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Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM 10-Q

 


 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended October 1, 2004

 

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, Inc.

(Exact name of Registrant as specified in its charter)

 


 

FLORIDA   65-0750100

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

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)

 


 

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 requirement for the past 90 days.    YES  x    NO  ¨

 

Indicate by check mark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Securities Exchange Act of 1934).    YES  x    NO  ¨

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

As of October 29, 2004, there were 43,395,874 shares of common stock outstanding.

 



Table of Contents

Answerthink, Inc.

 

TABLE OF CONTENTS

 

PART I

  FINANCIAL INFORMATION     

Item 1.

  Financial Statements     

Consolidated Balance Sheets as of October 1, 2004 and January 2, 2004

   3

Consolidated Statements of Operations for the Quarters and Nine Months Ended October 1, 2004 and October 3, 2003

   4

Consolidated Statements of Cash Flows for the Nine Months Ended October 1, 2004 and October 3, 2003

   5

Notes to Consolidated Financial Statements

   6

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations    12

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk    17

Item 4.

  Controls and Procedures    17

PART II

  OTHER INFORMATION     

Item 1.

  Legal Proceedings    19

Item 2.

  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities    19

Item 5.

  Other Information    19

Item 6.

  Exhibits and Reports on Form 8-K    20

SIGNATURES

   21

INDEX TO EXHIBITS

   22

 

2


Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Answerthink, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

     October 1,
2004


   

January 2,

2004


 
     (unaudited)        

ASSETS

                

Current assets:

                

Cash and cash equivalents

   $ 18,591     $ 54,441  

Marketable investments

     20,000       —    

Accounts receivable and unbilled revenue, net of allowance of $2,280 and $1,757 at October 1, 2004 and January 2, 2004, respectively

     32,248       24,877  

Prepaid expenses and other current assets

     3,707       4,260  
    


 


Total current assets

     74,546       83,578  

Marketable investments

     9,945       10,000  

Restricted cash

     3,000       3,000  

Property and equipment, net

     8,095       8,714  

Other assets

     3,846       3,211  

Goodwill, net

     33,786       26,720  
    


 


Total assets

   $ 133,218     $ 135,223  
    


 


LIABILITIES AND SHAREHOLDERS’ EQUITY

                

Current liabilities:

                

Accounts payable

   $ 3,803     $ 3,793  

Accrued expenses and other liabilities

     27,722       26,195  
    


 


Total current liabilities

     31,525       29,988  
    


 


Commitments and contingencies

                

Shareholders’ equity

                

Preferred stock, $.001 par value, 1,250,000 authorized, none issued and outstanding

     —         —    

Common stock, $.001 par value, authorized 125,000,000 shares; issued: 48,765,910 shares at October 1, 2004; 48,290,640 shares at January 2, 2004

     49       48  

Additional paid-in capital

     276,980       274,481  

Unearned compensation

     (6,838 )     (8,367 )

Treasury stock, at cost, 4,958,705 shares at October 1, 2004 and 3,550,279 shares at January 2, 2004

     (15,857 )     (7,686 )

Accumulated deficit

     (152,659 )     (153,241 )

Accumulated other comprehensive income

     18       —    
    


 


Total shareholders’ equity

     101,693       105,235  
    


 


Total liabilities and shareholders’ equity

   $ 133,218     $ 135,223  
    


 


 

The accompanying notes are an integral part of the consolidated financial statements.

 

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Table of Contents

Answerthink, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     Quarter Ended

   Nine Months Ended

 
     October 1,
2004


    October 3,
2003


   October 1,
2004


    October 3,
2003


 

Revenues:

                               

Revenues before reimbursements

   $ 33,329     $ 29,274    $ 98,893     $ 90,117  

Reimbursements

     3,802       3,644      10,976       11,083  
    


 

  


 


Total revenues

     37,131       32,918      109,869       101,200  

Costs and expenses:

                               

Project personnel and expenses:

                               

Project personnel and expenses before reimbursable expenses

     19,845       17,460      57,376       57,060  

Reimbursable expenses

     3,802       3,644      10,976       11,083  
    


 

  


 


Total project personnel and expenses

     23,647       21,104      68,352       68,143  

Selling, general and administrative expenses

     12,081       10,194      36,122       33,770  

Restructuring costs

     —         —        3,749       4,875  

Stock compensation expense

     597       565      1,891       565  
    


 

  


 


Total costs and operating expenses

     36,325       31,863      110,114       107,353  
    


 

  


 


Income (loss) from operations

     806       1,055      (245 )     (6,153 )

Other income (expense):

                               

Interest income

     184       155      570       517  

Interest expense

     (40 )     —        (40 )     —    
    


 

  


 


Income (loss) before income taxes and income from discontinued operations

     950       1,210      285       (5,636 )

Income tax expense

     126       75      73       225  
    


 

  


 


Income (loss) from continuing operations

     824       1,135      212       (5,861 )

Income from discontinued operations

     —         —        370       —    
    


 

  


 


Net income (loss)

   $ 824     $ 1,135    $ 582     $ (5,861 )
    


 

  


 


Basic net income (loss) per common share:

                               

Income (loss) from continuing operations

   $ 0.02     $ 0.03    $ —       $ (0.13 )

Income from discontinued operations

   $ —       $ —      $ 0.01     $ —    

Net income (loss) per common share

   $ 0.02     $ 0.03    $ 0.01     $ (0.13 )

Weighted average common shares outstanding

     43,900       44,456      44,427       45,359  

Diluted net income (loss) per common share:

                               

Income (loss) from continuing operations

   $ 0.02     $ 0.02    $ —       $ (0.13 )

