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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): November 5, 1998
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RENAISSANCE WORLDWIDE, INC.
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(Exact name of registrant as specified in charter)
MASSACHUSETTS 0-28192 04-2920563
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
189 Wells Avenue, Newton, MA 02159
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 527-6886
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This is page 1 of 63 pages.
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ITEM 5. OTHER EVENTS.
This Current Report on Form 8-K is filed voluntarily to restate the
financial statements of Renaissance Worldwide, Inc. as well as management's
discussion and analysis of such financial statements to reflect the poolings-of-
interests transactions with Neoglyphics Media Corporation and Triad Data, Inc.
for the three years ended June 28, 1997 and for the six-month transition period
ended December 27, 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Since its initial public offering in June 1996, the Company has executed an
aggressive acquisition strategy significantly expanding the Company's national
and international presence and increasing the number of management consulting
and IT service offerings provided by the Company. With the growth came a
reorganization of the Company's structure into three business units: strategy,
solutions and services; and a renaming of the Company to Renaissance Worldwide,
Inc. to reflect the Company's new value proposition to clients, expanded
international presence and broader range of consulting services.
The more significant of the acquisitions executed in the past 18 months were
the acquisitions of Renaissance Solutions, Inc. ("RSI") and The Hunter Group,
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Inc. ("Hunter"). RSI, a publicly traded company prior to acquisition with
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revenues for the twelve months ended June 1997 of $64.3 million, provides
management consulting and technology integration services and is the cornerstone
of the Strategy Group and IT transformation service of the Solutions Group.
Hunter, with revenues of $39.2 million for the twelve months ended December
1996, provides IT solutions design, systems implementation and education
services and comprises the enterprise management service of the Solutions Group.
In addition to RSI and Hunter, the Company has acquired 23 other companies
since June of 1996 (three of which were acquired by RSI prior to merger). Two
of these companies were acquired in the second quarter of fiscal 1998.
Revenue is recognized for consulting services performed either on a time and
materials basis, as is the case with the Services Group and certain sectors of
the Solutions group, or on a fixed price basis for the remainder of the
Solutions Group and the Strategy Group. Revenue for fixed price contracts is
recognized using the percentage of completion method based upon the number of
labor hours incurred compared to the total estimated labor hours at estimated
realizable rates. Under the percentage of completion method, the Company must
estimate the percentage of completion of each project at the end of each
financial reporting period. Estimates are subject to adjustment as a project
progresses to reflect changes in projected completion costs or dates. The
cumulative effect of any revision in estimates of the percentage of completion,
or the effect of identifiable losses on cost over-runs, is reflected in the
financial reporting period in which the change in the estimate or the loss
becomes known. The Company mitigates the risk of losses for cost over-runs by
subdividing its projects into smaller phases. In these cases, the Company and
its clients agree on a fixed price and fixed time frame prior to the
commencement of each phase of the project. These agreements may be revised,
subject to the approval by the Company and its clients, when a significant
change in the scope or cost of a phase arises that neither the Company nor the
client had anticipated. Because the Company bears the risk of cost over-runs and
inflation associated with fixed-price, fixed-time frame projects, the Company's
operating results may be adversely affected by inaccurate estimates of contract
completion costs and dates.
Because revenue is recognized only when consultants are working, operating
results are adversely affected when client facilities are closed due to holidays
or inclement weather. The Company experiences a certain amount of seasonality in
the quarter ended the last Saturday in December due to the number of holidays
falling in the quarter and shutdowns by certain customers for the holiday week.
In addition, lower gross margins are experienced in the first quarter of the
calendar year due primarily to the timing of unemployment tax accruals and, to a
lesser extent, social security taxes.
Revenue growth is achieved by increasing the number of projects or consultants
on engagements and, to a lesser extent, by increasing average bill rates. Gross
margin increases are achieved primarily by increasing the utilization of the
salaried consultants, and to a lesser extent, by increasing the bill rates of
hourly consultants and increasing the amount of revenue generated by the
Strategy and Solutions Groups. The Strategy and Solutions Groups generally
obtain higher gross margin percentages than the Services Group for a variety of
reasons.
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Due to the significant expansion since June 1996, the Company has increased
the infrastructure of its internal IT, human resources, marketing and finance
areas, as well as expanded a number of its branch facilities to accommodate
growth. This has resulted in increases in the selling, general and
administrative expenses of the Company.
The Company is currently reviewing its IT infrastructure for year 2000
considerations and capacity given the recent growth and anticipated growth in
the next five years. The Company is also converting its enterprise-wide
financial and human resource systems to the PeopleSoft system. The Company
expects a significant benefit by conforming all accounting and human resource
systems to PeopleSoft, allowing for additional capacity without additional
headcount, a reduction of manual input, as well as expanded and more timely
reporting of financial information. The Company is staffing the PeopleSoft
project internally. While using internal resources reduces the overall costs of
this project, the Company will experience some decrease in the billable
utilization of its consultants as a result of using these resources on internal
projects.
RECENT ACQUISITIONS
In July 1997 and November 1997, the Company acquired all of the outstanding
stock of RSI and Hunter, respectively. In total, 21,647,012 shares of
Renaissance common stock were exchanged for all of the outstanding common stock
of RSI and Hunter. In addition, outstanding stock options to purchase RSI and
Hunter common stock were converted into options to purchase 3,361,088 shares of
Renaissance's common stock. These transactions have been accounted for as
poolings-of-interests and, therefore, all prior period financial statements have
been restated as if the acquisitions took place at the beginning of such
periods. Renaissance incurred transaction and related costs of $18.0 million in
the six months ended December 27, 1997 related to these acquisitions, which have
been expensed as incurred.
In addition, in the six months ended December 27, 1997, the Company acquired
four companies in acquisitions accounted for as purchases: Technomics
Consultants International, Inc.; McClain Group, Inc.; Eligibility Management
Systems, Inc.; and Cambridge Software Group, Inc. Renaissance paid an aggregate
of $37.5 million in cash for these acquisitions, of which $33.5 million was
payable at closing. In addition, the Company may become obligated to pay up to
$12.6 million in contingent cash consideration. 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 recorded as goodwill. The results of operations for these acquisitions have
been included in Renaissance's results of operations from the respective dates
of acquisition.
SUBSEQUENT EVENTS
In March 1998 the Company, through a wholly-owned subsidiary, acquired all of
the outstanding stock of Neoglyphics Media Corporation ("Neoglyphics").
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Neoglyphics is a Internet development and applications company based in Chicago,
Illinois and is the foundation of the e-commerce business unit within the
Solutions Group. Pursuant to the agreement and plan of merger, each share of
Neoglyphics was converted into the right to receive .12495 shares of Renaissance
common stock. Renaissance also assumed outstanding options for the purchase of
Neoglyphics common stock at the same conversion ratio.
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In April 1998 the Company, through a wholly-owned subsidiary, acquired all of
the outstanding stock of Triad Data, Inc. ("Triad"). Triad is an information
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technology consulting firm performing services similar to those of the Services
Group of the Company. Pursuant to the agreement and plan of merger, each share
of Triad common stock was converted into the right to receive 24,409.2 shares of
Renaissance common stock.
In total 4,554,759 shares of the Company's Common Stock were exchanged for all
of the outstanding common stock of Neoglyphics and Triad. In addition,
outstanding stock options to purchase Neoglyphics common stock were converted
into options to purchase 119,940 shares of the Company's common stock. These
transactions have been accounted for as poolings-of-interests and, therefore,
the financial statements of the Company have been restated to include the
financial condition, results of operations and cash flows of these two companies
for all periods presented. The Company incurred $6.9 million in acquisition-
related expenses in the second quarter of 1998 related to these transactions.
SIX MONTHS ENDED DECEMBER 27, 1997 AND DECEMBER 28, 1996
Revenue: Revenue increased 49% to $320.1 million for the six months ended
December 27, 1997 from $214.8 million for the six months ended December 28,
1996. The increase was attributable primarily to increases in the revenues of
the Services Group, whose revenues comprised 64.7% of the total revenues for the
six months ended December 27, 1997. The Services Group's revenues increased by
$43.1 million, or 26.3%, in the period due to growth within existing branch
offices, as well as growth resulting from having the revenues of acquisitions
made during the six months ended December 1996 in the results of operations for
the entire period of 1997. The Strategy Group, which comprised 11.6% of
Renaissance's total revenues, experienced revenue increases of 100.8% to $37.0
million for the six months ended December 27, 1997 from $18.4 million for the
six months ended December 28, 1996. The increases were a result of greater
utilization of the salaried consultants as well as the addition of the COBA-
Boston and COBA-UK acquisitions in the third quarter of fiscal 1997. Revenues
from the Solutions Group increased $43.7 million, or 134.6%, to $76.2 million in
the period due to an increase in the overall number of engagements over the
prior period.
Gross Profit: Gross profit increased 61% to $104.4 million for fiscal 1997
from $64.7 million in fiscal 1996. As a percentage of revenue, gross profit
increased to 32.6% in the six months ended December 27, 1997 from 30.1% in the
six months ended December 28, 1996. This increase is attributable to the
increased number of higher margin solutions and strategy projects and the
increased utilization of the salaried consultants as compared with the prior
period.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses, excluding acquisition-related expenses, increased by
63% to $81.7 million in the six months ended December 27, 1997 from $50.2
million in the six months ended December 28, 1996. As a percentage of revenue,
selling, general and administrative expenses increased to 25.5% of revenue for
the six months ended December 27, 1997 from 23.4% in the six months ended
December 28, 1996. This increase was attributable to the additional costs
necessary to support the growth in the Company's business and professional
staff, increases in facilities and investments in upgrading the Company's
telecommunications networks and systems, as well as increases in amortization of
goodwill due to the additional acquisitions made during fiscal 1997 and the
transition period ended December 27, 1997.
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Acquisition-Related Expenses: The Company incurred acquisition-related
expenses in the six months ended December 27, 1997 of $18.0 million as a result
of its acquisitions of RSI and Hunter during the period. Acquisition-related
costs of $8.7 million in the six months ended December 28, 1996 resulted from
the acquisitions of Application Resources Inc. ("ARI"), Shamrock Computer
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Resources ("SCR") and International System Services Corporation ("ISS") during
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the period. These costs primarily represent investment banking, accounting,
printing, and legal costs. Costs were higher for the RSI and Hunter acquisitions
due to their relatively larger size.
Interest and Other Income (Expense), Net: Interest and other income
(expense), net changed by $3.3 million to $0.7 million in expense in the six
months ended December 27, 1997 from $2.6 million in income in the six months
ended December 28, 1996. The 1996 period included the receipt by ARI of
approximately $1.6 million in net proceeds from the settlement of certain
litigation. In addition, amounts outstanding under the Company's lines of credit
and other indebtedness were reduced during the 1996 period as a result of the
receipt of the proceeds from the Company's initial public offering in June 1996
and from the proceeds from RSI's public offerings in May and November of 1996.
Borrowings under the Company's line of credit increased during the period ended
December 27, 1997.
FISCAL YEARS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Revenue: Revenue increased 47% to $489.8 million for fiscal 1997 from
$333.1 million in fiscal 1996. The increase was attributable primarily to
increases in the revenues of the Services Group, which comprised 73.8% of the
Company's total revenues for the fiscal year ended June 28, 1997. The Services
Group's revenue increased by $107.6 million, or 42.3%, in the period due to
growth within the existing branch offices, the continued maturation of newer
branch offices and the addition of new branches resulting from acquisitions
accounted for as purchases completed during the year, all of which resulted in a
greater number of IT professionals placed during the period. The Strategy Group,
which comprised 9.3% of Renaissance's total revenues, experienced revenue
increases of $10.5 million, or 30.3%, during the fiscal year ended June 28,
1997. Revenues from the Solutions Group increased $38.7 million, or 87.2%, in
the period due to an increase in the overall number of engagements and the
enhanced performance of Hunter's UK subsidiary which commenced operations in
September 1995.
Gross Profit: Gross profit increased 47% to $147.4 million for fiscal 1997
from $100.6 million in fiscal 1996. As a percentage of revenue, gross profit
decreased slightly to 30.1% in fiscal 1997 from 30.2% in fiscal 1996.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses, excluding acquisition-related expenses, increased by
41% to $108.6 million in fiscal 1997 from $76.8 million in fiscal 1996. As a
percentage of revenue, selling, general and administrative expenses decreased to
22.2% of revenue for fiscal 1997 from 23.1% in fiscal 1996. This decrease was
attributable to the increase in total revenues during a period in which, other
than through acquisition, there was limited branch expansion. The total increase
in the selling, general and administrative expenses is a result of additional
costs necessary to support the growth in the Company's business and professional
staff, increases in facilities and investments in upgrading the Company's
telecommunications networks and systems.
Acquisition-Related Expenses: The Company incurred acquisition-related
expenses in fiscal 1997 of $8.3 million in connection with its acquisitions of
ISS, ARI, and SCR during the period. The Company incurred acquisition-related
expenses in fiscal 1996 in connection with its acquisition of ISS.
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Interest and Other Income (Expense), Net: Interest and other income
(expense), net increased $4.0 million to $3.3 million in income in fiscal 1997
from $0.8 million in expense in fiscal 1996. The 1996 period included the
receipt by ARI of approximately $1.6 million in net proceeds from the settlement
of certain litigation. In addition, amounts outstanding under the Company's
lines of credit were reduced during the year upon receipt of the proceeds from
the Company's initial public offering in June 1996 and its subsequent offering
in February of 1997 and from the proceeds from RSI's public offerings in May and
November of 1996. The remaining proceeds from these offerings also generated
increased interest income.
FISCAL YEARS ENDED JUNE 29, 1996 AND JUNE 24, 1995
Revenue: Revenue increased 50% to $333.1 million in fiscal 1996 from
$222.0 million for fiscal 1995. This increase was attributable primarily to
revenue increases in the Services Group, which comprised 76.2% of total revenues
for the period. The Services Group's revenues increased $79.2 million, or 45.3%,
in the period due primarily to a growth of sales within existing offices and the
continued maturation of newer branch offices, resulting in a greater number of
IT professionals placed with clients during the period. The Strategy Group,
which comprised 10.4% of Renaissance's total revenue during the year,
experienced a revenue increase of $12.1 million, or 53.6%, during the fiscal
year ended June 29, 1996. Revenues from the Solutions Group increased $19.7
million, or 80.1%, in the period due to an increase in the overall number of
engagements, offset slightly by decreases in average billing rates.
Gross Profit: Gross profit increased 55% to $100.6 million for fiscal 1996
from $65.0 million in fiscal 1995. As a percentage of revenue, gross profit
increased to 30.2% in fiscal 1996 from 29.3% in fiscal 1995. This increase is
attributable to the increased number of higher margin solutions and strategy
projects and the increased utilization of the salaried consultants in the
Services Group as compared with the prior period. These increases were offset by
decreases in the utilization of consultants in the Solutions Group resulting
from significant hiring for future projects during the period.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses, excluding acquisition-related expenses, increased 53%
to $76.8 million in fiscal 1996 from $50.3 million in fiscal 1995. As a
percentage of revenue, selling, general and administrative expenses increased to
23.1% of revenues in fiscal 1996 from 22.7% in fiscal 1995. These increases both
in absolute dollars and as a percentage of revenues are due principally to
additional costs incurred to support the growth in the Company's business and
professional staff in 1996 including salaries for administrative staff,
facilities expense and investments in upgrading the Company's telecommunications
networks and systems.
Interest and Other Income (Expense), Net: Interest and other income
(expense), net changed by $31,000 to $773,000 in expense for the fiscal year
ended June 29, 1996 from $804,000 in expense for the comparable prior period.
This change is attributable primarily to slight decreases in the amounts
outstanding under the Company's line of credit and other debt facilities in the
period.
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QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information for each of the ten quarters ending with the quarter ended December
27, 1997, in thousands of dollars and as a percentage of revenue. This data has
been prepared on the same basis as the audited financial statements 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 Renaissance'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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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SEPT. DEC. MARCH JUNE SEPT.
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1995 1995 1996(1) 1996(2) 1996(3)
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue ............................ $ 71,255 $ 75,180 $ 88,842 $ 97,786 $101,975
Gross profit ........................ 20,693 22,210 26,381 31,283 29,416
Income (loss) from operations ....... 4,868 5,214 5,986 4,181 5,194
Net income (loss) ................... 3,441 3,967 3,379 1,233 4,259
Net income (loss) per share--basic .. $ 0.08 $ 0.09 $ 0.08 $ 0.03 $ 0.09
Net income (loss) per share--diluted.. $ 0.07 $ 0.09 $ 0.07 $ 0.03 $ 0.08
As a Percentage of Revenue:
Revenue ........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit ...................... 29.0% 29.5% 29.7% 32.1% 28.8%
Income from operations ............ 6.8% 6.9% 6.7% 4.4% 5.1%
Net income (loss) ................. 4.8% 5.3% 3.8% 1.4% 4.6%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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DEC. MARCH JUNE SEPT. DEC.
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1996(2)(4)(5) 1997 1997 1997(6) 1997(7)
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue ............................. $ 112,799 $131,820 $143,239 $155,953 $164,166
Gross profit ........................ 35,306 41,808 40,881 51,386 53,038
Income (loss) from operations ....... 666 13,814 10,827 2,158 2,619
Net income (loss) ................... (2,605) 8,493 7,027 (2,719) (1,512)
Net income (loss) per share--basic .. $ (0.05) $ 0.17 $ 0.13 $ (0.05) $ (0.03)
Net income (loss) per share--diluted.. $ (0.05) $ 0.16 $ 0.12 $ (0.05) $ (0.03)
As a Percentage of Revenue:
Revenue ........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit ...................... 31.3% 31.7% 28.5% 32.9% 32.3%
Income (loss) from operations ..... 0.6% 10.5% 7.6% 1.4% 1.6%
Net income (loss) ................. (2.3)% 6.4% 4.9% (1.7)% (0.9)%
</TABLE>
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(1) Includes a $642,000 charge associated with the conversion of America's
Registry from an S corporation to a C corporation. See Note 9 to
Consolidated Financial Statements.
(2) In December 1996, the Company completed the acquisition of ISS, which has
been accounted for as a pooling of interests. Transaction costs have been
expensed as incurred and totaled $3.5 million in the quarter.
(3) Includes a $302,000 credit associated with the conversion of Neoglyphics
from an S corporation to a C corporation. See note 9 to Consolidated
Financial Statements.
(4) In November 1996, the Company completed the acquisitions of ARI and SCR,
each of which has been accounted for as a pooling-of-interests. Transaction
costs have been expensed as incurred and totaled $4.9 million in the
quarter.
(5) Includes a $403,000 credit associated with the conversion of SCR from an S
corporation to a C corporation. See Note 9 to Consolidated Financial
Statements.
(6) In July 1997, Renaissance completed the acquisition of RSI, which has been
accounted for as a pooling of interests. Transaction costs have been
expensed as incurred and totaled $11.2 million in the quarter.
(7) In November 1997, Renaissance completed the acquisition of Hunter, which has
been accounted for as a pooling of interests. Transaction costs have been
expensed as incurred and totaled $6.8 million in the quarter.
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The above quarterly data reflects the results of operations for 13 weeks,
except for the September 1995 quarter which includes 14 weeks. The March 1996
and 1997 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. Renaissance also experiences a lower operating
profit margin in 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 February 26, 1997, the Company completed a public offering in which it sold
2,468,332 shares of Renaissance Common Stock. The Company received $48.3 million
from the sale of shares, net of all underwriting discount and expenses
associated with the offering. Net proceeds were used to repay all outstanding
indebtedness under Renaissance's credit facility, approximately $18.2 million.
Approximately $2.5 million was used to finance the upgrade of Renaissance's IT
infrastructure. The remaining proceeds were utilized to fund working capital and
general corporate purposes and to finance the acquisitions made in the six
months ended December 27, 1997 (see Recent Acquisitions).
Renaissance has a revolving advance facility with BNY Financial Corporation
(the "Line of Credit") under which it can borrow the lesser of $50.0 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 incurrance of additional debt and the payment of dividends on the
Company's Common and 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.
As of December 27, 1997, there was $36.1 million outstanding with availability
of $13.9 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 to cash and cash equivalents at December 27, 1997, the Company had
invested $5.9 million in marketable securities consisting of various federal
agency and municipal bonds.
