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Diamond Management & Technology Consultants 10-Q 2009 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
For the quarter ended September 30, 2009
or
For the transition period from to
Commission File Number: 000-22125
DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
(Exact name of registrant as specified in its charter)
(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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that registrant was required to submit and post such files.) Yes
o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of
the Exchange Act): Yes o No þ
As
of October 31, 2009, there were 26,931,538 shares of Common Stock of the Registrant
outstanding.
DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2009 TABLE OF CONTENTS
Table of Contents
DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
See accompanying notes to condensed consolidated financial statements.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
The following amounts of stock-based compensation expense (“SBC”) are included in each of the
respective expense categories reported above:
See accompanying notes to condensed consolidated financial statements.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
See accompanying notes to condensed consolidated financial statements.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Reporting
The accompanying unaudited interim condensed consolidated financial statements include the
accounts of Diamond Management & Technology Consultants, Inc., formerly DiamondCluster
International, Inc., and its wholly-owned subsidiaries. In this Quarterly Report on Form 10-Q, the
Company uses the terms “Diamond,” “we,” “our Company,” “the Company,” “our,” and “us” to refer to
Diamond Management & Technology Consultants, Inc. and its wholly-owned subsidiaries. All
intercompany accounts and balances have been eliminated in consolidation.
In the opinion of management, the condensed 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. These adjustments are
of a normal and recurring nature. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with U.S. generally accepted accounting principles,
(“GAAP”), for interim financial information. Consequently, these statements do not include all the
disclosures normally required by GAAP 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 the fiscal year ended March 31, 2009, for additional disclosures,
including a summary of the Company’s accounting policies, which have not changed except as
discussed in Note (H) below. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities, and the amounts of
revenues and expenses during the period. Actual results could differ from those estimates. The
consolidated results of operations for the six months ended September 30, 2009, are not necessarily
indicative of results for the full fiscal year.
The Company has evaluated subsequent events, through the time of filing this Form 10-Q with
the SEC on November 4, 2009. There were no new subsequent events that required recognition or
disclosure.
B. Restricted Cash
The Company initially deposited $5.5 million in a U.S. Dollar denominated bank account during
the fourth quarter of fiscal year 2006 to support the 4.3 million Euros bank guarantee described in
Note (C) below. Based upon the terms of the restrictions on the use of the pledged cash, the
Company has reported these funds as restricted cash on the Condensed Consolidated Balance Sheets.
The restricted cash is reflected in non-current assets based on the terms of the bank guarantee
which require that it be renewed annually until the appealed tax inspection is concluded (see
further discussion of the tax inspection in Note (C) below). Restricted cash totaled $4.1 million
at March 31, 2009, and September 30, 2009.
C. Discontinued Operations
On July 31, 2006, the Company sold a portion of its international operations which included
consulting operations in France, Germany, Spain, Brazil, and the United Arab Emirates as part of a
stock sale agreement. Prior to the stock sale, as a result of a tax inspection of the former
Spanish subsidiary for the tax years 1999 to 2000, the Company provided a bank guarantee in the
amount of 4.3 million Euros, secured by restricted cash, with the Spanish taxing authority in order
to appeal such authority’s assessment. In accordance with the terms of the transaction, the
Company agreed to indemnify the buyer for any liability related to this Spanish tax inspection
(“tax indemnification obligation”). The terms of the guarantee require that it be renewed annually
until the results of the appealed tax inspection are settled. At the time of the transaction, such
settlement was not expected before a period of approximately eight years.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the fourth quarter of fiscal year 2008, the Spanish tax authorities ruled in favor of
the Company on a portion of the assessments that were being appealed. The remaining assessments
under appeal are based on the same merits and the Company believes that the tax authorities will
rule in favor of the Company on those appeals. As a result, $4.6 million of the indemnification
obligation was reversed during the fourth quarter of fiscal year 2008. In addition, the Company
also
obtained a release in June 2008 of $3.1 million of the restricted cash related to the portion
of the assessments that had received a favorable ruling. The remaining $4.1 million classified as
restricted cash as of September 30, 2009, secures the remaining bank guarantee. For the
assessments that are still under appeal, the maximum potential amount of future payments under the
tax indemnification obligation is approximately 2.8 million Euros, assuming the full amount
assessed is sustained at the end of the appeals process. The Company believes that it is
adequately reserved for any potential exposure related to this assessment based upon its current
accruals which were determined based on advice from its third-party tax advisors and based upon
guidance set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 460, “Guarantees.” The Company holds shares of Diamond’s Common Stock
beneficially owned by third parties in an escrow account for the benefit of recovering from the
third parties a portion of any payments made by the Company under the tax indemnification
obligation from the sale transaction. As a result of the favorable ruling on a portion of the
assessments that were appealed, the Company no longer expects to recover certain of these shares
and intends to release such shares as part of the conclusion of a portion of the tax assessments.
The net tax indemnification obligation reported on the Condensed Consolidated Balance Sheet is
comprised of the current accrual net of the current value of the escrow shares that the Company
expects to recover. The change in the value of the recoverable escrow shares due to fluctuations
in the value of the Company’s share price is reflected in income from discontinued operations on
the Condensed Consolidated Statements of Operations and Comprehensive Income.
D. Income Taxes
The Company recorded income tax expense of $1.9 million, which represents a 51% effective
income tax rate, in the quarter ended September 30, 2009, compared to income tax expense of $1.6
million, a 75% effective income tax rate, in the same period in the prior fiscal year. The
effective tax rate decreased in the quarter ended September 30, 2009, due to an increase in U.S.
income relative to the corresponding period in the prior fiscal year and international income in
the current quarter, compared to international losses in the same period in the prior fiscal year.