Income from discontinued operations

   $ —       $ —      $ 0.01     $ —    

Net income (loss) per common share

   $ 0.02     $ 0.02    $ 0.01     $ (0.13 )

Weighted average common and common equivalent shares outstanding

     47,960       48,074      48,824       45,359  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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Table of Contents

Answerthink, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Nine Months Ended

 
     October 1,
2004


    October 3,
2003


 

Cash flows from operating activities:

                

Net income (loss)

   $ 582     $ (5,861 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

                

Depreciation and amortization

     3,710       3,659  

Provision for doubtful accounts

     711       158  

Non-cash compensation expense

     1,891       565  

Changes in assets and liabilities, net of effects from acquisitions:

                

Decrease (increase) in accounts receivable and unbilled revenue

     (6,252 )     3,094  

Decrease in prepaid expenses and other assets

     676       9,789  

Decrease in accounts payable

     (365 )     (2,405 )

Decrease in accrued expenses and other liabilities

     (1,792 )     (1,846 )
    


 


Net cash provided by (used in) operating activities

     (839 )     7,153  

Cash flows from investing activities:

                

Purchases of property and equipment

     (2,862 )     (954 )

Increase in restricted cash

     —         (91 )

Purchases of marketable investments

     (35,000 )     (5,000 )

Proceeds from calls, sales and maturities of marketable investments

     15,000       —    

Cash used in acquisition of business, net of cash acquired

     (6,116 )     (2,794 )
    


 


Net cash used in investing activities

     (28,978 )     (8,839 )

Cash flows from financing activities:

                

Proceeds from issuance of common stock

     2,138       457  

Repurchases of common stock

     (8,171 )     (5,478 )
    


 


Net cash used in financing activities

     (6,033 )     (5,021 )
    


 


Net decrease in cash and cash equivalents

     (35,850 )     (6,707 )

Cash and cash equivalents at beginning of period

     54,441       63,419  
    


 


Cash and cash equivalents at end of period

   $ 18,591     $ 56,712  
    


 


 

The accompanying notes are an integral part of the consolidated financial statements.

 

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Table of Contents

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Basis of Presentation

 

The consolidated financial statements of Answerthink, Inc. (“Answerthink” or the “Company”) include the accounts of the Company and all of its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

 

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by accounting principles generally accepted in the United States of America for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended January 2, 2004 included in the Form 10-K filed by the Company with the Securities and Exchange Commission. The consolidated results of operations for the quarter and nine months ended October 1, 2004 are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

 

2. Revenue Recognition

 

The Company principally derives revenues from fees for services generated on a project-by-project basis. Revenues for services rendered are recognized on a time and materials basis or on a fixed-fee or capped-fee basis. Revenues for time and materials contracts are recognized based on the number of hours worked by the Company’s consultants at an agreed upon rate per hour and are recognized in the period in which services are performed. Revenues related to fixed-fee or capped-fee contracts are recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period. The contracted dollar amount used in this calculation excludes the amount the client pays for reimbursable expenses. There are situations where the number of hours to complete projects may exceed the Company’s original estimate. These increases can be as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. On an on-going basis, the Company’s project delivery, office of risk management and finance personnel review hours incurred and estimated total labor hours to complete projects and any revisions in these estimates are reflected in the period in which they become known.

 

Unbilled revenues represent revenues for services performed that have not been invoiced. If the Company does not accurately estimate the scope of the work to be performed, or does not manage the projects properly within the planned periods of time or does not meet the clients’ expectations under the contracts, then future consulting margins may be negatively affected or losses on existing contracts may need to be recognized. Any such resulting reductions in margins or contract losses could be material to the Company’s results of operations. Revenues before reimbursements exclude reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenues, and an equivalent amount of reimbursable expenses is included in project personnel and expenses.

 

The agreements entered into in connection with a project, whether time and materials based or fixed-fee or capped-fee based, typically allow the Company’s clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with clients that limit the Company’s right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services that it 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.

 

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Table of Contents

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

3. Pro Forma Impact of Employee Stock Option Plans

 

The Company applies Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations, in accounting for its stock option plans related to the grant of stock options and stock-based awards to employees (including independent directors). 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.

 

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 option plans, the Company’s consolidated net income (loss) and net income (loss) per share for the quarters and nine months ended October 1, 2004 and October 3, 2003 would have been adjusted to the pro forma amounts indicated as follows (in thousands, except per share data):

 

     Quarter Ended

    Nine Months Ended

 
     October 1,
2004


    October 3,
2003


    October 1,
2004


    October 3,
2003


 

Net income (loss), as reported

   $ 824     $ 1,135     $ 582     $ (5,861 )

Add: Stock based employee compensation expense included in reported net income (loss), net of related tax effects

     597       565       1,891       565  

Deduct: Total stock-based employee pro forma compensation expense determined under fair value based method for all awards, net of related tax expense (benefits)

     (1,378 )     (1,492 )     (4,182 )     (5,042 )
    


 


 


 


Pro forma net income (loss)

   $ 43     $ 208     $ (1,709 )   $ (10,338 )
    


 


 


 


Basic net income (loss) per common share:

                                

As reported

   $ 0.02     $ 0.03     $ 0.01     $ (0.13 )

Pro forma

   $ 0.00     $ 0.00     $ (0.04 )   $ (0.23 )

Diluted net income (loss) per common share:

                                

As reported

   $ 0.02     $ 0.02     $ 0.01     $ (0.13 )

Pro forma

   $ 0.00     $ 0.00     $ (0.04 )   $ (0.23 )

 

4. 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 restricted stock or restricted stock units issued to employees, the calculation includes only the vested portion of such stock.