The Company experienced negative cash flows from operations of $18.6 million
for the six months ended December 27, 1997. The negative operating cash flows
during this period are primarily due to a $26.7 million increase in gross
accounts receivable during the period. This increase was attributable primarily
to increased revenues as well as the shift in certain invoicing requirements
resulting in additional clients being invoiced on a monthly basis as opposed to
their previous weekly basis. Additionally, cash flows from operations were
impacted by fluctuations in current and other assets and payable balances
between the periods and changes in deferred taxes in the period. The operating
cash flow decreases were mitigated by increases in accrued expenses due
primarily to acquisition related accruals and end of year bonus accruals.
The Company had negative cash flows from investing activities of $24.8 million
for the six months ended December 27, 1997. The primary uses of cash for
investing activities in the period were $37.0 million paid for acquisitions and
$10.5 million in fixed asset purchases. This was mitigated by net proceeds from
sales of marketable securities of $22.8 million in the period.
The Company had cash provided by financing activities of $33.6 million for the
six months ended December 27, 1997. The primary sources of cash from financing
activities were $31.2 million in net borrowings on the Company's lines of credit
and $4.0 million of issuances of long-term debt.
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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 service offerings. The Company also anticipates making approximately $10.0
million in capital expenditures over the next twelve months, primarily related
to information systems (See Overview). In connection with certain of its
acquisitions, the Company may be obligated to make certain contingent payments
over the next several years, including $9.3 million which the Company currently
is required to pay over the next 15 months. 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 its Line of Credit, together
with cash flows from operations, will be sufficient to meet the Company's
presently anticipated working capital needs for at least the next 12 months.
Foreign currency fluctuations and inflation did not have a significant impact
on the Company for any of the periods presented.
IMPACT OF THE YEAR 2000 ISSUES
The "Year 2000" problem arose because many computer programs use only the last
two digits to refer to a year. Therefore, date-sensitive software or hardware
may not be able to distinguish between 1900 and 2000 and programs that perform
arithmetic operations, comparisons or sorting of date fields may begin yielding
incorrect results. The Year 2000 problem could potentially cause a system
failure or miscalculations that could disrupt the Company's operations.
The Company's State of Readiness. The Company has developed a Year 2000
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remediation plan that involves three overlapping phases.
In the catalog phase, the Company has created an index of Year 2000 issues
broken down into three functional areas:
. Applications and information technology (IT) equipment - This area includes
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all mainframe, network and desktop hardware and software, including custom
and packaged applications, and IT embedded systems.
. Non-information technology (non-IT) embedded systems - These systems
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include non-IT equipment and machinery. Non-IT embedded systems, such as
security, fire prevention and climate control systems, typically include
embedded technology, such as microcontrollers.
. Vendor and customer relationships - These include significant third-party
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vendors and suppliers of goods and services, as well as vendor and supplier
interfaces. These also include customers of the Company's products and
services as well as customer interfaces and accounts receivable.
The Company has substantially completed the catalog phase and plans to be
fully completed by November 30, 1998.
In the analysis phase, the Company is evaluating the catalogued items for Year
2000 compliance, determining the remediation method and resources required and
developing an implementation plan. A significant portion of the analysis phase
is complete. The Company expects to complete the analysis phase by December 30,
1998.
In the implementation phase, the Company will execute the implementation plan
for all applicable hardware and software, interfaces and systems. This phase
will involve testing the changes, using the changed procedures in actual
operations, testing in a Year 2000-simulated environment and vendor and customer
interface testing. After implementation, the Company intends to conduct live
testing in March 1999. The implementation phase, including testing for certain
critical applications, has commenced and is expected to be completed by March
31, 1999 for applications and IT equipment and non-IT embedded systems. All
other components of the implementation phase are expected to be completed by
July 1, 1999.
The Company's remediation plan for its Year 2000 issues is an ongoing process
and the estimated completion dates above are subject to change.
The Risk of the Company's Year 2000 Issues. Generally, the Company has
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completed an assessment of Year 2000 issues with respect to its business systems
and has already begun to take actions to ensure their compliance. Plans and
associated milestones are being executed to ensure that those business systems
not currently certified as compliant are either upgraded to certified status or
replaced well in advance of December 31, 1999. Based on the completed
assessment, management does not expect that the costs of bringing the Company's
systems into compliance with Year 2000 to have a material adverse effect on the
Company's financial position, results of operations or liquidity. The Company
does not believe that it is subject to significant business risks related to its
customers' and suppliers' Year 2000 efforts.
The Company's Contingency Plans. The Company does not currently have
-------------------------------
contingency plans with respect to the Year 2000 problem. If the Company's
implementation efforts fail or are no longer on schedule for completion the
Company will divert its resources to contingency planning.
Costs to Address the Company's Year 2000 Issue. The Total cost of the
----------------------------------------------
Company's remediation plan is estimated at approximately $200,000 to $500,000
and is being funded through operating cash flows. To manage the cash flow
effects of these incremental costs, the Company has increased the IT operating
and capital budgets accordingly. Of the total cost, approximately $450,000 is
attributable to new hardware and software that will be capitalized. The
remainder will be expensed as incurred. To date, approximately $100,000 of the
total cost of the remediation plan has been spent, the majority of which was
expensed. It is impossible for the Company to completely account for the costs
incurred in its remediation effort as many of its employees have focused and
will continue to focus significant efforts in evaluating the Company's Year 2000
state of readiness and in remediating problems that have arisen, and will
continue to arise, from such evaluation. Consultants' internal work for the
Company negatively impacts the Company's ability to employ its consultants on
billable projects externally which could have a material adverse effect on the
Company's results of operations, financial position or cash flow.
RECENTLY ENACTED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for the reporting of comprehensive income in a company's full set of
financial statements, and is effective for fiscal years beginning after
December 15, 1997.
Comprehensive income is defined in SFAS 130 as the change in equity (net
assets) of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Comprehensive income reported
by an entity will disclose both net income and other comprehensive income.
Classifications within other comprehensive income could include foreign currency
items, minimum pension liability adjustments, and unrealized gains and losses on
certain investments in debt and equity securities. SFAS 130 will affect
Renaissance's reporting of unrealized gains and losses on marketable securities,
as well as the reporting of translation adjustments resulting from certain
investments in foreign subsidiaries. Such disclosures of comprehensive income
will be in addition to existing reporting of net income. Renaissance will adopt
this statement as required.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 is effective for fiscal years beginning after December
15, 1997 and requires restatement of disclosures for all periods presented.
SFAS 131 requires that companies disclose information about operating segments
in annual and interim financial statements. SFAS 131 utilizes the "management
approach" in determining what constitutes an operating segment. An operating
segment is defined in SFAS 131 as a business component:
. which engages in business activities from which it may earn revenues and
incur expenses;
. whose operating results are regularly reviewed by a chief operating
decision maker to make decisions about resources to be allocated to the
segment and assess its performance; and
. for which discrete financial information is available.
-10-
<PAGE>
SFAS 131 requires that a Company disclose information about operating
segments that meet any of the following thresholds:
. its reported revenue, including both customer and intersegment sales, is
greater than or equal to 10% of combined revenue,
. the absolute amount of its reported profit or loss is greater than 10% or
more of the absolute amount, of (1) the combined reported profit of all
segments that did not report a loss or (2) the combined reported losses of
all segments that did report a loss,
. its assets are greater than or equal to 10% or more of combined assets of
all operating segments.
The adoption of SFAS 131 will not impact Renaissance's financial position,
results of operations or cash flows. Management has determined that the adoption
of SFAS 131 will not materially differ from the Company's presentation of
operating segments in Note 17 to the Consolidated Financial Statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Need to Hire and Retain Qualified Professionals. The Company's business and
its future growth depends upon its ability to attract and retain an increasing
number of experienced and skilled employees, including management consultants,
IT professionals and IT project managers. Competition for these professionals is
intense as demand for their services generally exceeds their availability.
Despite the Company's best efforts, not all of its management and IT consultants
will be continually satisfied with the culture, compensation and benefits that
it offers. This problem can be particularly troublesome with professionals of an
acquired business who may have come from a corporate culture that is different
than the Company's. There is great mobility among the employees that the Company
needs to attract. Many of the Company's competitors have substantially greater
financial and other resources than the Company and may offer more attractive
compensation and benefits packages. If the Company does not recruit, train and
maintain a sufficient number of professional personnel, the Company's business
would be adversely affected.
Ability to Manage Growth. The Company's business has grown significantly in
recent years as a result of both acquisitions and internal growth. This growth
has placed significant demands on the Company's managerial and other resources.
The Company's ability to manage its growth effectively will require it to
continue to improve its operating, financial and other internal systems, as well
as its business development capabilities and to train, motivate and manage an
increasing number of employees. These challenges may present themselves in a
number of ways. For example, as a result of its acquisitions, the Company
currently relies upon several different financial reporting systems to monitor
its financial performance. These multiple systems are both inefficient and
difficult to operate. The Company is implementing a new single financial
reporting system to better monitor the financial performance of its business
units. If the Company fails to implement this system effectively or if it
experiences complications transitioning to the new system, it could adversely
affect the ability of the Company to manage its business, which in turn may
adversely affect the Company's operating results and its stock price.
Risks Associated with Acquisitions and Integration of Acquired Businesses. The
Company has completed more than twenty acquisitions in the last two years and
acquisitions continue to be an important part of its growth strategy.
Acquisitions, however, inherently involve certain risks, including the risk that
an acquired business will not generate anticipated revenues or earnings or that
it will have unknown or undisclosed liabilities. Should any of these risks prove
true, the Company's business would be adversely affected.
-11-
<PAGE>
In addition, the Company only receives the anticipated benefits from an
acquisition if it successfully integrates the business in a timely manner. This
integration requires substantial attention from management and difficulties
encountered in the integration process may have an adverse effect upon the
Company's business. The failure to integrate acquired businesses carefully may
heighten the possibility that key employees of acquired businesses will leave
the Company, which in turn may further complicate the Company's integration
efforts. Also, the process of integrating an acquired business may interrupt its
business cycle or the business cycle of the Renaissance business unit into which
it is being integrated. The failure of the Company to successfully integrate
acquisitions because of these or other factors would adversely affect the
Company's business.
Dependence on Key Clients; Price Reduction Agreements; Terminability of
Client Arrangements. Although none of the Company's clients accounts for more
than 5% of the Company's revenues, the successive loss of one or more of the
Company's significant clients may adversely affect the Company's business. In
addition, the Company occasionally provides large clients with reduced prices
for its services to retain a desired volume of business or to obtain a preferred
vendor status with these clients. As a result, the Company may face strong
pricing pressures from these clients. Further, in virtually all cases a client
can terminate the Company's services agreements on short notice and without any
penalty. If a number of these cancellations were to occur in a short time
period, the Company's business and operating results would be adversely affected
in the short run.
Project Risks. Many of the Company's engagements involve projects that are
mission critical to the operations of its customers' businesses and which
involve the development of leading-edge software applications. Despite its best
efforts, the Company may not always be able to fully satisfy a customer's
expectations and not all of these leading-edge software applications will always
work as expected. Customer dissatisfaction in certain circumstances could affect
the willingness of that client to pay the Company for its services, which would
result in a financial loss on that project and might also damage the Company's
reputation and negatively affect its ability to attract new business. In
addition, the Company often alters a project to accommodate a change in client
objectives, in response to unanticipated but welcomed capabilities or in
response to unwelcome challenges. Although the Company generally seeks fee
adjustments when the scope of a project is changed, it may not always be
successful in obtaining an adjustment as large as the one it seeks. To the
extent that projects are extended or enlarged without corresponding changes in
fee schedules, the Company's business would be adversely affected.
Risk of International Operations. As a result of several acquisitions, the
Company recruits consultants and generates a portion of its revenues from
outside the United States. The Company believes that its international
operations will continue to grow. Foreign operations are subject, however, to
special risks that can adversely affect sales and profits. These risks include:
. currency exchange rate fluctuations
. labor strikes
. political and economic disruptions
. changes in government policies and regulatory requirements
. tariff and trade barriers
. immigration laws and regulations
. potentially adverse tax consequences
. exchange controls
Dependence upon Key Personnel. The Company's continued growth depends on a
number of key executive and technical personnel. In particular, the Company is
highly dependent on the continued service of its founder, President and Chief
Executive Officer, Mr. G. Drew Conway. The loss of Mr. Conway, or any other key
employee, could adversely affect the Company's business. The Company maintains a
split dollar key man life insurance policy on Mr. Conway.
Concentration of Ownership. Approximately 37% of the Company's Common Stock
is held by executives of the Company, including 24.6% which is held by Mr.
Conway and 11.7% which is held by Terry L. Hunter, President of The Hunter
Group, Inc., a wholly-owned subsidiary of the Company ("Hunter"). As a result,
Messrs. Conway and Hunter would be able to significantly influence any matter
requiring stockholder approval. In addition, 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. Finally, future sales of substantial amounts of Common Stock by Mr. Conway
or Mr. Hunter, or the potential for such sales, could adversely affect the
prevailing market price of the common stock.
-12-
<PAGE>
Dependence on PeopleSoft. Hunter has a very close commercial
relationship with PeopleSoft, a provider of ERP software products and a
substantial proportion of Hunter's revenue is derived from this relationship.
As a result, Hunter, and therefore the Company, is in part dependent upon
PeopleSoft's marketing efforts and continued success. Any adverse change in
Hunter's commercial relationship with PeopleSoft could adversely affect Hunter's
ability to provide services to existing or potential clients. Any changes in
the vendor-sponsored programs in which Hunter participates or any deterioration
in the relationship between Hunter and PeopleSoft may result in the loss of
vendor certifications, or a reduction in the number of client referrals or other
vendor actions, any of which could adversely affect Hunter's business and
thereby the Company's business.
Rapid Technological Change. The Company's success depends in part upon its
ability to develop information technology solutions that keep pace with the
continuing changes in information technology, evolving industry standards and
changing client requirements. In addition, the Company's business may be
adversely affected by the development of technologies that may render the
Company's technologies and solutions obsolete or uncompetitive.
Potential Decrease in Services After the Year 2000. As the year 2000
approaches, many potential clients are evaluating their legacy systems and must
decide whether to repair or replace existing applications that have Year 2000
operability issues. Although the Company believes that these evaluations are
increasing the demand for the Company's evaluation and remedial services, the
demand for these services will necessarily dissipate as year 2000 issues are
resolved. Given the lack of precedent for an issue of this magnitude, the
Company's ability to accurately forecast the effect of this issue on quarter-to-
quarter revenue achievement is limited and the Company's failure to estimate
this forecast accurately could have an adverse affect on the Company's business.
Government Regulation of Immigration. Each year the Company hires IT
professionals who are foreign nationals working in the United Stated under H-1B
permits. Under current law, there is a fixed annual number of H-1B visas
available for issuance and once this limit has been reached the Company is
unable to retain the services of additional foreign nationals until additional
H-1B visas are made available in the next fiscal year. The inability by the
Company to hire as many foreign nationals under H-1B visas may adversely affect
the business of the Company.
Fluctuations in Operating Results; Seasonality. The Company's operating
results may fluctuate from quarter to quarter as a result of many different
factors, including the number, significance, mix and timing of client projects,
the number of business days in a particular period, and general economic
conditions. As the Company's Solutions Group continues to grow and as this
unit contributes a greater percentage of the Company's revenues, the Company
expects that it may experience greater variability in its quarterly operating
results. In particular, the Company tends to experience a certain amount of
seasonality in the fourth quarter due to the increased number of holidays in
that quarter.
Fluctuations in the General Economy. Demand for IT consulting services
will be affected by the general health of the domestic and international
economies. Some of the Company's clients may reduce capital expenditures
relating to information technology if they suffer slowdowns in their businesses
due to a general slowing of the economy. This reduction in capital spending may
require some of the Company's clients to delay or cancel information technology
projects that the Company had been engaged to manage or on which the Company's
consultants may have been staffed. Fluctuations in the general economy which
adversely impact the capital expenditure or other budgets of the Company's
clients may adversely affect the Company's business.
Competition. The market for information technology services and management
consulting services includes a large number of competitors, experiences rapid
changes and is highly competitive. The Company's competitors include "Big Five"
accounting firms, systems consulting and integration firms, application software
development firms, services divisions of computer equipment companies and
general management consulting companies. Moreover, the Company often competes
with the internal resources of its clients. The competitive nature of the
Company's marketplaces creates pricing pressures which may adversely affect the
Company's business.
-13-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Renaissance Worldwide, Inc.
In our opinion, based upon our audits and the reports of other auditors, the
consolidated financial statements present fairly, in all material respects, the
financial position of Renaissance Worldwide, Inc. (formerly The Registry, Inc.)
and its subsidiaries (the "Company") at June 29, 1996, June 28, 1997 and
December 27, 1997, and the results of their operations and their cash flows for
each of the three years in the period ended June 28, 1997 and for the six month
period ended December 27, 1997, 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 did not audit the financial statements of
Shamrock Computer Resources, Ltd., a wholly-owned subsidiary, for the year ended
December 31, 1995, which are included in the accompanying consolidated statement
of operations for the year ended June 24, 1995. We also did not audit the
financial statements of Renaissance Solutions, Inc., a wholly-owned subsidiary,
as of December 31, 1996 and for the two years in the period then ended, which
statements are included in the accompanying consolidated balance sheet as of
June 29, 1996 and in the accompanying consolidated statement of operations for
the years ended June 24, 1995 and June 29, 1996, respectively. We also did not
audit the financial statements of The Hunter Group, Inc., a wholly-owned
subsidiary, as of December 31, 1995 and 1996, and for each of the three years in
the period ended December 31, 1996, which statements are included in the
accompanying consolidated balance sheet as of June 29, 1996 and June 28, 1997,
respectively, and in the accompanying consolidated statement of operations for
the years ended June 24, 1995, June 29, 1996 and June 28, 1997, respectively. We
also did not audit the financial statements of Neoglyphics Media Corporation, a
wholly owned subsidiary, as of December 31, 1997 and for the year ended December
31, 1997, which statements are included in the accompanying balance sheet as of
June 28, 1997, and in the accompanying consolidated statement of operations for
the year ended June 28, 1997. We also did not audit the financial statements of
Triad Data, Inc., a wholly owned subsidiary, as of December 31, 1996 and
December 31, 1997 and for each of the three years in the period ended December
31, 1997, which statements are included in the accompanying balance sheet as of
June 29, 1996 and June 28, 1997, and in the accompanying consolidated statement
of operations for the years ended June 24, 1995, June 29, 1996, and June 28,
1997, respectively. In the aggregate, these statements reflect total assets of
$100,960,000, $29,864,000 and $17,787,000 in the accompanying consolidated
balance sheet as of June 29, 1996, June 28, 1997, and December 27, 1997,
respectively, and total revenues of $93,400,000, $116,185,000, and $100,790,000
in the accompanying consolidated statement of operations for the years ended
June 24, 1995, June 29, 1996 and June 28, 1997, respectively. Those statements
were audited by other auditors whose reports thereon have been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Shamrock Computer Resources, Ltd., Renaissance Solutions, Inc., The Hunter
Group, Inc., Neoglyphics Media Corporation and Triad Data, Inc. for these
periods is based solely on the reports of the other auditors. 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 and the reports of other auditors provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1998, except as to the
"Stock Split and Authorized Shares" section
of Note 10 which is as of March 24, 1998 and
as to the poolings of interests of Neoglyphics Media
Corporation and Triad Data, Inc. which are as of
April 27, 1998
-14-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Shamrock Computer Resources, Ltd.
Minneapolis, Minnesota
We have audited the statements of income, changes in stockholders' equity, and
cash flows of Shamrock Computer Resources, Ltd. for the year ended December 31,
1995 (not presented separately herein). 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Shamrock
Computer Resources, Ltd. for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
Graves, McKenna, Lundeen & Almquist, PLLP
Certified Public Accountants
Minneapolis, Minnesota
December 13, 1996
-15-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Renaissance Solutions, Inc.:
We have audited the consolidated balance sheet of Renaissance Solutions, Inc.
and its subsidiaries (the "Company") as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1996 (not presented
separately herein). 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Renaissance Solutions, Inc. and its
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
As described in Note 3, the consolidated financial statements of the Company
give retroactive effect to the acquisition of International Systems Services
Corporation by the Company on December 31, 1996 as a pooling-of-interests.
Deloitte & Touche LLP
Boston, Massachusetts
February 28, 1997
-16-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Hunter Group, Inc.
