UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ________
COMMISSION FILE NUMBER 0-24343
ANSWERTHINK CONSULTING GROUP, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0750100
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1001 BRICKELL BAY DRIVE, SUITE 3000
MIAMI, FLORIDA 33131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(305) 375-8005
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the 42,910,340 shares of Common Stock of
the Registrant issued and outstanding as of January 26, 2000, excluding
11,257,250 shares of Common Stock held by affiliates of the Registrant was
$1,252,196,240. This amount is based on the average bid and asked price of the
Common Stock on the Nasdaq Stock Market of $39.56 per share on January 26, 2000.
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ANSWERTHINK CONSULTING GROUP, INC.
FORM 10-K
TABLE OF CONTENTS
Page
PART I
ITEM 1. Business 3
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
PART II
ITEM 5. Market for Registrants' Common Equity and Related
Stockholder Matters 11
ITEM 6. Selected Consolidated Financial Data 12
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
ITEM 8. Financial Statements and Supplementary Data 19
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 44
PART III
ITEM 10. Directors and Executive Officers of the Registrant 44
ITEM 11. Executive Compensation 44
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 44
ITEM 13. Certain Relationships and Related Transactions 44
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 44
SIGNATURES 45
Index to Exhibits 47
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DOCUMENTS INCORPORATED BY REFERENCE
Part III of the Form 10-K incorporates by reference certain portions of
the Registrant's proxy statement for its 2000 annual meeting of stockholders to
be filed with the Commission not later than 120 days after the end of the fiscal
year covered by this report.
PART I
Certain statements in this Form 10-K are "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
the results, performance or achievements expressed or implied by the forward
looking statements. Factors that impact such forward looking statements include
our ability to attract and retain additional business, changes in expectations
regarding the information technology industry, our ability to attract skilled
employees, possible changes in collections of accounts receivable, risks of
competition, price and margin trends, changes in general economic conditions and
interest rates.
ITEM 1. BUSINESS
GENERAL
AnswerThink Consulting Group, Inc. ("AnswerThink") provides Internet
services for clients ranging from Fortune 1000 to Internet start-up companies.
Our practice areas include e-business strategy, interactive marketing and
branding and technology architecture and integration. Our professionals in these
practice areas help our clients improve their business through Internet-enabled
commerce, including ePlex, customer relationship management, procurement,
human resources and financial management. We believe that our primary strengths
that distinguish us from our competitors are our:
o understanding of new Internet business models;
o broad service offerings and end-to-end solutions;
o superior business process knowledge and benchmarking practice;
and
o experience in large and complex technology engagements.
We were formed in April 1997 and have focused on improving our clients'
businesses by leveraging technology and the Internet. In November 1999, we
merged with THINK New Ideas, Inc. ("THINK New Ideas"), a provider of
Internet-focused interactive marketing and branding services. We have offices in
fifteen cities across the United States, including our headquarters in Miami, as
well as an office in London. As of December 31, 1999, we had approximately 1,650
associates.
INDUSTRY BACKGROUND
The Internet has emerged globally as the new medium for communication
and commerce. According to International Data Corporation, or IDC, the number of
users accessing the World Wide Web is expected to grow from approximately 196
million in 1999 to approximately 502 million in 2003. Rapid growth in the use of
the Internet has provided businesses with a dramatically more cost-effective
opportunity to reach potential customers worldwide. This opportunity has
enabled existing businesses to expand and has led to the creation of new
businesses focused entirely on Internet-based delivery of products or services.
In recent years, the sale of goods and services via the Internet, or e-commerce,
has grown dramatically as consumers and businesses have increased their
utilization of the medium. According to IDC, global e-commerce spending by
consumers is expected to grow from approximately $31 billion in 1999 to
approximately $178 billion in 2003, a compound annual growth rate of 55%.
During the 1990s, many of the world's largest businesses implemented
packaged software applications known as enterprise resource planning systems, or
ERP, from software vendors such as Oracle, PeopleSoft and SAP. While these ERP
packages have allowed corporations to realize gains in efficiency in functional
areas such as finance, human resources, manufacturing and operations, they
typically have not succeeded in Internet enabling and automating the processes
that
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extend beyond the enterprise, such as e-commerce, supply chain management,
customer relationship management and procurement.
The emergence of the Internet has provided an opportunity for
businesses to link their internal operations and systems to customers, suppliers
and business partners. For example, by leveraging the Internet, an automobile
manufacturer can:
o allow customers to easily configure and order a new automobile
from the comfort of their own home or office;
o check with remote factories, dealers and suppliers to
determine instant available inventory;
o utilize ERP and legacy systems to determine what is needed to
produce the automobile for the customer;
o cost-effectively procure parts needed for production; and
o maintain a relationship with the customer throughout the
process and by doing so enhance the customer service
experience requirements, including offering financing,
delivery and service options.
According to IDC, spending on business-to-business e-commerce was
approximately $80 billion in 1999 and is estimated to reach more than $1
trillion in 2003, a compound annual growth rate of 94%. In addition to the
advantages for traditional businesses made possible by the Internet, new
companies are being created with the sole purpose of developing online trading
communities. These online trading communities, or ePlexes, use the Internet to
quickly connect numerous buyers and sellers of a product or service. Due to the
speed of communication and availability of real-time information made possible
by the Internet, pricing and negotiation can be automated in an efficient
free-market environment.
With the changes taking place in the e-commerce market and the
potential advantages to be gained from leveraging the Internet across a
company's entire value chain (customers, suppliers, buyers, sellers and
partners), we believe that companies must have an effective Internet solution in
order to remain competitive. The competencies required to effectively implement
such a solution include strategy, user experience and branding, knowledge of
business processes, systems architecture and design, systems integration,
applications development, knowledge transfer, testing and deployment. According
to IDC, spending on Internet services was approximately $13 billion in 1999 and
is estimated to reach approximately $78 billion in 2003, a compound annual
growth rate of 57%.
While there are many Internet services firms active in the market
today, we believe that many focus on creative web design, user experience and
web-enablement of simple transactions. We believe that these areas are subsets
of the total problem that clients are trying to solve. In today's e-commerce
environment, clients require solutions that are reliable, scalable and flexible
and which can be deployed effectively in an environment that may involve
integration with multiple computing platforms and technologies. For example,
Forrester Research, an information technology market research firm, cites recent
high-visibility web site outages at a number of electronic commerce leaders in
support of its conclusion that many of today's electronic commerce solutions are
unreliable, unscalable and deliver service levels that are not adequate for
online commerce. In order to support this emerging set of requirements, we
believe that the next generation of Internet services firms should have both the
business knowledge required to understand emerging business models, including
ePlexes, and the technical skills required to architect a solution that may
involve the integration of software packages, custom software components and
large and complex legacy systems in order to handle the enormous growth in
volume that businesses are expected to experience on the Internet.
THE ANSWERTHINK SOLUTION
We believe that the following characteristics position us for success
in the Internet services market and distinguish us from other Internet services
firms:
o UNDERSTANDING OF NEW AND EMERGING INTERNET BUSINESS MODELS
We have a broad understanding of the new and emerging Internet
business models being employed by both traditional businesses and other
companies operating exclusively on the Internet. For example, for our
client FloraPlex, we designed and built an ePlex that encompasses the
entire value chain of the floral industry, linking growers,
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wholesalers and retailers and allowing them to transact business in
real-time over the Internet. Much of our expertise is derived from our
senior consultants, who combine many years of business experience with
a focus on the Internet.
o COMPREHENSIVE SOLUTION OFFERINGS AND END-TO-END CAPABILITIES
Our solution offerings include ePlex, eCommerce, eCRM,
eProcurement and eResources. We provide end-to-end solutions by
utilizing professionals from our practice areas in e-business strategy,
interactive marketing and branding and technology architecture and
integration. To deliver these solutions, we bring together our
strategists, designers, engineers and managers of our client
engagements in multi-disciplinary teams. This reduces the complexity
for our clients and avoids the bottlenecks in project management and
deliverables associated with using multiple consulting firms to design
and implement a desired solution. By doing this, we allow our clients
to achieve improved time-to-market and value in today's competitive
environment.
o SUPERIOR BUSINESS PROCESS KNOWLEDGE, BENCHMARKING PRACTICE AND
KNOWLEDGE MANAGEMENT
Our Hackett benchmarking and best practices team has developed
and is continuously refining our proprietary database of
"best-practice" organizational solutions and benchmarks from more than
1,400 companies, including 60% of the Fortune 100, 80% of the companies
comprising the Dow Jones Industrial Average and 40% of the Fortune 500.
Our Hackett database resides in MindShare/service mark/, a proprietary
intranet knowledge management system that captures, indexes and
disseminates the combined knowledge and experiences gained from
previous client engagements. This knowledge base is then available for
all of our consultants in a secure intranet environment. Through
MindShare/service mark/, we are able to provide our clients with
relevant business processes and industry-related knowledge. This allows
us to develop solutions more rapidly and effectively. MindShare/service
mark/ was recognized in 1999 as one of the top 50 intranets in the
world by CIO magazine.
o EXPERIENCE IN LARGE AND COMPLEX CLIENT ENGAGEMENTS
We have significant experience and expertise in the strategy,
architecture, development and implementation of large and complex
engagements requiring integration across various applications and
platforms. Our experience is particularly relevant as our clients are
seeking complex solutions that include not only web site design but
also the real-time integration of web sites with critical business
processes such as customer relationship management, or CRM, supply
chain management, or SCM, procurement and administration.
STRATEGY
Our goal is to be the premier provider of Internet services for
organizations seeking to compete in the Internet economy. To achieve this goal
we intend to:
o ENHANCE OUR BRAND
We believe that awareness of the AnswerThink brand within the
business and technology communities and the association of the
AnswerThink brand with the highest quality and most comprehensive
Internet services are crucial to our business. Our strategy is to
continue to promote and enhance our brand by advertising, participating
in targeted industry conferences and seminars, regularly contributing
to industry publications, engaging in an extensive public relations
campaign and communicating with industry analysts. As part of our brand
enhancement, we recently launched a rebranding campaign that includes a
new corporate look and feel, including a new name, logo and message.
o EXPAND CLIENT RELATIONSHIPS
We currently have over 200 clients, ranging from Fortune 1000
to Internet start-up companies. We intend to expand our existing client
relationships into broader and more sophisticated engagements. As part
of this strategy, the account managers dedicated to each of our clients
identify opportunities to offer additional solutions. In addition, we
have aggressively targeted new clients through relationships
established by our senior consultants, business development teams and
strategic alliance managers.
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o LEVERAGE AND EXPAND OUR KNOWLEDGE BASE AND INTELLECTUAL
CAPITAL
We are continually expanding MindShare/service mark/, our
proprietary intranet knowledge management system that includes our
Hackett Group database of best-practice organizational solutions and
benchmarks. Our strategy is to continue to capture the knowledge and
experiences gained from our client engagements as well as
best-practices and thus improve the learning curve on new engagements,
improve efficiency of implementation and reduce risks, complexity and
client engagement delivery times.
o EXTEND STRATEGIC ALLIANCES
We actively target, assess and develop relationships with
industry leaders to stay at the cutting edge of business thought and
technology advances, to develop new business and to generate additional
revenue. These relationships generate business development
opportunities as well as provide us access to early product releases
and technology developments. We intend to continue to develop such
alliances.
o ENHANCE SKILL SETS AND INCREASE GEOGRAPHIC COVERAGE
Since our formation, we have expanded our skill sets and
geographic presence aggressively through a combination of internal
growth and strategic acquisitions. We have successfully completed and
integrated our acquisitions and have offices in fifteen cities across
the United States as well as one in England. We believe our broad
geographic coverage allows us to serve our clients on a local basis,
helping us to build strong, long-term client relationships. Our
strategy is to continue to enhance our skill sets to meet evolving
market demand and to increase our geographic presence through internal
growth and targeted acquisitions of businesses that are aligned with
our strategy and culture.
THE ANSWERTHINK APPROACH
We have practices in the following areas: e-business strategy,
interactive marketing and branding, and technology and architecture and
integration. We utilize our knowledge base and professional talent from these
practice areas to provide our clients with various solution offerings, including
ePlex, eCommerce, eCRM, eProcurement and eResources.
PRACTICE AREAS
o E-BUSINESS STRATEGY
We help our clients evaluate and formulate e-business
strategies that will result in a sustainable competitive advantage. Our
services include strategy formulation, conception and design of
Internet-based business models, qualitative and quantitative market
research, competitive analyses, benchmarking to best practice business
models, performance measurement systems, business process design and
implementation, and change management. In addition, we have our Hackett
Group database of best-practice organizational solutions and
benchmarks, which contains the knowledge and experiences we have gained
from our client engagements as well as best-practices from over 1,400
members.
o INTERACTIVE MARKETING AND BRANDING
We help clients identify their online customers and other
target audiences, define the processes and venues for communicating
with these audiences and analyze the results of their marketing
efforts. We use our understanding of customer preferences to develop
interactive content and to create brand value that enhance and extend
our clients' relationships with their customers. Our services are
intended to optimize a customer's experience with our clients' web
sites. These services range from assessing and developing brands to the
creative design of the layout, navigation, information architecture and
personalization of the web site. Our interactive marketing and branding
services include:
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o MARKETING AND COMMUNICATIONS STRATEGY: These services
include brand research and development, media
planning, online or direct marketing, relationship
marketing and online and offline promotion
measurement and analysis.
o CREATIVE SERVICES: These services include brand
identity development, web site concept development,
creative design and web site content creation and
architecture.
o DEVELOPMENT SERVICES: These services include web site
application development, web site building,
documentation, quality assurance, testing and project
management.
o TECHNOLOGY ARCHITECTURE AND INTEGRATION
We help our clients build e-businesses by providing a set of
technology skills that include architecture, design, custom
application, integration and construction. We believe our deep
understanding of third party e-business software and our ability to
modify and integrate these applications into existing computing
environments differentiates us from our competitors. This understanding
is most critical in the deployment of complex business-to-business
networks or trading community environments. We also focus on how
emerging technologies in the wireless and broadband area will continue
to impact the architecture, devices and infrastructure requirements of
our clients.