The international income in the current quarter and loss in the same period in the prior fiscal
year occurred in international jurisdictions where, due to ongoing losses and valuation allowances
on the related international deferred tax assets, the Company currently does not recognize a tax
benefit on international losses or record tax expense on international income. In the prior fiscal
quarter ended September 30, 2008, the Company recorded $0.3 million of income tax expense related
to a non-cash foreign exchange gain which is taxable in the international jurisdiction, but which
is not recognized in the condensed consolidated financial statements. Excluding this $0.3 million
tax expense, the effective income tax rate would have been 61% for the quarter ended September 30,
2008. These items caused a significant difference between the effective tax rate and the
statutory tax rate.
The Company recorded income tax expense of $2.9 million, a 52% effective income tax rate, in
the six months ended September 30, 2009, compared to income tax benefit of $0.2 million, a negative
18% effective income tax rate, in the same period in the prior fiscal year. The income tax benefit
in the prior year was due to the reversal of a $1.5 million valuation allowance in the first
quarter of the prior fiscal year as discussed below, partially offset by $0.3 million income tax
expense related to the non-cash foreign exchange gain in the second quarter of fiscal year 2009 as
discussed above.
Excluding the reversal of the valuation allowance and the tax expense on the foreign exchange
gain, the effective tax rate for the six months ended September 30, 2008, was 94%, as compared to
52% in the current fiscal year. The decrease in the effective tax rate in the six months ended
September 30, 2009, as compared to the same period in the prior fiscal year was primarily related
to a decrease in international losses and an increase in U.S. income relative to the corresponding
period in the prior fiscal year.
The Company has deferred tax assets which have arisen primarily as a result of temporary
differences between the tax bases of assets and liabilities and their related amounts in the
financial statements as well as operating losses incurred primarily in fiscal year 2002 and fiscal
year 2003. Deferred tax assets decreased $6.8 million in the six months ended September 30, 2009
as compared to the fiscal year ended March 31, 2009, primarily attributable to the timing of tax
deductions for stock-based compensation expense related to the completion of the fourth quarter
fiscal year 2009 tender
offer. Of the $6.8 million decrease, $6.1 million represents an income tax deduction for book
purposes in excess of the deduction for tax purposes and is reflected within the operating section
of the condensed consolidated statement of cash flows for the six months ended September 30, 2009
as a decrease in “Deferred income taxes” and a corresponding decrease in “Income taxes payable.”
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ASC 740, “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
any valuation allowance recorded against the gross deferred tax assets. As of September 30, 2009,
the remaining valuation allowance against deferred tax assets was $6.6 million, which is
attributable to net operating loss carryforwards in foreign and certain state jurisdictions, as
well as unrealized U.S. federal capital loss carryforwards. In May 2008, the Company received a
letter from the U.K. tax authorities confirming a correction to the characterization of a U.K.
subsidiary’s losses for the fiscal years ended March 31, 2002 and 2003. Based on this
determination, the Company implemented a tax planning strategy to utilize the U. K. subsidiary’s
net operating loss carryforwards, which resulted in the reversal of a $1.5 million international
tax valuation allowance in the first quarter of fiscal year 2009, as management determined that it
was more likely than not that the related deferred tax assets would be realized.
E. Income Per Share
Basic income per share is computed using the weighted average number of common shares
outstanding. Diluted income per share is computed using the weighted average number of common
shares outstanding and, where dilutive, the assumed exercise of stock options and stock
appreciation rights (“SARs”) and vesting of restricted stock and restricted stock units (using the
treasury stock method). Following is a reconciliation of the shares used in computing basic and
diluted income per share for the three and six months ended September 30, 2008 and 2009 (in
thousands):
F. Geographic Data
The Company operates in only one segment, providing management and technology consulting
services. Even though the Company has different legal entities operating in various countries, its
operations and management are performed on a global basis.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Data regarding net revenue based on the geographic regions in which the Company operates is
presented below for the periods presented in the Condensed Consolidated Statements of Operations
and Comprehensive Income (Loss) (in thousands):
The segregation of revenue by geographic region is based upon the location of the Company’s
legal entity performing the services. The Company had no clients that accounted for over 10% of
revenue during the three and six months ended September 30, 2008, and three and six months ended
September 30, 2009.
Data regarding long-lived assets based on the geographic regions in which the Company operates
is presented below for the periods presented in the Condensed Consolidated Balance Sheets (in
thousands):
G. Dividends
On June 1, 2009, the Company announced that its Board of Directors approved a change in the
Company’s dividend schedule from annual to quarterly. The Board declared the following quarterly
cash dividends during the six months ended September 30, 2009, and annual cash dividend during the
fiscal year ended March 31, 2009:
H. Recent Accounting Pronouncements
Effective April 1, 2009, the Company adopted FASB Staff Position (“FSP”) No. 157-2, “Effective
Date of FASB Statement No. 157,” (codified in ASC 820, “Fair Value Measurements”) which deferred
the implementation of SFAS No. 157 “Fair Value Measurements,” (codified in ASC 820, “Fair Value
Measurements”) for nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at
least annually). The adoption of FSP No. 157-2 did not have a material impact on the Company’s
financial condition or results of operations.
