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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 29, 1997
---------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ___________________to____________________
Commission File Number 0-28192
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THE REGISTRY, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2920563
- ------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
189 WELLS AVENUE
NEWTON, MA 02159
(617)527-6886
(Address, including zip code, and telephone number, including area code
of registrant's principal executive offices)
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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES ___X___ NO ______
As of May 2, 1997, there were 14,123,678 shares of Common Stock, no par value,
outstanding.
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1
THE REGISTRY, INC.
INDEX TO FORM 10-Q
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at 3
March 29, 1997 and June 29, 1996
Condensed Consolidated Statement of
Operations for the three and nine months 4
ended March 29, 1997 and March 30, 1996
Condensed Consolidated Statement of Cash
Flows for the nine months ended March 29, 5
1997 and March 30, 1996
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION 14
SIGNATURES 14
EXHIBIT INDEX 16
This Quarterly Report on Form 10-Q contains forward-looking
statements. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. The important factors discussed below under the caption "Certain
Factors That May Affect Future Operating Results," among others, could cause
actual results to differ materially from those indicated by forward-looking
statements made herein and presented elsewhere by management from time to time.
2
THE REGISTRY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
MARCH 29, JUNE 29,
1997 1996
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 23,744 $13,707
Marketable securities 11,550 -
Accounts receivable, net 63,564 42,439
Notes receivable from related parties 170 82
Deferred income taxes 1,223 47
Other current assets 793 924
------------- -------------
Total current assets 101,044 57,199
Fixed assets, net 9,792 6,979
Notes receivable from officers 100 60
Other assets 15,994 917
Deferred income taxes 470 35
------------- -------------
Total assets $127,400 $65,190
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ - $ 1,885
Current portion of long-term debt 1,929 421
Accounts payable 1,796 2,652
Accrued salaries and wages 8,477 4,946
Other accrued liabilities 7,798 5,401
Accrued income taxes 1,879 2,082
Deferred income taxes 473 89
------------- -------------
Total current liabilities 22,352 17,476
Deferred income taxes 811 673
Long-term debt 2,456 2,652
Commitments and contingencies
Stockholders' equity
Preferred stock - 1,916
Common stock 4,702 179
Additional paid-in capital 84,353 35,434
Notes receivable from stockholders (226) (226)
Deferred stock compensation - (179)
Retained earnings 12,959 7,265
Currency translation adjustment (7) -
------------- -------------
Total stockholders' equity 101,781 44,389
------------- -------------
$127,400 $65,190
============= =============
The accompanying notes are an integral part of these financial statements.
3
THE REGISTRY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
MARCH 29, 1997 MARCH 30, 1996 MARCH 29, 1997 MARCH 30, 1996
Revenue $86,518 $57,296 $231,038 $151,828
Cost of revenue 63,229 42,040 167,671 111,434
---------------- -------------- -------------- --------------
23,289 15,256 63,367 40,394
Selling, general and administrative
expenses 16,890 12,346 46,509 32,326
Acquisition-related expenses - - 5,144 -
---------------- -------------- -------------- --------------
Income from operations 6,399 2,910 11,714 8,068
Interest and other income (expense), net (179) (598) 1,440 (1,500)
---------------- -------------- -------------- --------------
Income before taxes 6,220 2,312 13,154 6,568
Income tax provision 2,581 1,333 6,840 2,014
---------------- -------------- -------------- --------------
Net income $ 3,639 $ 979 $ 6,314 $ 4,554
---------------- -------------- -------------- --------------
Net income per share $0.26
Weighted average common and
common equivalent shares 14,214
Pro forma information
Income before taxes $ 2,312 $ 13,154 $ 6,568
Pro forma income tax provision 972 7,768 2,840
-------------- -------------- --------------
Pro forma net income $ 1,340 $ 5,386 $ 3,728
-------------- -------------- --------------
Pro forma net income per
share $0.12 $0.39 $0.34
-------------- -------------- --------------
Weighted average common and
common equivalent shares 10,905 13,804 10,880
-------------- -------------- --------------
The accompanying notes are an integral part of these financial statements.
