SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
FLORIDA | 65-0750100 | |||||
(State or other jurisdiction of | (I.R.S. Employer | |||||
incorporation or organization) | Identification Number) | |||||
1001 Brickell Bay Drive, Suite 3000 | ||||||
Miami, Florida | 33131 | |||||
(Address of principal executive offices) | (Zip Code) |
(305) 375-8005
Securities registered pursuant to Section 12(b) of the Act: None
DOCUMENTS INCORPORATED BY REFERENCE
FORM 10-K
TABLE OF CONTENTS
Page | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
PART I | ||||||||||
ITEM 1. | Business | 3 | ||||||||
ITEM 2. | Properties | 13 | ||||||||
ITEM 3. | Legal Proceedings | 14 | ||||||||
ITEM 4. | Submission of Matters to a Vote of Security Holders | 14 | ||||||||
PART II | ||||||||||
ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 15 | ||||||||
ITEM 6. | Selected Financial Data | 16 | ||||||||
ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||||||||
ITEM 7A. | Quantitative and Qualitative Disclosures about Market Risk | 24 | ||||||||
ITEM 8. | Financial Statements and Supplementary Data | 25 | ||||||||
ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures | 48 | ||||||||
ITEM 9A. | Control and Procedures | 48 | ||||||||
ITEM 9B. | Other Information | 48 | ||||||||
PART III | ||||||||||
ITEM 10. | Directors and Executive Officers of the Registrant | 48 | ||||||||
ITEM 11. | Executive Compensation | 48 | ||||||||
ITEM 12. | Security Ownership of Certain Beneficial Owners and Management | 48 | ||||||||
ITEM 13. | Certain Relationships and Related Transactions | 48 | ||||||||
ITEM 14. | Principal Accountant Fees and Services | 48 | ||||||||
PART IV | ||||||||||
ITEM 15. | Exhibits and Financial Statement Schedules | 49 | ||||||||
Signatures | 50 | |||||||||
Index to Exhibits | 51 |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
ITEM 1. | BUSINESS |
GENERAL
INDUSTRY BACKGROUND
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ongoing management and control, so they can ensure that streamlined or re-engineered processes continue to deliver cost and performance improvements in the future. Business intelligence, analytics and knowledge management applications are expected to also play an increasingly significant role as companies seek to generate more valuable insight and analysis from their operational and financial data. We believe that these enabling technologies will produce real-time enterprises, capable of nearly instantaneous views of current performance and more accurate and efficient planning, forecasting and reporting.
OUR APPROACH
COMPETITION
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STRATEGY
• | Continue to rapidly grow The Hackett Group with new and renewable multi-year offerings. Our benchmarking offerings help companies identify and quantify opportunities for operational improvements and efficiently measure and track the degree of improvement against specific internal and peer performance targets over multi-year periods. Our business advisory services target executives seeking guidance and proven strategies on operational and strategic issues. During 2004 we experienced strong growth in our Hackett benchmarking and subscription based advisory programs. We continue to develop subscription advisory products that will allow clients to efficiently realize the benefits identified in the Hackett benchmarking services. As subscription sales continue to grow an increasing number of sales will involve multi-year commitments which will improve the predictability of our results. |
• | Continue to expand our Best Practices Implementation tools. BPI incorporates intellectual capital from The Hackett Group into our implementation tools and techniques. For clients, the end results are tangible cost and performance gains and the improved return on investment. Our clients attribute their decision to use us to our Best Practice Implementation (BPI) approach and tools. Our objective is to help clients make smarter business process and software configuration decisions as a result of our Best Practice Implementation methods and knowledge. The recent launch of version two of our BPI tools resulted in an expanded best practice repository along with key revisions in business process areas that have been impacted by emerging information technologies. We expect this new and expanded version of our tools and methods to further differentiate our ability to serve our clients. We will continue to train associates in all of our practices about BPI so they are equipped with the knowledge and tools necessary to share our vision with existing and prospective clients. |
• | Continue to leverage our unique best practice knowledge through select strategic alliances. Because of our understanding of how to optimize processes and software configuration with proven best practices, a relationship with a larger provider of comprehensive business and IT services represents a logical opportunity to expand our client base. Our strategic relationship with Accenture, L.L.P., a leading provider of consulting services, gives them the exclusive right to collaborate with Answerthink and The Hackett Group in offering best practices benchmarking services and our BPI tools in designated functional areas, including finance, accounting, performance management, business intelligence and procurement. In situations where Accenture uses our intellectual capital, we have an opportunity to staff up to 15% of the project positions of each engagement jointly pursued. If we are the lead source on jointly pursued opportunities with Accenture, then we will have the opportunity to staff up to 25% of the positions. Our strategy is to execute on this current alliance and expand to other functional areas as well as geographic locations outside of North America. In addition, we continue to build upon joint marketing initiatives with Oracle, SAP, Lawson, and Hyperion and other strategic business and IT providers. |
• | Seek out strategic acquisitions. We will continue to pursue strategic acquisitions that strengthen our ability to compete. We believe that our unique Hackett access and our BPI approach coupled with our strong balance sheet and infrastructure can be utilized to support a larger organization. Acquisitions must be accretive or have strong growth prospects, but most importantly, have strong synergy with our best practice intellectual capital focus. |
• | Expand our dual shore capabilities. Developing an offshore resource capability to support all of our offerings has been a key strategy for our organization. In late 2004, we opened our new facility in Hyderabad, India which will allow us to more aggressively market this capability in our proposals in 2005. With this improved infrastructure in place, we are expecting our headcount and utilization of India resources to expand in 2005. |
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OUR SOLUTION
The Hackett Group
• | Benchmarking & Executive Advisory Programs |
• | Business Transformation |
Best Practices Solutions
• | Business Applications |
• | Business Intelligence |
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clients in improving business performance by rationalizing IT infrastructures, and selecting the right enabling technologies, such as Web services, portals and BPM software, to complement enterprise systems and facilitate information sharing and process integration inside and outside the enterprise. |
CLIENTS
BUSINESS DEVELOPMENT AND MARKETING AND MARKET SEGMENTATION
BUSINESS DEVELOPMENT RESOURCES
• | The Leadership Team |
• | The Sales Organization |
• | The Solution Strategist Network |
• | Lead Generation Specialists |
• | The Delivery Organization |
The Leadership Team is comprised of our senior leaders who have a combination of executive, functional, practice and anchor account responsibilities. In addition to their management responsibilities, this group of associates is responsible for growing business by fostering executive level relationships within accounts and leveraging their existing contacts in the marketplace. |
The Sales Organization is comprised of associates who are 100% dedicated to generating sales. They are deployed geographically in key markets and are primarily focused on developing new relationships within their target accounts. Each sales associate has between two and ten target accounts split between existing clients and select Global 2000 prospects. They represent our entire offering. They also handle geographic-related opportunities as they arise. |