SOLUTION OFFERINGS
o EPLEX
We define an ePlex as an online trading community that
connects multiple buyers and sellers of a product or service in an
Internet-based environment to transact and efficiently automate bids
and offers to achieve real-time price determination and improve
customer service levels.
o ECOMMERCE
We deliver eCommerce solutions to our clients that allow them
to transact business more efficiently by integrating their web sites
with their back-end systems. Through this integration, our eCommerce
solutions not only enable Internet transactions to take place, but also
help ensure Internet orders will be filled, thereby increasing customer
satisfaction and sales.
o ECRM
Electronic customer relationship management, or eCRM, refers
to the process by which companies maximize the value of each customer
interaction through the Internet and e-mail as well as other
traditional customer contact channels, including integrated voice
response, telephone, fax, mail and person to person. eCRM encompasses
functions such as customer information aggregation, customer
segmentation analysis, customer profitability analysis, cross-selling
and decision support. With our eCRM solution offering, we enable our
clients to leverage the opportunities provided by the Internet in order
to build a customer centric model that integrates real-time branding,
selling and customer support. Our eCRM solutions optimize our clients'
channel strategies by integrating third party and customized CRM
applications with ERP systems.
o EPROCUREMENT
eProcurement refers to the acquisition of goods and services
by businesses using the Internet. eProcurement typically allows
companies to make nearly all transactions between buyers and suppliers
electronic, shift the responsibility for maintaining inventory to
suppliers, transition sourcing from local markets to global markets and
shift pricing from a fixed basis to a real-time market basis.
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o ERESOURCES
Our eResources solutions enable our clients to add strategic
value to corporate functions such as finance and human resources. For
example, we Internet-enable financial systems and link them to
e-commerce or e-procurement systems to capture real-time transaction
data. Internet-based human resource service models can provide
additional value to employees by Internet-enabling expense functions,
delivering internal resource information or integrating information
from third party benefits providers.
CLIENTS
We focus on long-term relationships with our clients which range from
Fortune 1000 to Internet start-up companies. During 1999, our ten most
significant clients accounted for approximately 20% of revenues. No single
client accounted for more than 3% of our revenues in 1999. Our clients include:
General Electric Company Visa
General Motors Corporation Bell South Corporation
PECO Energy Company Interim Services, Inc.
KeySpan Energy Turner Broadcasting System
Nextel
SALES AND MARKETING
Our extensive relationship base and reputation are our most significant
sources of new business. We have a dedicated business development team that sell
our solution offerings. In addition, all of our senior consultants spend
significant amounts of their time on business development. Furthermore, the
professionals that manage our strategic alliances are also instrumental in lead
generation. These strategic alliances have, and will continue to generate,
significant sales opportunities for us.
Our business development team establishes contact with targeted
prospects to create awareness and preference for us. Thereafter, senior
consultants are assigned to accounts as client executives to establish and
maintain long-term relationships and coordinate multiple service offerings to
our clients.
In addition to our business development team, we have a dedicated
marketing team. Our marketing strategy is to promote and enhance our brand by
participating in targeted industry conferences and seminars, regularly
contributing to industry publications, engaging in an extensive public relations
campaign, and communicating with industry analysts. This strategy is designed to
strengthen our brand name and generate new clients by increasing the awareness
of our brand within the business and technology communities and by associating
our brand with the highest quality and most comprehensive Internet services
available today.
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COMPETITION
The market for our services is highly competitive and is characterized
by pressures to incorporate new capabilities and accelerate job completion
schedules. We face competition from a number of sources, including international
accounting firms, international and regional systems consulting and
implementation firms, application software firms, marketing and communication
firms, and national and regional advertising agencies. Many competitors have
greater financial, technical and marketing resources and name recognition than
AnswerThink. In addition, we compete with our clients' internal resources,
particularly where these resources represent a fixed cost to the client. Such
competition may impose additional pricing pressures. We believe that the most
significant competitive factors we face are perceived value, breadth of services
offered and price. We believe that our multidisciplinary, knowledge-based
approach, broad and expanding framework of services and distinctive corporate
culture allow us to compete favorably by delivering strategic solutions that
meet our clients' needs in an efficient manner. Other important competitive
factors that we believe are relevant to our business include technical
expertise, knowledge and experience in the industry, quality of service and
responsiveness to client needs, and speed in delivering our solution offerings.
MANAGEMENT SYSTEMS
Our management control systems are comprised of various accounting,
billing, financial reporting, human resources, marketing and resource
allocations systems, many of which are integrated with MindShare/service mark/.
We continuously work to improve our knowledge management system,
MindShare/service mark/, as well as our infrastructure and management control
systems. We believe that MindShare/service mark/ significantly enhances our
ability to serve our clients efficiently by allowing our knowledge base to be
shared by all of our consultants worldwide on a real-time basis. We also believe
that our well-developed, flexible, scalable infrastructure has allowed us to
quickly integrate all of the employees and systems of the businesses that we
have acquired and positions us for future growth.
HUMAN RESOURCES
We have dedicated significant resources to recruiting consultants with
both business and technology expertise. We have built a recruiting team that
drives our hiring process by focusing on the highest demand solution areas of
our business to ensure an adequate pipeline of resources. In 1999, approximately
40% of our new hires came from employee referrals.
We provide a comprehensive orientation and training curriculum for
employees, or associates, at every level. In addition, we train our consultants
in specific skill-sets that best complement our multi-disciplinary teams. Much
of the on-going development of our consultants comes from their work on client
engagements involving new business models and technology, which is then captured
in MindShare/service mark/ and is available for training other consultants.
All of our associates own stock and/or stock options in the company.
The benefits package that we provide includes insurance, employee stock purchase
program and option grants. Our associates are paid a salary and a cash bonus
based upon market conditions and performance.
As of December 31, 1999, we had approximately 1,650 associates,
approximately 1,400 of whom were billable professionals. None of our associates
are subject to collective bargaining arrangements. We have entered into
nondisclosure and non-solicitation agreements with virtually all of our
personnel. We engage consultants as independent contractors from time to time.
ITEM 2. PROPERTIES
Our principal executive offices currently are located at 1001 Brickell
Bay Drive, Suite 3000, Miami, Florida 33131. The lease on these premises covers
10,800 square feet and expires March 31, 2003. We also lease facilities in
Atlanta, Boston, Chicago, Cleveland, Dallas, Iselin (NJ), London, Los Angeles,
Miami, New York, Philadelphia, San Francisco, Sarasota (FL), Seattle, San Mateo
(CA) and Torrance (CA). We anticipate that additional space will be required as
our business expands. We also anticipate transitioning out of certain existing
space and into larger spaces in an effort to consolidate our operation with that
of THINK New Ideas. We believe that we will be able to obtain suitable space as
needed. We own no real estate and do not intend to invest in real estate or real
estate related assets.
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ITEM 3. LEGAL PROCEEDINGS
On September 25, 1998, Michael R. Farrell, a shareholder of THINK New
Ideas, filed a class action suit, Farrell v. THINK New Ideas, Inc., Scott
Mednick, Melvin Epstein and Ronald Bloom, No. 98 Civ. 6809, against THINK New
Ideas, Inc., Ronald Bloom, a former officer of THINK New Ideas and currently a
member of our Board of Directors, Melvin Epstein and Scott Mednick, (both former
officers of THINK New Ideas). The suit was filed in the United States District
Court for the Southern District of New York on behalf of all persons who
purchased or otherwise acquired shares of THINK New Ideas' common stock in the
class period from November 14, 1997 through September 21, 1998.
On various dates in October, 1998, six additional class action suits
were filed in the same court against the same parties by six different
individuals, each representing a class of purchasers of THINK New Ideas' common
stock. All seven of these lawsuits were transferred to Judge Sidney H. Stein of
the United States District Court for the Southern District of New York and
consolidated by order of the court dated December 15,1998 into one action titled
In Re: THINK New Ideas, Inc., Consolidated Securities Litigation, No. 98 Civ.
6809 (SHS).
Following an order of the court, the plaintiffs filed a Consolidated
and Amended Class Action Complaint on February 10, 1999. The consolidated
complaint supercedes all prior complaints in all of the cases and serve as the
operative complaint in the consolidated class action. The consolidated complaint
was filed on behalf of all individuals who purchased THINK New Ideas common
stock from November 5, 1997 through September 21, 1998. The consolidated
complaint contains substantially similar allegations as the complaint filed by
Mr. Farrell including, that THINK New Ideas and certain of its current and
former officers and directors disseminated materially false and misleading
information about THINK New Ideas' financial position and results of operations
through certain public statements and in certain documents filed by THINK New
Ideas with the Securities and Exchange Commission, that these statements and
documents caused the market price of THINK New Idea's common stock to be
artificially inflated, that the plaintiffs purchased shares of common stock at
such artificially inflated prices and, as a consequence of such purchases,
suffered damages. The relief sought in the consolidated complaint is
unspecified, but includes a plea for compensatory damages and interest, punitive
damages, reasonable costs and expenses, including attorneys' fees and experts'
fees and such other relief as the court deems just and proper.
This lawsuit became our responsibility upon our merger with THINK New
Ideas. We believe that we have meritorious defenses to the consolidated
complaint and intend to contest it vigorously. Prior to our merger, THINK New
Ideas filed a motion to dismiss the consolidated complaint on a number of
grounds. Plaintiffs filed a motion in opposition. The motion is currently
pending before the court. The court has not yet determined whether oral
arguments will be heard. Although there can be no assurance as to the outcome of
these matters, an unfavorable resolution could have a material adverse effect on
our results of operations and/or our financial condition in the future.
We are involved in legal proceedings, claims and litigation arising in
the ordinary course of business not specifically discussed in this report. We
believe that the final disposition of such other matters will not have a
material adverse effect on our financial position or our results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of our shareholders held on November 3, 1999, shareholders
approved the proposed issuance of additional shares of our common stock to the
stockholders of THINK New Ideas as part of our acquisition of THINK New Ideas. A
total of 22,131,273 shares of common stock voted in favor of the proposal,
806,664 shares voted against the proposal and 56,017 shares were withheld from
the vote.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been traded on the Nasdaq National Market since
our initial public offering on May 28, 1998 under the Nasdaq symbol "ANSR". The
following table sets forth for the fiscal periods indicated the high and low
sales prices of the common stock, as reported on the Nasdaq National Market.
HIGH LOW
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1999
Fourth Quarter $36.81 $ 9.25
Third Quarter $23.75 $ 9.50
Second Quarter $28.94 $18.75
First Quarter $36.63 $24.50
1998
Fourth Quarter $27.31 $13.38
Third Quarter $28.00 $15.75
Second Quarter (beginning May 28, 1998) $21.75 $13.00
The closing sale price for the common stock on February 29, 2000 was
$20.375.
As of February 29, 2000, there were approximately 522 holders of record
of our common stock and 42,968,850 shares of common stock outstanding.
COMPANY DIVIDEND POLICY
We do not expect to pay any cash dividends on our common stock in the
foreseeable future. Our present policy is to retain earnings, if any, for use in
the operation of our business. In addition, under the terms of our revolving
credit facility, we cannot pay dividends to our shareholders.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the
years ended December 31, 1999, January 1, 1999, January 2, 1998 and December 31,
1996 and 1995 is derived from our Consolidated Financial Statements and related
notes thereto which appear elsewhere in this Form 10-K. The selected
consolidated financial data should be read together with our Consolidated
Financial Statements and related notes thereto and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
We merged with triSpan, Inc. ("triSpan") in February 1999 and THINK New
Ideas in November 1999 in transactions which were accounted for using the
pooling-of-interests method of accounting. All historical financial information
included in the selected consolidated financial data has been restated to
included the financial position and results of operations of triSpan and THINK
New Ideas. Prior to the merger with THINK New Ideas, THINK New Ideas used a
fiscal year ending June 30. The 1999 and 1998 consolidated financial statements
combine the Company's and THINK New Ideas' years ended December 31, 1999 and
January 1, 1999. The restated consolidated financial statements for 1997 combine
the Company's consolidated financial statements for year ended January 2, 1998
with THINK New Ideas' consolidated financial statements for year ended June 30,
1998. Due to the different fiscal year ends, THINK New Ideas' results for the
six months ended June 30, 1998 are included in the restated consolidated
financial statements for both fiscal years 1998 and 1997.
The consolidated operating results as of and for the years ended
January 2, 1998, December 31, 1996 and 1995 include the operating results of
AnswerThink as of and for the years ended January 2, 1998, December 31, 1996 and
1995, respectively, and the operating results of THINK New Ideas as of and for
the years ended June 30, 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1996 1995
------------- ------------ ----------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues............................................ $ 260,460 $ 167,517 $ 77,144 $ 28,930 $ 18,044
Costs and expenses:
Project personnel and expenses....................... 154,531 99,054 45,975 16,769 12,402
Selling, general and administrative expenses......... 82,672 62,609 36,226 17,882 5,222
Stock compensation expense........................... -- 63,886 23,043 -- --
Merger related expenses.............................. 11,700 -- -- -- 676
Impairment of capitalized software................... 989 -- -- -- --
Purchased research and development expense........... -- 5,200 9,200 -- --
Restructuring costs.................................. -- 921 921 1,732 --
Settlement costs..................................... -- -- 1,903 --
------------- ------------ ----------- ------------ --------------
Total costs and operating expenses................ 249,892 231,670 117,268 36,383 18,300
------------- ------------ ----------- ------------ --------------
Income (loss) from operations........................... 10,568 (64,153) (40,124) (7,453) (256)
Other income (expense):
Litigation settlement................................. -- 2,500 -- -- --
Interest income (expense), net........................ 281 (631) 556 167 (372)
------------- ------------ ----------- ------------ --------------
Income (loss) before income taxes and extraordinary loss 10,849 (62,284) (39,568) (7,286) (628)
Income taxes............................................ 7,602 (870) 340 246 141
------------- ------------ ----------- ------------ --------------
Income (loss) before extraordinary loss 3,247 (61,414) (39,908) (7,532) (769)
Extraordinary loss on early extinguishment of debt (net
of taxes)............................................ 2,113 -- -- -- --
------------- ------------ ----------- ------------ --------------
Net income (loss)....................................... $ 1,134 $ (61,414) $ (39,908) $ (7,532) $ (769)
============= ============ =========== ============ ==============
Basic net income (loss) per common share (1)........... $ 0.03 $ (2.47) $ (3.46) $ (1.88) $ --
Weighted average common shares outstanding.............. 34,953 24,844 11,521 4,005 --
Diluted net income (loss) per common share (1) ........ $ 0.03 $ (2.47) $ (3.46) $ (1.88) $ --
Weighted average common shares and common share
equivalents.......................................... 43,098 24,844 11,521 4,005 --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1, JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1996 1995
------------- ------------ ----------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents .............................. $ 27,124 $ 36,931 $ 10,781 $ 3,658 $ 884
Working capital ........................................ $ 55,166 $ 49,711 $ 15,349 $ 7,949 $ 913
Total assets ........................................... $ 200,713 $ 153,394 $ 86,686 $ 25,002 $ 10,254
Shareholders' equity................................... $ 140,270 $ 100,789 $ 35,351 $ 12,370 $ 2,186
<FN>
(1) Per share data for the period ended December 31, 1995 is not considered
meaningful and, therefore, is not presented.