4
THE REGISTRY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
MARCH 29, 1997 MARCH 30, 1996
Cash flows from operating activities:
Net income $ 6,314 $ 4,554
Adjustments to reconcile net income to
net cash provided by (used for) operating
activities
Depreciation and amortization 1,558 919
Amortization of deferred stock
compensation 179 -
Provision for losses on accounts
receivable 514 248
Deferred income taxes (597) 1,100
Increase in accounts receivable (16,214) (6,747)
Decrease in other current assets 342 8
Increase in other assets (368) (109)
Decrease in accounts payable (1,801) (375)
Increase in accrued expenses 2,043 828
Increase in accrued salaries and wages 1,880 2,578
Increase in accrued income taxes 77 1,086
------------ ------------
Net cash provided by (used for)
operating activities (6,073) 1,890
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Cash flows from investing activities
Cash disbursed for acquisitions (16,168) -
Increase in notes receivable from
officers (40) (365)
Repayment of notes receivable from
officers - 1,060
Increase in notes receivable from
related parties (71) -
Purchase of marketable securities (11,550) -
Purchases of fixed assets (3,388) (1,729)
------------ ------------
Net cash used for investing
activities (31,217) (1,034)
------------ ------------
Cash flows from financing activities
Cash proceeds from issuance of common
stock 49,127 -
Cash proceeds from reissuance of
treasury stock 1,921 -
Cash proceeds from exercise of stock
options 727 -
Cash proceeds from stock purchase plan 406 -
Cash payments to repurchase common
stock (2,000) -
Net repayments on line of credit (2,161) 2,675
Principal payments on long-term debt (529) (1,902)
Proceeds from issuance of long-term debt 378 2,160
Distributions (540) (1,931)
------------ ------------
Net cash provided by
financing activities 47,329 1,002
------------ ------------
Effect of exchange rate changes on cash
and cash equivalents (2) -
Elimination of duplicated activity
from July to December due to
subsidiaries' change in fiscal
year end (see Note 2) - (855)
------------ ------------
Net increase in cash and cash
equivalents 10,037 1,003
Cash and cash equivalents, beginning of
period 13,707 1,804
------------ ------------
Cash and cash equivalents, end of period $ 23,744 $ 2,807
------------ ------------
The accompanying notes are an integral part of these financial statements.
5
THE REGISTRY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
`
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Registry, Inc. ("TRI" or "the Company") is an information technology
("IT") professional services firm providing IT consultants on a contract
basis to organizations nationwide with complex IT operations in a broad
range of industries. As of March 29, 1997, offices are maintained in 18
states and two European locations.
Basis of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of TRI and America's Registry, Inc.("America's Registry") which,
prior to January 1, 1996, were owned and controlled by a common sole
stockholder who serves as an officer of the Company. Effective January 1,
1996, TRI, through a wholly-owned subsidiary, acquired all of the
outstanding shares of common stock of America's Registry and the
stockholder of America's Registry received an additional 5,333,333 shares
of the common stock of TRI. The accompanying financial statements also
include the accounts of TRI's wholly owned subsidiaries subsequent to their
acquisition (see Note 3) as well as the accounts of a real estate trust
which is substantially controlled by the Company, subsequent to the
renegotiation of certain lease terms on September 19, 1995. All
intercompany balances and transactions have been eliminated. On November
26 and 27, 1996, the Company completed the acquisitions of Application
Resources, Inc. ("ARI") and Shamrock Computer Resources, Ltd. ("SCR"),
respectively (see Note 2). These transactions have been accounted for as
poolings-of-interests and, therefore, the accompanying financial statements
have been retroactively restated to reflect the financial position and
results of operations and cash flows of the Company, ARI, and SCR for all
periods presented.
