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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 28, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ___________________to____________________
Commission File Number 0-28192
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THE REGISTRY, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2920563
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(State of Incorporation) (IRS Employer Identification No.)
189 WELLS AVENUE
NEWTON, MA 02159
(617)527-6886
(Address, including zip code, and telephone number, including area code
of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months ( or for such shorter period that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES ___X___ NO ______
As of January 29, 1996, there were 12,740,823 shares of Common Stock, no par
value, outstanding.
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1
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THE REGISTRY, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at December 28, 1996 and June 29, 1996 3
Condensed Consolidated Statement of Operations for the three and six months ended
December 28, 1996 and December 30, 1995 4
Condensed Consolidated Statement of Cash Flows for the six months ended December 28,
1996 and December 30, 1995 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION 13
SIGNATURES 13
EXHIBIT INDEX 15
</TABLE>
This Quarterly Report on Form 10-Q contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
and similar expressions are intended to identify forward-looking statements.
The important factors discussed below under the caption "Certain Factors That
May Affect Future Operating Results," among others, could cause actual results
to differ materially from those indicated by forward-looking statements made
herein and presented elsewhere by management from time to time.
2
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THE REGISTRY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, JUNE 29,
1996 1996
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,090 $ 13,707
Accounts receivable, net 55,597 42,439
Notes receivable from related parties 78 82
Deferred income taxes 1,191 47
Other current assets 1,215 924
----------- ----------
Total current assets 65,171 57,199
Fixed assets, net 9,136 6,979
Notes receivable from officers 90 60
Other assets 15,491 917
Deferred income taxes 720 35
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Total assets $ 90,608 $ 65,190
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 10,171 $ 1,885
Current portion of long-term debt 9,741 421
Accounts payable 1,992 2,652
Accrued salaries and wages 6,161 4,946
Other accrued liabilities 8,441 5,401
Accrued income taxes 1,972 2,082
Deferred income taxes 150 89
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Total current liabilities 38,628 17,476
Deferred income taxes 900 673
Long-term debt 2,517 2,652
Commitments and contingencies
Stockholders' equity
Preferred stock - 1,916
Common stock 4,702 179
Additional paid-in capital 36,687 35,434
Treasury stock (2,000) -
Notes receivable from stockholders (226) (226)
Deferred stock compensation - (179)
Retained earnings 9,400 7,265
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Total stockholders' equity 48,563 44,389
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$ 90,608 $ 65,190
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</TABLE>
The accompanying notes are an integral part of these financial statements
3
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THE REGISTRY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
DECEMBER 28, DECEMBER 30, DECEMBER 28, DECEMBER 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue $ 75,091 $ 48,191 $ 144,520 $ 94,532
Cost of revenue 54,096 35,072 104,442 69,394
------------ ------------ ------------ ------------
20,995 13,119 40,078 25,138
Selling, general and administrative expenses 15,514 10,521 29,619 19,980
Aquisition related expenses 4,902 - 5,144 -
------------ ------------ ------------ ------------
Income from operations 579 2,598 5,315 5,158
Interest and other income (expense), net (1) (431) 1,619 (902)
------------ ------------ ------------ ------------
Income before taxes 578 2,167 6,934 4,256
Income tax provision 1,786 309 4,259 681
------------ ------------ ------------ ------------
Net income (loss) $ (1,208) $ 1,858 $ 2,675 $ 3,575
============ ============ ============ ============
Pro forma information
Income before taxes $ 578 $ 2,167 $ 6,934 $ 4,256
Pro forma income tax provision 2,351 946 5,187 1,868
------------ ------------ ------------ ------------
Pro forma net income (loss) $ (1,773) $ 1,221 $ 1,747 $ 2,388
============ ============ ============ ============
Pro forma net income (loss) per share $ (0.14) $ 0.11 $ 0.13 $ 0.22
============ ============ ============ ============
Weighted average common and
common equivalent shares 12,543 10,870 13,599 10,867
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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THE REGISTRY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 28, DECEMBER 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,675 $ 3,575
Adjustments to reconcile net income to net cash used for
operating activities
Depreciation and amortization 774 574
Amortization of deferred stock compensation 179 16
Provision for losses on accounts receivable 374 33
Deferred income taxes (1,049) (60)