Effective April 1, 2009, the Company adopted FASB Staff Position Emerging Issues Task Force
(“FSP EITF”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities” (codified in ASC 260, “Earnings Per Share”). According to FSP EITF
03-6-1, unvested share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents are “participating securities” and should be included in the computation of
earnings per share using the two-class method as described in SFAS No. 128, “Earnings per Share”
(codified in ASC 260, “Earnings Per Share”). The adoption of FSP EITF 03-6-1 did not have a
material impact on the Company’s financial condition or results of operations.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Effective April 1, 2009, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 165, “Subsequent Events,” (codified in ASC 855, “Subsequent Events”) which establishes
general standards of accounting and disclosure for events that occur after the balance sheet date
but before the financial statements are issued. The adoption of SFAS No. 165 did not have a
material impact on the Company’s financial condition or results of operations.
Effective July 1, 2009, the Company adopted SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles,” (codified in ASC 105,
“Generally Accepted Accounting Principles”) which establishes the FASB Accounting Standards
Codification as the source of authoritative U.S. generally accepted accounting principles to be
applied by nongovernmental entities. The Accounting Standards Codification will supersede all
existing non-SEC accounting and reporting standards. The adoption of SFAS No. 168 did not have an
impact on the Company’s financial condition or results of operations.
I. Fair Value Measurements
ASC 820, “Fair Value Measurements,” defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. Fair value is defined by ASC 820
as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. ASC 820 establishes a three-level
fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires
entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The
three levels of inputs used to measure fair value are as follows:
All of the Company’s financial assets that are measured at fair value on a recurring basis are
measured using Level 1 inputs.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
J. Line of Credit
On July 31, 2009, the Company entered into a credit agreement with Harris N.A. (“Harris Bank”)
to secure a revolving line of credit. Pursuant to the terms of the credit agreement, the Company
may borrow up to $12.5 million. The extensions of credit from Harris Bank may be made in the form
of loans and letters of credit, and certain other credit and financial accommodations. The Company
is required to adhere to certain operating and financial covenants including a minimum net worth of
$30.0 million and, when borrowing against the credit facility, a minimum interest coverage ratio of
1.5 to 1. The minimum interest coverage is measured as the ratio
of earnings before interest
and tax expense to interest expense for the past four fiscal quarters. For the fiscal
quarters ending September 30, 2009 and December 31, 2009, calculation of these amounts shall be
since April 1, 2009.
The annual interest rate under this credit agreement is at the Company’s option, LIBOR plus one
hundred and twenty five basis points or a base rate. The base rate is generally defined as the
greatest of: a) the prime rate, b) the sum of the Federal Funds rate plus one half of one percent,
or c) the one month LIBOR rate plus one hundred basis points. The Company agrees to pay an annual
commitment fee to Harris Bank equal to one-quarter of one percent on the unused credit facility
from August 1, 2009, through the termination date of the agreement. Pursuant to the terms of the
agreement, outstanding letters of credit issued by Harris Bank for the Company cannot exceed $2.5
million. As of September 30, 2009, the Company had letters of credit outstanding totaling $214
thousand. The Harris Bank credit agreement expires July 31, 2011.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
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 and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009.
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and
uncertainties. See “Disclosure Regarding Forward-Looking Statements” below. We use the terms
“we,” “our,” “us,” “the Company” and “Diamond” in this report to refer to Diamond Management &
Technology Consultants, Inc. and its wholly-owned subsidiaries.
Overview
Diamond is a management and technology consulting firm. Clients engage Diamond Management &
Technology Consultants, Inc. to help their companies grow, improve margins, and increase the
productivity of their investments. Working together to design and execute business strategies that
capitalize on changing market forces and technology, Diamond’s consultants are experts in helping
clients attract and retain customers, increase the value of their information, and plan and execute
projects that turn strategy into measurable results.
Diamond’s capabilities are rooted in deep strategy, technology, operations, and industry
experience. The firm’s approach to client service is based on objectivity, collaboration, and an
unwavering commitment to its clients’ best interests.
During the quarter ended September 30, 2009, we generated net revenue of $43.6 million from 61
clients. At September 30, 2009, we employed 486 consultants and 112 operations employees. Our
operations are comprised of six offices in North America, Europe and Asia, which include Chicago,
Hartford, London, Mumbai, New York City and Washington, D.C.
Our revenue is driven by our ability to secure new client engagements, maintain existing
client engagements and develop and implement solutions that add value to our clients. Our revenue
is comprised of professional fees for services rendered to our clients plus reimbursable expenses.
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. Our services are performed in
accordance with the terms of the client engagement agreement. We bill our clients for these
services on a semi-monthly, monthly or milestone basis in accordance with the terms of the client
engagement agreement. Accordingly, we recognize amounts due from our clients as the related
services are rendered and revenue is earned even though we may be contractually required to bill
for those services at an earlier or later date than the date services are provided. 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. We also
defer a portion of the revenue from each client engagement to cover the estimated costs that are
likely to be incurred subsequent to targeted project completion. We refer to this as “project
run-on.” This portion of the project revenue is reflected in deferred revenue and is calculated
based on our historical project run-on experience. While we have been required to make revisions
to our clients’ deliverables and to incur additional project costs in rare instances, to date there
have been no such revisions that have had a material adverse effect on our operating results.
Approximately 90% of our revenues and expenses are denominated in the U.S. Dollar, which
limits the impact of foreign currency exchange rate fluctuations on consolidated revenues and
expenses. Approximately 10% of our revenues and expenses are generated from international
transactions, which are denominated in foreign currencies. The most common foreign currencies that
we operate under are the British Pound Sterling, the Indian Rupee, and the Euro.
