<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25746
RENAISSANCE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
------------------------
Delaware 04-3150009
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lincoln North
55 Old Bedford Road
Lincoln, Massachusetts 01773
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (617) 259-8833
-------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of class)
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. [_]
As of February 14, 1997, the approximate aggregate market value of the
voting stock held by non-affiliates of the registrant was $199,507,284, based on
the last reported sale price of the registrant's Common Stock on the Nasdaq
National Market as of the close of business on February 14, 1997. There were
9,430,483 shares of Common Stock outstanding as of February 14, 1997.
- --------------------------------------------------------------------------------
<PAGE>
This Amendment No.1 to Form 10-K on Form 10-K/A (the "Form 10-K/A") is being
filed for the purpose of correcting several clerical errors in Items 6 and 8 of
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996
(the "Form 10-K") and restating Item 14 of the Form 10-K to indicate the filing
of an updated independent auditors' consent as an exhibit to the Form 10-K/A.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information with respect to the
Company's consolidated statements of operations for the period from March 23,
1992 (date of inception) through December 31, 1992, for the years ended December
31, 1993, 1994, 1995 and 1996, and with respect to the Company's consolidated
balance sheets as of December 31, 1992, 1993, 1994, 1995 and 1996 have been
derived from the Company's audited Consolidated Financial Statements. The
following selected consolidated financial information give retroactive effect to
the acquisition of International Systems Services Corporation by the Company,
which has been accounted for as a pooling-of-interests. This information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Period from
March 23, 1992 Years Ended
(inception) to December 31,
----------------------------------
December 31, 1992 1993 1994 1995 1996
----------------- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues..................... $9,706 $13,507 $22,988 $35,536 $52,450
------ ------- ------- ------- -------
Costs and expenses:
Professional personnel.... 7,686 11,966 14,056 21,089 31,733
Professional development
and recruiting........... 57 408 894 1,895 2,045
Marketing and sales........ 87 258 482 810 1,624
General and administrative. 1,467 2,598 4,274 6,442 9,217
Acquisition costs....... -- -- -- -- 3,524
------ ------- ------- ------- -------
Total costs and expenses 9,297 15,230 19,706 30,236 48,143
------ ------- ------- ------- -------
Income (loss) from operations 409 (1,723) 3,282 5,300 4,307
Interest expense............. (6) (43) (126) (40) (139)
Interest income.............. 26 26 21 469 1,693
------ ------- ------- ------- -------
Interest (loss) before income
taxes....................... 429 (1,740) 3,177 5,729 5,861
Provision for income
taxes (1)................... -- -- -- 1,894 4,091
------ ------- ------- ------- -------
Net income (loss)............ $ 429 $(1,740) $ 3,177 $ 3,835 1,770
====== ======= ======= ======= =======
Net income per share......... $ .51 $ .53 $ .20
======= ====== =======
</TABLE>
-1-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Pro Forma Data: (2)
Historical income
before pro forma
adjustments................. $ 5,861
-------
Pro forma adjustment to
(officer's salary) (2)...... 2,100
-------
Historical/pro forma
income (loss) before
income taxes................ $ 429 $(1,740) $ 3,177 $ 5,729 $ 7,961
Historical income taxes...... -- -- -- 1,894 4,091
Additional provision (credit)
for income taxes (3)........ 87 (87) 744 403 (266)
------ ------- ------- ------- -------
Pro forma income taxes....... 87 (87) 744 2,297 3,825
------ ------- ------- ------- -------
Pro forma net income (loss).. $ 342 $(1,653) 2,433 $ 3,432 $ 4,136
------ ------- ------- ------- -------
Pro forma net income
per share................... $.39 $.48 $.47
======= ======= =======
Pro forma weighted average
number of common and common
stock equivalent shares
outstanding (4)............. 6,303 7,223 $ 8,804
======= ======= =======
<CAPTION>
December 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents ................ $ 162 $ 94 $ 1,487 $ 6,159 $49,415
Working Capital.............. 1,961 1,644 3,176 18,706 68,204
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Total assets 2,864 3,986 8,977 27,135 82,151
Short-term borrowings........ 217 255 600 1,500 500
Current portion of long-
term debt................... -- -- 667 180 782
Long-term debt (less current
portion).................... -- 2,000 1,333 720 --
Stockholders' equity......... 2,226 160 3,338 21,056 71,641
</TABLE>
- ------------------------------------
(1) From its inception in 1992 through its reorganization in April 1995, the
Company was either an S corporation or a limited partnership and prior to
December 31, 1996, International Systems Services Corporation (ISS) was an S
corporation. Accordingly, the Company and ISS were not subject to federal
and state income taxes.
(2) The pro forma adjustment to officer's salary have been computed based on
the contractual reduction of ISS's officer compensation following the
Company's acquisition of ISS.
(3) Income taxes represent the income taxes that would have been provided as if
the Company and ISS were subject to federal and all applicable state
corporate income taxes from inception, based on the statutory tax rates and
the tax laws then in effect. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 1 and 9 of Notes to
Consolidated Financial Statements.
(4) Based on the weighted number of common shares and common share equivalents
outstanding. See Note 1 of Notes to Consolidated Financial Statements.
-3-
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.......................... 5
Consolidated Balance Sheets as of
December 31, 1995 and 1996........................... 6
Consolidated Statements of Operations
for the Years Ended December 31, 1994,
1995 and 1996........................................ 7
Consolidated Statements of
Stockholders' Equity for the Years
Ended December 31, 1994, 1995 and
1996................................................. 8
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1994,
1995 and 1996........................................ 9
Notes to Consolidated Financial
Statements........................................... 10
</TABLE>
-4-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Renaissance Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Renaissance
Solutions, Inc. and its subsidiaries (the "Company") as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Renaissance Solutions, Inc. and
its subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As described in Note 1, the consolidated financial statements of the Company
give retroactive effect to the acquisition of International Systems Services
Corporation by the Company on December 31, 1996 as a pooling-of-interests.