 

Net income (loss) per common share assuming dilution is computed by dividing 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 quarter and nine months ended October 1, 2004 and the quarter ended October 3, 2003, potentially dilutive securities included 3,618,463 shares, 3,628,691 shares, and 3,339,703 shares, respectively, of unvested restricted stock issued to employees and 441,268 shares, 769,122 shares and 277,875 shares, respectively, of common stock issuable upon the exercise of stock options and warrants following the treasury stock method.

 

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Table of Contents

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

4. Net Income (Loss) Per Common Share (continued)

 

Potentially dilutive shares were excluded from the diluted loss per share calculation for the nine months ended October 3, 2003 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 the nine months ended October 3, 2003. Potentially dilutive securities which were not included in the diluted loss per share calculation for the nine months ended October 3, 2003 include 1,198,932 shares of unvested restricted stock issued to employees and 158,865 shares of common stock issuable upon the exercise of stock options and warrants following the treasury stock method.

 

5. Comprehensive Income

 

The Company accounts for comprehensive income under SFAS No. 130, Reporting Comprehensive Income. Comprehensive income is summarized below (in thousands):

 

    

Quarter

Ended

October 1, 2004


  

Nine Months
Ended

October 1, 2004


 
       

Net income

   $ 824    $ 582  

Change in cumulative foreign currency translation adjustment

     38      73  

Change in net unrealized gain (loss) on marketable investments

     58      (55 )
    

  


Comprehensive income

   $ 920    $ 600  
    

  


 

6. Acquisition

 

In May 2004, the Company purchased the US and India operations of EZCommerce Global Solutions, Inc., a business specializing in the dual-shore implementation of primarily SAP and, to a lesser extent, Oracle software. The purchase price for this acquisition was $9.0 million in cash, which included $3.0 million of deferred payments payable in equal installments on the first and second anniversary of the purchase. In addition, approximately $3.0 million of contingent consideration will be payable over the next two years if certain earnings goals are achieved.

 

The acquisition has been accounted for using the purchase method of accounting. Accordingly, the results of operations of the acquisition are included in the Company’s consolidated results of operations from the date of the acquisition. The excess of the purchase price of the acquisition over the estimated fair value of the net identifiable assets acquired has been recorded as $1.4 million of intangible assets and $6.5 million of goodwill. The intangible assets are being amortized over periods ranging from 8 months to 4 years. The pro forma impact of this acquisition was not significant to the results of the Company’s consolidated operations for the nine months ended October 1, 2004.

 

During the third quarter of 2004, the Company recorded a liability of $1.1 million for earned contingent consideration that was paid during the fourth quarter, related to the July 2003 purchase of Beacon Analytics, Inc., a business performance management consulting company focusing on the implementation of Hyperion software. Of this amount $566 thousand was recorded as intangible assets and $528 thousand as goodwill.

 

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Table of Contents

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

7. Accounts Receivable and Unbilled Revenue, Net

 

Accounts receivable and unbilled revenues, net consists of the following (in thousands):

 

     October 1,
2004


   

January 2,

2004


 

Accounts receivable

   $ 20,243     $ 18,632  

Unbilled revenue

     14,285       8,002  

Allowance for doubtful accounts

     (2,280 )     (1,757 )
    


 


     $ 32,248     $ 24,877  
    


 


 

8. Restructuring Accrual

 

The Company recorded restructuring costs of $10.9 million and $5.6 million in fiscal years 2002 and 2001, respectively, for reductions in consultants and functional support personnel and for closure and consolidation of facilities and related exit costs. These actions were taken as a result of the continued decline in demand for technology services to better align the Company’s overall cost structure and organization with anticipated demand for services. In the second quarters of 2004 and 2003, the Company recorded restructuring costs of $3.7 million and $4.9 million, respectively, to increase existing restructuring accruals to account for higher estimated losses on the sublease of facilities as a result of lower than expected sublease rates and longer than expected time estimates to sublease excess facilities. Also in the second quarter of 2004, the restructuring accrual was reduced by $370 thousand relating to the final settlement of a lease obligation which was recorded as income from discontinued operations in the accompanying consolidated statement of operations for the nine months ended October 1, 2004.

 

The following table sets forth the detail and activity in the restructuring expense accrual during the nine months ended October 1, 2004 (in thousands):

 

2001 Restructuring Accrual

 

     Accrual
Balance at
January 2,
2004


  

Adjustments

to Accrual


   Write-off of
leasehold
improvements


    Expenditures

   

Accrual
Balance at
October 1,

2004


Closure and consolidation of facilities and related exit costs

   $ 2,840    $ 1,878    $ (1,205 )   $ (634 )   $ 2,879
    

  

  


 


 

2002 Restructuring Accrual                                     
     Accrual
Balance at
January 2,
2004


   Adjustments
to Accrual


   Write-off of
leasehold
improvements


    Expenditures

   

Accrual
Balance at
October 1,

2004


Closure and consolidation of facilities and related exit costs

   $ 7,231    $ 1,501    $ —       $ (2,858 )   $ 5,874
    

  

  


 


 

 

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Table of Contents

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

9. Income Taxes

 

The Company recorded $73 thousand of income tax expense for the nine months ended October 1, 2004. This amount reflects an estimated annual 26% tax rate for certain state and foreign taxes. The estimated annual effective tax rate includes an income tax benefit attributable to a decrease in the valuation allowance as a result of the expected utilization of tax net operating loss carryforwards in 2004. The liability method of accounting for deferred income taxes requires that a change in the valuation allowance for deferred tax assets be included in income tax expense or benefit for the current year.

