection with the Excell
acquisition and sought unspecified damages. In February 1999, the Company filed
a counterclaim against the former stockholders of Excell which alleges breach of
contract. On March 1, 2000, the District Court granted the Company's motion for
summary judgement, dismissing the complaints of the former shareholders of
Excell in their entirety.
In March and April 1999, certain stockholders of the Company filed ten separate
class action lawsuits against the Company and certain of the Company's officers
in United States District Court for the District of Massachusetts ("District
Court"). These suits have since been consolidated by the District Court. The
suits allege misrepresentations and omissions regarding the Company's future
growth prospects and progress of the Company's reorganization in violation of
federal securities laws. The suits seek unspecified damages. The Company
believes that the plaintiffs' claims are without merit and intends to vigorously
defend the lawsuits. The Company has moved to dismiss the plaintiffs' complaint.
The motion is currently pending, with oral argument before the District Court
scheduled for September 18, 2000.
The Company is involved in litigation and various other legal matters, which
have arisen in the ordinary course of business. The Company does not believe
that the ultimate resolution of any existing matter will have a material adverse
effect on its financial condition, results of operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
(a) The annual meeting of stockholders was held on May 24, 2000.
(b) Not applicable.
(c) A vote was proposed to elect a Board of Directors to serve for the ensuing
year.
The voting results were as follows:
<TABLE>
<CAPTION>
Withheld Votes Broker
Votes For Votes Against Authority Abstained Non-Votes
--------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Jack L. Messman 52,666,792 N/A 541,942 N/A -
Warren V. Musser 52,674,124 N/A 534,610 N/A -
Robert E. Keith, Jr. 52,733,537 N/A 475,197 N/A -
John W. Poduska, Sr. Ph.D 52,727,267 N/A 481,467 N/A -
James I. Cash, Jr. Ph.D. 52,731,950 N/A 476,784 N/A -
James D. Robinson III 52,673,893 N/A 534,841 N/A -
</TABLE>
(d) Not applicable.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------- --------------------------------
(a) Exhibits:
3(i)(1) Amended and Restated Certificate of Incorporation of the
Company, as amended.
3(ii)(2) Amended and Restated By-laws of the Company.
4.1(3) Rights Agreement dated June 23, 1997 by and between the
Company and ChaseMellon Shareholder Services, LLC (the "Rights
Agreement").
4.2(4) Amendment No. 1 to the Rights Agreement dated September 30,
1998 by and between the Company and ChaseMellon Shareholder
Services, LLC.
10.2(5) Amended and Restated 1991 Stock Option Plan (5)
11 Statement Regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
-------------------
(1) Incorporated herein by reference to Exhibit 3.1 to the Company's Report on
Form 10-Q for the period ended June 30, 1998.
(2) Incorporated herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 33-56338).
(3) Incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form 8-A/A filed on September 30, 1998.
(4) Incorporated herein by reference to Exhibit 4.2 to the Company's
Registration Statement on Form 8-A/A filed on September 30, 1998.
(5) Superceding exhibit.
(b) Reports on Form 8-K:
The Company did not file any current reports on Form 8-K during the three
months ended June 30, 2000.
22
<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: August 14, 2000 By: /s/ John J. Gavin, Jr.
-------------------------
John J. Gavin, Jr.
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas G. Mackiewicz
--------------------------
Thomas G. Mackiewicz
Vice President, Controller and
Chief Accounting Officer
23
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3(i)(1) Amended and Restated Certificate of Incorporation of the
Company, as amended.
3(ii)(2) Amended and Restated By-laws of the Company.
4.1(3) Rights Agreement dated June 23, 1997 by and between the
Company and ChaseMellon Shareholder Services, LLC (the "Rights
Agreement").
4.2(4) Amendment No. 1 to the Rights Agreement dated September 30,
1998 by and between the Company and ChaseMellon Shareholder
Services, LLC.
10.2(5) Amended and Restated 1991 Stock Option Plan
11 Statement Regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
-----------------------------
(1) Incorporated herein by reference to Exhibit 3.1 to the Company's Report on
Form 10-Q for the period ended June 30, 1998.
(2) Incorporated herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 33-56338).
(3) Incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form 8-A/A filed on September 30, 1998.
(4) Incorporated herein by reference to Exhibit 4.2 to the Company's
Registration Statement on Form 8-A/A filed on September 30, 1998.
(5) Superceding exhibit.
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