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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(x) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended SEPTEMBER 4, 1998
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or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 000-24049
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CHARLES RIVER ASSOCIATES INCORPORATED
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2372210
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 CLARENDON STREET, T-33 BOSTON, MA 02116-5092
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(Address of principal executive offices) (Zip Code)
617-425-3000
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Registrant's telephone number, including area code:
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(Former name, former address, former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of September 4, 1998 the Company had outstanding 8,316,115 shares of common
stock.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or portions of its Quarterly Report on Form 10-Q for the
quarter ended September 4, 1998 (dated as of October 16, 1998) as set forth in
the pages attached hereto:
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Part I. Financial Information
Item 1. Financial Statements
CHARLES RIVER ASSOCIATES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
November 30, September 4,
1997 1998
(unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 2,054 $31,743
Accounts receivable, net of allowance of
$394 in 1997; $570 in 1998 10,140 8,807
Unbilled services 4,731 5,645
Prepaid expenses 280 129
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Total current assets 17,205 46,324
Property and equipment, net 2,890 3,068
Other assets 340 551
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Total assets $20,435 $49,943
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Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 902 $ 2,027
Accrued expenses 5,729 10,657
Deferred revenue 225 504
Current portions of notes payable
to former stockholders and capital
lease obligations 325 309
Dividends payable 1,764 0
Deferred income taxes 528 1,424
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Total current liabilities 9,473 14,921
Notes payable to former stockholders,
net of current portion 707 498
Capital lease obligations, net of
current portion 74 42
Deferred rent 1,302 1,410
Minority interest 343 101
Stockholders' equity:
Common stock (voting); no par
value; 25,000,000 shares authorized;
6,519,240 shares in 1997 and 8,316,115
shares in 1998 issued and outstanding 1,977 30,998
Retained earnings 7,770 1,986
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9,747 32,984
Notes receivable from stockholders (1,211) (13)
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Total stockholders' equity 8,536 32,971
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Total liabilities and stockholders' equity $20,435 $49,943
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</TABLE>
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CHARLES RIVER ASSOCIATES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Sixteen Weeks Ended Forty Weeks Ended
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September 5, September 4, September 5, September 4,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 14,498 $ 16,465 $ 33,317 $ 39,159
Costs of services 9,135 9,983 21,153 23,385
Supplemental compensation 373 -- 933 --
----------- ----------- ----------- -----------
Gross Profit 4,990 6,482 11,231 15,774
General and administrative 3,361 3,657 7,657 8,996
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Income from operations 1,629 2,825 3,574 6,778
Actual interest income, net 41 383 134 609
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Income before provision for
income taxes and minority interest 1,670 3,208 3,708 7,387
Provision for income taxes
Current year operations 112 1,331 248 1,695
Change in tax status -- -- -- 1,416
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Net income before minority interest 1,558 1,877 3,460 4,276
Minority interest 198 109 198 242
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Net income $ 1,756 $ 1,986 $ 3,658 $ 4,518
=========== =========== =========== ===========
Historical basic net income per share $ 0.27 $ 0.24 $ 0.58 $ 0.62
=========== =========== =========== ===========
Basic weighted average shares 6,395,461 8,316,115 6,286,175 7,343,333
=========== =========== =========== ===========
Historical diluted net income per share $ 0.27 $ 0.24 $ 0.58 $ 0.61
=========== =========== =========== ===========
Diluted weighted average shares 6,395,461 8,412,429 6,286,175 7,386,741
=========== =========== =========== ===========
Pro forma income data:
Net income as reported $ 1,756 $ 1,986 $ 3,658 $ 4,518
Pro forma adjustment (654) -- (1,353) 12
----------- ----------- ----------- -----------
Pro forma net income $ 1,102 $ 1,986 $ 2,305 $ 4,530
=========== =========== =========== ===========
Pro forma basic net income per share $ 0.17 $ 0.24 $ 0.36 $ 0.61
=========== =========== =========== ===========
Pro forma basic weighted average shares 6,525,191 8,316,115 6,415,905 7,420,985
=========== =========== =========== ===========
Pro forma diluted net income per share $ 0.17 $ 0.24 $ 0.36 0.61
=========== =========== =========== ===========
Pro forma diluted weighted average shares 6,525,191 8,412,429 6,415,905 7,464,393
----------- ----------- ----------- -----------
</TABLE>
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CHARLES RIVER ASSOCIATES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
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SEPTEMBER 5, SEPTEMBER 4,
1997 1998
<S> <C> <C>
Operating activities:
Net income $ 3,658 $ 4,518
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 443 760
Loss on retirement of fixed assets 0 193
Deferred rent (161) 108
Deferred income taxes 233 896
Minority interest (198) (242)
Changes in operating assets and liabilities:
Accounts receivable (2,594) 1,333
Unbilled services 958 (914)
Prepaid expenses and other assets (283) (60)
Accounts payable and accrued expenses 4,000 6,331
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Net cash provided by operating activities 6,056 12,923
Investing activities:
Purchase of property and equipment (1,412) (1,131)
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Net cash used in investing activities (1,412) (1,131)
Financing activities:
Payments on notes payable to
former shareholders and capital
lease obligations (303) (257)
Collection of notes receivable from stockholders 264 1,198
Dividends paid (1,640) (12,555)
Proceeds from minority interest 625 0
Proceeds from sale of stock 261 29,511
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Net cash provided by (used in) financing activities (793) 17,897
Net increase in cash and cash equivalents 3,851 29,689
Cash and cash equivalents at beginning of period 1,434 2,054
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Cash and cash equivalents at end of period $ 5,285 $ 31,743
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Supplemental cash flow information:
Notes receivable in exchange for common stock $ 502 $ 0
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</TABLE>
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CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
Charles River Associates Incorporated (the "Company") is an economic and
business consulting firm that applies advanced analytical techniques and
in-depth industry knowledge to complex engagements for a broad range of clients.