Deloitte & Touche LLP
Boston, Massachusetts
February 28, 1997
-5-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996
----------- -----------
(amounts in thousands, except share data)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 6,159 $49,415
Marketable securities............................. 4,890 17,910
Accounts receivable, net.......................... 8,304 7,765
Unbilled services, net............................ 4,049 2,057
Receivable from officers/shareholders............ 278 ---
Deferred tax asset................................ --- 560
Prepaid expenses and other current assets......... 298 826
------- -------
Total current assets...................... 23,978 78,533
------- -------
Property and equipment, net............................... 3,085 3,977
Other assets.............................................. 72 72
------- -------
Total assets.............................. $27,135 $82,582
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings............................. $ 1,500 $ 500
Current portion of note payable................... 180 782
Note payable to officers/shareholders............. --- 500
Accounts payable.................................. 1,708 2,642
Accrued payroll and related costs................. 1,190 1,775
Advanced payments................................. 424 879
Income taxes payable.............................. 270 120
Accrued acquisition costs......................... --- 3,131
------- -------
Total current liabilities................. 5,272 10,329
Long-term portion notes payable........................... 720 --
Deferred tax liability.................................... -- 431
Other liabilities......................................... 87 181
------- -------
Total liabilities......................... 6,079 10,941
------- -------
Commitments and contingencies--Notes 6, 7 and 10
Stockholders' equity:
Preferred stock, $.01 par value,
authorized 2,000,000 shares, none issued......... -- --
Common stock, $.0001 par value,
authorized 20,000,000 shares, issued and
outstanding 7,279,396 and 9,243,594
shares in 1995 and 1996, respectively............ 1 1
Additional paid in capital........................ 14,741 64,897
Warrants to acquire common stock.................. 1,600 ---
Cumulative translation adjustments................ (48) 264
Unrealized gain/(loss) on marketable securities... 35 (18)
Retained earnings................................. 4,727 6,497
------- -------
Stockholders' equity...................... 21,056 71,641
------- -------
Total..................................... $27,135 $82,582
======= =======
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
------------
December 31,
------------
1994 1995 1996
-------- -------- ----------
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Revenues................................ $22,988 $35,536 $52,450
------- ------- -------
Costs and expenses:
Professional personnel................ 14,056 21,089 31,733
Professional development and
recruiting............................ 894 1,895 2,045
Marketing and sales................... 482 810 1,624
General and administrative............ 4,274 6,442 9,217
Acquisition costs..................... --- --- 3,524
------- ------- -------
Total costs and expenses... 19,706 30,236 48,143
------- ------- -------
Income from operations.................. 3,282 5,300 4,307
Interest expense........................ (126) (80) (139)
Interest income......................... 21 509 1,693
------- ------- -------
Income before income taxes.............. 3,177 5,729 5,861
Provision for income taxes.............. --- 1,894 4,091
------- ------- -------
Net income.............................. $ 3,177 $ 3,835 $ 1,770
======= ======= =======
Net income per share.................... $ .51 $ .53 $ .20
======= ======= =======
Pro forma data:
Historical income before pro forma
adjustments........................... $ 5,861
Pro forma adjustment to officer's
salary................................ 2,100
-------
Historical/pro forma income before income
taxes.................................. $ 3,177 $ 5,729 $ 7,961
Historical provision for income taxes... --- 1,894 4,091
Additional pro forma provision (credit)
for income taxes....................... 744 403 (266)
------- ------- -------
Pro forma income taxes.................. 744 2,297 3,825
------- ------- -------
Pro forma net income.................... $ 2,433 $ 3,432 $ 4,136
======= ======= =======
Pro forma net income per share.......... $ .39 $ .48 $ .47
======= ======= =======
Pro forma weighted average number of
common and common equivalent shares
outstanding............................ 6,303 7,223 8,804
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Warrants Unrealized
To Gain
Additional Acquire Cumulative (Loss) on Retained
Number Common Paid in Common Translation Marketable Earnings
of Shares Stock Capital Stock Adjustments Securities (Deficit)
--------- ----- ------- ----- ----------- ---------- ---------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994, as
previously reported 4,412,358 $ -- $ -- $ -- $ -- $ -- $ (1,457)
Adjustment for pooling-of-
interests with ISS
(Note 2)..................... 1,310,000 1 403 __ __ __ 1,283
--------- ----------- --------- ----------- --------- ----------- ---------
Balance at January 1, 1994...... 5,722,358 1 403 -- -- -- (174)
Issuance of common stock..... 155,038 -- 1 -- -- -- --
Net income................... -- -- -- -- -- -- 3,177
--------- ----------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1994. 5,877,396 1 404 -- -- -- 3,003
Issuance of common stock,
net of related issuance
costs of $1,291............ 1,400,000 -- 15,636 -- -- -- --
Distribution to shareholders. (3,426)
Corporate reorganization..... -- -- (1,315) -- -- -- 1,315
Sale of warrants to acquire
common stock............... -- -- -- 1,600 -- -- --
Exercise of stock options.... 2,000 -- 16 -- -- -- --
Translation adjustment....... -- -- -- -- (48) -- --
Unrealized gain on
marketable securities...... -- -- -- -- -- 35 --
Net income................... -- -- -- -- -- -- 3,835
--------- ----------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1995.... 7,279,396 $ 1 $ 14,741 $ 1,600 $ (48) $ 35 $ 4,727
--------- ----------- --------- ----------- --------- ----------- ---------
Issuance of common stock,
net of related issuance
costs of $578.............. 1,117,275 -- 34,758 -- -- -- --
Exercise of Gemini Warrants.. 633,600 -- 11,917 (1,600) -- -- --
Exercise of stock options.... 171,201 -- 1,696 -- -- -- --
Issuance of stock through
Employee Stock Purchase
Plan....................... 42,122 -- 607 -- -- -- --
Tax benefit from exercise of
stock options.............. -- -- 1,178 -- -- -- --
Translation adjustment....... -- -- -- -- 312 -- --
Unrealized (loss) on
marketable securities...... -- -- -- -- -- (53) --
Net income................... -- -- -- -- -- -- 1,770
--------- ----------- --------- ----------- --------- ----------- ---------
Balance at December 31, 1996.... 9,243,594 $ 1 $ 64,897 $ -- $ 264 $ (18) $ 6,497
========= =========== ========= =========== ========= =========== =========
<CAPTION>
Stockholders'
Equity
(Deficiency)
------------
(amounts in thousands)
<S> <C>
Balance at January 1, 1994, as
previously reported $ (1,457)
Adjustment for pooling-of-
interests with ISS
(Note 2)..................... 1,687
-----------
Balance at January 1, 1994...... 230
Issuance of common stock..... 1
Net income................... 3,177
-----------
Balance at December 31, 1994. 3,408
Issuance of common stock,
net of related issuance
costs of $1,291............ 15,636
Distribution to shareholders. (3,426)
Corporate reorganization..... --
Sale of warrants to acquire
common stock............... 1,600
Exercise of stock options.... 16
Translation adjustment....... (48)
Unrealized gain on
marketable securities...... 35
Net income................... 3,835
-----------
Balance at December 31, 1995.... $ 21,056
-----------
Issuance of common stock,
net of related issuance
costs of $578.............. 34,758
Exercise of warrants......... 10,317
Exercise of stock options.... 1,696
Issuance of stock through
Employee Stock Purchase
Plan....................... 607
Tax benefit from exercise of
stock options.............. 1,178
Translation adjustment....... 312
Unrealized (loss) on
marketable securities...... (53)
Net income................... 1,770
-----------
Balance at December 31, 1996.... $ 71,641
===========
</TABLE>
See notes to consolidated financial statements.
