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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2002
or
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-22125
DIAMONDCLUSTER INTERNATIONAL, INC.
(Exact name of registrant as specified in its
charter)
| Delaware (State or other
jurisdiction of
incorporation or organization) |
|
36-4069408 (I.R.S.
Employer
Identification No.) |
| 875 N. Michigan Avenue, Suite 3000, Chicago, Illinois (Address of principal executive offices) |
|
60611 (Zip Code) |
(312) 255-5000
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
October 31, 2002, there were 24,975,943 shares of Class A Common Stock and 6,478,207 shares of Class B Common Stock of the Registrant outstanding.
DIAMONDCLUSTER INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2002
PART I—FINANCIAL INFORMATION:
| |
| Item 1: |
|
Financial Statements |
|
|
| |
| |
|
|
|
3 |
| |
| |
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|
|
4 |
| |
| |
|
|
|
5 |
| |
| |
|
|
|
6 |
| |
| Item 2: |
|
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|
12 |
| |
| Item 3: |
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|
|
21 |
| |
| Item 4: |
|
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|
22 |
| |
|
|
DIAMONDCLUSTER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
| ASSETS |
|
March 31, 2002
|
|
|
September 30, 2002
|
|
| |
|
|
|
|
(Unaudited) |
|
| Current assets: |
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
96,773 |
|
|
$ |
92,186 |
|
| Accounts receivable, net of allowance of $1,089 and $1,224 as of March 31, 2002 and September 30, 2002,
respectively |
|
|
22,131 |
|
|
|
21,805 |
|
| Income taxes receivable |
|
|
1,321 |
|
|
|
— |
|
| Prepaid expenses and short-term deferred taxes |
|
|
9,417 |
|
|
|
7,578 |
|
| |
|
|
|
|
|
|
|
|
| Total current assets |
|
|
129,642 |
|
|
|
121,569 |
|
| Computers, equipment, leasehold improvements and software, net |
|
|
15,789 |
|
|
|
13,016 |
|
| Long-term deferred taxes |
|
|
16,817 |
|
|
|
25,944 |
|
| Other assets |
|
|
3,749 |
|
|
|
3,100 |
|
| Goodwill, net |
|
|
235,179 |
|
|
|
94,315 |
|
| |
|
|
|
|
|
|
|
|
| Total assets |
|
$ |
401,176 |
|
|
$ |
257,944 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
6,277 |
|
|
$ |
6,628 |
|
| Income taxes payable |
|
|
— |
|
|
|
1,909 |
|
| Restructuring accrual, current portion |
|
|
3,963 |
|
|
|
9,089 |
|
| Other accrued liabilities |
|
|
15,838 |
|
|
|
15,048 |
|
| |
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
26,078 |
|
|
|
32,674 |
|
| Restructuring accrual, less current portion |
|
|
— |
|
|
|
9,315 |
|
| |
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
26,078 |
|
|
|
41,989 |
|
| Stockholders’ equity: |
|
|
|
|
|
|
|
|
| Preferred stock, $1.00 par value, 2,000 shares authorized, no shares issued |
|
|
— |
|
|
|
— |
|
| Class A common stock, $.001 par value, 200,000 shares authorized, 27,497 issued as of March 31, 2002 and 28,027 issued
as of September 30, 2002 |
|
|
27 |
|
|
|
28 |
|
| Class B common stock, $.001 par value, 100,000 shares authorized, 6,562 issued as of March 31, 2002 and 6,622 issued as
of September 30, 2002 |
|
|
7 |
|
|
|
7 |
|
| Additional paid-in capital |
|
|
659,844 |
|
|
|
653,261 |
|
| Unearned compensation |
|
|
(121,340 |
) |
|
|
(86,180 |
) |
| Notes receivable from sale of common stock |
|
|
(80 |
) |
|
|
(80 |
) |
| Accumulated other comprehensive loss |
|
|
(2,810 |
) |
|
|
(464 |
) |
| Accumulated deficit |
|
|
(113,860 |
) |
|
|
(298,740 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
|
421,788 |
|
|
|
267,832 |
|
| Less: Common stock in treasury, at cost, 2,424 shares held at March 31, 2002 and 3,392 shares held at September 30,
2002 |
|
|
46,690 |
|
|
|
51,877 |
|
| |
|
|
|
|
|
|
|
|
| Total stockholders’ equity |
|
|
375,098 |
|
|
|
215,955 |
|
| |
|
|
|
|
|
|
|
|
| Total liabilities and stockholders’ equity |
|
$ |
401,176 |
|
|
$ |
257,944 |
|
| |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
3
DIAMONDCLUSTER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share data)
| |
|
For the Three Months ended September 30,
|
|
|
For the Six Months ended September 30,
|
|
| |
|
2001
|
|
|
2002
|
|
|
2001
|
|
|
2002
|
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
| Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue before out-of-pocket expense reimbursements (net revenue) |
|
$ |
50,756 |
|
|
$ |
38,107 |
|
|
$ |
108,941 |
|
|
$ |
76,434 |
|
| Out-of-pocket expense reimbursements |
|
|
6,009 |
|
|
|
6,585 |
|
|
|
13,532 |
|
|
|
12,051 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenue |
|
|
56,765 |
|
|
|
44,692 |
|
|
|
122,473 |
|
|
|
88,485 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Project personnel and related expenses before out-of-pocket reimbursable expenses |
|
|
34,295 |
|
|
|
28,916 |
|
|
|
72,325 |
|
|
|
58,393 |
|
| Out-of-pocket reimbursable expenses |
|
|
6,009 |
|
|
|
6,585 |
|
|
|
13,532 |
|
|
|
12,051 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total project personnel and related expenses |
|
|
40,304 |
|
|
|
35,501 |
|
|
|
85,857 |
|
|
|
70,444 |
|
| Professional development and recruiting |
|
|
3,564 |
|
|
|
962 |
|
|
|
7,226 |
|
|
|
2,152 |
|
| Marketing and sales |
|
|
1,871 |
|
|
|
1,125 |
|
|
|
4,512 |
|
|
|
2,840 |
|
| Management and administrative support |
|
|
11,934 |
|
|
|
9,828 |
|
|
|
25,681 |
|
|
|
20,301 |
|
| Goodwill amortization |
|
|
15,453 |
|
|
|
— |
|
|
|
30,883 |
|
|
|
— |
|
| Noncash compensation* |
|
|
13,159 |
|
|
|
11,475 |
|
|
|
26,976 |
|
|
|
24,824 |
|
| Restructuring charge |
|
|
— |
|
|
|
20,857 |
|
|
|
— |
|
|
|
20,857 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
86,285 |
|
|
|
79,748 |
|
|
|
181,135 |
|
|
|
141,418 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from operations |
|
|
(29,520 |
) |
|
|
(35,056 |
) |
|
|
(58,662 |
) |
|
|
(52,933 |
) |
| Other expense, net |
|
|
(365 |
) |
|
|
(76 |
) |
|
|
(786 |
) |
|
|
(375 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before income taxes and cumulative effect of change in accounting principle |
|
|
(29,885 |
) |
|
|
(35,132 |
) |
|
|
(59,448 |
) |
|
|
(53,308 |
) |
| Income tax expense (benefit) |
|
|
(1,698 |
) |
|
|
(7,377 |
) |
|
|
(813 |
) |
|
|
(9,292 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before cumulative effect of change in accounting principle |
|
|
(28,187 |
) |
|
|
(27,755 |
) |
|
|
(58,635 |
) |
|
|
(44,016 |
) |
| Cumulative effect of change in accounting principle, net of income tax benefit of zero |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(140,864 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
(28,187 |
) |
|
|
(27,755 |
) |
|
|
(58,635 |
) |
|
|
(184,880 |
) |
| Unrealized gain from securities, net of income tax benefit of $150 for the three months ended September 30, 2001, and
$57 for the six months ended
September 30, 2001 |
|
|
(236 |
) |
|
|
— |
|
|
|
(91 |
) |
|
|
— |
|
| Foreign currency translation adjustments |
|
|
2,274 |
|
|
|
(337 |
) |
|
|
(857 |
) |
|
|
2,346 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive loss |
|
$ |
(26,149 |
) |
|
$ |
(28,092 |
) |
|
$ |
(59,583 |
) |
|
$ |
(182,534 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted loss per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before cumulative effect of change in accounting principle |
|
$ |
(0.92 |
) |
|
$ |
(0.89 |
) |
|
$ |
(1.92 |
) |
|
$ |
(1.40 |
) |
| Cumulative effect of change in accounting principle |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.47 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(0.92 |
) |
|
$ |
(0.89 |
) |
|
$ |
(1.92 |
) |
|
$ |