In the fourth quarter of fiscal year 2009, the Company initiated a tender offer that was
completed on March 9, 2009, (“Tender Offer”) which provided employees the opportunity to exchange
certain previously granted but unvested Restricted Stock Units (“Eligible RSUs”) for Diamond Common
Stock at an exchange ratio of one Eligible RSU for 0.80 shares of Common Stock. The shares are
subject to a restriction on sale or transfer, with such restrictions lapsing over a minimum period
of approximately six months and up to a maximum period of approximately four years, depending on
the level of the
employee. As a result of the Tender Offer, Diamond issued 1.2 million shares of Common Stock after
withholding approximately 0.5 million shares to pay employee taxes incurred on the value of the
stock received in the exchange, and recorded a $16.7 million pre-tax charge for stock-based
compensation expense in the quarter ended March 31, 2009. Of the $16.7 million pre-tax charge,
$14.3 million was attributed to project personnel costs, impacting gross margin, with the remaining
$2.4 million attributed to other operating expenses.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
The largest portion of our operating expenses consists of project personnel costs. Project
personnel costs before reimbursable expenses consist of payroll costs, variable incentive
compensation, stock-based compensation expense, and related benefits expense associated with our
consulting staff. Other expenses included in project personnel costs are travel, third-party vendor
payments and non-billable costs associated with the delivery of services to our clients. Net
revenue less project personnel costs before reimbursable expenses (“gross margin”) is considered by
management to be an important measure of our operating performance and is driven largely by the
chargeability of our consultant base, the prices we charge to our clients, project personnel
compensation costs, and the level of non-billable costs associated with securing new client
engagements and developing new service offerings.
Gross margin increased $0.9 million, or 9%, in the second quarter of fiscal year 2010 compared
to the second quarter of fiscal year 2009 primarily due to a $3.1 million increase in net revenue
resulting from an overall improvement in the economic environment, partially offset by an increase
in project personnel costs before reimbursable expenses as discussed later under “Project Personnel
Costs”. Our practice headcount was 486 at September 30, 2009, compared to 495 at September 30,
2008. Our annualized net revenue per practice professional was $376 thousand for the second
quarter of fiscal year 2010 compared to $336 thousand for the second quarter of fiscal year 2009.
The increase from the second quarter of fiscal year 2009 is attributable to increased revenue
resulting from improved chargeability and reduced discounts.
Our other recurring operating expenses are comprised of 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, management and administrative
support, and stock-based compensation expense earned by personnel working in these functional
areas. Professional development and recruiting expenses consist primarily of recruiting and
training course 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 including finance, information technology, human resources, facilities
administration and support (including the renting of office space) and legal services.
Management believes that income from operations, which is gross margin less operating
expenses, is an important measure of our operating performance. Income from operations increased
88% in the second quarter of fiscal year 2010 compared to the second quarter of fiscal year 2009
primarily due to the increase in gross margin as discussed above as well as a decrease in other
operating expenses. The decrease in other operating expenses was mainly due to decreased marketing
expenditures due to our DiamondExchange® event held in the second quarter of fiscal year 2009 that
did not occur in the second quarter of fiscal year 2010, a decrease in stock-based compensation
expense resulting from lower overall outstanding equity awards due to the completion of the Tender
Offer in the fourth quarter of the prior fiscal year, and lower campus recruiting costs, partially
offset by an increase in variable compensation expense.
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 aligned with our revenue level. In addition, we regularly 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 that we provide could result in lower
utilization of our professionals than we planned. In addition, because most of our client
engagements are terminable by our clients without penalty, an unanticipated termination of a client
project could require us to maintain underutilized employees. While professional staff levels must
be adjusted to reflect active engagements, we must also maintain a sufficient number of senior
professionals to oversee existing client engagements and participate in our sales efforts to secure
new client assignments. Our utilization rate
for the second quarter of fiscal year 2010 increased to 76% compared to 66% in the second
quarter of fiscal year 2009.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
Free cash flow was $14.4 million for the six months ended September 30, 2009. Management
believes that the free cash flow metric, which is a non-GAAP measure, defined as net cash provided
by operating activities ($15.0 million) net of capital expenditures ($0.7 million), provides a
consistent metric from which the performance of the business may be monitored.
Disclosure Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act relating to our
operations, results of operations and other matters that are based on our current expectations,
estimates and projections, based on information currently available to us, and we assume no
obligation to update any forward-looking statements. Words such as “expects,” “intends,” “plans,”
“projects,” “believes,” “estimates” and similar expressions are used to identify these
forward-looking statements. These statements are not guarantees of future performance and involve
risks and uncertainties that are difficult to predict. Forward-looking statements are based upon
assumptions as to future events that may not prove to be accurate. Actual outcomes and results may
differ materially from what is expressed or forecast in these forward-looking statements. For a
discussion of some of the risks and uncertainties that could cause actual outcomes and results to
materially differ, please see the section entitled “Risk Factors” to this Quarterly Report on Form
10-Q.
Recent Accounting Pronouncements
See Note (H) to the condensed consolidated financial statements for a discussion of recent
accounting pronouncements.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in conformity with U.S. generally
accepted accounting principles. As such, we are required to make certain estimates, judgments and
assumptions that we believe are reasonable based upon the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods presented. For a
description of the significant accounting policies which we believe are the most critical to aid in
understanding and evaluating our reported financial position and results, refer to our Annual
Report on Form 10-K for the fiscal year ended March 31, 2009.
Revenue
Net revenue increased $3.1 million, or 8%, for the three months ended September 30, 2009, as
compared to the same period in the prior year. Net revenue increased $2.2 million, or 3%, for the
six months ended September 30, 2009, as compared to the same period in the prior fiscal year.