-8-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
------------
1994 1995 1996
---- ---- ----
(amounts in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 3,177 $ 3,835 $ 1,770
Adjustments to reconcile net income to
net cash provided by (used for) operating activities:
Depreciation............................................. 354 495 739
Deferred income taxes.................................... --- --- (129)
Change in:
Accounts receivable, net.............................. (1,914) (7,609) 539
Unbilled services, net................................ (785) 996 1,992
Receivable from officers/shareholders................. --- (278) 278
Prepaid expenses and other current assets............. (132) (43) (528)
Payable to officers/shareholders...................... --- --- 500
Accounts payable...................................... (66) 865 934
Accrued payroll and related costs..................... 552 (23) 585
Income taxes payable.................................. --- 270 (150)
Advanced payments..................................... 983 (559) 455
Acquisition costs..................................... --- --- 3,131
Other liabilities..................................... --- 87 94
------- ------- --------
Net cash provided by (used for) operating activities..... 2,169 (1,964) 10,210
Cash flows from investing activities:
Purchases of marketable securities.......................... --- (4,855) (46,267)
Sales and maturities of marketable securities............... --- --- 33,194
Expenditures for property and equipment..................... (1,122) (2,015) (1,631)
Increase in other assets.................................... ___ (72) ---
------- ------- --------
Net cash used for investing activities................... (1,122) (6,942) (14,704)
Cash flows from financing activities:
Issuance of common stock, net............................... 1 15,652 47,378
Tax benefit from exercise of stock options.................. --- --- 1,178
Sale of warrants to acquire common stock.................... --- 1,600 ---
Payment of shareholder distributions........................ --- (3,426) ---
Short-term borrowings....................................... 845 1,800 500
Repayment of borrowings..................................... (500) (2,000) (1,618)
------- ------- --------
Net cash provided by financing
activities............................................. 346 13,626 47,438
Effect of exchange rate changes on cash and cash
equivalents................................................. --- (48) 312
------- ------- --------
Increase in cash and cash equivalents............................ 1,393 4,672 43,256
Cash and cash equivalents, beginning of year..................... 94 1,487 6,159
------- ------- --------
Cash and cash equivalents, end of year........................... $ 1,487 $ 6,159 $ 49,415
======= ======= ========
Supplemental disclosure of cash flow information:
Interest paid............................................... $ 100 $ 75 $ 146
Income taxes paid........................................... $ 2 $ 1,620 $ 2,650
</TABLE>
See notes to consolidated financial statements.
-9-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
The Company provides management consulting and client/server systems
integration services, primarily for large corporations. The Company's offerings
fall into three categories, Strategic Services, Performance Solutions Services
and Technology Services, all of which can incorporate consulting services and
technology implementation.
Reorganization
Renaissance Solutions, Inc. ("Renaissance" or the "Company") was
organized as a Delaware corporation in March 1992. In December 1993, the Company
contributed all of its assets, subject to all of its liabilities, to Renaissance
Strategy Group Limited Partnership, a Delaware limited partnership (the
"Partnership"), in exchange for the sole general partnership interest in the
Partnership. The business of the Company was conducted by the Partnership from
December 1, 1993 to April 3, 1995. Pursuant to a reorganization agreement (the
"Reorganization Agreement") entered into among the Company, the Partnership,
the limited partners of the Partnership, the holders of certain units of
economic interest ("Units") in the Partnership and the holders of certain
options to purchase Units, effective April 3, 1995 (i) the Company issued
4,567,396 shares of its Common Stock in exchange for all of the outstanding
limited partnership interests and Units in the Partnership, and (ii) options to
purchase 1,730,000 Units outstanding as of such date were exchanged for options
to purchase 432,605 shares of Common Stock. Immediately thereafter, the
Partnership was dissolved and all of its assets and liabilities were distributed
to and assumed by the Company. The reorganization of the Company described above
is referred to herein as the "Reorganization." The Reorganization has been
accounted for in a manner similar to a pooling of interests and, except as
otherwise indicated or where the context otherwise requires, the information set
forth in these financial statements has been adjusted to give retroactive effect
to the Reorganization. References herein to the "Company" and "Renaissance"
refer to Renaissance Solutions, Inc. and International Systems Services
Corporation and, with respect to operations between December 1, 1993 and April
3, 1995 (the date of the Reorganization), the Partnership, and its wholly-owned
subsidiaries, Renaissance Solutions Limited and Renaissance Securities Corp.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation. The consolidated financial statements of
the Company have been restated to give retroactive effect to the acquisition of
International Systems Services Corporation (ISS) on December 31, 1996 (Note 2)
as a pooling-of-interests.
Fiscal Years
The Company's fiscal year ends on December 31.
-10-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Use of Estimates in the Preparation of Financial Statements
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.
Revenue Recognition
The Company derives most of its revenues from professional service
activities. Revenues on service contracts are recorded under the percentage of
completion method based upon the number of labor hours incurred compared to the
total estimated hours at estimated realizable rates. Provisions are made for
estimated unbillable and uncollectible amounts. Revenues are reported net of
reimbursable expenses which are billed and collected from clients. Reimbursable
expenses were approximately $1,947, $3,031 and $4,140 for the years ended
December 31, 1994, 1995 and 1996, respectively. When billings exceed revenues
earned and/or expenses incurred, the excess is recorded as advance payments.
In September and December 1996, Gemini satisfied a bookings deficiency under
the Teaming Agreement (Note 7) by making cash payments of $750 and $1,500,
respectively, which have been included in revenues for the year ended December
31, 1996.
Property and Equipment
Property and equipment are stated at cost. Major additions and improvements
are capitalized, while repairs and maintenance are charged to expense.
Depreciation is computed using straight-line methods over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
Description Estimated Useful Life
------------------------------------- ---------------------
<S> <C>
Computer hardware and software.. 5 Years
Furniture and fixtures.......... 7 Years
Leasehold improvements.......... 10 Years
</TABLE>
Income Taxes
From its inception in 1992 to immediately prior to April 3, 1995 (the date
of its Reorganization), the Company was either an S corporation or a limited
partnership for federal income tax reporting purposes, and the taxable income of
the Company for that period was reportable by and taxable directly to the
Company's stockholders or partners rather than to the Company. Accordingly, no
federal or state income tax provision was required for the Company for the year
ended December 31, 1994 and through the date of the Reorganization.
-11-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Effective with the closing of the Company's initial public offering, the
Company has been subject to federal and state income taxes as a C corporation.
Prior to its acquisition by the Company, ISS was an S corporation for income
tax purposes. Accordingly, no federal or state income tax provision was
required for ISS for the years ended December 31, 1994 and 1995, and through
December 30, 1996. The provision for income taxes in 1996 includes a one-time
charge resulting from converting ISS from an S corporation to a C corporation,
primarily resulting from a change from the cash basis to the accrual basis of
accounting.
Deferred taxes are determined based on the estimated future tax effects of
differences between financial statement and tax bases of assets and liabilities
given the provisions of the enacted tax laws.
Foreign Currency Translation
The functional currency for the Company's U.K. subsidiaries, Renaissance
Solutions Limited and International Systems Services (U.K.), is the British
pound. Assets and liabilities are translated at year-end rates of exchange, and
income and expenses are translated at average rates of exchange for the year.
The resulting translation adjustments are excluded from net earnings and
accumulated as a separate component of stockholders' equity. Gains and losses
from foreign currency transactions have not been material and are reflected in
net income.
Per Share Amounts
Per share amounts are based on the pro forma weighted average number of common
and dilutive common equivalent shares (common stock options) outstanding. The
pro forma weighted average number of common shares assumes that 10,002 shares of
common stock issued in March 1994 and all stock options granted in January 1995
and March 1995 were outstanding for all periods presented. Common equivalent
shares are not included in the per share calculations where the effect of their
inclusion would be anti-dilutive, except in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83. The Bulletin requires that
all common shares issued and options to purchase shares of common stock granted
by the Company during the twelve-month period prior to filing of a proposed
initial public offering be included in the calculation as if they were
outstanding for all periods. The pro forma weighted average number of common
shares for 1994 and through April 11, 1995 also assumes that approximately
300,000 shares of the 1,400,000 shares issued in the Company's initial public
offering, the proceeds of which were used to repay stockholder notes totaling
approximately $3,426 (see Note 8), were outstanding. Pro forma weighted average
number of common shares also assumes the 1,310,000 shares in connection with the
ISS Acquisition (see Note 2) were outstanding for all periods presented.