The Solution Strategist Network is comprised of associates throughout our various practices who are primarily dedicated to developing new business. Solution strategists possess deep subject matter expertise within a specific discipline and receive incentive compensation on the amount of revenue they generate in addition to other criteria. Solution strategists sell new business in geographic accounts and collaborate with the sales organization on specific account opportunities to provide content expertise. |
Lead Generation Specialists are comprised of trained groups of lead development specialists who are conversant with its various solution areas. Lead generation is coordinated with our marketing and sales groups to ensure that our inbound and outbound efforts are synchronized with targeted marketing and sales programs. |
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The Delivery Organization is comprised of our billable associates who work at client locations. We encourage associates to pursue additional business development opportunities through their normal course of delivering existing projects and help us expand our business within existing accounts. |
• | Top 25 Accounts |
• | Target Accounts |
• | Geographic Focus Accounts |
• | Strategic Alliance Accounts |
Top 25 Accounts are a mix of our largest existing clients and our most strategic prospects. To facilitate proper account management, each top 25 account has a leadership team member assigned to perform the role of client executive, an associate from the sales, solution strategist or delivery organizations to perform the role of account manager, and an associate from the delivery organizations to perform the role of delivery leader. |
Target Accounts are comprised of prospects and clients who are geographically situated where a sales representative resides. Criteria for inclusion as a target account includes the size of the company, industry affiliation, propensity to buy external consulting services and contacts within the account. The sales representative is primarily responsible for identifying business opportunities in the account, acting as the single point of coordination for the client, and performing the general duties of account manager. |
Geographic Focus Accounts are accounts within a specified geographic location that fall neither within the top 25 or target account lists. These accounts can include large prospects, dormant clients, existing medium-sized clients and mid-tier market accounts. This account set is handled primarily on an opportunistic basis, except for active clients where delivery teams are focused on driving additional revenue. |
Strategic Alliance Accounts are accounts that allow us to partner with organizations with greater scale or different skill sets or with software developers so that all parties can jointly market their products and services to prospective clients. An example of this type of alliance is the agreement with Accenture that was signed in late 2003. This agreement gives Accenture the exclusive right to collaborate with us in offering its clients our best practice benchmarking programs and best practices solutions in designated functional areas, including finance, accounting, performance management, business intelligence and procurement. Under the agreement, we have the ability to expand into additional enterprise functional areas and geographic locations. The agreement gives us access to Accenture’s global client base and sales distribution channel. By working with more clients, The Hackett Group will be able to broaden the base of critical metrics and best practices, thereby creating even richer benchmark data to help companies achieve world-class performance. Our alliance allows us to staff a portion of the consulting positions for each engagement that is jointly closed with Accenture. We continue to seek alliances that broaden our distribution channel. |
MANAGEMENT SYSTEMS
HUMAN RESOURCES
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• | Development of our associates our unique content business model and knowledge base creates a highly unique learning opportunity |
• | Diversity of backgrounds, skills and experiences |
• | Knowledge capture, contribution and utilization |
• | Collaboration with one another, with our partners and with our clients |
COMMUNITY INVOLVEMENT
AVAILABLE INFORMATION
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RISK FACTORS
• | the number, size, timing and scope of client engagements; |
• | customer concentration; |
• | long and unpredictable sales cycles; |
• | contract terms of client engagements; |
• | degrees of completion of client engagements; |
• | client engagement delays or cancellations; |
• | competition for and utilization of employees; |
• | how well we estimate the resources and effort we need to complete client engagements; |
• | the integration of acquired businesses; |
• | pricing changes in the industry; |
• | economic conditions specific to business and information technology consulting; and |
• | general economic conditions. |
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acquire in the future without substantial expense, delays or other operational or financial problems. We may not be able to identify, acquire or profitably manage additional businesses. Also, acquisitions may involve a number of risks, including:
• | diversion of management’s attention; |
• | failure to retain key personnel; |
• | failure to retain existing clients; |
• | unanticipated events or circumstances; |
• | unknown claims or liabilities; and |
• | amortization of certain acquired intangible assets. |
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could reduce the profitability of, or result in a loss on, the engagement. In the past, we have, on occasion, engaged in negotiations with clients regarding changes to the cost, scope or duration of specific engagements. To the extent we do not sufficiently communicate to our clients, or our clients fail to adequately appreciate, the nature and extent of any of these types of changes to an engagement, our reputation may be harmed and we may suffer losses on an engagement.
• | stockholders must comply with advance notice requirements before raising a matter at a meeting of stockholders or nominating a director for election; |
• | our board of directors is staggered into three classes and the members may be removed only for cause upon the affirmative vote of holders of at least two-thirds of the shares entitled to vote; |
• | we would not be required to hold a special meeting to consider a takeover proposal unless holders of more than a majority of the shares entitled to vote on the matter were to submit a written demand or demands for us to do so; and |
• | our board of directors may, without obtaining stockholder approval, classify and issue up to 1,250,000 shares of preferred stock with powers, preferences, designations and rights that may make it more difficult for a third party to acquire us. |
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• | future announcements concerning us or our competitors; |
• | quarterly fluctuations in operating results; |
• | announcements of acquisitions or technological innovations; or |
• | changes in earnings estimates or recommendations by analysts. |
ITEM 2. | PROPERTIES |
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ITEM 3. | LEGAL PROCEEDINGS |
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
High | Low | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
2004 | ||||||||||
Fourth Quarter | $ | 5.49 | $ | 3.51 | ||||||
Third Quarter | $ | 6.35 | $ | 3.87 | ||||||
Second Quarter | $ | 8.45 | $ | 4.22 | ||||||
First Quarter | $ | 8.19 | $ | 5.50 | ||||||
2003 | ||||||||||
Fourth Quarter | $ | 6.35 | $ | 3.21 | ||||||
Third Quarter | $ | 4.03 | $ | 2.19 | ||||||
Second Quarter | $ | 2.59 | $ | 1.75 | ||||||
First Quarter | $ | 2.97 | $ | 1.95 |
Company Dividend Policy
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 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
October 2, 2004 to October 29, 2004 | 433,950 | $ | 3.96 | 433,950 | $ | 7,425,645 | |||||||||||||
October 30, 2004 to November 26, 2004 | 82,200 | $ | 4.48 | 82,200 | $ | 7,057,098 | |||||||||||||
November 27, 2004 to December 31, 2004 | 52,000 | $ | 4.52 | 52,000 | $ | 6,822,058 | |||||||||||||
Total | 568,150 | $ | 4.09 | 568,150 |
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ITEM 6. | SELECTED FINANCIAL DATA |
Year Ended | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2004 | January 2, 2004 | January 3, 2003 | December 28, 2001 | December 29, 2000 | |||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||