We have audited the consolidated balance sheets of The Hunter Group, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the related consolidated
statements of operations, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1996 (not presented separately
herein). 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 11, on November 26, 1997, pursuant to an Agreement and
Plan of Merger, dated November 15, 1997, the Company was acquired by Renaissance
Worldwide, Inc. (formerly The Registry, Inc.).
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Hunter Group,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
February 14, 1997, except for Note 3, as to
which the date is September 30, 1997, and Note 11,
as to which the date is November 26, 1997.
-17-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
We have audited the accompanying statement of financial position of
Neoglyphics Media Corporation as of December 31, 1997, and the related
statements of income and cash flows for the year then ended (not presented
separately herein). 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Neoglyphics Media Corporation
at December 31, 1997, and the results of its operation and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Katch, Tyson & Company
March 12, 1998
-18-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Stockholder
Triad Data, Inc.
We have audited the accompanying balance sheets of Triad Data, Inc. as of
December 31, 1997 and 1996 and the related statements of income and retained
earnings, and cash flows for each of the three years in the period ended
December 31, 1997 (not presented separately herein). 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Triad Data, Inc. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the three years then ended in conformity with generally accepted accounting
principles.
GOLDSTEIN GOLUB KESSLER LLP
February 27, 1998
-19-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
---------- ---------- -------------
1996 1997 1997
---------- ---------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................................................... $ 64,507 $ 30,013 $ 19,956
Marketable securities............................................................. 17,910 28,675 5,867
Accounts receivable, net of allowance for doubtful accounts of $1,365,
$1,840, and $3,444 at June 29, 1996, June 28, 1997 and and December 27,
1997, respectively.............................................................. 67,676 122,552 153,994
Notes receivable.................................................................. 104 1,680 1,706
Deferred income taxes............................................................. 607 2,299 2,167
Other current assets.............................................................. 2,146 4,256 7,408
-------- -------- --------
Total current assets........................................................... 152,950 189,475 191,098
Fixed assets, net................................................................... 12,550 19,355 26,731
Notes receivable from officers...................................................... 985 535 108
Goodwill and other intangible assets, net of accumulated amortization of $145,
$1,028, and $2,593 at June 29, 1996, June 28, 1997 and December 27, 1997,
respectively....................................................................... 885 46,164 94,343
Other assets........................................................................ 619 1,392 3,042
Deferred income taxes............................................................... 35 -- 855
-------- -------- --------
Total assets................................................................... $168,024 $256,921 $316,177
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit.................................................................... $ 6,867 $ 8,750 $ 43,300
Current portion of capital lease obligations...................................... 141 185 107
Current portion of long-term debt................................................. 1,136 560 2,876
Note payable to officer........................................................... 500 93 93
Accounts payable.................................................................. 8,929 9,442 13,101
Accrued salaries and wages........................................................ 8,190 12,408 13,249
Other accrued expenses............................................................ 10,557 18,870 41,349
Income taxes payable.............................................................. 2,202 1,634 201
Deferred income taxes............................................................. 1,281 3,510 1,411
-------- -------- --------
Total current liabilities...................................................... 39,803 55,452 115,687
Deferred income taxes............................................................... 1,104 1,166 2,535
Capital lease obligations........................................................... 444 242 43
Long-term debt...................................................................... 2,610 2,284 3,602
Other liabilities................................................................... 320 685 415
-------- -------- --------
Total liabilities.............................................................. 44,281 59,829 122,282
-------- -------- --------
Commitments and contingencies (Notes 4 and 12)
Stockholders' equity
Preferred stock, no par value:
Authorized 5,000,000 shares, issued and outstanding--2,448,000 at June 29,
1996 (liquidating preference $1,934), and 0 at June 28, 1997 and December
27, 1997 1,916 -- --
Preferred stock, $0.10 par value (Note 10).......................................... -- -- --
Common stock, no par value:
Authorized 99,000,000 shares; issued and outstanding 48,898,148 shares at
June 29, 1996, 54,158,078 shares at June 28, 1997 and 54,666,024 shares
at December 27, 1997 202 4,725 4,725
Additional paid-in capital.......................................................... 100,331 157,201 160,743
Notes receivable from stockholders.................................................. (476) (476) (476)
Deferred stock compensation......................................................... (179) -- --
Retained earnings................................................................... 21,702 35,500 28,704
Unrealized gain (loss) on investments............................................... (18) (21) 22
Cumulative translation adjustment................................................... 265 163 177
-------- -------- --------
Total stockholders' equity..................................................... 123,743 197,092 193,895
-------- -------- --------
Total liabilities and stockholders' equity..................................... $168,024 $256,921 $316,177
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-20-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION> SIX MONTHS
--------------
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
------------ ------------ ------------ --------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 27,
------------ ------------ ------------ --------------
1995 1996 1997 1997
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenue..................................................... $221,957 $333,063 $489,833 $320,119
Cost of revenue............................................. 156,913 232,496 342,422 215,695
-------- -------- -------- --------
65,044 100,567 147,411 104,424
Selling, general and administrative expenses................ 50,344 76,794 108,642 81,686
Acquisition-related expenses................................ -- 3,524 8,268 17,961
-------- -------- -------- --------
Income from operations...................................... 14,700 20,249 30,501 4,777
Interest expense............................................ (1,459) (2,476) (1,446) (1,495)
Interest and other income................................... 655 1,703 4,713 817
-------- -------- -------- --------
Income before taxes......................................... 13,896 19,476 33,768 4,099
Income tax provision........................................ 3,607 7,456 16,594 8,330
-------- -------- -------- --------
Net income (loss)........................................... $ 10,289 $ 12,020 $ 17,174 $ (4,231)
======== ======== ======== ========
Net income (loss) per share--basic.......................... $0.25 $0.28 $0.34 $(0.08)
Weighted average common shares outstanding--basic........... 40,776 42,885 50,495 54,537
Net income (loss) per share--diluted........................ $0.24 $0.26 $0.31 $(0.08)
Weighted average common and potential common shares 43,013 46,862 54,607 54,537
outstanding--diluted.......................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
-21-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK COMMON STOCK
------------------- -------------------- ------------------
NO PAR NO PAR $0.01 PAR
------------------- -------------------- ------------------
SHARES VALUE SHARES VALUE SHARES VALUE
---------- ------- ----------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 25, 1994.......................... 2,790,000 $2,204 26,520,140 $ 208 200,000 $ 2
Proceeds from issuance of Common Stock, net
of issuance costs................................ -- -- 4,267,834 20 -- --
Stock issued upon exercise of options............. 123,000 14 70,708 1 -- --
Repurchase of stock............................... (465,000) (302) (255,218) (30) -- --
Amortization of deferred stock compensation....... -- -- -- -- -- --
Distributions..................................... -- -- -- -- -- --
Corporate reorganization.......................... -- -- -- -- -- --
Sale of warrants to acquire common stock.......... -- -- -- -- -- --
Issuance of loan to stockholder................... -- -- -- -- -- --
Cumulative translation adjustment................. -- -- -- -- -- --
Unrealized gain on marketable securities.......... -- -- -- -- -- --
Net income for the year........................... -- -- -- -- -- --
--------- ------ ---------- ------ --------- -----
Balance at June 24, 1995.......................... 2,448,000 1,916 30,603,464 199 200,000 2
Consolidation of real estate trust................ -- -- -- -- -- --
Acquisition of America's Registry by RWI.......... -- -- 10,666,666 -- (200,000) (2)
Amortization of deferred stock compensation....... -- -- -- -- -- --
Proceeds from issuance of Common Stock, net
of issuance costs................................ -- -- 6,247,640 -- -- --
Stock issued upon exercise of options............. 23,000 -- 311,811 3 -- --
Stock issued upon exercise of warrants............ -- -- 1,013,760 -- -- --
Stock issued through stock purchase plan.......... -- -- 67,429 -- -- --
Tax benefit associated with option exercises...... -- -- -- -- -- --
Capital contribution.............................. -- -- -- -- -- --
Translation adjustment............................ -- -- -- -- -- --
Unrealized loss on marketable securities.......... -- -- -- -- -- --
Distributions..................................... -- -- -- -- -- --
Net income for the year........................... -- -- -- -- -- --
Adjustment to eliminate duplication of the six
month period ended December 31, 1995
resulting from the change in fiscal year of
entities acquired in poolings-of-interests
Net income...................................... -- -- -- -- -- --
Distributions................................... -- -- -- -- -- --
Amortization of deferred stock compensation..... -- -- -- -- -- --
Stock issued upon exercise of stock options..... (23,000) -- (12,622) -- -- --
--------- ------ ---------- ------ --------- -----
Balance at June 29, 1996.......................... 2,448,000 1,916 48,898,148 202 -- --
Repurchase of stock............................... -- -- (96,286) -- -- --
Proceeds from issuance of stock, net of
issuance costs................................... 165,000 1,564 2,872,946 1,043 -- --
</TABLE>
-22-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
WARRANTS NOTES
------------ -------------
ADDITIONAL TO ACQUIRE RECEIVABLE
----------- ------------ -------------
PAID-IN COMMON TREASURY FROM
----------- ------------ ---------- -------------
CAPITAL STOCK STOCK STOCKHOLDERS
----------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Balance at June 25, 1994....................................... $ 1,322 $ -- $ -- $(226)
Proceeds from issuance of Common Stock, net of issuance
costs......................................................... 15,636 -- -- --
Stock issued upon exercise of options.......................... 16 -- -- --
Repurchase of stock............................................ -- -- -- --
Amortization of deferred stock compensation.................... -- -- -- --
Distributions.................................................. -- -- -- --
Corporate reorganization....................................... (1,315) -- -- --
Sale of warrants to acquire common stock....................... -- 1,600 -- --
Issuance of loan to stockholder................................ -- -- -- (250)
Cumulative translation adjustment.............................. -- -- -- --
Unrealized gain on marketable securities....................... -- -- -- --
Net income for the year........................................ -- -- -- --
-------- ----------- --------- ------------
Balance at June 24, 1995....................................... 15,659 1,600 -- (476)
Consolidation of real estate trust............................. (111) -- -- --
Acquisition of America's Registry by RWI....................... 2 -- -- --
Amortization of deferred stock compensation.................... -- -- -- --
Proceeds from issuance of Common Stock, net of issuance
costs......................................................... 68,962 -- -- --
Stock issued upon exercise of options.......................... 1,696 -- -- --
Stock issued upon exercise of warrants......................... 11,917 (1,600) -- --
Stock issued through stock purchase plan....................... 607 -- -- --
Tax benefit associated with option exercises................... 1,178 -- -- --
Capital contribution........................................... 421 -- -- --
Translation adjustment......................................... -- -- -- --
Unrealized loss on marketable securities....................... -- -- -- --
Distributions.................................................. -- -- -- --
Net income for the year........................................ -- -- -- --
Adjustment to eliminate duplication of the six
month period ended December 31, 1995 resulting
from the change in fiscal year of entities acquired in
poolings-of-interests
Net income................................................... -- -- -- --
Distributions................................................ -- -- -- --
Amortization of deferred stock compensation.................. -- -- -- --
Stock issued upon exercise of stock options.................. -- -- -- --
-------- ----------- --------- ------------
Balance at June 29, 1996....................................... 100,331 -- -- (476)
Repurchase of stock............................................ -- -- (2,000) --
Proceeds from issuance of stock, net of issuance costs......... 52,916 -- 2,000 --
</TABLE>
-23-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
------------
DEFERRED GAIN/LOSS CUMULATIVE TOTAL
-------------- ------------ ------------- ---------------
STOCK RETAINED ON TRANSLATION STOCKHOLDERS'
-------------- ----------- ------------ ------------- ---------------
COMPENSATION EARNINGS INVESTMENTS ADJUSTMENT EQUITY
-------------- ----------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at June 25, 1994.......................... $(226) $ 7,278 -- $ -- $ 10,582
Proceeds from issuance of Common Stock, net
of issuance costs................................ -- -- -- -- 15,636
Stock issued upon exercise of options............. -- -- -- -- 31
Repurchase of stock............................... -- -- -- -- (332)
Amortization of deferred stock compensation....... 31 -- -- -- 31
Distributions..................................... -- (4,122) -- -- (4,122)
Corporate reorganization.......................... -- 1,315 -- -- --
Sale of warrants to acquire common stock.......... -- -- -- -- 1,600
Issuance of loan to stockholder................... -- -- -- -- (250)
Cumulative translation adjustment................. -- -- -- (48) (48)
Unrealized gain on marketable securities.......... -- -- 35 -- 35
Net income for the year........................... -- 10,289 . -- 10,289
------------- ------- ----------- ------------ --------
Balance at June 24, 1995.......................... (195) 14,760 35 (48) 33,452
Consolidation of real estate trust................ -- -- -- -- (111)
Acquisition of America's Registry by RWI.......... -- -- -- -- --
Amortization of deferred stock compensation....... 31 -- -- -- 31
Proceeds from issuance of Common Stock, net
Of issuance costs................................ -- -- -- -- 68,962
Stock issued upon exercise of options............. -- -- -- -- 1,699
Stock issued upon exercise of warrants -- -- -- -- 10,317
Stock issued through stock purchase plan.......... -- -- -- -- 607
Tax benefit associated with option exercises...... -- -- -- -- 1,178
Capital contribution.............................. -- -- -- -- 421
Translation Adjustment............................ -- -- -- 313 313
Unrealized loss on marketable securities.......... -- -- (53) -- (53)
Distributions..................................... -- (2,958) -- -- (2,958)
Net income for the year........................... -- 12,020 -- -- 12,020
Adjustment to eliminate duplication of the six
month period ended December 31, 1995
resulting from the change in fiscal year of
entities acquired in poolings-of-interests
Net income...................................... -- (2,294) -- -- (2,294)
Distributions................................... -- 174 -- -- 174
Amortization of deferred stock compensation..... (15) -- -- -- (15)
Stock issued upon exercise of stock options.... -- -- -- -- --
------------- ------- ----------- ------------ --------
Balance at June 29, 1996.......................... (179) 21,702 (18) 265 123,743
Repurchase of stock............................... -- -- -- -- (2,000)
Proceeds from issuance of stock, net of
issuance costs................................... -- (80) -- -- 57,443
</TABLE>
-24-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK COMMON STOCK
--------------------- ------------------- -------------
NO PAR NO PAR $0.01 PAR
--------------------- ------------------- -------------
SHARES VALUE SHARES VALUE SHARES VALUE
----------- -------- ----------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Stock issued upon sale of warrants............................ -- -- 1,013,760 -- -- --
Compensation in connection with grant of stock options........ -- -- -- -- -- --
Stock issued upon exercise of options......................... -- -- 1,210,537 -- -- --
Stock issued for acquisition.................................. -- -- 266,528 -- -- --
Tax benefit associated with option exercises.................. -- -- -- -- -- --
Amortization of deferred stock compensation................... -- -- -- -- -- --
Conversion of preferred stock................................. (2,613,000) (3,480) 1,434,160 3,480 -- --
Stock issued through stock purchase plan...................... -- -- 111,474 -- -- --
Unrealized loss on marketable securities...................... -- -- -- -- -- --
Buy back of Treasury Stock.................................... -- -- (15,005) -- -- --
Distributions................................................. -- -- -- -- -- --
Net income for the year....................................... -- -- -- -- -- --
Cumulative translation adjustment............................. -- -- -- -- -- --
Elimination of duplicate activity for the six month period
ended December 31, 1996 resulting from the change in fiscal
year of entity acquired in pooling-of-interests
Net loss................................................ -- -- -- -- -- --
Proceeds from issuance of stock, net of
Issuance costs....................................... -- -- (344,240) -- -- --
Stock issued upon sale of warrants...................... -- -- (1,013,760) -- -- --
Stock issued upon exercise of options................... -- -- (148,402) -- -- --
Tax benefit associated with the option exercises........ -- -- -- -- -- --
Stock issued through stock purchase plan................ -- -- (31,782) -- -- --
Translation adjustment.................................. -- -- -- -- -- --
Unrealized loss on marketable securities................ -- -- -- -- -- --
---------- ------- ---------- ------ ------ -----
Balance at June 28, 1997...................................... -- -- 54,158,078 4,725 -- --
Adjustment to add back elimination of the six month period
Ended June 30, 1997 resulting from the change in fiscal
year of Entity acquired in pooling-of interests
Net Loss................................................ -- -- -- -- -- --
Cumulative Translation Adjustment....................... -- -- -- -- -- --
Elimination of duplicate activity for the six month period ended
December 27, 1997 resulting from the change in fiscal year of
Entities acquired in pooling-of-interests
Stock issued upon exercise of options -- -- (86,028) -- -- --
Tax benefit associated with option exercises -- -- -- -- -- --
Net income................................................ -- -- -- -- -- --
Compensation expense in connection with grant
of stock options........................................... -- -- -- -- -- --
Stock issued upon exercise of options......................... -- -- 191,726 -- -- --
Stock issued for acquisition.................................. -- -- 328,578 -- -- --
Tax benefit associated with option exercises.................. -- -- -- -- -- --
Stock issued through stock purchase plan...................... -- -- 73,670 -- -- --
Unrealized gain on marketable securities...................... -- -- -- -- -- --
Net loss for the period....................................... -- -- -- -- -- --
Cumulative translation adjustment............................. -- -- -- -- -- --
---------- ------- ---------- ------ ------ -----
Balance at December 27, 1997.................................. -- $ -- 54,666,024 $4,725 -- $ --
========== ======= ========== ====== ====== =====
</TABLE>
-25-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
WARRANTS NOTES
------------- -------------
ADDITIONAL TO ACQUIRE RECEIVABLE
------------ ------------- -------------
PAID-IN COMMON TREASURY FROM
------------ ------------- --------- -------------
CAPITAL STOCK STOCK STOCKHOLDERS
------------ ------------- --------- -------------
<S> <C> <C> <C> <C>
Stock issued upon sale of warrants................................ 11,917 (1,600) -- --
Compensation expense in connection with grant of stock options.... 528 -- -- --
Stock issued upon exercise of options............................. 3,497 -- -- --
Stock issued for acquisition...................................... 3,979 -- -- --
Tax benefit associated with option exercises...................... 3,557 -- -- --
Amortization of deferred stock compensation....................... -- -- -- --
Conversion of preferred stock..................................... -- -- -- --
Stock issued through stock purchase plan.......................... 1,126 -- -- --
Unrealized loss on marketable securities.......................... -- -- -- --
Buy back of Treasury Stock........................................ -- -- -- --
Distributions..................................................... -- -- -- --
Net income for the year........................................... -- -- -- --
Cumulative translation adjustment................................. -- -- -- --
Elimination of duplicate activity for the six month period ended
December 31, 1996 resulting from the change in fiscal year of
entity acquired in pooling-of-interests
Net loss..................................................... -- -- -- --
Proceeds from issuance of stock, net of issuance costs....... (6,496) -- -- --
Stock issued upon sale of warrants........................... (11,917) 1,600 -- --
Stock issued upon exercise of options........................ (997) -- -- --
Tax benefit associated with option exercises................. (879) -- -- --
Stock issued through stock purchase plan..................... (361) -- -- --
Translation adjustment....................................... -- -- -- --
Unrealized loss on marketable securities..................... -- -- -- --
-------- ------------ --------- ------------
Balance at June 28, 1997.......................................... 157,201 -- -- (476)
Adjustment to add back elimination of the six month period
ended June 30, 1997 resulting from the change in fiscal year
of entity acquired in pooling-of-interests
Net loss................................................. -- -- -- --
Cumulative Translation Adjustment........................ -- -- -- --
Elimination of duplicate activity for the six month period ended
December 27, 1997 resulting from the change in fiscal year of
Entities acquired in poolings-of-interests -- -- -- --
Stock issued upon exercise of options......................... (7) -- -- --
Tax benefit associated with option exercise................... (35) -- -- --
Net income.................................................... -- -- -- --
Compensation expense in connection with grant of stock
Options........................................................ 750 -- -- --
Stock issued upon exercise of options............................. 1,057 -- -- --
Stock issued for acquisition...................................... -- -- -- --
Tax benefit associated with option exercises...................... 302 -- -- --
Stock issued through stock purchase plan.......................... 1,475 -- -- --
Unrealized gain on marketable securities.......................... -- -- -- --
Net loss for the period........................................... -- -- -- --
Cumulative translation adjustment................................. -- -- -- --
-------- ------------ --------- ------------
Balance at December 27, 1997...................................... $160,743 $ -- --$ $(476)
-------- ------------ --------- ------------
</TABLE>