Pro Forma Data
The pro forma data is presented to show the effects on 1996 of the contractual
reduction of ISS's officer's compensation following the acquisition of ISS and
the income taxes that would have been provided for in 1994, 1995 and 1996 on pro
forma income before taxes if ISS and the Company had been C corporations for all
periods presented. The pro forma data is presented for informational purposes
only and is not necessarily indicative of future net income or net income per
share.
-12-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Cash Flow Information
The Company considers all bank deposits and short-term investments having
original maturities of ninety days or less to be cash and cash equivalents.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121") in 1996. SFAS 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets. There was no effect of adopting of SFAS 121 on
the consolidated financial statements.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with APB No. 25, Accounting for Stock Issued to
Employees. Accordingly, no compensation expense has been recognized in the
consolidated financial statements for employee stock arrangements.
Fair Value of Financial Instruments
Financial instruments held or used by the Company consist of cash, marketable
securities, accounts receivable and accounts payable. Marketable securities are
carried at fair value at each balance sheet date. Management believes that
carrying value approximates fair value for all other financial instruments.
2. International Systems Services Corporation (ISS) Acquisition
On December 31, 1996, the Company acquired all of the outstanding capital
stock of ISS in exchange for 1,310,000 shares of the Company's common stock. The
acquisition has been accounted for as a pooling-of-interests and, as described
in Note 1, the Company's consolidated financial statements have been restated to
include the accounts of ISS for all periods presented.
Revenues, income before taxes, and net income of the separate companies are
as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1994 1995 1996
---------- -------- --------
<S> <C> <C> <C>
Revenues
Renaissance $12,881 $22,601 $34,784
ISS 10,107 12,935 17,666
---------- -------- --------
$22,988 $35,536 $52,450
========== ======== ========
Income
before taxes
Renaissance $ 2,800 $ 5,567 $ 5,716
ISS 377 162 145
---------- -------- --------
$ 3,177 $ 5,729 $ 5,861
========== ======== ========
Net income
Renaissance $ 2,800 $ 3,676 $ 2,474
ISS 377 159 (704)
---------- -------- --------
$ 3,177 $ 3,835 $ 1,770
========== ======== ========
</TABLE>
-13-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
In connection with the acquisition, Renaissance recorded one-time charges for
the acquisition of $3,524. This charge includes investment banking, legal and
accounting fees, consolidation of duplicate facilities, elimination of certain
redundant assets, and costs associated with consolidating such operations,
including severance and other related items.
3. Accounts Receivable and Unbilled Services
Accounts receivable and unbilled services consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1996
------- ------
<S> <C> <C>
Billed.................................. $ 8,640 $8,225
Unbilled services....................... 4,149 2,404
Allowance for uncollectible accounts.... (436) (807)
------- ------
Accounts receivable and unbilled
services, net.......................... $12,353 $9,822
======= ======
</TABLE>
Provisions for uncollectible accounts charged to expense were $256, $242 and
$795 in 1994, 1995 and 1996, respectively. Write-offs of uncollectible accounts
amounted to $99, $79, and $424 for the years ended December 31, 1994, 1995 and
1996, respectively.
4. Marketable Securities
Marketable securities are classified as available for sale and consist of U.S.
Treasury Notes, Federal Agency Bonds and Corporate Bonds having maturity dates
of more than three months and are stated at fair value. Aggregate net unrealized
holding gains/(losses) of $35 and $(18) at December 31, 1995 and 1996,
respectively, have been included as a separate component of stockholders' equity
in the accompanying consolidated balance sheets. Certain information with
respect to the Company's marketable securities as of December 31, 1995 and 1996
is presented below.
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------
Gross Gross
----- -----
Amortized Unrealized Unrealized Fair
--------- ---------- ---------- ----
Security Type Cost Holding Gains Holding Losses Value
------------- ---- ------------- -------------- -----
<S> <C> <C> <C> <C>
U.S. Treasury Notes... $ 3,604 $ 31 $ -- $ 3,635
Federal Agency Bonds.. 1,251 5 1 1,255
------- ------ ------ -------
$ 4,855 $ 36 $ 1 $ 4,890
======= ====== ====== =======
<CAPTION>
December 31, 1996
---------------------------------------
Gross Gross
----- -----
Amortized Unrealized Unrealized Fair
--------- ---------- ---------- ----
Security Type Cost Holding Gains Holding Losses Value
------------- ---- ------------- -------------- -----
<S> <C> <C> <C> <C>
U.S. Treasury Notes... $ 9,978 13 --- $ 9,986
Federal Agency Bonds.. 6,308 --- 32 6,276
Corporate Bonds....... 1,647 1 --- 1,648
------- ------ ------ -------
$17,928 $ 14 $ 32 $17,910
======= ====== ====== =======
</TABLE>
-14-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
The fair value of marketable securities, by contractual maturity, are shown
below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
<TABLE>
<CAPTION>
December 31,
1995 1996
---- ----
<S> <C> <C>
Due in one year or less............ $1,105 $ 7,131
Due after one through three years.. 3,785 10,779
------ -------
Total............................ $4,890 $17,910
====== =======
</TABLE>
There were no sales or maturities of securities during the year ended
December 31, 1995. Sales or maturities of marketable securities totalled $33,194
during the year ended December 31, 1996.
5. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995 1996
-------- -------
<S> <C> <C>
Computer hardware and software.. $ 2,306 $ 3,093
Furniture and fixtures.......... 1,253 1,658
Equipment....................... 661 836
Leasehold improvements.......... 261 525
-------- -------
4,481 6,122
Less accumulated depreciation... (1,396) (2,135)
-------- -------
Property and equipment, net..... $ 3,085 $ 3,977
======== =======
</TABLE>
6. Financing Arrangements
Line-of-Credit
At December 31, 1996, the Company had a $3,500 unsecured revolving line of
credit agreement with a bank, expiring on June 1, 1997. Interest is payable at
the bank's corporate rate (8.50% at December 31, 1996). The loan agreement
includes various customary financial and other covenants including maintenance
of minimum levels of tangible net worth and quarterly profitability. Borrowings
outstanding under the line were $1,500 at December 31, 1995. No borrowings were
outstanding as of December 31, 1996.
The Company had a British Pound Sterling 425 ($655) revolving line of credit
with a U.K. bank at December 31, 1996. There were no borrowings outstanding
under this line at December 31, 1995 or 1996.
-15-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
At December 31, 1996, ISS had a $500 working capital line of credit,
collateralized by ISS accounts receivables, expiring on April 27, 1997. Interest
is payable at prime (8.25% at December 31, 1996). The line of credit agreement
includes customary financial and other covenants including the maintenance of
minimum tangible net worth and quarterly profitability. Borrowings outstanding
under the line of $500 as of December 31, 1996 have subsequently been repaid.