 

The Company recorded $225 thousand of income tax expense for certain state and foreign taxes for the nine months ended October 3, 2003. The Company did not recognize an income tax benefit for federal taxes for the first nine months of 2003 due to the establishment of a valuation allowance for the tax benefit generated on losses in the first nine months.

 

In 2002, the Company discontinued its interactive marketing business which was acquired with THINK New Ideas. The Company claimed a worthless stock deduction for its investment in THINK New Ideas in its 2002 tax return as a result of the discontinuance of THINK New Ideas. The Company voluntarily requested that the Internal Revenue Service (“IRS”) review this position on an expedited basis. On August 5, 2004, the Company reached an agreement with the IRS representing the final step in the review process. Pursuant to the agreement, the Company and the IRS agreed that the Company was entitled to a worthless stock deduction of $77.3 million on the Company’s 2002 tax return. Including this deduction, the Company has approximately $77 million of net operating loss carryforwards as of January 2, 2004.

 

10. Shareholders’ Equity

 

Stock Plans

 

During the quarter and nine months ended October 1, 2004, the Company incurred $599 thousand and $1.8 million, respectively, of stock compensation expense in connection with its outstanding restricted stock units. The Company expects to incur approximately the same amount of stock compensation expense per quarter over the remaining vesting period of the restricted stock units which fully vest in the third quarter of 2007. During the quarter and nine months ended October 3, 2003, the Company incurred $551 thousand of stock compensation expense in connection with its outstanding restricted stock units. As of October 1, 2004, the Company had 200,499 of stock options which are accounted for under variable plan accounting pursuant to FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. The weighted average exercise price of these remaining eligible options is $3.91. Variable plan accounting resulted in a reduction of stock compensation expense of approximately $2 thousand for the quarter ended October 1, 2004, and resulted in $112 thousand of stock compensation expense for the nine months ended October 1, 2004.

 

Treasury Stock

 

In July 2002, the Company announced that its Board of Directors approved the repurchase of up to $5.0 million of Answerthink’s common stock. During the second quarter of 2003, and the second and third quarters of 2004, the Board of Directors approved the repurchase of an additional $5.0 million of Answerthink’s common stock for each of these three quarters. Under the repurchase plans, Answerthink may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions, subject to market conditions and trading restrictions. During the quarter ended October 1, 2004, the Company repurchased 588,826 shares of its common stock at a cost of approximately $2.8 million. As of October 1, 2004, the Company had repurchased 4,958,705 shares of its common stock at an average price of $3.20 per share. In June 2003, the Company repurchased 465,120 shares from the Company President, who is also a director, at $2.15 per share. The Company holds repurchased shares of its common stock as treasury stock and accounts for treasury stock under the cost method. During the fourth quarter of 2004, the Board of Directors approved an additional $5 million for the repurchase of our common stock thereby increasing the total program size to $25 million.

 

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Table of Contents

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

11. Litigation

 

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 matters will not have a material adverse effect on the financial position or results of operations of the Company.

 

11


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report and the information incorporated by reference in it include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our business and industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements 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. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Factors that impact such forward-looking statements include, among others, our ability to effectively integrate acquisitions into our operations, our ability to attract additional business, the timing of projects and the potential for contract cancellation by our customers, 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 and changes in general economic conditions and interest rates. An additional description of our risk factors is set forth in our Annual Report on Form 10-K for the year ended January 2, 2004. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

OVERVIEW

 

Answerthink, Inc. is a leading business and technology consulting firm that provides services to enable companies to achieve world-class business performance. By leveraging the comprehensive database of The Hackett Group, the world’s leading repository of enterprise best practice metrics and business process knowledge, Answerthink’s business and technology solutions help clients improve performance and maximize returns on technology investments. Answerthink’s capabilities include benchmarking, business transformation, business applications, business intelligence, and offshore application development and support.

 

Critical Accounting Policies

 

Revenue Recognition

 

Our revenues are principally derived from fees for services generated on a project-by-project basis. Revenues for services rendered are recognized on a time and materials basis or on a fixed-fee or capped-fee basis. Revenues for time and materials contracts are recognized based on the number of hours worked by our consultants at an agreed upon rate per hour and are recognized in the period in which services are performed. Revenues related to fixed-fee or capped-fee contracts are recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period. The contracted dollar amount used in this calculation excludes the amount the client pays us for reimbursable expenses. There are situations where the number of hours to complete projects may exceed our original estimate. These increases can be as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. On an on-going basis, our project delivery, office of risk management and finance personnel review hours incurred and estimated total labor hours to complete projects and any revisions in these estimates are reflected in the period in which they become known.

 

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Unbilled revenues represent revenues for services performed that have not been invoiced. If we do not accurately estimate the scope of the work to be performed, or we do not manage our projects properly within the planned periods of time or we do not meet our clients’ expectations under the contracts, then future consulting margins may be negatively affected or losses on existing contracts may need to be recognized. Any such resulting reductions in margins or contract losses could be material to our results of operations. Revenues before reimbursements exclude reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenues, and an equivalent amount of reimbursable expenses is included in project personnel and expenses.

 

The agreements entered into in connection with a project, whether time and materials based or fixed-fee or capped-fee based, typically allow our clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by us through the effective date of the termination. In addition, from time to time we enter into agreements with our clients that 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 defined range of our 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.