We served 61 clients during the quarter ended September 30, 2009, compared to 64 clients
during the same period in the prior fiscal year. Average net revenue per client increased to $0.7
million during the quarter ended September 30, 2009, compared to $0.6 million during the same
period in the prior fiscal year. As part of our growth effort, we continue to focus on expanding
our current client base as well as increasing current revenue streams by further penetrating
existing clients.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
Revenue from new clients (defined as clients that generated revenue in the current period but
were absent from the prior period) accounted for 1% of revenue during the quarter ended September
30, 2009, compared to 5% during the same period in the prior fiscal year. For the quarters ended
September 30, 2008 and 2009, billed fee revenue and new client revenue mix by the industries that
we serve were as follows:
We served 69 clients during the six months ended September 30, 2009, compared to 79 clients
during the same period of the prior fiscal year. Average net revenue per client increased to $1.2
million during the six months ended September 30, 2009, compared to $1.0 million during the same
period of the prior fiscal year. As part of our growth effort, we continue to focus on expanding
our current client base as well as increasing current revenue streams by further penetrating
existing clients.
Revenue from new clients (defined as clients that generated revenue in the current period but
were absent from the prior period) accounted for 3% of revenue during the six months ended
September 30, 2009, compared to 6% during the same period of the prior fiscal year. For the six
months ended September 30, 2008 and 2009, billed fee revenue and new client revenue mix by the
industries that we serve were as follows:
Operating Expenses
Project Personnel Costs
Project personnel costs before reimbursable expenses increased $2.1 million, or 7%, during the
quarter ended September 30, 2009, as compared to the same period in the prior fiscal year. This
increase was primarily due to higher variable compensation expense, partially offset by lower
average payroll and benefits expense due to a decrease in headcount and an increase in new hires as
a percentage of the total project personnel staff during the quarter, and a decrease in ongoing
project personnel stock-based compensation expense resulting from lower overall outstanding equity
awards due to the completion of the Tender Offer in the fourth quarter of the prior fiscal year.
As a percentage of net revenue, project personnel costs before reimbursable expenses remained
consistent at 73% during the quarter ended September 30, 2009, compared to the same period in the
prior fiscal year.
Project personnel costs before reimbursable expenses increased $0.3 million, or 1%, during the
six months ended September 30, 2009, as compared to the same period in the prior fiscal year. This
increase was primarily due to increased variable compensation partially offset by lower average
payroll and benefits expense due to a decrease in headcount and an increase in new hires as a
percentage of the total project personnel staff during the quarter, and a decrease in ongoing
project personnel stock-based compensation expense resulting from lower overall outstanding equity
awards due to the completion of the Tender Offer in the fourth quarter of the prior fiscal year.
As a percentage of net revenue, project personnel costs before reimbursable expenses decreased to
74% during the quarter ended September 30, 2009, compared to 76% in the same period in the prior
fiscal year. This decrease was primarily due to the 3% increase in net revenue and the project
personnel cost reductions noted above.
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The following table summarizes practice personnel data for the quarters ended September 30,
2008 and 2009:
Professional Development and Recruiting
Professional development and recruiting expenses decreased $0.3 million, or 20%, during the
quarter ended September 30, 2009, as compared to the same period in the prior fiscal year. The
decrease was primarily due to lower training costs attributable to firm-wide expense management
initiatives. Professional development and recruiting expenses decreased $1.9 million, or 48%,
during the six months ended September 30, 2009, as compared to the same period in the prior fiscal
year primarily due to lower training costs due to firm-wide expense management initiatives and
costs incurred in the first quarter of fiscal year 2009 for a firm-wide training event. The costs
incurred to recruit consultants include travel and lodging costs for our consultants and recruiting
staff, travel expense reimbursements for candidates, costs related to our summer intern program and
any sourcing fees related to non-campus searches.
Marketing and Sales
Marketing and sales expenses decreased $0.8 million, or 61%, during the quarter ended
September 30, 2009, as compared to the same period in the prior fiscal year. Marketing and sales
expenses decreased $0.9 million, or 46%, during the six months ended September 30, 2009, as
compared to the same period in the prior fiscal year. These decreases were primarily due to costs
incurred for a DiamondExchange® event in the quarter ended September 30, 2008 that did not occur in
the quarter ended September 30, 2009.
Management and Administrative Support
Management and administrative support expenses did not change significantly during the quarter
ended September 30, 2009, as compared to the same period in the prior fiscal year and the six month
period ended September 30, 2009, as compared to the same period in the prior fiscal year. Variable
compensation expense increased in the quarter and six months ended September 30, 2009, offset by
decreased stock-based compensation expense resulting from lower overall outstanding equity awards
due to the completion of the Tender Offer in the fourth quarter of the prior fiscal year and the
effect of firm-wide expense management initiatives.
Other Income, Net
Other income, net decreased $0.1 million, or 88%, during the quarter ended September 30, 2009,
as compared to the same period in the prior fiscal year. Other income, net decreased $0.3 million,
or 101%, during the six months ended September 30, 2009, as compared to the same period in the
prior fiscal year. These decreases were primarily due to a decrease in interest income resulting
from lower interest rate yields in the quarter and six months ended September 30, 2009, compared to
the same periods in the prior fiscal year.