Note Payable
At December 31, 1996, ISS had a note payable to a bank. The note bears
interest at prime (8.25% at December 31, 1996) and is due in equal installments
through December 28, 2000. The note payable, which was paid in full subsequent
to the balance sheet date, was classified as current as of December 31, 1996.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------
1995 1996
---- ----
<S> <C> <C>
Note payable $ 900 $ 782
Less current portion (180) (782)
----- -----
Long-term debt $ 720 $ --
===== =====
</TABLE>
Note Payable to Officers/Shareholders
ISS had a $500 promissory note, payable on demand to its President. The
outstanding balance at December 31, 1996 was $500, with interest at 5.8%. This
loan was repaid in full in January 1997.
7. Gemini Relationship
On October 17, 1994, the Company entered into a Teaming Agreement (the
"Teaming Agreement") with Gemini Consulting, Inc. ("Gemini") pursuant to which
the Company and Gemini agreed to market and perform certain service offerings on
a collaborative basis. Approximately 44%, 34% and 31% of the Company's revenues
in 1994, 1995 and 1996 resulted from its relationship with Gemini; approximately
36%, 15% and 21% of revenues were from services and other amounts billable to
Gemini and approximately 8%, 19% and 10% of revenues were from services billable
directly to third parties. Gemini had committed to provide the Company with
certain minimum bookings during the term of the Teaming Agreement, commencing
November 1, 1994, subject to the satisfaction of certain conditions.
-16-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Since the inception of the Teaming Agreement, Gemini has not met certain
of the minimum bookings commitments. In accordance with the Teaming Agreement,
Gemini has satisfied these bookings deficiencies through a combination of
revenues generated from client work referred to the Company, work performed by
the Company as a subcontractor for Gemini, work performed by the Company
directly for Gemini, the acquisition by Gemini from the Company for $2,200 of
certain Company program designs and related materials and cash payments of
$2,250. The $2,200 and $2,250 are included in revenues for the year ended
December 31, 1996.
On November 18, 1996, the Company and Gemini entered into a Restated
Teaming Agreement (the "Restated Teaming Agreement"). As part of the Restated
Teaming Agreement, Gemini has committed to provide the Company with certain
reduced levels of bookings during the 12 month periods ending October 31, 1997,
1998 and 1999. In the event that during any of the six month periods during the
term of the Restated Teaming Agreement bookings obtained by the Company from
Gemini customers or customers of joint service offerings by the Company and
Gemini are less than the specified minimum bookings, Gemini may retain the
services of the Company for a fee equal to the amount of the deficiency. If at
the end of twelve months a bookings deficiency still remains, Gemini is required
to make a compensating payment to the Company of 25% of the remaining deficiency
in full satisfaction of the bookings deficiency. In no event will Gemini be
obligated to make a payment with respect to any bookings deficiency in an amount
in excess of 25% of such deficiency.
In the event that the Restated Teaming Agreement is validly terminated by
either party prior to its expiration, Renaissance is required to pay a
termination fee to Gemini in an amount declining from a maximum of $1.6 million
in the event of a termination prior to November 1, 1996 to a minimum of $250,000
in the event of a termination prior to November 1, 1999.
Under the Teaming Agreement, as amended by the Restated Teaming
Agreement, the Company has agreed to train Gemini in use of the Company's
Balanced Scorecard, desktop application and certain other methodologies prior to
November 1, 1998, to perpetually license these methodologies, to the extent
developed prior to November 1, 1998, to Gemini on a non-exclusive basis and
agreed to perform certain services for Gemini in 1996. In exchange, Gemini has
agreed to pay the Company an annual fee of $2.0 million in each of the years
during the three year period ending October 31, 1997. Revenue for these services
will be recognized by the Company as the services are performed pursuant to the
terms of the Restated Teaming Agreement. The license of methodologies by
Renaissance to Gemini expressly excludes any software created by Renaissance.
The Company is obligated to pay Gemini an annual fee of $400,000 in each of the
years during the three year period ending October 31, 1997 for certain training
services provided by Gemini to Renaissance personnel. The Restated Teaming
Agreement also provides for the payment of certain license fees by Gemini to
Renaissance in five equal installments of $1.0 million during the period
commencing on November 18, 1996 and ending on November 1, 1998.
Simultaneously with the closing of the Company's initial public offering
on April 11, 1995, Messrs. Harry Lasker and David Lubin and Ms. Melissa Norton,
the wife of David Norton (the "Principal Stockholders"), sold to Gemini options
for the purchase of 150,000 shares of Common Stock (the "Gemini Options") for an
aggregate purchase price of $675. Each Principal Stockholder sold to Gemini an
option for up to 50,000 shares of Common Stock at an exercise price equal to
$13.00 per share. In November 1996, the Company registered the shares underlying
the Gemini Options and the options were exercised.
-17-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
8. Stockholders' Equity
Initial Public Offering
On April 11, 1995, the Company completed its initial public offering of
Common Stock, whereby the Company issued 1,400,000 shares of Common Stock and an
additional 885,000 shares were sold by existing stockholders of the Company. The
net proceeds from the sale of the shares by the Company were approximately
$15,636 after deducting offering expenses of $1,291. Approximately $1,872 of the
net proceeds of the offering were used to repay a note due to Gemini and $3,426
of the net proceeds were used to repay notes payable to the Company's
stockholders incurred by the Company in connection with the payment of
partnership distributions in January and March 1995. Simultaneously with the
closing of the offering the Company also sold warrants to Gemini to acquire
633,600 shares of the Company's Common Stock for cash of $1,600.
Follow-on Offering
On May 17, 1996, the Company completed a follow-on public offering, whereby
the Company issued 902,125 shares of Common Stock and existing shareholders sold
647,500 shares of Common Stock. The net proceeds from the sale of shares by the
Company were approximately $28,263, after deducting offering expenses of $225.
November 1996 Offering
On November 18, 1996, the Company completed an additional offering. The
transaction included 215,150 shares sold by the Company and 1,049,850 shares
sold by existing shareholders, including shares acquired by Gemini upon
exercise of the Gemini Options (Note 7) and the Gemini Warrants (below). The
net proceeds of the offering were $6,495, after deducting offering expenses of
$353.
Gemini Warrants
The Company sold two warrants (together, the ''Gemini Warrants'') to Gemini
upon the closing of the Company's initial public offering for an aggregate
purchase price of $1,600. One warrant was exercisable through April 11, 1998 for
up to 313,600 shares of Common Stock at an exercise price equal to $13.00 per
share. The second warrant was exercisable through November 1, 1999 for up to
320,000 shares of Common Stock at an exercise price equal to $19.50 per share.
In November 1996, Gemini exercised the warrants and the Company received
proceeds from the exercise of $10,317.
-18-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Partnership Distributions
In January and March 1995, the Partnership declared and made partnership
distributions totalling $3,426 evidenced by delivery of the Company's promissory
notes which were paid with proceeds from the Company's initial public offering.
Distributions in excess of earnings were reclassified to paid in capital
pursuant to Securities and Exchange Commission Staff Accounting Bulletin Topic
4:B.
