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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended: JUNE 29, 1996 COMMISSION FILE NUMBER 0-28192
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THE REGISTRY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 7379 04-2920563
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
189 WELLS AVENUE
NEWTON, MASSACHUSETTS 02159
(617) 527-6886
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
NASDAQ NATIONAL MARKET
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(Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
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(Title of each class)
Indicate by check mark whether the registrant has (i) 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 (ii) has been subject to such filing
requirements for the past 90 days.
X YES NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K.[X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of September 20, 1996 was $79,544,000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, no par value 10,230,000 shares outstanding at September 20, 1996
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for use in connection
with the Annual Meeting of Stockholders to be held November 21, 1996 are
incorporated by reference into Part III.
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PART I
ITEM 1: Business
GENERAL
This Annual Report on Form 10-K contains forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. 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 in Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the caption "Risk Factors" 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.
The Registry, Inc. ("The Registry" or the "Company") provides
information technology (IT) consultants on a contract basis to organizations
with complex IT operations. The Company's revenue is principally derived from
supplemental IT staffing services and, to a lesser extent, from management
consulting services provided through its specialized practices. The Company
currently has more than 1,500 IT consultants placed with its clients to assist
them in implementing solutions for systems and applications development in such
areas as distributed network design, database design and development and
client/server migration. These consultants, billed primarily on an hourly basis,
typically work on engagements lasting from six to twelve months under the
direction of the client. In 1996, the Company provided IT consultants to
approximately 380 clients in a diverse range of industries. The Registry has
grown from four offices and $16.9 million in revenue in fiscal 1991 to 23
offices and $145.6 million in revenue for the twelve months ended June 29, 1996.
In recent years, the IT services industry has grown significantly.
According to a 1996 report prepared by Dataquest, Inc. for the Company, the
potential U.S. market size for supplemental IT staffing services of the type
provided by The Registry's IT consultants was estimated at $9.5 billion in 1994
and is projected to grow to $16.1 billion in 1999. This growth is a result of
numerous factors including: (i) an increased focus on core business operations
by organizations; (ii) the need to access specialized IT skills to keep pace
with rapidly changing technologies; (iii) the growing trend toward flexible
staffing which provides a variable cost solution to a fixed cost problem; and
(iv) the desire to reduce the cost of recruiting, training and terminating
employees as IT requirements change.
The Company believes that its ability to identify, attract and retain
qualified IT consultants is critical to its success. Each of the Company's
Resource Managers recruits in one of five technology sectors, thereby enabling
the Company to more effectively match the needs of its clients with the skills
of its IT consultants. The Company has also established a National Resource
Delivery Team ("NRDT") which provides access to consultants from across the
nation when local resources for a particular skill set are scarce. To enhance
retention, the Company actively re-markets its consultants and offers a
comprehensive benefits package.
Account Managers manage the Company's client relationships. The
primary responsibility of each Account Manager is to develop and implement a
specific account plan identifying the business requirements for IT staffing and
services of each assigned client on an ongoing basis. Account Managers work
closely with Resource Managers to identify new assignments at existing client
sites as well as to locate potential new clients. Resource Managers are
responsible for soliciting, recruiting and assessing technical consultants,
developing and maintaining consultant relationships and maintaining and updating
the Company's database of IT consultant resumes.
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The Registry's goal is to be a leading nationwide provider of IT
professional services. The Company's strategy encompasses the following
elements: (i) focus on resource management to effectively identify, qualify,
place and retain quality IT consultants; (ii) focus on application development
and software engineering; (iii) emphasize long-term client relationships; (iv)
enhance growth through internal development, acquisitions and development of new
services; and (v) continue to expand a national presence, leveraging the
Company's resource management capabilities as well as its nationwide resource
pool and customer base. As a result of its involvement in the IT planning
process of many of its clients, the Company is often afforded an opportunity to
anticipate clients' needs for additional IT consultants and services.
The Company was incorporated in Massachusetts on June 10, 1986. Unless
the context otherwise requires, references herein to "The Registry" and the
"Company" refer to The Registry, Inc., a Massachusetts corporation ("TRI"), and
its wholly owned direct and indirect subsidiaries, America's Registry, Inc., a
Massachusetts corporation ("ARI"), and The Registry, Inc. Network Consulting
Practice, a New Hampshire corporation ("NSCP"). In August 1996, The Registry
acquired Morris Information Systems, Inc., a Texas corporation. The Company's
executive offices are located at 189 Wells Avenue, Newton, Massachusetts 02159.
Its telephone number there is (617) 527-6886.
INDUSTRY OVERVIEW
In recent years, the growth of the information services industry has
been driven by companies' increasing reliance on information technology as a
strategic tool, the shift to distributed computing and the proliferation of
multi-vendor computing environments. As companies struggle to integrate multiple
processing platforms and applications which serve an increasing number of end-
users, systems and applications development has become increasingly challenging.
As organizations continue to focus on their core competencies and strive to
operate more efficiently with fewer people, managing and planning staffing
requirements to meet their IT needs becomes more difficult.
Confronted with the challenge of designing, implementing and operating
more complex information systems without enlarging corporate staff, businesses
are increasingly turning to IT service providers to augment their in-house IT
operations. Using the services of IT consultants allows companies to: (i) focus
on their core business; (ii) access specialized technical skills; (iii)
implement flexible staffing, providing a variable cost solution to a fixed cost
problem; and (iv) reduce the cost of recruiting, training and terminating
employees as IT requirements change.
There are a number of competitive factors within the highly fragmented
IT services industry. These factors include, among others, IT services
providers' ability to: (i) identify, recruit and retain highly qualified
software engineers; (ii) provide software application and development services
across a broad range of platforms and technologies; and (iii) serve clients
across multiple locations.
BUSINESS STRATEGY
The Registry's goal is to be a leading nationwide provider of IT
professional services for organizations with complex IT operations. The
Company's business strategy encompasses the following elements:
. Emphasize Resource Management. The Company believes that its ability to
provide the highest quality, most professional IT consultants is critical
to its success. The Company's Delivery Management System
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is designed to effectively identify, qualify, place and retain IT
consultants. Each of the Company's 100 Resource Managers recruits in one of
five specific technology sectors, enabling the Company to more effectively
match the skills of its IT consultants with the needs of its clients. To
attract and retain IT consultants, the Company offers them a comprehensive
benefits package and actively re-markets them before their engagement ends.
In addition, the Company's National Resource Delivery Team, a group of
Resource Managers based at the Company's headquarters, helps coordinate
recruiting efforts with the local branch offices to provide access to
consultants from across the nation when local resources for a particular
skill set are scarce. The Company believes that its resource management
methodologies have been and will continue to be a significant factor in its
ability to grow.
. Focus on Application Development and Software Engineering. Many of the
Company's clients are leaders in adopting emerging computing technologies.
The Company provides IT consultants for application development and
software engineering in areas such as networking and communications,
migration from legacy systems, workgroup/desktop applications, database
design and development and Internet. In addition to differentiating the
Company's service offerings from those of other IT service providers, this
focus on application development and software engineering provides the
Company an opportunity to enhance margins by moving away from the commodity
pricing more typical for IT consultants providing routine operations and
maintenance services. In addition, this focus enables the Company to offer
its IT consultants the opportunity to work on challenging projects, which
the Company believes is a significant advantage in attracting and retaining
highly skilled professionals.
. Build Client Relationships. The Registry's goal is to become an
extension of its clients' IT departments. The Company seeks long-term
relationships as a primary IT service provider for companies which have
complex IT operations and for which IT development is a strategic tool and
not merely a support function. The Company believes that this relationship-
oriented approach results in greater client satisfaction and reduces
business development expense. By helping its clients assess their future
staffing needs in their IT planning process, the Company is better able to
anticipate opportunities to provide additional services. Of the Company's
top 10 clients in calendar 1993, seven were among the Company's top 10
clients in calendar 1995.
. Maintain and Expand National Presence. The Company believes that larger
organizations with multiple locations prefer to deal with IT service
providers that can provide consistent and high quality services on a
nationwide basis. The Company has focused from its inception on
establishing a nationwide presence to take advantage of the enhanced
delivery capabilities resulting from a nationwide resource pool as well as
to focus on and serve national accounts. The Registry has 25 offices across
the country allowing national coverage for larger accounts and mobility for
IT consultants. In the future, the Company's decision to establish a new
office will be influenced, in part, by the extent to which it can help
increase the Company's national presence and assist in serving national
accounts.
GROWTH STRATEGY
The Company's growth has been achieved primarily through branch
expansion and, to a lesser extent, the development of new service offerings,
rather than through acquisitions. The Company believes, however, that a balance
of internal growth and selective acquisitions will best position the Company to
capitalize on opportunities in the IT professional services industry. The
Company's growth strategy consists of five primary components:
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. Acquire Complementary Businesses. The Company may seek to acquire
companies in the IT professional services industry to facilitate its
expansion into new geographic areas or to acquire technology businesses
that offer complementary services. The Company believes that the fragmented
nature of the IT professional services industry presents a number of
opportunities for growth through acquisition. In August of 1996, the
Company, through its subsidiary America's Registry, Inc, acquired Morris
Information Systems, a Texas corporation, with 60 IT consultants working in
Houston, TX and Columbia, SC.
. Concentrate on Existing Branch Development. The Company believes that
there are substantial opportunities for increasing revenue in existing
branches, 17 of which have been open for less than four years. The
Company's strategy is to increase sales to existing clients by increasing
the number of IT consultants placed with these clients and by offering them
additional services. As a result of its involvement in the IT planning
process of many of its clients, the Company is often afforded an
opportunity to anticipate clients' needs for additional IT consultants and
services. In addition, the Company seeks to selectively expand its client
base within existing markets.
. Expand National Accounts. The Company is currently focusing on national
account development and has identified certain systems integrators,
computer manufacturers and telecommunications firms as potential national
accounts. These accounts present an array of unique operational challenges,
such as coordinating service delivery across divisional lines and providing
centralized invoicing. The Company believes that its national presence and
national resource management capabilities will enable it to meet these
challenges.
. Implement Satellite Branch Expansion. The Company believes that
opportunities exist for additional satellite expansion. From existing
branch offices, the Company has successfully developed satellite offices in
certain regions. This method of developing opportunities in given
geographic areas allows the Company to expand its client and consultant
base while leveraging existing infrastructure and reducing start-up costs.
For example, the Durham, North Carolina office served as a hub for the
opening of satellite offices in Charlotte and Greensboro, North Carolina.
. Develop New Service Offerings. The Company intends to continue its
practice of encouraging individual branches to develop complementary
services, such as the Documentation Services Practice and the recently
introduced Help Desk Practice. These services can then be expanded on a
national level after their viability and profitability is demonstrated at a
local level.
THE REGISTRY'S SERVICES
The Registry provides IT professional services for application
development and software engineering. The vast majority of the Company's IT
consultants work on a supplemental staffing basis to deliver IT implementation,
integration and development services. The Registry's goal is to become an
extension of its clients' IT departments, and the Company believes that this
relationship-oriented approach results in a better understanding of its clients'
business and IT staffing needs. The Company's IT consultants, billed primarily
on an hourly basis, typically work on engagements lasting from six to twelve
months under the direction of the client. In addition, the Company provides
management consulting services primarily through its Network Systems Consulting
Practice. Management consulting engagements generally involve network strategy,
systems architecture and implementation. The Company generally assumes
responsibility for project outcome in such
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engagements. Further, the Company has recently introduced service offerings in
two additional practice areas: documentation services and help desk services.
IT Professional Services
The Company organizes its IT professional services in five sectors:
networks and communications; legacy systems; workgroup/desktop; database design
and development; and Internet. Networks and communications engagements generally
involve distributed network design and implementation or optimization and
connectivity services in both local area networks (LANs) and wide area networks
(WANs). General skills required in this sector include UNIX/TCP-IP/IPX
development, SNMP network management development and LAN/WAN architecture.
Legacy system engagements address challenges in the migration of legacy
applications to a client/server environment, large systems development and
general legacy (primarily IBM and Digital VAX/VMS) support. General skills
required in this sector include IBM/COBOL/CICS, VAX/VMS application development
and systems administration and IMS systems programming. Workgroup/desktop
engagements involve front-end graphical user interface (GUI) development, rapid
application prototyping and development, object-oriented development and
workgroup application services. General skills required in this sector include
NT/C++/GUI development, MS Windows/Windows 95/Windows NT architecture and
development and visual basic design/OBDC. Database design and development
assignments involve design, development and implementation of relational
database applications and systems. General skills required in this sector
include Sybase/UNIX/C++/Tuxedo, Oracle DBA and Powerbase/Sybase client server
development. Internet engagements include Web Page design, Internet security
design issues and intranetworking systems development. General skills required
in this sector include HTML/WWW design and development, UNIX/Systems
Engineer/CGI/Firewall development and JAVA development. The Company's IT
consultants typically work on assignments within each of these five sectors as
part of project teams generally comprising client staff and IT consultants
placed by the Company and other IT service providers.