(5.86 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares used in computing basic and diluted net loss per share of common stock |
|
|
30,775 |
|
|
|
31,227 |
|
|
|
30,553 |
|
|
|
31,525 |
|
*Noncashcompensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Project personnel and related expenses |
|
$ |
12,924 |
|
|
$ |
11,306 |
|
|
$ |
26,580 |
|
|
$ |
24,156 |
|
| Professional development and recruiting |
|
|
34 |
|
|
|
19 |
|
|
|
48 |
|
|
|
92 |
|
| Marketing and sales |
|
|
29 |
|
|
|
20 |
|
|
|
38 |
|
|
|
164 |
|
| Management and administrative support |
|
|
172 |
|
|
|
130 |
|
|
|
310 |
|
|
|
412 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total noncash compensation |
|
$ |
13,159 |
|
|
$ |
11,475 |
|
|
$ |
26,976 |
|
|
$ |
24,824 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
4
DIAMONDCLUSTER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
| |
|
For the Six Months Ended September 30,
|
|
| |
|
2001
|
|
|
2002
|
|
| |
|
(Unaudited) |
|
| Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| Loss before cumulative effect of change in accounting principle |
|
$ |
(58,635 |
) |
|
$ |
(44,016 |
) |
| Adjustments to reconcile loss before cumulative effect of change in accounting principle to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
| Restructuring charge |
|
|
— |
|
|
|
20,857 |
|
| Depreciation and amortization |
|
|
4,113 |
|
|
|
3,145 |
|
| Write-down of net book value of computers, equipment, leasehold improvements and software, net |
|
|
— |
|
|
|
1,334 |
|
| Goodwill amortization |
|
|
30,883 |
|
|
|
— |
|
| Noncash compensation |
|
|
26,976 |
|
|
|
24,824 |
|
| Deferred income taxes |
|
|
2,058 |
|
|
|
(9,121 |
) |
| Tax benefits from employee stock plans |
|
|
739 |
|
|
|
282 |
|
| Write-down of equity investments |
|
|
3,564 |
|
|
|
— |
|
| Other |
|
|
(1,846 |
) |
|
|
— |
|
| Changes in assets and liabilities, net of effects of acquisition: |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
2,883 |
|
|
|
1,721 |
|
| Prepaid expenses and other |
|
|
2,853 |
|
|
|
2,293 |
|
| Accounts payable |
|
|
(350 |
) |
|
|
137 |
|
| Restructuring accrual |
|
|
— |
|
|
|
(6,416 |
) |
| Other assets and liabilities |
|
|
(33,745 |
) |
|
|
819 |
|
| |
|
|
|
|
|
|
|
|
| Net cash used in operating activities |
|
|
(20,507 |
) |
|
|
(4,141 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| Capital expenditures, net |
|
|
(5,171 |
) |
|
|
(1,090 |
) |
| Acquisitions, net of cash acquired |
|
|
(1,468 |
) |
|
|
— |
|
| Other assets |
|
|
(3,353 |
) |
|
|
501 |
|
| |
|
|
|
|
|
|
|
|
| Net cash used in investing activities |
|
|
(9,992 |
) |
|
|
(589 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| Repayment of note |
|
|
(500 |
) |
|
|
— |
|
| Common stock issued |
|
|
4,301 |
|
|
|
3,471 |
|
| Purchase of treasury stock |
|
|
(6,171 |
) |
|
|
(5,187 |
) |
| |
|
|
|
|
|
|
|
|
| Net cash used in financing activities |
|
|
(2,370 |
) |
|
|
(1,716 |
) |
| |
|
|
|
|
|
|
|
|
| Effect of exchange rate changes on cash |
|
|
3,679 |
|
|
|
1,859 |
|
| |
|
|
|
|
|
|
|
|
| Net decrease in cash and cash equivalents |
|
|
(29,190 |
) |
|
|
(4,587 |
) |
| Cash and cash equivalents at beginning of period |
|
|
151,358 |
|
|
|
96,773 |
|
| |
|
|
|
|
|
|
|
|
| Cash and cash equivalents at end of period |
|
$ |
122,168 |
|
|
$ |
92,186 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
| Cash paid during the period for interest |
|
$ |
51 |
|
|
$ |
219 |
|
| Cash paid during the period for income taxes |
|
|
2,681 |
|
|
|
1,900 |
|
See accompanying notes to condensed consolidated financial statements.
5
DIAMONDCLUSTER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Basis of Reporting
The accompanying consolidated financial statements of DiamondCluster International, Inc., formerly Diamond Technology Partners Incorporated (the “Company”), include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current period presentation. In the
opinion of management, the consolidated financial statements reflect all adjustments that 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 accounting principles generally accepted in the United States of America for interim financial information. Consequently, these statements do not include all the
disclosures normally required by accounting principles generally accepted in the United States of America for annual financial statements nor those normally made in the Company’s Annual Report on Form 10-K. Accordingly, reference should be made
to the Company’s Annual Report on Form 10-K for additional disclosures, including a summary of the Company’s accounting policies, which have not changed, except as indicated in Note C in these Notes to Condensed Consolidated Financial
Statements. The consolidated results of operations for the quarter ended September 30, 2002, are not necessarily indicative of results for the full year.
B. Business Combinations
On November 28, 2000, the Company
acquired Cluster Telecom B.V. (“Cluster”), a pan-European management consulting firm specializing in wireless technology, internet and digital strategies. Under the terms of the agreement, the Company paid $494.2 million, consisting of $44
million in cash and an aggregate of 6.3 million shares of the Company’s Class B Common Stock and 7.5 million options to purchase shares of the Company’s Class B Common Stock. In connection with the acquisition, the Company changed its name
from Diamond Technology Partners Incorporated to DiamondCluster International, Inc. The excess of net assets acquired (“Goodwill”) recorded for the Cluster acquisition was approximately $301.4 million. Additionally, the Company recorded
unearned compensation in connection with this acquisition.
In May 2000, the Company acquired Momentus Group
Limited (“Momentus”), a London-based e-business consulting company. Under the terms of the acquisition agreement, the Company paid $5.7 million, consisting of approximately $2.9 million in cash and 44,252 shares of the Company’s Class
A Common Stock. Additionally, Momentus shareholders were paid 35,985 shares of the Company’s Class A Common Stock during fiscal 2002 related to the achievement of certain performance measures. Goodwill recorded for the Momentus acquisition was
approximately $5.7 million.
In October 1999, the Company acquired Leverage Information Systems, Inc.
(“Leverage”), a San Francisco-based systems architecture and development company specializing in the building of complex web sites and intranets. Under the terms of the acquisition, the Company paid $3.4 million, consisting of $1.0 million
in cash and 97,500 shares of the Company’s Class A Common Stock. Goodwill recorded for the Leverage acquisition was approximately $3.3 million.
In April 1999, the Company acquired OmniTech Consulting Group, Inc. (“Omnitech”), a Chicago-based change management firm specializing in web-based and other multimedia corporate learning.
Under the terms of the acquisition agreement, the Company paid $9.0 million, consisting of $4.0 million in cash, a $1.0 million note (which has been fully paid), and 173,461 shares of the Company’s Class A Common Stock. Goodwill recorded for
the Omnitech acquisition was approximately $8.8 million.
6
DIAMONDCLUSTER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The acquisitions were accounted for under the purchase method of
accounting and, accordingly, the operating results of OmniTech, Leverage, Momentus and Cluster have been included in the Company’s consolidated financial statements since the dates of the acquisitions. The amount of goodwill recorded for
OmniTech, Leverage, Momentus and Cluster approximated $319.2 million.