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Income Tax Expense
We recorded income tax expense of $1.9 million, which represents a 51% effective income tax
rate, in the quarter ended September 30, 2009, compared to income tax expense of $1.6 million, a
75% effective income tax rate, in the same period in the prior fiscal year. The effective tax rate
decreased in the quarter ended September 30, 2009, due to an increase in U.S. income relative to
the corresponding period in the prior fiscal year and international income in the current quarter,
compared to international losses in the same period in the prior fiscal year. The international
income in the current quarter and loss in the same period in the prior fiscal year occurred in
international jurisdictions where, due to ongoing losses and valuation allowances on the related
international deferred tax assets, we currently do not recognize a tax benefit on international
losses or record tax expense on international income. In the prior fiscal quarter ended September
30, 2008, we recorded $0.3 million of income tax expense related to a non-cash foreign exchange
gain which is taxable in the international jurisdiction, but which is not recognized in the
condensed consolidated financial statements. Excluding this $0.3 million tax expense, the
effective income tax rate would have been 61% for the quarter ended September 30, 2008. These
items caused a significant difference between the effective tax rate and the statutory tax rate.
We recorded income tax expense of $2.9 million, a 52% effective income tax rate, in the six
months ended September 30, 2009, compared to income tax benefit of $0.2 million, a negative 18%
effective income tax rate, in the same period in the prior fiscal year. The income tax benefit in
the prior year was due to the reversal of a $1.5 million valuation allowance in the first quarter
of the prior fiscal year as discussed below, partially offset by $0.3 million income tax expense
related to the non-cash foreign exchange gain in the second quarter of fiscal year 2009 as
discussed above.
Excluding the reversal of the valuation allowance and the tax expense on the foreign exchange
gain, the effective tax rate for the six months ended September 30, 2008, was 94%, as compared to
52% in the current fiscal year. The decrease in the effective tax rate in the six months ended
September 30, 2009, as compared to the same period in the prior fiscal year was primarily related
to a decrease in international losses and an increase in U.S. income relative to the corresponding
period in the prior fiscal year.
We have deferred tax assets which have arisen primarily as a result of temporary differences
between the tax bases of assets and liabilities and their related amounts in the financial
statements as well as operating losses incurred primarily in fiscal year 2002 and fiscal year 2003.
Deferred tax assets decreased $6.8 million in the six months ended September 30, 2009 as compared
to the fiscal year ended March 31, 2009, primarily attributable to the timing of tax deductions for
stock-based compensation expense related to the completion of the fourth quarter fiscal year 2009
tender offer. Of the $6.8 million decrease, $6.1 million represents an income tax deduction for
book purposes in excess of the deduction for tax purposes and is reflected within the operating
section of the condensed consolidated statement of cash flows for the six months ended September
30, 2009 as a decrease in “Deferred income taxes” and a corresponding decrease in “Income taxes
payable.”
ASC 740, “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
any valuation allowance recorded against the gross deferred tax assets. As of September 30, 2009,
the remaining valuation allowance against deferred tax assets was $6.6 million, which is
attributable to net operating loss carryforwards in foreign and certain state jurisdictions, as
well as unrealized U.S. federal capital loss carryforwards.
In May 2008, we received a letter from the U.K. tax authorities confirming a correction to the
characterization of a U.K. subsidiary’s losses for the fiscal years ended March 31, 2002 and 2003.
Based on this determination, we implemented a tax planning strategy to utilize the U. K.
subsidiary’s net operating loss carryforwards, which resulted in the reversal of a $1.5 million
international tax valuation allowance in the first quarter of fiscal year 2009, as management
determined that it was more likely than not that the related deferred tax assets would be realized.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
Discontinued Operations
On July 31, 2006, we sold a portion of our international operations which included consulting
operations in France, Germany, Spain, Brazil, and the United Arab Emirates as part of a stock sale
agreement. Prior to the stock sale, as a result of a tax inspection of the former Spanish
subsidiary for the tax years 1999 to 2000, we provided a bank guarantee in the amount of 4.3
million Euros, secured by restricted cash, with the Spanish taxing authority in order to appeal
such authority’s assessment. In accordance with the terms of the transaction, we agreed to
indemnify the buyer for any liability related to this Spanish tax inspection (“tax indemnification
obligation”). The terms of the guarantee require that it be renewed annually until the results of
the appealed tax inspection are settled. At the time of the transaction, such settlement was not
expected before a period of approximately eight years.
As discussed in Note (C) to the condensed consolidated financial statements, we hold shares of
Diamond’s Common Stock beneficially owned by third parties in an escrow account for the benefit of
recovering from the third parties a portion of any payments made by us under the tax
indemnification obligation from the sale transaction. As a result of the favorable ruling on a
portion of the assessments that were appealed, we no longer expect to recover certain of these
shares and intend to release such shares as part of the conclusion of a portion of the tax
assessments. The net tax indemnification obligation reported on the Condensed Consolidated Balance
Sheet is comprised of the current accrual net of the current value of the escrow shares that we
expect to recover. The change in the value of the recoverable escrow shares due to fluctuations in
the value of our share price is reflected in income from discontinued operations on the Condensed
Consolidated Statements of Operations and Comprehensive Income.
Liquidity and Capital Resources
The following table describes our liquidity and financial position as of September 30, 2008
and 2009:
Over the past several years, our principal sources of liquidity have consisted of our
existing cash and cash equivalents, cash flow from operations, and proceeds received upon the
exercise of stock options by our employees. These internal sources of liquidity have been adequate
to support our operating and capital expenditure requirements as well as to provide the funding
needed for our stock repurchase program and dividend payments. We anticipate that these sources
will provide sufficient liquidity to fund our operating, capital, stock repurchase program and
Common Stock dividend requirements at least through fiscal year 2011.