Preferred Stock
Authorized preferred stock consists of 2,000,000 shares, $.01 par value per
share. The Board of Directors is authorized, without shareholder approval, to
issue such shares of preferred stock in one or more series, with such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
the Board of Directors may determine.
1995 Equity Incentive Plan
In January 1995, the Board of Directors adopted and the stockholders approved
the 1995 Equity Incentive Plan (the ''Equity Plan''). Under the terms of the
Equity Plan, the Company is authorized to make awards of restricted stock and to
grant incentive and non-statutory options to employees of, and consultants and
advisors to, the Company to purchase shares of the Common Stock of the Company.
A total of 1,100,000 shares of Common Stock may be issued upon exercise of
options granted or awards made under the Equity Plan. Options granted through
December 31, 1996 generally vest in either four or five equal annual
installments commencing on the first anniversary of the optionee's date of hire.
On September 18, 1996, the Board of Directors adopted, and on November 15,
1996, the stockholders of the Company approved, an amendment to the Company's
1995 Equity Incentive Plan increasing the number of shares of Common Stock
available for issuance under the Plan from 1,100,000 to 2,100,000.
1995 Director Stock Option Plan
In January 1995, the Board of Directors adopted and the stockholders approved
the 1995 Director Stock Option Plan (the ''Director Plan''), which became
effective on the closing of the Company's initial public offering. Under the
terms of the Director Plan, directors of the Company who are not employees of
the Company or any subsidiary of the Company are eligible to receive non-
statutory options to purchase shares of Common Stock. A total of 50,000 shares
of Common Stock may be issued upon exercise of options granted under the
Director Plan. Options to purchase 25,000 shares of Common Stock have been
granted to the two eligible directors. The exercise price of options granted
under the Director Plan was equal to the closing price of the Common Stock on
the date of grant.
-19-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
A summary of activity under the Equity Plan and the Director Plan is as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ ----------------
<S> <C> <C>
Outstanding as of January 1, 1995 -- --
Options Granted (weighted average fair value $12.46) 744,218 $11.17
Exercised (2,000) 8.00
Cancelled/expired (2,900) 13.00
--------- -----
Outstanding as of December 31, 1995 739,318 11.40
Granted (weighted average fair value $16.06) 719,000 29.34
Exercised (171,213) 10.57
Cancelled/expired (126,510) 10.57
--------- -----
Outstanding as of December 31, 1996 1,160,595 $22.31
========= =====
Exercisable as of December 31, 1995 74,611 $ 8.74
========= =====
Exercisable as of December 31, 1996 102,274 $12.30
========= =====
</TABLE>
Additional information regarding options outstanding as of December 31, 1996
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------------- --------------------------------
Weighted Average
Range of Remaining Weighted Avgerage Weighted Avgerage
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$ 8.00 - $ 9.00 290,136 10.9 $ 8.00 40,921 $ 8.00
9.00 - 13.00 97,860 9.6 12.54 22,530 11.00
13.01 - 15.00 233,762 10.8 14.25 21,624 14.26
16.01 - 18.00 15,500 10.8 16.89 233 16.75
18.01 - 23.00 87,287 9.5 19.22 11,966 18.96
23.01 - 44.75 436,050 9.8 39.17 5,000 28.75
============== =========== ============ =========== ============ ===========
$ 8.00 - $28.75 1,160,595 10.2 $22.31 102,274 $12.30
</TABLE>
At December 31, 1996, 964,405 and 25,000 shares were available for future
grants under the Equity Plan and Directors' Plan, respectively.
1995 Employee Stock Purchase Plan
In January 1995, the Board of Directors adopted and the shareholders approved
the 1995 Employee Stock Purchase Plan (the "Purchase Plan"), which became
effective on the closing of the Company's initial public offering. The Purchase
Plan authorizes the issuance of up to a total of 450,000 shares of Common Stock
to participating employees. Under the terms of the Purchase Plan, the purchase
price is an amount equal to 85% of the fair market value per share of the Common
Stock on either the first day or the last day of the offering period, whichever
is lower. There were no shares acquired under the Purchase Plan during the year
ended December 31, 1995. 42,145 shares were issued under the Purchase Plan in
1996 at a weighted average price of $14.66. The weighted average fair value of
the 1995 and 1996 awards under the Purchase Plan were $1.72 and $2.57,
respectively. At December 31, 1996, 407,855 shares were reserved for future
issuances under the Purchase Plan.
-20-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Additional Information
As discussed in Note 1, the Company continues to account for its stock-based
compensation plans in accordance with APB Opinion 25 and related
Interpretations. SFAS No. 123, "Accounting for Stock Based Compensation"
requires the disclosure of pro forma income and earnings per share had the
Company adopted the Fair Value method as of the beginning of fiscal 1995. If the
computed fair values of the 1995 and 1996 awards had been amortized to expense
over the vesting period of the awards, pro forma net income would have been
$3,164 ($.44 per share) in 1995 and $289 ($.03 per share) in 1996. The
Company's calculations for the stock option plans were made using the Black-
Scholes option pricing model with the following assumptions: expected life, 6
months following vesting; stock volatility, 66% in 1995 and 62% in 1996; risk
free interest rates, 6.28% in 1995 and 6.36% in 1996; and no dividends during
the expected term. The Company's calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur. Compensation
cost for the Purchase Plan was estimated using the Black-Scholes model with the
following assumptions: an expected life of 6 months; expected volatility of 66%
in 1995 and 62% in 1996; and risk-free interest rates of 5.27% and 5.63%.
9. Income Taxes
The provision for income taxes on a pro forma basis is as follows:
<TABLE>
<CAPTION>
Years Ended
-----------
December 31,
------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current taxes:
Federal........................ $ 978 $1,763 $3,703
State.......................... 301 534 1,020
------ ------ ------
Total current............... 1,279 2,297 4,723
------ ------ ------
Deferred taxes:
Federal........................ 30 --- (762)
State.......................... 5 --- (136)
Change in valuation allowance.. (570) --- ---
------ ------ ------
Total deferred.............. (535) --- (898)
------ ------ ------
Total provision............. $ 744 $2,297 $3,825
====== ====== ======
</TABLE>
Effective with the closing of the Company's initial public offering, the
Company's S corporation election was automatically terminated. The cumulative
effect of temporary differences between financial accounting and income tax
reporting was not material.
Prior to its acquisition by the Company, ISS was an S corporation for income
tax purposes. Accordingly, no federal or state income tax provision was
required for ISS for the years ended December 31, 1994 and 1995, and through
December 30, 1996. The historical provision for income taxes in 1996 includes a
one-time charge of $1,002 resulting from converting ISS from an S corporation to
a C corporation, primarily resulting from a change from the cash basis to the
accrual basis of accounting.