C. Recently Adopted Accounting
Pronouncements
Goodwill and Other Intangible Assets
On April 1, 2002 the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” With the adoption of SFAS No. 142, goodwill and other indefinite life
intangible assets (“intangibles”) are no longer subject to amortization, rather they are subject to an assessment for impairment whenever events or circumstances indicate that impairment may have occurred, but at least annually, by
applying a fair value based test. Prior to April 1, 2002 the Company amortized goodwill and identifiable intangible assets on a straight-line basis over their estimated useful lives, which did not exceed 40 years, and periodically reviewed the
recoverability of these assets based on the expected future undiscounted cash flows.
The Company completed its
initial impairment test on goodwill using the methodology described in SFAS No. 142 in the first quarter of fiscal 2003, and will conduct an assessment of impairment based on fair value in accordance with the requirements of SFAS No. 142 on an
annual basis in the future. In connection with the adoption of SFAS No. 142 on April 1, 2002, the Company recognized an impairment loss of $140.9 million as the cumulative effect of the change in accounting principle.
Goodwill amortization was $61.9 million in fiscal 2002, or $2.01 per share on both a pre-tax and after-tax basis. Goodwill amortization
for the three and six months ended September 30, 2001 was $15.5 million and $30.9 million, respectively. No goodwill amortization was recorded for the three and six months ended September 30, 2002. Goodwill, net, as of March 31, 2002 and September
30, 2002 was $235.2 million and $94.3 million, respectively. There were no indefinite life intangibles, other than goodwill, at September 30, 2002.
The following table sets forth an analysis of the changes in the total carrying amount of goodwill for the year ended March 31, 2002 and for the six months ended September 30, 2002 (in thousands):
| Balance as of April 1, 2001 |
|
$ |
295,600 |
|
| Goodwill acquired during the year |
|
|
1,429 |
|
| Goodwill amortized during the year |
|
|
(61,850 |
) |
| |
|
|
|
|
| Balance as of March 31, 2002 |
|
|
235,179 |
|
| Impairment loss recognized during the six months ended September 30, 2002 |
|
|
(140,864 |
) |
| Goodwill amortized during the six months ended September 30, 2002 |
|
|
— |
|
| |
|
|
|
|
| Balance as of September 30, 2002 |
|
$ |
94,315 |
|
| |
|
|
|
|
The Company has two geographic operating segments—North
America and Europe and Latin America. The majority of goodwill reflected in the Company’s consolidated financial statements was recognized in connection with the November 2000 acquisition of Cluster. The acquired Cluster business comprises the
majority of the activities of the Europe and Latin America operating segment. The carrying value of goodwill allocated to each of these operating segments was tested for impairment as of April 1, 2002, in connection with the initial adoption of SFAS
No. 142. The goodwill impairment loss of $140.9 million recognized in the first quarter of fiscal 2003 was necessary to write down the carrying amount of goodwill to its implied fair value. The fair value was estimated based on the income approach,
using the present value of future estimated cash flows.
7
DIAMONDCLUSTER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table sets forth a reconciliation of reported net
income (loss) to adjusted net income (loss) for fiscal 2000, 2001 and 2002 (in thousands):
| |
|
Fiscal Year Ended March 31,
|
|
| |
|
2000
|
|
2001
|
|
|
2002
|
|
| Reported net income (loss) |
|
$ |
16,228 |
|
$ |
(12,867 |
) |
|
$ |
(133,672 |
) |
| Add back: Goodwill amortization |
|
|
493 |
|
|
21,928 |
|
|
|
61,850 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Adjusted net income (loss) |
|
$ |
16,721 |
|
$ |
9,061 |
|
|
$ |
(71,822 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
| Reported net income (loss) |
|
$ |
0.78 |
|
$ |
(0.49 |
) |
|
$ |
(4.34 |
) |
| Goodwill amortization |
|
|
0.02 |
|
|
0.83 |
|
|
|
2.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Adjusted net income (loss) |
|
$ |
0.80 |
|
$ |
0.34 |
|
|
$ |
(2.33 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
| Reported net income (loss) |
|
$ |
0.62 |
|
$ |
(0.49 |
) |
|
$ |
(4.34 |
) |
| Goodwill amortization |
|
|
0.02 |
|
|
0.77 |
|
|
|
2.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Adjusted net income (loss) |
|
$ |
0.64 |
|
$ |
0.28 |
|
|
$ |
(2.33 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets
On April 1, 2002 the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement supersedes SFAS No. 121,
“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” This Statement establishes a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale. The Statement retains most of the requirements of SFAS No. 121 related to the recognition of the impairment of long-lived assets to be held and used. There was no impact on the financial condition or operating results of the
Company from adopting SFAS No. 144 in the six-months ended September 30, 2002.
D. Net Loss Per Share
The following is a reconciliation of the shares used in computing basic and diluted net loss per share for
the three and six-month periods ended September 30, 2001 and 2002 (in thousands):
| |
|
Three Months Ended September 30,
|
|
Six Months Ended September
30,
|
| |
|
2001
|
|
2002
|
|
2001
|
|
2002
|
| Shares used in computing basic net income (loss) per share |
|
30,775 |
|
31,227 |
|
30,553 |
|
31,525 |
| Dilutive effect of stock options and warrants |
|
— |
|
— |
|
— |
|
— |
| |
|
|
|
|
|
|
|
|
| Shares used in computing diluted net income (loss) per share |
|
30,775 |
|
31,227 |
|
30,553 |
|
31,525 |
| |
|
|
|
|
|
|
|
|
| Antidilutive securities not included in dilutive net income (loss) per share calculation |
|
23,366 |
|
20,014 |
|
23,366 |
|
20,014 |
| |
|
|
|
|
|
|
|
|
The dilutive earnings per share calculation for the three months
ended September 30, 2001 and 2002 and the six months ended September 30, 2001 and 2002 excludes 1.4 million, 0.1 million, 2.0 million and 0.5 million common stock equivalents, respectively, related to stock options due to their anti-dilutive effect
as a result of the
8
DIAMONDCLUSTER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Company’s reported net loss during these periods. For the three months ended September 30, 2001 and 2002 and the six months ended September 30, 2001 and 2002, respectively, an additional
12.7 million, 19.6 million, 11.4 million and 19.4 million stock options are excluded due to their anti-dilutive effect as a result of the options’ exercise prices being greater than the average market price of the common shares for these
periods.
E. Foreign Exchange Risk Management
Objectives and Context
The
Company operates internationally; therefore its earnings, cash flows and financial positions are exposed to foreign currency risk from foreign currency-denominated receivables and payables, forecasted service transactions, and net investments in
certain foreign operations. These items are denominated in various foreign currencies, including the euro, the pound sterling, the brazilian real and the swedish krone.
Management believes it is prudent to minimize the variability caused by foreign currency risk. Management attempts to minimize foreign currency risk by pricing contracts in
the respective local country’s functional currency and by using derivative instruments when necessary. The Company’s financial management continually monitors foreign currency risk and the use of derivative instruments. The Company does
not use derivative instruments for purposes other than hedging net investments in foreign subsidiaries.
Strategies
International revenues are generated primarily from sales of services in
various countries and are typically denominated in the local currency of each country, most of which now use the euro. The Company’s foreign subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign
subsidiaries use the local currency as their functional currency. As a result, management does not believe that its financial position is significantly exposed to foreign currency risk from foreign currency-denominated receivables and payables or
forecasted service transactions.
DiamondCluster has net investments in foreign operations located throughout
Europe and Latin America. In order to mitigate the impact of foreign currency movements on the Company’s financial position, in some cases the Company hedges its euro exposures through the use of euro/U.S. dollar forward contracts. These
contracts have been designated and have qualified as hedging instruments for hedges of the foreign currency exposure related to the Company’s net investment in its foreign operations. Accordingly, the net amount of gains or losses on these
forward foreign exchange contracts offset losses and gains on the Company’s exposure to foreign currency movements related to is net investments in its foreign operations and are reflected in the cumulative translation adjustment account and
included as a component of other comprehensive income. At March 31, 2002, the Company had one euro/U.S. dollar forward contract outstanding in the notional principal amount of EUR 62.8 million. On June 28, 2002, the Company settled its euro/U.S.
dollar forward contract for EUR 62.8 million. As noted above, the Company entered into this contract to mitigate the effect of an adverse movement of foreign exchange rates. As a result of the weakening of the U.S. dollar against the euro in the
first quarter of fiscal 2003, the Company recorded a net loss on the forward exchange contract of $7.4 million in the cumulative translation adjustments account which was offset by the related gain on the net investment in the foreign operations
during the period. As of September 30, 2002, there were no open euro/U.S. dollar contracts outstanding.