 

Accounts Receivable and Allowances for Doubtful Accounts

 

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our clients to make required payments. Periodically, we review accounts receivable to assess our estimates of collectibility. Management critically reviews accounts receivable and analyzes historical bad debts, past-due accounts, client credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our clients were to deteriorate, resulting in their inability to make payments, additional allowances may be required.

 

Goodwill

 

We assess goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis. We have made determinations as to what our reporting units are and what amounts of goodwill and intangible assets should be allocated to those reporting units.

 

In assessing the recoverability of long-lived identifiable assets and goodwill, we must make assumptions regarding estimated future cash flows, discount rates and other factors to determine if impairment tests are met. These estimates contain management’s best estimates, using appropriate and customary assumptions and projections at the time. If these estimates or their related assumptions change in the future, we may be required to record additional impairment charges.

 

Restructuring Reserves

 

Restructuring reserves reflect judgements and estimates of our ultimate costs of severance, closure and consolidation of facilities and settlement of contractual obligations under our operating leases, including sublease rental rates, absorption period to sublease space and other related costs. We reassess the reserve requirements to complete each individual plan under our restructuring programs at the end of each reporting period. If these estimates change in the future or actual results are different than our estimates, we may be required to record additional charges in the future.

 

Income Taxes

 

We record income taxes using the liability method. Under this method, we record deferred taxes based on temporary taxable and deductible differences between the tax bases of our assets and liabilities and our financial reporting bases. The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

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Contingent Liabilities

 

We have certain contingent liabilities that arise in the ordinary course of our business activities. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Reserves for contingent liabilities are reflected in our consolidated financial statements based on management’s assessment, along with legal counsel, of the expected outcome of the contingencies. If the final outcome of our contingencies differs adversely from that currently expected, it would result in a charge to earnings when determined.

 

The foregoing list is not intended to be a comprehensive list of all our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for us to judge the application. There are also areas in which our judgement in selecting any available alternative would not produce a materially different result. Please see our consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K, which contain accounting policies and other disclosures required by accounting principles generally accepted in the United States.

 

Results of Operations

 

The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenues of such results:

 

     Quarter Ended

    Nine Months Ended

 
     October 1, 2004

    October 3, 2003

    October 1, 2004

    October 3, 2003

 

Revenues:

                                                       

Revenues before reimbursements

   $ 33,329     89.8 %   $ 29,274    88.9 %   $ 98,893     90.0 %   $ 90,117     89.0 %

Reimbursements

     3,802     10.2 %     3,644    11.1 %     10,976     10.0 %     11,083     11.0 %
    


 

 

  

 


 

 


 

Total revenues

     37,131     100.0 %     32,918    100.0 %     109,869     100.0 %     101,200     100.0 %

Costs and expenses:

                                                       

Project personnel and expenses:

                                                       

Project personnel and expenses before reimbursable expenses

     19,845     53.5 %     17,460    53.0 %     57,376     52.2 %     57,060     56.3 %

Reimbursable expenses

     3,802     10.2 %     3,644    11.1 %     10,976     10.0 %     11,083     11.0 %
    


 

 

  

 


 

 


 

Total project personnel and expenses

     23,647     63.7 %     21,104    64.1 %     68,352     62.2 %     68,143     67.3 %

Selling, general and administrative expenses

     12,081     32.5 %     10,194    31.0 %     36,122     32.9 %     33,770     33.4 %

Restructuring costs

     —       —         —      —         3,749     3.4 %     4,875     4.8 %

Stock compensation expense

     597     1.6 %     565    1.7 %     1,891     1.7 %     565     0.6 %
    


 

 

  

 


 

 


 

Total costs and operating expenses

     36,325     97.8 %     31,863    96.8 %     110,114     100.2 %     107,353     106.1 %
    


 

 

  

 


 

 


 

Income (loss) from operations

     806     2.2 %     1,055    3.2 %     (245 )   (0.2 )%     (6,153 )   (6.1 )%

Other income (expense):

                                                       

Interest income

     184     0.4 %     155    0.5 %     570     0.5 %     517     0.5 %

Interest expense

     (40 )   (0.1 )%     —      —         (40 )   (0.0 )%     —       —    
    


 

 

  

 


 

 


 

Income (loss) before income taxes and income from discontinued operations

     950     2.5 %     1,210    3.7 %     285     0.3 %     (5,636 )   (5.6 )%

Income tax expense

     126     0.3 %     75    0.3 %     73     0.1 %     225     0.2 %
    


 

 

  

 


 

 


 

Income (loss) from continuing operations

     824     2.2 %     1,135    3.4 %     212     0.2 %     (5,861 )   (5.8 )%

Income from discontinued operations

     —       —         —      —         370     0.3 %     —       —    
    


 

 

  

 


 

 


 

Net Income (loss)

   $ 824     2.2 %   $ 1,135    3.4 %   $ 582     0.5 %   $ (5,861 )   (5.8 )%
    


 

 

  

 


 

 


 

 

Revenues. Revenues for the quarter ended October 1, 2004 increased by $4.2 million or 13% to $37.1 million from $32.9 million in the quarter ended October 3, 2003. Revenues for the nine months ended October 1, 2004 increased by $8.7 million or 9% to $109.9 million from $101.2 million in the nine months ended October 3, 2003. The increase in

 