-26-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION> UNREALIZED
------------
DEFERRED GAIN/LOSS CUMULATIVE TOTAL
------------ ------------ ------------ --------------
STOCK RETAINED ON TRANSLATION STOCKHOLDERS'
------------ --------- ------------ ------------ --------------
COMPENSATION EARNINGS INVESTMENTS ADJUSTMENT EQUITY
------------ --------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Stock issued upon sale of warrants....................... -- -- -- -- 10,317
Compensation in connection with grant of stock options -- -- -- -- 528
Stock issued upon exercise of options.................... -- -- -- -- 3,497
Stock issued for acquisition............................. -- -- -- -- 3,979
Tax benefit associated with option exercises............. -- -- -- -- 3,557
Amortization of deferred stock compensation.............. 179 -- -- -- 179
Conversion of preferred stock............................ -- -- -- -- --
Stock issued through stock purchase plan................. -- -- -- -- 1,126
Unrealized loss on marketable securities................. -- -- (15) -- (15)
Buy back of Treasury Stock............................... -- -- -- -- --
Distributions............................................ -- (3,465) -- -- (3,465)
Net income for the year.................................. -- 17,174 -- -- 17,174
Cumulative translation adjustment........................ -- -- -- 200 200
Elimination of duplicate activity for the six month
period ended December 31, 1996 resulting from the
change in fiscal year of entity acquired in pooling-
of-interests
Net loss............................................. -- 169 -- -- 169
Proceeds from issuance of stock, net of
issuance costs....................................... -- -- -- -- (6,496)
Stock issued upon sale of warrants................... -- -- -- -- (10,317)
Stock issued upon exercise of options................ -- -- -- -- (997)
Tax benefit associated with the option exercises..... -- -- -- -- (879)
Stock issued through stock purchase plan............. -- -- -- -- (361)
Translation adjustment............................... -- -- -- (302) (302)
Unrealized loss on marketable securities............. -- -- 12 -- 12
------------ ------- ----------- ----------- --------
Balance at June 28, 1997................................. -- 35,500 (21) 163 197,092
Adjustment to add back elimination of the six month
period ended June 30, 1997 resulting from the change in
fiscal year of entity acquired in pooling-of-interests.. -- -- -- -- --
Net loss............................................. -- (827) -- -- (827)
Cumulative translation adjustment.................... -- -- -- (146) (146)
Elimination of duplicate activity for the six month
period ended December 27, 1997 resulting from the
change in fiscal year of the entities acquired in
pooling-of-interests -- -- -- -- --
Stock issued upon exercise of options................ -- -- -- -- (7)
Tax benefit associated with option exercises......... -- -- -- -- (35)
Net income........................................... -- (1,738) -- -- (1,738)
Compensation expense in connection with grant
of stock options...................................... -- -- -- -- 750
Stock issued upon exercise of options.................... -- -- -- -- 1,057
Stock issued for acquisitions............................ -- -- -- -- --
Tax benefit associated with option exercises............. -- -- -- -- 302
Stock issued through stock purchase plan................. -- -- -- -- 1,475
Unrealized gain on marketable securities................. -- -- 43 -- 43
Net loss for the period.................................. -- (4,231) -- -- (4,231)
Cumulative translation adjustment........................ -- -- -- 160 160
------------ ------- ----------- ----------- --------
Balance at December 27, 1997............................. $ -- $28,704 $ 22 $ 177 $193,895
============ ======= =========== =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-27-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
-------------
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
----------- ----------- ----------- -------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 27,
----------- ----------- ----------- -------------
1995 1996 1997 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................... $ 10,289 $ 12,020 $ 17,174 $ (4,231)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization........................................ 1,480 2,129 3,947 5,099
Provision for losses on accounts receivable.......................... 290 539 902 1,274
Deferred income taxes................................................ 544 (406) 4,129 (97)
Compensation expense on stock options................................ 31 31 494 750
Loss on sale of fixed assets......................................... 56 -- -- --
Changes in operating assets and liabilities:
Accounts receivable................................................. (22,337) (19,512) (39,041) (26,677)
Other current assets................................................ (598) (726) (2,478) (2,708)
Other assets........................................................ (301) (287) (1,093) (3,446)
Accounts payable.................................................... 2,051 4,538 (3,463) (3,789)
Other accrued expenses.............................................. 1,314 6,566 3,523 15,380
Accrued salaries and wages.......................................... 670 2,350 331 1,134
Income taxes payable................................................ 170 1,688 2,041 (1,381)
Other liabilities................................................... 86 94 51 127
-------- -------- --------- --------
Net cash provided by (used for) operating activities................... (6,255) 9,024 (13,483) (18,565)
-------- -------- --------- --------
Cash flows from investing activities:
Cash disbursed for acquisitions, net of cash acquired................. (250) -- (41,543) (36,987)
Increase in notes receivable from officers............................ (1,309) (1,021) (90) (31)
Repayment of notes receivable from officers........................... -- 2,548 928 1,383
Increase in notes receivable.......................................... (67) (25) (1,559) (81)
Investment in capitalized software.................................... -- -- -- (1,361)
Purchases of marketable securities.................................... (4,855) (46,267) (246,679) (91,926)
Sales and maturities of marketable securities......................... -- 33,194 231,579 114,734
Purchases of fixed assets............................................. (4,853) (5,384) (8,216) (10,480)
-------- -------- --------- --------
Net cash used for investing activities................................. (11,334) (16,955) (65,580) (24,749)
-------- -------- --------- --------
Cash flows from financing activities:
Cash proceeds from issuance of common stock........................... 15,652 81,876 67,127 --
Cash payments to repurchase common stock.............................. (71) -- (2,000) --
Proceeds from reissuance of treasury stock............................ -- -- 1,920 --
Cash proceeds from exercise of stock options.......................... 15 1,181 3,498 1,057
Cash proceeds from stock purchase plan................................ -- -- 1,135 1,473
Sale of warrants to acquire common stock.............................. 1,600 -- -- --
Net borrowings (payments) on lines of credit.......................... 8,549 (12,481) 3,507 31,234
Net repayments of stockholder loans................................ (49) -- -- --
Proceeds from issuance of long-term debt.............................. 3,880 2,689 384 4,047
Repayments of short-term borrowings................................... (2,001) (2,145) -- --
Principal payments on long-term debt and
capital lease obligations............................................ (749) (3,697) (2,564) (3,292)
Capital contribution.................................................. -- 421 -- --
Distributions......................................................... (4,372) (2,958) (3,465) (925)
-------- -------- --------- --------
Net cash provided by financing activities.............................. 22,454 64,886 69,542 33,594
-------- -------- --------- --------
Effect of exchange rates on cash and cash equivalents.................. (48) 313 84 169
Addition of activity for Hunter for January to June 1997 (Note 3)...... -- -- -- 200
Elimination of duplicated activity from July to December (Note 3)...... -- (855) (25,057) (706)
-------- -------- --------- --------
Net increase (decrease) in cash and cash equivalents................... 4,817 56,413 (34,494) (10,057)
Cash and cash equivalents, beginning of period......................... 3,277 8,094 64,507 30,013
-------- -------- --------- --------
Cash and cash equivalents, end of period............................... $ 8,094 $ 64,507 $ 30,013 $ 19,956
======== ======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................................ $ 1,446 $ 2,260 $ 1,311 $ 1,324
Cash paid for income taxes............................................ $ 2,908 $ 2,060 $ 10,269 $ 10,589
</TABLE>
See additional disclosure of non-cash investing and financing activity in Notes
3, 4, 7, 8, 10 and 15.
The accompanying notes are an integral part of these financial statements.
-28-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Renaissance Worldwide, Inc. ("Renaissance" or the "Company"), formerly
known as The Registry, Inc., is a worldwide provider of integrated business and
information technology ("IT") consulting services to organizations with
complex IT operations in a broad range of industries. The Company's offerings
are categorized into three business units: Strategy, Solutions and Services. The
Strategy Business Unit provides management consulting and technology integration
services in connection with performance support systems. The Solutions Business
Unit provides IT solutions design and implementation services. The Services
Business Unit provides IT professionals on a contract basis. The Company's
primary locations are in the United States with subsidiaries throughout Europe
and Asia. See Note 17.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying financial statements include the accounts of Renaissance
Worldwide, Inc. and its wholly-owned subsidiaries. On November 26, 1996,
November 27, 1996, July 31, 1997, and November 26, 1997, the Company completed
the acquisitions of Application Resources, Inc. ("ARI"), Shamrock Computer
Resources, Ltd. ("SCR"), Renaissance Solutions, Inc. ("RSI"), and The Hunter
Group, Inc. ("Hunter"), respectively. On December 31, 1996, RSI completed the
acquisition of International Systems Services Corporation. On March 31, 1998
and April 2, 1998, the Company completed the acquisitions of Neoglyphics Media
Corporation ("Neoglyphics)" and Traid Data, Inc. ("Triad"), respectively. 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 each
of these entities with the Company for all periods presented (see Note 3). In
addition, the accompanying financial statements include the accounts of several
entities acquired in purchase transactions, subsequent to their respective
acquisition dates (see Note 4), as well as the accounts of a real estate trust
(the "Trust") which is substantially controlled by the Company, subsequent to
the renegotiation of certain lease terms on September 19, 1995 (see Note 15).
All material intercompany balances and transactions have been eliminated.
FISCAL YEAR
Effective with the period ended December 27, 1997, the Company changed its
fiscal year from the last Saturday in June to the last Saturday in December.
RSI, ARI and SCR previously utilized a December 31 year end. Upon acquisition,
RSI, ARI and SCR changed their fiscal year ends to the last Saturday in June to
conform to the Company's previous fiscal year. Hunter, Neoglyphics, and Triad
previously utilized a December 31 year end. Upon acquisition, Hunter,
Neoglyphics, and Triad changed their fiscal year ends to the last Saturday in
December to conform to the Company's fiscal year (see Note 3).
The transition period ended December 27, 1997 reflects the results of
operations and cash flows for the six months then ended for the Company and all
of its subsidiaries. The results of operations and of cash flows for the years
ended June 24, 1995, June 29, 1996 and June 28, 1997 are for 52 weeks, 53 weeks
and 52 weeks, respectively.
The unaudited results of operations for the six month period ended December
28, 1996 included revenues of $214,774,000, cost of revenues of $150,052,000,
selling, general and administrative expenses (including acquisition-related
expenses) of $58,862,000, income from operations of $5,860,000, income before
taxes of $7,689,000 and net income of $1,654,000. Earnings per share-basic for
the period was $0.03. Earnings per share-diluted for the period was $0.03. In
the opinion of management, the above unaudited amounts include all adjustments,
consisting solely of normal recurring adjustments, necessary to present fairly
the Company's consolidated results of operations for the six months ended
December 28, 1996.
-29-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 cash
equivalents consist primarily of short term federal notes and money market
securities bearing interest at a weighted average rate of approximately 5.6% at
December 27, 1997. The investments are carried at cost plus accrued interest,
which approximates market value. The Company considers such securities to be
classified as "available-for-sale".
REVENUE RECOGNITION
The Company's revenue is primarily comprised of fees for consulting services.
The majority of the Company's revenue is from contracts on a time and materials
basis and is recognized as the services are performed. The remainder of the
Company's contracts are on a fixed-price basis, and revenue from those contracts
is recognized using the percentage of completion method based upon the number of
labor hours incurred compared to the total estimated hours at estimated
realizable rates. Under the percentage of completion method, the Company must
estimate the percentage of completion of each project at the end of each
financial reporting period. Estimates are subject to adjustment as a project
progresses to reflect changes in projected completion costs or dates. Revenues
are reported net of reimbursable expenses which are typically billed and
collected from clients. Losses, if any, are provided for in the period in which
the loss is determined. Amounts received in excess of revenue recognized are
recorded as deferred revenue.
The Company also licenses certain of its intellectual property. Revenue is
recognized on license agreements when the Company has completed all of its
significant contractual obligations and the license fees are non-refundable.
During the six months ended December 27, 1997, the Company recognized $2.5
million of revenue for the license of intellectual property in exchange for a
software license.
ACCOUNTS RECEIVABLE, CONCENTRATION OF CREDIT RISK AND UNCERTAINTIES
The Company is subject to credit risk through trade receivables. Credit risk
with respect to trade receivables is mitigated by the diversification of the
Company's operations, as well as its large client base and its geographical
dispersion. The Company performs ongoing evaluations of its receivables and may
obtain retainers at the onset of significant fixed price client engagements.
Collateral is not required for time and material contracts. In management's
opinion, the Company has provided sufficient provisions to prevent a significant
impact of credit losses to the financial statements. The failure of the Company
to complete a fixed price project to the client's satisfaction within the fixed
price exposes the Company to potentially unrecoverable cost overruns.
Fees on fixed-price contracts are generally billable to clients upon the
achievement of specified milestones. Unbilled revenue was $4,022,000, $5,174,000
and $7,913,000 at June 29, 1996, June 28, 1997, and December 27, 1997,
respectively.
No single customer accounted for more than 10% of revenues or more than 10% of
accounts receivable for any period presented.
-30-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<S> <C>
Buildings 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 lease term or 10 years
</TABLE>
ADVERTISING COSTS
Advertising costs are recorded as expense when incurred. There were no
advertising costs recorded as assets at June 29, 1996, June 28, 1997 or
December 27, 1997.
SOFTWARE DEVELOPMENT COSTS
The Company has capitalized certain software development costs under the
provisions of Statement of Financial Accounting Standards No. 86, "Accounting
for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed"
("SFAS 86"). Capitalization of software development costs begins upon the
establishment of technological feasibility, as defined in SFAS 86, and ceases
upon the general release of the related product to the public. The software is
generally utilized in conjunction with the Company's consulting services.
Capitalized software development costs are amortized over the shorter of (a)
the ratio which current period revenues for the software product bear to total
projected revenues, or (b) a straight-line basis over 1 to 3 years. Unamortized
software development costs totaled $53,000 and $1,278,000 at June 28, 1997 and
December 27, 1997, respectively, which are included in other assets in the
accompanying balance sheet. There were no such capitalized costs at June 29,
1996. Amortization of software development costs totaled $253,000 in the six
months ended December 27, 1997.
The establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs requires considerable
judgment by management with respect to certain external factors, including
technological feasibility, anticipated future revenues, estimated economic lives
and changes in software technology.
The Company has also capitalized costs associated with certain software being
developed for internal use. Such costs represent the direct costs of employees
associated with the design, development, implementation and testing of projects
which management believes will be used productively by the Company.
Capitalization commences when the initial product design has been completed and
management has committed the appropriate resources to the project, and ceases
upon implementation of the software, on a module by module basis.
Such costs are included within fixed assets in the accompanying balance sheet.
Capitalized costs totaled $569,054 and $1,860,054 at June 28, 1997 and
December 27, 1997, 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
Renaissance Worldwide, Inc.
-31-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Certain of the Company's subsidiaries 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 stockholders. These elections were subsequently
terminated upon acquisition by the Company and the net deferred tax asset or
liability as of the date of acquisition has been included in the provision for
income taxes in the period of acquisition.
Certain of the Company's subsidiaries had previously utilized the cash method
of accounting for income taxes. Upon acquisition by the Company, these
subsidiaries converted to the accrual method of accounting for income taxes. As
of December 31, 1997, Neoglyphics Media Corporation and Triad Data, Inc. utilize
the cash method of accounting for income taxes.
STOCK-BASED COMPENSATION
The Company accounts for employee awards under its stock plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. The Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), for disclosure purposes only (Note 11).
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 29, 1996, June 28, 1997 and December 27, 1997 and the
reported amounts of revenues and expenses for the three years in the period
ended June 28, 1997 and the six month period ended December 27, 1997. Actual
results could differ from those estimates.
GOODWILL AND OTHER INTANGIBLE ASSETS
As described in Note 4, the Company amortizes goodwill and intangible assets
arising from purchase acquisitions on a straight-line basis over a period of 10
to 30 years. Goodwill is evaluated for consideration of potential impairment
based on the operating results and forecasted cash flows of the acquired entity.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified
to conform to the current period presentation.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company's subsidiaries is the local currency.
Assets and liabilities are translated into U.S. dollars at exchange rates in
effect at the balance sheet date; income and expense items and cash flows are
translated at average exchange rates for the period. Cumulative net translation
adjustments are included in stockholders' equity. Gains and losses resulting
from foreign currency transactions, not significant in amount, are included in
the results of operations as other income (expense).
NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 specifies modifications to the Renaissance Worldwide,
Inc.
-32-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
calculation of earnings per share from that previously used by the Company.
Under SFAS 128, "basic earnings per share" is calculated based upon the weighted
average number of common shares actually outstanding, and "earnings per share
diluted" is calculated based upon the weighted average number of common shares
and dilutive potential common stock outstanding. Potential common stock includes
stock options and warrants, calculated using the treasury stock method, and the
assumed conversion of ARI's preferred stock (see Note 10). However, potential
common stock has been excluded from the calculation of diluted earnings per
share for the six months ended December 27, 1997, as its effect would be anti-
dilutive.
The Company adopted SFAS 128 and Securities and Exchange Commission Staff
Accounting Bulletin No. 98, which provides new guidance with respect to earnings
per share computations in the periods preceding a company's initial public
offering, in the second quarter of the transition period ended December 27, 1997
and has restated all prior periods in its financial statements.
A reconciliation of the weighted average number of common shares outstanding
is as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
---------
YEAR ENDED ENDED
------------------------------ ---------
JUNE 24, JUNE 29, JUNE 28, DECEMBER
-------- ---------- -------- ---------
1995 1996 1997 27, 1997
------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding--
Basic.......................................................... 40,776 42,885 50,495 54,537
Assumed exercise of stock options, using the treasury stock
Method......................................................... 690 2,641 3,553 --
Assumed exercise of warrants, using the treasury stock
Method......................................................... 100 104 -- --
Assumed conversion of ARI's preferred stock...................... 1,447 1,232 559 --
------ ------ ------ --------
Weighted average number of common and potential common
shares outstanding--diluted.................................... 43,013 46,862 54,607 54,537
====== ====== ====== ========
</TABLE>
RECENTLY ENACTED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for the reporting of comprehensive income in a company's
full set of financial statements, and is effective for fiscal years beginning
after December 15, 1997.
Comprehensive income is defined in SFAS 130 as the change in equity (net
assets) of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Comprehensive income reported
by an entity will include both net income and other comprehensive income.
Classifications within other comprehensive income could include foreign currency
items, minimum pension liability adjustments, and unrealized gains and losses on
certain investments in debt and equity securities. SFAS 130 will affect the
Company's reporting of unrealized gains and losses on marketable securities, as
well as the reporting of translation adjustments resulting from certain
investments in foreign subsidiaries. Such disclosures of comprehensive income
will be in addition to existing reporting of net income. The Company will adopt
this statement as required.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131"). SFAS 131 is effective for fiscal years beginning after December
15, 1997 and requires restatement of disclosures for all periods presented.
-33-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SFAS 131 requires that companies disclose information about operating segments
in annual and interim financial statements. SFAS 131 utilizes the "management
approach" in determining what constitutes an operating segment. An operating
segment is defined in SFAS 131 as a business component:
. which engages in business activities from which it may earn revenues and
inncur expenses;
. whose operating results are regularly reviewed by a chief operating
decision maker to make decisions about resources to be allocated to the
segment and assess its performance; and
. for which discrete financial information is available.
SFAS 131 requires that a company disclose information about operating segments
that meet any of the following thresholds:
. its reported revenue, including both customer and intersegment sales, is
greater than or equal to 10% of combined revenue
. the absolute amount of its reported profit or loss is greater than 10% or
more of the absolute amount of (1) the combined reported profit of all
segments that did report a loss or (2) the combined reported losses of all
segments that did not report a loss,
. its assets are greater than or equal to 10% or more of combined assets of
all operating segments.
The adoption of SFAS 131 will not impact the Company's financial position,
results of operations or cash flows. Management has determined that the adoption
of SFAS 131 will not materially differ from the Company's current presentation
of operating segments in Note 17.
3. ACQUISITION OF SUBSIDIARIES--POOLING OF INTERESTS
FISCAL 1998 POOLINGS OF INTEREST
In March 31, 1998 the Company, through a wholly-owned subsidiary, acquired all
of the outstanding stock of Neoglyphics Media Corporation ("Neoglyphics").