Interim Financial Statements
The condensed consolidated balance sheet at March 29, 1997 and condensed
consolidated statements of operations and of cash flows for the three and
nine month periods ended March 29, 1997, and March 30, 1996 are unaudited
and, in the opinion of management, include all adjustments (consisting of
normal and recurring adjustments) necessary for a fair presentation of
results for these interim periods. Certain information and footnote
disclosures normally included in the Company's annual consolidated
financial statements have been condensed or omitted. The results of
operations for the interim period ended March 29, 1997 are not necessarily
indicative of the results to be expected for the entire year. The balance
sheet at June 29, 1996 contained herein has been derived from the audited
consolidated financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. These interim condensed
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended June 29, 1996
which are contained in the Company's 1996 Annual Report on Form 10-K and
the Company's Registration Statement on Form S-1 as amended on January 30,
1997.
Results of operations for the nine months ended March 29, 1997 and March
30, 1996 are for 39 weeks and 40 weeks, respectively.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current period presentation.
Pro forma income information
The pro forma information is presented as if the Company's America's
Registry and SCR subsidiaries, previously S corporations for tax purposes,
each had been a C corporation subject to federal and state income taxes
throughout the periods presented.
6
THE REGISTRY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro forma net income per share
Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of common shares outstanding and
common equivalent shares which may be issuable upon exercise of outstanding
stock options, computed using the treasury stock method. The weighted
average number of common and common equivalent shares outstanding also
includes common shares issuable upon conversion of ARI's preferred stock,
using the exchange ratio of 0.274428 shares of TRI Common Stock for each
share of ARI stock. Pursuant to Securities and Exchange Commission's Staff
Accounting Bulletin No. 83, stock options granted during the twelve months
prior to the initial filing of the Registration Statement on Form S-1
covering the Company's initial public offering have been included in the
calculation of common equivalent shares using the treasury stock method for
the three and nine months ended March 30, 1996, as if they were
outstanding as of the beginning of the period presented.
Translation of Foreign Currencies
The functional currency for the Company's European subsidiary is the local
currency. Assets and liabilities are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense
items and cash flows are translated at average exchange rates for the
period. Cumulative net translation adjustments are included in
stockholders' equity. Gains and losses resulting from foreign currency
transactions, not significant in amount, are included in the results of
operations as other income (expense).
Recently Enacted Accounting Standard
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 specifies modifications to the calculation of
earnings per share from that currently used by the Company. Under SFAS 128,
"basic earnings per share" will be calculated based upon the weighted
average number of common shares actually outstanding, and "diluted earnings
per share" will be calculated based upon the weighted average number of
common shares, common share equivalents, and other convertible securities
outstanding. SFAS 128 is effective in the Company's second quarter of
fiscal 1998 and will be adopted at that time with retroactive restatement
of all previously reported amounts. Had the Company been following the
provisions of SFAS 128 historically, the following pro forma amounts would
have been reported for basic earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 29, 1997 MARCH 30, 1996 MARCH 29, 1997 MARCH 30, 1996
$0.27 $0.12 $0.42 $0.30
Diluted earnings per share, computed under the provisions of SFAS 128,
would not have differed materially from the pro forma net income per share
amounts previously reported by the Company. The adoption of SFAS 128 will
have no effect on the Company's financial position or cash flows.
2. ACQUISITION OF SUBSIDIARIES - POOLINGS-OF-INTERESTS
On November 26, 1996, pursuant to an Agreement and Plan of Merger dated
October 30, 1996, the Company, through a wholly-owned subsidiary, acquired
Application Resources, Inc., a California corporation ("ARI"). ARI is an
information technology consulting firm performing services similar to those
of the Company. Pursuant to the agreement, each outstanding share of ARI
capital stock was converted into the right to receive 0.274428 shares of
the Company's Common Stock. The Company also assumed outstanding options
for the purchase of ARI common stock at the same conversion ratio.
Immediately prior to the acquisition, there were 5,217,000 shares of ARI
common stock and options to purchase 794,000 shares of ARI common stock
outstanding.