Practices
Network Systems Consulting Practice (NSCP). In November 1994, the
Company acquired the business that formed the basis for its Network Systems
Consulting Practice. Based in New England and operating from locations in New
York City and Chicago, the NSCP is staffed by 29 salaried employees. The NSCP
provides an extensive suite of management consulting services, addressing issues
such as network strategy, systems architecture and implementation. Most projects
are performed on a time and materials basis, with engagements generally lasting
approximately two to three months. The clients of the NSCP include systems
integrators, hardware manufacturers and pharmaceutical companies.
Documentation Services Practice (DSP). In 1994, the Company
initiated its Documentation Services Practice in its Chicago branch office. The
DSP assists hardware and software vendors and other organizations in developing
documentation, instruction and accompanying materials associated with
introducing new or upgrading existing products. As product development cycles
continue to shorten, these services, including documentation needs analysis,
design and development, project management, technical writing and graphic design
and illustrations, are designed to help clients produce high-quality, cost-
effective documentation under heightened scheduling constraints. In addition,
the DSP provides systems documentation and process consulting services to other
organizations. The DSP is composed of 31 professionals including project
managers, technical writers, principal consultants, a quality manager and a
practice manager, of whom approximately half are salaried
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employees and half are hourly IT consultants. Most projects are performed on a
time and materials basis, with engagements generally lasting approximately three
to four months.
Help Desk Practice. The Company is currently developing a Help Desk
Practice to assist clients in identifying their help desk requirements and
implementing and operating their help desk services. These services may range
from providing consulting services to providing a complete outsourcing solution
for a client's help desk needs.
THE REGISTRY'S DELIVERY MANAGEMENT SYSTEM
IT Consultants
A major challenge facing IT professional services companies is the
identification and retention of highly qualified software engineers and computer
programmers. The Company's typical IT consultant has an average of six to eight
years of experience in application development and software engineering. The
Company believes that it is able to attract and retain the highest quality IT
consultants by offering the following advantages:
. Consultants work with a Resource Manager with a single technology
sector focus who understands the consultants' skills and
professional interests.
. The Company provides exposure to a variety of challenging
assignments that help consultants increase their skill sets and
business expertise.
. The Company actively re-markets its consultants, allowing them
to concentrate on completing their current assignment.
. The Company offers a comprehensive benefits package comparable
in coverage to those offered in many permanent employment
positions.
Resource Management
Resource Managers are responsible for soliciting, recruiting and
assessing IT consultants, developing and maintaining consultant relationships
and maintaining and updating the Company's database. Although Resource Managers
recruit most of the Company's IT consultants through referrals from existing IT
consultants, they utilize several additional recruiting methods, including local
and national print advertising, participation in technical job fairs across the
nation and listing a variety of current openings on the Company's home page on
the World Wide Web. Resource Managers also utilize the Company's database that
contains the resumes of approximately 100,000 IT consultants that have been
submitted to the Company directly or indirectly by such consultants in response
to the Company's recruiting efforts. At any particular time, however, only
certain of the individuals whose resumes are included in the Company's database
may be available for placement by the Company; certain individuals may have
accepted permanent assignments, may be working for the Company's competitors or
may have left the IT services industry. Nevertheless, the Company believes that
the database facilitates the identification of qualified IT consultants to the
extent of their availability.
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As of June 29, 1996, the Company employed 100 Resource Managers
located in its branch offices nationwide. This number exceeds the number of
Account Managers by a ratio of 1.47 to 1 and reflects the Company's commitment
to resource development. Resource Managers are typically college-educated
individuals with experience in customer service, telemarketing and relationship
management. They are compensated through a combination of base salary and bonus
incentives based on consultant placements and gross profit margins.
Account Management
The Company's Account Managers manage its client relationships. Each
Account Manager is responsible for approximately four to seven accounts, some of
which may involve multiple operating units of a particular organization. The
Account Manager's primary responsibility is to develop and implement a specific
account plan for each assigned client. Each plan addresses the following areas:
building and serving the client relationship; identifying and understanding the
client's current and anticipated requirements; and expanding services to
additional areas within the client's organization. The Company's Account
Managers work closely with the Resource Managers to identify new assignments at
existing client sites, staff assignments appropriately and market IT consultants
to existing clients. As of June 29, 1996, the Company employed 68 Account
Managers who are compensated through a combination of base salary and
commission.
The Registry's Methodology
The Company has developed a system designed to identify, qualify,
place and retain IT consultants. This system includes the following:
Technology Sector Recruiting. Resource Management teams in each branch
office recruit IT consultants who specialize in one of the five technology
sectors that the Company serves. Each Resource Manager is assigned to one
specific sector and is accountable for continually developing consultant
relationships within, and an understanding of, that sector. This approach
helps a Resource Manager stay current in a particular sector and reduce a
field of potential consultants to a select list of experts particularly
qualified for current openings.
National Resource Delivery Team. The Company has established a National
Resource Delivery Team, a group of 13 Resource Managers located at the
Company's corporate headquarters. Communicating daily with the Resource
Managers in the Company's 25 branch offices, the NRDT helps coordinate
recruiting efforts with the local branch offices to provide access to
consultants from across the nation when local resources for a particular
skill set are scarce. The NRDT also supports local branches with on-site
auxiliary recruiters to provide added support and expertise for new office
openings or the rapid growth of existing offices.
Continuous Support and Quality. The Company believes that consultant
quality is of primary importance to its clients and that clients prefer to
work with vendors that have substantial quality programs in place. The
Company has always maintained a proactive approach to quality initiatives,
and its quality programs include a consultant orientation and a review of
client satisfaction 30 days after the beginning of each engagement and at
the end of each engagement. The Company actively solicits feedback from
clients and IT consultants in the areas of productivity, technical
performance and compatibility, as well as overall quality of the service
provided, which then forms the basis for the Company's statistical analysis
for quality improvement programs.
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Consultant Retention and Benefits. Clients spend valuable time and effort
in the training and orientation of consultants, and, accordingly, retention
until project completion is extremely important. Before completion of a
project, the Company actively re-markets its consultants, which helps the
Company minimize turnover. This approach allows consultants to focus on
completing their current project -- often when it is in the most critical
phase. The Company has recently developed a benefits package offered to its
hourly IT consultants which includes comprehensive medical insurance, a
prescription drug card, term life insurance, individual long-term
disability insurance and a 401(k) retirement plan. These benefits
underscore the Company's commitment to its consultants and further
consultant loyalty and retention efforts.
OPERATIONS AND SUPPORT SERVICES
Branch Management
The Company's Branch Managers are accountable for branch profitability
and are responsible for day-to-day branch operations, as well as business and
staff development. To date, most Branch Managers have been promoted from within
and thus bring with them an appreciation for the Company's culture. Management
believes that this approach has allowed the Company to maintain consistent
standards during a period of rapid growth. Branch Managers are compensated
through a combination of base salary and bonus incentives based on branch
profitability.
Staffing levels of branch offices vary depending on the maturity of an
office and range from two Resource Managers, one Account Manager, one
administrative staff and a Branch Manager for a recently opened office to eleven
Resource Managers, six Account Managers, three administrative staff and a Branch
Manager for a larger, more established office. Satellite offices benefit from
sharing certain staff resources with neighboring branches.
The following chart lists the Company's 25 branch offices and the fiscal year in
which they opened or were acquired:
<TABLE>
<CAPTION>
FISCAL
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LOCATION YEAR OPENED
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<S> <C>
Newton, Massachusetts 1987
McLean, Virginia 1987
Durham, North Carolina 1990
Atlanta, Georgia 1991
Chicago, Illinois 1992
Richmond, Virginia 1992
Cleveland, Ohio 1993
Rye Brook, New York 1993
Boston, Massachusetts 1993
Ft. Lauderdale, Florida 1994
Rosemont, Illinois 1994
Dallas, Texas 1994
Denver, Colorado 1994
Greensboro, North Carolina 1994
</TABLE>
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<TABLE>
<S> <C>
New York, New York 1994
Santa Clara, California 1994
Seattle, Washington 1995
Columbus, Ohio 1995
Stratham, New Hampshire 1995
Charlotte, North Carolina 1995
Rolling Meadows, Illinois (DSP) 1995
New York, New York (NSCP) 1996
Walnut Creek, California 1996
Houston, Texas 1997
Columbia, South Carolina 1997
</TABLE>
Regional Management
The Company has a Regional Vice President for each of the Northeast, Mid-
Atlantic, Midwest, Southeast, Southwest and West Regions. The Regional Vice
President is responsible for supervising Branch Managers and for developing a
financial plan for the region, implementing staff development and training and
coordinating marketing strategy. Each Regional Vice President serves on the
Company's Executive Committee. Compensation of Regional Vice Presidents consists
of a base salary plus bonus incentives relating to regional profitability.
Corporate Services
From its headquarters in Newton, Massachusetts, the Company provides its
branch offices with centralized support services, including marketing, financial
and accounting, legal support and purchasing. In addition, the Company has
committed and expects to continue to commit substantial resources to the
following areas:
Training. The Company provides a number of training programs for its staff
employees to help them stay current with emerging issues in the information
technology industry. These programs include "Registry University," a four-
day training and orientation workshop for new Account Managers and Resource
Managers and the "Branch Manager's Workshop," an annual series of four
three-day workshops that focus on operations, business development and staff
development. Drawing on the experience of the Company's most successful
Resource Managers, the training department has also developed a "Best
Practices" program in resource management.
Information Services. The Company believes that its own information
technology system is an important tool for enhancing productivity, promoting
efficiency and improving communications within the organization. The Company
also believes that its database is one of its most important assets. The
Company is currently committing significant resources to improving the
database search capabilities through centralization and development of a
nationwide communications network.
Human Resources. The Company believes that extending a benefits program to
its IT consultants provides it with a competitive edge by promoting
consultants' loyalty to the Company and enhancing its retention efforts. In
this regard, the Company has recently begun to offer a benefits package to the
Company's IT consultants nationwide. This program includes comprehensive
medical insurance, a prescription drug card, term life insurance, individual
long-term disability insurance and a 401(k) retirement plan.
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CLIENT BASE
The Company focuses its sales efforts primarily on organizations with
complex IT needs and currently provides IT consultants to approximately 380
clients. In the year ended June 29, 1996 approximately 34.8% of the Company's
revenue was derived from its top 10 customers, none of which accounted for more
than 6.6% of revenue. The primary industries served by the Company are:
financial services, manufacturing, communications, systems integration and
pharmaceutical.
COMPETITION
The market for IT professional services is intensely competitive on both
local and national levels. The market is served by numerous IT professional
services companies, many of which have greater financial, technical and other
resources than the Company. Some of these competitors have a nationwide presence
equivalent to, or greater than, that of the Company. Within any given market,
the Company and its competitors frequently compete for the same highly-skilled
IT consultants and clients.
The Company competes for IT consultants with other IT professional services
providers, outsourcing and consulting companies, systems integrators, temporary
personnel agencies and client companies. IT consultants, including those who
work with The Registry, often seek assignments from more than one staffing
company. Primary competitive factors for recruiting and retaining such
professionals include: compensation, including timeliness of payment;
availability of benefits; consistent flow of high quality, varied assignments;
scheduling flexibility; and an understanding of consultant skills and work
preferences.
The Company competes for clients with other IT professional services
providers, outsourcing and consulting companies, systems integrators and, to a
lesser extent, temporary personnel agencies. The Company considers large
organizations with complex IT needs to be among its prime clients. Within a
given market, there are a limited number of such potential clients, some of
which have designated only certain IT professional services companies as
approved providers of IT professional services. Primary competitive factors for
obtaining and retaining clients include: careful matching of consultant skills
with the client's requirements; selectivity in referral of consultant
candidates; nationwide presence; consultant technical expertise; price of
services; monitoring of client satisfaction during and after a placement; and
general responsiveness to client needs.
Although the Company believes that it competes favorably both in recruiting
IT consultants and obtaining clients, there is no assurance that it will
continue to be successful in doing so.