F. Restructuring Charge
As a result of management’s plan to
better align the Company’s operating infrastructure with anticipated levels of business in fiscal 2003, the Company restructured its workforce and operations in December 2001 and September 2002.
9
DIAMONDCLUSTER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
In connection with the restructuring plan implemented in September
2002, the Company recorded a restructuring charge of $20.5 million ($12.8 million on an after-tax basis) or $0.41 per share. The $20.5 million charge consisted of $12.1 million for contractual commitments related to office space reductions, $5.7
million for severance and related expenses and $2.7 million for the write-off of various depreciable assets and the termination of certain equipment leases. The principal actions in the September 2002 restructuring plan involved office space
reductions, which included futher consolidation of office space in multiple offices globally. Estimated costs for the reduction in physical office space are comprised of contractual rental commitments for office space vacated, attorney fees and
related costs to sublet the office space, offset by estimated sub-lease rental income. The restructuring plan also included workforce reductions, resulting in the termination of approximately 90 employees, of whom 29 employees were still employed by
the Company as of September 30, 2002, and whom the Company expects to terminate in the third quarter upon the completion of project assignments. Of the total employees severed, 60% were project personnel and 40% were operational personnel. Also
included in the restructuring plan were the costs associated with the termination of certain equipment leases and costs related to the write-down of other assets to their estimated net realizable value.
In connection with the restructuring plan announced in December 2001, the Company recorded a restructuring charge of $15.5 million ($9.5
million on an after-tax basis), or $0.31 per share. In September 2002, the Company adjusted this charge and recognized $0.4 million of additional expense due primarily to a change in estimate related to the cost of terminating an equipment lease,
bringing the total restructuring charge to $15.9 million ($9.7 million on an after-tax basis). The $15.9 million charge consisted of $10.8 million for severance and related expenses, $3.1 million for contractual commitments and leasehold
improvements related to office space reductions, and $2.0 million for other depreciable assets and certain equipment leases. The principal actions in the December 2001 restructuring plan involved workforce reductions, including the discontinuation
of certain business activities within the Diamond Marketspace Solutions group. The restructuring plan included the termination of approximately 300 employees, none of whom remained employed by the Company as of September 30, 2002. Of the total
employees severed, 90% were project personnel and 10% were operational personnel. In addition, the restructuring plan included office space reductions in San Francisco, New York and Chicago. Estimated costs related to the reduction of office space
comprise contractual rental commitments for office space being vacated and certain equipment leases, as well as costs associated with the write-off of leasehold improvements and write-down of other assets to their estimated net realizable value.
The total cash outlay for the restructuring announced in September 2002 is expected to approximate $18.0 million.
The remaining $2.5 million of restructuring costs consist of non-cash charges primarily for the write-down of certain assets to their estimated net realizable value, as well as the write-off of sign-on bonuses previously paid to terminated
employees. As of September 30, 2002, $2.0 million of cash had been expended for this initiative, primarily related to severance and related costs.
The total cash outlay for the restructuring announced in December 2001 is expected to approximate $13.2 million. The remaining $2.7 million of restructuring costs consist of non-cash charges primarily
for the write-off of leasehold improvements and other related costs for the facilities being downsized, as well as the write-off of sign-on bonuses previously paid to terminated employees. As of September 30, 2002, $11.2 million of cash had been
expended for this initiative, primarily related to severance and related costs.
10
DIAMONDCLUSTER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The major components of the restructuring charges are as follows
(amounts in thousands):
| |
|
FY02 Q3 Charge
|
|
|
|
|
|
|
|
| Description
|
|
FY02 Q3 Charge
|
|
FY03 Q2 Adjustment
|
|
|
FY03 Q2 Charge
|
|
Utilized
|
|
Balance 9/30/2002
|
| |
|
|
|
Cash
|
|
Non-Cash
|
|
| Severance and related costs |
|
$ |
10,847 |
|
$ |
53 |
|
|
$ |
5,638 |
|
$ |
10,650 |
|
$ |
1,665 |
|
$ |
4,223 |
| Contractual commitments and leasehold improvements related to office space reductions |
|
|
3,089 |
|
|
(28 |
) |
|
|
12,105 |
|
|
1,414 |
|
|
1,306 |
|
|
12,446 |
| Write-off of property, plant, equipment and equipment leases |
|
|
1,606 |
|
|
375 |
|
|
|
2,714 |
|
|
1,130 |
|
|
1,830 |
|
|
1,735 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
15,542 |
|
$ |
400 |
|
|
$ |
20,457 |
|
$ |
13,194 |
|
$ |
4,801 |
|
$ |
18,404 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These restructuring charges and accruals required certain
significant estimates and assumptions, including estimates of sub-lease rental income to be realized in the future. These estimates and assumptions are monitored on at least a quarterly basis for changes in circumstances. It is reasonably possible
that such estimates could change in the near term resulting in additional adjustments to the amounts recorded, and the effect could be material.
11
DIAMONDCLUSTER INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the information contained in the Condensed
Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking
Statements” below.
Overview
We are a premier global management-consulting firm. We help leading organizations worldwide develop and implement growth strategies, improve operations, and capitalize on technology. We work
collaboratively with our clients, utilizing teams of consultants with skills in strategy, technology and program management. During the quarter ended September 30, 2002 we generated net revenues (before reimbursements of out-of-pocket expenses) of
$38.1 million from 79 clients. We employed 674 client-serving professionals and had eleven offices in North America, Europe and Latin America as of September 30, 2002.
Our revenues are comprised of professional fees for services rendered to our clients which are billed either monthly or semi-monthly in accordance with the terms of the
client engagement. Prior to the commencement of a client engagement, we and our client agree on fees for services based upon the scope of the project, our staffing requirements and the level of client involvement. We recognize revenue as services
are performed in accordance with the terms of the client engagement. Provisions are made based on our experience for estimated uncollectible amounts. These provisions, net of write-offs of accounts receivable, are reflected in the allowance for
doubtful accounts. If it becomes evident that costs are likely to be incurred subsequent to targeted project completion, a portion of the project revenue is reflected in deferred revenue. Although from time to time we have been required to make
revisions to our clients’ estimated deliverables, to date none of such revisions have had a material adverse effect on our operating results.
The largest portion of our costs is comprised of employee-related expenses for our client-serving professionals and other direct costs, such as third-party vendor costs and unbillable costs associated
with the delivery of services to our clients. The remainder of our costs are comprised of the expenses associated with the development of our business and the support of our client-serving professionals, such as professional development and
recruiting, marketing and sales, and management and administrative support. Professional development and recruiting expenses consist primarily of recruiting and training content development and delivery costs. Marketing and sales expenses consist
primarily of the costs associated with the development and maintenance of our marketing materials and programs. Management and administrative support expenses consist primarily of the costs associated with operations, finance, information systems,
facilities (including the rent of office space) and other administrative support for project personnel.
We
regularly review our fees for services, professional compensation and overhead costs to ensure that our services and compensation are competitive within the industry, and that our overhead costs are balanced with our revenue level. In addition, we
monitor the progress of client projects with client senior management. We manage the activities of our professionals by closely monitoring engagement schedules and staffing requirements for new engagements. However, a rapid decline in the demand for
the professional services we provide could result in a lower utilization of our professionals than we planned. In addition, because most of our client engagements are, and may be in the future, terminable by our clients without penalty, an
unanticipated termination of a client project could require us to retain underutilized employees. While the number of client serving professionals must be adjusted to reflect active engagements, we must also retain a sufficient number of senior
professionals to oversee existing client engagements and participate in our sales efforts to secure new client assignments.