Consolidated Statement of Operations Data: | |||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Revenues before reimbursements | $ | 129,339 | $ | 117,945 | $ | 156,357 | $ | 220,966 | $ | 260,892 | |||||||||||||
Reimbursements | 14,208 | 14,442 | 20,490 | 29,377 | 35,811 | ||||||||||||||||||
Total revenues | 143,547 | 132,387 | 176,847 | 250,343 | 296,703 | ||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||
Project personnel and expenses: | |||||||||||||||||||||||
Project personnel and expenses before reimbursable expenses | 75,774 | 73,061 | 104,981 | 132,843 | 147,040 | ||||||||||||||||||
Reimbursable expenses | 14,208 | 14,442 | 20,490 | 29,377 | 35,811 | ||||||||||||||||||
Total project personnel and expenses | 89,982 | 87,503 | 125,471 | 162,220 | 182,851 | ||||||||||||||||||
Selling, general and administrative expenses | 48,491 | 43,951 | 53,416 | 77,087 | 92,321 | ||||||||||||||||||
Impairment of goodwill | — | — | 20,000 | — | — | ||||||||||||||||||
Restructuring costs | 3,749 | 4,875 | 10,886 | 5,619 | 3,268 | ||||||||||||||||||
Stock compensation expense | 2,321 | 1,236 | — | 4,855 | 853 | ||||||||||||||||||
Total costs and operating expenses | 144,543 | 137,565 | 209,773 | 249,781 | 279,293 | ||||||||||||||||||
Income (loss) from operations | (996 | ) | (5,178 | ) | (32,926 | ) | 562 | 17,410 | |||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Litigation settlement | — | — | — | — | 1,850 | ||||||||||||||||||
Non-cash investment losses | — | — | — | — | (2,350 | ) | |||||||||||||||||
Interest income (expense), net | 802 | 706 | 570 | 843 | 589 | ||||||||||||||||||
Income (loss) before income taxes, income (loss) from discontinued operations, and cumulative effect of change in accounting principle | (194 | ) | (4,472 | ) | (32,356 | ) | 1,405 | 17,499 | |||||||||||||||
Income taxes | 324 | 350 | (3,508 | ) | 1,807 | 8,571 | |||||||||||||||||
Income (loss) from continuing operations | (518 | ) | (4,822 | ) | (28,848 | ) | (402 | ) | 8,928 | ||||||||||||||
Income (loss) from discontinued operations, net of income taxes | 370 | — | (8,911 | ) | (8,117 | ) | (1,027 | ) | |||||||||||||||
Income (loss) before cumulative effect of change in accounting principle | (148 | ) | (4,822 | ) | (37,759 | ) | (8,519 | ) | 7,901 | ||||||||||||||
Cumulative effect of change in accounting principle | — | — | (31,200 | ) | — | — | |||||||||||||||||
Net income (loss) | $ | (148 | ) | $ | (4,822 | ) | $ | (68,959 | ) | $ | (8,519 | ) | $ | 7,901 | |||||||||
Basic net income (loss) per common share: | |||||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.62 | ) | $ | (0.01 | ) | $ | 0.22 | |||||||||
Income (loss) from discontinued operations, net of income taxes | $ | 0.01 | $ | — | $ | (0.19 | ) | $ | (0.18 | ) | $ | (0.02 | ) | ||||||||||
Cumulative effect of change in accounting principle | $ | — | $ | — | $ | (0.68 | ) | $ | — | $ | — | ||||||||||||
Net income (loss) per common share | $ | (0.00 | ) | $ | (0.11 | ) | $ | (1.49 | ) | $ | (0.19 | ) | $ | 0.20 | |||||||||
Weighted average common shares outstanding | 44,188 | 45,140 | 46,348 | 43,999 | 40,262 | ||||||||||||||||||
Diluted net income (loss) per common share: | |||||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.62 | ) | $ | (0.01 | ) | $ | 0.20 | |||||||||
Income (loss) from discontinued operations, net of income taxes | $ | 0.01 | $ | — | $ | (0.19 | ) | $ | (0.18 | ) | $ | (0.02 | ) | ||||||||||
Cumulative effect of change in accounting principle | $ | — | $ | — | $ | (0.68 | ) | $ | — | $ | — | ||||||||||||
Net income (loss) per common share | $ | (0.00 | ) | $ | (0.11 | ) | $ | (1.49 | ) | $ | (0.19 | ) | $ | 0.18 | |||||||||
Weighted average common shares and common share equivalents | 44,188 | 45,140 | 46,348 | 43,999 | 45,137 |
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December 31, 2004 | January 2, 2004 | January 3, 2003 | December 28, 2001 | December 29, 2000 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands) | |||||||||||||||||||||||
Consolidated Balance Sheet Data: | �� | ||||||||||||||||||||||
Cash and cash equivalents | $ | 38,890 | $ | 54,441 | $ | 35,369 | $ | 35,679 | $ | 35,862 | |||||||||||||
Restricted cash | $ | 3,000 | $ | 3,000 | $ | 2,909 | $ | — | $ | — | |||||||||||||
Marketable investments | $ | 9,902 | $ | 10,000 | $ | 28,050 | $ | 24,209 | $ | 15,800 | |||||||||||||
Working capital | $ | 49,860 | $ | 58,826 | $ | 72,851 | $ | 81,313 | $ | 74,787 | |||||||||||||
Total assets | $ | 128,733 | $ | 135,223 | $ | 145,361 | $ | 211,919 | $ | 228,676 | |||||||||||||
Shareholders’ equity | $ | 99,854 | $ | 105,235 | $ | 113,047 | $ | 177,701 | $ | 172,054 |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
Critical Accounting Policies
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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.
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Results of Operations
Year Ended | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2004 | January 2, 2004 | January 3, 2003 | ||||||||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Revenues before reimbursements | $ | 129,339 | 90.1 | % | $ | 117,945 | 89.1 | % | $ | 156,357 | 88.4 | % | ||||||||||||||
Reimbursements | 14,208 | 9.9 | % | 14,442 | 10.9 | % | 20,490 | 11.6 | % | |||||||||||||||||
Total revenues | 143,547 | 100.0 | % | 132,387 | 100.0 | % | 176,847 | 100.0 | % | |||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||
Project personnel and expenses: | ||||||||||||||||||||||||||
Project personnel and expenses before reimbursable expenses | 75,774 | 52.8 | % | 73,061 | 55.2 | % | 104,981 | 59.4 | % | |||||||||||||||||
Reimbursable expenses | 14,208 | 9.9 | % | 14,442 | 10.9 | % | 20,490 | 11.6 | % | |||||||||||||||||
Total project personnel and expenses | 89,982 | 62.7 | % | 87,503 | 66.1 | % | 125,471 | 71.0 | % | |||||||||||||||||
Selling, general and administrative expenses | 48,491 | 33.8 | % | 43,951 | 33.2 | % | 53,416 | 30.2 | % | |||||||||||||||||
Impairment of goodwill | — | — | — | — | 20,000 | 11.3 | % | |||||||||||||||||||
Restructuring costs | 3,749 | 2.6 | % | 4,875 | 3.7 | % | 10,886 | 6.2 | % | |||||||||||||||||
Stock compensation expense | 2,321 | 1.6 | % | 1,236 | 0.9 | % | — | — | ||||||||||||||||||
Total costs and operating expenses | 144,543 | 100.7 | % | 137,565 | 103.9 | % | 209,773 | 118.7 | % | |||||||||||||||||
Loss from operations | (996 | ) | (0.7 | %) | (5,178 | ) | (3.9 | %) | (32,926 | ) | (18.7 | %) | ||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||
Interest income (expense), net | 802 | 0.6 | % | 706 | 0.5 | % | 570 | 0.4 | % | |||||||||||||||||
Loss before income taxes, income (loss) from discontinued operations and cumulative effect of change in accounting principle | (194 | ) | (0.1 | %) | (4,472 | ) | (3.4 | %) | (32,356 | ) | (18.3 | %) | ||||||||||||||
Income taxes | 324 | 0.3 | % | 350 | 0.2 | % | (3,508 | ) | (2.0 | %) | ||||||||||||||||
Loss from continuing operations | (518 | ) | (0.4 | %) | (4,822 | ) | (3.6 | %) | (28,848 | ) | (16.3 | %) | ||||||||||||||
Income (loss) from discontinued operations, net of income taxes | 370 | 0.3 | % | — | — | (8,911 | ) | (5.1 | %) | |||||||||||||||||
Loss before cumulative effect of change in accounting principle | (148 | ) | (0.1 | %) | (4,822 | ) | (3.6 | %) | (37,759 | ) | (21.4 | %) | ||||||||||||||
Cumulative effect of change in accounting principle | — | — | — | — | (31,200 | ) | (17.6 | %) | ||||||||||||||||||
Net loss | $ | (148 | ) | (0.1 | %) | $ | (4,822 | ) | (3.6 | %) | $ | (68,959 | ) | (39.0 | %) |
Comparison of 2004 to 2003
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environments through the end of fiscal reporting periods in order to support Sarbanes-Oxley compliance. Reimbursements as a percentage of revenues were 10% and 11% during fiscal years 2004 and 2003, respectively. In fiscal year 2004, one customer had revenues greater than 5% of total revenues, accounting for 7% of total revenues. In fiscal year 2003, three customers had revenues greater than 5% of total revenues, which, in the aggregate, accounted for approximately 20% of total revenues. With respect to our largest customer in 2004, our contract can be cancelled for convenience by the customer upon 30 days’ notice. Our project with this customer expires on September 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 this initiative progresses into subsequent phases. However, there is no assurance that we will be able to renew this contract. 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.