On November 27, 1996, pursuant to an Agreement and Plan of Merger dated
November 26, 1996, the Company, through a wholly-owned subsidiary, acquired
Shamrock Computer Resources, Ltd., an Iowa corporation ("SCR"). SCR is an
information technology consulting firm performing services similar to those
of the Company. Pursuant to the agreement, each outstanding share of SCR
capital stock was converted into the right to receive 136.7695 shares of
the Company's Common Stock. Immediately prior to the acquisition, there
were 7,072 shares of SCR common stock outstanding. Pursuant to the
provisions of the Iowa Business Corporation Act (the "IBCA"), a stockholder
of SCR holding 352 shares of SCR common stock perfected dissenter' rights
under the IBCA and was paid $2,000,000 in redemption of such shares.
In total 2,350,774 shares of TRI Common Stock were exchanged for all of the
outstanding common stock of ARI and SCR. In addition, outstanding stock
options to purchase ARI common stock were converted into options to
purchase 217,895 shares of TRI's Common Stock. These transactions have
been accounted for as poolings-of-interests and, therefore, all prior
period financial statements presented have been restated as if the
acquisitions took place at the beginning of such periods.
ARI and SCR previously utilized a December 31 year end. Upon acquisition,
ARI and SCR changed their fiscal year end to the last Saturday in June to
conform to the Company's fiscal year.
7
THE REGISTRY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITION OF SUBSIDIARIES - PURCHASES
Morris Information Systems, Inc. On August 16, 1996 the Company, through a
wholly owned subsidiary, acquired all of the outstanding stock of Morris
Information Systems, Inc., a Texas corporation ("MIS"), for $2,500,000 in
cash plus amounts up to an aggregate of $700,000 contingent upon the
operating results of MIS during the two years following the acquisition.
In addition, the Company will pay a total of $300,000 over the next two
years to the former stockholder of MIS in consideration for a consulting
and noncompetition agreement. MIS is an information technology consulting
firm performing services similar to those of the Company.
Sun-Tek Consultants, Inc. On November 1, 1996, the Company, through a
wholly owned subsidiary, acquired all of the outstanding stock of Sun-Tek
Consultants, Inc., a Florida corporation ("Sun-Tek"), for $1,900,000 in
cash. Sun-Tek is an information technology consulting firm based in
Orlando, Florida performing services similar to those of the Company.
Sterling Information Group, Inc. On November 27, 1996, the Company,
through a wholly-owned subsidiary, acquired certain assets and liabilities
of Sterling Information Group, Inc. ("Sterling"), a Texas corporation, for
cash consideration of $7,500,000, plus amounts up to an aggregate of
$500,000 contingent upon the operating results and expansion success of
Sterling over the next seven months. Sterling is an independent
provider of outsourced software application development based in Austin,
Texas.
James Duncan and Associates On December 24, 1996, the Company, through a
wholly-owned subsidiary, acquired all of the outstanding share capital of
AFC Holdings (Guernsey) Limited, a Guernsey trust which holds all of the
outstanding share capital of James Duncan & Associates ("JDA"), a United
Kingdom corporation, for $4,162,000, payable in $3,921,000 in cash, 2,736
shares of the Company's common stock, and a $125,000 payable on or before
December 24, 1997 in cash or shares of the Company's Common Stock at the
option of the selling stockholders. JDA is an information technology
consulting firm performing services similar to those of the Company.
Connexus Consulting Group, Inc. On January 24, 1997, the Company through a
wholly-owned subsidiary, acquired all of the outstanding shares of Connexus
Consulting Group, Inc. ("Connexus"), a Delaware corporation, for cash
consideration of $600,000. Connexus is an information technology consulting
firm based in Andover, Massachusetts performing services similar to those
of the Company.
These acquisitions have been accounted for as a purchases and accordingly,
the purchase prices have been allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as of the date
of their respective acquisitions. The excess of the consideration paid
over the estimated fair value of net assets acquired has been recorded as
goodwill and is being amortized on a straight-line basis over 30 years.
The pro forma results of operations, assuming that the acquisitions
occurred at the beginning of the periods ended March 29, 1997 and March 30,
1996 would not materially differ from TRI's reported results of operations.