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revenues for the quarter and the nine months ended October 1, 2004 was primarily attributable to increased revenue from benchmarking sales and related follow-on consulting projects, and the acquisitions of EZCommerce, a dual-shore ERP implementation company, and Beacon Analytics, Inc., a business performance management consulting company, focusing on the implementation of Hyperion software. These impacts were partially offset by a decline in Peoplesoft implementation revenues of $7.4 million for the nine months ended October 1, 2004, due to the wind down of significant projects at two of our larger customers. Reimbursements as a percentage of revenues during the quarters and nine months ended October 1, 2004 and October 3, 2003 were 10% and 11%, respectively. During the quarter and nine months ended October 1, 2004, one customer accounted for 6% and 8% of revenues, respectively. During the quarter ended October 3, 2003, three customers accounted for revenues greater than 5% of revenues, which, in the aggregate accounted for 20% of revenues. For the nine months ended October 3, 2003 three customers accounted for revenues greater than 5% of revenues, which in the aggregate accounted for 22% of revenues. With respect to our largest customer in 2004, our contracts can be cancelled for convenience by the customer upon 30 days’ notice. Our project with this customer expires on January 2005. We do not anticipate any credit and/or collection issues with this customer. As is customary with most of our significant relationships, we may be able to continue with new and follow-on projects as these initiatives progress into subsequent phases. However, there is no assurance that we will be able to renew these contracts. The cancellation or significant reduction in the use of services from our key customer could have a material adverse effect on our results of operations.

 

Project Personnel and Expenses. Project personnel costs and expenses primarily consist of salaries, benefits and incentive compensation for consultants and reimbursable expenses associated with projects. Project personnel costs and expenses were $23.6 million in the quarter ended October 1, 2004, an increase of $2.5 million or 12% compared to the quarter ended October 3, 2003. This increase was primarily attributable to the increase in the number of consultants in order to balance workforce capacity with market demand for services, partially offset by a lower average cost per consultant. Consultant headcount was 600 as of October 1, 2004 compared to 486 as of October 3, 2003. Project personnel costs and expenses were $68.4 million in the nine months ended October 1, 2004, an increase of $209 thousand from $68.1 for the nine months ended October 3, 2003. This slight increase was primarily attributable to an increase in the number of consultants, offset by lower average cost per consultant. The average number of consultants in the nine months ended October 1, 2004 was 563 compared to 498 in the nine months ended October 3, 2003.

 

Project personnel and expenses as a percentage of revenues was comparable at 64% for the quarters ended October 1, 2004, and October 3, 2003, primarily as the result of a lower average cost per consultant offset by lower utilization of consultants. Utilization approximated 67% in the quarter ended October 1, 2004 down from 73% in the comparable quarter of 2003. Project personnel and expenses as a percentage of revenues decreased to 62% for the nine months ended October 1, 2004 from 67% in the comparable period of 2003. This decrease was primarily the result of a lower average cost per consultant and increased utilization of consultants which approximated 71% for the nine months ended October 1, 2004 compared to 69% for the comparable period in 2003.

 

Selling, General and Administrative. Selling, general and administrative expenses increased 19% to $12.1 million in the quarter ended October 1, 2004 from $10.2 million in the quarter ended October 3, 2003. Selling, general and administrative expenses increased 7% to $36.1 million in the nine months ended October 1, 2004 from $33.8 million in the nine months ended October 3, 2003. The overall increases in selling, general and administrative expenses were primarily due to an increase in our benchmarking and business advisory services group related to an increased sales force and an increase in recruiting expense, partially offset by lower legal fees. Selling, general and administrative expenses as a percentage of revenues were 33% and 31%, respectively, during the quarters ended October 1, 2004 and October 3, 2003, and comparable at 33% for the nine months ended October 1, 2004 and October 3, 2003. The increase during the quarter was primarily attributable to the increase in selling and recruiting expenses in our benchmarking and business advisory services group offset by the impact of fixed expenses on higher levels of revenue in 2004 as compared to 2003.

 

Restructuring Costs. We recorded restructuring costs of $3.7 million and $4.9 million for the nine months ended October 1, 2004 and October 3, 2003, respectively, to increase previously established reserves recorded for the closure and consolidation of facilities. Existing reserves were increased to account for higher estimated losses on the sublease of facilities as a result of lower than expected sublease rates and longer than expected time estimates to sublease facilities based on current market conditions. Also in 2004, the restructuring accrual was reduced by $370 thousand relating to the final settlement of a lease obligation, which is recorded as income from discontinued operations in the consolidated statement of operations for the nine months ended October 1, 2004.

 

Stock Compensation Expense. Stock compensation expense in 2004 primarily related to our outstanding restricted stock units. We recorded non-cash compensation expense of $599 thousand and $1.8 million in the quarter and

 

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nine months ended October 1, 2004, respectively, based on the vesting provisions of the restricted stock units and the fair market value of the stock on the grant date. We expect to incur approximately the same amount of stock compensation expense per quarter over the remaining vesting period of the restricted stock units which fully vest in the third quarter of 2007. We recorded non-cash compensation expense of $551 thousand in connection with the restricted stock units during the quarter and nine months ended October 3, 2003. In addition, as of October 1, 2004 we had 200,499 stock options accounted under variable plan accounting pursuant to FASB Interpretation No. 28. Variable plan accounting resulted in a reduction of stock compensation expense of approximately $2 thousand for the quarter ended October 1, 2004 and resulted in $112 thousand of stock compensation expense for the nine months ended October 1, 2004.

 

Income Taxes. We recorded an income tax expense of $73 thousand for the nine months ended October 1, 2004. This amount reflects an estimated annual 26% tax rate for certain state and foreign taxes. The estimated annual effective tax rate includes an income tax benefit attributable to a decrease in the valuation allowance as a result of the expected utilization of tax net operating loss carryforwards in 2004. The liability method of accounting for deferred income taxes requires that a change in the valuation allowance for deferred tax assets be included in income tax expense or benefit for the current year. We recorded $225 thousand of net income tax expense for certain state and foreign taxes for the nine months ended October 3, 2003. We did not recognize an income tax benefit for federal and state taxes for the first nine months of 2003 due to the establishment of a valuation allowance for the tax benefit generated on losses in the first nine months.