EMPLOYEES
As of June 29, 1996, the Company had 447 employees, of which 139 were staff
IT consultants, 100 were Resource Managers, 68 were Account Managers, 82 were
either Branch, Regional or corporate managers and 58 served in various
administrative and accounting capacities. On that date, there were also more
than 1,500 IT consultants (including the 139 staff IT consultants) working on
full-time assignments for the Company's clients. The Company is not a party to
any collective bargaining agreements and considers its relationships with its
employees to be satisfactory.
Approximately 89.9% of the Company's non-staff IT consultants during fiscal
1996 were treated as employees of the Company for federal and state tax
purposes. For such employees, the Company pays social
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security taxes (FICA), federal and state unemployment taxes and workers'
compensation insurance premiums. The remainder of the IT consultants worked for
the Company on a subcontract basis, and the Company is not responsible for such
taxes under these arrangements. The Company believes that such arrangements meet
the requirements of applicable law.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
G. Drew Conway........ 39 President, Chief Executive Officer and Director
Robert E. Foley....... 47 Chief Financial Officer and Treasurer
Mark W. Biscoe........ 36 Vice President, Northeast Region
Christopher T. Cain... 33 Vice President, Southwest Region
Anthony F. Carusone... 48 Vice President, Southwest Region
Christopher B. Egizi.. 40 Vice President, Midwest Region
James F.J. McKee...... 31 Vice President, West Region
Martin E. Goober...... 31 Vice President, Operations
David E. Jackson...... 45 Vice President, Network Systems Consulting Practice
James H. Anderson..... 42 Denver Branch Manager
Susan E. Hovdesven.... 33 New York Branch Manager
</TABLE>
Mr. Conway is the founder of the Company, and has served as President,
Chief Executive Officer and Director of the Company since its incorporation in
May 1986 and as Treasurer from such date until March 1996. From 1983 until
1986, Mr. Conway was a founder and principal of The Experts, a technical
staffing company. Mr. Conway previously served as an Account Manager with EDP
Temps, a technical staffing company.
Mr. Foley has served as Chief Financial Officer since joining the Company
in July 1990 and as Treasurer since March 1996. Mr. Foley has more than 22
years of experience in finance and accounting and is also an Adjunct Professor
of Finance at Northeastern University.
Mr. Biscoe has served as Vice President, Northeast Region, since July 1996
and Vice President, New England Region since November 1995. Mr. Biscoe joined
the Company in March 1992 and has served as Branch Manager of the Newton office
and Manager of the National Resource Delivery Team. From 1990 until 1992, Mr.
Biscoe served as Branch Manager of Triple T, Inc., a technical staffing company.
Mr. Cain has served as Vice President, Southwest Region, since January
1995. Mr. Cain joined the Company in 1990 as an Account Manager and opened the
Dallas office as Branch Manager.
Page 12
<PAGE>
Mr. Carusone has served as Vice President, Southeast Region, since February
1994. Mr. Carusone joined the Company in February 1992 and has served as Branch
Manager of the Atlanta office. From July 1990 to February 1992, Mr. Carusone
was employed by Status, Inc., a personnel recruiting company.
Mr. Egizi has served as Vice President, Midwest Region, since January 1994.
Mr. Egizi was a founding staff member of the Company in 1986 and has served as
Vice President, Strategic Corporate Services, Branch Manager of the Newton
office and Manager of the NRDT.
Mr. McKee has served as Vice President, West Region, since January 1996.
Mr. McKee joined the Company in November 1991 as an Account Manager and
subsequently opened the Santa Clara office in June 1994 as Branch Manager and
the Walnut Creek, California office in August 1995. Before joining the Company,
Mr. McKee was employed as an Account Executive with Spectator Publications.
Mr. Goober has served as Vice President, Operations, since September 1995.
Mr. Goober joined the Company in January 1991 as an Account Manager, and before
serving as a Director of Training, served as Branch Manager of the Newton
office, and opened the Boston office. From April 1988 until December 1990, Mr.
Goober served as Senior Account Manager with Sullivan & Cogliano, a technical
staffing company.
Mr. Jackson has served as Vice President, Network Systems Consulting
Practice since November 1994. Mr. Jackson joined the Company when Axiom
Consulting Group, Inc., the network implementation consulting firm he founded in
December 1991, was acquired by the Company. From 1989 to 1991, Mr. Jackson
served as Vice President of Sales and Marketing of The DMW Group, Inc., a
network management consulting firm. Mr. Jackson has 22 years of experience in
the networking and communications industry.
Mr. Anderson has served as Branch Manager of the Denver office since August
1994. Mr. Anderson joined the Company in November 1986 and has served as
Director of Training and Development and Manager of the NRDT. From August 1985
through October 1986, Mr. Anderson served as Recruiting Manager with The
Experts, a technical staffing company.
Ms. Hovdesven has served as New York Branch Manager since November 1993.
Ms. Hovdesven joined the Company in March 1988 as an Account Manager and opened
the Durham, Atlanta, Rye Brook and New York City offices.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of the
Company.
ITEM 2. Properties
The Company's executive offices are located in Newton, Massachusetts, in
approximately 18,800 square feet of leased office space, under leases that
expire on September 30, 2010, from the Realty Trust. See Note 5 to Item 6
"Selected Consolidated Financial Data," and Note 14 to Consolidated Financial
Statements. The Company also maintains offices and leases office space occupying
between 475 and 5,875 square feet under leases terminating from December 31,
1996 to July 21, 2001 in the locations in which it maintains a branch office
noted in Item 1 under "Branch Management." The Company believes that its
facilities are adequate for its current operations.
Page 13
<PAGE>
ITEM 3. Legal Proceedings
On April 21, 1995, Ralph Kirkley Associates, Inc. ("Kirkley"), an IT
services provider, filed suit against the Company in the District Court of
Travis County, Texas, 353rd Judicial District, alleging that the Company
breached a mixed oral and written contract with Kirkley to enter into an
agreement to purchase substantially all of the assets comprising Kirkley's
business. Kirkley's complaint seeks a declaratory judgment that a valid contract
existed between Kirkley and the Company to enter into a purchase and sale
agreement for Kirkley's assets, as well as actual damages of not less than
$500,000, recovery of lost profits, exemplary damages of three times all actual
damages awarded and attorney's fees and costs. The Company has filed a general
denial of Kirkley's complaint and a counterclaim seeking return of the $100,000
deposit paid to Kirkley's escrow agent and other legal and equitable relief. No
further actions have been taken with respect to this suit. On May 31, 1995,
Kirkley filed a voluntary petition for bankruptcy under Chapter 11 in the United
States Bankruptcy Court for the Western District of Texas. In the event Kirkley
or the trustee in bankruptcy proceeds with the case, the Company intends to
defend vigorously. The Company does not believe that the resolution of this
matter will have a material adverse effect on its business, financial condition
or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
The following matters were acted upon by the then sole stockholder of the
registrant in the fourth quarter (prior to the registrant's initial public
offering):
On March 29, 1996, the sole stockholder of the Company, acting by written
consent, adopted the 1996 Employee Stock Purchase Plan and 1996 Eligible
Directors Stock Plan.
On April 10, 1996, the sole stockholder of the Company, acting by written
consent, adopted the Amended and Restated Articles of Organization and Amended
and Restated By-laws of the Company.
On May 5, 1996, the sole stockholder of the Company, acting by written
consent, fixed the number of directors at three and elected Robert P. Badavas as
a director of the Company.
On May 13, 1996, the sole stockholder of the Company, acting by written
consent, designated G. Drew Conway as a Class III Director, designated Paul C.
O'Brien as a Class II Director and designated Robert P. Badavas as a Class I
Director.
There were no matters acted upon by the stockholders of the registrant
following the registrant's initial public offering which was completed on June
10, 1996.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded on the Nasdaq National Market under
the symbol "REGI". The following table sets forth, for the period indicated,
the range of high and low sales prices since the Company's Common Stock began
trading on the Nasdaq National Market through June 29, 1996:
Page 14
<PAGE>
<TABLE>
<CAPTION>
Period High Low
- ------ ---- ---
<S> <C> <C>
June 5, 1996 through June 29, 1996 $36.75 $17.00*
</TABLE>
* Initial offering price
The stock market has from time to time experienced extreme price and volume
fluctuations. These broad market fluctuations may adversely affect the market
price of the Company's common stock.
HOLDERS OF RECORD
On September 20, 1996, there were approximately 26 holders of record of The
Registry, Inc.'s Common Stock.
DIVIDENDS
TRI paid a cash dividend in the amount of $50,000 to Mr. Conway in December
1992. ARI paid cash dividends in the approximate aggregate amount of $862,000 to
Mr. Conway in December 1995, of which amount $645,000 was immediately used to
repay certain indebtedness of Mr. Conway to TRI. The Company currently intends
to retain future earnings, if any, to fund the development and growth of its
business and does not anticipate paying any cash dividends on the Common Stock
in the foreseeable future. In addition, the Company's revolving line of credit
with BNY Financial Corporation prohibits the payment of dividends without
consent of the lender.
Page 15
<PAGE>
ITEM 6. Selected Consolidated Financial Data
The following table contains certain selected consolidated financial data
and is derived from the more detailed Consolidated Financial Statements and
Notes thereto included elsewhere in this report. The Consolidated Balance Sheet
Data at June 24, 1995 and June 29, 1996 and the Consolidated Statement of Income
Data for the year ended May 31, 1994, and for each of the two years in the
period ended June 29, 1996 have been derived from the Consolidated Financial
Statements of the Company that have been audited by Price Waterhouse LLP,
independent accountants, and are included in Item 8. The Consolidated Balance
Sheet Data as of May 31, 1992, 1993 and 1994 and the Consolidated Statement of
Income Data for each of the two years in the period ended May 31, 1993 have been
derived from the Company's audited Consolidated Financial Statements. The
selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Report.
<TABLE>
<CAPTION>
MAY 31, JUNE 24, JUNE 29,
1992 1993 1994 1995(1) 1996(5)
<S> <C> <C> <C> <C> <C>
(In thousands , except per share data)
STATEMENT OF INCOME DATA:
Revenue $24,021 $39,845 $60,367 $98,687 $145,588
Cost of revenue 18,358 30,630 46,262 74,288 106,945
------- ------- ------- ------- --------
Gross profit 5,663 9,215 14,105 24,399 38,643
Selling, general and administrative
expenses 4,760 8,319 12,831 22,925 32,152
------- ------- ------- ------- --------
Income from operations 903 896 1,274 1,474 6,491
Interest and other expense, net 163 292 459 1,145 1,867
------- ------- ------- ------- --------
Income before taxes 740 604 815 329 4,624
Provision for income taxes 218 281 430 4 2,081
------- ------- ------- ------- --------
Net income $ 522 $ 323 $ 385 $ 325 $ 2,543
Distributions to stockholder(2) - $ 50 - - $ 1,511
------- ------- ------- ------- --------
Income before taxes $ 329 $ 4,624
Pro forma provision for income taxes (3) 243 2,003
------- --------
Pro forma net income (3) $ 86 $ 2,621
------- --------
Pro forma net income per share (3) $ 0.01 $ 0.30
------- --------
Weighted average common
and common equivalent
shares outstanding (4) 8,398 8,594
------- --------
BALANCE SHEET DATA:
Cash and cash equivalents - - - - $ 12,044
Working capital $ 409 $ (138) $ (364) $ (576) 34,643
Total assets 5,556 9,477 15,530 28,643 49,101
Total debt 3,756 6,147 9,361 20,438 2,860
Stockholders' equity 1,123 1,596 2,136 2,284 37,830
</TABLE>
(1) The Company changed its fiscal year end from May 31 to the last Saturday in
June, effective with the fiscal year ended June 24, 1995. Accordingly, the
June 1994 results are not included in the data presented above. Results of
operations for the years
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<PAGE>
ended June 24, 1995 and June 29, 1996 are for 52 weeks and 53 weeks,
respectively. See Note 2 to Consolidated Financial Statements.
(2) For the year ended June 29, 1996, includes $862,000 distributed to the
president and majority stockholder on the common stock of ARI and $649,000
distributed by the Realty Trust to the president and majority stockholder
upon refinancing of the Realty Trust's mortgage. See Note 5 below.
(3) Effective January 1, 1996, TRI, through a wholly-owned subsidiary, acquired
all of the outstanding shares of common stock of ARI and the stockholder of
ARI received an additional 5,333,333 shares of common stock of TRI (the
"Merger"). The pro forma data have been computed as if ARI, which was an S
corporation for federal and state income tax purposes, were subject to
federal and all applicable state corporate income taxes since February
1991, based on the statutory tax rates and the tax laws then in effect. See
Notes 2, 8 and 15 to Consolidated Financial Statements.