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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, we reached an agreement with the IRS representing the final step in the review process. Pursuant to the agreement, the IRS agreed that we are entitled to a worthless stock deduction of $77.3 million on our 2002 tax return. Including this deduction, we have approximately $74 million of U.S. federal net operating loss carryforwards as of December 31, 2004.
Comparison of 2003 to 2002
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performed an impairment test primarily as a result of the decline in our stock price and that of our peer group during the third quarter of 2002 and recorded a non-cash impairment charge of $20.0 million.
Liquidity and Capital Resources
Less than 1 year | $ | 5,240 | ||||
1–3 years | 10,050 | |||||
4–5 years | 9,096 | |||||
After 5 years | 14,558 | |||||
38,944 | ||||||
Less: sublease income | 8,581 | |||||
Total minimum lease payments, less sublease income | $ | 30,363 |
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Recently Issued Accounting Standards
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to reflect the impact of expensing share-based payments under SFAS 123R. We have not yet determined which fair-value method and transitional provision we will follow, or if the adoption of SFAS 123R will have a significant impact on our results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO FINANCIAL STATEMENTS
Page | ||||||
---|---|---|---|---|---|---|
Report of Independent Registered Certified Public Accounting Firm | 26 | |||||
Consolidated Balance Sheets as of December 31, 2004 and January 2, 2004 | 27 | |||||
Consolidated Statements of Operations for the Years Ended December 31, 2004, January 2, 2004 and January 3, 2003 | 28 | |||||
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the Years Ended December 31, 2004, January 2, 2004 and January 3, 2003 | 29 | |||||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, January 2, 2004 and January 3, 2003 | 30 | |||||
Notes to Consolidated Financial Statements | 31 | |||||
Schedule II—Valuation and Qualifying Accounts and Reserves | 47 |
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Report of Independent Registered Certified Public Accounting Firm
of Answerthink, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of shareholders’ equity and comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of Answerthink, Inc. and its subsidiaries at December 31, 2004 and January 2, 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with the standards of the Public Company Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
March 14, 2005
-26-
ANSWERTHINK, INC.
(in thousands, except share data)
December 31, 2004 | January 2, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 38,890 | $ | 54,441 | ||||||
Accounts receivable and unbilled revenue, net of allowance of $2,109 and $1,757 in 2004 and 2003, respectively | 28,883 | 24,877 | ||||||||
Prepaid expenses and other assets | 3,459 | 4,260 | ||||||||
Total current assets | 71,232 | 83,578 | ||||||||
Marketable investments | 9,902 | 10,000 | ||||||||
Restricted cash | 3,000 | 3,000 | ||||||||
Property and equipment, net | 7,568 | 8,714 | ||||||||
Other assets | 3,245 | 3,211 | ||||||||
Goodwill, net | 33,786 | 26,720 | ||||||||
Total assets | $ | 128,733 | $ | 135,223 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 3,462 | $ | 3,793 | ||||||
Accrued expenses and other liabilities | 17,910 | 20,959 | ||||||||
Total current liabilities | 21,372 | 24,752 | ||||||||
Accrued expenses and other liabilities, non-current | 7,507 | 5,236 | ||||||||
Total liabilities | 28,879 | 29,988 | ||||||||
Commitments and contingencies | ||||||||||
Shareholders’ equity: | ||||||||||
Preferred stock, $.001 par value, 1,250,000 shares authorized, none issued and outstanding | — | — | ||||||||
Common stock, $.001 par value, authorized 125,000,000 shares; issued: 48,969,181 shares at December 31, 2004; 48,290,640 shares at January 2, 2004 | 49 | 48 | ||||||||
Additional paid-in capital | 277,356 | 274,481 | ||||||||
Unearned compensation | (6,011 | ) | (8,367 | ) | ||||||
Treasury stock, at cost, 5,526,855 shares at December 31, 2004 and 3,550,279 shares at January 2, 2004 | (18,178 | ) | (7,686 | ) | ||||||
Accumulated deficit | (153,389 | ) | (153,241 | ) | ||||||
Accumulated other comprehensive income | 27 | — | ||||||||
Total shareholders’ equity | 99,854 | 105,235 | ||||||||
Total liabilities and shareholders’ equity | $ | 128,733 | $ | 135,223 |
The accompanying notes are an integral part of the consolidated financial statements.
-27-
ANSWERTHINK, INC.
(in thousands, except per share data)
Year Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2004 | January 2, 2004 | January 3, 2003 | |||||||||||||
Revenues: | |||||||||||||||
Revenues before reimbursements | $ | 129,339 | $ | 117,945 | $ | 156,357 | |||||||||
Reimbursements | 14,208 | 14,442 | 20,490 | ||||||||||||
Total revenues | 143,547 | 132,387 | 176,847 | ||||||||||||
Costs and expenses: | |||||||||||||||
Project personnel and expenses: | |||||||||||||||
Project personnel and expenses before reimbursable expenses | 75,774 | 73,061 | 104,981 | ||||||||||||
Reimbursable expenses | 14,208 | 14,442 | 20,490 | ||||||||||||
Total project personnel and expenses | 89,982 | 87,503 | 125,471 | ||||||||||||
Selling, general and administrative expenses | 48,491 | 43,951 | 53,416 | ||||||||||||
Impairment of goodwill | — | — | 20,000 | ||||||||||||
Restructuring costs | 3,749 | 4,875 | 10,886 | ||||||||||||
Stock compensation expense | 2,321 | 1,236 | — | ||||||||||||
Total costs and operating expenses | 144,543 | 137,565 | 209,773 | ||||||||||||
Loss from operations | (996 | ) | (5,178 | ) | (32,926 | ) | |||||||||
Other income (expense): | |||||||||||||||
Interest income | 866 | 706 | 766 | ||||||||||||
Interest expense | (64 | ) | — | (196 | ) | ||||||||||
Loss before income taxes, income (loss) from discontinued operations and cumulative effect of change in accounting principle | (194 | ) | (4,472 | ) | (32,356 | ) | |||||||||
Income taxes | 324 | 350 | (3,508 | ) | |||||||||||
Loss from continuing operations | (518 | ) | (4,822 | ) | (28,848 | ) | |||||||||
Income (loss) from discontinued operations, net of income taxes | 370 | — | (8,911 | ) | |||||||||||
Loss before cumulative effect of change in accounting principle | (148 | ) | (4,822 | ) | (37,759 | ) | |||||||||
Cumulative effect of change in accounting principle | — | — | (31,200 | ) | |||||||||||
Net loss | $ | (148 | ) | $ | (4,822 | ) | $ | (68,959 | ) | ||||||
Basic net loss per common share: | |||||||||||||||
Loss from continuing operations | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.62 | ) | ||||||
Income (loss) from discontinued operations, net of income taxes | $ | 0.01 | $ | — | $ | (0.19 | ) | ||||||||
Cumulative effect of change in accounting principle | $ | — | $ | — | $ | (0.68 | ) | ||||||||
Net loss per common share | $ | (0.00 | ) | $ | (0.11 | ) | $ | (1.49 | ) | ||||||
Weighted average common shares outstanding | 44,188 | 45,140 | 46,348 | ||||||||||||
Diluted net loss per common share: | |||||||||||||||
Loss from continuing operations | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.62 | ) | ||||||
Income (loss) from discontinued operations, net of income taxes | $ | 0.01 | $ | — | $ | (0.19 | ) | ||||||||
Cumulative effect of change in accounting principle | $ | — | $ | — | $ | (0.68 | ) | ||||||||
Net loss per common share | $ | (0.00 | ) | $ | (0.11 | ) | $ | (1.49 | ) | ||||||
Weighted average common and common equivalent shares outstanding | 44,188 | 45,140 | 46,348 |
The accompanying notes are an integral part of the consolidated financial statements.