Forward
Looking Statements
Statements contained anywhere in this report that are not historical facts contain
forward-looking statements including such statements identified by the words “anticipate,” “believe,” “estimate,” “expect” and similar
12
DIAMONDCLUSTER INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS—(Continued)
terminology used with respect to the Company and its management. These forward looking statements are subject to risks and uncertainties which could cause the Company’s actual results,
performance and prospects to differ materially from those expressed in, or implied by, the forward-looking statements. The forward-looking statements speak only as of the date hereof and the Company undertakes no obligation to revise or update them
to reflect events or circumstances that arise in the future. Readers are cautioned not to place undue reliance on forward-looking statements. For a statement of the Risk Factors that might adversely affect the Company’s operating or financial
results, see Exhibit 99.1 to this Quarterly Report on Form 10-Q.
Recently Adopted Accounting Pronouncements
Goodwill and Other Intangible Assets
On April 1, 2002 the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” With the adoption of SFAS No. 142, goodwill and other indefinite life intangible assets
(“intangibles”) are no longer subject to amortization, rather they are subject to an assessment for impairment whenever events or circumstances indicate that impairment may have occurred, but at least annually, by applying a fair value
based test. Prior to April 1, 2002 the Company amortized goodwill and identifiable intangible assets on a straight-line basis over their estimated useful life not to exceed 40 years, and periodically reviewed the recoverability of these assets based
on the expected future undiscounted cash flows.
The Company completed its initial impairment test on goodwill
using the methodology described in SFAS No. 142 in the first quarter of fiscal 2003, and will conduct an assessment of impairment based on fair value in accordance with the requirements of SFAS No. 142 on an annual basis in the future. In connection
with the adoption of SFAS No. 142 on April 1, 2002, the Company recognized an impairment loss of $140.9 million as the cumulative effect of a change in accounting principle.
Goodwill amortization was $61.9 million in fiscal 2002, or $2.01 per share on both a pre-tax and after-tax basis. Goodwill amortization for the three and six months ended
September 30, 2001 was $15.5 million and $30.9 million, respectively. No goodwill amortization was recorded for the three and six months ended September 30, 2002. Goodwill, net, as of March 31, 2002 and September 30, 2002 was $235.2 million and
$94.3 million, respectively. There were no indefinite life intangibles other than goodwill at September 30, 2002.
The Company has two geographic operating segments—North America and Europe and Latin America. The majority of goodwill reflected in the Company’s consolidated financial statements was recognized in connection with the
November 2000 acquisition of Cluster. The acquired Cluster business comprises the majority of the activities of the Europe and Latin America operating segment. The carrying value of goodwill allocated to each of these operating segments was tested
for impairment as of April 1, 2002, in connection with the initial adoption of SFAS No.142. The goodwill impairment loss of $140.9 million recognized in the first quarter of fiscal 2003 was necessary to write down the carrying amount of goodwill to
its implied fair value. The fair value was estimated based on the income approach, using the present value of future estimated cash flows.
Long-Lived Assets
On April 1, 2002 the Company adopted SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” This Statement
establishes a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. The Statement retains most of the requirements of SFAS No. 121 related to the recognition of the impairment
of long-lived assets to be held and used. There was no impact on the financial condition or operating results of the Company from adopting SFAS No. 144 in the six months ended September 30, 2002.
13
DIAMONDCLUSTER INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS—(Continued)
Results of Operations
The following table sets forth for the periods indicated, selected statements of operations data as a percentage of net revenues:
| |
|
For the Three Months Ended September 30,
|
|
|
For the Six Months Ended September 30,
|
|
| |
|
2001
|
|
|
2002
|
|
|
2001
|
|
|
2002
|
|
| Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue before out-of-pocket reimbursements (net revenue) |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
| Out-of-pocket reimbursements |
|
11.8 |
|
|
17.3 |
|
|
12.4 |
|
|
15.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenue |
|
111.8 |
|
|
117.3 |
|
|
112.4 |
|
|
115.8 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| Project personnel and related expenses before out-of-pocket reimbursable expenses |
|
67.6 |
|
|
75.9 |
|
|
66.4 |
|
|
76.4 |
|
| Out-of-pocket reimbursable expenses |
|
11.8 |
|
|
17.3 |
|
|
12.4 |
|
|
15.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total project personnel and related expenses |
|
79.4 |
|
|
93.2 |
|
|
78.8 |
|
|
92.2 |
|
| Professional development and recruiting |
|
7.0 |
|
|
2.5 |
|
|
6.6 |
|
|
2.8 |
|
| Marketing and sales |
|
3.7 |
|
|
3.0 |
|
|
4.2 |
|
|
3.7 |
|
| Management and administrative support |
|
23.5 |
|
|
25.8 |
|
|
23.6 |
|
|
26.6 |
|
| Goodwill amortization |
|
30.5 |
|
|
— |
|
|
28.3 |
|
|
— |
|
| Noncash compensation |
|
25.9 |
|
|
30.1 |
|
|
24.8 |
|
|
32.5 |
|
| Restructuring charge |
|
— |
|
|
54.7 |
|
|
— |
|
|
27.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
170.0 |
|
|
209.3 |
|
|
166.3 |
|
|
185.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from operations |
|
(58.2 |
) |
|
(92.0 |
) |
|
(53.9 |
) |
|
(69.3 |
) |
| Other expense, net |
|
(0.7 |
) |
|
(0.2 |
) |
|
(0.7 |
) |
|
(0.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before taxes and cumulative effect of change in accounting principle |
|
(58.9 |
) |
|
(92.2 |
) |
|
(54.6 |
) |
|
(69.8 |
) |
| Income tax benefit |
|
(3.4 |
) |
|
(19.4 |
) |
|
(0.8 |
) |
|
(12.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before cumulative effect of change in accounting principle |
|
(55.5 |
) |
|
(72.8 |
) |
|
(53.8 |
) |
|
(57.6 |
) |
| Cumulative effect of change in accounting principle |
|
— |
|
|
— |
|
|
— |
|
|
(184.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
(55.5 |
)% |
|
(72.8 |
)% |
|
(53.8 |
)% |
|
(241.9 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, 2002 Compared to Quarter Ended September 30, 2001
Our net loss for the quarter ended September 30, 2002 was $27.8 million compared to a net loss of $28.2
million during the quarter ended September 30, 2001. The decrease in the loss of $0.4 million is primarily due to the decrease in operating expenses as a result of the cost reduction programs implemented throughout fiscal years 2002 and 2003, and
the decrease in goodwill amortization upon the adoption of SFAS No. 142 effective April 1, 2002. These expense decreases were partially offset by the restructuring charge taken in the second quarter of fiscal year 2003 and a decrease in revenue
before out-of-pocket reimbursements.
The Company applies Accounting Principles Board (APB) Opinion 25,
“Accounting for Stock Issued to Employees,” and related interpretations in accounting for stock issued to employees. Effective April 1, 2003, the Company will apply Statement of Financial Accounting Standards (SFAS) No. 123,
“Accounting for Stock Based Compensation,” in accounting for stock issued to employees for grants awarded subsequent to that date. Had compensation expense on options issued to employees during the quarter ended September 30, 2002 been
14
DIAMONDCLUSTER INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS—(Continued)
determined based on the fair value at the grant date consistent with the methodology prescribed in SFAS No. 123, the Company’s net loss and diluted earnings per share would have increased by
$0.6 million to a net loss of $28.4 million for the three months ended September 30, 2002, or $(0.91) per share.
Our revenues before out-of-pocket expense reimbursements decreased 24.9% to $38.1 million during the quarter ended September 30, 2002 as compared to the same period in the prior year. Total revenue including out-of-pocket expense
reimbursements decreased 21.3% to $44.7 million for the quarter ended September 30, 2002 compared with $56.8 million reported for the same period of the prior year. The decrease in revenue can be principally attributed to the weakness in the global
economy, resulting in a decline in current demand for the Company’s services. The unstable economic conditions have also led to pricing pressures, a lengthening of the Company’s sales cycle and reduction and/or deferrals of client
expenditures for consulting services. Revenue from new clients accounted for 9% of the revenue during the three-month period ended September 30, 2002 compared to 13% during the same period in the prior year. We served 79 clients during the quarter
ended September 30, 2002 as compared to 77 clients during the same period in the prior year.