(Increase) decrease in accounts receivable (8,267) 221
(Increase) decrease in other current assets (85) 8
(Increase) decrease in other assets (140) 277
Decrease in accounts payable (1,583) (1,329)
Increase in accrued expenses 2,696 928
Decrease in accrued salaries and wages (436) (354)
Decrease in income taxes payable (17) (97)
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Net cash provided by (used for) operating activities (4,879) 3,792
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Cash flows from investing activities
Cash disbursed for acquisition (7,999) -
Increase in notes receivable from officers (30) (130)
Repayment of notes receivable from officers - 1,060
Increase in notes receivable from related parties 21 -
Purchases of fixed assets (2,193) (724)
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Net cash provided by (used for) investing activities (10,201) 206
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Cash flows from financing activities
Cash proceeds from issuance of common stock 2,607 -
Cash proceeds from exercise of stock options 303 -
Cash payments to repurchase common stock (2,000) -
Net borrowings on line of credit 8,069 (2,264)
Principal payments on long-term debt (354) (1,341)
Proceeds from issuance of long-term debt 378 2,160
Distributions (540) (1,685)
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Net cash provided by (used for) financing activities 8,463 (3,130)
----------- -----------
Elimination of duplicated activity from July to December
due to subsidiaries' change in fiscal year end
(See Note 2) - (855)
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Net increase (decrease) in cash and cash equivalents (6,617) 13
Cash and cash equivalents, beginning of period 13,707 1,804
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Cash and cash equivalents, end of period $ 7,090 $ 1,817
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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THE REGISTRY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Registry, Inc. ("TRI" or "the Company") is an information technology ("IT")
professional services firm providing IT consultants on a contract basis to
organizations nationwide with complex IT operations in a broad range of
industries. As of December 28, 1996, offices are maintained in 17 states and two
European locations.
Basis of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of TRI and America's Registry, Inc.("America's Registry") which, prior
to January 1, 1995, were owned and controlled by a common sole stockholder who
serves as an officer of the Company. Effective January 1, 1996, TRI, through a
wholly-owned subsidiary, acquired all of the outstanding shares of common stock
of America's Registry and the stockholder of America's Registry received an
additional 5,333,333 shares of the common stock of TRI. The accompanying
financial statements also include the accounts of TRI's wholly owned
subsidiaries subsequent to their acquisition (see Note 3) as well as the
accounts of a real estate trust which is substantially controlled by the
Company, subsequent to the renegotiation of certain lease terms on September 19,
1995. All intercompany balances and transactions have been eliminated. On
November 26 and 27, 1996, the Company completed the acquisitions of Application
Resources, Inc. ("ARI") and Shamrock Computer Resources, Ltd. ("SCR"),
respectively. (see Note 2) These transactions have been accounted for as
poolings-of-interests and, therefore, the accompanying financial statements have
been retroactively restated to reflect the financial position and results of
operations and cash flows of the Company, ARI, and SCR for all periods
presented.
Interim Financial Statements
The condensed consolidated balance sheet at December 28, 1996 and condensed
consolidated statements of operations and of cash flows for the three and six
month periods ended December 28, 1996 and December 30, 1995 are unaudited and,
in the opinion of management, include all adjustments (consisting of normal and
recurring adjustments) necessary for a fair presentation of results for these
interim periods. Certain information and footnote disclosures normally included
in the Company's annual consolidated financial statements have been condensed or
omitted. The results of operations for the interim period ended December 28,
1996 are not necessarily indicative of the results to be expected for the entire
year. The balance sheet at June 29, 1996 contained herein has been derived from
the audited consolidated financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. These interim condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended June 29, 1996 which are
contained in the Company's 1996 Annual Report on Form 10-K and the Company's
Registration Statement on Form S-1 as amended on January 30, 1997.
Results of operations for the six months ended December 28, 1996 and December
30, 1995 are for 26 weeks and 27 weeks, respectively.
Reclassifications
Certain amounts in the prior year financial statements have been reclassified to
conform to the current period presentation.
Pro forma income information
The pro forma information is presented as if the Company's America's Registry
and SCR subsidiaries, previously S corporations for tax purposes, each had been
a C corporation subject to federal and state income taxes throughout the periods
presented.