Neoglyphics is an Internet development and applications company based in
Chicago, Illinois and is the foundation of the e-commerce business unit within
the Solutions Group. Pursuant to the agreement, each share of Neoglyphics was
converted into the right to receive .12495 shares of Renaissance common stock.
Renaissance also assumed outstanding options for the purchase of Neoglyphics
common stock at the same conversion ratio.
On April 2, 1998, the Company, through a wholly-owned subsidiary, acquired
all of the outstanding stock of Triad Data, Inc. ("Triad"). Triad is an
information technology consulting firm performing services similar to those of
the Services group of the Company. Pursuant to the agreement, each share of
Triad common stock was converted into the right to receive 24,409.2 shares of
Renaissance common stock.
In total, 4,468,734 shares of the Company's Common Stock were exchanged for
all of the outstanding common stock of Neoglyphics and Triad. In addition,
outstanding stock options to purchase Neoglyphics common stock were converted
into options to purchase 119,940 shares of the Company's Common Stock.
Neoglyphics and Triad each had a calendar year end and the results of
operations for the years ended December 31, 1995, December 31, 1996 and December
31, 1997 were combined with the results of operations for Renaissance's fiscal
years ended June 24, 1995, June 29, 1996 and June 28, 1997, respectively.
Additionally, the financial position of Neoglyphics and Triad as of December 31,
1994, 1995 and 1996 have been combined with the Company's financial position as
of June 24, 1995, June 29, 1996, and June 28, 1997, respectively. In order to
conform Neoglyphics' and Triad's year end to Renaissance's fiscal year end, the
consolidated statement of income for the six months ended December 27, 1997
includes six months (July to December 1997) for Neoglyphics and Triad which has
also been included in the consolidated statement of income for the fiscal year
ended June 28, 1997. An adjustment has been made to retained earnings in the
transition period ended December 28,1997 to eliminate the duplication of net
income of Neoglyphics and Triad for such six month period.
-34-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TRANSITION PERIOD POOLINGS OF INTEREST
On July 31, 1997, pursuant to an Agreement and Plan of Merger dated May 19,
1997, the Company, through a wholly-owned subsidiary, acquired RSI. RSI provides
management consulting and client/server systems integration services, primarily
for large corporations. Pursuant to the agreement, each outstanding share of RSI
common stock was converted into the right to receive 1.6 shares of Renaissance
common stock. Renaissance also assumed outstanding options for the purchase of
RSI common stock at the same conversion ratio. Immediately prior to the
acquisition, there were 9,573,204 shares of RSI common stock and options to
purchase 1,364,895 shares of RSI common stock outstanding.
On November 26, 1997, the Company, through a wholly-owned subsidiary, acquired
Hunter. Hunter provides management consulting, systems implementation and
education services to organization seeking to deploy enterprise software
applications, including enterprise resource planning ("ERP") software
applications. Pursuant to the agreement, each outstanding share of Hunter common
stock was converted into the right to receive 19.9086 shares of Renaissance
common stock. Renaissance also assumed outstanding options for the purchase of
Hunter common stock at the same conversion ratio. Immediately prior to the
acquisition, there were 300,000 shares of Hunter common stock and options to
purchase 59,133 shares of Hunter common stock outstanding. In addition, in
conjunction with the acquisition of Hunter, Renaissance issued 328,578 shares of
Common Stock in exchange for a residual equity interest in Hunter held by a
third party.
In total, 21,647,012 shares of Renaissance common stock were exchanged for all
of the outstanding common stock of RSI and Hunter. In addition, outstanding
stock options to purchase RSI and Hunter common stock were converted into
options to purchase 3,361,088 shares of Renaissance'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.
RSI had a calendar year end and the results of operations for the year ended
December 31, 1995 and December 31, 1996 were combined with the results of
operations for Renaissance's fiscal years ended June 24, 1995 and June 29, 1996,
respectively. Additionally, the financial position of RSI as of December 31,
1995 and 1996 has been combined with the Company's financial position as of June
24, 1995 and June 29, 1996, respectively. In order to conform RSI's year end to
Renaissance's fiscal year end, the consolidated statement of income for fiscal
1997 includes six months (July to December 1996) for RSI which has also been
included in the consolidated statement of income for the fiscal year ended June
29, 1996. An adjustment has been made to retained earnings in fiscal 1997 to
eliminate the duplication of net income of RSI for such six month period.
Hunter had a calendar year end and the results of operations for the year
ended December 31, 1994, December 31, 1995 and December 31, 1996 were combined
with the results of operations for Renaissance's fiscal years ended June 24,
1995, June 29, 1996 and June 28, 1997, respectively. Additionally, the financial
position of Hunter as of December 31, 1994, 1995 and 1996 has been combined with
the Company's financial position as of June 24, 1995, June 29, 1996, and June
28, 1997, respectively. In order to conform Hunter's year end to Renaissance's
fiscal year end, the consolidated statement of income omits six months (January
to June 1997) for Hunter. An adjustment has been made to retained earnings in
the transition period ended December 27, 1997 to add back the net loss for
Hunter for such six month period.
-35-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FISCAL 1997 POOLINGS OF INTEREST
On November 26, 1996, pursuant to an Agreement and Plan of Merger dated
October 30, 1996, the Company, through a wholly-owned subsidiary, acquired 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 .548856 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 2, 1996, the Company, through a wholly-owned subsidiary, acquired 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
common stock was converted into the right to receive 273.539 shares of the
Company's Common Stock. 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.
On December 31, 1996, the Company, through its RSI subsidiary, acquired
International Systems Services Corporation, a Connecticut corporation ("ISS").
ISS is a consulting firm providing business and management consulting services.
Pursuant to the agreement, all of the outstanding capital stock of ISS was
acquired in exchange for 1,310,000 shares of RSI common stock (equal to
2,096,000 shares of the Company's Common Stock pursuant to the July 31, 1997
merger of RSI with the Company).
In total, 6,797,548 shares of the Company's Common Stock were exchanged for
all of the outstanding common stock of ARI, SCR and ISS. In addition,
outstanding stock options to purchase ARI common stock were converted into
options to purchase 435,810 shares of the Company's Common Stock. These
transactions (collectively referred to as the "Fiscal 1997 Poolings of
Interest") 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 beginnings of such periods.
ARI and SCR each had a calendar year end and the results of operations for ARI
and SCR for the year ended December 31, 1995 have been combined with the results
of operations for the Company's fiscal year ended June 24, 1995. Additionally,
the financial position of ARI and SCR as of December 31, 1995 has been combined
with the Company's financial position as of June 24, 1995. In order to conform
ARI and SCR's year end to the Company's fiscal year end, the consolidated
statement of income for fiscal 1996 includes six months (July to December 1995)
for both companies which are also included in the consolidated statement of
income for the fiscal year ended June 24, 1995. An adjustment has been made to
retained earnings in fiscal 1996 to eliminate the duplication of net income of
ARI and SCR for such six month period.
-36-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
There were no material transactions between the Company, ARI, SCR, ISS, RSI,
Hunter, Neoglyphics or Triad during any of the periods presented. No material
adjustments to net assets or results of operations were necessary to conform the
accounting practices of ARI, SCR, ISS, RSI, Hunter, Neoglyphics or Triad to that
of the Company. Certain reclassifications were made to the financial statements
of ARI, SCR, ISS, RSI, Hunter, Neoglyphics and Triad to conform with the
Company's classifications. All costs associated with the acquisitions have been
expensed as incurred.
Separate results of operations for the periods prior to the acquisitions of
ARI, SCR, ISS, RSI and Hunter by the Company were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------------------------------- ----------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 27,
------------ ------------ ------------------ -----------------------
1995 1996 1997 1997
------------ ------------ ----------------- ------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue
Renaissance Worldwide, Inc. ........................ $ 98,687 $145,588 $324,766(a) $285,937(c)
Application Resources, Inc. ........................ 29,870 37,615 --(a) -- (c)
Shamrock Computer Resources, Ltd. .................. 25,428 33,675 --(a) -- (c)
International Systems Services Corporation.......... 12,935 17,666 --(a) -- (c)
Renaissance Solutions, Inc. ........................ 22,601 34,784 64,277(b) -- (c)
The Hunter Group, Inc. ............................. 10,712 19,554 39,215 -- (c)
Neoglyphics......................................... 175 4,511 9,539 6,241
Triad .............................................. 21,549 39,670 52,036 27,941
-------- -------- -------- --------
Combined......................................... $221,957 $333,063 $489,833 $ 320,119
======== ======== ======== =========
Net income (loss)
Renaissance Worldwide, Inc. ........................ $ 326 $ 2,543 $ 10,900(a) $ (5,969)(c)
Application Resources, Inc. ........................ 1,273 1,228 --(a) -- (c)
Shamrock Computer Resources, Ltd. .................. 2,193 2,861 --(a) -- (c)
International Systems Services Corporation.......... 159 (704) --(a) -- (c)
Renaissance Solutions, Inc. ........................ 3,676 2,474 3,217(b) -- (c)
The Hunter Group, Inc. ............................. 1,173 (399) 443 -- (c)
Neoglyphics......................................... (91) 689 1,295 559
Triad .............................................. 1,580 3,328 1,319 1,179
-------- -------- -------- --------
Combined......................................... $ 10,289 $ 12,020 $ 17,174 $ (4,231)
======== ======== ======== ========
Other changes in stockholders' equity
Renaissance Worldwide, Inc. ........................ $ -- $ 33,003 $ 51,027(a) $ 2,814 (c)
Application Resources, Inc. ........................ (317) 3 --(a) -- (c)
Shamrock Computer Resources, Ltd. .................. (665) (1,416) --(a) -- (c)
International Systems Services Corporation.......... -- -- --(a) -- (c)
Renaissance Solutions, Inc. ........................ 13,813 48,815 26,917(b) -- (c)
The Hunter Group, Inc. ............................. (250) 1 285 -- (c)
Neoglyphics......................................... 20 -- 42 (601)
Triad............................................... 1 -- -- (1,179)
-------- -------- -------- --------
Combined......................................... $ 12,602 $ 80,406 $ 78,271 $ 1,034
======== ======== ======== ========
</TABLE>
- --------------
(a) Includes the results of ARI and SCR, which were acquired by the Company
during the year ended June 28, 1997
(b) Includes the results of ISS, which was acquired by RSI during the year ended
June 28, 1997
(c) Includes the results of ARI, SCR, ISS, Renaissance Solutions and The Hunter
Group, which were acquired by the Company prior to December 27, 1997
-37-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACQUISITION OF SUBSIDIARIES--PURCHASES
Transition Period Purchases
McClain Group, Inc. On July 16, 1997, the Company, through a wholly-owned
subsidiary, acquired all of the outstanding stock of McClain Group, Inc., a
Virginia corporation ("McClain"), for $15.4 million in cash. McClain is an
information technology management consulting firm based in Richmond, Virginia.
McClain provides IT consulting and project management services.
Technomics Consultants International, Inc. On July 25, 1997, RSI, through a
wholly-owned subsidiary, acquired all of the outstanding stock of Technomics
Consultants International, Inc., an Illinois corporation ("Technomics"), for
$2.0 million in cash and up to $5.2 million in contingent consideration.
Technomics is a management consulting firm based in Chicago, Illinois with
offices in London, England; Hong Kong; Bombay, India; Tokyo, Japan; Ho Chi Minh
City, Vietnam; Shanghai, PRC and Singapore.
Eligibility Management Systems, Inc. On August 27, 1997, the Company,
acquired all of the outstanding stock of Eligibility Management Systems, a
Florida corporation ("EMS") that provides implementation services to state
government agencies and municipalities, for $19.0 million in cash, of which
$15.0 million was payable at the time of closing and $4.0 million is payable
over the next two years. An additional $4.0 million in consideration may be
payable subject to certain earnout arrangements.
Cambridge Software Group. On December 19, 1997, the Company acquired all of
the outstanding stock of Cambridge Software Group, a Massachusetts corporation
("CSG") that provides IT solutions services, for $1.1 million in cash. An
additional $3.4 million in consideration may be payable subject to certain
earnout arrangements.
The acquisitions of McClain, Technomics, EMS and CSG are collectively referred
to as the "Transition Period Acquisitions". The aggregate purchase price and
related costs associated with the Transition Period Acquisitions was $38.1
million, which has been allocated to the assets acquired and liabilities assumed
as follows:
<TABLE>
<S> <C>
Cash.................................................................... $ 773,000
Accounts receivable, net................................................ 2,770,000
Fixed assets, net....................................................... 168,000
Other assets, excluding goodwill and other intangible assets............ 193,000
Accounts payable........................................................ 1,645,000
Debt and line of credit................................................. 261,000
Accrued expenses and other liabilities.................................. 995,000
Income taxes payable and deferred tax liabilities....................... 54,000
</TABLE>
-38-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FISCAL 1997 PURCHASES
During the fiscal year ended June 28, 1997, the Company acquired five
companies: Morris Information Systems, Sun-Tek Consultants, Inc., Sterling
Information Group, James Duncan & Associates ("JDA"), and Connexus Consulting
Group, Inc. In addition, during fiscal year 1997, prior to the merger with the
Company, RSI acquired two companies: COBA Consulting Limited ("COBA UK") and
C.M. Management Systems Ltd., Inc. ("COBA-Boston"). These acquisitions are
collectively referred to as the "Fiscal 1997 Acquisitions". The aggregate
purchase price and related costs associated with the Fiscal 1997 Acquisitions
was $37,950,000 plus 266,528 shares of the Company's common stock, which has
been allocated to the assets acquired and liabilities assumed as follows:
<TABLE>
<S> <C>
Cash.................................................................... $ 1,646,000
Accounts receivable, net................................................ 10,663,000
Fixed assets, net....................................................... 1,298,000
Other assets, excluding goodwill and other intangible assets............ 309,000
Accounts payable........................................................ 4,454,000
Debt and line of credit................................................. 1,872,000
Accrued expenses and other liabilities.................................. 4,688,000
Income taxes payable and deferred tax liabilities....................... 636,000
</TABLE>
In connection with the Fiscal 1997 Acquisitions, the Company may pay
contingent consideration of up to $32.3 million based on certain earn-out
arrangements. Such amounts, if paid, will be recorded as additional purchase
price. The acquisition agreement of COBA-Boston contained certain change of
control provisions which were triggered upon the acquisition of RSI by
Renaissance. This resulted in the acceleration of $9,250,000 of contingent
consideration, which has been accrued and is included in accrued expenses at
December 27, 1997.
The allocation of the purchase price for certain of the Transition Period
Acquisitions and Fiscal 1997 Acquisitions is preliminary and subject to change
based upon the completion of valuation analyses of certain acquired assets.
The pro forma results of operations, assuming that the acquisition of the
Transition Period Acquisitions and Fiscal 1997 Acquisitions occurred at the
beginning of the year ended June 28, 1997 or the six months ended December 27,
1997, would not materially differ from the Company's reported results of
operations.
-39-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. MARKETABLE SECURITIES
Marketable securities are classified as available for sale and consist of U.S.
Treasury Notes, Federal Agency Bonds and Corporate Bonds having maturity dates
of more than three months, which are stated at fair value. Aggregate net
unrealized holding gains/(losses) of $(18,000), $(21,000) and $22,000 at June
29, 1996, June 28, 1997 and December 27, 1997, respectively, have been included
as a separate component of stockholders' equity in the accompanying consolidated
balance sheet. Certain information with respect to the Company's marketable
securities as of June 29, 1996, June 28, 1997, and December 27, 1997 is
presented below:
<TABLE>
<CAPTION>
GROSS GROSS
----------- -----------
UNREALIZED UNREALIZED
----------- -----------
AMORTIZED HOLDING HOLDING FAIR
--------- ----------- ----------- ---------
SECURITY TYPE COST GAINS LOSSES VALUE
- ------------- --------- ----------- ----------- ---------
(IN THOUSANDS)
JUNE 29, 1996
<S> <C> <C> <C> <C>
U.S. Treasury Notes.................... $ 9,973 $13 $-- $ 9,986
Federal Agency Bonds................... 6,308 -- 32 6,276
Corporate Bonds........................ 1,647 1 -- 1,648
------- --- --- -------
$17,928 $14 $32 $17,910
======= === === =======
JUNE 28, 1997
U.S. Treasury Notes.................... $ 4,331 $-- $18 $ 4,313
Federal Agency Bonds................... 16,688 -- 17 16,671
Commercial Paper....................... 7,677 14 -- 7,691
------- --- --- -------
$28,696 $14 $35 $28,675
======= === === =======
DECEMBER 27, 1997
U.S. Treasury Notes.................... $ 4,331 $13 $-- $ 4,344
Federal Agency Bonds................... 1,514 9 -- 1,523
------- --- --- -------
$ 5,845 $22 $-- $ 5,867
======= === === =======
</TABLE>
The fair values of marketable securities by contractual maturity are shown
below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
----------- ---------- -------------
1996 1997 1997
----------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Due in one year or less.................. $ 7,138 $21,787 $2,057
Due after one through three years........ 10,772 6,888 3,810
------- ------- ------
Total................................. $17,910 $28,675 $5,867
======= ======= ======
</TABLE>
-40-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. COMBINED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
DECEMBER
JUNE 29, JUNE 28, 27,
----------- ----------- -----------
1996 1997 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed assets:
Land...................................................... $ 360 $ 360 $ 360
Building.................................................. 1,439 1,439 1,439
Computer equipment and software........................... 8,702 13,989 21,879
Furniture and equipment................................... 5,855 8,346 9,270
Motor vehicles............................................ 48 144 116
Leasehold and building improvements....................... 1,607 2,237 4,331
------- ------- -------
Total fixed assets..................................... 18,011 26,515 37,395
Less: accumulated depreciation and amortization........... 5,461 7,160 10,664
------- ------- -------
Net fixed assets....................................... $12,550 $19,355 $26,731
======= ======= =======
Other accrued expenses
Accrued employee benefits................................. $ 3,008 $ 5,389 $ 6,245
Accrued commissions and bonuses........................... 2,502 3,334 7,323
Accrued acquisition costs................................. - 1,169 3,655
Accrued contingent consideration.......................... - 3,466 14,305
Other accrued expenses.................................... 5,047 5,512 9,821
------- ------- -------
$10,557 $18,870 $41,349
======= ======= =======
</TABLE>
7. NOTES RECEIVABLE AND RELATED PARTY TRANSACTIONS
At June 28, 1997 and December 27, 1997, notes receivable include $1,500,000
due on April 24, 1998 from an unrelated third party corporation. This note bears
interest at the LIBOR rate plus 2.5% (8.22% at June 28, 1997 and 8.16% at
December 27, 1997), which is payable quarterly. This note is secured by an
interest in all of the assets of the corporation subject to a prior security
interest under the corporation's bank debt and line of credit, and the personal
guarantee of the corporation's majority stockholder.
Notes receivable from officers represents notes due from various senior
officers of the Company and bear interest at the prime rate (8.25% at June 29,
1996, 8.5% at June 28, 1997 and 8.5% at December 27, 1997).
Notes receivable from stockholders of $476,000 at June 29, 1996, June 28, 1997
and December 27, 1997, which are included as a reduction of stockholders' equity
in the accompanying balance sheet, include promissory notes from two of ARI's
officers totaling $226,000 for the exercise of stock options bearing interest at
a variable rate based upon federal income tax requirements (approximately 6% at
June 29, 1996, 6.5% at June 28, 1997 and 6% at December 27, 1997), and two
demand notes from an individual who was the sole stockholder of Hunter totaling
$250,000, which accrue interest at 5%.
During the year ended June 28, 1997, the Company entered into a contract with
an entity controlled by the president of the Company to utilize an airplane for
corporate travel purposes. The Company pays for such usage on a per-flight basis
at a rate which management believes approximates market prices. Total amounts
incurred to this entity during the year ended June 28, 1997 and the six months
ended December 27, 1997 were $100,000 and $267,000, respectively.
-41-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCING ARRANGEMENTS
LINES OF CREDIT
Renaissance: In March 1996, Renaissance terminated its previous line of
credit and replaced it with a line of credit from a different bank. The new line
of credit ("Renaissance 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, 9.0% at June 28, 1997 and
9.0% at December 27, 1997) or the LIBOR rate plus 2.5% (8.0% at June 29, 1996,
8.64% at June 28, 1997 and 8.16% at December 27, 1997), at the option of the
Company. The Renaissance Line of Credit is collateralized by all of the assets
of the Company, excluding the assets of the Trust, 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. On December 4, 1997, the
Renaissance Line of Credit was amended to allow a maximum borrowing of
$50,000,000 and to include the accounts receivable of certain recent
acquisitions in the borrowing base calculations.