Project personnel
and related expenses before out-of-pocket reimbursable expenses decreased $5.4 million to $28.9 million during the quarter ended September 30, 2002 as compared to the same period in the prior year. The decrease in project personnel and related
expenses reflects savings resulting from cost reduction programs implemented throughout fiscal 2002 and 2003. Beginning June 2001, we reduced salaries between 10% and 15% for most employees, and in August 2001, we reduced salaries 65% for
approximately 200 furloughed employees. During the quarters ended December 31, 2001 and September 30, 2002 we further reduced personnel as part of the Company’s restructuring plan. We reduced our client-serving professional staff from 1,095 at
September 30, 2001 to 674 at September 30, 2002. As a percentage of net revenues, project personnel and related expenses before out-of-pocket expense reimbursements increased from 67.6% to 75.9% during the quarter ended September 30, 2002, as
compared to the same period in the prior year, due primarily to increased client prospecting costs. Similarly, project personnel and related expenses including out-of-pocket reimbursable expenses decreased $4.8 million to $35.5 million during the
quarter ended September 30, 2002 as compared to the same period of the prior year.
Professional development and
recruiting expenses decreased $2.6 million to $1.0 million during the quarter ended September 30, 2002 as compared to the same period in the prior year. This decrease primarily reflects decreases in our level of recruiting and decreased training
conduct expenditures. As a percentage of net revenues, these expenses decreased to 2.5% as compared to 7.0% during the same period in the prior year.
Marketing and sales expenses decreased from $1.9 million to $1.1 million during the quarter ended September 30, 2002 as compared to the same period in the prior year as a result of decreased marketing
activities. As a percentage of net revenues, these expenses decreased to 3.0% as compared to 3.7% during the same period in the prior year.
Management and administrative support expenses decreased from $11.9 million to $9.8 million, or 17.7%, during the quarter ended September 30, 2002 as compared to the same period in the prior year,
principally as a result of our cost reduction programs, including the closing of the New York office and the downsizing of other offices globally. As a percentage of net revenues, these expenses increased from 23.5% to 25.8% during the quarter ended
September 30, 2002 as compared to the same period in the prior year.
Goodwill amortization decreased from $15.5
million to zero during the quarter ended September 30, 2002, as compared to the same period in the prior year, as a result of the Company’s adoption of SFAS No. 142 on April 1, 2002. As a percentage of net revenues, these expenses decreased
from 30.5% to 0.0% as compared to the same period in the prior year.
15
DIAMONDCLUSTER INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS—(Continued)
Noncash compensation decreased from $13.2 million during the quarter
ended September 30, 2001 to $11.5 million during the quarter ended September 30, 2002. This is primarily the amortization of unearned compensation resulting from the issuance of stock options at prices below fair market value to Cluster employees in
connection with the Cluster acquisition. The unearned compensation will be earned over time contingent on the continued employment of these employees. As a percentage of net revenues, noncash compensation was 30.1% during the quarter ended September
30, 2002 as compared to 25.9% in the same period of the prior year.
In the third quarter of fiscal 2003, the
Company recorded a restructuring charge of $20.9 million as a result of management’s plan to better align the Company’s operating infrastructure with anticipated levels of business in fiscal 2003. The Company completed an assessment of the
infrastructure needed to support anticipated levels of business in fiscal 2003 and beyond, and developed and implemented a restructuring plan designed to better align its cost structure and areas of operation with current business requirements. The
restructuring charge consists of $12.1 million for contractual commitments related to office space reductions, $5.7 million for severance and related expenses, $2.7 million for the write-off of various depreciable assets and the termination of
certain equipment leases and $0.4 million of additional expense recorded in connection with the restructuring plan implemented in December 2001 due primarily to a change in estimate related to the cost of terminating an equipment lease. The
principal actions in the September 2002 restructuring plan involved office space reductions, which included further consolidation of office space in multiple offices globally. Estimated costs for the reduction in physical office space are comprised
of contractual rental commitments for office space vacated, attorney fees and related costs to sublet the office space, offset by estimated sub-lease rental income. The restructuring plan also included workforce reductions, resulting in the
termination of approximately 90 employees. Of the total employees severed, 60% were project personnel and 40% were operational personnel. The client-serving personnel consist of partners, principals, managers, associates and analysts. Also included
in the restructuring plan were the costs associated with the termination of certain equipment leases and costs related to the write-down of other assets to their estimated net realizable value. The Company expects savings from the September 2002
restructuring plan to be about $15–$17 million on an annualized basis.
The loss from operations increased
from a loss of $29.5 million to a loss of $35.1 million during the quarter ended September 30, 2002 as compared to the same period in the prior year. This increase was due primarily to the decline in revenue and the restructuring charge taken in the
second quarter of fiscal year 2003, partially offset by the decrease in operating expenses and goodwill amortization. EBITA, which consists of earnings from operations before amortization of goodwill, noncash compensation and restructuring charge
increased from a loss of $0.9 million to a loss of $2.7 million during the quarter ended September 30, 2002 as compared to the same period in the prior year. EBITA is not a measure of financial performance under U.S. generally accepted accounting
principles. You should not consider it in isolation from, or as a substitute for, net income or cash flow measures prepared in accordance with U.S. generally accepted accounting principles or as a measure of profitability or liquidity. Additionally,
our EBITA calculation may not be comparable to other similarly titled measures of other companies. We have included EBITA as a supplemental disclosure because it may provide useful information regarding our ability to generate cash for operating and
other corporate purposes.
Other expense, net decreased from $0.4 million to $0.1 million during the quarter ended
September 30, 2002 as compared to the same period in the prior year. As a percentage of net revenues, these expenses decreased to 0.2% as compared to 0.7% during the same period in the prior year.
The Company has deferred tax assets which have arisen primarily as a result of operating losses incurred in fiscal year 2002 and the the
first six months of fiscal year 2003, as well as other temporary differences between
16
DIAMONDCLUSTER INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS—(Continued)
book and tax accounting. Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” requires the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets. Management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against the gross deferred
tax assets. The income tax benefit increased from a benefit of $1.7 million to a benefit of $7.4 million during the quarter ended September 30, 2002 as compared to the same period in the prior year, due principally to the increase in the pre-tax
loss before nondeductible goodwill amortization incurred in the current quarter, partially offset by the additional income tax expense recorded during the second fiscal quarter of 2003 to provide a valuation allowance for deferred tax assets related
to certain state net operating loss and credit carryforwards and certain foreign net operating loss carryforwards. The Company believes that the ultimate realization of the deferred tax assets for federal, state, and foreign income tax purposes is
considered more likely than not, due to anticipated sufficient future taxable income.
Six Months Ended September 30, 2002 Compared to
Six Months Ended September 30, 2001
Our net loss for the six months ended September 30, 2002 of $184.9
million increased $126.3 million from $58.6 million during the six months ended September 30, 2001. This increase is due primarily to the noncash loss related to the impairment in the value of goodwill, partially offset by a reduction in goodwill
amortization upon the adoption of SFAS No. 142 on April 1, 2002, and the decrease in operating expenses resulting from the implementation of cost reduction programs throughout fiscal 2002 and 2003.
The Company applies Accounting Principles Board (APB) Opinion 25, “Accounting for Stock Issued to Employees,” and related
interpretations in accounting for stock issued to employees. Effective April 1, 2003, the Company will apply Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock Based Compensation,” in accounting for stock
issued to employees for grants awarded subsequent to that date. Had compensation expense on options issued to employees during the six months ended September 30, 2002 been determined based on the fair value at the grant date consistent with the
methodology prescribed in SFAS No. 123, the Company’s net loss and diluted earnings per share would have been increased by $0.8 million to a net loss of $185.7 million for the six months ended September 30, 2002, or a loss of $(5.89) per share.
Net revenue for the six months ended September 30, 2002 was $76.4 million, down 29.8% compared with $108.9
million reported for the same period in the prior year. The decrease in revenue can be principally attributed to the weakness in the global economy, resulting in a decline in current demand for the Company’s services. The unstable economic
conditions have also led to pricing pressures, a lengthening of the Company’s sales cycle and reduction and/or deferrals of client expenditures for consulting services. Revenue from new clients accounted for 12% of the revenue during the six
month period ended September 30, 2002, while revenue from existing clients accounted for 88% of revenue during the same period. We served 103 clients during the six months ended September 30, 2002, a decrease from the 111 clients served in the same
period in the prior year.
