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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28654
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CLAREMONT TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1004490
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1600 NW Compton Drive, Suite 210
Beaverton, Oregon 97006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-690-4000
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The index to exhibits appears on page 8 of this document.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock without par value 7,688,954
(Class) (Outstanding at January 31, 1997)
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CLAREMONT TECHNOLOGY GROUP, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets -December 31, 1996 and June 30,
1996 2
Consolidated Statements of Operations - Three Months and
Six Months Ended December 31, 1996 and 1995 3
Consolidated Statements of Cash Flows - Six Months Ended
December 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
1
ITEM 1. FINANCIAL STATEMENTS
CLAREMONT TECHNOLOGY GROUP, INC. AND SUBSIDAIRIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1996 1996
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 15,905 $ 526
Receivables:
Accounts receivable, net of allowances of $145 and $110 11,165 7,811
Revenue earned in excess of billings 7,956 5,653
Other 215 78
Prepaid expenses and other current assets 792 683
Refundable income taxes 3,438 -
Deferred income taxes 273 266
Notes receivable 75 75
---------- ----------
Total Current Assets 39,819 15,092
Property and equipment, net of accumulated depreciation
of $3,151 and $2,161 5,000 4,069
Software development costs, net of accumulated amortization
of $184 and $61 5,536 2,146
Other non-current assets, net of accumulated amortization
of $393 and $197 1,636 1,658
---------- ----------
Total Assets $ 51,991 $ 22,965
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,353 $ 1,464
Line of credit - 4,600
Current installments of long-term debt 975 944
Accrued payroll and related liabilities 2,697 2,602
Accrued profit sharing 665 682
Other accrued expenses 62 70
Income taxes payable - 619
Deferred revenue 813 661
---------- ----------
Total Current Liabilities 6,565 11,642
Long-term debt, excluding current installments 1,083 1,578
Deferred income taxes 2,181 775
---------- ----------
Total Liabilities 9,829 13,995
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, no par value. Authorized 10,000
shares; no shares issued or outstanding - -
Common stock, no par value. Authorized 25,000 shares;
7,651 and 4,832 shares issued and outstanding at
December 31 and June 30, 1996, respectively 32,008 1,331
Retained earnings 10,166 7,649
Cumulative translation adjustment (12) (10)
---------- ----------
Total Shareholders' Equity 42,162 8,970
---------- ----------
Total Liabilities and Shareholders' Equity $ 51,991 $ 22,965
---------- ----------
---------- ----------
See accompanying notes to unaudited consolidated financial statements.
2
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDAIRIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended December 31, Six Months Ended December 31,
--------------------------------------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenue:
Professional fees $ 15,586 $ 10,813 29,123 $ 19,687
Resold products and services 149 1,094 491 1,103
---------- ---------- ---------- ----------
Total revenue 15,735 11,907 29,614 20,790
---------- ---------- ---------- ----------
Costs and expenses:
Project costs and expenses 7,862 5,463 14,921 10,172
Resold products and services 142 1,049 452 1,057
Selling, general and administrative 5,396 3,328 10,193 6,558
---------- ---------- ---------- ----------
Total costs and expenses 13,400 9,840 25,566 17,787
---------- ---------- ---------- ----------
Income from operations 2,335 2,067 4,048 3,003
---------- ---------- ---------- ----------
Other income (expense):
Interest income 189 8 348 16
Interest expense (43) (24) (113) (40)
Other, net (22) (20) (14) (17)
---------- ---------- ---------- ----------
Total other income (expense) 124 (36) 221 (41)
---------- ---------- ---------- ----------
Income before income taxes 2,459 2,031 4,269 2,962
Income tax expense 1,009 859 1,752 1,252
---------- ---------- ---------- ----------
Net income $ 1,450 $ 1,172 2,517 $ 1,710
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share $ 0.15 $ 0.16 0.26 $ 0.23
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 9,973 7,709 9,552 7,625
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying notes to unaudited consolidated financial statements.