</FN>
</TABLE>
-12-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements in this Form 10-K are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
the results, performance or achievements expressed or implied by the
forward-looking statements. Factors that impact such forward looking statements
include, among others, our ability to attract additional business, changes in
expectations regarding the information technology industry, our ability to
attract and retain skilled employees, possible changes in collections of
accounts receivable, risks of competition, price and margin trends, changes in
general economic conditions and interest rates. An additional description of our
risk factors is set forth in our Registration Statement on Form S-1
(Registration Form 333-48123) and updated in our Registration Statement on Form
S-4 (Registration Form 333-87379).
OVERVIEW
AnswerThink provides Internet services for clients ranging from Fortune
1000 to Internet start-up companies. Our practice areas include e-business
strategy, interactive marketing and branding and technology architecture and
integration. Our professionals in these practice areas help our clients improve
their business through Internet-enabled commerce, including online trading
communities, customer relationship management, procurement, human resources and
financial management.
AnswerThink was formed on April 23, 1997. Since our formation, we have
grown through internal expansion as well as through mergers and acquisitions. In
February 1999, we merged with triSpan, Inc. ("triSpan"), a provider of Internet
consulting, web application development and integration services. In November
1999, we merged with THINK New Ideas, a provider of interactive marketing,
branding and creative web site development services. The mergers with triSpan
and THINK New Ideas were accounted for using the pooling-of-interests method of
accounting. Our historical consolidated financial statements were restated to
include the financial position, results of operations and cash flows of triSpan
and THINK New Ideas. The financial information presented herein, prior to
AnswerThink's date of incorporation of April 23, 1997, represents only the
combined results of triSpan and THINK New Ideas. Our acquisitions (with the
exception of the mergers with triSpan and THINK New Ideas) were accounted for
using the purchase method of accounting and our historical Consolidated
Financial Statements include the operating results of the companies we acquired
from the date of each respective acquisition. Our financial statements may lack
comparability from period to period because of acquisitions we made for which we
used the purchase method of accounting.
Our revenues are derived from fees for services generated on a
project-by-project basis. Clients are either charged on a time and materials
basis based on the number of hours worked by our consultants at an agreed upon
rate per hour or they enter into fixed-fee or capped-fee contracts. For
fixed-fee or capped-fee contracts, we recognize revenues on the percentage of
completion method of accounting based on our evaluation of actual costs incurred
to date compared to total estimated costs. Net revenues exclude reimbursable
expenses charged to clients.
The agreements entered into in connection with a project, whether time
and materials based or fixed-fee or capped-fee based, are typically terminable
by the client upon 30 days' notice. Upon early termination of an engagement, the
client is required to pay for all time, materials and expenses incurred by us
through the effective date of the termination. In addition, provisions in some
of the agreements we have with our clients limit our right to enter into
business relationships with specific competitors of that client for a specific
time period. These provisions typically prohibit us from performing a broad
range of our Internet services that we might otherwise be willing to perform for
potential clients. These provisions are generally limited to six to twelve
months and usually apply only to specific employees or the specific project
team.
Our most significant expense is costs associated with our billable
professionals. Project personnel costs consist primarily of salaries, benefits
and bonuses. We expect the salaries of our billable professionals will increase
over time due to intense competition in our industry for qualified
professionals. Our ability to manage employee utilization, contain payroll costs
and control employee turnover costs in this competitive environment will have a
significant impact on our profitability. To help address these concerns, we have
granted and expect to continue to grant shares of common stock or stock options
to all employees, including those of acquired companies, which generally vest
over four to six years.
-13-
<PAGE>
Our selling general and administrative expenses consist primarily of
salaries, bonuses and benefits for non-billable professionals, facility costs,
staff recruitment and training costs, depreciation and amortization costs,
general operating expenses and selling and marketing expenses.
RESULTS OF OPERATIONS
Our fiscal year ends on the Friday closest to December 31. Our fiscal
year will generally consist of a 52-week period. Fiscal years 1999, 1998 and
1997 ended on December 31, 1999, January 1, 1999 and January 2, 1998,
respectively. References to a year included in this section refer to a fiscal
year rather than a calendar year. Prior to our merger, the fiscal year end of
triSpan was December 31. Prior to our merger, the fiscal year of THINK New Ideas
was June 30. Our consolidated financial statements and the other financial
information provided for 1999 and 1998 combine AnswerThink's, THINK New Ideas'
and triSpan's years ended December 31, 1999 and January 1, 1999, respectively.
Our consolidated restated financial statements and the other financial
information provided for 1997 combine AnswerThink's and triSpan's financial
statements for the year ended January 2, 1998 with THINK New Ideas' financial
statements for its year ended June 30, 1998. Due to the different fiscal year
ends, THINK New Ideas' results for the six months ended June 30, 1998 are
included in the financial statements for both fiscal years 1998 and 1997.
The following table sets forth, for the periods indicated, our results
of operations and the percentage relationship to net revenues of such results:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------
DECEMBER 31, 1999 JANUARY 1, 1999 JANUARY 2, 1998
------------------ ---------------- ------------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $260,460 100.0% $167,517 100.0% $ 77,144 100.0%
Costs and expenses:
Project personnel and expenses 154,531 59.3% 99,054 59.1% 45,975 59.6%
Selling, general and administrative expenses 82,672 31.7% 62,609 37.4% 36,226 47.0%
Stock compensation expense -- -- 63,886 38.1% 23,043 29.9%
Merger related expenses 11,700 4.5% -- -- -- --
Impairment of capitalized software 989 0.4% -- -- -- --
Purchased research and development expense -- -- 5,200 3.1% 9,200 11.9%
Restructuring costs -- -- 921 0.5% 921 1.2%
Settlement costs -- -- -- -- 1,903 2.5%
-------- ------ -------- ------ -------- ------
Total costs and operating expenses 249,892 95.9% 231,670 138.2% 117,268 152.1%
-------- ------ -------- ------ -------- ------
Income (loss) from operations 10,568 4.1% (64,153) (38.2%) (40,124) (52.1%)
Other income (expense):
Litigation settlement -- -- 2,500 1.5% -- --
Interest income (expense), net 281 0.1% (631) (0.4%) 556 0.7%
-------- ------ -------- ------ -------- ------
Income (loss) before income taxes and
extraordinary loss 10,849 4.2% (62,284) (37.1%) (39,568) (51.4%)
Income taxes 7,602 2.9% (870) (0.5%) 340 0.4%
-------- ------ -------- ------ -------- ------
Income (loss) before extraordinary loss 3,247 1.3% (61,414) (36.6%) (39,908) (51.8%)
Extraordinary loss on early extinguishment of debt
(net of taxes) 2,113 0.8% -- -- -- --
-------- ------ -------- ------ -------- ------
Net income (loss) $ 1,134 0.5% $(61,414) (36.6%) $(39,908) (51.8%)
======== ====== ======== ====== ======== ======
</TABLE>
-14-
<PAGE>
COMPARISON OF 1999 TO 1998
OVERVIEW. In 1999, net income increased to $1.1 million from a net loss
of $61.4 million in 1998. We incurred non-recurring charges during 1999
consisting primarily of $11.7 million for our mergers with triSpan and THINK New
Ideas and a $2.1 million extraordinary loss on the early extinguishment of debt
which was assumed in connection with our merger with triSpan. Excluding the
effect of non-recurring items and unusually high income tax expense resulting
from the mergers we would have reported net income of $14.1 million for 1999.
Our $61.4 million net loss during 1998 was primarily the result of a $63.9
million one-time charge for stock compensation expense. Stock compensation
expense of $63.9 million represents the vesting of shares of common stock that
had been issued to certain members of management in connection with the
formation of AnswerThink and THINK New Ideas. These charges were non-cash in
nature and did not impact total shareholders' equity. We believe that such
issuances were critical to our ability to attract and retain qualified personnel
during the crucial start-up phases of both AnswerThink and THINK New Ideas.
Included in the $63.9 million of stock compensation expense in 1998 is $23.0
million of stock compensation expense for THINK New Ideas, which is included in
both 1997 and 1998 as the THINK New Ideas' fiscal year did not coincide with
AnswerThink's fiscal year.
NET REVENUES. Net revenues increased 55% to $260.5 million in 1999 from
$167.5 million in 1998. This increase was the result of several factors
including revenues attributable to the companies we acquired, an increase in the
number of clients served and additional engagements with existing clients.
PROJECT PERSONNEL AND EXPENSES. Project personnel and expenses
increased 56% to $154.5 million in 1999 from $99.1 million in 1998. This
increase was primarily due to an increase in the number of our consultants
resulting from both internal hiring and acquisitions. Project personnel and
expenses as a percentage of revenue remained fairly constant between 1999 and
1998 at 59.3% and 59.1%, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 32% to $82.7 million in 1999 from $62.6
million in 1998. The increase in selling, general and administrative expenses
primarily related to an increase in sales and administration headcount related
to the higher volume of business and additional amortization expense associated
with our 1998 and 1999 acquisitions. This increase was also the result of higher
property and facilities costs incurred as a result of the addition and expansion
of facilities to accommodate our growth. Selling, general and administrative
expenses as a percentage of net revenues decreased to 31.7% in 1999 from 37.4%
during 1998. This decrease was primarily attributable to the higher revenue
levels during 1999 as well as cost savings attributable to the elimination of
redundancies in infrastructures and support systems of our acquired companies.
MERGER RELATED EXPENSES. Merger related expenses were $11.7 million in
1999. These expenses related to our mergers with triSpan in February 1999 and
THINK New Ideas in November 1999. The expenses included investment banking,
legal and accounting fees, severance costs for redundant employees as well as
the costs of combining operations and eliminating redundant facilities.
INCOME TAXES. We recorded income tax expense of $7.6 million which
represented 70% of our pre-tax income in 1999. The higher than expected tax rate
was primarily attributable to non-deductible merger related expenses and the
establishment of a deferred tax liability for triSpan when it converted from an
S corporation to a C corporation at the time of the merger. We recorded an
income tax benefit in 1998 of $870,000 which represented an effective tax rate
of 1.4%. The lower than expected tax rate in 1998 was primarily attributable to
the fact that, although we reported a net loss for financial reporting purposes
in 1998, for tax purposes we reported taxable income primarily as a result of
the non-deductibility of the stock compensation expense.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT. The extraordinary
loss on early extinguishment of debt was a result of the repayment of
subordinated notes in the first quarter of 1999 which were assumed in connection
with the triSpan merger. These notes, which had a face amount of $8.0 million
and a stated interest rate of 8%, were originally issued at a substantial
discount. Immediately following the merger with triSpan, we repaid the notes in
full, which resulted in an extraordinary loss of $2.1 million, net of a $1.4
million tax benefit.
COMPARISON OF 1998 TO 1997
OVERVIEW. We reported a net loss of $61.4 million in 1998 compared to a
net loss of $39.9 million in 1997. Our $61.4 million net loss during 1998 was
primarily the result of one-time charges for stock compensation expense totaling
$63.9
-15-
<PAGE>
million. These charges represented the vesting of shares of common stock that
had been issued to certain members of management. Included in the $63.9 million
of stock compensation expense in 1998 is $23.0 million of stock compensation
expense for THINK New Ideas, which is included in both 1997 and 1998 as the
THINK New Ideas' fiscal year did not coincide with AnswerThink's fiscal year.
Our loss during 1997 was primarily attributable to the $23.0 million of stock
compensation expense for THINK New Ideas, $9.2 million of charges for purchased
research and development and the developmental nature of AnswerThink's business
during its start-up phase.
NET REVENUES. Net revenues increased 117% to $167.5 million in 1998
from $77.1 million in 1997. This increase was the result of several factors,
including revenues attributable to the companies we acquired, an increase in the
number of clients served, and additional engagements with existing clients. In
addition to the factors listed above, the 1997 results represented only eight
months of activities for AnswerThink, during which time it was primarily in its
start-up phase.
PROJECT PERSONNEL AND EXPENSES. Project personnel and expenses
increased 115% to $99.1 million in 1998 from $46.0 million in 1997. This
increase was due primarily to an increase in the number of consultants resulting
from both internal hiring and acquisitions. In addition, 1998 included a full
year of operations for AnswerThink as opposed to only eight months during 1997.
Project personnel and expenses decreased as a percentage of net revenues to
59.1% during 1998 from 59.6% during 1997. This decrease was due to a decline in
the average cost per consultant and a higher level of utilization during 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 73% to $62.6 million in 1998 from $36.2
million in 1997. The increase in selling, general and administrative expenses
primarily related to an increase in sales and administration headcount related
to the higher volume of business and additional amortization expense associated
with our 1997 and 1998 acquisitions. This increase was also the result of higher
property and facilities costs incurred as a result of the addition and expansion
of facilities to accommodate our growth. Selling, general and administrative
expenses as a percentage of net revenues decreased to 37.4% in 1998 from 47.0%
during 1997. This decrease was primarily attributable to lower revenues in 1997
due to the start-up nature of AnswerThink as well as cost savings attributable
to the elimination of redundancies in infrastructures and support systems of our
acquired companies.
STOCK COMPENSATION EXPENSE. Stock compensation expense was $63.9
million in 1998 and $23.0 million in 1997. In the first quarter of 1998,
AnswerThink recorded a charge of $40.9 million relating to the vesting of shares
held by seven senior managers and one director that were subject to certain
performance vesting criteria. During the second quarter of 1998, THINK New Ideas
recorded a charge of $23.0 million primarily related to the release of certain
shares which were placed in escrow at THINK New Ideas' initial public offering.
The release of these shares was contingent on the achievement of certain
performance criteria. The stock compensation expense for THINK New Ideas was
included in both the 1997 and 1998 statements of operations due to THINK New
Ideas' fiscal year not coinciding with AnswerThink's fiscal year. There are no
additional shares outstanding that are subject to performance criteria for
vesting.
SETTLEMENT COSTS. Settlement costs totaled $1.9 million in 1997.
Certain of our key executives and other management employees resigned from a
"Big Five" accounting firm during the first quarter of 1997. The accounting firm
initiated litigation in connection with such resignations and the formation of
AnswerThink arising out of activities alleged to constitute a breach of
non-competition and non-solicitation obligations of the executives and
employees. This litigation was settled during 1997. Settlement costs consisted
primarily of obligations assumed by us for compensation owed by the accounting
firm to the employees joining AnswerThink for the period from December 1, 1996
to the date of AnswerThink's inception and legal fees incurred in connection
with the litigation.
PURCHASED RESEARCH AND DEVELOPMENT EXPENSE. Purchased research and
development expenses were $5.2 million in 1998 and $9.2 million in 1997. The
$9.2 million of purchased research and development expense in 1997 represents
$5.2 million of expense for THINK New Ideas and $4.0 million of expense for
AnswerThink related to in-process research and development technology projects
being conducted by companies which we acquired. As of the dates of acquisition,
these projects had not met technological feasibility requirements and did not
have any alternative future use and therefore the fair value of the research
which had been conducted to date was charged to operations. The purchased
research and development expense for THINK New Ideas was included in both fiscal
year 1997 and fiscal year 1998 statements of operations due to THINK New Ideas'
fiscal year not coinciding with AnswerThink's fiscal year.