The Company offers two types of services: legal and regulatory consulting and
business consulting.
2. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS & ESTIMATES
The consolidated balance sheet as of September 4, 1998, the consolidated
statements of income for the sixteen and forty week periods ended September 4,
1998 and September 5, 1997 and the consolidated statements of cash flows for the
forty week periods ended September 4, 1998 and September 5, 1997 are unaudited
and in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the Company's
consolidated financial position, results of operations and cash flows.
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
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. FISCAL YEAR
The Company's fiscal year ends on the last Saturday in November. The Company's
first, third and fourth quarter each include 12 weeks and the third quarter
includes sixteen weeks.
4. LETTER OF INTENT
On October 9, 1998, the Company signed a letter of intent to acquire
substantially all of the assets of The Tilden Group, LLC. The Tilden Group is a
privately-held specialized consulting firm located in Oakland, California that
focuses on economic analysis for litigation, public policy design and strategy
development. Under the terms of the letter of intent, the Company will pay $11.4
million in the form of cash and common stock for substantially all of the assets
of The Tilden Group. The closing of the transaction is subject to negotiation of
definitive agreements, completion of due diligence and obtaining all necessary
approvals.
5. INCOME TAXES
In fiscal 1997, the Company was treated for federal and state income tax
purposes as an S corporation under the Internal Revenue Code of 1986, as amended
(the "Code"). As a result, the Company's stockholders, rather than the Company,
were required to pay federal and certain state income taxes based on the
Company's taxable earnings. The Company filed its returns using the cash method
of accounting. Upon closing of the initial public offering of Common Stock (see
note 8), the Company's status as an S Corporation terminated.
The Company is now subject to corporate taxation as a C Corporation under the
Code. Concurrently with the termination of the Company's status as an S
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CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Corporation, the Company adopted the accrual method of accounting. A pro forma
provision for income taxes has been presented as if the Company had been taxed
as a C corporation for the periods ended September 5, 1997 and September 4,
1998.
At the time of the termination of the Company's status as an S Corporation, the
Company recorded a net deferred income tax liability and a one-time additional
provision for income taxes of $1,416,000.
6. NET INCOME PER SHARE AND PRO FORMA NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share.
Pro forma net income per share is computed using pro forma net income and the
pro forma weighted average number of shares of common stock. The weighted
average number of shares of common stock for the purpose of computing pro forma
net income per share has been increased by the number of shares that were
required to pay a dividend in the amount of $2.4 million that was paid from the
proceeds of the Company's initial public offering.
7. SUPPLEMENTAL COMPENSATION
The Company currently has one bonus program. This program awards discretionary
bonuses based on the Company's revenues and profitability and individual
performance. Amounts paid under this bonus program are included in costs of
services and the Company expects to continue this bonus program. During fiscal
1997, the Company also had another bonus program, which consisted of
discretionary payments to officers and certain outside consultants based
primarily on the Company's cash flows. These bonus payments are shown as
supplemental compensation in the Company's statements of income. Beginning in
fiscal 1998, the Company no longer pays supplemental compensation, and
consequently, did not report supplemental compensation in the sixteen or forty
weeks of fiscal 1998.
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CHARLES RIVER ASSOCIATES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. STOCKHOLDERS EQUITY
Subsequent to November 29, 1997, the Company's Board of Directors authorized (i)
the declaration of a 52-for-1 stock split to be effected in the form of a
dividend of 51 shares of Common Stock per share of Common Stock outstanding
before the closing of the Offering and (ii) an increase in the number of shares
of authorized Common Stock to 25,000,000, which the Company's stockholders
approved.
In the second quarter of fiscal 1998, the Company completed an initial public
offering of 1,796,875 shares of Common Stock (the "Offering") in exchange for
$29.5 million of proceeds, which is net of offering costs.
Each person who was a stockholder of the Company before the closing of the
Offering entered into a Stock Restriction Agreement with the Company, which
prohibits each such person from selling or otherwise transferring shares of
Common Stock held immediately before the Offering without the consent of the
Board of Directors of the Company for two years after the Offering. In addition,
the Stock Restriction Agreement will allow the Company to repurchase a portion
of such stockholder's shares of Common Stock at a percentage of market value
should the stockholder leave the Company (other than for death or retirement for
disability).
9. ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
consolidated financial statements.
In December 1997, The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position (SOP),
"Reporting on the Costs of Start-up Activities," which will require companies
upon adoption to expense start-up costs, including organization costs, as
incurred. In addition, the SOP will require companies upon adoption to write off
as a cumulative change in accounting principle any previously recorded start-up
or organization costs. The SOP is effective for fiscal years beginning after
December 15, 1998. At September 4, 1998, the Company had deferred start-up costs
of $54,000. The Company believes that the adoption of this SOP will not have a
material impact on the Company's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires all derivatives to be
recorded on the balance sheet at fair market value and establishes special
accounting for certain types of hedges. The Company does not engage in any
derivative instruments and hedging activities. The statement is effective for
fiscal years beginning after June 15, 1999, however early adoption is allowed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Charles River Associates Incorporated
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(Registrant)
Date: October 23, 1998 By: /s/ James C. Burrows
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James C. Burrows
President and Chief Executive
Officer
Date: October 23, 1998 By: /s/ Laurel E. Morrison
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Laurel E. Morrison
Vice President & Treasurer
(Principal Financial and Accounting
Officer)
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