Project personnel and related expenses before out-of-pocket reimbursable expenses
decreased $13.9 million to $58.4 million during the six months ended September 30, 2002 as compared to the same period in the prior year. The decrease in project personnel and related expenses reflects savings resulting from cost reduction programs
implemented throughout fiscal 2002 and 2003. Beginning in June 2001, we reduced salaries between 10% and 15% for most employees, and in August 2001, we reduced salaries 65% for approximately 200 furloughed employees. During the quarters ended
December 31, 2001, March 31, 2002, and September 30, 2002 we further reduced personnel as part of the Company’s restructuring plan. We reduced our client-serving professional staff from 1,095 at September 30, 2001 to 674 at September 30, 2002.
As a percentage of net
17
DIAMONDCLUSTER INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS—(Continued)
revenues, project personnel and related expenses before out-of-pocket expense reimbursements increased from 66.4% to 76.4% during the six months ended September 30, 2002, as compared to the same
period in the prior year, due primarily to increased client prospecting costs. Similarly, project personnel and related expenses including out-of-pocket reimbursable expenses decreased $15.4 million to $70.4 million during the six-month period ended
September 30, 2002 as compared to the same period of the prior year.
Professional development and recruiting
expenses decreased $5.1 million to $2.2 million during the six months ended September 30, 2002 as compared to the same period in the prior year. This decrease primarily reflects decreases in our level of recruiting, a reduction in firmwide meetings,
and decreased training conduct expenditures. As a percentage of net revenues, these expenses decreased to 2.8% as compared to 6.6% during the same period in the prior year.
Marketing and sales expenses decreased from $4.5 million to $2.8 million during the six months ended September 30, 2002 as compared to the same period in the prior year as
a result of decreased marketing activities and personnel reductions. As a percentage of net revenues, these expenses decreased to 3.7% as compared to 4.2% during the same period in the prior year.
Management and administrative support expenses decreased from $25.7 million to $20.3 million, or 20.9%, during the six months ended
September 30, 2002 as compared to the same period in the prior year, principally as a result of our cost reduction programs, including the closing of the New York office and the downsizing of other offices globally. As a percentage of net revenues,
these expenses increased from 23.6% to 26.6% during the six-month period ended September 30, 2002 as compared to the same period in the prior year.
Goodwill amortization decreased from $30.9 million to zero during the six months ended September 30, 2002 as compared to the same period in the prior year as a result of the Company’s adoption of
SFAS No. 142 on April 1, 2002. As a percentage of net revenues, these expenses decreased from 28.3% to 0% as compared to the same period in the prior year.
Noncash compensation decreased from $27.0 million during the six months ended September 30, 2001 to $24.8 million during the six months ended September 30, 2002. This is primarily the amortization of
unearned compensation resulting from the issuance of stock options at prices below fair market value to Cluster employees in connection with the Cluster acquisition. The unearned compensation will be earned over time contingent on the continued
employment of these employees. As a percentage of net revenues, noncash compensation was 32.5% during the six months ended September 30, 2002.
In the third quarter of fiscal 2003, the Company recorded a restructuring charge of $20.9 million as a result of management’s plan to better align the Company’s operating infrastructure with
anticipated levels of business in fiscal 2003. The Company completed an assessment of the infrastructure needed to support anticipated levels of business in fiscal 2003 and beyond, and developed and implemented a restructuring plan designed to
better align its cost structure and areas of operation with current business requirements. The restructuring charge consists of $12.1 million for contractual commitments related to office space reductions, $5.7 million for severance and related
expenses, $2.7 million for the write-off of various depreciable assets and the termination of certain equipment leases and $0.4 million of additional expense recorded in connection with the restructuring plan implemented in December 2001 due
primarily to a change in estimate related to the cost of terminating an equipment lease. The principal actions in the September 2002 restructuring plan involved office space reductions, which included further consolidation of office space in
Barcelona, Boston, Chicago, Madrid, Munich, New York and Sao Paulo. Estimated costs for the reduction in physical office space are comprised of contractual rental
18
DIAMONDCLUSTER INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS—(Continued)
commitments for office space vacated, attorney fees and related costs to sublet the office space, offset by estimated sub-lease rental income. The restructuring plan also included workforce
reductions, resulting in the termination of approximately 90 employees. Of the total employees severed, 60% were project personnel and 40% were operational personnel. The client-serving personnel consist of partners, principals, managers, associates
and analysts. Also included in the restructuring plan were the costs associated with the termination of certain equipment leases and costs related to the write-down of other assets to their estimated net realizable value. The Company expects savings
from the September 2002 restructuring plan to be about $15–$17 million on an annualized basis.
The loss from
operations decreased from a loss of $58.7 million to a loss of $52.9 million during the six months ended September 30, 2002 as compared to the same period in the prior year. This decrease was due primarily to the reduction in goodwill amortization
and a decrease in other operating expenses, partially offset by the decline in revenue and the restructuring charge implemented during fiscal 2003. EBITA, which consists of earnings from operations before amortization of goodwill, noncash
compensation and restructuring charge, increased from a loss of $0.8 million to a loss of $7.3 million during the six months ended September 30, 2002 as compared to the same period in the prior year. EBITA is not a measure of financial performance
under U.S. generally accepted accounting principles. You should not consider it in isolation from, or as a substitute for, net income or cash flow measures prepared in accordance with U.S. generally accepted accounting principles or as a measure of
profitability or liquidity. Additionally, our EBITA calculation may not be comparable to other similarly titled measures of other companies. We have included EBITA as a supplemental disclosure because it may provide useful information regarding our
ability to generate cash for operating and other corporate purposes.
Other expense, net decreased from $0.8
million to $0.4 million during the six months ended September 30, 2002 as compared to the same period in the prior year. As a percentage of net revenues, these expenses remained approximately the same at 0.7% compared to the same period in the prior
year.
The Company has deferred tax assets which have arisen primarily as a result of operating losses incurred in
fiscal year 2002 and the the first six months of fiscal year 2003, as well as other temporary differences between book and tax accounting. Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” requires the
establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any
valuation allowance recorded against the gross deferred tax assets. For the six months ended September 30, 2002, the income tax benefit increased from $0.8 million to $9.3 million as compared to the same period in the prior year, due principally to
the increase in the pre-tax loss before nondeductible goodwill amortization incurred in the period, partially offset by the additional income tax expense recorded during the second fiscal quarter of 2003 to provide a valuation allowance for deferred
tax assets related to certain state net operating loss and credit carryforwards and certain foreign net operating loss carryforwards. The Company believes that the ultimate realization of the deferred tax assets for federal, state and foreign income
tax purposes is considered more likely than not, due to anticipated sufficient future taxable income.
Liquidity and Capital
Resources
We maintain a revolving line of credit pursuant to the terms of a secured credit agreement with a
commercial bank under which we may borrow up to $10.0 million at an annual interest rate based on the prime rate or based on LIBOR plus 1.50%, at our discretion. The line of credit is secured by cash and certain accounts receivable of the
Company’s wholly-owned subsidiary DiamondCluster International North America, Inc. This line of credit is reduced, as necessary, to account for letters of credit outstanding. As of September 30, 2002, we had approximately $8.8 million available
under this line of credit.
19
DIAMONDCLUSTER INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS—(Continued)
During the six-month period ended September 30, 2002, net cash used
in operating activities was $4.1 million, and included a net loss of $2.9 million after certain non-cash items and the restructuring charge (calculated by adding back the $20.9 million restructuring charge and $20.2 million of the following non-cash
items to the loss before the cumulative effect of change in accounting principle of $44.0 million: depreciation and amortization, non-cash compensation, deferred income taxes and the write-down of the net book value of property, plant, and
equipment), and $1.2 million used by working capital and other operating activities. Our billings for the three and six months ended September 30, 2002 totaled $46.4 million and $92.8 million, respectively. These amounts include VAT (which are not
included in recognized revenue) and billings to clients for reimbursable expenses. Our gross accounts receivable balance of $23.0 million at September 30, 2002 represented 45 days of billings for the quarter ended September 30, 2002.
Cash used in investing activities was $0.6 million for the six-month period ended September 30, 2002. Cash used in investing
activities resulted primarily from capital expenditures, partially offset by an increase in other assets.