INCOME TAXES. We recorded an income tax benefit in 1998 of $870,000
which represented an effective tax rate of 1.4%. The lower than expected rate in
1998 was primarily attributable to the fact that, although we reported a net
loss for financial
-16-
<PAGE>
reporting purposes in 1998, for tax purposes we reported taxable income
primarily as a result of the non-deductibility of the stock compensation
expense. Prior to 1998, we established a valuation allowance for our entire
deferred tax asset amount as a result of our limited operating history as of
that time, therefore, only a state tax provision was recorded in 1997.
LIQUIDITY AND CAPITAL RESOURCES
On May 28, 1998 AnswerThink completed its initial public offering of
its common stock, which resulted in net proceeds of $38.5 million. At the end of
1999, we had $27.1 million of cash and cash equivalents compared to $36.9
million at the end of 1998. Prior to the initial public offering in May 1998,
our primary source of liquidity was our initial capitalization, operating cash
flows and borrowings under our revolving credit facility. Our revolving credit
facility allows for up to $20.0 million of borrowings. The credit facility is
unsecured and contains certain restrictive covenants. There were no borrowings
outstanding under this facility as of the end of 1999.
Net cash provided by operating activities was $7.3 million for 1999
compared to $5.8 million for 1998. Net cash provided by operating activities
during 1999 related primarily to our earnings, excluding the effect of non-cash
charges, a decrease of other receivables of $5.4 million, an increase in media
payables of $4.4 million and an increase in accrued expenses and other
liabilities of $13.6 million. These sources of cash were partially offset by a
$24.3 million increase in accounts receivable and unbilled revenue and a $3.5
million decrease in accounts payable. Media payables represent media placement
costs owed to media providers on behalf of our customers. Amounts in media
payables which have been billed to our customers are included in other
receivables. The level of media payables and the related receivables will vary
with the timing of our customer's media campaigns. During 1998, net cash
provided by operating activities was primarily attributable to our earnings,
excluding the effect of non-cash charges, and an increase in media payables of
$4.6 million, partially offset by an $8.4 million increase in accounts
receivable and unbilled revenue and a $4.8 million increase in other
receivables.
Net cash used in investing activities was $17.6 million for 1999
compared to $10.0 million for 1998. Net cash used in investing activities in
1999 consisted of primarily $10.9 million used in the acquisition of businesses
and $5.3 million used for the purchase of property and equipment. In 1998 the
primary uses of cash in investing activities were $4.9 million used in the
acquisition of businesses and $5.2 million used for the purchase of property and
equipment.
Net cash provided by financing activities was $515,000 in 1999 compared
to $32.1 million in 1998. The cash provided by financing activities in 1999 was
primarily the result of proceeds from the issuance of common stock totaling
$15.0 million, partially offset by the repayment of $8.0 million of subordinated
notes which were assumed in the triSpan merger, the repayment of other notes
payable totaling $4.7 million and the repayment of $2.2 million of our revolving
credit facilities. Cash provided by financing activities during the 1998 period
was primarily attributable to $40.6 million received from the issuance of common
stock, primarily attributable to AnswerThink's initial public offering, $7.5
million borrowed under our revolving credit facilities and $8.0 million received
from the proceeds from the issuance of triSpan's subordinated notes, partially
offset by $15.2 million repaid on our revolving credit facilities and the $7.4
million repayment of other notes payable.
From time to time, we expect to evaluate the acquisition of businesses
aligned with our strategy and culture. As of the date of this prospectus, we do
not have any understandings, commitments or agreements with respect to any
material acquisitions.
We currently believe that available funds and cash flows generated by
operations, if any, will be sufficient to fund our working capital and capital
expenditures requirements for at least the next twelve months. Thereafter, we
may need to raise additional funds. We may decide to raise additional funds
sooner in order to fund more rapid expansion, to develop new or enhanced
products and services, to respond to competitive pressures or to acquire
complementary businesses or technologies. We cannot assure you, however, that
additional financing will be available when needed or desired on terms favorable
to us or at all. The Optional Shares referenced in our Securities Purchase
Agreement (see Note 11 in our Consolidated Financial Statements) were sold
pursuant to the Agreement in March 2000.
-17-
<PAGE>
YEAR 2000
The "Year 2000 Issue" refers to the problem of many computer programs
using the last two digits to represent a year rather than four digits (i.e.,
"99" for 1999). As of the date of this prospectus, our systems have functioned
properly with respect to dates starting in the Year 2000 and, to date, our
clients have not informed us of any Year 2000 problems associated with the
solutions we developed for them. However, we may incur significant costs if
unanticipated internal or external Year 2000 compliance problems arise. The cost
associated with these unanticipated problems, or our failure to correct any
unanticipated Year 2000 problems in a timely manner, could have a material
adverse effect on our business, financial condition, results of operations and
prospects for growth.
The services we currently offer do not include Year 2000 code
remediation services. However, approximately 3% of our revenues for the year
ended December 31, 1999 were related to assisting clients assess Year 2000
readiness and assisting clients in designing and managing the process whereby
necessary remediation is accomplished.
RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 1999, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. The new rules establish revised standards
for public companies relating to the reporting of financial and descriptive
information about their operating segments in financial statements. Since
AnswerThink only has one business segment, which is providing services to its
clients, the adoption of SFAS No. 131 did not have an effect on the Company's
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Among other
provisions, SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It also requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Management believes the adoption of SFAS No. 133 will not
have a material effect on the Company's consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-18-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANSWERTHINK CONSULTING GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Reports of Independent Certified Public Accountants 20
Consolidated Balance Sheets as of December 31, 1999 and
January 1, 1999 25
Consolidated Statements of Operations for the Years Ended December 31,
1999, January 1, 1999 and January 2, 1998 26
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1999, January 1, 1999 and January 2, 1998 27
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, January 1, 1999 and January 2, 1998 28
Notes to Consolidated Financial Statements 29
-19-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of AnswerThink Consulting Group, Inc.
Miami, Florida
In our opinion, based on our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, shareholders' equity, and cash flows present fairly, in all
material respects, the financial position of AnswerThink Consulting Group, Inc.
and its subsidiaries (the "Company") at December 31, 1999 and January 1, 1999,
and the results of their operations and their cash flows for the two years then
ended in conformity with accounting principles generally accepted in the United
States. These consolidated financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The consolidated
financial statements give retroactive effect to the mergers of triSpan, Inc. on
February 26, 1999 and THINK New Ideas, Inc. on November 5, 1999 in transactions
accounted for as poolings of interests, as described in Note 2 to the
consolidated financial statements. We did not audit the financial statements of
triSpan, Inc. and THINK New Ideas, Inc. for the year ended December 31, 1998
which statements reflect total assets of $6,945,676 and $55,933,909,
respectively and total revenues of $15,453,296 and $49,361,578, respectively as
of and for the year then ended. 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 triSpan, Inc. and
THINK New Ideas, Inc., is based solely on the reports of the other auditors. We
conducted our audits of the consolidated financial statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall consolidated financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
February 8, 2000
-20-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
THINK New Ideas, Inc.
We have audited the accompanying consolidated balance sheet of THINK New Ideas,
Inc. and subsidiaries ("THINK New Ideas") as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of THINK New Ideas' management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of THINK New Ideas,
Inc. and subsidiaries as of December 31, 1998, and the consolidated results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
December 17, 1999
-21-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
THINK New Ideas, Inc.
We have audited the accompanying consolidated balance sheet of AnswerThink
Consulting Group, Inc. ("AnswerThink") and THINK New Ideas, Inc. and
subsidiaries ("THINK New Ideas") as of January 2, 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of
AnswerThink and THINK New Ideas. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
The consolidated financial statements give retroactive effect to the mergers of
AnswerThink and THINK New Ideas on November 5, 1999 in a transaction accounted
for as a pooling-of interests, as described in Note 2 to the consolidated
financial statements. We did not audit the financial statements of AnswerThink,
prior to its merger with THINK New Ideas for the year ended January 2, 1998,
which statements reflect total assets of $34,433,073 and total revenues of
$34,499,746 for the year then ended. That statement was audited by other
auditors whose report has been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for AnswerThink prior to
its merger with THINK New Ideas, is based on the report of the other auditors.
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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AnswerThink and
THINK New Ideas at January 2, 1998 and June 30, 1998, respectively, and the
consolidated results of their operations and their cash flows for the years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
New York, New York
August 5, 1998, except as to the pooling-of-interests which is as
of November 5, 1999
-22-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of AnswerThink Consulting Group, Inc.
Miami, Florida
In our opinion, based on our audit and the report of other auditors, the
consolidated balance sheet at January 2, 1998 and the related consolidated
statement of operations, shareholders' equity, and cash flows for the year then
ended of AnswerThink Consulting Group, Inc. (the "Company") prior to its
restatement for the November 5, 1999 pooling of interests with THINK New Ideas,
Inc. (not presented separately herein) present fairly, in all material respects,
the financial position, results of operations and cash flows of the Company at
January 2, 1998 and for the year then ended, in conformity with accounting
principles generally accepted in the United States. The consolidated financial
statements of the Company give retroactive effect to the merger of triSpan, Inc.
on February 26, 1999 in a transaction accounted for as pooling of interests. We
did not audit the financial statements of triSpan, Inc. which statements reflect
total assets of $5,783,428 as of December 31, 1997 and total revenues of
$19,651,574 for the year then ended. Those statements were audited by other
auditors whose report thereon has been furnished to us. These consolidated
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. We conducted our audit of the consolidated
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall consolidated financial statement
presentation. We believe that our audit and the report of other auditors provide
a reasonable basis for the opinion expressed above.
On November 5, 1999 AnswerThink Consulting Group, Inc. merged with THINK New
Ideas, Inc. ("THINK New Ideas") in a transaction accounted for as a pooling of
interests, which resulted in the retroactive restatement to reflect the
operations of AnswerThink Consulting Group, Inc. and THINK New Ideas for all
periods presented. Accordingly, the historical operations covered by this report
constitute the consolidated financial statements of AnswerThink Consulting
Group, Inc. prior to its restatement for the pooling of interests with THINK New
Ideas.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
February 1, 1999, except as to the pooling of interests with triSpan, Inc. which
is as of February 26, 1999, and except as to the pooling of interests with THINK
New Ideas, Inc. which is as of February 8, 2000
-23-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To triSpan, Inc. and triSpan Software, Inc.:
We have audited the combined balance sheets of triSpan, Inc. (a Pennsylvania S
Corporation) and triSpan Software, Inc. (a Pennsylvania S Corporation) as of
December 31, 1998 and 1997, and the related combined statements of operations,
shareholders' equity and cash flows for the two years in the period ended
December 31, 1998 (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 combined financial position of triSpan, Inc. and
triSpan Software, Inc. as of December 31, 1998 and 1997, and the combined
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.