(4) Weighted average common and common equivalent shares outstanding for the
year ended June 24, 1995 consists of 8,000,000 shares of Common Stock after
giving effect to the Merger and stock split described in Note 9 to the
Consolidated Financial Statements and 397,588 shares related to the
dilution attributable to options granted in the twelve months prior to the
Company's initial public offering using the treasury stock method. Weighted
average common and common equivalent shares outstanding for the year ended
June 29, 1996 consists of 8,150,270 shares of Common Stock after giving
effect to the additional shares outstanding after the stock offering of
June 5, 1996 and 443,517 shares related to the dilution attributable to
options granted using the treasury stock method.
(5) In conjunction with the renegotiation of the Company's lease with the
Realty Trust, the accounts of the Realty Trust have been consolidated
with those of the Company, commencing September 19, 1995. See Note 14 to
Consolidated Financial Statements.
ITEM 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The Registry, Inc. provides information technology (IT) consultants on a
contract basis to organizations with complex IT operations. The Company's
revenue is principally derived from supplemental IT staffing services and, to a
lesser extent, from management consulting services provided through its
specialized practices. The Company's IT consultants, billed primarily on an
hourly basis, typically work on engagements lasting from six to twelve months
under the direction of the client. The Registry has grown from four offices and
$16.9 million of revenue in fiscal 1991 to 23 offices and $145.6 million of
revenue in fiscal 1996.
Revenue growth is derived primarily from increases in the number of IT
consultants placed with existing clients and the addition of new clients. In
recent years, the Company has also been able to increase the average billing
rates for its IT consultants as economic conditions have improved and the demand
for skilled and experienced professionals has increased. Revenue is recognized
as services are provided and the majority of clients are billed on a weekly
basis. In fiscal 1996, approximately 34.8% of the Company's revenue was derived
from its top 10 clients, with no client accounting for more than 6.6%.
Because the Company only derives revenue when its consultants are actually
working, its operating results are adversely affected when client facilities are
closed due to holidays or inclement weather. In particular, the Company
experiences a certain amount of seasonality in its second fiscal quarter because
of the number of holidays falling in such quarter. In addition, the Company
generally experiences lower operating margins in its third fiscal quarter due in
part to the timing of unemployment tax accruals.
Since its founding in 1986, the Company has had an aggressive expansion plan
and growth strategy. The Company opened six offices between fiscal 1986 and
1992, three in fiscal 1993, seven in fiscal 1994, five in fiscal 1995 and two in
fiscal 1996. The increase in the number of offices has resulted in an increase
in revenue for each year, but has in some cases adversely impacted net income
due primarily to expenses associated with staffing the new offices as well as
with the increase in corporate staff needed to support an increased number of
branches. In most instances, new offices have
Page 17
<PAGE>
experienced either losses or marginal profitability for approximately 12 to 18
months after opening. In certain cases, branches that have achieved
profitability have not remained profitable on a consistent basis.
Beginning in fiscal 1996, the Company implemented tighter cost controls and a
compensation program based on operating profitability rather than revenue
growth. Further, the Company has sought to improve profitability by increasing
the number of full-time, salaried staff consultants, who generally produce
higher margins than the Company's hourly IT consultants. In addition to its core
IT professional services and in response to market opportunities, the Company
has introduced new service offerings, including the Network Systems Consulting
Practice (NSCP) and the Documentation Services Practice (DSP), both of which are
established practices, as well as a recently introduced Help Desk Practice.
Through December 31, 1995, ARI was an S corporation for federal and state
income tax purposes and, accordingly, was not subject to corporate income taxes.
As a result, the Company believes that direct comparisons of historical
provisions for income taxes are not meaningful.
In conjunction with the renegotiation of the Company's leases with the Realty
Trust, the accounts of the Realty Trust have been consolidated with those of the
Company, commencing September 19, 1995. The effect of this consolidation was to
increase fixed assets by approximately $1.7 million and long-term debt by
approximately $2.1 million at June 29, 1996. The consolidation of the Realty
Trust did not have a significant effect on the Company's results of operations,
nor is it expected to have a significant effect in the future. See Note 14 to
Consolidated Financial Statements.
FISCAL YEARS ENDED JUNE 29, 1996 AND JUNE 24, 1995
Revenue. Revenue increased 47.5% to $145.6 million for fiscal 1996 from
$98.7 million in fiscal 1995. 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 and the continued maturation of newer branch offices
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 58.2% to $38.6 million for fiscal 1996
from $24.4 million in the comparable prior period. As a percentage of revenue,
gross profit increased to 26.5% for the period compared to 24.7% for the
comparable prior period. This increase was attributable primarily to a higher
average hourly billing rate charged for the Company's IT consultants during this
period. In addition, the increase in gross profit as a percentage of revenue was
favorably impacted by the growth in relatively higher margin new service
offerings and an increase in staff IT consultants.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 40.6% to $32.2 million for fiscal 1996 from
$22.9 million in the comparable prior period. As a percentage of revenue,
selling, general and administrative expenses decreased to 22.1% for the period
compared to 23.2% for the comparable prior period. This decrease was
attributable primarily to the growth in revenue during a period in which there
was limited expansion into new markets and a relative slowing in the hiring of
additional Resource Managers, Account Managers and corporate staff.
Interest and Other Expense, Net. Interest and other expense, net, increased
to $1.9 million during fiscal 1996 from $1.1 million in the comparable prior
period. This increase was attributable primarily to the increased
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<PAGE>
borrowings under the Company's line of credit resulting from the increase in
working capital requirements associated with the Company's sales growth.
FISCAL YEARS ENDED JUNE 24, 1995 AND MAY 31, 1994
Revenue. Revenue increased 63.4% to $98.7 million for fiscal 1995 from $60.4
million for fiscal 1994. Of this increase, $30.7 million was derived from
existing branch offices with the remaining $7.6 million derived from new branch
offices opened during the year. Approximately half of the increase attributable
to new branch offices was derived from one of the Company's key clients.
Overall, most existing branch offices exhibited significant sales increases as
demand for IT professional services increased. In addition, the increase in
revenue resulted to a lesser extent from an increase in the average hourly
billing rates charged for the Company's IT consultants.
Gross Profit. Gross profit increased 73.0% to $24.4 million for fiscal 1995
from $14.1 million for fiscal 1994. As a percentage of revenue, gross profit
increased to 24.7% for fiscal 1995 from 23.3% for fiscal 1994. This increase was
attributable primarily to a higher average hourly billing rate charged for the
Company's IT consultants during the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 78.9% to $22.9 million for fiscal 1995 from
$12.8 million for fiscal 1994. As a percentage of revenue, selling, general and
administrative expenses increased to 23.2% for fiscal 1995 from 21.2% for fiscal
1994. This increase was attributable primarily to the opening of five branch
offices during the year and the staffing of those offices. To a lesser extent,
the increase in selling, general and administrative expenses resulted from an
increase in corporate staff needed to support an increased number of branches.
Interest and Other Expense, Net. Interest and other expense, net, increased
to $1.1 million for fiscal 1995 from $459,000 for fiscal 1994. This increase was
attributable to the increased borrowings under the Company's line of credit
resulting from the increase in working capital requirements associated with the
Company's sales growth. In addition, the increase in interest expense resulted
in part from a nominal increase in interest rates.
MONTH ENDED JUNE 25, 1994
During the month of June 1994, the Company sustained a loss of $177,000. This
loss was due primarily to the opening of five branch offices during the previous
quarter, all of which sustained operating losses during the month, and the
staffing of those offices. In addition, four previously opened offices were
still operating at a loss during the month. Thus, nine of eighteen branch
offices incurred losses during the month.
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters ending with the quarter ended June
29, 1996, in thousands of dollars. This data has been prepared on the same basis
as the audited financial statements contained elsewhere in this Report and in
the opinion of management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the information
for the periods presented, when read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto. Results for any
previous fiscal quarter are not necessarily indicative of results for the full
year or for any future quarter.
Page 19
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------
SEPT. 1994 DEC. 1994 MAR. 1995 JUNE 1995 SEPT. 1995 DEC. 1995 MAR. 1996 JUNE. 1996
---------- ---------- ----------- -------------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Revenue $21,171 $24,607 $24,480 $28,429 $31,682 $32,077 $ 38,335 $43,494
Cost of revenue 15,993 18,632 18,408 21,255 23,360 23,487 28,363 31,735
------- ------- ------- ------- ------- ------- -------- -------
Gross profit 5,178 5,975 6,072 7,174 8,322 8,590 9,972 11,759
Selling, general and
administrative expenses 4,600 5,496 5,995 6,834 7,186 7,397 8,185 9,384
------- ------- ------- ------- ------- ------- -------- -------
Income from operations 578 479 77 340 1,136 1,193 1,787 2,375
Interest and other
expense, net 204 256 281 404 470 443 612 342
------- ------- ------- ------- ------- ------- -------- -------
Income (loss) before taxes 374 223 (204) (64) 666 750 1,175 2,033
Income tax provision
(benefit) 167 65 (119) (109) 121 12 1,075(1) 873
------- ------- ------- ------- ------- ------- -------- -------
Net income (loss) $ 207 $ 158 $ (85) $ 45 $ 545 $ 738 $ 100 $ 1,160
======= ======= ======= ======= ======= ======= ======== =======
Income (loss) before taxes $ 374 $ 223 $ (204) $ (64) $ 666 $ 750 $ 1,175 $ 2,033
Pro forma provision
(benefit) for income taxes 196 116 (91) 22 322 338 470 873
------- ------- ------- ------- ------- ------- -------- -------
Pro forma net income (loss) $ 178 $ 107 $ (113) $ (86) $ 344 $ 412 $ 705 $ 1,160
======= ======= ======= ======= ======= ======= ======== =======
Pro forma net income
(loss) per share $0.02 $0.01 $(0.01) $(0.01) $0.04 $0.05 $0.08 $0.13
</TABLE>
1 Includes a $642,000 charge associated with the conversion of ARI from an S
corporation to a C corporation. See Note 8 to Consolidated Financial
Statements.
The above quarterly data reflects the results of operations for 13 weeks,
except for the September 1995 quarter which includes 14 weeks. The March 1995
and 1996 revenue reflects in some part the seasonality of the business and the
impact of the additional employment taxes on profitability.
During the October to December quarter, the number of holidays and vacation
days marginally reduces revenue. Some clients also close operations completely
during the last week of the year. The Company also experiences a lower operating
profit margin in its third fiscal quarter, the January to March quarter, in part
as a result of higher unemployment tax accruals and, to a lesser extent, FICA
taxes which are expensed as incurred. During this quarter, the unemployment tax,
which is based on the first $7,000-$20,000 of wages for each employee, depending
on the state, is significantly higher than other quarters.
LIQUIDITY AND CAPITAL RESOURCES
On June 10, 1996, the Company completed its initial public offering for the
sale of 2,230,000 shares of common stock, which included 330,000 shares in
respect of the underwriters' over-allotment option. The Company received
$34,498,000 from the sale of the shares, net of the underwriting discounts and
expenses associated with the offering. Additionally, the Company had previously
incurred $294,000 of costs related to the
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<PAGE>
initial public offering that were deferred in previous years. Net proceeds were
used to repay all outstanding indebtedness under the Company's credit facility,
which was approximately $19,335,000, and certain term loans (see Note 7 to the
Consolidated Financial Statements). As of March 1, 1996, the Company entered
into a $25 million revolving advance facility with BNY Financial Corporation
(the "Line of Credit"). This facility allows the Company to borrow the lesser of
85% of eligible receivables (approximately $22.3 million as of June 29, 1996) or
$25 million. 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 June 29,
1996 and is currently in compliance with these financial covenants.
As of June 29, 1996, the principal amount outstanding under the Line of Credit
was $10,000, with availability of $22.3 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 June 29, 1996, the Company
had invested $12.7 million in short term treasury bills at BNY Financial
Corporation which earn interest at the Short Term Federal Funds rate (5.167% at
June 29, 1996).