Our cash is invested in highly-liquid, short-term investments with little to no principal
risk. These investments must be rated either AAA or A1/P1 by Standard & Poors, Moody’s or Fitch,
Inc. We do not invest in nonconsolidated conduits, collateralized debt obligations, auction-rate
securities, or structured investment vehicles, and we do not have any plans to invest in such
investments in the foreseeable future.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
On July 31, 2009, the Company entered into a credit agreement with Harris N.A. (“Harris Bank”)
to secure a revolving line of credit. Pursuant to the terms of the credit agreement, the Company
may borrow up to $12.5 million. The extensions of credit from Harris Bank may be made in the form
of loans and letters of credit, and certain other credit and financial accommodations. The Company
is required to adhere to certain operating and financial covenants including a minimum net worth of
$30.0 million and, when borrowing against the credit facility, a minimum interest coverage ratio of
1.5 to 1. The minimum interest coverage is measured as the ratio
of earnings before interest and tax expense to interest expense for the past four fiscal quarters.
For the fiscal quarters ending September 30, 2009 and December 31, 2009, calculation of these
amounts shall be since April 1, 2009.
The annual interest rate under this credit agreement is at the Company’s option, LIBOR plus
one hundred and twenty five basis points or a base rate. The base rate is generally defined as the
greatest of: a) the prime rate, b) the sum of the Federal Funds rate plus one half of one percent,
or c) the one month LIBOR rate plus one hundred basis points. The Company agrees to pay an annual
commitment fee to Harris Bank equal to one-quarter of one percent on the unused credit facility
from August 1, 2009, through the termination date of the agreement. Pursuant to the terms of the
agreement, outstanding letters of credit issued by Harris Bank for the Company cannot exceed $2.5
million. As of September 30, 2009, the Company had letters of credit outstanding totaling $214
thousand. The Harris Bank credit agreement expires July 31, 2011.
Cash Flows from Operating Activities
During the six months ended September 30, 2009, net cash provided by operating activities was
$15.0 million. This primarily resulted from the following activities (amounts in millions):
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
Our billings for the three and six months ended September 30, 2009, totaled $52.5 million and
$98.0 million, respectively, compared to $46.9 million and $91.0 million, respectively, for the
three and six months ended September 30, 2008. The increase in billings is due to an increase in
revenue and reimbursable expenses primarily due to improving
economic conditions. These amounts include value added tax (“VAT”) and billings to clients
for reimbursable expenses (which are not included in net revenue). Our gross accounts receivable
balance of $17.2 million at September 30, 2009, represented 30 days of billings for the quarter
ended September 30, 2009. At September 30, 2008, the gross receivable balance was $17.9 million
which represented 34 days of billings for the quarter ended September 30, 2008. The decrease in
accounts receivable at September 30, 2009, as compared to September 30, 2008, was principally due
to more efficient collections during the quarter ended September 30, 2009. An increase or decrease
in accounts receivable and days of billings in accounts receivable between periods is primarily the
result of the timing of the collection of payments and issuance of invoices, and therefore, we do
not believe it is indicative of a trend in the business.
Cash Flows from Investing Activities
Cash used in investing activities was $0.7 million for the six months ended September 30,
2009, primarily related to capital expenditures which consisted of leasehold improvements,
purchases of computer hardware, and software licenses.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
Cash Flows from Financing Activities
Cash used in financing activities was $6.3 million for the six months ended September 30,
2009, resulting from the payment of common stock cash dividends of $3.8 million, the repurchase of
common stock totaling $3.1 million, and the payment of employee withholding taxes from equity
transactions of $0.3 million. These were offset by $0.9 million in proceeds from option exercises
and the issuance of common stock in connection with the Employee Stock Purchase Plan.
Contractual Obligations
There have been no material changes to the table presented in our Annual Report on Form 10-K
for the fiscal year ended March 31, 2009.
Contingencies
From time to time, we undergo various tax examinations and audits related to our holding
company and its subsidiaries. As a result of a tax inspection of a former Spanish subsidiary for
the tax years 1999 to 2000, on January 3, 2006, we provided a bank guarantee in the amount of 4.3
million Euros with the Spanish taxing authority in order to appeal such authority’s assessment.
The Spanish subsidiary was sold on July 31, 2006, as discussed in Note (C) to the condensed
consolidated financial statements, and in accordance with the terms of the sale transaction, we
agreed to indemnify the buyer for any liability related to this Spanish tax inspection (“tax
indemnification obligation”). The terms of the guarantee require that it be renewed annually until
the results of the appealed tax inspection are settled. At the time of the transaction, such
settlement was not expected before a period of approximately eight years.
During the fourth quarter of fiscal year 2008, the Spanish tax authorities ruled in our favor
on a portion of the assessments that were being appealed. The remaining assessments under appeal
are based on the same merits and we believe that the tax authorities will rule in our favor on
those appeals. As a result, we reversed $4.6 million of the indemnification obligation during the
fourth quarter of fiscal year 2008. In addition, we also obtained a release in June 2008 of $3.1
million of the restricted cash related to the portion of the assessments that had received a
favorable ruling. The remaining $4.1 million classified as restricted cash as of September 30,
2009, secures the remaining bank guarantee. For the assessments that are still under appeal, the
maximum potential amount of future payments under the tax indemnification obligation is
approximately 2.8 million Euros, assuming the full amount assessed is sustained at the end of the
appeals process. We believe that we are adequately reserved for any potential exposure related to
this assessment based upon our current accruals which were determined based on advice from our
third-party tax advisors and based upon guidance set forth in ASC 460, “Guarantees.” We hold
shares of Diamond’s Common Stock beneficially owned by third parties in an escrow account for the
benefit of recovering from the third parties a portion of any payments made by the Company under
the tax indemnification obligation from the sale transaction. As a result of the favorable ruling
on a portion of the assessments that were appealed,
we no longer expect to recover certain of these shares and intend to release the escrow shares
related to a portion of the tax indemnification obligation.