4. LEGAL SETTLEMENT
In August 1996, ARI received a settlement of $1,625,000 from its insurance
company for payment of defense costs and certain expenses associated with a
previous intellectual property
8
THE REGISTRY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
rights matter. This amount, net of related expenses, has been included in
interest and other income in the accompanying consolidated statement of
operations.
5. SALE OF COMMON AND PREFERRED STOCK
On November 19, 1996, ARI sold 55,000 units to an unrelated investor for
net proceeds of $2,607,000. Each unit consisted of 3 shares of ARI's
Series A Preferred Stock and 0.5489 shares of the Company's Common Stock,
for a total of 165,000 shares of Series A Preferred Stock and 30,187 shares
of Common Stock.
6. PUBLIC OFFERING OF COMMON STOCK
On February 26, 1997, the Company completed a public offering in which
it sold 1,234,166 shares of Common Stock. The Company received $48.5
million from the sale of the shares, net of the underwriting discounts and
expenses associated with the offering. Net proceeds were used to repay all
outstanding indebtedness under the Company's line of credit.
9
PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following table summarizes the Company's significant
operating results as a percentage of revenue for each of the periods
indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 29, 1997 MARCH 30, 1996 MARCH 29, 1997 MARCH 30, 1996
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 73.1 73.4 72.6 73.4
-------------- -------------- -------------- --------------
Gross profit 26.9 26.6 27.4 26.6
Selling, general and administrative
expenses 19.5 21.5 22.3 21.3
-------------- -------------- -------------- --------------
Income from operations 7.4 5.1 5.1 5.3
Interest and other income (expense), net (0.2) (1.1) 0.6 (1.0)
-------------- -------------- -------------- --------------
Income before taxes 7.2 4.0 5.7 4.3
Income tax provision 3.0 2.3 3.0 1.3
-------------- -------------- -------------- --------------
Net income 4.2% 1.7% 2.7% 3.0%
-------------- -------------- -------------- --------------
Pro forma information
Income before taxes 4.0% 5.7% 4.3%
Pro forma income tax provision 1.7 3.4 1.9
-------------- -------------- --------------
Pro forma net income 2.3% 2.3% 2.4%
-------------- -------------- --------------
THREE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
Revenue. Revenue increased 51.0% to $86.5 million for the third quarter
of fiscal 1997 from $57.3 million in the third quarter of fiscal 1996.
This increase was attributable primarily to an increase in revenue from
professional services and to a lesser extent from additional service
offerings provided by the Company's practices. The increase in revenue
from professional services was primarily due to the growth in sales within
existing offices, the continued maturation of newer branch offices, and the
addition of new branches resulting from acquisitions accounted for as
purchases which were completed in the first nine months of fiscal 1997
resulting in a greater number of IT consultants placed with the Company's
clients during the period. To a lesser extent, the increase in revenue
resulted from an increase in average hourly billing rates charged for the
Company's IT consultants.
Gross Profit. Gross profit increased 52.7% to $23.3 million for the third
quarter of fiscal 1997 from $15.3 million in the comparable prior period.
As a percentage of revenue, gross profit increased to 26.9% for the period
compared to 26.6% for the comparable prior period. The increase in gross
margin percentage was attributable to increases in the number of higher
margin specialized practice engagements and the increased utilization of
staff IT consultants compared with the prior period. This increase was
mitigated by the addition of the lower margin sales of the Company's
European subsidiary, James Duncan and Associates, acquired at the end of
the second quarter of fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 36.8% to $16.9 million for the third
quarter of fiscal 1997 from $12.3 million in the comparable prior period.
As a percentage of revenue, selling, general and administrative expenses
decreased to 19.5% from 21.5% for the comparable prior period. This
decrease was attributable primarily to the growth in revenue during the
period in which, other than through acquisition, there was little branch
expansion.
10
Interest and Other Income (Expense), Net. Interest and other income
(expense), net, decreased 70.1% to $179,000 of expense for the third
quarter of fiscal 1997 from $ 598,000 in expense for the third quarter of
fiscal 1996. The decrease in the expense was a result of lower amounts
outstanding on the Company's line of credit in the fiscal 1997 quarter as
amounts outstanding under the Company's line of credit were repaid in full
in February of 1997 upon receipt of the proceeds from the Company's public
offering of common stock.