The Company had negative cash flow from operations of $1.8 million for the
year ended June 29, 1996. The Company had negative cash flow from operations of
$2.9 million and $7.1 million for fiscal 1994 and fiscal 1995, respectively. The
primary sources of cash from operations during the year ended June 29, 1996
were: $2.5 million in net income, net of $799,000 in non-cash depreciation and
amortization expenses; an increase of $1.1 million in income taxes payable as a
result of the conversion of ARI to a C corporation effective January 1, 1996;
and an increase of $2.4 million in accrued salaries, wages and expenses. The
primary use of cash in operations was an increase of $7.6 million in accounts
receivable resulting from the Company's sales growth. The primary sources of
cash from operations in fiscal 1995 were $325,000 in net income, net of $517,000
in non-cash depreciation and amortization expenses, and an increase of $910,000
in accounts payable. The primary use of cash from operations was an increase of
$9.7 million in accounts receivable. The primary sources of cash from operations
in fiscal 1994 were $385,000 in net income, net of $196,000 in non-cash
depreciation expense, and an increase of $1.7 million in accrued salaries, wages
and expenses. The primary use of cash from operations in fiscal 1994 was an
increase of $5.7 million in accounts receivable.
The Company used $269,000 of cash for investing activities for the year ended
June 29, 1996. The primary use of cash from investing activities during this
period was the purchase of $1.3 million in fixed assets. The primary source of
cash was the net repayment of $1.1 million in notes receivable from officers.
The Company used $2.6 million of cash in investing activities in fiscal 1995.
The primary use of cash in investing activities in such period was the purchase
of fixed assets of $1.9 million and an increase in notes receivable from
officers of $406,000. The Company used $465,000 of cash in investing activities
in fiscal 1994. The primary use of cash in investing activities in such period
was the purchase of fixed assets of $578,000.
For the year ended June 29, 1996 the Company generated $14.1 million in cash
from financing activities. The primary source of cash during this period was
$34.5 million in net proceeds from the Company's initial public offering of
common stock in June 1996. The Company also borrowed $745,000 from a leasing
company, and the Realty Trust received $1.4 million in proceeds from the
refinancing of its existing mortgage loan. The primary uses of cash in this
period were the repayment of $17.9 million on the Company's line of credit, and
$3.5 million of the Company's long-term debt and capital leases and the
distribution of $1.5 million to the majority stockholder, including $649,000
distributed to the majority stockholder as the sole beneficiary of the Realty
Trust. During fiscal 1995, the Company was provided $9.7 million in cash by
financing activities. The
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<PAGE>
primary source of cash was provided by the Company's line of credit in the
amount of $8.0 million. The Company was also provided $2.1 million in cash
through a leasing company. This financing was used to fund the acquisition of
fixed assets. During fiscal 1994, the Company was provided $3.4 million in cash
from financing activities. The primary source of cash was provided by the
Company's line of credit in the amount of $3.3 million.
On August 16, 1996, the Company, through its wholly owned subsidiary, ARI,
acquired all of the outstanding stock of Morris Information Systems, Inc.
("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 consulting
and noncompetition agreements. MIS is an information technology consulting firm
performing services similar to those of the Company. The acquisition will be
accounted for as a purchase and, accordingly, the purchase price will be
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values as of the date of acquisition. The excess of the
consideration paid over the estimated fair value of net assets acquired will be
recorded as goodwill.
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 new branches or the development of new service offerings. The
Company also anticipates making approximately $2.5 million in capital
expenditures in the next 12 months principally to upgrade its computer system.
In connection with a 1994 acquisition, the Company may be obligated to make
certain contingent payments during the next several years. See "Certain
Relationships and Related Transactions" and Note 3 to Consolidated Financial
Statements. 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 offering, 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.
RISK FACTORS
Dependence on Availability of Qualified IT Consultants. Substantially all of
the Company's revenue is derived from providing IT consultants on a contract
basis. The Company's success depends upon its ability to continue to attract and
retain IT consultants who possess the technical skills and experience required
to meet the staffing needs of its clients. The Company must continually update
and add to its database of technical personnel in each market in which it
operates. The vast majority of the IT consultants in The Registry's database are
also included in one or more of the databases of the Company's competitors, and
there can be no assurance that experienced professionals currently working on
projects for the Company will not choose to work on projects for competitors on
their next assignment. Competition for IT consultants is intense and demand for
their services has, to date, substantially exceeded their supply, and the
Company expects such competition will continue to increase. There can be no
assurance that qualified technical personnel will continue to be available to
the Company in sufficient numbers, and any failure to attract or retain
qualified IT consultants in sufficient numbers could have a material adverse
effect on the Company's business, operating results and financial condition.
Dependence on Key Personnel. The Company depends to a significant extent on
key management, technical and other personnel. The Company's continued growth
and success will depend in significant part on the continued service of its
founder, President and Chief Executive Officer, Mr. G. Drew Conway. The loss of
Mr. Conway or other key employees could have a material adverse effect on the
Company's business, operating results and financial condition.
Page 22
<PAGE>
Ability to Sustain and Manage Growth. The Company's business has grown
rapidly during the past four years due to the increased number of branch offices
and the increased demand for services from existing clients. The Company's
continued growth is dependent upon a number of factors, including: (i) the
successful performance of new and recently-opened offices; (ii) the continued
identification and training of corporate personnel to staff new and recently-
opened branch offices; (iii) the ability to identify and qualify IT consultants
within both new and existing markets; and (iv) the Company's ability to develop
additional business from existing clients and to obtain new clients. There can
be no assurance that recently-opened offices will reach or maintain any level of
profitability or that the Company's historical revenue growth will continue.
Further, the Company's rapid growth and expansion has placed and could continue
to place a significant strain on the Company's personnel and resources, and the
failure to manage growth effectively could have a material adverse effect on the
Company's business, operating results and financial condition.
Dependence on Key Clients; Price Reduction Agreements; Terminability of Client
Arrangements. The Company's top ten clients accounted for approximately 36.5% of
revenue in fiscal 1995 and approximately 34.8% of revenue in fiscal 1996. The
loss of a significant client could have a material adverse effect on the
Company's business, operating results and financial condition. The Company
provides certain large clients with reduced prices for its services in order to
retain the volume of business and/or to obtain a preferred vendor status with
such clients. There can be no assurance that the Company will be able to
maintain desired pricing levels with these or other clients. All of the
Company's arrangements with clients are terminable by the client at will and
without any penalty. There can be no assurance that existing clients will
continue to engage the Company's services at historical levels, if at all.
Concentration of Ownership. The Company's Chief Executive Officer and
principal stockholder, Mr. G. Drew Conway, owns 75.3% of the Company's
outstanding shares of Common Stock. As a result, Mr. Conway is able to exercise
effective control over almost all matters requiring stockholder approval. This
concentration of ownership could have the effect of making it difficult for a
third party to acquire control of the Company and may discourage third parties
from attempting to do so. Further, future sales of substantial amounts of Common
Stock by Mr. Conway, or the potential for such sales, could adversely affect the
prevailing market price of the Common Stock.
Risks Associated with Acquisitions and Development of Ancillary Services.
The Company has grown, and intends to continue to grow, in part through the
acquisition of other businesses and development of ancillary services. The
Company's ability to expand through acquisition depends on many factors,
including the successful identification and acquisition of businesses and
management's ability to effectively integrate and operate the new businesses.
There is competition for acquisition opportunities in the industry, which may
intensify due to consolidation in the industry, increasing the costs of
capitalizing on such opportunities. The Company competes for acquisition
opportunities with other companies that have significantly greater financial and
management resources. There can be no assurance that the Company will be able to
identify, acquire and integrate suitable acquisition candidates on reasonable
terms. In addition, the Company's ability to develop successful ancillary
practices depends on various factors, including identification of suitable
practice areas in which to invest resources and the Company's ability to
effectively integrate such practices into its overall operating structure. There
can be no assurance that any ancillary practice developed by the Company will
perform according to management's expectations.
Fluctuations in Operating Results; Seasonality. The Company's operating
results have fluctuated in the past based on many factors, including the opening
of new branch offices. In view of the Company's significant growth in recent
years, the Company believes that period-to-period comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. Because the
Page 23
<PAGE>
Company only derives revenue when its consultants are actually working, its
operating results are adversely affected when client facilities close due to
holidays or inclement weather. In particular, the Company generally experiences
a certain amount of seasonality in its second fiscal quarter due to the number
of holidays in that quarter. Further, the Company generally experiences lower
operating margins in its third fiscal quarter due in part to the timing of
unemployment tax accruals.
Fluctuations in the General Economy. Demand for IT professional services is
significantly affected by the general level of economic activity. When economic
activity slows, clients may delay or cancel plans that involve the hiring of IT
consultants. The Company is unable to predict the level of economic activity at
any particular time, and fluctuations in the general economy could adversely
affect the Company's business, operating results and financial condition.
Employment Liability Risks. Providers of IT professional services employ and
place individuals in the workplace of other businesses. Inherent risks of such
activity include possible claims of errors and omissions, misuse of client
proprietary information, misappropriation of funds, discrimination and
harassment, theft of client property, other criminal activity or torts and other
claims. Although historically the Company has not experienced any material
claims of these types, there can be no assurance that the Company will not
experience such claims in the future.
Potential Effect of Anti-Takeover Provisions. The Company's Board of
Directors has the authority without action by the Company's stockholders to fix
the rights and preferences of and to issue shares of the Company's Preferred
Stock, which may have the effect of delaying, deterring or preventing a change
in control of the Company. The Company has also imposed various procedural and
other requirements, such as supermajority voting requirements for specified
corporate actions, that could make it more difficult for stockholders to effect
certain corporate actions. In addition, the classification of the Board of
Directors of the Company and certain provisions of Massachusetts law could have
the effect of delaying, deterring or preventing a change in control of the
Company.
Absence of Dividends. The Company does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. In addition, the
Company is prohibited under the terms of its revolving line of credit from
paying dividends without the consent of the lender.
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
recognition and measurement provisions for nonemployee transactions no later
than December 15, 1995. The new standard defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period.
Pursuant to the new standard, companies are encouraged, but are not required,
to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and earnings per share as if the
Company had applied the new method of accounting.
Page 24
<PAGE>
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has decided not to adopt the fair value method of accounting for employee stock-
based compensation.
ITEM 8: Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
-------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Price Waterhouse LLP 26
Consolidated Balance Sheet as of June 24, 1995 and
June 29, 1996 27
Consolidated Statement of Income for the Years Ended
May 31, 1994, June 24, 1995 and June 29, 1996 28
Consolidated Statement of Changes in Stockholders'
Equity for the Years Ended May 31, 1994, June 24,
1995 and June 29, 1996 29
Consolidated Statement of Cash Flows for the Years
Ended May 31, 1994, June 24, 1995 and June 29, 1996 30
Notes to Consolidated Financial Statements 31
Financial Statement Schedules:
For the Years ended May 31, 1994, June 24, 1995 and
June 29, 1996
II - Valuation and Qualifying Accounts 46
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or Notes
thereto.