-28-
ANSWERTHINK, INC.
COMPREHENSIVE INCOME (LOSS)
(in thousands)
Common Stock | Additional Paid-In Capital | Treasury Stock | Unearned Compensation | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Shareholders’ Equity | Comprehensiv Income (Loss) | |||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance at December 28, 2001 | 45,880 | $ | 46 | $ | 257,115 | — | $ | — | $ | — | $ | (79,460 | ) | $ | — | $ | 177,701 | |||||||||||||||||||||||
Issuance of common stock | 1,848 | 2 | 6,511 | — | — | — | — | — | 6,513 | |||||||||||||||||||||||||||||||
Treasury stock purchased | — | — | — | (1,146 | ) | (2,208 | ) | — | — | — | (2,208 | ) | ||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (68,959 | ) | — | (68,959 | ) | $ | (68,959 | ) | ||||||||||||||||||||||||||
Total Comprehensive Loss | — | — | — | — | — | — | — | — | — | $ | (68,959 | ) | ||||||||||||||||||||||||||||
Balance at January 3, 2003 | 47,728 | $ | 48 | $ | 263,626 | (1,146 | ) | $ | (2,208 | ) | $ | — | $ | (148,419 | ) | $ | — | $ | 113,047 | |||||||||||||||||||||
Issuance of common stock | 563 | — | 1,252 | — | — | — | — | — | 1,252 | |||||||||||||||||||||||||||||||
Treasury stock purchased | — | — | — | (2,404 | ) | (5,478 | ) | — | — | — | (5,478 | ) | ||||||||||||||||||||||||||||
Issuance of restricted stock units, net of cancellations | — | — | 9,487 | — | — | (9,487 | ) | — | — | — | ||||||||||||||||||||||||||||||
Amortization of restricted stock units | — | — | — | — | — | 1,120 | — | — | 1,120 | |||||||||||||||||||||||||||||||
Stock compensation expense | — | — | 13 | — | — | — | — | — | 13 | |||||||||||||||||||||||||||||||
Variable stock options | — | — | 103 | — | — | — | — | — | �� | 103 | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (4,822 | ) | — | (4,822 | ) | $ | (4,822 | ) | ||||||||||||||||||||||||||
Total Comprehensive Loss | — | — | — | — | — | — | — | — | — | $ | (4,822 | ) | ||||||||||||||||||||||||||||
Balance at January 2, 2004 | 48,291 | $ | 48 | $ | 274,481 | (3,550 | ) | $ | (7,686 | ) | $ | (8,367 | ) | $ | (153,241 | ) | $ | — | $ | 105,235 | ||||||||||||||||||||
Issuance of common stock | 678 | 1 | 2,910 | — | — | — | — | — | 2,911 | |||||||||||||||||||||||||||||||
Treasury stock purchased | — | — | — | (1,977 | ) | (10,492 | ) | — | — | — | (10,492 | ) | ||||||||||||||||||||||||||||
Issuance of restricted stock units, net of cancellations | — | — | (97 | ) | — | — | 97 | — | — | — | ||||||||||||||||||||||||||||||
Amortization of restricted stock units | — | — | — | — | — | 2,259 | — | — | 2,259 | |||||||||||||||||||||||||||||||
Variable stock options | — | — | 62 | — | — | — | — | — | 62 | |||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (148 | ) | — | (148 | ) | $ | (148 | ) | ||||||||||||||||||||||||||
Unrealized holding losses on available for sale marketable investments | — | — | — | — | — | — | — | (98 | ) | (98 | ) | (98 | ) | |||||||||||||||||||||||||||
Foreign currency translations | — | — | — | — | — | — | — | 125 | 125 | 125 | ||||||||||||||||||||||||||||||
Total Comprehensive Loss | — | — | — | — | — | — | — | — | — | $ | (121 | ) | ||||||||||||||||||||||||||||
Balance at December 31, 2004 | 48,969 | $ | 49 | $ | 277,356 | (5,527 | ) | $ | (18,178 | ) | $ | (6,011 | ) | $ | (153,389 | ) | $ | 27 | $ | 99,854 |
The accompanying notes are an integral part of the consolidated financial statements.
-29-
ANSWERTHINK, INC.
(in thousands)
Year Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2004 | January 2, 2004 | January 3, 2003 | |||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net loss | $ | (148 | ) | $ | (4,822 | ) | $ | (68,959 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||||||
Cumulative effect of change in accounting principle | — | — | 31,200 | ||||||||||||
Impairment of goodwill | — | — | 20,000 | ||||||||||||
Write-off of leasehold improvements and other assets | — | — | 5,217 | ||||||||||||
Depreciation and amortization | 5,177 | 4,954 | 5,327 | ||||||||||||
Non-cash compensation expense | 2,321 | 1,236 | — | ||||||||||||
Provision for doubtful accounts | 1,060 | (235 | ) | 779 | |||||||||||
Deferred income taxes | — | — | 4,961 | ||||||||||||
Changes in assets and liabilities, net of effects from acquisitions: | |||||||||||||||
Decrease (increase) in accounts receivable and unbilled revenue | (3,210 | ) | 1,309 | 18,930 | |||||||||||
Decrease (increase) in prepaid expenses and other assets | 920 | 10,075 | (5,419 | ) | |||||||||||
Decrease in accounts payable | (707 | ) | (2,066 | ) | (230 | ) | |||||||||
Decrease in accrued expenses and other liabilities | (2,974 | ) | (586 | ) | (4,776 | ) | |||||||||
Net cash provided by operating activities | 2,439 | 9,865 | 7,030 | ||||||||||||
Cash flows from investing activities: | |||||||||||||||
Purchases of property and equipment | (3,199 | ) | (1,225 | ) | (4,044 | ) | |||||||||
Increase in restricted cash | — | (91 | ) | (2,909 | ) | ||||||||||
Purchases of marketable investments | (39,750 | ) | (58,458 | ) | (43,191 | ) | |||||||||
Proceeds from sales, calls and maturities of marketable investments | 39,750 | 76,508 | 39,350 | ||||||||||||
Cash used in acquisition of businesses, net of cash acquired | (7,210 | ) | (3,301 | ) | (851 | ) | |||||||||
Net cash provided by (used in) investing activities | (10,409 | ) | 13,433 | (11,645 | ) | ||||||||||
Cash flows from financing activities: | |||||||||||||||
Proceeds from issuance of common stock | 2,911 | 1,252 | 6,513 | ||||||||||||
Repurchases of common stock | (10,492 | ) | (5,478 | ) | (2,208 | ) | |||||||||
Net cash provided by (used in) financing activities | (7,581 | ) | (4,226 | ) | 4,305 | ||||||||||
Net increase (decrease) in cash and cash equivalents | (15,551 | ) | 19,072 | (310 | ) | ||||||||||
Cash and cash equivalents at beginning of year | 54,441 | 35,369 | 35,679 | ||||||||||||
Cash and cash equivalents at end of year | $ | 38,890 | $ | 54,441 | $ | 35,369 | |||||||||
Supplemental disclosure of cash flow information: | |||||||||||||||
Cash paid for interest | $ | — | $ | — | $ | 72 | |||||||||
Cash paid for income taxes | $ | 193 | $ | 110 | $ | 133 |
The accompanying notes are an integral part of the consolidated financial statements.