6
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THE REGISTRY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro forma net income per share
Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of common shares outstanding and
common equivalent shares which may be issuable upon exercise of outstanding
stock options, computed using the treasury stock method. The weighted
average number of common and common equivalent shares outstanding also
includes common shares issuable upon conversion of ARI's preferred stock,
using the exchange ratio of 0.274428 shares of TRI Common Stock for each
share of ARI stock. Pursuant to Securities and Exchange Commission's Staff
Accounting Bulletin No. 83, stock options granted during the twelve months
prior to the initial filing of the Registration Statement on Form S-1
covering the Company's initial public offering have been included in the
calculation of common equivalent shares using the treasury stock method, as
if they were outstanding as of the beginning of the period presented.
2. ACQUISITION OF SUBSIDIARIES - POOLINGS-OF-INTERESTS
On November 26, 1996, pursuant to an Agreement and Plan of Merger dated
October 30, 1996, the Company, through a wholly-owned subsidiary, acquired
Application Resources, Inc., a California corporation ("ARI"). ARI is an
information technology consulting firm performing services similar to those
of the Company. Pursuant to the agreement, each outstanding share of ARI
capital stock was converted into the right to receive 0.274428 shares of
the Company's Common Stock. The Company also assumed outstanding options
for the purchase of ARI common stock at the same conversion ratio.
Immediately prior to the acquisition, there were 5,217,000 shares of ARI
common stock and options to purchase 794,000 shares of ARI common stock
outstanding.
On November 27, 1996, pursuant to an Agreement and Plan of Merger dated
November 26, 1996, the Company, through a wholly-owned subsidiary, acquired
Shamrock Computer Resources, Ltd., an Iowa corporation ("SCR"). SCR is an
information technology consulting firm performing services similar to those
of the Company. Pursuant to the agreement, each outstanding share of SCR
capital stock was converted into the right to receive 136.7695 shares of
the Company's Common Stock. Immediately prior to the acquisition, there
were 7,072 shares of SCR common stock outstanding. Pursuant to the
provisions of the Iowa Business Corporation Act (the "IBCA"), a stockholder
of SCR holding 352 shares of SCR common stock perfected dissenters' rights
under the IBCA and was paid $2,000,000 in redemption of such shares.
In total 2,350,774 shares of TRI Common Stock were exchanged for all of the
outstanding common stock of ARI and SCR. In addition, outstanding stock
options to purchase ARI common stock were converted into options to
purchase 217,895 shares of TRI's Common Stock. These transactions have been
accounted for as poolings-of-interests and, therefore, all prior period
financial statements presented have been restated as if the acquisitions
took place at the beginning of such periods.
ARI and SCR previously utilized a December 31 year end. Upon acquisition,
ARI and SCR changed their fiscal year end to the last Saturday in June to
conform to the Company's fiscal year.
3. ACQUISITION OF SUBSIDIARIES - PURCHASES
Morris Information Systems, Inc. On August 16, 1996 the Company, through a
wholly owned subsidiary, acquired all of the outstanding stock of Morris
Information Systems, Inc., a Texas corporation ("MIS"), for $2,500,000 in
cash plus amounts up to an aggregate of $700,000 contingent upon the
operating results of MIS during the two years following the acquisition. In
addition, the Company will pay a total of $300,000 over the next two years
to the former stockholder of MIS in consideration for a consulting and
noncompetition agreement. MIS is an information technology consulting firm
performing services similar to those of the Company. The acquisition has
been accounted for as a purchase and, accordingly, the purchase price has
been 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 of $2,303,000, has been recorded as goodwill, and is being
7
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THE REGISTRY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
amortized on a straight line basis over 30 years.
Sun-Tek Consultants, Inc. On November 1, 1996, the Company, through a
wholly owned subsidiary, acquired all of the outstanding stock of Sun-
Tek Consultants, Inc., a Florida corporation ("Sun-Tek"), for $1,900,000
in cash. Sun-Tek is an information technology consulting firm based in
Orlando, Florida performing services similar to those of the Company. The
acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been 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 over the estimated fair value
of net assets acquired has been recorded as goodwill and is being amortized
on a straight-line basis over 30 years.
Sterling Information Group, Inc. On November 27, 1996, the Company,
through a wholly-owned subsidiary, acquired certain assets and liabilities
of Sterling Information Group, Inc. ("Sterling"), a Texas corporation, for
cash consideration of $7,500,000, plus amounts up to an aggregate of
$500,000 contingent upon the operating results and expansion success of
Sterling over the next seven months. The cash consideration was paid in
January 1997, and is included in current portion of long-term debt in the
accompanying consolidated balance sheet. Sterling is an independent
provider of outsourced software application development based in Austin,
Texas. The acquisition has been accounted for as a purchase and
accordingly, the purchase price has been 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 has been recorded as goodwill
and is being amortized on a straight-line basis over 30 years.