February 26, 1999
-24-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1999 1999
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27,124 $ 36,931
Short-term investments 2,432 1,000
Accounts receivable and unbilled revenue, net of allowance of $1,510 and $1,988 in
1999 and 1998, respectively 72,655 44,040
Other receivables 5,340 10,766
Prepaid expenses and other current assets 8,058 2,746
--------- ---------
Total current assets 115,609 95,483
Property and equipment, net 11,191 9,373
Other assets 3,362 7,897
Goodwill, net 70,551 40,641
--------- ---------
Total assets $ 200,713 $ 153,394
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,982 $ 11,558
Accrued expenses and other liabilities 33,065 17,339
Media payable 16,500 12,092
Current portion of borrowings under revolving credit facility -- 1,464
Current portion of notes payable 1,896 3,319
--------- ---------
Total current liabilities 60,443 45,772
--------- ---------
Notes payable -- 2,324
Redeemable subordinated notes -- 4,509
--------- ---------
Total liabilities 60,443 52,605
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value, 1,250,000 shares authorized, none issued
and outstanding -- --
Common stock, $.001 par value, authorized 125,000,000 shares; issued and
outstanding: 42,731,976 shares at December 31, 1999; 40,228,817 shares at 43 40
January 1, 1999
Additional paid-in capital 219,884 182,115
Unearned compensation (815) (1,390)
Accumulated deficit (78,842) (79,976)
--------- ---------
Total shareholders' equity 140,270 100,789
--------- ---------
Total liabilities and shareholders' equity $ 200,713 $ 153,394
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-25-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues $ 260,460 $ 167,517 $ 77,144
Costs and expenses:
Project personnel and expenses 154,531 99,054 45,975
Selling, general and administrative expenses 82,672 62,609 36,226
Stock compensation expense -- 63,886 23,043
Merger related expenses 11,700 -- --
Impairment of capitalized software 989 -- --
Purchased research and development expense -- 5,200 9,200
Restructuring costs -- 921 921
Settlement costs -- -- 1,903
------------ ------------ ------------
Total costs and operating expenses 249,892 231,670 117,268
------------ ------------ ------------
Income (loss) from operations 10,568 (64,153) (40,124)
Other income (expense):
Litigation settlement -- 2,500 --
Interest income 926 958 796
Interest expense (645) (1,589) (240)
------------ ------------ ------------
Income (loss) before income taxes and extraordinary loss 10,849 (62,284) (39,568)
Income taxes 7,602 (870) 340
------------ ------------ ------------
Income (loss) before extraordinary loss 3,247 (61,414) (39,908)
Extraordinary loss on early extinguishment of debt (net of
taxes of $1,408) 2,113 -- --
------------ ------------ ------------
Net income (loss) $ 1,134 $ (61,414) $ (39,908)
============ ============ ============
Basic net income (loss) per common share:
Income (loss) before extraordinary loss $ 0.09 $ (2.47) $ (3.46)
Extraordinary loss on early extinguishment of debt $ (0.06) $ -- $ --
Net income (loss) per common share $ 0.03 $ (2.47) $ (3.46)
Weighted average common shares outstanding 34,952,724 24,844,497 11,520,653
Diluted net income (loss) per common share:
Income (loss) before extraordinary loss $ 0.08 $ (2.47) $ (3.46)
Extraordinary loss on early extinguishment of debt $ (0.05) $ -- $ --
Net income (loss) per common share $ 0.03 $ (2.47) $ (3.46)
Weighted average common and common equivalent shares
outstanding 43,097,501 24,844,497 11,520,653
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-26-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN UNEARNED ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
----------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 5,333,440 $ 5 $ 19,106 $ -- $ (6,740) $ 12,371
Issuance of common stock 14,015,147 14 2,269 (702) -- 1,581
Conversion of convertible securities 7,362,324 8 11,540 -- -- 11,548
Deferred compensation related to stock appreciation
rights conversion -- -- 1,735 (465) -- 1,270
Acceleration of vesting of stock options -- -- 1,387 -- -- 1,387
Common stock released from escrow to founders -- -- 21,656 -- -- 21,656
Issuance of common stock for business acquisitions 3,329,013 3 25,397 -- -- 25,400
Amortization of deferred compensation expense, net
of forfeitures -- -- -- 46 -- 46
Net loss -- -- -- -- (39,908) (39,908)
----------- ----- -------- ------- -------- --------
Balance at January 2, 1998 30,039,924 $ 30 $ 83,090 $(1,121) $(46,648) $ 35,351
Issuance of common stock 3,483,930 3 39,640 -- -- 39,643
Purchase and retirement of stock (889,602) (1) (3,248) -- -- (3,249)
Vesting of shares -- -- 42,211 (1,045) -- 41,166
Conversion of 1,790,026 shares of convertible
preferred stock to common stock 7,160,104 7 11,133 -- -- 11,140
Issuance of common stock for business acquisitions 434,461 1 6,341 -- -- 6,342
Issuance of warrants in connection with redeemable
subordinated debt -- -- 3,761 -- -- 3,761
Amortization of deferred compensation expense, net
of forfeitures -- -- (813) 776 -- (37)
Net loss -- -- -- -- (61,414) (61,414)
Adjustment to conform THINK New Ideas' fiscal year -- -- -- -- 28,086 28,086
----------- ----- -------- ------- -------- --------
Balance at January 1, 1999 40,228,817 $ 40 $182,115 $(1,390) $(79,976) $100,789
Issuance of common stock 1,631,206 2 14,978 -- -- 14,980
Purchase and retirement of stock (350,428) -- (3) -- -- (3)
Issuance of common stock for business acquisitions 1,222,381 1 22,794 -- -- 22,795
Amortization of deferred compensation expense, net
of forfeitures -- -- -- 575 -- 575
Net income -- -- -- -- 1,134 1,134
----------- ----- -------- ------- -------- --------
Balance at December 31, 1999 42,731,976 $ 43 $219,884 $ (815) $(78,842) $140,270
=========== ===== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-27-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,134 $(61,414) $(39,908)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Extraordinary loss on early exinguishment of debt 2,113 -- --
Compensation charge relating to vesting of shares -- 63,886 23,043
Purchased research and development -- 5,200 9,200
Impairment of capitalized software 989 -- --
Depreciation and amortization 10,397 7,627 4,297
Deferred income taxes (2,663) (2,411) --
Restructuring costs -- 921 921
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable and unbilled revenue (24,291) (8,415) (8,006)
Decrease (increase) in other receivables 5,426 (4,794) 2,469
Increase in prepaid expenses and other current and non-current (294) (1,169) (914)
assets
Increase (decrease) in accounts payable (3,477) 658 715
Increase (decrease) in accrued expenses and other liabilities 13,571 1,099 (70)
Increase in media payable 4,408 4,569 6,959
-------- -------- --------
Net cash provided by (used in) operating activities 7,313 5,757 (1,294)
Cash flows from investing activities:
Purchases of property and equipment (5,285) (5,207) (6,059)
Sale of property and equipment under sale/leaseback arrangement -- 456 --
Purchases of short-term investments (2,432) (9,650) --
Redemption, sales and maturities of short-term investments 1,000 9,312 1,322
Cash used in acquisition of businesses, net of cash acquired (10,918) (4,865) (16,171)
-------- -------- --------
Net cash used in investing activities (17,635) (9,954) (20,908)
Cash flows from financing activities:
Proceeds from issuance of common stock 14,980 40,587 1,142
Purchase and retirement of common stock (3) (3,249) --
Proceeds from issuance of convertible preferred stock -- 1,100 21,000
Proceeds from revolving credit facility 400 7,545 8,700
Repayment of revolving credit facility (2,177) (15,250) --
Proceeds from notes payable -- 750 27
Repayment of notes payable (4,685) (7,423) (1,544)
Proceeds from redeemable subordinated notes -- 8,000 --
Repayment of redeemable subordinated notes (8,000) -- --
-------- -------- --------
Net cash provided by financing activities 515 32,060 29,325
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (9,807) 27,863 7,123
Cash and cash equivalents at beginning of year (1) 36,931 9,068 3,658
-------- -------- --------
Cash and cash equivalents at end of year $ 27,124 $ 36,931 $ 10,781
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 546 $ 1,177 $ 102
Cash paid for income taxes $ 8,268 $ 352 $ 264
<FN>
(1) The beginning cash balance for the year ended January 1, 1999 does not agree
to the ending balance for the year ended January 2, 1998 due to the different
accounting period used by THINK New Ideas. See Note 1 in accompanying notes to
consolidated financial statements.
</FN>
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-28-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
AnswerThink Consulting Group, Inc. (the "Company" or "AnswerThink")
provides Internet services for clients ranging from Fortune 1000 to Internet
start-up companies. Practice areas include e-business strategy, interactive
marketing and branding and technology architecture and integration. The Company
provides its clients with a unique combination of accountability and expertise
in these practice areas to improve their business through Internet-enabled
commerce, including online trading communities, customer relationship
management, procurement, human resources and financial management.
PRINCIPLES OF CONSOLIDATION AND CAPITALIZATION
The consolidated financial statements include the accounts of
AnswerThink Consulting Group, Inc. and its subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation. In
February 1999, AnswerThink merged with triSpan, Inc. ("triSpan") and in November
1999, AnswerThink merged with THINK New Ideas, Inc. ("THINK New Ideas"). The
mergers with triSpan and THINK New Ideas were accounted for using the
pooling-of-interests method of accounting. All prior historical consolidated
financial statements presented herein have been restated to include the
financial position, results of operations, and cash flows of triSpan and THINK
New Ideas. Accordingly, financial information presented herein prior to
AnswerThink's date of incorporation of April 23, 1997 is solely that of triSpan
and THINK New Ideas (see Note 2).
On April 23, 1997, AnswerThink and its initial investors (the "Initial
Investors") entered into a stock purchase agreement (the "Stock Purchase
Agreement") pursuant to which AnswerThink sold 3,400,000 shares to the Initial
Investors of its Class A Convertible Preferred Stock (the "Class A Preferred
Stock"). Such shares of Class A Preferred Stock were sold at $6.00 per share,
for total proceeds of $20.4 million. In May 1997, certain senior executives of
AnswerThink purchased an additional 100,000 shares of Class A Preferred Stock at
$6.00 per share. Each share of Class A Preferred Stock was convertible into four
shares of common stock. Pursuant to the Stock Purchase Agreement, certain of the
Initial Investors had the option to purchase an additional 100,000 shares of
Class A Preferred Stock at $6.00 per share which shares were purchased on
February 24, 1998.
All preferred stock issued by AnswerThink in connection with its
formation was converted, pursuant to the original terms, to shares of common
stock prior to AnswerThink's initial public offering.
In May 1998, AnswerThink completed its initial public offering (the
"Offering") whereby it sold 3,324,500 shares of common stock. Net proceeds from
the Offering, after expenses, were $38.5 million.
FISCAL YEAR
The Company's fiscal year ends on the Friday closest to December 31.
The fiscal year for the Company will generally consist of a 52-week period.
Fiscal years 1999, 1998 and 1997 ended on December 31, 1999, January 1, 1999 and
January 2, 1998, respectively. References to a year in these consolidated
financial statements relate to a fiscal year rather than a calendar year. The
fiscal year end of triSpan, which was December 31, has been conformed to that of
the Company starting in fiscal year 1997.
Prior to the merger with THINK New Ideas, THINK New Ideas used a fiscal
year ending June 30. The 1999 and 1998 consolidated financial statements combine
the Company's and THINK New Ideas' years ended December 31, 1999 and January 1,
1999. The restated consolidated financial statements for 1997 combine the
Company's consolidated financial statements for year ended January 2, 1998 with
THINK New Ideas' consolidated financial statements for year ended June 30, 1998.
Due to the different fiscal year ends, THINK New Ideas' results for the six
months ended June 30, 1998 are included in the restated consolidated financial
statements for both fiscal years 1998 and 1997. For the six months ended June
30, 1998, THINK New Ideas had net revenues of $25.6 million and net loss of
$28.1 million. THINK New Ideas' net loss for this period is added to the opening
balance of accumulated deficit at January 2, 1998 in the accompanying statement
of shareholders' equity. THINK New Ideas' net cash flow for this period is
eliminated from the 1998 beginning cash balance in the statement of cash flows.
THINK New Ideas' cash flows provided by operating activities and used in
financing and investing activities for the six month period ending June 30, 1998
were $5.7 million, $3.6 million and $397,000, respectively.
-29-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with maturities of
three months or less when purchased to be cash equivalents. The Company places
its temporary cash investments with high credit quality financial institutions.
At times, such investments may be in excess of the F.D.I.C. insurance limits.
The Company has not experienced any loss to date on these investments.
SHORT-TERM INVESTMENTS
Short-term investments, consisting of interest bearing,
investment-grade securities, have been classified as available-for-sale
securities and are recorded at fair market value. Any unrealized holding gains
or losses on available-for-sale securities are reported as a separate component
of shareholders' equity until these gains or losses are realized. The difference
between fair market value and cost was not material at December 31, 1999 and
January 1, 1999. Realized gains or losses from sales of available-for-sale
securities were not material for any period presented. For the purpose of
determining realized gains and losses, the cost of securities sold is based upon
specific identification.
PROPERTY AND EQUIPMENT, NET
Property and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over the
estimated useful life of the assets ranging from two to seven years. Leasehold
improvements are amortized on a straight-line basis over the term of the lease
or the estimated useful life of the improvement, whichever is shorter.
Expenditures for repairs and maintenance are charged to expense as incurred.
Expenditures for betterments and major improvements are capitalized. The
carrying amount of assets sold or retired and related accumulated depreciation
are removed from the accounts in the year of disposal and any resulting gains or
losses are included in the statement of operations.
OTHER RECEIVABLES AND MEDIA PAYABLE
Media payables represent media placement costs due to media providers
on behalf of the Company's clients. Amounts in media payables which have been
billed to the Company's customers are included in other receivables. The level
of media payables and the related receivables vary with the timing of the
Company's clients' media campaigns.
INTANGIBLE ASSETS
Goodwill, related to business acquisitions, is being amortized over 15
years on a straight-line basis. The Company recorded amortization expense of
$4.3 million, $2.8 million and $1.6 million for the years ended December 31,
1999, January 1, 1999 and January 2, 1998, respectively. The carrying value of
goodwill is subject to periodic review of realizability. The agreements pursuant
to which the Company acquired certain companies (see Note 3) include provisions
that would require the Company to pay additional consideration if the acquired
companies meet certain goals. The value of any such contingent consideration
paid is recorded as additional goodwill. Accumulated amortization of goodwill
amounted to $7.8 million and $3.5 million at December 31, 1999 and January 1,
1999, respectively.
REVENUE RECOGNITION
The Company recognizes revenues for services as work is performed on a
project-by-project basis adjusted for any anticipated losses in the period in
which any such losses are identified. For projects charged on a time and
materials basis, revenue is recognized based on the number of hours worked by
consultants at an agreed-upon rate per hour. The Company also undertakes
projects on a fixed-fee or capped-fee basis for which revenues are recognized on
the percentage of completion method of accounting based on the evaluation of
actual costs incurred to date compared to total estimated costs. Fee revenue
from advertising commissions is recognized when media placements appear on
television, radio or in print. Net revenues exclude reimbursable expenses
charged to clients.
-30-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK COMPENSATION
The Company measures compensation expense related to the grant of stock
options and stock-based awards to employees in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES. In accordance with APB Opinion No. 25, compensation expense, if
any, is generally based on the difference between the exercise price of an
option, or the amount paid for an award, and the market price or fair value of
the underlying common stock at the date of the award or at the measurement date
for variable awards. Stock-based compensation arrangements involving
non-employees are accounted for under Statement of Financial Accounting
Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, under which
such arrangements are accounted for based on the fair value of the option or
award. As required by SFAS No. 123, the Company discloses pro forma net income
(loss) and net income (loss) per share information reflecting the effect of
applying SFAS No. 123 fair value measurement to employee arrangements.
INCOME TAXES
The Company records income taxes using the liability method. Under this
method, the Company records deferred taxes based on temporary taxable and
deductible differences between the tax bases of the Company's assets and
liabilities and their financial reporting bases. A valuation allowance is
established when it is more likely than not that some or all of the deferred tax
assets will not be realized. Prior to its merger with AnswerThink, triSpan was
taxed as an S Corporation and no income tax was provided as the income or loss
was included in its shareholders' income tax returns.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period. With regard to common shares issued to employees under employment
agreements, the calculation includes only the vested portion of such shares.
Accordingly, common shares outstanding for the basic net income (loss) per share
computation is significantly lower than actual shares issued and outstanding.
Income (loss) per share assuming dilution is computed by dividing the
net income (loss) by the weighted average number of common shares outstanding,
increased by the assumed conversion of other potentially dilutive securities
during the period. For the year ended December 31, 1999, potentially dilutive
securities included 6,784,108 shares of unvested common stock issued under
employment agreements and 1,360,669 shares issuable upon the exercise of stock
options and warrants assuming the treasury stock method. Potentially dilutive
shares were excluded from the diluted loss per share calculation for the years
ended January 1, 1999 and January 2, 1998 because their effects would have been
anti-dilutive to the loss incurred by the Company. Therefore, the amounts
reported for basic and diluted net loss per share were the same for those years.
Potentially dilutive shares which were not included in the diluted loss per
share calculations as of January 1, 1999 and January 2, 1998 include 9,508,192
and 8,901,652 shares, respectively, of common stock issued under employment
agreements and 8,928,404 shares for the period ended January 2, 1998 from the
assumed conversion of the convertible preferred stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, short-term investments, accounts receivable and unbilled revenue,
other receivables, accounts payable, accrued expenses and other liabilities and
media payable. At December 31, 1999 and January 1, 1999, the fair value of these
instruments approximated their carrying value.
CONCENTRATION OF CREDIT RISK
The Company provides its services primarily to Fortune 1000 companies
and other sophisticated buyers of IT consulting services. The Company performs
ongoing credit evaluations of its major customers and maintains reserves for
potential credit losses. For the year ended January 2, 1998, three customers
accounted for approximately 20% of net revenues. No single customer accounted
for more than 5% of net revenues for the years ended December 31, 1999 and
January 1, 1999.
-31-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MANAGEMENT'S 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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 1999, the Company adopted SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The new rules establish
revised standards for public companies relating to the reporting of financial
and descriptive information about their operating segments in financial
statements. Since AnswerThink only has one business segment, which is providing
services to its clients, the adoption of SFAS No. 131 did not have an effect on
the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Among other
provisions, SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It also requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Management believes the adoption of SFAS No. 133 will not
have a material effect on the Company's consolidated financial statements.
RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements
have been reclassified to conform with the current year presentation.