See selected quarterly financial data in Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
Page 25
<PAGE>
[LETTERHEAD OF PRICE WATERHOUSE]
REPORT OF INDEPENDENT ACCOUNTANTS
July 26, 1996, except as to Note 16 which is as of August 16, 1996
To the Board of Directors and
Stockholders of The Registry, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of The
Registry, Inc. and its subsidiaries (the "Company") at June 29, 1996 and June
24, 1995, and the results of their operations and their cash flows for each of
the two years in the period ended June 29, 1996, for the one month ended June
25, 1994 (not presented separately herein), and for the year ended May 31, 1994,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
Page 26
<PAGE>
THE REGISTRY, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 24, JUNE 29,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $12,044
Accounts receivable, net of allowance for doubtful
accounts of $317 and $464 at June 24, 1995
and June 29, 1996, respectively 22,448 29,930
Notes receivable from related parties 422 82
Deferred income taxes - 47
Other current assets 420 656
------- -------
Total current assets 23,290 42,759
Fixed assets, net 2,758 5,344
Notes receivable from officers 1,121 60
Other assets 1,294 903
Deferred income taxes 180 35
------- -------
$28,643 $49,101
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $17,938 $ 10
Current portion of capital lease obligations - 77
Current portion of long-term debt 946 288
Accounts payable 1,252 680
Accrued salaries and wages 1,359 1,889
Other accrued expenses 1,903 3,874
Income taxes payable 99 1,209
Deferred income taxes 369 89
------- -------
Total current liabilities 23,866 8,116
Deferred income taxes 939 670
Capital lease obligations - 52
Long-term debt 1,554 2,433
------- -------
Commitments and contingencies (Notes 3 and 12)
Stockholders' equity:
Preferred stock, $.10 par value (Note 9)
Common stock, no par value:
Authorized - 29,000,000 shares; issued and
outstanding - 2,666,667 shares at June 24, 1995
and 10,230,000 shares at June 29, 1996 10 10
Common stock, $.01 par value:
Authorized, issued and outstanding - 200,000 shares
at June 24, 1995 and no shares at June 29, 1996 2 -
Additional paid-in capital 453 34,969
Retained earnings 1,819 2,851
------- -------
Total stockholders' equity 2,284 37,830
------- -------
$28,643 $49,101
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 27
<PAGE>
THE REGISTRY, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, JUNE 24, JUNE 29,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue $60,367 $98,687 $145,588
Cost of revenue 46,262 74,288 106,945
------- ------- --------
14,105 24,399 38,643
Selling, general and administrative
expenses 12,831 22,925 32,152
------- ------- --------
Income from operations 1,274 1,474 6,491
Interest expense (512) (1,201) (2,084)
Interest and other income 53 56 217
------- ------- --------
Income before taxes 815 329 4,624
Income tax provision 430 4 2,081
------- ------- --------
Net income $ 385 $ 325 $ 2,543
======= ======= ========
UNAUDITED PRO FORMA INFORMATION (NOTE 15):
Income before taxes $ 329 $ 4,624
Pro forma income tax provision 243 2,003
------- --------
Pro forma net income $ 86 $ 2,621
======= ========
Pro forma net income per share $.01 $.30
Weighted average common and common
equivalent shares 8,398 8,594
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 28
<PAGE>
THE REGISTRY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
NO PAR $.01 PAR PAID-IN RETAINED STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1993 2,666,667 $ 10 200,000 $ 2 $ 298 $ 1,286 $ 1,596
Capital contribution - - - - 155 - 155
Net income for the year - - - - - 385 385
---------- ----- ---------- ----- ------- ------- -------
Balance at May 31, 1994 2,666,667 10 200,000 2 453 1,671 2,136
Net loss for the month - - - - - (177) (177)
---------- ----- ---------- ----- ------- ------- -------
Balance at June 25, 1994 2,666,667 10 200,000 2 453 1,494 1,959
Net income for the year - - - - - 325 325
---------- ----- ---------- ----- ------- ------- -------
Balance at June 24, 1995 2,666,667 10 200,000 2 453 1,819 2,284
Consolidation of real estate trust
(Note 14) - - - - (111) - (111)
Distributions - - - - - (1,511) (1,511)
Acquisition of ARI by TRI (Note 2) 5,333,333 - (200,000) (2) 2 - -
Proceeds from issuance of
Common stock, net of issuance costs 2,230,000 - - - 34,204 - 34,204
Capital contribution - - - - 421 - 421
Net income for the year - - - - - 2,543 2,543
---------- ----- ---------- ----- ------- ------- -------
Balance at June 29, 1996 10,230,000 $ 10 - $ - $34,969 $ 2,851 $37,830
========== ===== ========== ===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 29
<PAGE>
THE REGISTRY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
May 31, June 24, June 29,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 385 $ 325 $ 2,543
Adjustments to reconcile net income
to net cash used for operating
activities:
Depreciation and amortization 196 517 799
Provision for losses on accounts
receivable 147 125 147
Deferred income taxes 430 (88) (451)
Increase in accounts receivable (5,660) (9,688) (7,629)
Increase in other current assets (102) (143) (187)
(Increase) decrease in other
assets (174) (190) 5
Increase (decrease) in accounts
payable 159 910 (572)
Increase in accrued expenses 818 690 1,887
Increase in accrued salaries and
wages 897 396 530
Increase in income taxes payable - 92 1,110
------- ------- -------
Net cash used for operating
activities (2,904) (7,054) (1,818)
------- ------- -------
Cash flows from investing activities:
Cash disbursed for acquisition - (250) -
Increase in notes receivable from
officers (82) (406) (709)
Repayment of notes receivable
from officers - - 1,770
Decrease (increase) in notes
receivable from related parties 195 (57) (25)
Purchases of fixed assets (578) (1,885) (1,305)
------- ------- -------
Net cash used for investing
activities (465) (2,598) (269)
------- ------- -------
Cash flows from financing activities:
Cash proceeds from issuance of common
stock (Note 9) - - 34,498
Net borrowings (payments) on line
of credit 3,294 8,023 (17,928)
Principal payments on long-term debt
and capital lease obligations (80) (451) (3,509)
Proceeds from issuance of
long-term debt - 2,080 2,160
Capital contribution 155 - 421
Distributions - - (1,511)
------- ------- -------
Net cash provided by financing
activities 3,369 9,652 14,131
------- ------- -------
Net increase in cash and cash
equivalents 0 0 12,044
Cash and cash equivalents, beginning of
period 0 0 0
------- ------- -------
Cash and cash equivalents, end of period $ 0 $ 0 $12,044
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 512 $ 1,201 $ 2,018
Cash paid for income taxes $ 15 $ 0 $ 1,422
See additional disclosure of non-cash investing and financing activity in Notes 3, 4, 9 and 14.
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 30
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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. Offices are maintained in
13 states.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying financial statements include the accounts of TRI and America's
Registry, Inc. ("ARI") 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 ARI and the stockholder of ARI
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 subsidiary, The Registry, Inc. Network Consulting Practice (formerly Axiom
Consulting Group, Inc.), subsequent to its acquisition on November 30, 1994 (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 (see Note 14). All intercompany balances and
transactions have been eliminated.
FISCAL YEAR
The Company changed its fiscal year end from May 31 to the last Saturday in June
effective with the fiscal year ended June 24, 1995. The consolidated statements
of income, of changes in stockholders' equity and of cash flows are presented
for the years ended May 31, 1994, June 24, 1995 and June 29, 1996. Results of
operations and of cash flows for the years ended June 24, 1995 and June 29, 1996
are for 52 weeks and 53 weeks, respectively.
The Company's results of operations for the month ended June 25, 1994 reflected
revenue of $5,812,000, cost of revenue of $4,468,000, expenses of $1,588,000, an
income tax benefit of $67,000 and net loss of $177,000. During the month ended
June 25, 1994, net cash of $585,000 and $90,000 was used for operating and
investing activities, respectively, and net cash of $675,000 was provided by
financing activities.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company's
investments consist of short term U.S. treasury bill investments earning
interest at the Short Term Federal Funds rate (5.167% at June 29, 1996).
Accordingly, the investments are subject to minimal credit and market risks.
These investments are carried at cost plus accrued interest which approximates
market. The Company considers such securities to be classified as "held-to-
maturity".
Page 31
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVENUE RECOGNITION, ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Revenue is recognized as services are performed. Ongoing credit evaluations of
customers' financial condition are performed and collateral is not required.
Concentration of credit risk with respect to accounts receivable is limited due
to the number and diversity of customers comprising the Company's customer base.
At June 29, 1996, one customer comprised approximately 13% of the Company's
accounts receivable. No single customer accounted for more than 10% of accounts
receivable at June 24, 1995. The Company maintains reserves for potential
credit losses and such losses, in the aggregate, have not exceeded management's
expectations.
FIXED ASSETS
Fixed assets are stated at cost. Additions, renewals and betterments of fixed
assets are capitalized. Repair and maintenance expenditures for minor items are
generally expensed as incurred. Depreciation of fixed assets is provided using
the straight-line method over the following estimated useful lives:
Building and improvements 31 1/2 years
Computer equipment 5 years
Furniture and equipment 5 to 7 years
Motor vehicles 5 years
Leasehold improvements lesser of estimated useful life
or remaining lease term
ADVERTISING COSTS
Advertising costs are recorded as expense when incurred. There were no
advertising costs recorded as assets at June 24, 1995 or June 29, 1996. Total
advertising expenses for the years ended May 31, 1994, June 24, 1995 and June
29, 1996 were $446,000, $627,000 and $340,000, respectively.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the financial statement and tax bases of assets
and liabilities, utilizing currently enacted tax rates. The effect of any
future change in tax rates is recognized in the period in which the change
occurs. Through May 31, 1994, TRI had used the cash method of accounting for
income tax reporting purposes. Effective June 1, 1994, TRI converted to the
accrual method of accounting for income tax reporting purposes.
As described in Note 8, ARI had previously elected to be treated as a small
business corporation for income tax purposes with income or loss and credits
passed through to the stockholder. Concurrent with the acquisition of ARI by
TRI described above, ARI's election to be treated as an S Corporation terminated
(see Note 8). The companies will continue to file separate tax returns.
Page 32
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingencies at June 24, 1995 and June 29, 1996, and the reported amounts of
revenues and expenses during the periods then ended. Actual results could
differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current period presentation.
RECENTLY ENACTED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". Both SFAS No. 121 and No. 123 are effective for fiscal years
beginning after December 15, 1995. The Company will adopt these standards
as required and their future adoption is not expected to have a material
effect on the Company's financial position or results of operations or cash
flows.
3. ACQUISITION OF SUBSIDIARY
On November 30, 1994, TRI acquired all of the common stock of Axiom Consulting
Group, Inc., an information technology consulting firm providing services
similar to those of the Company. The acquired entity retained its separate
corporate form and was subsequently renamed The Registry, Inc. Network
Consulting Practice ("NSCP"). The purchase price was $1,000,000, of which
$250,000 was paid in cash at the closing and $750,000 is in the form of
promissory notes which will be paid in installments through November 1998 (see
Note 7).
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price, including an additional $12,000 of related costs which were
incurred by TRI, has been allocated to the assets acquired and the liabilities
assumed based on their estimated fair values at the date of acquisition, as
follows:
Accounts receivable $64,000
Fixed assets 81,000
Other assets 9,000
Accounts payable 3,000
Other liabilities 57,000
Goodwill of $918,000, representing the excess of the purchase price over the
fair value of the assets acquired and liabilities assumed, is included in other
assets in the accompanying balance sheet and is being amortized on a straight-
line basis over 10 years. Accumulated amortization at June 24, 1995 and June
29, 1996 was $53,000 and $145,000, respectively.
Page 33
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The pro forma results of operations, assuming that the acquisition of NSCP
occurred at the beginning of the years ended May 31, 1994 and June 24, 1995,
would not materially differ from TRI's reported results of operations.
TRI is required to make additional payments up to $3,000,000 to the selling
stockholders of the former Axiom Consulting Group, Inc., contingent upon the
revenue and profits of the subsidiary for the four years subsequent to the
acquisition. Such payments are determined as a stated percentage of net income
of the subsidiary, as defined in the purchase agreement, with a provision that
all $3,000,000 would be payable to the selling stockholders in the event that
the subsidiary's revenue exceeds a stated amount in the twelve month period
ending November 30, 1998. Such amounts, if paid, will be recorded as
additional purchase price. No amounts have been accrued for these contingent
payments at June 24, 1995 or June 29, 1996.
Page 34
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMBINED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
June 24, June 29,
1995 1996
----------- -----------
<S> <C> <C>
Other Current Assets:
Prepaid expenses $ 263,000 $ 558,000
Advances to officers 74,000 -
Advances to employees 83,000 98,000
---------- ----------
$ 420,000 $ 656,000
---------- ----------
Fixed Assets:
Land $ - $ 360,000
Building - 1,439,000
Computer Equipment 2,066,000 3,102,000
Furniture and equipment 1,263,000 1,615,000
Motor vehicles 19,000 19,000
Leasehold and building improvements 395,000 688,000
---------- ----------
Total fixed assets 3,743,000 7,223,000
Less: accumulated depreciation and
amortization 985,000 1,879,000
---------- ----------
$2,758,000 $5,344,000
---------- ----------
Other Accrued Expenses:
Accrued employee benefits $ 362,000 $1,229,000
Payroll taxes withheld 617,000 752,000
Accrued commissions and bonuses 193,000 750,000
Other accrued expenses 731,000 1,143,000
---------- ----------
$1,903,000 $3,874,000
---------- ----------
</TABLE>
Computer equipment recorded under capital leases amounted to approximately
$238,000 at June 29, 1996 ($0 at June 24, 1995). Total accumulated
amortization related to these assets is approximately $78,000 at June 29,
1996. Amortization expense for the period is included in depreciation and
amortization in the accompanying consolidated statement of cash flows.
Page 35
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS
Notes receivable from officers at June 24, 1995 primarily represent promissory
notes from the Company's president and majority stockholder which were repaid
during fiscal year 1996. The promissory notes bore interest at an annual
interest rate of 10%. Related interest income for the years ended May 31, 1994,
June 24, 1995 and June 29, 1996 was $53,000, $56,000, and $55,000, respectively.
Notes receivable from officers at June 29, 1996 represents notes due from
various senior officers of the Company and bear interest at the prime rate
(8.25% at June 29, 1996).