James Duncan and Associates On December 24, 1996, the Company, through a
wholly-owned subsidiary, acquired all of the outstanding share capital of
AFC Holdings (Guernsey) Limited, a Guernsey trust which holds all of the
outstanding share capital of James Duncan & Associates ("JDA"), a United
Kingdom corporation, for $4,162,000, payable in $3,921,000 in cash, 2,736
shares of the Company's common stock, and a $125,000 payable on or before
December 24, 1997 in cash or shares of the Company's Common Stock at the
option of the selling stockholders. JDA is an information technology
consulting firm performing services similar to those of the Company. The
acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been 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 has been recorded as goodwill, and is being
amortized on a straight-line basis over 30 years.
The pro forma results of operations, assuming that the acquisitions
occurred at the beginning of the periods ended December 28, 1996 and
December 30, 1995 would not materially differ from TRI's reported results
of operations.
4. LEGAL SETTLEMENT
In August 1996, ARI received a settlement of $1,625,000 from its insurance
company for payment of defense costs and certain expenses associated with a
previous intellectual property rights matter. This amount, net of related
expenses, has been included in interest and other income in the
accompanying consolidated statement of operations.
5. SALE OF COMMON AND PREFERRED STOCK
On November 19, 1996, ARI sold 55,000 units to an unrelated investor for
net proceeds of $2,607,000. Each unit consisted of 3 shares of ARI's
Series A Preferred Stock and 0.5489 shares of the Company's Common Stock,
for a total of 165,000 shares of Series A Preferred Stock and 30,187
shares of Common Stock.
8
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PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following table summarizes the Company's significant operating
results as a percentage of revenue for each of the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DEC. 28, DEC. 30, DEC. 28, DEC. 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue 100.0 % 100.0% 100.0% 100.0%
Cost of revenue 72.0 72.8 72.3 73.4
----------- ---------- ---------- ----------
Gross profit 28.0 27.2 27.7 26.6
Selling, general and administrative expenses 27.2 21.8 24.0 21.1
----------- ---------- ---------- ----------
Income from operations 0.8 5.4 3.7 5.5
Interest and other income (expense), net (0.0) (0.9) 1.1 (1.0)
----------- ---------- ---------- ----------
Income before taxes 0.8 4.5 4.8 4.5
Income tax provision 2.4 0.6 2.9 0.7
----------- ---------- ---------- ----------
Net income (loss) (1.6)% 3.9% 1.9% 3.8%
----------- ---------- ---------- ----------
Pro forma information
Income before taxes 0.8 % 4.5% 4.8% 4.5%
Pro forma income tax provision 3.1 2.0 3.6 2.0
----------- ---------- ---------- ----------
Pro forma net income (loss) (2.4)% 2.5% 1.2% 2.5%
=========== ========== ========== ==========
</TABLE>
THREE MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
Revenue. Revenue increased 55.8% to $75.1 million for the second quarter
of fiscal 1997 from $48.2 million in the second quarter of fiscal 1996.
This increase was attributable primarily to an increase in revenue from
professional services and to a lesser extent from additional service
offerings provided by the Company's practices. The increase in revenue
from professional services was primarily due to the growth in sales within
existing offices, the continued maturation of newer branch offices, and the
addition of new branches resulting from acquisitions accounted for as
purchases which were completed in the first six months of fiscal 1997
resulting in a greater number of IT consultants placed with the Company's
clients during the period. To a lesser extent, the increase in revenue
resulted from an increase in average hourly billing rates charged for the
Company's IT consultants.
Gross Profit. Gross profit increased 60.0% to $21.0 million for the
second quarter of fiscal 1997 from $13.1 million in the comparable prior
period. As a percentage of revenue, gross profit increased to 28.0% for
the period compared to 27.2% for the comparable prior period. This
increase was attributable primarily to increases in the number of
relatively higher margin projects and specialized practice engagements and
the increased utilization of staff IT consultants compared with the
comparable prior period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 94.0% to $20.4 million for the second
quarter of fiscal 1997 from $10.5 million in the comparable prior period.
As a percentage of revenue, selling, general and administrative expenses
increased to 27.2% from 21.8% for the comparable prior period. This
increase was attributable to one-time non-recurring transaction and
integration costs of $4.9 million incurred during the quarter associated
with the two acquisitions accounted for as poolings-of-interests.