2. MERGERS
On February 26, 1999, the Company merged with triSpan, an internet
commerce consulting firm that provides Internet consulting, web application
development and integration services. The merger was accomplished through an
exchange of 689,880 shares of the Company's common stock for all the outstanding
shares of common stock of triSpan. Each outstanding share of common stock of
triSpan was converted into 0.311 shares of the Company's common stock.
On November 5, 1999, the Company merged with THINK New Ideas, a
provider of e-business, e-marketing, e-community, e-commerce and e-technology
solutions to Fortune 500 and other high profile clients. The merger was
accomplished through an exchange of 7,550,673 shares of the Company's common
stock for all the outstanding shares of common stock of THINK New Ideas. Each
outstanding share of common stock of THINK New Ideas was converted into 0.70
shares of the Company's common stock.
The mergers with triSpan and THINK New Ideas were accounted for using
the pooling-of-interests method of accounting. All prior historical consolidated
financial statements presented herein have been restated to include the
financial position, results of operations, and cash flows of triSpan and THINK
New Ideas. The financial position, results of operations and cash flows of the
Company prior to April 23, 1997 are solely those of triSpan and THINK New Ideas.
Merger related expenses of $11.7 million during the year ended December
31, 1999 related to the Company's mergers with triSpan and Think New Ideas. The
expenses included investment banking, legal and accounting fees, severance costs
for redundant employees as well as the costs of combining operations and
eliminating redundant facilities.
-32-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGERS (CONTINUED)
Separate results of AnswerThink, triSpan, and THINK New Ideas for the
years ended December 31, 1999, January 1, 1999 and January 2, 1998 prior to the
consummation of the mergers are as follows (in thousands):
<TABLE>
<CAPTION>
THINK NEW
ANSWERTHINK TRISPAN IDEAS COMBINED
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Total revenue $ 211,145 $ 2,274 $ 47,041 $ 260,460
Net income (loss) $ 5,665 $ (1,016) $ (3,515) $ 1,134
Year ended January 1, 1999
Total revenue $ 102,702 $ 15,453 $ 49,362 $ 167,517
Net loss $ (28,925) $ (2,732) $ (29,757) $ (61,414)
Year ended January 2, 1998
Total revenue $ 14,848 $ 19,652 $ 42,644 $ 77,144
Net loss $ (12,091) $ (264) $ (27,553) $ (39,908)
</TABLE>
3. ACQUISITIONS AND INVESTING ACTIVITIES
During the three year period ended December 31, 1999, the Company
acquired thirteen businesses providing information-technology, e-commerce and
marketing services (collectively, the "Acquired Entities") in separate
transactions accounted for as purchase business combinations. Seven of these
acquisitions were completed in 1997, two were completed in 1998 and four were
completed in 1999. Aggregate consideration for the Acquired Entities of $91.8
million has been allocated, on an entity-by-entity basis, to the assets acquired
and liabilities assumed based on their respective fair values on the dates of
acquisition. Under the acquisition agreements, the Company may be required to
pay additional contingent consideration consisting of shares and cash of
approximately $24.7 million, based on the Acquired Entities achieving certain
performance targets over various periods through June 2001. Contingent
consideration, to the extent earned, is recorded as additional goodwill. Amounts
allocated to goodwill are amortized over 15 years.
The components of the purchase price allocation for the Acquired
Entities, including contingent consideration earned, and fees and expenses
incurred are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
ACQUISITIONS ACQUISITIONS ACQUISITIONS
------------ ------------ ------------
<S> <C> <C> <C>
Fair value of net assets (excluding cash) acquired $ (60) $ 574 $ 6,600
Goodwill 22,841 11,725 40,942
Purchased research and development -- -- 9,200
Common stock issued (14,595) (7,273) (32,649)
Notes payable -- (2,583) (5,143)
Stock options issued (1,359) -- --
-------- -------- --------
Cash used in acquisitions of businesses, net of cash acquired $ 6,827 $ 2,443 $ 18,950
======== ======== ========
</TABLE>
Purchased research and development was immediately charged to
operations because it had not reached the stage of technological feasibility at
the acquisition dates and had no alternative future use.
-33-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS AND INVESTING ACTIVITIES (CONTINUED)
The results of operations of the Acquired Entities are included in the
Company's consolidated results of operations from the respective dates of
acquisition. Unaudited pro forma condensed results of operations for the years
ended December 31, 1999 and January 1, 1999 are presented below as if the
acquisitions of the Acquired Entities had occurred on January 3, 1998. For
fiscal years 1999 and 1998, pro forma adjustments include additional
amortization expense of $531,000 and $1.8 million, respectively, and interest
expense of $78,000 and $332,000 respectively. The pro forma results are
presented for informational purposes only and are not necessarily indicative of
the future results of operations of the Company or the results of operations of
the Company had the acquisitions occurred on January 3, 1998.
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED) YEAR ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA) --------------------------
DECEMBER 31, JANUARY 1,
1999 1999
------------ ----------
Net revenues $270,628 $ 197,458
Net income (loss) $ 1,236 $ (63,693)
Net income (loss) per common share--basic $ .03 $ (2.46)
Net income (loss) per common share--diluted $ .03 $ (2.46)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
DECEMBER 31, JANUARY 1,
1999 1999
------------ ----------
Equipment $ 16,964 $ 12,374
Furniture and fixtures 1,922 2,028
Leasehold improvements 3,579 2,816
--------- ---------
22,465 17,218
Less accumulated depreciation (11,274) (7,845)
--------- ---------
$ 11,191 $ 9,373
========= =========
Depreciation expense for the years ended December 31, 1999, January 1,
1999 and January 2, 1998 was $4.5 million, $3.9 million and $2.1 million,
respectively.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following (in
thousands):
DECEMBER 31, JANUARY 1,
1999 1999
------------ ----------
Accrued compensation and benefits $ 14,580 $ 9,684
Accrued merger related expenses 7,559 --
Deferred revenue 5,159 2,870
Employee stock purchase plan payable 1,957 1,372
Income taxes payable 1,184 1,229
Other accrued expenses 2,626 2,184
-------- --------
$ 33,065 $ 17,339
======== ========
-34-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BORROWINGS UNDER REVOLVING CREDIT FACILITIES
The Company has a $20 million revolving credit facility (the "Credit
Facility") which expires on November 7, 2000. Borrowings under this Credit
Facility bear interest at varying rates, principally LIBOR plus 1.25-2.25%. The
Company's obligation under the Credit Facility is unsecured. No borrowings were
outstanding under this Credit Facility as of December 31, 1999 and January 1,
1999. The Credit Facility contains, among other things, the maintenance of
certain financial covenants such as a minimum level of tangible net worth,
maximum leverage ratio, and minimum ratio of earnings to interest expense.
THINK New Ideas had a $5.0 million line of credit which was paid-off
and closed at the time of the merger with AnswerThink. Borrowings under this
line of credit accrued interest at a floating rate based on the prime lending
rate of the bank and were due and payable (together with interest) on demand.
The line of credit was secured by substantially all of the assets of THINK New
Ideas and was guaranteed by certain subsidiaries of THINK New Ideas. The total
amount outstanding under this line of credit at January 1, 1999 was $1.5
million.
7. NOTES PAYABLE
Notes payable consists of notes payable to shareholders and term notes
payable to banks as follows (in thousands):
DECEMBER 31, JANUARY 1,
1999 1999
------------ ----------
Notes payable to shareholders $ 1,896 $ 4,706
Term notes payable to banks -- 937
-------- --------
1,896 5,643
Less current portion (1,896) (3,319)
-------- --------
Long-term portion $ -- $ 2,324
======== ========
The shareholder notes are payable in March 2000 and bear interest at 8%
per annum.
8. REDEEMABLE SUBORDINATED NOTES
On June 26, 1998, triSpan received $8.0 million from the issuance of 8%
Redeemable Subordinated Notes (the "Subordinated Notes"). In connection with the
issuance of the Subordinated Notes, triSpan also issued detachable warrants
(which were exercised prior to triSpan's merger with AnswerThink) to purchase
338,011 shares of common stock with an exercise price of $3.86 per share to the
holders of the Subordinated Notes. Using the Black-Scholes options-pricing
model, the estimated fair value of the warrants was calculated at $3.8 million
and was recorded as a reduction in the carrying amount of the Subordinated
Notes, with a corresponding increase in shareholders' equity. The Subordinated
Notes were repaid when triSpan and AnswerThink merged resulting in an
extraordinary loss on early extinguishment of debt, net of taxes, of $2.1
million.
-35-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LEASE COMMITMENTS
The Company has operating lease agreements for its premises that expire
on various dates through 2009. Rent expense for the years ended December 31,
1999, January 1, 1999 and January 2, 1998, was $5.2 million, $4.3 million and
$1.9 million, respectively.
Future minimum lease commitments under non-cancelable operating leases
for premises having a remaining term in excess of one year at December 31, 1999
are as follows (in thousands):
2000 $ 5,530
2001 5,421
2002 5,349
2003 4,231
2004 3,034
Thereafter 4,253
--------
Total minimum lease payments $ 27,818
========
10. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Current tax expense
Federal $ 8,531 $ 1,022 $ --
State 1,734 519 340
-------- ------- -------
10,265 1,541 340
Deferred tax benefit
Federal (2,184) (2,385) --
State (479) (26) --
-------- ------- -------
(2,663) (2,411) --
-------- ------- -------
Income taxes $ 7,602 $ (870) $ 340
======== ======= =======
</TABLE>
A reconciliation of the Federal statutory tax rate with the effective
tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
U.S. statutory rate 35.0 % (35.0)% (35.0)%
State income taxes, net of Federal income tax benefit 7.5 % 0.7 % 0.9 %
Stock compensation expense -- 35.5 % 19.8 %
Purchased research and development expense -- 2.8 % 4.5 %
Valuation allowance (6.0)% (8.0)% 7.7 %
Goodwill amortization 8.1 % 0.9 % 1.3 %
Merger related expenses 23.7 % 1.5 % 0.2 %
Miscellaneous items, net 1.8 % 0.2 % 1.5 %
------ ------- -------
Effective rate 70.1 % (1.4)% 0.9 %
====== ======= =======
</TABLE>
-36-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The components of the net deferred income tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1999 1999
------------ ----------
<S> <C> <C>
Deferred income tax assets
Purchased research and development technology $ 1,459 $ 1,520
Net operating loss carryforward 2,466 1,456
Accrued expenses and other liabilities 1,789 999
-------- --------
5,714 3,975
Valuation allowance (202) (856)
-------- --------
5,512 3,119
Deferred income tax liabilities
Depreciation and amortization (460) (624)
Other items (426) (84)
-------- --------
(886) (708)
-------- --------
Net deferred income tax asset $ 4,626 $ 2,411
======== ========
</TABLE>
A current deferred tax asset of $3.7 million is included in prepaid
expenses and other current assets in the consolidated balance sheet as of
December 31, 1999. A long term deferred tax asset of $894,000 and $2.4 million
is included in other assets in the consolidated balance sheets as of December
31, 1999 and January 1, 1999, respectively.
At December 31, 1999 the Company had established a valuation allowance
of $202,000 to reduce deferred income tax assets related to state income tax
loss carryforwards. As of January 1, 1999, the Company had established a
valuation allowance of $856,000 to reduce deferred income tax assets related to
the Company's net operating loss carryforward. At December 31, 1999 and January
1, 1999, the Company had $6.2 million and $3.6 million, respectively, of net
operating loss carryforwards available.
11. SHAREHOLDERS' EQUITY
COMMON STOCK SUBJECT TO VESTING REQUIREMENTS
As of December 31, 1999 and January 1, 1999, the Company had
outstanding common stock totaling 5,411,900 and 9,349,950, respectively, that
are subject to certain vesting criteria. AnswerThink sold the shares to its
employees at nominal purchase prices per share in connection with AnswerThink's
formation in 1997. Each employee executed an employment agreement or a stock
agreement with the Company providing for, among other things, the manner in
which the shares will vest. In general, a certain percentage of shares will
begin to vest upon the second anniversary from the purchase date of such shares
and will become fully vested either by the fourth or sixth anniversary from the
purchase date so long as the holder remains an employee.
In addition, certain of AnswerThink's employees and one director
purchased 3,520,000 shares of common stock that were subject to performance
vesting criteria in connection with AnswerThink's formation in 1997. The Company
recorded a charge of approximately $40.8 million during the first quarter of
1998 relating to the accelerated vesting of these shares pursuant to agreements
dated as of March 27, 1998 by and among the relevant stockholders, AnswerThink
and its Board of Directors. Pursuant to terms of the agreement, vesting was
accelerated for 3,320,000 shares in the first quarter of 1998 based on
AnswerThink's results through that date and the expected completion of
AnswerThink's initial public offering during the second quarter of 1998. The
remaining 200,000 shares were cancelled as part of the agreements. There are no
additional shares outstanding that are subject to performance criteria for
vesting.
-37-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SHAREHOLDERS' EQUITY (CONTINUED)
Shares of common stock subject to vesting requirements were issued in
connection with certain acquisitions to the employees of those companies.
Employees of the acquired companies vest in these shares over periods up to five
years. The market value of the stock at the time of grant was recorded as
unearned compensation in a separate component of shareholders' equity and
amortized as compensation expense ratably over the vesting periods. At December
31, 1999 and January 1, 1999, there were 426,500 shares and 920,350 shares,
respectively, of unvested stock issued and outstanding under these agreements.
In connection with the Initial Public Offering of THINK New Ideas,
certain of its stockholders placed an aggregate of 577,500 shares into escrow
(the "Escrow Shares") to be released upon THINK New Ideas' attainment of any one
of certain performance targets (the "Targets") pursuant to an escrow agreement
(the "Escrow Agreement"). Pursuant to the Escrow Agreement, the Escrow Shares
were not transferable or assignable, but could be voted by the holders thereof.
During April 1998, one of the Targets (a closing price of at least $28.57 per
share of common stock for forty consecutive business days from November 1996 to
November 1999 as quoted by Nasdaq) was fulfilled and the Escrow Shares were
released. THINK New Ideas recorded a non-cash charge to earnings of $21.7
million, equal to the fair market value of the Escrow Shares on April 24, 1998,
the date of release.
In 1998, THINK New Ideas reached a settlement agreement with Scott A.
Mednick, its former Chief Executive Officer and Chairman of the Board of
Directors. Pursuant to the terms of the agreement, THINK New Ideas agreed to
accelerate the exercise dates of Mr. Mednick's options to acquire 42,000 shares
of common stock. The acceleration of Mr. Mednick's options resulted in a charge
of $1.4 million for the difference between the exercise price of the options and
the market value of the underlying common stock on the date of the settlement.