ARI: ARI had a line of credit arrangement with a bank which allowed ARI to
borrow the lesser of $1,750,000 or 60% of eligible accounts receivable, as
defined, at an interest rate equal to the bank's prime rate plus .50% (8.75% at
June 29, 1996). There were no amounts outstanding under this line at June 29,
1996. The line of credit was secured by all of the assets of ARI, contained
certain restrictions, including limitations on the amount of distributions which
could be made to stockholders, purchases of fixed assets, and new indebtedness,
and required maintenance of certain financial covenants. On November 26, 1996,
in conjunction with the acquisition of ARI by the Company (see Note 3), ARI
terminated its line of credit arrangement.
SCR: SCR had a credit arrangement with a bank consisting of a committed line
of credit totaling $2,500,000, of which $625,000 was unused as of June 29, 1996,
and a discretionary equipment line of $500,000. The line of credit carried
interest at the bank's prime rate (8.25% at June 29, 1996) and was
collateralized by substantially all of the assets of SCR. The equipment line
carried an interest rate equal to the bank's prime rate plus .50% (8.75% at June
29, 1996). The sum of the outstanding balances on the line of credit and the
equipment line could not exceed a borrowing base of 80% of eligible accounts
receivable, as defined, up to a maximum total borrowing of $3,000,000. At June
29, 1996, $7,000 of the equipment line was used. Monthly principal payments of
$3,000, including interest, were due through August 1996 on this line. The
equipment line was secured by a first priority security interest in the related
equipment purchased with the loan proceeds. Both credit arrangements were
guaranteed by SCR's former stockholders and required a commitment fee of .25%
per annum on the unused portion. Additionally, the credit arrangements contained
certain restrictions, including limitations on new indebtedness, and required
maintenance of certain financial covenants. On November 27, 1996, in connection
with the acquisition of SCR by the Company (see Note 3), SCR terminated its
credit arrangements.
JDA: In June 1997, the Company entered into a line of credit agreement with
a foreign bank to provide an overdraft facility of 1,400,000 British Sterling to
its James Duncan subsidiary. This facility matures on January 31, 1998 and is
secured by a $2,000,000 standby letter of credit from a U.S. bank. The Company
is required to maintain this level of cash in this bank. There was $1,485,000
and $1,514,000 drawn on this facility as of June 28, 1997 and December 27, 1997,
respectively. Interest is payable quarterly at the bank's base rate plus 0.875%
(7.35% at June 28, 1997 and 8.125% at December 27, 1997) for amounts up to
1,000,000 British Sterling and the bank's base rate plus 2.0% for amounts over
this level.
Hunter: In 1995, Hunter entered into a revolving credit facility (the
"Hunter Facility") that is collateralized by all accounts receivable of Hunter.
The Hunter Facility was limited to the lesser
-42-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of $3,000,000 or 85% of aggregate accounts receivable, and bore interest at the
lower of the bank's prime rate or 2.5% above the 30 day LIBOR rate (8.35% at
June 29, 1996).
In 1996, the Hunter Facility was converted to a demand note with an original
expiration date of April 30, 1997, subsequently extended until June 30, 1997.
The demand note was limited to the lesser of $3,600,000 or a formula for
eligible accounts receivable. The note bore interest at 3.5% above LIBOR (9.875%
at June 28, 1997).
As of June 29, 1996 and June 28, 1997, the unused portion of the note and line
amounted to $1,950,000 and $2,040,000, respectively. The Hunter Facility had an
unused commitment fee of 0.375% during calendar 1995. This fee was removed upon
conversion to a demand note in 1996.
Effective June 30, 1997, the Hunter Facility was amended and the availability
under the Hunter Facility was increased to the lesser of $8,000,000 or a formula
for eligible accounts receivable. The Hunter Facility bears interest at the
lower of the bank's prime rate or 2.5% over the 30-day LIBOR rate (8.64% at June
28, 1997 and 8.16% at December 27, 1997), plus an additional 0.75% fee per month
based on the monthly maximum loan amount. The Hunter Facility has an unused
commitment fee of 0.40% per month. The Hunter Facility is collateralized by the
receivables, equipment and all other property of Hunter.
RSI: At June 29, 1996, RSI had a $3,500,000 unsecured revolving credit
agreement with a bank expiring on June 1, 1997. Interest was payable at the
bank's corporate rate (8.5% at June 29, 1996). The loan agreement included
various financial and other covenants including maintenance of minimum levels of
tangible net worth and quarterly profitability. There were no amounts
outstanding under the line at June 29, 1996. This line expired on June 1, 1997.
RSI has a 425,000 British Sterling ($655,000) revolving line of credit with a
UK bank. There were no amounts outstanding under the line at June 29, 1996, June
28, 1997 or December 27, 1997.
ISS had a $500,000 working capital line of credit collateralized by ISS
accounts receivable which expired on April 27, 1997. Interest was payable at
prime (8.25% at June 29, 1996). Borrowings under the line were $500,000 as of
June 29, 1996.
Triad: At June 29, 1996, Triad has a $3,000,000 line of credit with a bank,
which was amended to $7,000,000 expiring in April 1998. Interest is payable at
LIBOR or the bank's prime commercial lending rate (8.25% at June 29, 1996, 8.5%
at June 28, 1997 and 7.94% at December 27, 1997). The line of credit is
collaterialized by all accounts receivable of Triad. Borrowings under the line
were $3,000,000 at June 29, 1996, $6,700,000 at June 29, 1997 and $5,000,000 at
December 27, 1997.
Neoglyphics: At June 29, 1996 Neoglyphics had a $550,000 line of credit with a
bank, which was amended to $1,500,000 on December 12, 1997, collaterialized by a
promissory note and security agreement covering substantially all of
Neoglyphics' assets. Interest is payable at one point above the bank's base rate
(8.5% at June 29, 1996 and 8.5% at December 28, 1997) Borrowings under the line
were $432,000 at June 29, 1996, $12,605 at June 28, 1997, and $700,000 at
December 28, 1997.
In July 1997, Neoglyphics entered into an installment note agreement with a
bank for up to $300,000. Monthly installments of principal and interest are
based on the amount drawn with a maximum monthly payment of $6,301. Final
payment is due June 30, 2000. The note is collaterialized by substantially all
assets of Neoglyphics and bears interest at one point above the bank's base
rate, which was at 8.5% at December 28, 1997. There were no amounts outstanding
under the agreement at December 31, 1997.
-43-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
LONG-TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
------------ --------------- ---------------
1996 1997 1997
------------ --------------- ---------------
<S> <C> <C> <C>
Note payable due August 31, 1996............... $ 7,000 $ -- $ --
Note payable due December 1997................. -- 129,000 129,000
Note payable due April 30, 1998................ -- -- 108,000
Notes payable due November 30, 1998............ 625,000 375,000 250,000
Note payable due November 30, 1998............. -- 113,000 37,000
Note payable due December 31, 1998............. 20,000 10,000 10,000
Notes payable due August 1, 1999............... -- -- 3,748,000
Notes payable due June 30, 2000................ 216,000 167,000 167,000
Note payable due December 28, 2000............. 782,000 -- --
9.375% term loan due August 27, 2010........... 1,406,000 1,387,000 1,378,000
6.75% term loan due April 1, 2013.............. 690,000 663,000 651,000
---------- ---------- ----------
3,746,000 2,844,000 6,478,000
Less: Current portion.......................... 1,136,000 560,000 2,876,000
---------- ---------- ----------
$2,610,000 $2,284,000 $3,602,000
========== ========== ==========
</TABLE>
The note payable due August 31, 1996 was payable to a bank, under the line of
credit described above, in monthly installments of $3,000, including interest at
the bank's prime rate plus .50% (8.75% at June 29, 1996).
The note payable due December 1997 resulted from Renaissance's acquisition of
James Duncan and Associates in December 1996 (see Note 4). These notes were paid
in full via stock to the principal employees of JDA in January 1998.
The note payable due April 30, 1998 relates to an acquisition made by a
subsidiary prior to its acquisition by the Company. The note is unsecured and
non-interest bearing.
The notes payable due November 30, 1998 resulted from Renaissance's
acquisition of the former Axiom Consulting Group, Inc. in November 1994. 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 note payable due November 30, 1998 is due to a former executive of Hunter.
The note is unsecured and non-interest bearing and due in installments of
$40,000 paid in January 1997 and four semi-annual installments of $18,000
beginning in May 1997.
The note payable due December 31, 1998 is payable in monthly installments of
$904, including interest at an annual rate of 8.5%. A vehicle secures the note.
The notes payable due June 30, 2000 resulted from ARI's repurchase of 510,436
shares of common stock and 465,000 shares of preferred stock from certain of its
stockholders in June 1995 at a price of $0.12 and $0.325 per share,
respectively. These repurchased shares have been excluded from the number of
shares issued and outstanding on the accompanying consolidated balance sheet. In
conjunction with this transaction, ARI issued $261,000 in promissory notes,
recorded as long-term debt on the accompanying balance sheet, due through June
30, 2000 in five equal installments of $63,000, including interest of 6.83%,
with the first payment due in June 1996. These notes are unsecured.
The notes payable due August 1, 1999 resulted from Renaissance's acquisition
of EMS in August 1997. The notes are unsecured and payable to the former
stockholders of EMS. $300,000 was paid in December 1997, $1,748,000 was paid in
January 1998, $1,000,000 is payable in two semi-annual installments beginning in
August 1998 and an additional $1,000,000 is payable in August 1999.
-44-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The note payable due December 28, 2000 was payable to a bank of ISS and was
repaid in full subsequent to the 1996 fiscal year end. The note bore interest at
prime (8.25% at June 29, 1996) and was due in equal installments through
December 28, 2000.
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 Renaissance's president and significant
stockholder.
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
Renaissance's president and significant stockholder.
Aggregate maturities of long-term debt are as follows at December 27, 1997:
<TABLE>
<S> <C>
1998................................. $2,876,000
1999................................. 1,604,000
2000................................. 110,000
2001................................. 55,000
2002................................. 60,000
Thereafter........................... 1,773,000
----------
Total............................. $6,478,000
==========
</TABLE>
NOTES PAYABLE TO OFFICERS
ISS had a $500,000 promissory note, payable on demand to its president,
bearing interest at 5.8%. This note was repaid in full in January 1997.
Neoglyphics had a $93,000 promissary note, payable on demand bearing interest at
9.0%.
9. INCOME TAXES
Prior to April 11, 1995, January 1, 1996, November 27, 1996, January 1, 1997
and December 31, 1996, RSI, America's Registry, SCR, Neoglyphics, and ISS,
respectively, had each elected to be an S Corporation for federal income tax
purposes as provided in Section 1362(a) of the Internal Revenue Code. As of
December 31, 1997, Triad was still treated as a S Corporation for federal income
tax purposes. As such, the corporate income or loss and credits were passed
through to the stockholders and reported on their personal tax returns.
RSI's election to be treated as an S Corporation terminated effective with the
closing of RSI's initial public offering. The cumulative effect of the temporary
differences between financial accounting and income tax reporting was not
material.
Neoglyphics elected to terminate its S Corporation status on January 1, 1997.
At the time of this conversion, a net deferred tax liability of $302,000 was
recorded through the income tax provision on January 1, 1997. This deferred tax
liability was comprised principally of the effects of Neoglyphics being a cash
basis tax payer.
America's Registry's, SCR's and ISS's election to be treated as an S
Corporation terminated in conjunction with the acquisition of all of the common
stock of America's Registry, SCR and ISS by the Company. As a result, the income
or loss of America's Registry commencing on January 1, 1996, the income or loss
of SCR commencing on November 27, 1996 and the income or loss of ISS commencing
on December 31, 1996 is subject to corporate income tax, and is included in the
income tax provision (benefit) described below.
-45-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At the time of conversion of America's Registry 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 America's Registry 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.
At the time of the conversion of SCR from an S Corporation to a C Corporation,
a net deferred tax asset of $403,000 was recorded through the income tax
provision on November 27, 1996. The deferred tax asset was comprised principally
of certain accrued expenses and allowances which are recognized in different
periods for financial and tax reporting.
At the time of conversion of ISS from an S Corporation to a C Corporation, a
net deferred tax liability of $1,002,000 was recorded through the income tax
provision on December 31, 1996. This deferred tax liability was comprised
principally of the effect of converting from the cash basis to the accrual basis
for tax reporting purposes.
Since its inception, Hunter has reported its financial results for income tax
purposes using the cash method of accounting. Upon acquisition by Renaissance,
Hunter changed its method of accounting for income tax reporting purposes from
the cash method to the accrual method. As a result, substantially all of the
deferred tax liability related to Hunter accumulated on the balance sheet will
become due and payable over a four-year period.
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS ENDED
------------ --------------- -------------- ------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 27,
------------ --------------- -------------- ------------------
1995 1996 1997 1997
------------ --------------- -------------- ------------------
<S> <C> <C> <C> <C>
Current:
Federal.................................... $2,237,000 $ 6,228,000 $11,730,000 $6,138,000
State...................................... 826,000 1,660,000 2,724,000 1,573,000
Foreign.................................... -- -- 1,150,000 1,566,000
---------- ----------- ----------- ----------
3,063,000 7,888,000 15,604,000 9,277,000
Deferred:
Federal.................................... 456,000 (1,846,000) 46,000 (780,000)
State...................................... 88,000 (230,000) 8,000 (167,000)
---------- ----------- ----------- ----------
544,000 (2,076,000) 54,000 (947,000)
Change in tax status of RSI, America's
Registry, SCR, ISS and Neoglyphics.......... -- 1,644,000 936,000 --
---------- ----------- ----------- ----------
$3,607,000 $ 7,456,000 $16,594,000 $8,330,000
========== =========== =========== ==========
</TABLE>
Pretax income (loss) is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS ENDED
-------------- -------------- -------------- -----------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 27,
-------------- -------------- -------------- -----------------
1995 1996 1997 1997
-------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Domestic............... $13,305,000 $19,248,000 $30,762,000 $ 686,000
Foreign................ 591,000 228,000 3,006,000 3,413,000
----------- ----------- ----------- ----------
TOTAL............... $13,896,000 $19,476,000 $33,768,000 $4,099,000
=========== =========== =========== ==========
</TABLE>
-46-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 29, 1996, June 28, 1997 and December 27,
1997:
<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
--------------- --------------- ----------------
1996 1997 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................... $ 392,000 $ 433,000 $ 45,000
Allowance for doubtful accounts.................... 107,000 723,000 1,234,000
Accrued acquisition costs.......................... 557,000 -- --
Accounts payable and accrued expenses.............. 447,000 1,012,000 2,357,000
Other.............................................. 395,000 875,000 1,440,000
Valuation allowance................................ (108,000) (131,000) --
----------- ----------- ----------
Total gross deferred tax assets................. 1,790,000 2,912,000 5,076,000
----------- ----------- ----------
Deferred tax liabilities:
Conversion from cash to accrual basis.............. 2,996,0000 3,173,000 2,106,000
Differences arising due to cash basis taxes........ 230,000 1,251,000 1,251,000
Prepaid expenses................................... 82,000 85,000 72,000
Fixed assets....................................... 225,000 552,000 331,000
Other.............................................. -- 228,000 2,240,000
----------- ----------- ----------
Total gross deferred tax liabilities............ 3,533,000 5,289,000 6,000,000
----------- ----------- ----------
Net deferred tax asset (liability).............. $(1,743,000) $(2,377,000) $ (924,000)
=========== =========== ==========
</TABLE>
As of December 27, 1997, the Company has $110,000 of net operating loss
carryforwards which may be used to offset future federal and state taxable
income. The carryforwards expire in 2009. An ownership change, as defined in the
Internal Revenue Code, may limit the amount of net operating loss that can be
utilized annually to offset future taxable income.
Income taxes computed using the federal statutory income tax rate differs form
Renaissance's effective tax rate primarily due to the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS ENDED
--------------- --------------- --------------- --------------------
JUNE 24, 1995 JUNE 29, 1996 JUNE 28, 1997 DECEMBER 27, 1997
--------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C>
Statutory U.S. Federal tax rate..................... 35.0% 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit............. 4.5 4.8 5.3 22.4
Income from RSI, America's Registry,
SCR, ISS, Triad and Neoglyphics not taxable
for corporate income tax purposes................ (13.1) (14.8) (3.3) (4.8)
Non-deductible expenses............................. 0.3 4.2 7.8 136.0
Amortization of goodwill not deductible
for corporate income tax purposes................. 0.2 0.2 0.7 4.1
Foreign income taxed at different rates............. -- 0.5 0.3 8.5
Change in tax status of America's
Registry, SCR and ISS............................. -- 9.1 2.5 --
Other............................................... (0.9) (0.7) 0.8 2.0
----- ----- ---- -----
Effective tax rate.................................. 26.0% 38.3% 49.1% 203.2%
===== ===== ==== =====
</TABLE>
-47-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Non-deductible expenses during the year ended June 24, 1995 primarily relate
to meals and entertainment expenses. Non-deductible expenses during the years
ended June 29, 1996 and June 28, 1997 and six months ended December 27, 1997
primarily relate to certain costs incurred in connection with the acquisitions
of ARI, SCR, ISS, RSI and Hunter.
Undistributed earnings of certain foreign subsidiaries aggregated
approximately $3.5 million on December 27, 1997, which under existing law, will
not be subject to U.S. tax until distributed as dividends. Since the earnings
have been or are intended to be indefinitely reinvested in foreign operations,
no provision has been made for any U.S. taxes that may be applicable thereto.
Furthermore, any taxes paid to foreign governments on those earnings may be used
in whole or in part as credits against the U.S. tax on any dividends distributed
from such earnings. It is not practicable to estimate the amount of unrecognized
deferred U.S. taxes on these undistributed earnings.
10. STOCKHOLDERS' EQUITY
Preferred Stock, $.10 par value
On April 10, 1996, Renaissance's then 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 Renaissance
(without shareholder 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 Renaissance's common stock.
Preferred Stock, no par value
Renaissance's wholly-owned subsidiary, ARI, was authorized to issue 5,000,000
shares of preferred stock, of which 3,000,000 shares were designated as Series A
Preferred Stock (the "Series A Preferred Stock"). The remaining preferred
stock may have been issued from time to time in one or more additional series at
the discretion of the Board of Directors. Shares of Series A Preferred Stock
were non-redeemable and had a liquidation preference of $.79 per share plus any
declared but unpaid dividends.
Each share of Series A Preferred Stock was convertible into the number of
shares of common stock that results from dividing the conversion price in effect
at the time of conversion into $.79 for each share of Series A Preferred Stock
being converted. The conversion price of the Series A Preferred Stock was
initially $.1084 per share, subject to adjustment for stock splits, dividends,
distributions, and combinations. At June 29, 1996, all shares of Series A
Preferred Stock were convertible into .548856 shares of Renaissance's Common
Stock based on a conversion price of $.1084 per share.
On November 26, 1996, in conjunction with the acquisition of ARI by
Renaissance (see Note 3), all of the outstanding shares of Series A Preferred
Stock were converted into 1,434,160 shares of Common Stock.
RSI Preferred Stock, $.01 par value
Renaissance's wholly-owned subsidiary, RSI authorized 2,000,000 shares, $.01
par value per share preferred stock. RSI's Board of Directors was authorized,
without shareholder approval, to issue such shares of preferred stock in one or
more series, with such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as the Board of Directors may determine.
-48-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Split and Authorized Shares
On July 30, 1997, Renaissance's stockholders approved an increase to
99,000,000 in the number of authorized shares of Common Stock of Renaissance. On
February 12, 1998, Renaissance announced a 2-for-1 stock split, effected as a
dividend, on the Common Stock of Renaissance. Shareholders of record on March 2,
1998 participated in the stock split, which took place on March 24, 1998.
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.
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 shares of ARI's Series A
Preferred Stock and 1.0978 shares of Renaissance's Common Stock, for a total of
165,000 shares of Series A Preferred Stock and 60,374 shares of Common Stock.
In February 1995, Neoglyphics issued 16,200,000 shares of Neoglyphics Common
Shares to its founders for net proceeds of $20,000, which converted into
2,027,834 shares of Renaissance's Common Stock.