Excluding these non-recurring charges, selling, general and administrative
expenses decreased to 20.6% of revenue. This decrease was attributable
primarily to the growth in revenue during the
9
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period in which, other than through acquisition, the Company did not open
any new offices.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net, increased by $430,000 to $1,000 of expense for the second
quarter of fiscal 1997 from $431,000 in expense for the second quarter of
fiscal 1996. The decrease in the expense was a result of lower amounts
outstanding on the Company's line of credit in the fiscal 1997 quarter as
amounts outstanding under the Company's line of credit and certain other
obligations were repaid in June of 1996 upon receipt of the proceeds from
the Company's initial public offering.
SIX MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
Revenue. Revenue increased 52.9% to $144.5 million for the first six
months of fiscal 1997 from $94.5 million for the first six months of fiscal
1996. This increase was attributable primarily to an increase in revenue
from professional services and to a lesser extent from additional service
offerings provided by the Company's practices. The increase in revenue
from professional services was primarily due to the growth of sales within
existing offices, the continued maturation of newer branch offices, and the
addition of new branches resulting from acquisitions accounted for as
purchases which were completed during the first six months of fiscal 1997
resulting in a greater number of IT consultants placed with the Company's
clients during the period. To a lesser extent, the increase in revenue
resulted from an increase in average hourly billing rates charged for the
Company's IT consultants.
Gross Profit. Gross profit increased 59.4% to $40.1 million for the
first six months of fiscal 1997 from $25.1 in the first six months of
fiscal 1996. As a percentage of revenue, gross profit increased to 27.7%
in the first six months of fiscal 1997 compared to 26.6% in the first six
months of fiscal 1996. The increase was attributable primarily to
increases in the number of relatively higher margin projects and
specialized practice engagements and increased utilization of the salaried
consultants as compared with the prior period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 74.0% to $34.8 million in the first
six months of fiscal 1997 from $20.0 million in the first six months of
fiscal 1996. As a percentage of revenue, selling , general and
administrative expenses increased to 24% in the first six months of fiscal
1997 from 21.1% in the first six months of fiscal 1996. This increase was
attributable to one-time nonrecurring transaction and integration costs of
$5.1 million incurred during the first six months of fiscal 1997 associated
with the two acquisitions accounted for as poolings-of-interests. Excluding
these non-recurring charges, selling, general and administrative expenses
decreased to 20.5% of revenue. This decrease was attributable primarily to
growth in revenue during the period in which, other than through
acquisition, the Company did not open any new offices.
Interest and Other Income(Expense), Net. Interest and other income
(expense), net, increased by $2.5 million to $1.6 million of income for the
first six months of fiscal 1997 from $0.9 million of expense for the first
six months of fiscal 1996. This increase is attributable to the receipt by
ARI of approximately $1.5 million in net proceeds from the settlement of
certain litigation during the first six months of fiscal 1997. In
addition, the Company repaid amounts outstanding under its line of credit
and certain other obligation in June 1996 upon receipt of the proceeds from
the Company's initial public offering. During the first six months of
fiscal 1996, the Company incurred interest expense on amounts outstanding
under the Company's line of credit and other debt facilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has filed a Registration Statement on Form S-1
with the
10
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Securities and Exchange Commission for the sale of 3,000,000 shares of Common
Stock, 1,234,166 of which are being sold by the Company. The net proceeds to the
Company from the sale, after deducting the underwriting discount and estimated
offering expenses payable by the Company, are estimated to be approximately
$46.3 million. The Company expects to use approximately $18.0 million of the net
proceeds to repay outstanding indebtedness under its revolving line of credit.
Approximately $2.5 million is intended to finance the continuing upgrade of the
Company's IT infrastructure. The Company intends to use the remaining net
proceeds for working capital and general corporate purposes. A portion of the
net proceeds may also be used for acquisitions of businesses that are
complementary to that of the Company.