Notes receivable from related parties at June 24, 1995 include promissory notes
totaling $365,000 from a real estate trust, of which the president and majority
stockholder of the Company is the sole beneficiary (the "Trust"). In June 1996,
the president and majority stockholder contributed $421,000 to the Trust, which
was used to repay the notes and accrued interest. These notes were payable on
demand and bore interest at a variable rate (5.6% at June 24, 1995). At June
24, 1995 and June 29, 1996 notes receivable from related parties also include
promissory notes totaling $57,000 and $82,000, respectively, from certain of the
former stockholders of TRI's wholly-owned subsidiary (NSCP). These notes bear
interest at the prime rate published in The Wall Street Journal (9% at June 24,
1995 and 8.25% at June 29, 1996), and are payable in installments at various
dates through November 30, 1998.
6. LINE OF CREDIT
On March 31, 1993, TRI and ARI combined their separate lines of credit into a
single line of credit with the bank; this agreement was amended on June 7, 1995
to allow a maximum borrowing of $17,000,000 and again on October 4, 1995 to
allow a maximum borrowing of $18,000,000, payable on demand. The agreement
provided a borrowing base of 80% of eligible accounts receivable, as defined,
less the aggregate amount of issued and undrawn letters of credit. The line of
credit was collateralized by all the assets of the Company and the personal
guarantee of the Company's president and majority stockholder. Interest was
paid monthly in arrears at the bank's prime rate plus 0.75% (9.75% at June 24,
1995). There were no letters of credit outstanding at June 24, 1995.
In March 1996, the Company terminated its existing line of credit and replaced
it with a line of credit from a different bank. The new line of credit provides
a borrowing base of 85% of eligible accounts receivable, as defined, up to a
maximum borrowing of $25,000,000, payable on demand. Interest is payable
monthly in arrears at the bank's prime rate plus .5% (8.75% at June 29, 1996) or
the LIBOR rate plus 2.5% (8.00% at June 29, 1996) at the option of the Company.
The new line of credit is collateralized by all of the assets of the Company,
contains certain restrictions, including limitations on the amount of
distributions which can be made to stockholders, purchases of fixed assets, and
loans which can be made to officers, and requires the maintenance of certain
financial covenants. The line of credit agreement expires in February 1999.
Page 36
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 24, June 29,
1995 1996
---------- ----------
<S> <C> <C>
Note payable due January 1, 1996 $ 59,000 $ -
Term loan due December 1, 1996 563,000 -
10.7% term loan due September 30, 1997 502,000 -
11% term loan due March 13, 1998 626,000 -
Notes payable due November 30, 1998 750,000 625,000
9.375% term loan due August 27, 2010 - 1,406,000
6.75% term loan due April 1, 2013 - 690,000
---------- ----------
2,500,000 2,721,000
Less: current portion 946,000 288,000
---------- ----------
$1,554,000 $2,433,000
---------- ----------
</TABLE>
The note payable due January 1, 1996 was payable to a bank in monthly
installments, including interest at the bank's prime rate plus 1.5% (10.5% at
June 24, 1995).
The term loan due December 1, 1996, payable to a bank in monthly installments
of $31,000 plus interest at the bank's prime rate plus 1.25% (10.25% at June
24, 1995), was repaid in March 1996.
The term loans due September 30, 1997 and March 13, 1998, payable in monthly
installments of $21,000 and $22,000, respectively, including interest, were
repaid in June 1996.
The notes payable due November 30, 1998 resulted from TRI's acquisition of
the former Axiom Consulting Group, Inc. in November 1994 (see Note 3). The
notes are unsecured and are payable to the former stockholders of Axiom
Consulting Group, Inc. in semi-annual installments of $125,000, plus interest
at the prime rate published in The Wall Street Journal, beginning in May 1996.
The term loan due August 27, 2010 is payable to a bank in monthly
installments of $12,000, including interest, and is collateralized by certain
property of the Trust and the personal guarantee of the Company's president
and majority stockholder.
Page 37
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The term loan due April 1, 2013 is payable in semi-annual installments of
$34,000, including interest, and is secured by a mortgage on the land and
building of the Trust and the assignment of a life insurance policy on the
Company's president and majority stockholder.
Aggregate maturities of long-term debt are as follows at June 29, 1996:
<TABLE>
<S> <C>
1997 $ 288,000
1998 299,000
1999 170,000
2000 47,000
2001 53,000
Thereafter 1,864,000
----------
$2,721,000
----------
</TABLE>
8. INCOME TAXES
Prior to January 1, 1996, ARI had elected to be an S Corporation for federal
income tax purposes as provided in Section 1362(a) of the Internal Revenue Code.
As such, the corporate income or loss and credits were passed through to the
stockholder and reported on his personal tax return.
In conjunction with the acquisition of all of the common stock of ARI by TRI
(see Note 2), ARI's election to be treated as an S Corporation terminated,
effective January 1, 1996. As a result, the income or loss of ARI subsequent to
January 1, 1996 will be subject to corporate income tax. The income tax
provision (benefit) described below for the year ended June 29, 1996 includes
the income taxes related to ARI since January 1, 1996. The unaudited pro forma
provision for income taxes and pro forma net income on the accompanying
consolidated statement of income (see Note 15) reflects the estimated results of
operations if ARI had been subject to corporate income taxes during the years
ended June 24, 1995 and June 29, 1996.
At the time of conversion of ARI from an S Corporation to a C Corporation, a net
deferred tax liability of $642,000 was recorded through the income tax provision
on January 1, 1996. This deferred tax liability was comprised principally of
the remaining effects of ARI converting from the cash basis to the accrual basis
for tax reporting purposes on January 1, 1994, offset by deferred tax assets for
certain accrued expenses which are recognized in different periods for financial
and tax reporting.
Page 38
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the provision (benefit) for federal and state income taxes are
as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
May 31, June 24, June 29,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ - $ 54,000 $ 2,019,000
State - 38,000 513,000
---------- ----------- -----------
- 92,000 2,532,000
Deferred:
Federal 344,000 (64,000) (841,000)
State 86,000 (24,000) (252,000)
---------- ----------- -----------
430,000 (88,000) (1,093,000)
Change in tax status of ARI - - 642,000
---------- ----------- -----------
$430,000 $ 4,000 $ 2,081,000
---------- ----------- -----------
</TABLE>
Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws and regulations. Under SFAS 109, the
benefit associated with future deductible temporary differences and operating
loss or credit carryforwards is recognized if it is more likely than not that
a benefit will be realized. Deferred tax expense (benefit) represents the
change in the net deferred tax asset or liability balance. Deferred tax
assets and liabilities are comprised of the following at June 24, 1995 and
June 29, 1996:
<TABLE>
<CAPTION>
June 24, June 29,
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss and credit carry forwards $ 214,000 $ 53,000
Allowance for doubtful accounts - 126,000
Accounts payable and accrued expenses 27,000 257,000
Other 51,000 -
---------- ----------
Total gross deferred tax assets 292,000 436,000
---------- ----------
Deferred tax liabilities:
Conversion from cash to accrual basis 1,103,000 824,000
Accounts receivable 170,000 -
Prepaid expenses 55,000 82,000
Fixed assets 42,000 150,000
Other 50,000 57,000
---------- ----------
Total gross deferred tax liabilities 1,420,000 1,113,000
---------- ----------
Net deferred tax liability $1,128,000 $ 677,000
---------- ----------
</TABLE>
Page 39
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes computed using the federal statutory income tax rate differs
from the Company's effective tax rate primarily due to the following:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
May 31, June 24, June 29,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Statutory U.S. federal tax rate 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit 7.0% 2.8% 3.8%
(Income) loss from ARI not (taxable)
deductible for corporate income tax
purposes 2.0% (47.1)% (9.1)%
Non-deductible expenses 3.5% 7.2% 1.8%
Amortization of goodwill not deductible
for corporate income tax purposes - 5.5% .7%
Change in tax status of ARI - - 13.9%
Other 6.3% (1.2)% (.1)%
---------- ---------- ----------
Effective tax rate 52.8% 1.2% 45.0%
---------- ---------- ----------
</TABLE>
At June 29, 1996, the Company has available for federal income tax purposes
unused operating losses of $90,000 to offset future taxable income, expiring in
various years through 2011. Additionally, the Company has available for federal
income tax purposes unused tax credits of $18,000 at June 29, 1996 to offset
future tax liabilities, which may be carried forward indefinitely.
9. STOCKHOLDERS' EQUITY
PREFERRED STOCK
On April 10, 1996, the Company's sole stockholder authorized 1,000,000 shares of
preferred stock, $.10 par value. Preferred stock may be issued in one or more
series at the discretion of the Board of Directors of the Company (without
stockholder approval) with such designations, rights and preferences as the
Board of Directors may determine. The preferred stock may have dividend,
liquidation, redemption, conversion, voting or other rights which may be more
expansive than the rights of the holders of the Company's common stock.
STOCK SPLIT
On March 22, 1996, the Company's then sole stockholder approved a 177.77778-for-
1 stock split on the common stock of TRI. At that time, the Company's
stockholder also approved an increase to 12,000,000 in the number of authorized
shares of the common stock of TRI, no par value. On April 10, 1996, the
Company's stockholder approved an additional increase to 29,000,000 in the
number of authorized shares of the common stock of TRI.
Page 40
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All shares and per share amounts included in the consolidated financial
statements have been adjusted to give retroactive effect to the stock split for
all periods presented.
PUBLIC OFFERING OF COMMON STOCK
On June 10, 1996, the Company completed its Initial Public Offering for the sale
of 2,230,000 of common stock, which included 330,000 shares in respect of the
underwriters' over-allotment option. The Company received $34,498,000 from the
sale of the shares, net of the underwriting discounts and expenses associated
with the offering. Additionally, the Company had previously incurred $294,000
of costs related to the Initial Public Offering that were deferred in previous
years which were also charged against the proceeds of the offering. Net
proceeds were used to repay all outstanding indebtedness under the Company's
credit facility and certain term loans (see Note 7).
10. STOCK PLANS
In March 1996, the Company's then sole stockholder approved the formation of the
1996 Stock Plan, the 1996 Employee Stock Purchase Plan and the 1996 Eligible
Directors Stock Plan.
1996 STOCK PLAN
This plan authorizes the grant of incentive stock options, non-qualified stock
options, stock purchase authorizations or stock bonus awards to key employees,
including officers, employee directors and consultants, to purchase up to
1,600,000 shares of common stock. Incentive stock options cannot be granted to
consultants. For incentive options, the purchase price is equal to the fair
market value on the date of grant (110% of fair market value for stockholders
who hold greater than 10% of the Company's stock at the time of grant). For
non-qualified options and stock purchase authorizations, the purchase price is
determined by the Board of Directors within limits as set forth in the plan, but
shall not be less than 85% of the fair market value of the common stock on the
date of grant. The periods over which options are exercisable are determined by
the Board of Directors. If permitted by the Board of Directors, employees may
use previously acquired shares of the Company's common stock (provided that such
shares tendered have been held for at least six months) or may borrow money from
the Company on a recourse basis (for a period of time not to exceed five years)
to pay the exercise price of shares purchased. Options may expire up to ten
years after the date of grant (five years for incentive options granted to 10%
stockholders). The Board of Directors has the discretion to designate non-
qualified options as transferable. The plan will terminate in March 2006.
A summary of option activity under the plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- --------------
<S> <C> <C>
Outstanding at June 24, 1995 - -
Granted 1,210,750 $11.00-$16.00
Canceled (15,750) $11.00-$13.00
----------- ---------------
Outstanding at June 29, 1996 1,195,000 $11.00-$16.00
----------- ---------------
</TABLE>
1996 EMPLOYEE STOCK PURCHASE PLAN
This plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, authorizes the grant of options to eligible employees on a semi-
annual basis to purchase shares of the Company's common stock. An aggregate of
300,000 shares of common stock has been reserved for issuance under this plan.
The plan permits eligible employees to purchase up to 200 shares of common stock
in any six month offering period through the
Page 41
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accumulation of payroll deductions, which may not exceed 10% of the employee's
compensation. Employees are eligible to participate if they have been employed
by the Company for at least eighteen months. Shares are purchased at 85% of the
lower of the fair market value of the Company's common stock at the beginning or
end of each six month offering period. Employees may end their participation in
the offering at any time during the offering period, and participation ends
automatically on termination of employment. The first stock offering period
under the plan commenced on June 5, 1996, the effective date of the registration
statement covering the Company's initial public offering. The plan will
terminate in March 2006.
1996 ELIGIBLE DIRECTORS' STOCK PLAN
This plan authorizes the grant of an option to purchase 20,000 shares of common
stock to each non-employee director on the date of the director's initial
election to the Board of Directors. The exercise price of options granted is
100% of the closing price per share of common stock on the date of grant.