Public Offerings of Common Stock
On June 10, 1996, Renaissance completed its initial public offering for the
sale of 4,460,000 shares of common stock, which included 660,000 shares in
respect of the underwriters' over-allotment option. Renaissance received
$34,498,000 from the sale of the shares, net of the underwriting discounts and
expenses associated with the offering. Additionally, Renaissance 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
Renaissance's credit facility and certain term loans.
On February 26, 1997, Renaissance completed a secondary public offering for
the sale of 2,468,332 shares of Common Stock, including the reissuance of the
treasury shares acquired in conjunction with the acquisition of SCR (see Note
3). Renaissance received approximately $48,340,000 from the sale of the shares,
net of the underwriting discounts and expenses associated with the offering. The
excess of the cost of the treasury stock over the net reissuance price has been
charged to retained earnings. Net proceeds were used to repay all outstanding
indebtedness under Renaissance's credit facility.
On April 11, 1995, RSI completed its initial public offering of Common Stock,
whereby RSI issued 2,240,000 shares of Common Stock and an additional 1,416,000
shares were sold by existing stockholders of RSI. The net proceeds from the sale
of the shares by RSI were approximately $15,636,000 after deducting offering
expenses of $1,291,000. Approximately $1,872,000 of the net proceeds were used
to repay a note due to Gemini, and $3,426,000 of the net proceeds were used to
repay notes payable to RSI's stockholders incurred by RSI in connection with the
payment of partnership distributions in January and March 1995. Simultaneously
with the closing of the offering, RSI also sold warrants to Gemini to acquire
1,013,760 shares of Common Stock.
On May 17, 1996, RSI completed a follow-on public offering, whereby RSI issued
1,443,400 shares of Common Stock and existing shareholders sold 1,036,000 shares
of Common Stock. The net proceeds from the sale of shares by RSI were
approximately $28,263,000, after deducting offering expenses of $225,000.
On November 18, 1996, RSI completed an additional offering. The transaction
included 344,240 shares sold by the Company and 1,679,760 shares sold by
existing shareholders, including shares acquired by Gemini upon exercise of the
Gemini Warrants (below). The net proceeds of the offering were $6,495,000, after
deducting offering expenses of $353,000.
-49-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Gemini Warrants
RSI sold two warrants (together, the "Gemini Warrants") to Gemini upon the
closing of RSI's initial public offering for an aggregate purchase price of
$1,600,000. One warrant was exercisable through April 11, 1998 for up to 501,760
shares of Common Stock at an exercise price equal to $8.125 per share. The
second warrant was exercisable through November 1, 1999 for up to 512,000 shares
of Common Stock at an exercise price equal to $12.1875 per share. In November
1996, Gemini exercised the warrants and RSI received proceeds from the exercise
of $10,317,000.
Reorganization of RSI and Partnership Distributions
From December 1, 1993 through April 3, 1995 the business of RSI was conducted
under a limited partnership, Renaissance Strategy Group Limited Partnership
("RSI Partnership"). This partnership was dissolved in April 1995 subsequent
to the conversion of the partnership units into common stock and stock options
of RSI. In January and March 1995, the RSI Partnership declared and made
partnership distributions totaling $3,426,000, evidenced by delivery of RSI's
promissory notes which were paid with proceeds from RSI's initial public
offering. Distributions in excess of earnings were reclassified to paid in
capital pursuant to Securities and Exchange Commission Staff Accounting Bulletin
Topic 4:B.
11. STOCK PLANS
STOCK OPTION PLANS
1996 Stock Plan
This plan, adopted in March 1996, 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 3,200,000 shares of common stock. In January
1997, Renaissance's Board of Directors, subject to stockholder approval which
was received on July 30, 1997, voted to increase the number of shares of Common
Stock authorized under this plan to 7,200,000. In addition, in May 1997 and
December 1997, the Board of Directors authorized a total of 4,000,000 additional
shares of Common Stock available under this plan for non-qualified stock options
to be issued to employees of businesses that Renaissance acquires. 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 Renaissance'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 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
Renaissance's common stock (provided that such shares tendered have been held
for at least six months) or may borrow money from Renaissance 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.
1996 Eligible Directors' Stock Plan
This plan authorizes the grant of an option to purchase 40,000 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
-50-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
previously acquired shares of Renaissance'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 200,000 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 40,000 shares each of common stock
at an exercise price of $5.50 and $6.50 per share, respectively, were granted to
newly-elected directors.
Transactions under the 1996 Stock Plan and the Eligible Directors' Stock Plan
are summarized as follows:
<TABLE>
<CAPTION>
JUNE 29, 1996 JUNE 28, 1997 DECEMBER 27, 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
-------- -------- --------
AVERAGE AVERAGE AVERAGE
-------- -------- --------
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
---------- -------- ---------- -------- ---------- --------
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period............. -- -- 2,390,000 $ 5.61 5,146,050 $13.62
Granted...................................... 2,421,500 $5.61 3,168,468 19.51 3,964,206 22.28
Exercised.................................... -- -- (175,018) 5.83 (59,780) 5.70
Canceled..................................... (31,500) 5.61 (237,400) 17.35 (438,220) 19.57
--------- ----- --------- ------ --------- ------
Outstanding at end of period................... 2,390,000 $5.61 5,146,050 $13.62 8,612,256 $17.37
========= ===== ========= ====== ========= ======
Exercisable at end of period................... -- -- 315,250 $ 5.85 683,970 $ 5.74
Weighted average fair value of options
granted during the period.................... $1.53 $11.44 $13.32
Options available for future grant............. 1,010,000 4,078,932 2,552,946
</TABLE>
The following table summarizes information about stock options outstanding at
December 27, 1997 under the 1996 Stock Plan and the 1996 Eligible Director's
Stock Plan:
<TABLE>
<CAPTION>
NUMBER NUMBER
------------ WEIGHTED ------------
OUTSTANDING -------------- EXERCISABLE
------------ AVERAGE WEIGHTED ------------ WEIGHTED
AS OF -------------- ----------- AS OF ------------
------------ REMAINING AVERAGE ------------ AVERAGE
RANGE OF DECEMBER 27, -------------- ----------- DECEMBER 27, ------------
- ---------------------- ------------ CONTRACTUAL EXERCISE ------------ EXERCISE
EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
- ---------------------- ------------ -------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 5.50-- $ 8.00 2,085,470 8.21 $ 5.64 675,170 $ 5.57
$13.50--$17.50 1,549,000 9.25 17.46 3,200 13.50
$20.38--$21.00 101,000 9.19 20.99 800 20.38
$21.88--$22.13 3,474,550 9.71 22.01 4,800 22.07
$22.63--$23.32 1,265,236 9.68 22.74 -- --
$24.07--$26.00 137,000 9.52 24.89 -- --
--------- ---- ------ ------- ------
8,612,256 9.25 $17.37 683,970 $ 5.74
========= ==== ====== ======= ======
</TABLE>
Options granted to date under these plans are exercisable ratably over a
period of four to five years.
1995 RSI Equity Incentive Plan
In January 1995, RSI's Board of Directors adopted and the stockholders
approved the 1995 Equity Incentive Plan (the "RSI Equity Plan"). Under the
terms of the RSI Equity Plan, the Company is authorized to make awards of
restricted stock and to grant incentive and non-statutory options to employees
of, and consultants and advisors to the Company to purchase shares of the common
stock of the Company. A total of 1,760,000 shares of Common Stock may be issued
upon exercise of options granted or awards made under the RSI Equity Plan.
-51-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options granted through December 27, 1997 generally vest in either four or five
equal annual installments commencing on the first anniversary of the optionee's
date of hire.
On September 18, 1996, the RSI Board of Directors adopted, and on November 15,
1996, the stockholders of RSI approved an amendment to the 1995 Equity Incentive
Plan increasing the number of shares of Common Stock available for issuance
under the RSI Equity Plan to 3,360,000.
1995 RSI Director Stock Option Plan
In January 1995, the RSI Board of Directors adopted and the RSI stockholders
approved the 1995 Director Stock Option Plan (the "RSI Director Plan"), which
became effective on the closing of RSI's initial public offering. Under the
terms of the RSI Director Plan, the directors of RSI who were not employees of
the Company were eligible to receive non-statutory options to purchase shares of
Common Stock. A total of 80,000 shares of Common Stock may be issued upon
exercise of options granted under the RSI Director Plan. Options to purchase
40,000 shares of Common Stock have been granted to the two eligible directors.
The exercise price of options granted under the RSI Director Plan was equal to
the closing price of the Common Stock on the date of grant.
A summary of activity under the RSI Equity Plan and RSI Director Plan is as
follows:
<TABLE>
<CAPTION>
June 29, 1996 JUNE 28, 1997 DECEMBER 27, 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
-------- -------- --------
AVERAGE AVERAGE AVERAGE
-------- -------- --------
Number of EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
---------- -------- ---------- -------- ---------- --------
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period............. 1,182,908 $ 7.13 1,856,952 $13.95 2,154,558 $18.09
Elimination of duplicate activity from
July to December............................ (376,368)
Granted...................................... 1,150,400 18.34 1,588,678 21.38 440,876 23.88
Exercised.................................... (273,940) 6.61 (405,706) 6.86 (31,574) 12.44
Canceled..................................... (202,416) 6.61 (508,998) 8.47 (251,706) 21.96
--------- ------ --------- ------ --------- ------
Outstanding at end of period................... 1,856,952 $13.95 2,154,558 $18.09 2,312,154 $18.85
========= ====== ========= ====== ========= ======
Exercisable at end of year..................... 163,638 $ 7.69 159,968 $ 9.80 164,240 $11.12
Weighted average fair value of options
granted during the period.................... $10.04 $12.50 $13.97
Options available for future grant............. 1,583,048 1,028,090 927,814
</TABLE>
The following table summarizes information about stock options outstanding at
December 27, 1997 under the RSI Equity Plan and RSI Director Plan:
<TABLE>
<CAPTION>
NUMBER
WEIGHTED --------------- WEIGHTED
NUMBER WEIGHTED AVERAGE ------------ EXERCISABLE AS ------------
----------------- ---------------- AVERAGE --------------- AVERAGE
RANGE OF EXERCISE OUTSTANDING AS OF REMAINING ------------ OF DECEMBER 27, ------------
- ---------------------- ----------------- ---------------- EXERCISE --------------- EXERCISE
PRICES DECEMBER 27, 1997 CONTRACTUAL LIFE PRICE 1997 PRICE
- ---------------------- ----------------- ---------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
$ 5.00--$8.91 426,454 7.59 $ 7.58 84,366 $ 6.77
$ 9.22--$12.82 131,956 7.85 11.75 34,546 11.75
$14.22--$15.82 401,166 8.98 15.73 992 14.52
$16.25--$17.97 132,472 8.62 16.98 26,184 16.96
$18.28--$20.94 48,160 8.55 18.95 8,820 18.94
$21.02--$22.94 231,196 9.58 22.86 1,332 22.38
$23.13--$25.00 452,282 9.17 23.87 6,400 23.86
$25.39--$27.97 488,468 9.19 27.12 1,600 26.09
--------- ---- ------ ------- ------
2,312,154 8.77 $18.85 164,240 $11.12
========= ==== ====== ======= ======
</TABLE>
-52-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SCR Option
On April 1, 1993, SCR granted a non-qualifying stock option to a key employee
to purchase 96,286 shares of common stock at an exercise price of $0.00365 per
share. The option had a nine-year vesting period, subject to acceleration for
certain events (such as the sale, merger or liquidation of SCR, or an initial
public offering), and an expiration date of April 1, 2002. Compensation expense
of $281,000, which represented the excess of the estimated fair value of the
stock on the date of grant over the exercise price, was being recognized over
the nine-year vesting period. The unrecognized portion of the compensation
expense was recorded as a reduction of stockholders' equity in the accompanying
balance sheet. Effective November 27, 1996, the stock option was exercised in
accordance with the acceleration clause of the option agreement in connection
with the acquisition of SCR by Renaissance as described in Note 3, and the
remaining unamortized balance of deferred stock compensation of $164,000 was
recorded as expense at that time.
1994 ARI Stock Plan
In 1994, ARI adopted the 1994 Stock Option Plan (the "1994 ARI Plan"), under
which 823,284 shares of common stock were reserved for issuance to eligible
employees, directors and consultants upon the exercise of stock options. ARI
also had outstanding options to purchase 14,818 shares of common stock and
27,000 shares of Series A Preferred Stock which were granted prior to the
adoption of the 1994 ARI Plan. Stock options were granted at prices determined
by ARI's former Board of Directors and generally may not be less than 100% and
85%, for incentive and nonstatutory options, respectively, of the estimated fair
value of the related shares on the date of grant. Options granted under the 1994
ARI Plan are for a period not to exceed ten years, are exercisable beginning
generally one year after the date of grant and vest ratably over a maximum
period of five years following the date of grant.
Options which expire or are canceled shall become available for reissuance
under the 1994 ARI Plan. The 1994 ARI Plan provides for an unvested share
repurchase option on behalf of ARI. In the event an optionee ceases to be
eligible under the 1994 ARI Plan for any reason, shares acquired through the
exercise of an option which have not yet vested may be repurchased by ARI at the
higher of the option exercise price or the value of the stock being purchased on
the date of termination. All stock options granted to ARI's former management
employees fully vested in the event of a change of control, as defined by the
ARI Board of Directors.
Renaissance does not intend to grant any further options under the 1994 ARI
Plan.
-53-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Transactions under the 1994 ARI Plan are summarized as follows:
<TABLE>
<CAPTION>
JUNE 24, 1995 JUNE 29, 1996
----------------------- -----------------------
WEIGHTED WEIGHTED
--------- ---------
AVERAGE AVERAGE
--------- ---------
NUMBER OF EXERCISE NUMBER OF EXERCISE
------------ --------- ------------ ---------
OPTIONS PRICE OPTIONS PRICE
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period............................ 302,970 $0.08 376,516 $0.12
Elimination of duplicated activity from July to
December................................................. 1,646 0.12
Granted.................................................... 197,588 0.12 82,328 0.12
Exercised.................................................. (67,508) 0.03 (37,870) 0.12
Canceled................................................... (56,534) 0.04 (1,648) 0.12
Conversion of Series A Preferred Stock options to
Common Stock options........................................ -- -- -- --
-------- ----- ------- -----
Outstanding at end of period.................................. 376,516 $0.12 420,972 $0.12
======== ===== ======= =====
Exercisable at end of period.................................. 65,534 $0.10 94,098 $0.10
Weighted average fair value of options granted during the
Period...................................................... $0.01 $0.01
Options available for future grant............................ 474,212 391,884
<CAPTION>
JUNE 28, 1997 DECEMBER 27, 1997
----------------------- ----------------------
WEIGHTED WEIGHTED
--------- ---------
AVERAGE AVERAGE
--------- ---------
NUMBER OF EXERCISE NUMBER OF EXERCISE
----------- --------- ----------- ---------
OPTIONS PRICE OPTIONS PRICE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period............................. 420,972 $0.12 548 $0.12
Elimination of duplicated activity from July to
December.................................................. -- -- -- --
Granted..................................................... -- -- -- --
Exercised................................................... (435,242) 0.14 (548) 0.12
Canceled.................................................... -- -- -- --
Conversion of Series A Preferred Stock options to
Common Stock options......................................... 14,818 0.66 -- --
-------- ----- ------- -----
Outstanding at end of period................................... 548 $0.12 -- $ --
======== ===== ======= =====
Exercisable at end of period................................... 548 $0.12 -- --
Weighted average fair value of options granted during the
period....................................................... -- --
Options available for future grant............................. 391,884 391,884
</TABLE>
ARI also had options to purchase 27,000 shares of Series A Preferred Stock
outstanding at June 24, 1995 and June 29, 1996. On November 26, 1996, in
conjunction with the acquisition of ARI by Renaissance, all options to purchase
Series A Preferred Stock were converted into options to purchase 14,818 shares
of Common Stock. Additionally, all options outstanding under the 1994 ARI Plan
vested upon the date of the acquisition.
1991 Hunter Employee Non-qualified Stock Option Plan
In 1991, Hunter adopted the 1991 Employee Non-Qualified Stock Option Plan (the
"Hunter Employee Non-Qualified Stock Option Plan") to provide long term
performance incentives to Hunter employees. All options
-54-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
granted are non-qualified options. The Hunter Board of Directors determines the
option price, which may be different than the fair market value of the Common
Stock at the date of option grant. Hunter has reserved 1,990,860 shares for
issuance under the Hunter Employee Non-Qualified Stock Option Plan. Options vest
and expire as determined at the grant date by the Hunter Board of Directors,
provided that no options may be exercised later than ten years after the grant
of the option.
A summary of activity under the Hunter Employee Non-Qualified Stock Option
Plan is as follows:
<TABLE>
<CAPTION>
JUNE 29, 1996 JUNE 28, 1997 DECEMBER 27, 1997
------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
-------- -------- --------
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
--------- -------- ---------- -------- ---------- --------
OF EXERCISE OF EXERCISE OF EXERCISE
--------- -------- ---------- -------- ---------- --------
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period................. 600,722 $0.23 875,899 $0.40 926,865 $ 0.60
Addition of activity from January to June
1997 -- -- -- -- 248,559 11.00
Granted.......................................... 275,177 0.77 178,122 1.41 15,927 20.88
Exercised........................................ -- -- (18,913) 0.71 -- --
Canceled......................................... -- -- (108,243) 0.81 (14,095) 11.00
--------- ----- --------- ----- --------- ------
Outstanding at end of period....................... 875,899 $0.40 926,865 $0.60 1,177,256 $ 2.87
========= ===== ========= ===== ========= ======
Exercisable at end of period....................... 600,722 $0.24 709,463 $0.43 838,220 $ 1.21
Weighted average fair value of options granted
during the period................................ $1.03 $1.85 $21.63
Options available for future grant................. 1,114,961 1,045,082 794,691
</TABLE>
The following table summarizes information about stock options outstanding at
December 27, 1997 under the Hunter Employee Non-Qualified Stock Option Plan:
<TABLE>
<CAPTION>
NUMBER WEIGHTED NUMBER WEIGHTED
RANGE OF ----------------- --------- ----------------- ---------
-------- OUTSTANDING WEIGHTED AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE ----------------- ---------------- --------- ----------------- ---------
-------- AS OF REMAINING EXERCISE AS OF EXERCISE
PRICES ----------------- ---------------- --------- ----------------- ---------
-------- DECEMBER 27, 1997 CONTRACTUAL LIFE PRICE DECEMBER 27, 1997 PRICE
----------------- ---------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.21--$ 0.99.............................. 835,305 2.87 $ 0.40 710,866 $ 0.32
$ 1.14--$ 1.99.............................. 91,560 6.50 1.74 67,788 1.92
$11.00--$20.88.............................. 250,391 3.78 11.63 59,566 11.00
--------- ---- ------ ------- ------
1,177,256 3.35 $ 2.87 838,220 `$ 1.21
========= ========= ========= ========= =========
</TABLE>
A former officer of Hunter exercised options to purchase 18,913 shares of Common
Stock in October 1996. Upon ceasing employment, Hunter promised to pay this
individual $113,000 instead of issuing shares. This promise was evidenced in
January 1997 by a $113,000 non-interest bearing note (see Note 8). The amount of
the note, which is included as compensation expense, was based on Hunter's
estimate of the fair market value of the underlying stock at the time of his
exercise.
-55-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1996 Neoglyphics Stock Option Plan
In 1996, Neoglyphics adopted a stock option plan that provides for incentive
stock options for key employees and nonqualified stock options for key
individuals, including nonemployees. Neoglyphics had reserved 224,910 shares for
issuance under the stock option plan. A summary of option transactions during
the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
---------------- ------------------
OF OPTIONS EXERCISE PRICE
----------------- -------------------
<S> <C> <C>
Outstanding at January 1, 1997 ........ -- $ --
Granted................................ 206,541 0.48
Exercised.............................. (86,028) 0.08
Canceled............................... (572) 0.80
------------ -------------
Outstanding at December 31, 1997 119,941 $ 0.80
============ =============
</TABLE>
<TABLE>
<CAPTION>
NUMBER WEIGHTED NUMBER WEIGHTED
----------------- --------- ----------------- ---------
OUTSTANDING WEIGHTED AVERAGE AVERAGE EXERCISABLE AVERAGE
----------------- ---------------- --------- ----------------- ---------
AS OF REMAINING EXERCISE AS OF EXERCISE
EXERCISE ----------------- ---------------- --------- ----------------- ---------
PRICES DECEMBER 27, 1997 CONTRACTUAL LIFE PRICE DECEMBER 27, 1997 PRICE
-------- ----------------- ---------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$0.80................................... 119,941 9.41 $0.80 - -
</TABLE>
SHARES RESERVED FOR FUTURE ISSUANCE
A total of 16,530,779 shares of Renaissance Common Stock has been reserved for
issuance under Renaissance's various stock plans at December 27, 1997.