-30-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | Nature of Business and Significant Accounting Policies |
-31-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Nature of Business and Significant Accounting Policies (continued)
-32-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Nature of Business and Significant Accounting Policies (continued)
Year Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2004 | January 2, 2004 | January 3, 2003 | |||||||||||||
Net loss, as reported | $ | (148 | ) | $ | (4,822 | ) | $ | (68,959 | ) | ||||||
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects | 2,321 | 1,236 | — | ||||||||||||
Deduct: Total stock-based employee pro forma compensation expense determined under fair value based method for all awards, net of related tax effects | (5,354 | ) | (6,702 | ) | (27,802 | ) | |||||||||
Pro forma net loss | $ | (3,181 | ) | $ | (10,288 | ) | $ | (96,761 | ) | ||||||
Basic net loss per common share | |||||||||||||||
As reported | $ | (0.00 | ) | $ | (0.11 | ) | $ | (1.49 | ) | ||||||
Pro forma | $ | (0.07 | ) | $ | (0.23 | ) | $ | (2.09 | ) | ||||||
Diluted net loss per common share | |||||||||||||||
As reported | $ | (0.00 | ) | $ | (0.11 | ) | $ | (1.49 | ) | ||||||
Pro forma | $ | (0.07 | ) | $ | (0.23 | ) | $ | (2.09 | ) |
-33-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Nature of Business and Significant Accounting Policies (continued)
-34-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Nature of Business and Significant Accounting Policies (continued)
2. | Acquisitions and Investing Activities |
2004 | 2003 | 2002 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fair value of net assets (excluding cash) acquired | $ | 1,121 | $ | 1,264 | $ | 851 | ||||||||
Goodwill | 7,066 | — | — | |||||||||||
Intangible assets | 1,943 | 2,287 | — | |||||||||||
Deferred payment | (2,920 | ) | — | — | ||||||||||
Accrued earn-out | — | (250 | ) | — | ||||||||||
Cash used in acquisitions of businesses, net of cash acquired | $ | 7,210 | $ | 3,301 | $ | 851 |
-35-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Acquisitions and Investing Activities (continued)
3. | Accounts Receivable and Unbilled Revenue, Net |
December 31, 2004 | January 2, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Accounts receivable | $ | 24,932 | $ | 18,632 | ||||||
Unbilled revenue | 6,060 | 8,002 | ||||||||
Allowance for doubtful accounts | (2,109 | ) | (1,757 | ) | ||||||
$ | 28,883 | $ | 24,877 |
-36-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. | Marketable investments |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Market Value | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | ||||||||||||||||||
U.S. Government Agencies | $ | 10,000 | $ | — | $ | (98 | ) | $ | 9,902 | |||||||||
2003 | ||||||||||||||||||
U.S. Government Agencies | $ | 10,000 | $ | — | $ | — | $ | 10,000 |
Amortized Cost | Market Value | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Less than one year | $ | — | $ | — | ||||||
Due in 1–2 years | 10,000 | 9,902 | ||||||||
Due in 3–5 years | — | — | ||||||||
Due after 5 years | — | — | ||||||||
$ | 10,000 | $ | 9,902 |
5. | Property and Equipment |
December 31, 2004 | January 2, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Equipment | $ | 8,997 | $ | 12,736 | ||||||
Furniture and fixtures | 149 | 385 | ||||||||
Software | 5,478 | 6,892 | ||||||||
Leasehold improvements | 3,310 | 5,123 | ||||||||
17,934 | 25,136 | |||||||||
Less accumulated depreciation | (10,366 | ) | (16,422 | ) | ||||||
$ | 7,568 | $ | 8,714 |
-37-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. | Accrued Expenses and Other Liabilities |
December 31, 2004 | January 2, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Accrued compensation and benefits | $ | 4,418 | $ | 5,364 | ||||||
Accrued restructuring related expenses | 2,021 | 4,835 | ||||||||
Deferred revenue | 4,680 | 4,850 | ||||||||
Other accrued expenses | 5,355 | 5,910 | ||||||||
Acquisition related deferred payment | 1,436 | — | ||||||||
Current accrued expenses and other liabilities | 17,910 | 20,959 | ||||||||
Accrued restructuring related expenses — non-current | 6,023 | 5,236 | ||||||||
Acquisition related deferred payment — non-current | 1,484 | — | ||||||||
Non-current accrued expenses and other liabilities | 7,507 | 5,236 | ||||||||
Total accrued expenses and other liabilities | $ | 25,417 | $ | 26,195 |
7. | Letters of Credit |
8. | Lease Commitments |
2005 | $ | 5,240 | ||||
2006 | 5,246 | |||||
2007 | 4,804 | |||||
2008 | 4,573 | |||||
2009 | 4,523 | |||||
Thereafter | 14,558 | |||||
38,944 | ||||||
Less: sublease income | 8,581 | |||||
Total minimum lease payments, less sublease income | $ | 30,363 |
-38-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. | Income Taxes |
Year Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2004 | January 2, 2004 | January 3, 2003 | |||||||||||||
Current tax expense (benefit) | |||||||||||||||
Federal | $ | — | $ | — | $ | (8,469 | ) | ||||||||
State | 231 | 262 | — | ||||||||||||
Foreign | 93 | 88 | — | ||||||||||||
324 | 350 | (8,469 | ) | ||||||||||||
Deferred tax expense | |||||||||||||||
Federal | — | — | 4,697 | ||||||||||||
State | — | — | — | ||||||||||||
Foreign | — | — | 264 | ||||||||||||
— | — | 4,961 | |||||||||||||
Income taxes | $ | 324 | $ | 350 | $ | (3,508 | ) |
Year Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2004 | January 2, 2004 | January 3, 2003 | |||||||||||||
U.S. statutory income tax (benefit) rate | (35.0 | ) % | (35.0 | ) % | (35.0 | ) % | |||||||||
State income taxes, net of Federal income tax benefit | 77.7 | 3.8 | — | ||||||||||||
Loss on investment in subsidiary | 2,573.4 | (129.6 | ) | (85.2 | ) | ||||||||||
Valuation allowance | (2,559.2 | ) | 166.4 | 87.2 | |||||||||||
Impairment of goodwill | — | — | 21.6 | ||||||||||||
Other, net | 110.7 | 2.2 | 0.6 | ||||||||||||
Effective rate | 167.6 | % | 7.8 | % | (10.8 | ) % |
December 31, 2004 | January 2, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Deferred income tax assets: | ||||||||||
Purchased research and development | $ | 817 | $ | 921 | ||||||
Allowance for doubtful accounts | 833 | 615 | ||||||||
Net operating loss and tax credits carryforward | 30,581 | 36,121 | ||||||||
Accrued expenses and other liabilities | 6,373 | 5,906 | ||||||||
38,604 | 43,563 | |||||||||
Valuation allowance | (35,360 | ) | (40,818 | ) | ||||||
3,244 | 2,745 | |||||||||
Deferred income tax liabilities: | ||||||||||
Depreciation and amortization | (2,060 | ) | (1,627 | ) | ||||||
Other items | (1,184 | ) | (1,118 | ) | ||||||
(3,244 | ) | (2,745 | ) | |||||||
Net deferred income tax asset | $ | — | $ | — |
-39-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Income Taxes (continued)
10. | Shareholders’ Equity |
-40-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Shareholders’ Equity (continued)
Year Ended | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2004 | January 2, 2004 | January 3, 2003 | |||||||||||||||||||||||||||
Option Shares | Weighted Average Exercise Price | Option Shares | Weighted Average Exercise Price | Option Shares | Weighted Average Exercise Price | ||||||||||||||||||||||||
Outstanding at beginning of year | 3,013,625 | $ | 5.69 | 8,263,971 | $ | 6.78 | 6,812,444 | $ | 8.42 | ||||||||||||||||||||