-21-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
----------------------------
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
The reconciliation of the Company's pro forma income tax provision to the
statutory federal tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended
-----------
December 31,
------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate................................ 34.0% 34.0% 34.0%
State income taxes--net of federal benefit........ 6.0 6.0 6.3
Non-deductible acquisition costs.................. --- --- 8.3
Change in valuation allowance..................... (18.0) --- ---
Other............................................. 1.4 --- (0.6)
---- ---- ----
Effective income tax rate......................... 23.4% 40.0% 48.0%
==== ==== ====
</TABLE>
The tax effect of significant items comprising the Company's net deferred
tax asset as of December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31,
-----------
1995 1996
---- ----
<S> <C> <C>
Short Term Deferred Tax Assets (Liabilities):
Deferred revenue................................. --- $ 260
Accrued acquisition costs........................ --- 557
Allowance for doubtful accounts.................. $ 33 (28)
Other, principally accrued vacation.............. 38 77
Cash-to-accrual basis conversion................. --- $ (192)
Depreciation..................................... (71) (114)
----- ------
Total............................................ $ --- $ 560
----- ------
Long Term Deferred Tax Assets (Liabilities):
Cash-to-accrual basis conversion................. --- $ (576)
Accrued acquisition costs........................ --- 145
----- ------
$ --- $ (431)
===== ======
</TABLE>
10. Commitments and Contingencies
Operating Leases
The Company is obligated under various leases for office space and several
equipment and service leases through 2004. Total rent expense under all
operating leases for the years ended December 31, 1994, 1995 and 1996 was $812,
$1,259 and $1,529, respectively.
-22-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
Future minimum payments under non-cancellable operating leases at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
Office Equipment Total
--------- --------- ---------
<S> <C> <C> <C>
1997........................... 1,593 55 1,648
1998........................... 1,249 49 1,298
1999........................... 1,068 2 1,070
2000........................... 795 --- 795
2001........................... 315 --- 315
Thereafter..................... 946 --- 946
--------- ------ ---------
Total 5,966 106 6,072
</TABLE>
11. Segment Information
The Company operates in one business segment.
Geographic Information
Revenues of the Company's U.K. subsidiaries totaled approximately $5,463, or
10% of consolidated 1996 revenues. Income from operations for the Company's
U.K. subsidiaries for the year ended December 31, 1996 was $524, and
identifiable assets at December 31, 1996 were $3,812. The Company's U.K.
subsidiaries had no material operations in 1994. Revenues from customers outside
of North America, primarily in the United Kingdom, accounted for approximately
7%, 10% and 10% of total revenues for the year ended December 31, 1994, 1995 and
1996, respectively.
Major Customer and Credit Concentration Information
Revenues from certain of the Company's largest customers individually
exceeded 10% of revenues as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
Customer 1994 1995 1996
-------- ---------- ---------- -----------
<S> <C> <C> <C>
A (see note 7) 36% 15% 21%
B -- 23% 26%
</TABLE>
The Company's customers are principally large corporations from whom the
Company does not require collateral. The Company maintains reserves for
potential credit losses.
-23-
<PAGE>
RENAISSANCE SOLUTIONS, INC.
Notes to Consolidated Financial Statements--(Continued)
(Amounts in thousands, except share data)
12. Employee Benefit Plan
The Company has a 401(k) profit-sharing plan (the ''Plan'') established in
1994 and covering substantially all domestic employees. The Plan allows each
participant to defer up to 20% of annual earnings up to an amount not to exceed
an annual statutory maximum. Subject to the approval of the Board of Directors
on an annual basis, the Company may make profit-sharing contributions and/or
match employee deferrals. For the years ended December 31, 1995 and 1996, the
Company's contributions totalled $269 and $446, respectively.
13. Subsequent Acquisitions
On February 3, 1997, the Company acquired all of the outstanding common
stock of COBA Consulting Limited ("COBA-UK") for $11,900 in cash, plus 163,160
shares of common stock of the Company. The Company will also acquire certain
non-voting, convertible shares of COBA-UK in 1998 and 1999 for a purchase price,
as defined by the Stock Purchase Agreement dated January 27, 1997, based on
COBA-UK's actual financial performance for the years ending December 31, 1997
and 1998. The maximum additional purchase price, which may include shares of
common stock of the Company, is $12,600. This acquisition will be accounted for
as a purchase.
On February 13, 1997, the Company acquired all of the outstanding capital
stock of C.M. Management Systems Ltd., Inc. ("COBA-Boston") for $9,250 in cash.
The Company may be required to pay an additional amount of up to a maximum of
$18,500 in cash and/or shares of Common Stock at the Company's option,
determined based on COBA-Boston's actual financial performance for the years
ending December 31, 1997 and 1998. This acquisition will be accounted for as a
purchase.
Prior to their acquisition by Renaissance, both COBA-UK and COBA-Boston
were parties to a joint marketing arrangement with a network of consulting firms
in Europe and Asia (the "COBA Network"). No stockholder, director or officer of
COBA-UK was also a stockholder, director or officer of COBA-Boston.
Renaissance anticipates that both COBA-UK and COBA-Boston will continue to
participate in the COBA Network as subsidiaries of the Company.
-24-
<PAGE>
Renaissance Solutions, Inc.
SELECTED QUARTERLY FINANCIAL RESULTS
(Unaudited)
<TABLE>
<CAPTION>
March 31 June 30 September 29 December 31 March 29 June 28 September 27 December 31
--------- ------- ------------ ----------- -------- ------- ------------ -----------
1995 1995 1995 1995 1996 1996 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................... $8,258 $8,395 $8,952 $9,931 $11,468 $12,767 $14,000 $14,215
Costs and expenses:................
Professional personnel.......... 5,281 5,181 5,357 5,270 7,071 8,227 8,853 7,582
Professional development
and recruiting.................. 425 348 562 560 570 317 766 392
Marketing and sales............. 163 152 188 307 324 460 410 430
General and administrative...... 1,432 1,483 1,565 1,962 2,298 2,020 2,242 2,657
Acquisition costs............... 0 0 0 0 0 0 0 3,524
- ----------------------------------------------------------------------------------------------------------------------------------
Total cost and expenses....... 7,301 7,164 7,672 8,099 10,263 11,024 12,271 14,585
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 957 1,231 1,280 1,832 1,205 1,743 1,729 (370)
Interest expense (80) 0 0 0 (47) (35) (29) (28)
Interest income 42 164 185 118 142 292 481 778
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 919 1,395 1,465 1,950 1,300 2,000 2,181 380
- ----------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 2 524 564 804 579 797 926 1,789
Net income (loss) (1) $ 917 $ 871 $ 901 $ 1,146 $ 721 $ 1,203 $ 1,255 $(1,409)
==================================================================================================================================
Pro Forma Data:
Historical income before pro forma
adjustments $1,300 $ 2,000 $ 2,181 $ 380
Pro forma adjustment to officer's
salary 68 599 1,042 391
- ----------------------------------------------------------------------------------------------------------------------------------
Historical/pro forma income before
income taxes $ 919 $1,395 $1,465 $ 1,950 $1,368 $ 2,599 $ 3,223 $ 771
- ----------------------------------------------------------------------------------------------------------------------------------
Historical income taxes 2 524 564 804 579 797 926 1,789
Additional provision (credit) for
income taxes (3) 367 37 25 (26) 0 0 1 (267)
- ----------------------------------------------------------------------------------------------------------------------------------
Pro forma income taxes 369 561 589 778 579 797 927 1,522
- ----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) $ 488 $ 871 $ 901 $ 1,172 $ 789 $ 1,802 $ 2,296 $ (751)
==================================================================================================================================
</TABLE>
(1) From its inception in 1992 through its Reorganization in April 1995, the
Company was either an S corporation or a limited partnership and prior to
December 31, 1996, International Systems Services Corporation (ISS) was an S
corporation. Accordingly, the Company and ISS were not subject to federal
and state income taxes.