STOCK PURCHASE PLANS
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 Renaissance's common stock. An aggregate of
600,000 shares of common stock has been reserved for issuance under this plan.
In December 1997, the stockholders approved an additional 600,000 shares of
Common Stock to be reserved under the Plan. The plan permits eligible employees
to purchase up to 400 shares of common stock in any six month offering period
through the accumulation of payroll deductions, which may not exceed 10% of the
employee's compensation. For the June 1996, January 1997 and July 1997
offerings, employees were eligible to participate if they have been employed by
Renaissance for at least eighteen months. Commencing with the January 1998
offering, employees are eligible to participate upon employment by Renaissance.
Shares are purchased at 85% of the lower of the fair market value of
Renaissance'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 Renaissance's
initial public offering. 56,178 and 46,510 shares of Common Stock were issued
under this plan during the year ended June 28, 1997 and the six month period
ended December 27, 1997, respectively at an issuance price of $7.23 and $19.55,
respectively. The plan will terminate in March 2006.
-56-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1995 RSI Employee Stock Purchase Plan
In January 1995, RSI's Board of Directors adopted and the shareholders
approved the 1995 Employee Stock Purchase Plan (the "RSI Purchase Plan"),
which became effective on the closing of RSI's initial public offering. The RSI
Purchase Plan authorizes the issuance of up to a total 720,000 shares of Common
Stock to participating employees. Under the terms of the RSI Purchase Plan, the
purchase price is an amount equal to 85% of the fair market value per share of
the Common Stock on either the first day or the last day of the offering period,
whichever is lower. 67,429 shares, 55,296 shares and 27,160 shares were issued
under the RSI Purchase Plan during the years ended June 29, 1996, June 28, 1997
and the six months ended December 27, 1997 at a weighted average price of $9.16,
$13.21, and $24.57, respectively. The weighted average fair value of the 1996,
1997, and December 1997 awards under the RSI Purchase Plan were $1.61, $4.77,
and $11.79 per share, respectively.
ACCOUNTING TREATMENT
Renaissance applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. Compensation is
recognized for the difference between the exercise price of options granted and
the estimated fair value of the related shares on the date of grant, and is
recorded over the vesting period. Amortization of compensation expense totaled
$31,000, $31,000, $494,000 and $750,000 in the years ended June 24, 1995, June
29, 1996 and June 28, 1997 and in the six months ended December 27, 1997,
respectively. The benefit of tax deductions associated with the exercise of non-
qualified stock options in excess of the amount of compensation recorded for
financial reporting purposes is recorded as a credit to additional paid-in
capital.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation". SFAS 123 is
effective for periods beginning after December 15, 1995. SFAS 123 requires that
companies either recognize compensation expense for grants of stock options and
other equity instruments based on fair value, or provide pro forma disclosure of
net income and earnings per share in the notes to the financial statements.
Renaissance adopted the disclosure provisions only of SFAS 123. Had compensation
cost of Renaissance's stock-based compensation plans been determined based on
the fair value at the grant dates as calculated in accordance with SFAS 123,
Renaissance's net income and earnings per share for the years ended June 29,
1996 and June 28, 1997 and the six months ended December 27, 1997 would have
been reduced to the pro forma amounts indicated below:
-57-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
------------------------------------- -------------------------------------
SIX MONTHS SIX MONTHS
------------- -------------
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED ENDED
---------- ---------- ------------- ---------- ---------- -------------
JUNE 29, JUNE 28, DECEMBER 27, JUNE 29, JUNE 28, DECEMBER 27,
---------- ---------- ------------- ---------- ---------- -------------
1996 1997 1997 1996 1997 1997
---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss)................. $12,020 $17,174 $(4,231) $10,229 $10,737 $(13,970)
Net Income (loss) per share--
basic........................... $ 0.28 $ 0.34 $ (0.08) $ 0.24 $ 0.21 $ (0.26)
Net Income (loss) per share--
diluted ....................... $ 0.26 $ 0.31 $ (0.08) $ 0.22 $ 0.20 $ (0.26)
</TABLE>
Because options vest over several years and this pro forma disclosure only
reflects grants made in the last three fiscal periods, the effects of applying
SFAS 123 in this pro forma disclosure are not likely to be representative of the
effects on reported net income for future years.
The fair market value of each stock option granted during the year ended June
29, 1996 was estimated using the Black-Scholes option-pricing model with the
following assumptions: an expected life of 3-4 years, expected volatility of 0%
for Hunter and Renaissance (pre IPO periods) and 62% for RSI, a dividend yield
of 0% and risk-free interest rates of 5.8 to 6.4%. The fair market value of each
stock option granted during the year ended June 28, 1997 was estimated using the
Black-Scholes option-pricing model with the following assumptions: an expected
life of 3-5 years, expected volatility of 43% to 62%, a dividend yield of 0% and
risk-free interest rates of 6.3%. The fair market value of each stock option
granted during the six months ended December 27, 1997 was estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of 5.25 years, expected volatility of 45%, a
dividend yield of 0% and risk-free interest rates of 6.2%.
The fair market value of offerings under the Renaissance stock purchase plan
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions: an expected life of .5 years,
expected volatility of 43.5%, a dividend yield of 0%, and risk-free interest
rates of 6% in the fiscal years ended June 29, 1996, June 28, 1997 and the six
months ended December 27, 1997.
The fair market value of offerings under the RSI stock purchase plan was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions: an expected life of .5 years,
expected volatility of 62% in fiscal 1996, fiscal 1997, and the six months ended
December 27, 1997, a dividend yield of 0% for all periods, and risk-free
interest rates of 5.63% in fiscal 1996, 5.27% in fiscal 1997 and 6.0% in the six
months ended December 27, 1997.
The fair market value of offerings under the Neoglyphics Stock Option Plan was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: an expected life of 1 to 7 years, expected
volatility of 0.01%, a risk-free interst rate of 6.0% and no dividend yield.
12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Renaissance occupies premises under various noncancelable operating leases
which include terms requiring Renaissance to pay a pro-rata portion of increased
operating expenses and real estate taxes. The leases expire on various dates
through October 2007, and certain of the leases contain options for renewal or
purchase of related equipment.
In January 1993, Renaissance entered into a three year lease with a real
estate trust of which the president and significant shareholder of Renaissance
is the sole beneficiary (the "Trust"), which required annual rental payments
of $120,000, payable in equal monthly installments of $10,000. This lease
continued to be amended upon subsequent expansions of the leased area and
currently requires annual payments of $531,000 payable in equal monthly
installments of $44,000. The amended lease term is September 2010. In
conjunction with the amendment of the lease in September 1995, Renaissance began
to consolidate the accounts of the Trust on a prospective basis (see Note 15).
-58-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rent expense for the years ended June 24, 1995, June 29, 1996 (excluding
amounts paid to the Trust after September 19, 1995), and June 28, 1997 and the
six months ended December 27, 1997 was $3,657,000, $5,045,000, $6,764,000 and
$5,070,000, respectively.
Future minimum payments under non-cancelable leases at December 27, 1997 are
as follows, excluding amounts payable to the Trust:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
-------------- -------------
<S> <C> <C>
1998................................................. $10,733,000 $121,000
1999................................................. 8,892,000 46,000
2000................................................. 5,916,000 --
2001................................................. 4,758,000 --
2002................................................. 3,124,000 --
Thereafter 6,439,000 --
----------- --------
Total minimum lease payments......................... $39,862,000 167,000
===========
Less--amount representing interest................... 17,000
--------
Present value of obligations under capital leases.... $150,000
========
</TABLE>
The cost and accumulated amortization of assets, primarily for office
equipment and software, under capital leases are as follows:
<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
------------- ------------- --------------
1996 1997 1997
------------- ------------- --------------
<S> <C> <C> <C>
Cost............................. $ 560,000 $ 731,000 $226,000
Accumulated amortization......... (121,000) (232,000) (93,000)
--------- --------- --------
$ 439,000 $ 499,000 $133,000
========= ========= ========
</TABLE>
13. EMPLOYEE BENEFIT PLANS
Renaissance provides employee retirement savings plans under Section 401(k) of
the Internal Revenue Code which cover substantially all employees. Under the
terms of the plans, employees may contribute a percentage of their salary up to
a maximum of 10%-20% which is then invested in one or more of several mutual
funds selected by the employee. Renaissance may make contributions to the
Renaissance plan at their discretion; such contributions totaled $309,000,
$563,000, $605,000 and $472,000 for the years ended June 24, 1995, June 29,
1996, and June 28, 1997 and the six months ended December 27, 1997,
respectively.
14. FINANCIAL INSTRUMENTS
Renaissance 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 Renaissance's financial instruments, which include
marketable securities (see Note 5), accounts receivable, notes receivable, 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, June 28, 1997 and December 27, 1997.
-59-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. CONSOLIDATION OF REAL ESTATE TRUST
As described in Note 12, Renaissance leases office space from a real estate
trust, of which the president and significant stockholder of Renaissance is the
sole beneficiary and an officer of Renaissance is the trustee. Effective
September 19, 1995, Renaissance 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 Renaissance occupies, committed Renaissance
to rent the facility through the maturity date of the mortgage loan, and granted
Renaissance 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, Renaissance obtained significant control over
the operations of the Trust and assumed a significant portion of the Trust's
obligations. As a result, Renaissance has consolidated the accounts 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)
Notes payable to Renaissance.................. (365,000)
Mortgage loans payable........................ (1,461,000)
-----------
$ (111,000)
===========
</TABLE>
16. 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 income.
-60-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SEGMENT INFORMATION
In the six months ended December 27, 1997, upon the acquisitions of RSI and
Hunter, the Company reorganized its operations under three operating segments:
Strategy, Solutions, and Services. The following represents the revenue and
operating income of each of these segments for the years ended June 24, 1995,
June 29, 1996 and June 28, 1997 and the six months ended December 27, 1997 and
the identifiable assets by segment as of these dates:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------- ------------------
JUNE 24, 1995 JUNE 29, 1996 JUNE 28, 1997 DECEMBER 27, 1997
-------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C>
Revenue:
Strategy..................................... $ 22,602 $ 34,785 $ 45,329 $ 37,043
Solutions.................................... 24,635 44,379 83,087 76,150
Services..................................... 174,720 253,899 361,417 206,926
-------- -------- -------- --------
Total..................................... $221,957 $333,063 $489,833 $320,119
======== ======== ======== ========
Income from operations (excluding
acquisition costs):
Strategy..................................... $ 5,157 $ 7,437 $ 6,148 $ 6,896
Solutions.................................... 2,250 761 8,866 2,576
Services..................................... 7,293 15,575 23,755 13,266
-------- -------- -------- --------
Total..................................... 14,700 23,773 38,769 22,738
Acquisition-related expenses................. -- (3,524) (8,268) (17,961)
Interest and other income (expense),
net........................................ (804) (773) 3,267 (678)
-------- -------- -------- --------
Income before taxes............................... $ 13,896 $ 19,476 $ 33,768 $ 4,099
======== ======== ======== ========
Identifiable assets:
Strategy..................................... $ 18,135 $ 59,182 $ 77,482 $ 99,361
Solutions.................................... 9,265 25,053 35,416 63,994
Services..................................... 43,234 65,879 115,348 146,955
Corporate assets............................. 4,890 17,910 28,675 5,867
-------- -------- -------- --------
Total..................................... $ 75,524 $168,024 $256,921 $316,177
======== ======== ======== ========
</TABLE>
-61-
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GEOGRAPHIC INFORMATION
The following represent the revenue and operating income by geographic area
for the years ended June 24, 1995, June 29, 1996, and June 28, 1997 and the six
months ended December 27, 1997 and the identifiable assets by geographic area as
of these dates:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------- ------------------
JUNE 24, 1995 JUNE 29, 1996 JUNE 28, 1997 DECEMBER 27, 1997
-------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C>
Revenue:
North America................................. $218,403 $326,631 $466,482 $293,187
Europe ....................................... 3,554 6,432 22,671 25,231
Other......................................... -- -- 680 1,701
-------- -------- -------- --------
Total...................................... $221,957 $333,063 $489,833 $320,119
======== ======== ======== ========
Income from operations (excluding
acquisition-related expenses):
North America................................. $ 14,170 $ 23,551 $ 35,193 $ 20,361
Europe........................................ 530 222 3,383 3,088
Other......................................... -- -- 193 (711)
-------- -------- -------- --------
Total...................................... 14,700 23,773 38,769 22,738
Acquisition-related expenses.................. -- (3,524) (8,268) (17,961)
Interest and other income (expenses),
net......................................... (804) (773) 3,267 (678)
-------- -------- -------- --------
Income before taxes................................ $ 13,896 $ 19,476 $ 33,768 $ 4,099
======== ======== ======== ========
Identifiable assets:
North America................................. $ 69,691 $148,789 $209,891 $290,853
Europe........................................ 943 1,325 18,288 20,176
Other......................................... -- -- 67 (719)
Corporate assets.............................. 4,890 17,910 28,675 5,867
-------- -------- -------- --------
Total...................................... $ 75,524 $168,024 $256,921 $316,177
======== ======== ======== ========
</TABLE>
Corporate assets represent marketable securities invested for all segments and
regions. All other assets are used in the operations of individual entities in
the different segments and geographical areas.
-62-
<PAGE>
SIGNATURE
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 hereunto duly authorized.
RENAISSANCE WORLDWIDE, INC.
By: /s/ Richard L. Bugley
------------------------------------------
Name: Richard L. Bugley, Esq.
Title: Vice President and General Counsel
Date: November 5, 1998
-63-
<PAGE>
EXHIBIT INDEX
-------------
NUMBER TITLE OF EXHIBIT PAGE
- ------ ---------------- ----
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Graves, McKenna, Lundeen & Almquist, PLLP
23.3 Consent of Deloitte & Touche, LLP
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of Katch, Tyson & Company
23.6 Consent of Goldstein Golub Kessler LLP
27.1 Restated Financial Data Schedule
27.2 Restated Financial Data Schedule
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (nos. 333-17565, 333-33475 and 333-44371) of Renaissance
Worldwide, Inc. of our report dated February 12, 1998, except as to the "Stock
Split and Authorized Shares" section of Note 10 which is as of March 24, 1998
and as to the poolings of interests of Neoglyphics Media Corporation and Triad
Data, Inc. which are as of April 27, 1998 appearing on page 14 of this Form 8-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 5, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-17565, 333-33475 and 333-44371) of Renaissance
Worldwide, Inc. of our report on Shamrock Computer Resources, Ltd. for the year
ended December 31, 1995, dated December 13, 1996 appearing on page 15 of this
Form 8-K.
Graves, McKenna, Lundeen & Almquist, PLLP
Minneapolis, Minnesota
November 5, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-17565, 333-33475 and 333-44371) of Renaissance
Worldwide, Inc. of our report which expresses an unqualified opinion and
includes an explanatory paragraph relating to the accounting for an acquisition
as a pooling-of-interests on Renaissance Solutions, Inc. and its subsidiaries as
of December 31, 1996 and for the two years in the period ended December 31,
1996, dated February 28, 1997, appearing on page 16 of this Form 8-K.
Deloitte & Touche LLP
Boston, Massachusetts
November 5, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements on
Form S-8 (Nos.333-17565, 333-33475 and 333-44371) of Renaissance Worldwide,
Inc., of our report on The Hunter Group, Inc. and Subsidiaries as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, dated February 14, 1997, except for Note 3 as to which the date is
September 30, 1997, and Note 11, as to which the date is November 26, 1997,
appearing on page 17 of this Form 8-K.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 5, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on form S-8 (Nos. 333-17565, 333-33475 and 333-44371) of Renaissance
Worldwide, Inc. of our report, dated March 12, 1998, on Neoglyphics Media
Corporation as of December 31, 1997 and for the year then ended, appearing on
page 18 of this Form 8-K.
Katch, Tyson & Company
November 5, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-17565, 333-33475 and 333-44371) of Renaissance
Worldwide, Inc. of our report on Triad Data, Inc. as of December 31, 1997 and
1996 and for the three years in the period ended December 31, 1997, dated
February 27, 1998, appearing on page 19 of this Form 8-K.
Goldstein Golub Kessler LLP
November 5, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-27-1997 JUN-24-1995 JUN-29-1996 JUN-28-1997
<PERIOD-START> JUN-29-1997 JUN-25-1994 JUN-25-1995 JUN-30-1996
<PERIOD-END> DEC-27-1997 JUN-24-1995 JUN-29-1996 JUN-28-1997
<CASH> 19,956 8,968 64,507 30,013
<SECURITIES> 5,867 4,890 17,910 28,675
<RECEIVABLES> 157,438 47,189 69,041 124,392
<ALLOWANCES> 3,444 400 1,365 1,840
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 191,098 66,624 152,950 189,475
<PP&E> 37,395 11,231 18,011 26,515
<DEPRECIATION> 10,664 3,577 5,461 7,160
<TOTAL-ASSETS> 316,177 77,321 168,024 256,921
<CURRENT-LIABILITIES> 115,687 41,131 39,803 55,452
<BONDS> 3,645 2,923 3,054 2,526
0 0 0 0
0 1,916 1,916 0
<COMMON> 4,725 200 202 4,725
<OTHER-SE> 189,170 31,740 121,625 192,367
<TOTAL-LIABILITY-AND-EQUITY> 316,177 77,321 168,024 256,921
<SALES> 0 0 0 0
<TOTAL-REVENUES> 320,119 221,957 333,063 489,833
<CGS> 0 0 0 0
<TOTAL-COSTS> 215,695 156,913 232,496 342,422
<OTHER-EXPENSES> 99,647 50,344 80,317 116,909
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 1,495 804 2,476 1,446
<INCOME-PRETAX> 4,099 13,896 19,476 33,768
<INCOME-TAX> 8,330 3,607 7,456 16,594
<INCOME-CONTINUING> (4,231) 10,289 12,020 17,174
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (4,231) 10,289 12,020 17,174
<EPS-PRIMARY> (.08) .25 .28 .34
<EPS-DILUTED> (.08) .24 .26 .31
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS 6-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-27-1997 JUN-28-1997 JUN-28-1997 JUN-28-1997 DEC-26-1998
<PERIOD-START> JUN-29-1997 JUN-30-1996 JUN-30-1996 JUN-30-1996 DEC-28-1997
<PERIOD-END> SEP-27-1997 MAR-29-1997 DEC-29-1996 SEP-28-1996 MAR-28-1998
<CASH> 9,545 47,285 31,902 58,501 7,647
<SECURITIES> 12,434 31,319 13,458 17,910 0
<RECEIVABLES> 144,847 92,970 87,322 70,735 175,949
<ALLOWANCES> 2,168 1,386 1,345 1,267 3,722
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 176,705 174,273 135,766 149,467 202,479
<PP&E> 30,132 18,583 19,905 16,278 40,581
<DEPRECIATION> 8,807 5,397 5,603 3,142 10,664
<TOTAL-ASSETS> 285,655 204,875 167,291 167,021 338,583
<CURRENT-LIABILITIES> 90,336 39,075 57,827 38,504 127,230
<BONDS> 2,494 2,888 2,757 3,386 4,047
0 0 0 0 0
0 0 0 1,916 0
<COMMON> 4,725 4,725 4,725 201 4,732
<OTHER-SE> 185,990 156,855 100,713 86,278 196,885
<TOTAL-LIABILITY-AND-EQUITY> 285,655 204,875 167,291 167,021 338,583
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 155,953 346,594 214,774 101,975 175,364
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 104,567 240,064 150,052 72,559 117,069
<OTHER-EXPENSES> 49,031 86,659 58,862 24,222 46,726
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> (139) 2,833 2,601 1,980 (849)
<INCOME-PRETAX> 2,021 22,507 8,461 7,174 10,720
<INCOME-TAX> 4,737 11,970 6,417 2,525 5,257
<INCOME-CONTINUING> (2,716) 10,537 2,044 4,649 5,463
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (2,716) 10,537 2,044 4,649 5,463
<EPS-PRIMARY> (0.05) 0.15 0.04 0.09 .10
<EPS-DILUTED> (0.05) 0.15 0.03 0.08 .09
</TABLE>