Off Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements that would have a material current or
future impact on our financial condition or results of operations.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
Treasury Stock Transactions
The Board has authorized, from time to time, the repurchase of the Company’s Common Stock in
the open market or through privately negotiated transactions. During the period beginning with the
inception of the Buy-back Program in October 1998 until the meeting of directors on September 14,
2004, the Board had authorized the repurchase of up to 6.0 million shares, of which 5.3 million
shares were repurchased at an aggregate cost of $70.5 million as of September 14, 2004. At the
meeting of directors on September 14, 2004, the Board restated the aggregate amount of repurchases
that could be made under the Buy-back Program to be based on a maximum dollar amount rather than a
maximum number of shares. The authorization approved the repurchase of shares under the Buy-back
Program having an aggregate market value of no more than $25.0 million. In April 2005, July 2006,
March 2007 and February 2008, the Board authorized the repurchase of an additional $50.0 million,
$35.0 million, $50.0 million and $25.0 million, respectively, of shares of the Company’s
outstanding Common Stock under the existing Buy-back Program, resulting in an aggregate market
value of up to $185.0 million in addition to the 5.3 million shares repurchased prior to September
14, 2004. In the absence of an additional buy-back authorization from the Board, the Buy-back
Program expires when the existing authorized amounts for share repurchases has been expended.
During the quarter ended September 30, 2009, the Company repurchased approximately 0.5 million
shares at an average price of $6.08. As of September 30, 2009, the amount available for repurchase
under the Buy-back Program was $23.7 million.
Summary
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 year 2011. 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, or at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
This information is set forth in the Company’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2009. There have been no material changes to the Company’s market risk during the
six months ended September 30, 2009.
Item 4. Controls and Procedures
(a) Controls and Procedures. Our senior management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly
report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and procedures are effective
such that information relating to the Company (i) is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosures.
(b) Changes in Internal Control Over Financial Reporting. There have not been any changes in our
internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in several legal claims or proceedings concerning matters arising in the
ordinary course of business. However, we do not expect that any of these matters, individually or
in the aggregate, will have a material effect or impact on our results of operation or financial
condition.
Item 1A. Risk Factors
There have been no other material changes to our Risk Factors as reported in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Board has authorized, from time to time, the repurchase of the Company’s Common Stock in
the open market or through privately negotiated transactions. During the period beginning with the
inception of the Buy-back Program in October 1998 until the meeting of directors on September 14,
2004, the Board had authorized the repurchase of up to 6.0 million shares, of which 5.3 million
shares were repurchased at an aggregate cost of $70.5 million as of September 14, 2004. At the
meeting of directors on September 14, 2004, the Board restated the aggregate amount of repurchases
that could be made under the Buy-back Program to be based on a maximum dollar amount rather than a
maximum number of shares. The authorization approved the repurchase of shares under the Buy-back
Program having an aggregate market value of no more than $25.0 million. In April 2005, July 2006,
March 2007 and February 2008, the Board authorized the repurchase of an additional $50.0 million,
$35.0 million, $50.0 million and $25.0 million, respectively, of shares of the Company’s
outstanding Common Stock under the existing Buy-back Program, resulting in an aggregate market
value of up to $185.0 million in addition to the 5.3 million shares repurchased prior to September
14, 2004. In the absence of an additional buy-back authorization from the Board, the Buy-back
Program expires when the existing authorized amounts for share repurchases has been expended.
During the quarter ended September 30, 2009, the Company repurchased approximately 0.5 million
shares at an average price of $6.08. As of September 30, 2009, the amount available for repurchase
under the Buy-back Program was $23.7 million.
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DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
On September 22, 2009, the Company held its annual meeting of stockholders at its office in
Chicago, Illinois. There were three proposals for which the stockholders considered and cast votes.
First, the stockholders voted to re-elect Donald R. Caldwell, Michael H. Moskow, and Samuel K.
Skinner to serve as Class I members of the Board of Directors for three-year terms expiring at the
2012 annual meeting of stockholders. The members of the Board of Directors are divided into three
approximately equal classes, one class of which is elected each year for a three-year term to
succeed the directors whose terms are expiring. Class II Directors whose terms of office continue
until 2010 include Melvyn E. Bergstein, Pauline A. Schneider, and John J. Sviokla. Class III
Directors whose terms of office continue until 2011 include Edward R. Anderson, Adam J. Gutstein,
and Michael E. Mikolajczyk. There are no other differences in director rights.
Second, the stockholders voted to ratify the appointment of KPMG LLP by the Audit Committee as
the Company’s independent registered auditors for fiscal year 2010 (ending March 31, 2010).
Lastly, the stockholders voted to amend the Company’s Restated Certificate of Incorporation to
decrease the Company’s number of authorized shares of capital stock.
Pursuant to the applicable laws and regulations governing the Company’s stockholder meeting,
abstentions and broker non-votes were not counted for purposes of proposal 1. For proposals 2 and
3, abstentions were counted as votes against and broker non-votes were not counted.
The vote on each of the three proposals is set forth below.
1. Election of Directors: (requires plurality of the votes cast)
2. Ratification of appointment of KPMG LLP as independent registered auditors: (requires
majority of the votes present)
3. Decrease in number of authorized shares of capital stock: (requires two-thirds of the
outstanding common stock)
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Exhibits
The following is a list of exhibits required by Item 601 of Regulation S-K filed as part of
this Form 10-Q. Where so indicated, exhibits which were previously filed are incorporated herein by
reference. For exhibits incorporated by reference, the location of the exhibit in the previous
filing is indicated in parentheses.
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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.
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EXHIBIT INDEX
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