Cash
used in financing activities was $1.7 million for the six-month period ended September 30, 2002. Cash used in financing activities resulted primarily from the repurchase of DiamondCluster’s Class A Common Stock totaling $5.2 million, which was
offset by common stock issued during the quarter totaling $3.5 million. On June 24, 2002, the Company’s Board of Directors increased the number of shares authorized to be repurchased under its existing stock repurchase program by three million
shares. This authorization brought the total authorized shares for the stock repurchase program to six million shares. These repurchases were authorized to be made in the open market or in privately negotiated transactions with the timing and volume
dependent upon market conditions. Through September 30, 2002, the number of shares purchased under this authorization was 3.4 million shares at an aggregate cost of $51.9 million.
On May 2, 2002, the Company offered employees (other than senior officers) a plan, approved by the Board of Directors, which gave employees a choice to cancel certain stock
options previously granted to them in exchange for a future grant of a smaller number of new options to purchase the same class of shares, a majority of which would vest over a three-year period. The original options were granted under
DiamondCluster’s 2000 Plan and under DiamondCluster’s 1998 Equity Incentive Plan. Employees who accepted this offer were required to make an election with respect to all covered options by May 14, 2002. In order to receive the new options,
the employees are required to remain employed by DiamondCluster until November 15, 2002. The exchange offer was not available to the members of the Board of Directors or senior officers of DiamondCluster. A total of 4.3 million stock options were
cancelled as a part of this plan. On November 15, 2002, approximately 1.0 million new options are expected to be granted to employees who remain employed by DiamondCluster. The exercise price for a majority of the options to be granted on November
15, 2002 will be at 25% of fair market value on that date.
As a result of various personnel and other expense
management actions the Company plans to take in the third fiscal quarter, it expects to take a charge of approximately $8–10 million in the December 2002 quarter. The charge will consist of severance and related expenses, and other expenses
related to operational restructuring, including the discontinuance of Context®, a quarterly
publication of the Company. The Company expects expense savings from these actions to be approximately $15–$17 million on an annualized basis.
We believe that our current cash balances, existing lines of credit, and cash flow from existing and future operations will be sufficient to fund our operating requirements at least through fiscal
2004. If necessary, we believe that additional bank credit would be available to fund any additional operating and capital requirements. In addition, we could consider seeking additional public or private debt or equity financing to fund future
growth opportunities. However, there is no assurance that such financing would be available to us on acceptable terms.
20
DIAMONDCLUSTER INTERNATIONAL, INC.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Foreign Currency
Risk
International revenues are generated primarily from our services in the respective countries by
our foreign subsidiaries and are typically denominated in the local currency of each country, most of which are tied to the euro. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use
the local currency as their functional currency. Our international business is subject to risks typical of an international business, including, but not limited to, differing economic conditions, changes in political climate, differing tax
structures, other regulations and restrictions and foreign exchange rate volatility. Our future results could be materially adversely impacted by changes in these or other factors.
The financial statements of our non-U.S. businesses are typically denominated in the local currency of the foreign subsidiary in order to centralize foreign exchange risk
with the parent company in the United States. As a result, we are also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. As exchange rates fluctuate,
these results, when translated, may vary from expectations and adversely impact overall expected results and profitability.
The Company has entered into transactions to reduce the effect of foreign exchange transaction gains and losses on recorded foreign currency denominated assets and liabilities, and to reduce the effect of foreign exchange
translation gains and losses on the parent company’s net investment in its foreign subsidiaries. These transactions involve the use of forward foreign exchange contacts in certain European currencies. A forward foreign exchange contract
obligates the Company to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates or to make an equivalent U.S. dollar payment equal to the value of such exchange. As a result, increases or
decreases in the U.S. dollar value of the Company’s foreign currency transactions and investments in foreign subsidiaries are partially offset by gains and losses on the forward contracts, so as to mitigate the possibility of significant
foreign currency transaction and translation gains and losses. The Company does not use foreign currency contracts for trading purposes. The Company does not currently hedge anticipated foreign currency-denominated revenues and expenses. All foreign
currency transactions and outstanding forward contracts are marked-to-market on a monthly basis.
DiamondCluster
has net investments in foreign operations located throughout Europe and Latin America. In order to mitigate the impact of foreign currency movements on the Company’s financial position, in some cases the Company hedges its euro exposures
through the use of euro/U.S. dollar forward contracts. These contracts have been designated and have qualified as hedging instruments for hedges of the foreign currency exposure related to the Company’s net investment in its foreign operations.
Accordingly, the net amount of gains or losses on these forward foreign exchange contracts offset losses and gains on the Company’s exposure to foreign currency movements related to is net investments in its foreign operations and are reflected
in the cumulative translation adjustment account and included as a component of other comprehensive income. At March 31, 2002, the Company had one euro/U.S. dollar forward contract outstanding in the notional principal amount of EUR 62.8 million. On
June 28, 2002, the Company settled its euro/U.S. dollar forward contract for EUR 62.8 million. As noted above, the Company entered into this contract to mitigate the effect of an adverse movement of foreign exchange rates. As a result of the
weakening of the U.S. dollar against the euro in the first quarter of fiscal 2003, the Company recorded a net loss on the forward exchange contract of $7.4 million in the cumulative translation adjustments account which was offset by the related
gain on the net investment in the foreign operations during the period. As of September 30, 2002, there were no open euro/U.S. dollar or other forward contracts outstanding.
Interest Rate Risk
The Company invests its cash in highly
liquid investments with original maturities of three months or less. The interest rate risk associated with our investing activities at September 30, 2002 is not material in relation to
21
our consolidated financial position, results of operations or cash flows. We have not used derivative financial instruments to alter the
interest rate characteristics of our investments holdings.
Item 4. Controls and Procedures
The Chairman and Chief Executive
Officer, the Senior Vice President, Finance and Administration and the Chief Financial Officer of DiamondCluster International, Inc. (its principal executive officer and principal financial officers, respectively) have concluded, based on their
evaluations as of a date within 90 days prior to the date of the filing of this Report, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed
or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and include controls and
procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.
There were no significant changes in the Company’s internal controls or in other factors that could
significantly affect these controls subsequent to the date of such evaluation.
22
DIAMONDCLUSTER INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Items 1—3.
None
Item 4.
Submission of Matters to a Vote of Security Shareholders
On August 13, 2002, the Company held its annual
meeting of shareholders at the Westin Hotel in Chicago, Illinois. Edward R. Anderson, Adam J. Gutstein, Pedro Nueno and Arnold R. Weber were elected by the shareholders to serve as Class III members of the Board of Directors for three-year terms
expiring at the 2005 annual meeting of shareholders. The vote on this matter is set forth below. There were no broker non-votes for this matter voted upon by the shareholders.
1. Election of Directors
| Name
|
|
For
|
|
Withheld
|
| Edward R. Anderson |
|
60,582,342 |
|
6,112,938 |
| Adam J. Gutstein |
|
63,858,012 |
|
2,837,268 |
| Pedro Nueno |
|
66,600,154 |
|
95,126 |
| Arnold R. Weber |
|
66,554,490 |
|
140,790 |
Item 5.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
| 3.1 (a)** |
|
Restated Certificate of Incorporation |
| |
| 3.2* |
|
Amended and restated By-Laws |
| |
| 99.1** |
|
Risk Factors |
| |
| 99.2** |
|
CEO Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to sections 302 and 906 of the Sarbanes-Oxley Act of 2002 |
| |
| 99.3** |
|
CFO Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to sections 302 and 906 of the Sarbanes-Oxley Act of 2002 |
| |
| 99.4** |
|
Senior Vice President, Finance and Administration Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 |
(b) Reports on Form 8-K
None
* |
|
Incorporated by reference to the corresponding exhibits filed with the Company’s Registration Statement on Form S-1 (File No. 333-17785)
|
23
DIAMONDCLUSTER INTERNATIONAL, INC.
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.
| |
|
DIAMONDCLUSTER INTERNATIONAL, INC. |
| |
| Date: November 13, 2002 |
|
By: /S/ MELVYN E. BERGSTEIN
Melvyn E. Bergstein Chairman, Chief Executive Officer and Director |
| |
| Date: November 13, 2002 |
|
By: /S/ KARL E. BUPP
Karl E. Bupp Vice President, Chief Financial Officer and Treasurer |
24