NINE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
Revenue. Revenue increased 52.2% to $231.0 million for the first nine
months of fiscal 1997 from $151.8 million for the first nine months of
fiscal 1996. This increase was attributable primarily to an increase in
revenue from professional services and to a lesser extent from additional
service offerings provided by the Company's practices. The increase in
revenue from professional services was primarily due to the growth of sales
within existing offices, the continued maturation of newer branch offices,
and the addition of new branches resulting from acquisitions accounted for
as purchases which were completed during the first nine months of fiscal
1997 resulting in a greater number of IT consultants placed with the
Company's clients during the period. To a lesser extent, the increase in
revenue resulted from an increase in average hourly billing rates charged
for the Company's IT consultants.
Gross Profit. Gross profit increased 56.9% to $63.4 million for the
first nine months of fiscal 1997 from $40.4 million in the first nine
months of fiscal 1996. As a percentage of revenue, gross profit increased
to 27.4% in the first nine months of fiscal 1997 compared to 26.6% in the
first nine months of fiscal 1996. The increase was attributable primarily
to increases in the number of relatively higher margin projects and
specialized practice engagements and increased utilization of the salaried
consultants as compared with the prior period. This increase was mitigated
slightly by the addition of the relatively lower margin sales of the
Company's European subsidiary, James Duncan and Associates, at the end of
the second quarter of fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 59.8% to $51.6 million in the first
nine months of fiscal 1997 from $32.3 million in the first nine months of
fiscal 1996. As a percentage of revenue, selling , general and
administrative expenses increased to 22.4% in the first nine months of
fiscal 1997 from 21.3% in the first nine months of fiscal 1996. This
increase was attributable to one-time nonrecurring transaction and
integration costs of $5.1 million incurred during the first nine months of
fiscal 1997 associated with the two acquisitions accounted for as poolings-
of-interests. Excluding these non-recurring charges, selling, general and
administrative expenses decreased to 20.0% of revenue. This decrease was
attributable primarily to growth in revenue during the period in which,
other than through acquisition, there was little branch expansion.
Interest and Other Income(Expense), Net. Interest and other income
(expense), net, increased by $2.9 million to $1.4 million of income for the
first nine months of fiscal 1997 from $1.5 million of expense for the first
nine months of fiscal 1996. This increase is attributable to the receipt
by ARI of approximately $1.5 million in net proceeds from the settlement
of certain litigation during the first nine months of fiscal 1997. In
addition, amounts understanding under the Company's line of credit were
reduced upon receipt of the proceeds from the Company's initial public
offering in June of 1996 and from the Company's second public offering in
February of 1997. During the first nine months of fiscal 1996, the Company
incurred interest expense on amounts outstanding under the Company's line
of credit and other debt facilities.
11
LIQUIDITY AND CAPITAL RESOURCES
On February 26, 1997, the Company completed a public offering in which
it sold 1,234,166 shares of Common Stock. The Company received $48.5
million from the sale of the shares, net of the underwriting discount and
expenses associated with the offering. Net proceeds were used to repay all
outstanding indebtedness under the Company's credit facility, approximately
$18.2 million. Approximately $2.5 million is intended to finance the
continuing upgrade of the Company's IT infrastructure. The Company intends
to use the remaining net proceeds for working capital and general corporate
purposes. A portion of the net proceeds may also be used for acquisitions
of businesses that are complementary to that of the Company.
As of February 29, 1996, the Company entered into a $25 million
revolving advance facility with BY Financial Corporation (the "Line of
Credit"). This facility allows the Company to borrow the lesser of $25
million or 85% of eligible receivables. The Line of Credit is secured by
all of the Company's assets and contains certain restrictive covenants,
including limitations on amounts of loans the Company may extend to
officers and employees, the incurrence of additional debt and the payment
of dividends on the Company's common or preferred stock. Additionally, the
agreement requires the maintenance of certain financial ratios, including
minimum tangible net worth and a limit on the ratio of total liabilities to
total tangible net worth. The Company was on March 29, 1997 and is
currently in compliance with these financial covenants.