COMMON STOCK REDEMPTION AGREEMENT
During May 1998, triSpan entered into a Stock Redemption Agreement (the
"Redemption Agreement") with one of triSpan's shareholders (the "Seller").
triSpan redeemed 378,886 shares of its common stock for $2.6 million. In
addition, the Seller received a contingent payment of $604,000 in accordance
with the terms of the Redemption Agreement, representing a portion of litigation
settlement (see Note 14). The total amount paid to the Seller of $3.2 million
has been recorded by the Company as a purchase and retirement of common stock.
SECURITIES PURCHASE AGREEMENT
In March 1999, THINK New Ideas entered into a Securities Purchase
Agreement with Capital Ventures International and Marshall Capital Management,
Inc. (the "Purchasers") whereby the Purchasers agreed to purchase (i) shares of
common stock, and (ii) warrants to acquire shares of common stock, for an
aggregate purchase price of up to $11 million (the "Closing Warrants"). Pursuant
to the Securities Purchase Agreement, on March 5, 1999 (the "Initial Closing
Date") THINK New Ideas issued, for proceeds of $6 million (i) 609,799 shares of
its common stock at $9.84 per share (the "Initial Closing Price"), and (ii)
warrants to purchase an additional 121,961 shares of common stock exercisable
for a five-year term, at an exercise price of $14.76.
At any time prior to March 5, 2000 the Purchasers have the right but
not the obligation to purchase 371,353 additional shares (the "Optional Shares")
of common stock at $13.46 per share, calculated as 130% of the market price on
the date of the Securities Purchase Agreement, together with warrants (the
"Optional Warrants") for 1/5 share for each Optional Share purchased (a maximum
of 74,271 warrants) exercisable at an exercise price of 150% of the market price
on the date the related Optional Shares are purchased.
-38-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK PLANS
Effective July 1, 1998, the Company adopted an Employee Stock Purchase Plan
to provide substantially all employees who have completed three months of
service as of the beginning of an offering period an opportunity to purchase
shares of its common stock through payroll deductions, up to 10% of eligible
compensation. Participant account balances are used to purchase shares of stock
at the lesser of 85 percent of the fair market value of shares on the first
trading day of the offering period or on the last trading day of such offering
period. The aggregate fair market value, determined as of the first trading date
of the offering period, as to shares purchased by an employee may not exceed
$25,000 annually. The Employee Stock Purchase Plan expires on July 1, 2008. A
total of 750,000 shares are available for purchase under the plan. For plan year
1998, 80,493 shares were issued. For plan year 1999, 89,704 shares were issued
and 97,090 shares were due to be issued.
The Company maintained a Stock Appreciation Right Plan (the "SAR Plan") for
triSpan employees until December 30, 1997. The total value of stock appreciation
rights granted through December 30, 1997 was $1.5 million based upon the value
established under an annual revenue growth formula. Based on vesting schedules,
the Company recorded cumulative deferred compensation expense under the SAR Plan
of $1.2 million for the year ended January 2, 1998. Effective December 30, 1997,
the Company terminated the SAR Plan and replaced it with a stock option plan. In
consideration for the obligations due to employees for stock appreciation rights
surrendered, the Company issued options to purchase 132,894 shares of common
stock at an exercise price and vesting terms identical to the surrendered
rights. The $1.2 million liability recorded for the SAR Plan through December
30, 1997 was reclassified to additional paid-in capital. The difference between
the $1.2 million SAR Plan liability and the $1.7 million fair market value of
the options issued was recorded as additional deferred compensation in the
amount of $465,000 for unvested options and compensation expense in the amount
of $119,000 for vested options.
The Company has granted stock options to employees and directors of the
Company at exercise prices equal to the market value of the stock at the date of
grant. The options generally vest ratably over periods ranging from four years
to six years with a maximum term of 10 years. The Company has authorized
12,450,000 shares of common stock for option grants.
-39-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SHAREHOLDERS' EQUITY (CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations in
accounting for its option plans. Under SFAS No. 123, compensation cost for the
Company's stock-based compensation plans would be determined based on the fair
value at the grant dates for awards under those plans. Had the Company adopted
SFAS No. 123 in accounting for its stock plans the Company's consolidated net
income (loss) and net income (loss) per share for the years ended December 31,
1999, January 1, 1999 and January 2, 1998 would have been reduced to the pro
forma amounts indicated as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Net income (loss)
As reported $ 1,134 $ (61,414) $ (39,908)
Pro forma $ (7,816) $ (63,988) $ (40,653)
Basic and diluted net income (loss) per common share
As reported $ 0.03 $ (2.47) $ (3.46)
Pro forma $ (0.22) $ (2.58) $ (3.53)
</TABLE>
The following assumptions were used by the Company to determine the
fair value of stock options granted using the Black-Scholes options-pricing
model:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Expected volatility 96% 72% 40%
Average expected option life 4 years 4 years 4 years
Risk-free rate 5.6% 5.7% 6.1%
Dividend yield 0% 0% 0%
</TABLE>
Stock option activity under the Company's stock option plans is
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------
DECEMBER 31, 1999 JANUARY 1, 1999 JANUARY 2, 1998
------------------------- ------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------- --------- ------------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,511,096 $ 12.31 2,174,604 $ 7.47 796,457 $ 5.67
Granted 4,772,630 20.02 3,097,622 14.84 2,012,018 11.63
Exercised (644,974) 8.90 (94,376) 6.30 (127,199) 5.81
Canceled (1,287,217) 18.30 (666,754) 9.11 (252,774) 6.83
------------- ----------- ------------- ----------- -------------- ----------
Outstanding at end of year 7,351,535 $ 16.58 4,511,096 $12.31 2,428,502 $10.48
============= =========== ============= =========== ============== ==========
Weighted average fair value of
options granted during the
period $ 13.97 $ 7.85 $ 3.53
------------- ------------- --------------
</TABLE>
Options outstanding and the weighted average exercise price at the
beginning of the year ended January 1, 1999 do not agree to the ending balances
for the year ended January 2, 1998 due to the different accounting period used
by THINK New Ideas (see Note 1).
-40-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about the Company's stock
options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ------------------------------------
WEIGHTED AVERAGE
REMAINING
RANGE OF EXERCISE NUMBER CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------------- ---------------- ----------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
$1.16 - $2.50 644,109 7.9 $ 2.48 162,131 $ 2.46
$4.66 - $6.00 509,642 7.7 $ 5.73 209,821 $ 5.53
$7.08 - $10.46 885,902 9.1 $ 9.40 41,126 $ 8.96
$10.67 - $16.00 1,451,293 9.3 $ 11.47 51,957 $ 13.42
$16.50 - $24.73 1,789,281 9.2 $ 18.99 141,835 $ 17.14
$25.25 - $34.25 2,071,308 9.2 $ 28.20 110,526 $ 27.73
---------------- ----------------- ----------------- ---------------- ------------------
7,351,535 9.0 $ 16.58 717,396 $ 11.32
================ ================= ================= ================ ==================
</TABLE>
12. CONVERTIBLE PREFERRED STOCK
Holders of Class A Convertible Preferred Stock were entitled to a $6.00
liquidation preference per share in the event of liquidation, dissolution or
winding up of the Company. Each share of Class A Convertible Preferred Stock was
convertible on a four-for-one basis to common stock and was entitled to
non-cumulative dividends if and when declared by the Board of Directors. Holders
of Class A Convertible Preferred Stock had certain redemption rights defined in
the Amended and Restated Articles of Incorporation but did not have preemptive
rights.
On March 5, 1998, the Company issued 16,666 shares of Class B
Convertible Preferred Stock with a liquidation value of $30.00 per share at a
price of $30.00 per share. Each share of Class B Convertible Preferred Stock was
convertible into four shares of common stock. The Class B Convertible Preferred
Stock contained the same redemption provisions as the Class A Convertible
Preferred Stock. To the extent not redeemed or converted, remaining shares of
the Class A Convertible Preferred Stock would have been redeemed at their
liquidation value on April 22, 2004.
In May 1998, 1,790,026 shares (the entire outstanding amount) of the
Company's Convertible Preferred Stock totaling $11.1 million were converted on a
four-for-one basis into 7,160,104 shares of common stock, pursuant to the
original terms.
13. SETTLEMENT COSTS
Certain of the Company's key executives and other management employees
resigned from an international accounting firm during the first quarter of 1997.
The accounting firm initiated litigation in connection with such resignations
and the formation of the Company arising out of activities alleged to have
constituted a breach of non-competition and non-solicitation obligations. This
litigation was settled, and the Company, its key executives, certain other
management employees and certain of its shareholders were subject to certain
provisions contained in the Settlement Agreement through its expiration date of
December 31, 1998.
Settlement costs incurred during the year ended January 2, 1998 consist
primarily of payments to certain key executives and certain other management
employees of the Company relating to the obligations assumed by the Company for
compensation earned during the period from December 1, 1996 to April 23, 1997 by
such employees and legal fees incurred in connection with the litigation.
-41-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. LITIGATION
In July 1998, the Company settled litigation in which they were the
plaintiffs in a lawsuit over tradename infringement. Pursuant to the settlement
agreement, the Company received $2.5 million in cash.
On September 25, 1998, Michael R. Farrell, a shareholder of THINK New
Ideas, filed a class action suit, Farrell v. THINK New Ideas, Inc., Scott
Mednick, Melvin Epstein and Ronald Bloom, No. 98 Civ. 6809, against THINK New
Ideas, Ronald Bloom, a former officer of THINK New Ideas and currently a member
of the Company's Board of Directors, Melvin Epstein and Scott Mednick, (both
former officers of THINK New Ideas). The suit was filed in the United States
District Court for the Southern District of New York on behalf of all persons
who purchased or otherwise acquired shares of THINK New Ideas' common stock in
the class period from November 14, 1997, through September 21, 1998.
On various dates in October 1998, six additional class action suits
were filed in the same court against the same parties by six different
individuals, each representing a class of purchasers of THINK New Ideas' common
stock. All seven of these lawsuits were transferred to Judge Sidney H. Stein of
the United States District Court for the Southern District of New York and
consolidated by order of the court dated December 15, 1998 into one action
titled In Re: THINK New Ideas, Inc., Consolidated Securities Litigation, No. 98
Civ. 6809 (SHS).
Pursuant to an order of the court, the plaintiffs filed a Consolidated
and Amended Class Action Complaint on February 10, 1999 (the "Consolidated
Complaint"). The Consolidated Complaint supercedes all prior complaints in all
of the cases and serves as the operative complaint in the consolidated class
action. The Consolidated Complaint was filed on behalf of all individuals who
purchased THINK New Ideas' common stock from November 5, 1997 through September
21, 1998. The Consolidated Complaint contains substantially similar allegations
as the complaint filed by Farrell, including that THINK New Ideas and certain of
its current and former officers and directors disseminated materially false and
misleading information about THINK New Ideas' financial position and results of
operations through certain public statements and in certain documents filed by
THINK New Ideas with the Securities and Exchange Commission; that these
statements and documents caused the market price of THINK New Ideas' common
stock to be artificially inflated; that the plaintiffs purchased shares of
common stock at such artificially inflated prices and, as a consequence of such
purchases suffered damages. The relief sought in the Consolidated Complaint is
unspecified, but includes a plea for compensatory damages and interest, punitive
damages, reasonable costs and expenses, including attorneys' fees and expert
fees and such other relief as the court deems just and proper.
This lawsuit became the Company's responsibility upon the merger of
AnswerThink and THINK New Ideas. Management believes that the Company has
meritorious defenses to the Consolidated Complaint and intends to contest it
vigorously. Prior to the merger, THINK New Ideas filed a motion to dismiss the
Consolidated Complaint on a number of grounds. The plaintiffs filed a motion in
opposition. The motion is currently pending before the court. The court has not
yet determined whether oral arguments will be heard. Although there can be no
assurance as to the outcome of these matters, an unfavorable resolution could
have a material adverse effect on the results of operations and/or financial
condition of the Company in the future.
The Company is involved in legal proceedings, claims, and litigation
arising in the ordinary course of business not specifically discussed herein. In
the opinion of management, the final disposition of such other matters will not
have a material adverse effect on the financial position or results of
operations of the Company.
15. RESTRUCTURING COSTS
As part of THINK New Ideas' strategic focus on providing interactive
marketing and business solutions, in April 1998, THINK New Ideas formalized a
decision to dispose of its traditional graphic design departments. THINK New
Ideas recorded a charge of $921,000 in order to reflect the costs to dispose of
the graphic design departments.
-42-
<PAGE>
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents unaudited supplemental quarterly financial
information for the years ended December 31, 1999 and January 1, 1999 (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31,
1999 1999 1999 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenues $ 57,632 $ 62,738 $ 69,038 $ 71,052
Income (loss) from operations 1,416 3,375 7,187 (1,410)
Income (loss) before income taxes and extraordinary loss 1,358 3,498 7,231 (1,238)
Net income (loss) before extraordinary loss (722) 2,080 4,339 (2,450)
Net income (loss) (2,835) 2,080 4,339 (2,450)
Basic net income (loss) per common share $ (0.09) $ 0.06 $ 0.12 $ (0.07)
Diluted net income (loss) per common share $ (0.09) $ 0.05 $ 0.10 $ (0.07)
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
APRIL 3, JULY 3, OCTOBER 2, JANUARY 1,
1998 1998 1998 1999
-------------- -------------- -------------- --------------
Net revenues $ 33,806 $ 42,116 $ 42,711 $ 48,884
Income (loss) from operations (38,971) (26,419) 271 966
Income (loss) before income taxes (39,208) (26,625) 2,716 833
Net income (loss) (39,280) (26,779) 2,696 1,949
Basic net income (loss) per common share $ (2.57) $ (1.15) $ 0.09 $ 0.06
Diluted net income (loss) per common share $ (2.57) $ (1.15) $ 0.07 $ 0.05
</TABLE>
Quarterly basic and diluted net income or loss per common share were
computed independently for each quarter and do not necessarily total to the year
to date basic and diluted net income (loss) per common share.
-43-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information is incorporated herein by reference to the Company's
definitive 2000 Proxy Statement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information is incorporated herein by reference to the Company's
definitive 2000 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information is incorporated herein by reference to the Company's
definitive 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information is incorporated herein by reference to the Company's
definitive 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information is incorporated herein by reference to the Company's
definitive 2000 Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Form:
1. Exhibits: See Index to Exhibits on page 47.
The Exhibits listed in the accompanying Index to Exhibits are filed or
incorporated by reference as part of this report.
2. Financial Statement Schedules.
Schedules not listed above have been omitted because they are
inapplicable or the information required to be set forth therein is contained,
or incorporated by reference, in the Consolidated Financial Statements of
AnswerThink or notes thereto.