(2) The pro forma adjustment to officer's salary have been computed based on
the contractual reduction of ISS's officer compensation following the
Company's acquisition of ISS.
(3) Income taxes represent the income taxes that would have been provided as if
the Company and ISS were subject to federal and all applicable state
corporate income taxes from inception, based on the statutory tax rates and
the tax laws then in effect. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 1 and 9 of Notes to
Consolidated Financial Statements.
-25-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Form 10-K:
-------------------------------------------
1. Financial Statements. The following documents are set forth in
--------------------
Item 8 hereto:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and 1996
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996
Consolidated Statements of Stockholders' Equity
-26-
<PAGE>
for the Years Ended December 31, 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996
Notes to Consolidated Financial Statements
Selected Quarterly Financial Results
2. Financial Statement Schedules. The Company is not filing any
-----------------------------
financial statement schedules as part of this Annual Report on Form 10-K because
they are not applicable or the required information is included in the financial
statements or notes thereto.
3. Exhibits. The Exhibits listed in the Exhibit Index immediately
--------
preceding such Exhibits are filed as part of this Annual Report on Form 10-K/A.
(b) Reports on Form 8-K:
-------------------
None.
-27-
<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.
RENAISSANCE SOLUTIONS, INC.
By: /s/ George A. McMillan
-----------------------
George A. McMillan
Vice President, Chief Financial Officer
and Chief Operating Officer
Date: March 13, 1997
-28-
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
a3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as amended.
a3.2 By-Laws of the Registrant.
a4.1 Specimen Certificate for Shares of Common Stock, $.0001 par value,
of the Registrant.
+a10.1 1995 Employee Stock Purchase Plan.
+a10.2 1995 Equity Incentive Plan.
+a10.3 1995 Director Stock Option Plan.
+a10.4 Employment Agreement between the Registrant and Harry M. Lasker,
dated as of January 31, 1995.
+b10.5 Amendment No. 1 to Employment Agreement between the Registrant and
Harry M. Lasker, dated as of July 1, 1996.
+a10.6 Employment Agreement between the Registrant and David A. Lubin,
dated as of January 31, 1995.
+b10.7 Amendment No. 1 to Employment Agreement between the Registrant and
David A. Lubin, dated as of July 1, 1996.
+a10.8 Employment Agreement between the Registrant and David P. Norton,
dated as of January 31, 1995.
+b10.9 Amendment No. 1 to Employment Agreement between the Registrant and
David P. Norton, dated as of July 1, 1996.
-1-
<PAGE>
a10.10 Stockholders' Voting Agreement among Harry M. Lasker, David A.
Lubin, Melissa E. Norton, the Harry M. Lasker Children's Trust and
the David A. Lubin Children's Trust dated as of January 31, 1995.
+c10.11 Employment Agreement between the Registrant and Gresham Brebach,
dated March 27, 1995, as amended.
+c10.12 Employment Agreement between the Registrant and Ronald K. Bohlin,
dated March 27, 1995, as amended.
+c10.13 Employment Agreement between the Registrant and George A. McMillan,
dated March 27, 1995, as amended.
+10.14 Employment Agreement between the Registrant and O. Bruce
Gupton, dated as of December 31, 1996.
b10.15 Third Amended and Restated Teaming Agreement between the Registrant
and Gemini Consulting, Inc., dated as of October 23, 1996.
a10.16 Reorganization Agreement among the Registrant, the Partnership and
the holders of certain equity interests in the Partnership, dated as
of January 31, 1995.
a10.17 Registration Rights Agreement among the Registrant, Harry M. Lasker,
David A. Lubin, Melissa E. Norton, the Harry M. Lasker Children's
Trust and the David A. Lubin Children's Trust, dated as of January
31, 1995.
-2-
<PAGE>
+a10.18 Consulting Agreement dated March 14, 1994 between the Partnership
and Robert Kaplan.
*+10.19 Consulting Agreement dated July 22, 1996 between the Company and
John F. Rockart
a10.20 Lease Agreement by and between LadyLin Properties Limited
Partnership (successor in interest to Old Bedford Road Realty Trust)
and the Registrant, dated as of November 1, 1993, as amended to
date.
a10.21 Sublease Agreement by and between Sun Microsystems, Inc. and the
Registrant, dated as of May 27, 1993.
d10.22 Commercial Revolving Line of Credit Agreement between the Registrant
and Shawmut Bank, N.A., dated as of June 30, 1995.
d10.23 Commercial Revolving Line of Credit Promissory Note delivered by the
Registrant to Shawmut Bank, N.A., dated as of June 30, 1995.
e10.24 Amendment to Line of Credit Agreement, dated as of May 7, 1996, by
and between the Company and Fleet National Bank.
e10.25 Barclays Bank PLC Facility, dated as of April 26, 1996, by and
between Renaissance Solutions Limited and Barclays Bank PLC.
f10.26 Agreement and Plan of Merger, dated as of December 31, 1996, among
the Registrant, ISS, Artist Acquisition Corp. and O. Bruce Gupton
(acquisition of ISS).
*10.27 Registration Rights Agreement, dated as of December 31, 1996, among
the Registrant and O. Bruce Gupton.
g10.28 Stock Purchase Agreement, dated as of, January 27, 1997, among the
Registrant, and the other parties named therein (acquisition of
COBA-UK).
h10.29 Stock Purchase Agreement, dated as of February 13, 1997, among the
Registrant, C.M. Management Systems Ltd. Inc. and Mark R. Bruneau,
Andrew R. Belt and Frederique Bouty (acquisition of COBA-Boston).
-3-
<PAGE>
*10.30 Registration Rights Agreement, dated as of February 13, 1997, among
the Registrant and Mark R. Bruneau, Andrew R. Belt and Frederique
Bouty.
*21 Subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP.
*27 Financial Data Schedule.
__________
a Incorporated by reference to the Registrant's Registration Statement
on Form S-1, File No. 33-89524.
b Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended September 27, 1996.
c Incorporated by reference to the Registrant's Annual Report on Form
10-K for the period ended December 31, 1995.
d Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1995.
e Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 28, 1996.
f Incorporated by reference to the Registrant's Current Report on Form
8-K dated December 31, 1996.
g Incorporated by reference to the Registrant's Current Report on Form
8-K dated February 3, 1997.
h Incorporated by reference to the Registrant's Current Report on Form
8-K dated February 13, 1997.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report of Form 10-K.
* Previously filed.
-4-
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 33-
91942, 33-91944, 33-91946 and 333-16405 of Renaissance Solutions, Inc. on Forms
S-8 of our report dated February 28, 1997 (which expresses an unqualified
opinion and includes an explanatory paragraph relating to the accounting for an
acquisition as a pooling-of-interests) appearing in this Amendment No. 1 on Form
10-K/A to the Annual Report on Form 10-K of Renaissance Solutions, Inc. for the
year ended December 31, 1996.
/s/Deloitte & Touche LLP
Boston, Massachusetts
March 14, 1997