As of March 29, 1997, there was no amount outstanding under the Line
of Credit with availability of $25 million. The Line of Credit bears an
interest rate of LIBOR plus 2.5% or the Bank of New York alternate base
rate plus 0.5% at the Company's option. In addition, at March 29, 1997, the
Company had invested $11.6 million in tax-exempt and U.S. Government agency
securities at various interest rates.
The Company had negative cash flows from operations of $6.1 million
for the nine months ended March 29, 1997. The negative operating cash
flows during this period reflected an increase in net accounts receivable
during the period in which significant revenue growth occurred. The
Company's operating cash flows and working capital requirements are
significantly affected by the timing of the payment of payroll and the
receipt of payment from the customer. The Company pays its employees on
either a weekly or bi-weekly basis. Clients are generally invoiced for
services either at the end of the applicable pay period or on a monthly
basis. Additionally cash flows from operations were impacted by
fluctuations in accrual and payable balances between the periods and
changes in deferred taxes in the period.
The Company had negative cash flows from investing activities of $31.2
million for the nine months ended March 29, 1997. The primary use of cash
for investing activities in the nine months ended March 29, 1997 was $16.2
million for acquisitions completed in this period and the investment of
$11.6 million in marketable securities in the last month of the period
related to the receipt of proceeds from the common stock offering. Capital
expenditures totaled $3.4 million for the nine months ended March 29, 1997
and were related primarily to the upgrade of the Company's IT infra
structure.
The Company had cash provided by financing activities of $47.3
million for the nine months ended March 29, 1997. Historically , the
Company has funded its capital requirements with borrowings against its
Line of Credit and term loans with a leasing company. In June 1996, the
Company completed its initial public offering for the sale of 2,230,000
shares of Common Stock
12
from which it received $34.5 million in proceeds, net of the underwriting
discounts and expenses associated with the offering. Net proceeds were used
to repay all outstanding indebtedness under the Company's Line of Credit
and certain term loans. In February, 1997, the Company completed a public
offering for the sale of 1,234,166 shares of Common Stock for which it
received $48.5 million in proceeds, net of the underwriting discounts and
expenses associated with the offering. In November of 1996, an additional
$2.6 million in proceeds from the sale of ARI stock was received. Proceeds
from these offerings were used to repay amounts outstanding under the
Company's line of credit and to fund acquisitions made and working capital
requirements.
The Company anticipates that its primary uses of working capital in
future periods will be for funding growth, either through acquisitions, the
internal development of existing branch offices or the development of new
branch offices and new service offerings. The Company also anticipates
making approximately $2.5 million in capital expenditures in the next
twelve months principally to upgrade its computer system. In connection
with certain of its acquisitions, the Company may be obligated to make
certain contingent payments during the next several years. The Company
does not believe that such payments would have a material impact on the
Company's liquidity, results of operations or capital requirements. The
Company's principal capital requirement is working capital to support the
accounts receivable associated with its revenue growth. The Company
believes that the proceeds from the recent public offering of stock,
together with cash flow from operations and borrowings under the Line of
Credit, will be sufficient to meet the Company's presently anticipated
working capital needs for at least the next 12 months
RECENT ACQUISITIONS
Since its initial public offering in June 1996, the Company has
completed seven acquisitions. Six of the acquired companies - Morris
Information Systems, Inc. ("MIS"), based in Houston, Texas; Sun-Tek
Consultants, Inc. ("Sun-Tek"), based in Orlando, Florida; Application
Resources, Inc. ("ARI"), based in San Francisco, California; Shamrock
Computer Resources, Ltd. ("SCR"), based in Bloomington, Minnesota; James
Duncan & Associates ("JDA"), based in Royal Tunbridge Wells, England, and
Connexus Consulting Group, Inc. ("Connexus"), based in Andover,
Massachusetts - provide information technology consulting services similar
to those that the Company currently provides. One of the acquisitions -
Sterling Information Group, Inc. ("Sterling"), based in Austin, Texas - is
an independent provider of outsourced software application development
services.