Granted | 1,425,744 | 6.19 | 2,149,238 | 2.96 | 5,594,518 | 5.46 | |||||||||||||||||||||||
Exercised | (361,652 | ) | 4.26 | (125,779 | ) | 5.29 | (824,356 | ) | 3.47 | ||||||||||||||||||||
Canceled | (818,265 | ) | 7.19 | (7,273,805 | ) | 6.15 | (3,318,635 | ) | 8.69 | ||||||||||||||||||||
Outstanding at end of year | 3,259,452 | $ | 5.68 | 3,013,625 | $ | 5.69 | 8,263,971 | $ | 6.78 | ||||||||||||||||||||
Weighted average fair value of options granted during the period | $ | 4.33 | $ | 2.08 | $ | 3.83 |
-41-
ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Shareholders’ Equity (continued)
Year Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2004 | January 2, 2004 | January 3, 2003 | |||||||||||
Expected volatility | 75% to 100% | 100% | 100% | ||||||||||
Average expected option life | 4 years | 4 years | 4 years | ||||||||||
Risk-free rate | 3.5% | 2.5% | 3.0% | ||||||||||
Dividend yield | 0% | 0% | 0% |
Options Outstanding | Options Exercisable | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||
$1.45–$2.74 | 400,661 | 7.6 | $ | 2.19 | 158,829 | $ | 2.17 | |||||||||||||
$2.75–$3.79 | 493,725 | 6.6 | 3.34 | 340,420 | 3.52 | |||||||||||||||
$3.80–$5.35 | 195,499 | 8.0 | 4.85 | 56,832 | 4.98 | |||||||||||||||
$5.36–$5.99 | 392,868 | 7.8 | 5.58 | 180,126 | 5.55 | |||||||||||||||
$6.00–$6.20 | 408,948 | 4.4 | 6.03 | 405,450 | 6.03 | |||||||||||||||
$6.21–$6.25 | 817,500 | 9.1 | 6.25 | — | — | |||||||||||||||
$6.26–$6.99 | 216,146 | 8.5 | 6.42 | 21,297 | 6.68 | |||||||||||||||
$7.00–$9.99 | 186,099 | 6.4 | 8.34 | 112,562 | 8.73 | |||||||||||||||
$10.00–$32.56 | 148,006 | 4.2 | 15.82 | 148,006 | 15.82 | |||||||||||||||
3,259,452 | 7.3 | $ | 5.68 | 1,423,522 | $ | 6.14 |
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ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Shareholders’ Equity (continued)
11. | Benefit Plan |
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ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. | Restructuring Costs |
2001 Restructuring Accrual
Accrual Balance at December 29, 2000 | Additions to Accrual from Continuing Operations | Additions to Accrual from Discontinued Operations | 2001 Expenditures | 2002 Expenditures | 2003 Expenditures | 2004 Expenditures | 2004 Asset Write-offs | Accrual Balance at December 31, 2004 | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Severance and other employee costs | $ | — | $ | 3,694 | $ | 559 | $ | (3,186 | ) | $ | (1,067 | ) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Closure and consolidation of facilities and related exit costs | — | 5,553 | 2,311 | (248 | ) | (1,965 | ) | (933 | ) | (839 | ) | (1,205 | ) | 2,674 | ||||||||||||||||||||||||
Total restructuring accrual | $ | — | $ | 9,247 | $ | 2,870 | $ | (3,434 | ) | $ | (3,032 | ) | $ | (933 | ) | $ | (839 | ) | $ | (1,205 | ) | $ | 2,674 |
2002 Restructuring Accrual
Accrual Balance at December 28, 2001 | Additions to Accrual from Continuing Operations | Additions to Accrual from Discontinued Operations | 2002 Asset Write-offs | 2002 Expenditures | 2003 Expenditures | 2004 Expenditures | Accrual Balance at December 31, 2004 | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Severance and other employee costs | $ | — | $ | 1,528 | $ | 616 | $ | — | $ | (855 | ) | $ | (1,289 | ) | $ | — | $ | — | ||||||||||||||||||||
Closure and consolidation of facilities and related exit costs | $ | — | $ | 13,984 | $ | 2,747 | $ | (5,217 | ) | $ | (584 | ) | $ | (2,198 | ) | $ | (3,362 | ) | $ | 5,370 | ||||||||||||||||||
Total restructuring accrual | $ | — | $ | 15,512 | $ | 3,363 | $ | (5,217 | ) | $ | (1,439 | ) | $ | (3,487 | ) | $ | (3,362 | ) | $ | 5,370 |
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ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. | Discontinued Operations |
December 31, 2004 | January 2, 2004 | January 3, 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | — | $ | 7,235 | ||||||||
Pre-tax income (loss) from discontinued operations | $ | 370 | $ | — | $ | (8,911 | ) | |||||||
Income tax benefit | $ | — | $ | — | $ | — | ||||||||
Income (loss) from discontinued operations | $ | 370 | $ | — | $ | (8,911 | ) |
14. | Litigation |
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ANSWERTHINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Related Party Transactions
16. | Quarterly Financial Information (unaudited) |
Quarter Ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
April 2, 2004 | July 2, 2004 | October 1, 2004 | December 31, 2004 | |||||||||||||
Total revenues | $ | 35,089 | $ | 37,649 | $ | 37,131 | $ | 33,678 | ||||||||
Income (loss) from operations | 820 | (1,871 | ) | 806 | (751 | ) | ||||||||||
Income (loss) before income taxes and income from discontinued operations | 1,010 | (1,675 | ) | 950 | (479 | ) | ||||||||||
Income (loss) from continuing operations | 967 | (1,579 | ) | 824 | (730 | ) | ||||||||||
Income from discontinued operations | — | 370 | — | — | ||||||||||||
Net income (loss) | $ | 967 | $ | (1,209 | ) | $ | 824 | $ | (730 | ) | ||||||
Basic and diluted income (loss) per common share | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.02 | $ | (0.04 | ) | $ | 0.02 | $ | (0.02 | ) | ||||||
Income from discontinued operations | $ | — | $ | 0.01 | $ | — | $ | — | ||||||||
Net income (loss) | $ | 0.02 | $ | (0.03 | ) | $ | 0.02 | $ | (0.02 | ) | ||||||
Quarter Ended | ||||||||||||||||
April 4, 2003 | July 4, 2003 | October 3, 2003 | January 2, 2004 | |||||||||||||
Total revenues | $ | 36,785 | $ | 31,497 | $ | 32,918 | $ | 31,187 | ||||||||
Income (loss) from operations | (1,246 | ) | (5,962 | ) | 1,055 | 975 | ||||||||||
Income (loss) before income taxes | (1,022 | ) | (5,824 | ) | 1,210 | 1,164 | ||||||||||
Net income (loss) | $ | (1,022 | ) | $ | (5,974 | ) | $ | 1,135 | $ | 1,039 | ||||||
Basic net income (loss) per common share | $ | (0.02 | ) | $ | (0.13 | ) | $ | 0.03 | $ | 0.02 | ||||||
Diluted net income (loss) per common share | $ | (0.02 | ) | $ | (0.13 | ) | $ | 0.02 | $ | 0.02 |
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ANSWERTHINK, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
Allowance for Doubtful Accounts | Balance at Beginning of Year | Charge to Expense | Write-offs | Balance at Ending of Year | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, 2004 | $ | 1,757 | $ | 1,060 | $ | (708 | ) | $ | 2,109 | |||||||||
Year Ended January 2, 2004 | $ | 3,526 | $ | (235 | ) | $ | (1,534 | ) | $ | 1,757 | ||||||||
Year Ended January 3, 2003 | $ | 6,810 | $ | 779 | $ | (4,063 | ) | $ | 3,526 |
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
ITEM 9A. | CONTROL AND PROCEDURES |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Management’s Report on Internal Control Over Financial Reporting
ITEM 9B. | OTHER INFORMATION |
PART III
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
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PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | The following documents are filed as a part of this Form: |
1. | Financial Statements |
2. | Financial Statement Schedules. |
3. | Exhibits: See Index to Exhibits on page 51. |
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SIGNATURES
ANSWERTHINK, INC. |
Pursuant to the requirements of the Securities Act of 1934, this Form 10-K has been signed by the following persons in the capacities and on the date indicated.