3
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDAIRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended December 31,
------------------------------
1996 1995
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Cash flows from operating activities:
Net income $ 2,517 $ 1,710
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,309 483
Deferred income taxes 1,400 -
Changes in assets and liabilities:
Receivables (5,660) (5,887)
Prepaid expenses (246) (272)
Refundable income taxes (4,039) -
Accounts payable and accrued expenses (58) 1,786
Deferred revenue 151 2,821
Income taxes payable - 818
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Net cash provided by (used in) operating
activities (4,626) 1,459
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (1,922) (1,982)
Expenditures for software development costs (3,513) (569)
Other non-current assets (174) (39)
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Net cash used by investing activities (5,609) (2,590)
---------- ----------
Cash flows from financing activities:
Proceeds/(payments) on line of credit, net (4,600) 1,000
Payments of long-term debt (464) (92)
Proceeds from issuance of long-term debt - 500
Payments of obligations under capital lease - (3)
Purchase of common stock - (215)
Proceeds from common stock offering, net 26,867 -
Proceeds from exercise of stock options 332 71
Tax benefit related to stock option activity 3,478 -
Payments (issuance) of notes receivable, net - 220
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Net cash provided by financing activities 25,613 1,481
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Effect of exchange rate on cash 1 -
---------- ----------
Net increase in cash and cash equivalents 15,379 350
Cash and cash equivalents at beginning of year 526 340
---------- ----------
Cash and cash equivalents at end of year $ 15,905 $ 690
---------- ----------
---------- ----------
See accompanying notes to unaudited consolidated financial statements.
4
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein for the three-month and six-month
periods ended December 31, 1996 and 1995 is unaudited; however, such information
reflects all adjustments consisting only of normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The financial information as of June 30, 1996 is derived from the
audited financial statements included in Claremont Technology Group, Inc.'s (the
Company's) 1996 Annual Report on Form 10-K. The interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's 1996 Annual Report on
Form 10-K.
The results of operations for the interim period presented are not necessarily
indicative of the results to be expected for the full year.
NOTE 2: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
Six months ended
December 31,
--------------------
1996 1995
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Cash paid during the period for income taxes $ 796 $ 180
Cash paid during the period for interest 135 40
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains certain information and trend statements that
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act, which involve risks and uncertainties. Actual
results may differ materially from the results described in the forward-looking
statements. When used in this document, the words "anticipate," "believe,"
"estimate," "expect," "intend" and other similar expressions, as they relate to
the Company, are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions that
include, but are not limited to, those discussed in Item 1 of the Company's 1996
Annual Report on Form 10-K and in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenue:
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
-------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ---------- ----------
Revenue:
Professional fees 99 % 91 % 98 % 95 %
Resold products and services 1 9 2 5
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Total revenue 100 100 100 100
Costs and expenses:
Project costs and expenses 50 46 50 49
Resold products and services 1 9 2 5
Selling, general and administrative 34 28 34 32
----------- ----------- ---------- ----------
Total costs and expenses 85 83 86 86
----------- ----------- ---------- ----------
Income from operations 15 17 14 14
Other income (expense), net 1 0 0 0
----------- ----------- ---------- ----------
Income before income taxes 16 17 14 14
Income tax expense 7 7 6 6
----------- ----------- ---------- ----------
Net income 9 % 10 % 8 % 8 %
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
The Company's revenue consists primarily of professional fees (including license
fees for Claremont's reusable software modules), and to a lesser extent resold
hardware and software products and resold contract services. The Company's
professional fees increased 44% to $15.6 million for the three months ended
December 31, 1996 compared to $10.8 million for the three months ended December
31, 1995. Professional fees increased 48% to $29.1 million for the six months
ended December 31, 1996 compared to $19.7 million for the six months ended
December 31, 1995. Professional fees increased primarily due to an increase in
the number of projects performed, both for new and existing clients. Revenue
from foreign operations increased to $2.5 million for the six months ended
December 31, 1996 compared to $854,000 for the six months ended December 31,
1995. The increase resulted primarily from the growth of the operations at the
Company's Montreal, Canada software factory, which commenced operations during
the third quarter of fiscal 1995. The Company's top five clients accounted for
41% of revenues for the six months ended December 31, 1996 compared to 66% for
the six months ended December
6
31, 1995. Resold products and services are offered to clients on an as-needed
basis and are resold with little or no mark-up. The Company does not expect
resold products and services to contribute materially to its income from
operations, and generally expects to make little or no profit on such products
and services. The Company expects to provide such products and services only as
an accommodation to the Company's clients as requested for particular projects.