 

In 2002, we discontinued our interactive marketing business which was acquired with THINK New Ideas. In connection therewith, we claimed a worthless stock deduction for the investment in THINK New Ideas in our 2002 tax return as a result of the discontinuance of THINK New Ideas. We voluntarily requested that the Internal Revenue Service (“IRS”) review this position on an expedited basis. On August 5, 2004 the Company reached an agreement with the IRS representing the final step in the review process. Pursuant to the agreement, the Company and the IRS agreed that the Company was entitled to a worthless stock deduction of $77.3 million on the Company’s 2002 tax return. Including this deduction, the Company has approximately $77 million of net operating loss carryforwards as of January 2, 2004.

 

Liquidity and Capital Resources

 

We have funded our operations primarily with cash flow generated from operations and the proceeds from our initial public offering. At October 1, 2004, we had $18.6 million in cash and cash equivalents compared to $54.4 million at January 2, 2004. At October 1, 2004 and January 2, 2004 we had $3.0 million on deposit with a financial institution as collateral for letters of credit and have classified this cash as restricted on the accompanying consolidated balance sheets. We also had marketable investments of $29.9 and $10 million at October 1, 2004 and January 2, 2004, respectively.

 

Net cash used in operating activities was $839 thousand for the nine months ended October 1, 2004 compared to cash provided by operating activities of $7.2 million during the comparable period of 2003. During the nine months ended October 1, 2004, net cash used in operating activities was primarily attributable to a $6.3 million increase in accounts receivable and unbilled revenue, and a decrease of $3.0 million in accrued expenses and other liabilities, partially offset by net income of $582 thousand and $7.5 million of non-cash expenses. During the nine months ended October 3, 2003, net cash provided by operating activities was primarily attributable to a $9.8 million decrease in prepaid expenses and other assets primarily related to an $8.5 million tax refund received in the second quarter of 2003, and a $3.1 million decrease in accounts receivable and unbilled revenue. This effect was partially offset by our net loss of $5.9 million, adjusted for $4.4 million of non-cash expenses, a $2.4 million decrease in accounts payable and a $1.8 million decrease in accrued expenses and other liabilities.

 

Net cash used in investing activities was $29.0 million for nine months ended October 1, 2004 compared to $8.8 million used during the comparative period of 2003. The uses of cash for investing activities in 2004 were primarily attributable to the net purchases of $20 million of marketable investments, $6.1 million used in the acquisition of a business, and $2.9 million for purchases of property and equipment. Cash used in investing activities in 2003 was mainly attributable to the purchase of $5 million of marketable investments, $2.8 million used in the acquisition of a business, and $954 thousand of purchases of property and equipment.

 

Net cash used in financing activities was $6.0 million for the nine months ended October 1, 2004 compared to $5.0 million for the comparable period of 2003. During the nine months ended October 1, 2004, cash used in financing activities was primarily for the repurchase of our common stock. These repurchases of $8.2 million were partially offset

 

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by proceeds of $2.1 million from the sale of stock as a result of exercises of stock options as well as the sale of stock through our employee stock purchase plan. During the nine months ended October 3, 2003, $5.5 million of cash was used for repurchases of our common stock, partially offset by $457 thousand of proceeds from the sale of stock through our employee stock purchase plan, as well as the sale of stock as a result of exercises of stock options.

 

On July 30, 2002, we announced that our Board of Directors approved the repurchase of up to $5.0 million of our common stock. During the second quarter of 2003, and the second and third quarters of 2004 our Board of Directors approved the repurchase of an additional $5.0 million of our common stock for each of these three quarters. Under the repurchase plans, we may buy back shares of our outstanding stock from time to time either on the open market or through privately negotiated transactions, subject to market conditions and trading restrictions. As of October 1, 2004, we had repurchased 4,958,705 shares of our common stock at an average price of $3.20 per share. In June 2003, we repurchased 465,120 shares from the Company’s President, who is also a director, at $2.15 per share. We hold repurchased shares of our common stock as treasury stock and account for treasury stock under the cost method. During the fourth quarter of 2004, the Board of Directors approved an additional $5 million for the repurchase of our common stock thereby increasing the total program size to $25 million.

 

In May 2004, we purchased the US and India operations of EZCommerce Global Solutions, Inc., a business specializing in the dual-shore implementation of primarily SAP and, to a lesser extent, Oracle software. The purchase price for this acquisition was $9 million in cash, which includes $3.0 million of deferred payments payable in equal installments on the first and second anniversary of the purchase. In addition, approximately $3 million of contingent consideration will be payable over the next two years if certain earnings goals are achieved.

 

We currently believe that available funds and cash flows generated by operations, if any, will be sufficient to fund our working capital and capital expenditure requirements for at least the next 12 months. We may decide to raise additional funds in order to fund expansion, to develop new or enhanced products and services, to respond to competitive pressures or to acquire complementary businesses or technologies. There is no assurance, however, that additional financing will be available when needed or desired.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

At October 1, 2004, our exposure to market risk related primarily to changes in interest rates on our investment portfolio. Our marketable investments consist primarily of short-term variable interest rate securities. We invest only with high credit quality issuers and we do not use derivative financial instruments in our investment portfolio. We do not believe that a significant increase or decrease in interest rates would have a material impact on the fair value of our investment portfolio.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) pursuant to Rule 13a-14(c) and Rule 15d-14(c) under the Securities Exchange Act of 1934. Based upon that evaluation, the CEO and CFO concluded that, subject to the limitations noted below, our Disclosure Controls are effective in timely alerting them to material information required to be included in our periodic SEC filings.