(b) Reports on Form 8-K:
On November 18, 1999 we filed a Current Report on Form 8-K dated
November 5, 1999, announcing under Item 2 (Acquisition or Disposition
of Assets) that we had merged with THINK New Ideas, Inc., a Delaware
corporation ("THINK New Ideas"), engaged in the business of marketing,
communications and technology consulting. The merger was effected
pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of June 24, 1999, by and among AnswerThink, THINK New Ideas,
and Darwin Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of AnswerThink. In accordance with the provisions of the
Merger Agreement, the merger was effected on a stock-for-stock basis in
a tax-free exchange and was accounted for as a pooling of interests
under generally accepted accounting principles and the rules and
regulations of the SEC.
-44-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on the 9th day of March, 2000.
ANSWERTHINK CONSULTING GROUP, INC.
By: /s/ Ted A. Fernandez
----------------------------------------
Ted A. Fernandez
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1934, this Form
10-K has been signed by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Ted A. Fernandez Chief Executive Officer and Chairman (Principal March 9, 2000
- --------------------------- Executive Officer)
Ted A. Fernandez
/s/ John F. Brennan Executive Vice President, Finance and Chief Financial March 9, 2000
- --------------------------- Officer (Principal Financial and Accounting Officer)
John F. Brennan
/s/ Allan R. Frank President and Director March 9, 2000
- ---------------------------
Allan R. Frank
/s/ Ulysses S. Knotts, III Executive Vice President, Chief Sales and Marketing March 9, 2000
- --------------------------- Officer and Director
Ulysses S. Knotts, III
/s/ Fernando Montero Director March 9, 2000
- ---------------------------
Fernando Montero
/s/ Edmund R. Miller Director March 9, 2000
- ---------------------------
Edmund R. Miller
Director
- ---------------------------
Bruce Rauner
Director
- ---------------------------
William C. Kessinger
</TABLE>
-45-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Robert Bahash Director March 9, 2000
- ---------------------------
Robert Bahash
/s/ Jeffrey Keisling Director March 9, 2000
- ---------------------------
Jeffrey Keisling
/s/ Alan Wix Director March 9, 2000
- ---------------------------
Alan Wix
</TABLE>
-46-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
<S> <C>
3.1* Second Amended and Restated Articles of Incorporation of the Registrant
3.2* Form of Amended and Restated Bylaws of the Registrant
9.1* Shareholders Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, the Miller Group,
Messrs. Fernandez, Frank, Knotts and Miller and certain other shareholders of the Registrant
parties thereto
9.2* Amendment No. 1 to Shareholders Agreement dated February 24, 1998
9.3* Letter Agreement dated as of March 15, 1998 to amend Shareholders Agreement
9.4* Form of Restricted Securities Agreement dated April 23, 1997 among the Initial Investors and
each of Messrs. Fernandez, Frank, Knotts and Miller
10.1* Purchase Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, Gator and Tara
10.2* Series A Preferred Stock Purchase Agreement dated February 24, 1998 among the Registrant, GTCR
V, GTCR Associates and Miller Capital
10.3* Stock Purchase Agreement dated March 5, 1998 between the Registrant and FSC
10.4* Second Amended and Restated Registration Rights Agreement dated as of May 5, 1998 among the
Registrant, GTCR V, MG, GTCR Associates, Miller Capital, FSC,
Messrs. Fernandez, Frank, Knotts and Miller and certain other
shareholders of the Registrant named therein
10.5* Second Amended and Restated Registration Rights Agreement dated as of May 5, 1998 among the
Registrant and the eight former shareholders of RTI
10.6* Revolving Credit Agreement dated as of November 7, 1997 among the Registrant, RTI and all of
the shareholders of RTI
10.7* Registrant's 1998 Stock Option and Incentive Plan
10.8* Form of Senior Management Agreement dated April 23, 1997 between the Registrant and each of
Messrs. Fernandez, Frank and Knotts
10.9* Senior Management Agreement dated April 23, 1997 between the Registrant and Mr. Miller
10.10* Form of Employment Agreement to be entered into between the Registrant and each of Messers.
Fernandez, Frank and Knotts
10.11* Confidential Settlement Agreement dated as of May 21, 1998 KPMG Peat Marweick LLP, on the one
hand, and the Registrant, certain officers and employees of the Registrant, Mr. Miller and
Miller Capital, on the other
10.12* Amendment No. 2 dated as of May 5, 1998 to Purchase Agreement dated April 23, 1997 among the
Registrant, GTCR V, MG, Gator and Tara
10.13* Amendment No. 2 dated as of May 5, 1998 to Stock Purchase Agreement dated March 5, 1998 between
the Registrant and FSC
10.14* First Amendment to Revolving Credit Agreement dated as of April 3, 1998, by and among the
Registrant, BankBoston, N.A. and certain other lenders party thereto and BankBoston, N.A. as
agent
10.15* Second Amendment to Revolving Credit Agreement dated as of May 20, 1998 by and among the
Registrant, BankBoston, N.A. and certain other lenders party thereto and BankBoston, N.A. as
agent
10.16* Third Amendment to Revolving Credit Agreement dated as of November 24, 1998 by and among the
Registrant, BankBoston, N.A. and certain other lenders party thereto and BankBoston, N.A. as
agent
10.17* Form of Termination of Senior Management Agreement by and among the Registrant, Mr. Miller and
the Board of Directors
10.18* Form of Second Amendment to Certain Senior Management Agreements among the Company, the Board
of Directors and each of Messrs. Fernandez, Frank and Knotts
10.19** AnswerThink Consulting Group, Inc. Employee Stock Purchase Plan
10.20*** Employment Agreement dated March 23, 1999 between the Registrant and Mr. Brennan
10.21*** Restricted Stock Agreement dated July 31, 1997 between the Registrant and Mr. Brennan
10.22*** Amendment to Restricted Stock Agreement dated March 27, 1998 between the Registrant and Mr. Brennan
10.23*** Form of Senior Management Agreement dated July 31, 1997 between the Registrant and Mr. Brennan
</TABLE>
-47-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.24+ Agreement and Plan of Merger dated as of June 24, 1999 by and among THINK New Ideas, Inc.,
AnswerThink Consulting Group, Inc. and Darwin Acquisition Corp.
10.25+ Company Voting Agreement dated as of June 24, 1999 by and among AnswerThink Consulting Group,
Inc., Darwin Acquisition Corp. and the Stockholders of THINK New Ideas, Inc.
10.26+ Acquiror Voting Agreement dated as of June 24, 1999 by and among, THINK New Ideas, Inc., and
the Stockholders of AnswerThink Consulting Group, Inc.
10.27+ Stock Option Agreement dated as of June 24, 1999 between THINK New Ideas, Inc. and
AnswerThink Consulting Group, Inc.
10.28++ Securities Purchase Agreement by and among THINK New Ideas, Inc., Capital Ventures
International and Marshall Capital Management, Inc.
10.29++ Registration Rights Agreement dated as of March 3, 1999 by and among THINK New Ideas, Inc.,
Capital Ventures International and Marshall Capital Management, Inc.
10.30+++ Employment Agreement between THINK New Ideas, Inc. and Ron Bloom
10.31+++ Amendment to Ron Bloom Employment Agreement, dated October 28, 1996
10.32++++ Amendment to Ron Bloom Employment Agreement, dated October 23, 1997
10.33+++++ Letter Amendment to the Employment Agreement of Ronald Bloom, dated May 24, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
23.1.1 Consent of PricewaterhouseCoopers LLP
23.1.2 Consent of PricewaterhouseCoopers LLP
23.1.3 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Ernst & Young LLP
23.2.1 Consent of Ernst & Young LLP
23.2.2 Consent of Ernst & Young LLP
23.2.3 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
<FN>
* Incorporated by reference from the Company's Registration Statement on Form S-1 (333-48123).
** Incorporated by reference from the Company's Registration Statement on Form S-8 (333-69951).
*** Incorporated by reference from the Company's Form 10-K for the year ended January 1, 1999.
+ Incorporated by reference from the Company's Form 8-K filed July 1, 1999.
++ Incorporated by reference from THINK New Ideas, Inc.'s Form 8-K dated March 12, 1999.
+++ Incorporated by reference from THINK New Ideas, Inc.'s Registration Statement on Form SB-2 dated
September 26, 1996.
++++ Incorporated by reference from THINK New Ideas, Inc.'s Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1998.
+++++ Incorporated by reference from THINK New Ideas, Inc.'s Form 10-K for the year ended June 30, 1999.
</FN>
</TABLE>
-48-
EXHIBIT 21.1
ANSWERTHINK CONSULTING GROUP, INC.
LISTING OF SUBSIDIARIES
JURISDICTION OF
---------------
ANSWERTHINK CONSULTING GROUP, INC. FLORIDA
SUBSIDIARIES
The Hackett Group, Inc. Ohio
Delphi Partners, Inc. New Jersey
Legacy Technology, Inc. Massachusetts
Infinity Consulting Group, Inc. Indiana
triSpan, Inc. Pennsylvania
Group Cortex, Inc. Pennsylvania
CFT Consulting, Inc. Florida
THINK New Ideas, Inc. Delaware
Net Cube of New Jersey f/k/a Office of the Future New Jersey
Net Cube of Delaware f/k/a Anzen Corporation Delaware
SD Goodman Group, Inc. New York
On Ramp, Inc. New York
Scott Mednick & Associates California
UbiCube Acquisition Corp. Delaware
UbiCube Group, Inc. Delaware
UbiComs, Inc. Delaware
NetComs USA, Inc. Maine
NetComs Entertainment, Inc. Maine
NetComs Europe Limited United Kingdom
NetComs Entertainment, Ltd. United Kingdom
RDI UbiComs Limited United Kingdom
UbiComs EOOD Bulgaria
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-69951, No. 333-90635) of AnswerThink Consulting
Group, Inc. of our report dated February 8, 2000 relating to the consolidated
financial statements, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
March 9, 2000
EXHIBIT 23.1.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-69951, No. 333-90635) of AnswerThink Consulting
Group, Inc. of our report dated February 1, 1999, except as to the pooling of
interests with triSpan, Inc. which is as of February 26, 1999, and except as to
the pooling of interests with THINK New Ideas, Inc. which is as of February 8,
2000 relating to the consolidated financial statements, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
March 9, 2000
EXHIBIT 23.1.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-87749) of AnswerThink Consulting Group, Inc. of
our report dated February 8, 2000 relating to the consolidated financial
statements, which appears in this Form 10-K. We also consent to the reference to
us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
March 9, 2000
EXHIBIT 23.1.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-87749) of AnswerThink Consulting Group, Inc. of
our report dated February 1, 1999, except as to the pooling of interests with
triSpan, Inc. which is as of February 26, 1999, and except as to the pooling of
interests with THINK New Ideas, Inc. which is as of February 8, 2000 relating to
the consolidated financial statements, which appears in this Form 10-K. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
March 9, 2000
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-69951, No. 333-90635) of our report dated August 5, 1998,
except as to the pooling of interests which is as of November 5, 1999, with
respect to the consolidated financial statements of AnswerThink Consulting
Group, Inc. for the year ended January 2, 1998, included in its Annual Report
(Form 10-K) for the year ended December 31, 1999, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
March 9, 2000
EXHIBIT 23.2.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-69951, No. 333-90635) of our report dated December 17, 1999,
with respect to the consolidated financial statements of THINK New Ideas, Inc.
for the year ended December 31, 1998, included in AnswerThink Consulting Group,
Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1999, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
March 9, 2000
EXHIBIT 23.2.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3, No. 333-87749) of AnswerThink Consulting
Group, Inc. and to the incorporation by reference therein of our report dated
August 5, 1998, except as to the pooling of interests which is as of November 5,
1999, with respect to the consolidated financial statements for the year ended
January 2, 1998 of AnswerThink Consulting Group, Inc. included in its Annual
Report (Form 10-K) for the year ended December 31, 1999, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
March 9, 2000
EXHIBIT 23.2.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-87749) of AnswerThink Consulting Group,
Inc. and to the incorporation by reference therein of our report dated December
17, 1999, with respect to the consolidated financial statements for the year
ended December 31, 1998 of THINK New Ideas, Inc. included in AnswerThink
Consulting Group, Inc.'s Annual Report (Form 10-K) for the year ended December
31, 1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
March 9, 2000
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report on the financial statements of triSpan, Inc. and triSpan Software,
Inc. dated February 26, 1999 included in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 333-69951, 333-87749 and
333-90635.
/s/ Arthur Andersen LLP
Philadelphia, PA.
March 9, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999, AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-02-1999
<PERIOD-END> DEC-31-1999
<CASH> 27,124
<SECURITIES> 2,432
<RECEIVABLES> 74,165
<ALLOWANCES> 1,510
<INVENTORY> 0
<CURRENT-ASSETS> 115,609
<PP&E> 22,465
<DEPRECIATION> 11,274
<TOTAL-ASSETS> 200,713
<CURRENT-LIABILITIES> 60,443
<BONDS> 0
0
0
<COMMON> 43
<OTHER-SE> 140,227
<TOTAL-LIABILITY-AND-EQUITY> 200,713
<SALES> 0
<TOTAL-REVENUES> 260,460
<CGS> 0
<TOTAL-COSTS> 154,531
<OTHER-EXPENSES> 95,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 645
<INCOME-PRETAX> 10,849
<INCOME-TAX> 7,602
<INCOME-CONTINUING> 3,247
<DISCONTINUED> 0
<EXTRAORDINARY> 2,113
<CHANGES> 0
<NET-INCOME> 1,134
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS. ALL AMOUNTS HAVE BEEN RESTATED TO REFLECT THE
COMPANY'S MERGER WITH THINK NEW IDEAS, INC. DURING 1999 WHICH WAS ACCOUNTED FOR
USING THE POOLING-OF-INTERESTS METHOD OF ACCOUNTING.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-01-1999 JAN-02-1998
<PERIOD-START> JAN-03-1998 JAN-01-1997
<PERIOD-END> JAN-01-1999 JAN-02-1998
<CASH> 36,931 10,781
<SECURITIES> 1,000 0
<RECEIVABLES> 46,028 33,275
<ALLOWANCES> 1,988 1,139
<INVENTORY> 0 0
<CURRENT-ASSETS> 95,483 44,429
<PP&E> 17,218 14,330
<DEPRECIATION> 7,845 4,939
<TOTAL-ASSETS> 153,394 86,686
<CURRENT-LIABILITIES> 45,772 29,080
<BONDS> 0 0
0 10,040
0 0
<COMMON> 40 30
<OTHER-SE> 100,749 35,321
<TOTAL-LIABILITY-AND-EQUITY> 153,394 86,686
<SALES> 0 0
<TOTAL-REVENUES> 167,517 77,144
<CGS> 0 0
<TOTAL-COSTS> 99,054 45,975
<OTHER-EXPENSES> 132,616 71,293
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,589 240
<INCOME-PRETAX> (62,284) (39,568)
<INCOME-TAX> (870) 340
<INCOME-CONTINUING> (61,414) (39,908)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (61,414) (39,908)
<EPS-BASIC> (2.47) (3.46)
<EPS-DILUTED> (2.47) (3.46)
</TABLE>