Signatures | Title | Date | ||||||
---|---|---|---|---|---|---|---|---|
/s/ Ted A. Fernandez Ted A. Fernandez | Chief Executive Officer and Chairman (Principal Executive Officer) | March 16, 2005 | ||||||
/s/ John F. Brennan John F. Brennan | Executive Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) | March 16, 2005 | ||||||
/s/ Allan R. Frank Allan R. Frank | President and Director | March 16, 2005 | ||||||
/s/ David N. Dungan David N. Dungan | Chief Operating Officer and Director | March 16, 2005 | ||||||
/s/ Richard Hamlin Richard Hamlin | Director | March 16, 2005 | ||||||
/s/ Edwin A. Huston Edwin A. Huston | Director | March 16, 2005 | ||||||
/s/ Jeffrey E. Keisling Jeffrey E. Keisling | Director | March 16, 2005 | ||||||
/s/ Alan T. G. Wix Alan T. G. Wix | Director | March 16, 2005 |
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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 | |||||
9.1+ | Shareholders Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, the Miller Group, Messrs. Fernandez, Frank, Knotts and Miller and certain other shareholders of the Registrant parties thereto | |||||
9.2+ | Amendment No. 1 to Shareholders Agreement dated February 24, 1998 | |||||
9.3+ | Letter Agreement dated as of March 15, 1998 to amend Shareholders Agreement | |||||
9.4+ | Form of Restricted Securities Agreement dated April 23, 1997 among the Initial Investors and each of Messrs. Fernandez, Frank, Knotts and Miller | |||||
10.1+ | Purchase Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, Gator and Tara | |||||
10.2+ | Series A Preferred Stock Purchase Agreement dated February 24, 1998 among the Registrant, GTCR V, GTCR Associates and Miller Capital | |||||
10.3+ | Stock Purchase Agreement dated March 5, 1998 between the Registrant and FSC | |||||
10.4+ | Second Amended and Restated Registration Rights Agreement dated as of May 5, 1998 among the Registrant, GTCR V, MG, GTCR Associates, Miller Capital, FSC, Messrs. Fernandez, Frank, Knotts and Miller and certain other shareholders of the Registrant named therein | |||||
10.5+ | Second Amended and Restated Registration Rights Agreement dated as of May 5, 1998 among the Registrant and the eight former shareholders of RTI | |||||
10.6*+ | Registrant’s 1998 Stock Option and Incentive Plan | |||||
10.7*+++++ | Amendment to Registrant’s 1998 Stock Option and Incentive Plan | |||||
10.8*+ | Form of Senior Management Agreement dated April 23, 1997 between the Registrant and each of Messrs. Fernandez, Frank and Knotts | |||||
10.9*++++ | Senior Management Agreement dated July 11, 1997 between Registrant and Mr. Dungan | |||||
10.10*+++++ | Form of Employment Agreement entered into between the Registrant and Mr. Dungan | |||||
10.11*+ | Form of Employment Agreement entered into between the Registrant and each of Messers. Fernandez, Frank and Knotts | |||||
10.12+ | Amendment No. 2 dated as of May 5, 1998 to Purchase Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, Gator and Tara | |||||
10.13+ | Amendment No. 2 dated as of May 5, 1998 to Stock Purchase Agreement dated March 5, 1998 between the Registrant and FSC | |||||
10.14*+ | Amendment to Certain Senior Management Agreements dated March 27, 1998 among the Company, the Board of Directors and each of Messrs. Fernandez, Frank, Knotts and Dungan | |||||
10.15*+ | Second Amendment to Certain Senior Management Agreements dated May 26, 1998 among the Company, the Board of Directors and each of Messrs. Fernandez, Frank, Knotts and Dungan | |||||
10.16*++ | AnswerThink Consulting Group, Inc. Employee Stock Purchase Plan | |||||
10.17*+++++ | Amendment to Registrant’s Employee Stock Purchase Plan dated February 16, 2001 | |||||
10.18*+++ | Employment Agreement dated March 23, 1999 between the Registrant and Mr. Brennan | |||||
10.19*+++ | Restricted Stock Agreement dated July 31, 1997 between the Registrant and Mr. Brennan |
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Exhibit No. | Exhibit Description | |||
---|---|---|---|---|
10.20*+++ | Amendment to Restricted Stock Agreement dated March 27, 1998 between the Registrant and Mr. Brennan | |||
10.21*+++ | Form of Senior Management Agreement dated July 31, 1997 between the Registrant and Mr. Brennan | |||
10.22++++++ | Securities Purchase Agreement by and among THINK New Ideas, Inc., Capital Ventures International and Marshall Capital Management, Inc. | |||
10.23++++++ | Registration Rights Agreement dated as of March 3, 1999 by and among THINK New Ideas, Inc., Capital Ventures International and Marshall Capital Management, Inc. | |||
10.24+++++++ | Joint Marketing and Alliance Agreement, dated October 7, 2003, by and among Answerthink, Inc., The Hackett Group, Inc. and Accenture, L.L.P. | |||
11.1++++++++ | Amendment to Executive Agreement between Answerthink, Inc. and Ted A. Fernandez | |||
11.2++++++++ | Amendment to Executive Agreement between Answerthink, Inc. and David N. Dungan | |||
11.3++++++++ | Amendment to Executive Agreement between Answerthink, Inc. and Allan R. Frank | |||
11.4++++++++ | Amendment to Executive Agreement between Answerthink, Inc. and John F. Brennan | |||
21.1ˆ | Subsidiaries of the Registrant | |||
23.1ˆ | Consent of PricewaterhouseCoopers LLP | |||
31.1ˆ | Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
31.2ˆ | Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32ˆ | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | Management agreement or compensatory plan or arrangement |
ˆ | Exhibits filed herewith. |
+ | Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (333-48123). |
++ | Incorporated herein by reference to the Company’s Registration Statement on Form S-8 (333-69951). |
+++ | Incorporated herein by reference to the Company’s Form 10-K for the year ended January 1, 1999. |
++++ | Incorporated herein by reference to the Company’s Form 10-K for the year ended December 29, 2000. |
+++++ | Incorporated herein by reference to the Company’s Form 10-K for the year ended December 28, 2001. |
++++++ | Incorporated herein by reference to THINK New Ideas, Inc.’s Form 8-K dated March 12, 1999. |
+++++++ | Incorporated herein by reference to the Company’s Form 8-K dated October 14, 2003. |
++++++++ | Incorporated herein by reference to the Company’s Form 10-Q dated November 10, 2004 |
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