 

Changes in Internal Controls

 

Subsequent to the date we carried out our evaluation, there have been no significant changes in our internal controls or other factors that could significantly affect these internal controls.

 

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Limitations on the Effectiveness of Controls

 

Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgements in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are 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 matters will not have a material adverse effect on our financial position or results of operations.

 

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

During the quarter ended October 1, 2004, the Company repurchased 588,826 shares of its common stock at a cost of approximately $2.8 million, under a repurchase program approved by the Board of Directors. All repurchases were made in the open market, subject to market conditions and trading restrictions. There is no expiration date on the current authorization and during the period covered by the table, no determination was made by the Company to suspend or cancel purchases under the program.

 

Issuer Purchases of Equity Securities

 

Period


   Total Number of
Shares Purchased


   Average Price
paid per Share


  

Total Number of
Shares Purchased as
Part of the

Repurchase
Program


   Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Repurchase
Program


July 3, 2004 to July 30, 2004

   378,426    $ 5.14    378,426    $ 5,036,048

July 31, 2004 to August 27, 2004

   210,400    $ 4.24    210,400    $ 4,143,180

August 28, 2004 to October 1, 2004

   —      $ —      —      $ 4,143,180
    
         
      

Total

   588,826    $ 4.82    588,826       
    
         
      

 

During the fourth quarter of 2004, the Board of Directors approved an additional $5 million for the repurchase of our common stock thereby increasing the total program size to $25 million.

 

Item 5. Other Information

 

On November 10, 2004, the Company amended the employment agreements of four of its executive officers. The amendments were approved by the Compensation Committee of the Company.

 

The Executive Employment Agreement dated May 26, 1998 by and between the Company and Ted A. Fernandez, Chief Executive Officer and Chairman of the Board, was amended to include the following provisions: (a) Upon a change of control, regardless of termination, Mr. Fernandez will receive two years’ annual salary and full vesting of all issued and outstanding equity grants, including restricted stock units and stock options, (b) Upon termination without cause, Mr. Fernandez will receive one year’s annual salary and full vesting of all issued and outstanding equity grants, including restricted stock units and stock options, (c) Upon termination for disability, Mr. Fernandez will receive one year’s annual salary and full vesting of all issued and outstanding equity grants, including restricted stock units and stock options, (d) Upon termination due to death, Mr. Fernandez will receive full vesting of all issued and outstanding equity grants, including restricted stock units and stock options, and (e) Upon resignation for good reason, Mr. Fernandez will receive one year’s annual salary and full vesting of all issued and outstanding equity grants, including restricted stock units and stock options. Pursuant to the amended agreement, the term “annual salary” for all purposes is defined as Mr. Fernandez’ salary plus bonus for the most recent twelve months. The salary mitigation provision in Mr. Fernandez’ existing agreement was deleted.

 

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The Executive Employment Agreements dated May 26, 1998, December 26, 2001 and March 23, 1999 by and between the Company and Allan R. Frank, President, David N. Dungan, Chief Operating Officer and John F. Brennan, Chief Financial Officer, respectively, were amended to include the following provisions: (a) Upon a change of control, regardless of termination, the executive will receive two years’ annual salary and full vesting of all issued and outstanding equity grants, including restricted stock units and stock options, (b) Upon termination for disability, the executive will receive one year’s annual salary and full vesting of any issued and outstanding equity grants, including restricted stock units and stock options, and (c) Upon termination due to death, the executive will receive full vesting of all issued and outstanding equity grants, including restricted stock units and stock options. Pursuant to the amended agreements, the term “annual salary” for all purposes is defined as the executive’s salary plus bonus for the most recent twelve months. The salary mitigation provision in each executive’s existing agreement was deleted.

 

Item 6. Exhibits and Reports on Form 8-K

 

  (a) Exhibits

 

See Index to Exhibits on page 22, which is incorporated herein by reference.

 

The Exhibits listed in the accompanying Index to Exhibits are filed as part of this report.

 

  (b) Reports on Form 8-K

 

A Current Report on Form 8-K was furnished with the Securities and Exchange Commission on July 27, 2004 in connection with the announcement of the financial results for the third quarter of 2004.

 

A Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 6, 2004 in connection with the agreement with the IRS regarding the $77.3 million worthless stock deduction for the investment in THINK New Ideas in our 2002 tax return as a result of the discontinuance of THINK New Ideas.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    Answerthink, Inc.

Date: November 10, 2004

 

/s/ John F. Brennan


   

John F. Brennan

   

Executive Vice President, Finance and Chief Financial Officer

 

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INDEX TO EXHIBITS

 

Exhibit No.

 

Exhibit Description


3.1+   Second Amended and Restated Articles of Incorporation of the Registrant, as amended
3.2+   Amended and Restated Bylaws of the Registrant, as amended
10.1   Amendment to Employment Agreement between Answerthink, Inc. and Ted A. Fernandez
10.2   Amendment to Employment Agreement between Answerthink, Inc. and David N. Dungan
10.3   Amendment to Employment Agreement between Answerthink, Inc. and Allan R. Frank
10.4   Amendment to Employment Agreement between Answerthink, Inc. and John F. Brennan
31.1   Certification by CEO pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
31.2   Certification by CFO pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
32   Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002
+   Incorporated herein by reference to the Company’s Form 10-K for the year ended December 29, 2000

 

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