On June 10, 1996 the Company completed its initial public offering of the
sale of 2,230,000 shares of Common Stock, which included 330,000 shares issued
upon exercise of the underwriters' over-allotment option. The Company received
$34.5 million from the sale of shares, net of underwriting discounts and
expenses associated with the offering. Net proceeds were used to repay all
outstanding indebtedness under the Company's credit facility and certain term
loans. As of February 29, 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 $25 million or 85% of
eligible receivables. The Line of Credit is secured by all of the Company's
assets and contains certain restrictive covenants, including limitations on
amounts of loans the Company may extend to officers and employees, the
incurrence of additional debt and the payment of dividends on the Company's
common or preferred stock. Additionally, the agreement requires the maintenance
of certain financial ratios, including minimum tangible net worth and a limit on
the ratio of total liabilities to total tangible net worth. The Company
was on December 28, 1996 and is currently in compliance with these financial
covenants.
As of December 28, 1996, the principal amount outstanding under the Line
of Credit was $10.2 million with availability of $14.8 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 December
28, 1996, the Company had invested $2.2 million in short term treasury bills at
the Bank of Boston which earn interest at the short term treasury bill rate
(5.36% at December 28, 1996).
The Company had negative cash flows from operations of $4.9 million for the
six months ended December 28, 1996. The negative operating cash flows during
this period reflected an increase in net accounts receivable during the period
in which significant revenue growth occurred. The Company's operating cash flows
and working capital requirements are significantly affected by the timing of the
payment of payroll and the receipt of payment from the customer. The Company
pays its employees on either a weekly or bi-weekly basis. Clients are generally
invoiced for services either at the end of the applicable pay period or on a
monthly basis. Additionally cash flows from operations were impacted by a
decrease in the net deferred tax liability of $1.0 million resulting
principally from the recording of a $403,000 deferred tax asset through the
income tax provision on November 27, 1996 related to the conversion of SCR from
an S corporation to a C corporation.
The Company had negative cash flows from investing activities of $10.2
million for the six months ended December 28, 1996. The primary use of cash for
investing activities in the six months ended December 28, 1996 was $8.0
million for acquisitions completed in this period. Capital expenditures totaled
$2.2 million for the six months ended December 28, 1996 and were related
primarily to the upgrade of the Company's IT infrastructure.
The Company had cash provided by financing activities of $8.5 million
for the six months ended December 28, 1996. Historically, the Company has funded
its capital requirements with borrowings against its Line of Credit and term
loans with a leasing company. In June
11
<PAGE>
1996, the Company completed its initial public offering for the sale of
2,230,000 shares of Common Stock from which it receive $34.5 million in
proceeds, net of the underwriting discounts and expenses associated with
the offering. Net proceeds were used to repay all outstanding indebtedness
under the Company's Line of Credit and certain term loans. In the six
months ended December 28, 1996, an additional $2.6 million in proceeds from
the sale of ARI stock was received. During the first six months of fiscal
1997, cash requirements for acquisitions, working capital , fixed asset
purchases and a stock repurchase relating to the SCR acquisition resulted
in the Company borrowing $8.1 million against its Line of Credit.
The Company anticipates that its primary uses of working capital in
future periods will be for funding growth, either through acquisitions, the
internal development of existing branch offices or the development of new
branch offices and new service offerings. The Company also anticipates
making approximately $2.5 million in capital expenditures in the next
twelve months principally to upgrade its computer system. In connection
with certain of its acquisitions, the Company may be obligated to make
certain contingent payments during the next several years. The Company does
not believe that such payments would have a material impact on the
Company's liquidity, results of operations or capital requirements. The
Company's principal capital requirement is working capital to support the
accounts receivable associated with its revenue growth. The Company
believes that the proceeds from the proposed offering of stock, together
with cash flow from operations and borrowings under the Line of Credit,
will be sufficient to meet the Company's presently anticipated working
capital needs for at least the next 12 months
RECENT ACQUISITIONS
Since its initial public offering in June 1996, the Company has
completed six acquisitions. Five of the acquired companies - Morris
Information Systems, Inc. ("MIS"), based in Houston, Texas; Sun-Tek
Consultants, Inc. ("Sun-Tek"), based in Orlando, Florida; Application
Resources, Inc. ("ARI"), based in San Francisco, California; Shamrock
Computer Resources, Ltd. ("SCR"), based in Bloomington, Minnesota; and
James Duncan & Associates ("JDA"), based in Royal Tunbridge Wells, England
- provide information technology consulting services similar to those that
the Company currently provides. One of the acquisitions - Sterling
Information Group, Inc. ("Sterling"), based in Austin, Texas - is an
independent provider of outsourced software application development
services.