The ARI and SCR acquisitions, in which an aggregate of 2,350,774 shares of
Common Stock were issued, and $2.0 million in cash was used to repurchase
shares of capital stock from a stockholder of SCR who exercised dissenter's
rights, have been accounted for as poolings-of-interests. Accordingly, the
Company's financial statements have been restated to reflect those
acquisitions on a historical basis.
In connection with the ARI and SCR transactions, the Company has incurred
transaction and integration costs of $5.1 million during the nine months
ended March 29, 1997. In addition to these non-recurring charges, the
Company will incur additional expenses over the remainder of fiscal 1997 to
complete the integrations.
In connection with the MIS, Sun-Tek, Sterling , JDA and Connexus
acquisitions, the Company paid an aggregate of $16.4 million in cash,
issued 2,736 shares of Common Stock and agreed to pay $125,000 in deferred
consideration. In addition, the Company may become obligated to pay up to
$1.2 million in contingent cash consideration. These acquisitions have
been accounted for as purchases, and accordingly the purchase price has
been allocated to the assets acquired and
13
liabilities assumed based upon their estimated fair values as of the
respective dates of acquisition. The excess of the consideration paid over
the estimated fair value of net assets acquired has been recorded as
goodwill. The results of operations for these acquisitions have been
included in the Company's results from the respective dates of acquisition.
RECENTLY ENACTED ACCOUNTING STANDARD
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 specifies modifications to the calculation of
earnings per share from that currently used by the Company. Under SFAS 128,
"basic earnings per share" will be calculated based upon the weighted
average number of common shares actually outstanding, and "diluted earnings
per share" will be calculated based upon the weighted average number of
common shares, common share equivalents, and other convertible securities
outstanding. SFAS 128 is effective in the Company's second quarter of
fiscal 1998 and will be adopted at that time with retroactive restatement
of all previously reported amounts. Had the Company been following the
provisions of SFAS 128 historically, the following pro forma amounts would
have been reported for basic earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 29, 1997 MARCH 30, 1996 MARCH 29, 1997 MARCH 30, 1996
$0.27 $0.12 $0.42 $0.30
Diluted earnings per share, computed under the provisions of SFAS 128,
would not have differed materially from the pro forma net income per share
amounts previously reported by the Company. The adoption of SFAS 128 will
have no effect on the Company's financial position or cash flows.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The foregoing forward-looking statements involve risks and uncertainties.
The Company's actual performance and results may differ materially due to
many important factors, including, but not limited to, the Company's
dependence on the availability of qualified IT consultants, its ability to
sustain and manage growth, the risks associated with acquisitions, its
dependence on key clients, risks associated with international operations,
its dependence on key personnel, the relatively short history of
profitability, the impact of the government regulation of immigration,
fluctuations in operating results due in part to the opening of new branch
offices, general economic conditions, employment liability risks, and the
like. For additional and more comprehensive discussion of the risks
associated with ownership of Common Stock of the Company, please see the
Risk Factors section of the Company's Annual Report on Form 10-K and the
Company's Registration Statement on Form S-1. As a result of these and
other factors, there can be no assurance that the Company will not
experience material fluctuations in future operating results on a quarterly
or annual basis.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable
Item 2 - Change in Securities
Not applicable
Item 3 - Defaults Upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
a. See Exhibit Index, Page 15
b. Reports on Form 8-K
Reports on Form 8-K related to the Company's acquisitions were filed
on December 10, 1996, January 6, 1997 and February 7, 1997 and are
incorporated herein by reference.
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.
THE REGISTRY, INC.
(Registrant)
14
Date: May 12, 1997 By: /s/ G. Drew Conway
--------------------------
G. Drew Conway, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1997 By: /s/ Robert E. Foley
---------------------------
Robert E. Foley, Chief Financial
Officer
(Principal Financial and
Accounting Officer)
15
THE REGISTRY, INC.
EXHIBIT INDEX
Exhibit Page
27 Financial Data Schedule
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