Project costs and expenses consist primarily of salaries and employee benefits
for personnel dedicated to client projects and associated overhead costs
including equipment depreciation and amortization. Project costs and expenses
increased to $7.9 million and $14.9 million (50% and 51% of professional fees,
respectively) for the three and six month periods ended December 31, 1996 from
$5.5 million and $10.2 million (51% and 52% of professional fees, respectively)
for the comparable periods ended December 31, 1995. The increase in project
costs and expenses was due primarily to the addition of project personnel
necessary to perform the larger number of client projects.
Selling, general and administrative costs and expenses consist of costs
associated with the Company's executive staff, finance, facilities and human
resources departments (collectively, "Administrative Personnel"), travel and
business development costs. Selling, general and administrative costs and
expenses increased to $5.4 million and $10.2 million (35% and 35% of
professional fees, respectively) for the three and six month periods ended
December 31, 1996 from $3.3 million and $6.6 million (31% and 33% of
professional fees, respectively) for the comparable periods ended December
31, 1995. The increase is primarily due to increases in professional
development and recruiting expenses associated with the increased
professional personnel, increased facility expenses associated with increased
space needs resulting from increased software development efforts performed
at Company facilities rather than at client locations, increased numbers of
Administrative Personnel and increased costs associated with being a public
company.
Other income (expense), net consists primarily of interest income on cash and
cash equivalents and interest expense associated with short-term borrowings.
Other income (expense), net increased to $124,000 and $221,000 for the three
month and six month periods ended December 31, 1996 from $(36,000) and $(41,000)
for the comparable periods ended December 31, 1995. The increase is due to the
increase in interest income to $189,000 and $348,000 for the three and six month
periods ended December 31, 1996 from $8,000 and $16,000 for the comparable
periods ended December 31, 1995, due to higher cash balances resulting from the
Company's initial public offering which occurred in July 1996.
Income tax expense represents combined federal, state and foreign taxes at an
effective rate of 41%, or $1.8 million, for the first six months of fiscal 1997
compared to 43%, or $1.3 million, for the comparable period ended December 31,
1995. The decrease in the effective tax rate is due to a change in the mix of
jurisdictions in which the Company does business, as well as changes in certain
federal tax laws.
7
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and investments in
property and equipment primarily through cash generated from operations, bank
borrowings and capital lease financing. In July 1996, the Company completed its
initial public offering and in August 1996, the Company sold additional shares
pursuant to the exercise of the underwriters' over-allotment option. Net
proceeds from the offering and over-allotment totaled $26.9 million.
At December 31, 1996, the Company had working capital of $33.3 million,
including $15.9 million of cash and cash equivalents. Cash increased $15.4
million during the first six months of fiscal 1997, primarily as a result of net
cash provided from financing activities of $25.6 million, offset by $4.8 million
used in operations, $1.9 million for the purchase of property and equipment and
$3.5 million for software development costs.
Accounts receivable increased $3.4 million to $11.2 million at December 31, 1996
from $7.8 million at June 30, 1996 primarily as a result of growth in revenue.
Days sales outstanding were 60 at December 31, 1996 compared to 64 at June 30,
1996.
Revenue earned in excess of billings, which represents amounts due to the
Company under contracts, primarily from government entities, that can not be
billed until certain dates, increased $2.3 million to $8.0 million at December
31, 1996 from $5.7 million at June 30, 1996.
Refundable income taxes, net of income taxes payable, increased to $3.4 million
at December 31, 1996 from a payable of $619,000 at June 30, 1996 primarily as a
result of the income tax benefit from certain stock option exercises.
In July 1996, the Company repaid all amounts outstanding under its line of
credit with a portion of the proceeds from its initial public offering, and at
December 31, 1996 there were no amounts outstanding under the line of credit.
At December 31, 1996 the Company had total debt of $2.1 million compared to $7.1
million at June 30, 1996.
During the first six months of fiscal 1997, the Company had capital expenditures
of $1.9 million primarily related to furniture and personal computers, and
$3.5 million associated with the capitalization of software development costs.
As of December 31, 1996 the Company did not have any material commitments for
capital expenditures.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
EXHIBIT NO. AND DESCRIPTION
11 Calculations of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
8
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.
Date: February 6, 1997 CLAREMONT TECHNOLOGY GROUP,INC.
By:/s/ PAUL J. COSGRAVE
----------------------------
Paul J. Cosgrave
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
By:/s/ DENNIS M. GOETT
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Dennis M. Goett
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
9