The ARI and SCR acquisitions, in which an aggregate of 2,350,774 shares of
Common Stock were issued, and $2.0 million in cash was used to repurchase
shares of capital stock from a stockholder of SCR who exercised dissenter's
rights, have been accounted for as poolings-of-interests. Accordingly, the
Company's financial statements have been restated to reflect those
acquisitions on a historical basis.
In connection with the ARI and SCR transactions, the Company has incurred
transaction and integration costs of $5.1 million during the six months
ended December 28, 1996. In addition to these non-recurring charges, the
Company will incur additional expenses over the remainder of fiscal 1997 to
complete the integrations.
In connection with the MIS, Sun-Tek, Sterling and JDA acquisitions, the
Company paid an aggregate of $15.8 million in cash, issued 2,736 shares of
Common Stock and agreed to pay $125,000 in deferred consideration. In
addition, the Company may become obligated to pay up to $1.2 million in
contingent cash consideration. These acquisitions have been accounted for
as purchases, and accordingly the purchase price has been allocated to the
assets acquired and liabilities assumed based upon their estimated fair
values as of the respective dates of acquisition. The excess of the
consideration paid over the estimated fair value of net assets acquired has
been
12
<PAGE>
recorded as goodwill. The results of operations for these acquisitions have
been included in the Company's results from the respective dates of
acquisition.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The foregoing forward-looking statements involve risks and uncertainties.
The Company's actual performance and results may differ materially due to
many important factors, including, but not limited to, the Company's
dependence on the availability of qualified IT consultants, its ability to
sustain and manage growth, the risks associated with acquisitions, its
dependence on key clients, risks associated with international operations,
its dependence on key personnel, the relatively short history of
profitability, the impact of the government regulation of immigration,
fluctuations in operating results due in part to the opening of new branch
offices, general economic conditions, employment liability risks, and the
like. For additional and more comprehensive discussion of the risks
associated with ownership of Common Stock of the Company, please see the
Risk Factors section of the Company's Annual Report on Form 10-K and the
Company's Registration Statement on Form S-1. As a result of these and
other factors, there can be no assurance that the Company will not
experience material fluctuations in future operating results on a quarterly
or annual basis.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable
Item 2 - Change in Securities
On November 26, 1996, in conjunction with the acquisition of ARI by TRI,
all of the outstanding shares of ARI's Series A Preferred Stock were
converted into 717,080 shares of Common Stock.
Item 3 - Defaults Upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
On November 21, 1996 as part of the annual meeting of stockholders, the
stockholders of the Company voted to:
1. Amend the Company's Restated Articles of Organization to increase the
number of authorized shares of Common Stock of the Company from
29,000,000 shares to 49,000,000 shares.
2. Elect Robert P. Badavas as a Class 1 Director for a term of three
years expiring at the 1999 Annual Meeting, and until his respective
successor is elected and shall qualify to serve.
Item 6 - Exhibits and Reports on Form 8-K
a. See Exhibit Index, Page 15
b. Reports on Form 8-K
Reports on Form 8-K related to the Company's acquisitions were filed
on December 10, 1996, January 6, 1997 and February 7, 1997, and are
incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
13
<PAGE>
THE REGISTRY, INC.
(Registrant)
Date: February 11, 1997 By: /s/ G. Drew Conway
-------------------------------------
G. Drew Conway, President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 1997 By: /s/ Robert E. Foley
-------------------------------------
Robert E. Foley, Chief Financial
Officer
(Principal Financial and
Accounting Officer)
14
<PAGE>
THE REGISTRY, INC.
EXHIBIT INDEX
Exhibit Page
27 Financial Data Schedule
15
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> DEC-28-1996
<CASH> 7,090
<SECURITIES> 0
<RECEIVABLES> 56,484
<ALLOWANCES> 887
<INVENTORY> 0
<CURRENT-ASSETS> 65,171
<PP&E> 12,227
<DEPRECIATION> 3,091
<TOTAL-ASSETS> 90,608
<CURRENT-LIABILITIES> 38,628
<BONDS> 2,517
0
0
<COMMON> 4,702
<OTHER-SE> 43,861
<TOTAL-LIABILITY-AND-EQUITY> 90,608
<SALES> 144,520
<TOTAL-REVENUES> 144,520
<CGS> 0
<TOTAL-COSTS> 104,442
<OTHER-EXPENSES> 34,763
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 6,934
<INCOME-TAX> 4,259
<INCOME-CONTINUING> 2,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,675
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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