Directors may use previously acquired shares of the Company's common stock to
pay the exercise price of shares purchased, provided that such shares tendered
have been held for at least six months. An aggregate of 100,000 shares of
common stock may be issued under the plan. Options are exercisable in four
equal annual installments commencing on the first anniversary date of the grant.
Options expire ten years after the date of grant. The plan will terminate in
March 2006.
In April and May 1996, options to purchase 20,000 shares each of common stock at
an exercise price of $11.00 and $13.00 per share, respectively, were granted to
newly-elected directors.
11. EMPLOYEE SAVINGS PLAN
The Company provides an employee retirement savings plan under Section 401(k) of
the Internal Revenue Code (the "Plan") which covers substantially all employees.
Under the terms of the Plan, employees may contribute a percentage of their
salary, up to a maximum of 15%, which is then invested in one or more of several
mutual funds selected by the employee. The Company may make contributions to
the Plan at their discretion; no such contributions have been made since
inception of the Plan.
12. COMMITMENTS
In addition to leasing computer equipment under various capital leases (Note 4),
the Company occupies premises under various noncancelable operating leases which
include terms requiring the Company to pay a pro-rata portion of increased
operating expenses and real estate taxes. The leases expire on various dates
through 2001, and certain of the leases contain options for renewal or purchase
of the related equipment.
In January 1993, TRI entered into a three year lease with the Trust, which
required annual rental payments of $120,000, payable in equal monthly
installments of $10,000. This lease was amended in January of 1994 upon
expansion of the leased area to require annual rental payments of $150,000,
payable in equal monthly installments of $12,500. This lease was further
amended in September 1995 upon expansion of the leased area to require annual
payments of $357,000, payable in equal monthly installments of $29,800. The
term of the lease was also extended through September 2010. In conjunction with
the amendment in September 1995, the Company has begun to consolidate the
accounts of the Trust on a prospective basis (see Note 14). Rent expense for
the years ended May 31, 1994, June 24, 1995 and June 29, 1996 (excluding
amounts paid to the Trust after September 19, 1995) was $633,000, $1,188,000 and
$1,499,000, respectively.
At June 29, 1996, future minimum rental payments under noncancelable lease
arrangements are as follows, excluding amounts payable to the Trust:
Page 42
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
----------- ---------
<S> <C> <C>
1997 $1,364,000 $ 92,000
1998 1,232,000 50,000
1999 975,000 10,000
2000 607,000 -
2001 240,000 -
Thereafter 12,000 -
---------- --------
Total minimum lease payments $4,430,000 $152,000
----------
Less - amount representing interest 23,000
--------
Present value of obligations under
capital leases $129,000
--------
</TABLE>
13. FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the normal
course of business. Fair values are estimated based on assumptions concerning
the amount and timing of estimated future cash flows and assumed discount rates
reflecting varying degrees of perceived risk. Accordingly, the fair values may
not represent actual values of the financial instruments that could have been
realized as of year end or that will be realized in the future.
The carrying amounts of the Company's financial instruments, which include
accounts receivable, notes receivable from related parties, line of credit,
accounts payable, accrued salaries and wages, other accrued expenses, income
taxes payable and long-term debt approximate their fair values at June 29, 1996.
14. CONSOLIDATION OF REAL ESTATE TRUST
As described in Note 12, the Company leases office space from a real estate
trust, of which the president and majority stockholder of the Company is the
sole beneficiary and an officer of the Company is the trustee. Effective
September 19, 1995, the Company renegotiated its lease with the Trust in
conjunction with a refinancing of the Trust's mortgage. The modified lease
terms expanded the amount of space which the Company occupies, committed the
Company to rent the facility through the maturity date of the mortgage loan, and
granted the Company a right of first refusal to lease any space in the facility
currently occupied by other tenants when the tenants' leases expire.
Accordingly, as of this date, the Company obtained significant control over the
operations of the Trust and assumed a significant portion of the Trust's
obligations. As a result, the Company has consolidated the accounts
Page 43
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the Trust as of September 19, 1995 on a prospective basis. As of September
19, 1995, the Trust reported the following assets and liabilities:
<TABLE>
<S> <C>
Fixed assets, net $ 1,750,000
Other current assets 49,000
Security deposits and deferred income (84,000)
Note payable to TRI (365,000)
Mortgage loans payable (1,461,000)
-----------
$ (111,000)
-----------
</TABLE>
In September 1995, one of the mortgage loans payable by the Trust was
refinanced with a new mortgage loan (see Note 7). At this time, a
distribution of $649,000 was made to the beneficiary of the Trust.
Rental income from tenants during the period from September 19, 1995 through
June 29, 1996 was $137,000, which is included in interest and other income in
the accompanying consolidated statement of income. Future minimum rental
commitments from tenants are as follows at June 29, 1996:
<TABLE>
<S> <C>
1997 $109,000
1998 12,000
--------
$121,000
--------
</TABLE>
15. UNAUDITED PRO FORMA INCOME INFORMATION
The following unaudited pro forma income tax information is presented as if ARI
had been a C corporation subject to federal and state income taxes throughout
the periods presented.
<TABLE>
<CAPTION>
Year ended Year ended
June 24, June 29,
1995 1996
---------- ----------
<S> <C> <C>
Income before taxes $329,000 $4,624,000
Pro forma income tax provision 243,000 2,003,000
---------- ----------
Pro forma net income $ 86,000 $2,621,000
---------- ----------
</TABLE>
From inception through the year ended May 31, 1994, ARI generated a taxable loss
for which the Company would not have received a benefit, as ARI would have filed
a separate tax return from TRI.
NET INCOME PER SHARE
Page 44
<PAGE>
THE REGISTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of common and common equivalent shares
outstanding, after considering the events described in Notes 2, 9 and 10.
Weighted average common and common equivalent shares include common shares and
common shares which may be issuable upon exercise of outstanding stock options,
computed using the treasury stock method. Pursuant to Securities and Exchange
Commissions Staff Accounting Bulletin No. 83, stock options granted during the
twelve months prior to the date of the initial filing of the Company's
Registration Statement on Form S-1 have been included in the calculation of
common equivalent shares using the treasury stock method, as if they were
outstanding as of the beginning of each period presented.
16. SUBSEQUENT EVENT
On August 16, 1996, the Company, through its wholly owned subsidiary, ARI,
acquired all of the outstanding stock of Morris Information Systems ("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. The acquisition will be
accounted for as a purchase and, accordingly, the purchase price will be
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values as of the date of acquisition. The excess of the
consideration paid over the estimated fair value of net assets acquired will be
recorded as goodwill.
Page 45
<PAGE>
SCHEDULE II
THE REGISTRY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------ DEDUCTIONS
BALANCE AT CHARGED CHARGED WRITE-OFF OF BALANCE
BEGINNING TO COSTS AND TO OTHER UNCOLLECTIBLE AT END OF
OF PERIOD EXPENSES ACCOUNTS ACCOUNTS PERIOD
---------- ------------ -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended May 31, 1994............... $ 45 $226 $0 $ 79 $192
Year ended June 24, 1995(1)........... 192 189 0 64 317
Year ended June 29, 1996.............. 317 340 0 193 464
</TABLE>
- --------------
(1) The Company changed its fiscal year end from May 31 to the last Saturday in
June, effective with the fiscal year ended June 24, 1995.
Page 46
<PAGE>
ITEM 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10: Directors of the Registrant
The information required by this Item is included in Item I of this report or
will be included under the captions "Election of Class I Director -- Nominee,"
"Election of Class I Director --Other Directors," "Election of Class I
Director -- Board Of Directors and Committees," "Election of Class I Director --
Director Compensation" in the Proxy Statement, and is incorporated herein by
reference.
ITEM 11: Executive Compensation
The information required by this Item will be included under the captions
"Executive Compensation -- Summary Compensation Table," "Executive Compensation
- -- Option Grants Under the Stock Option Plan," "Executive Compensation --
Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year-End Option
Values," "Executive Compensation -- Employment Agreements" in the Proxy
Statement and is incorporated herein by reference.
ITEM 12: Security Ownership of Certain Beneficial Owners and Management
The information required by this Item will be included under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement and is incorporated herein by reference.
ITEM 13: Certain Relationships and Related Transactions
The information required by this Item will be included under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.
PART IV
ITEM 14: Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a) The financial statements and financial statement schedules filed as part
of this Report are listed and indexed at Page 25.
Listed below are all Exhibits filed as part of this Report. Certain
Exhibits are incorporated herein by reference to the Company's Registration
Statement on Form S-1 originally filed on April 11, 1996 (File No. 333-3366).
II-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ----
<S> <C> <C>
2.1/1/ Stock Purchase Agreement between the
Registrant and Axiom Consulting Group, Inc.,
dated November 30, 1996.
3.1/1/ Articles of Organization of Registrant, as
amended through April 11, 1996.
3.2/1/ Restated Articles of Organization of
Registrant, as filed in Massachusetts on May
13, 1996.
3.3/1/ By-Laws of Registrant, as amended through
April 11, 1996.
3.4/1/ By-Laws of Registrant, as amended and
restated on May 13, 1996.
4.1/1/ Articles 3, 4, 5, and 6 of the Articles of
Organization of Registrant (included in
Exhibit 3.2).
4.2/1/ Specimen Stock Certificate.
10.1/1/ Leases dated September 19, 1995 between the
189 Wells Avenue Realty Trust and the
Company for premises located at the 189
Wells Avenue, Newton, Massachusetts.
10.2/1/ Registrant's 1996 Stock Plan and related
form of stock option agreement.
10.3/1/ Registrant's 1996 Employee Stock Purchase
Plan and related form of subscription
agreement.
10.4/1/ Registrant's 1996 Eligible Directors' Stock
Plan and related form of stock option
agreement.*
10.5/1/ Accounts Receivable Management and Security
Agreement dated as of February 29, 1996 by
and among BNY Financial Corporation and each
of The Registry, Inc., America's Registry,
Inc. and The Registry, Inc. Network
Consulting Practice.
10.6/1/ Employment Agreement dated May 1996 between
Registrant and G. Drew Conway.*
10.7/1/ Amended and Restated Promissory Note dated
May 30, 1996, payable to Registrant by G.
Drew Conway.
10.8/1/ Amended and Restated Promissory Note dated
May 30, 1996, payable to Registrant by the
189 Wells Avenue Realty Trust.
21/1/ Subsidiaries of Registrant.
27 Financial Data Schedule.
</TABLE>
- --------------
* Denotes management contract or compensation arrangements.
1 Filed as an Exhibit to the Company's Registration Statement on Form S-1
filed on April 11, 1996 (File No. 333-3363) and incorporated by reference
herein.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ G. Drew Conway
--------------------------------------
G. Drew Conway
President, Chief Executive Officer
and Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dated indicated:
<TABLE>
<CAPTION>
SIGNATURES CAPACITY DATE
- ---------- -------- ----
<S> <C> <C>
/s/ G. Drew Conway President, Chief Executive September 27, 1996
- --------------------------- Officer and Chairman of the
G. Drew Conway Board of Directors
(Principal Executive Officer)
/s/ Robert E. Foley Chief Financial Officer and September 27, 1996
- --------------------------- Treasurer
Robert E. Foley (Principal Financial and
Accounting Officer)
/s/ Robert P. Badavas Director September 27, 1996
- ---------------------------
Robert P. Badavas
/s/ Paul C. O'Brien Director September 27, 1996
- ---------------------------
Paul C. O'Brien
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRY, INC., JUNE 29, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUN-25-1995
<PERIOD-END> JUN-29-1996
<CASH> 12,044
<SECURITIES> 0
<RECEIVABLES> 30,394
<ALLOWANCES> 464
<INVENTORY> 0
<CURRENT-ASSETS> 42,759
<PP&E> 7,223
<DEPRECIATION> 1,879
<TOTAL-ASSETS> 49,101
<CURRENT-LIABILITIES> 8,116
<BONDS> 2,850
0
0
<COMMON> 10
<OTHER-SE> 37,820
<TOTAL-LIABILITY-AND-EQUITY> 49,101
<SALES> 0
<TOTAL-REVENUES> 145,588
<CGS> 0
<TOTAL-COSTS> 106,945
<OTHER-EXPENSES> 32,152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,084
<INCOME-PRETAX> 4,624
<INCOME-TAX> 2,081
<INCOME-CONTINUING> 2,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,543
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Historical earnings per share has not been presented as it is not considered
meaningful due to corporate reorganizations during the reporting period (see
Note 15 to Consolidated Financial Statements).
</FN>
</TABLE>
