<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 24, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
----------------------------
Commission File Number 0-28192
RENAISSANCE WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
----------------------------
Massachusetts 04-2920563
(State of Incorporation) (IRS Employer Identification No.)
----------------------------
52 Second Avenue
Waltham, MA 02451
(781) 290-3000
(Address, including zip code, and telephone number, including area code
of registrant's principal executive offices)
----------------------------
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 registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of August 3, 2000, there were 56,009,169 shares of Common Stock, no par
value, outstanding.
1
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RENAISSANCE WORLDWIDE, INC.
INDEX TO FORM 10-Q
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at
December 25, 1999 and June 24, 2000 (Unaudited) 3
Condensed Consolidated Statement of Operations
for the three and six months ended June 26,
1999 and June 24, 2000 (Unaudited) 4
Condensed Consolidated Statement of Cash Flows
for the six months ended June 26, 1999 and
June 24, 2000 (Unaudited) 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION 14
SIGNATURES 16
This Quarterly Report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements. The
important factors discussed below under the caption "Certain Factors That May
Affect Future Operating Results," among others, could cause actual results to
differ materially from those indicated by forward-looking statements made herein
and presented elsewhere by management from time to time.
2
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RENAISSANCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 25, June 24,
1999 2000
------------ --------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 10,605 $ 4,109
Accounts receivable, net 155,784 156,306
Deferred income taxes 12,136 12,136
Other current assets 6,882 5,994
Net current assets of discontinued operations 7,765 -
--------- ---------
Total current assets 193,172 178,545
Fixed assets, net 29,674 30,308
Goodwill and other intangible assets, net 70,868 67,604
Other assets 9,450 10,843
Deferred income taxes 3,336 3,336
Net non-current assets of discontinued operations 32,144 -
--------- ---------
Total assets $ 338,644 $ 290,636
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 18,914 $ 34,200
Current portion of long-term debt 1,544 1,250
Accounts payable 28,546 29,595
Accrued salaries, wages and related benefit costs 31,754 25,073
Other accrued expenses 13,156 12,075
Deferred income taxes 3,339 3,339
--------- ---------
Total current liabilities 97,253 105,532
Deferred income taxes 6,983 6,983
Term loan 50,000 -
Other long-term debt and liabilities 3,051 139
--------- ---------
Total liabilities 157,287 112,654
--------- ---------
Stockholders' equity:
Common stock and additional paid in capital 188,908 190,643
Notes receivable from stockholders (722) (580)
Retained deficit (3,732) (5,091)
Accumulated other comprehensive loss (551) (1,358)
Treasury stock (2,546) (5,632)
--------- ---------
Total stockholders' equity 181,357 177,982
--------- ---------
Total liabilities and stockholders' equity $ 338,644 $ 290,636
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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RENAISSANCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data - unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
------------------------ ------------------------
June 26, June 24, June 26, June 24,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 202,025 $ 143,789 $ 400,196 $ 293,622
Cost of revenue 139,771 105,099 278,537 218,259
--------- --------- --------- ---------
Gross profit 62,254 38,690 121,659 75,363
Selling, general and administrative expenses 52,609 42,650 107,057 88,741
Restructuring charges and asset writedowns 2,950 8,415 2,950 8,415
--------- --------- --------- ---------
Income (loss) from operations 6,695 (12,375) 11,652 (21,793)
Interest and other expense, net 1,723 833 4,270 2,426
--------- --------- --------- ---------
Income (loss) from continuing operations before taxes 4,972 (13,208) 7,382 (24,219)
Income tax provision (benefit) 2,127 (5,076) 3,116 (9,282)
--------- --------- --------- ---------
Income (loss) from continuing operations, net of tax 2,845 (8,132) 4,266 (14,937)
Income from discontinued Strategy segment, net of tax 915 - 1,195 1,151
Gain on disposal of Strategy segment, net of tax - 1,782 - 12,427
--------- --------- --------- ---------
Income (loss) before extraordinary items 3,760 (6,350) 5,461 (1,359)
Extraordinary gain, net of taxes 833 - 833 -
--------- --------- --------- ---------
Net income (loss) $ 4,593 $ (6,350) $ 6,294 $ (1,359)
========= ========= ========= =========
Basic earnings per share:
Income (loss) from continuing operations $ 0.05 $ (0.14) $ 0.08 $ (0.26)
Discontinued Operations:
Income from discontinued Strategy segment 0.02 - 0.02 0.02
Gain on disposal of Strategy segment - 0.03 - 0.22
Extraordinary gain 0.01 - 0.01 -
--------- --------- --------- ---------
Net income (loss) $ 0.08 $ (0.11) $ 0.11 $ (0.02)
========= ========= ========= =========
Diluted earnings per share:
Income (loss) from continuing operations $ 0.05 $ (0.14) $ 0.08 $ (0.26)
Discontinued Operations:
Income from discontinued Strategy segment 0.02 - 0.02 0.02
Gain on disposal of Strategy segment - 0.03 - 0.22
Extraordinary gain 0.01 - 0.01 -
--------- --------- --------- ---------
Net income $ 0.08 $ (0.11) $ 0.11 $ (0.02)
========= ========= ========= =========
Weighted average common shares:
Basic 56,166 56,253 56,160 56,479
========= ========= ========= =========
Diluted 56,777 56,253 56,659 56,479
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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RENAISSANCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands - unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
June 26, June 24,
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,294 $ (1,359)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 6,856 6,801
Deferred income taxes (58) -
Gain on disposal of Strategy segment - (12,427)
Extraordinary gain on sale of assets (833) -
Writedown of assets 2,950 294
Changes in operating assets and liabilities:
Accounts receivable (14,519) (3,236)
Other current assets 12,146 139
Other assets (750) (2,009)
Accounts payable, accrued expenses and other liabilities (5,098) (19,072)
--------- ---------
Net cash used for operating activities 6,988 (30,869)
Cash flows from investing activities:
Cash disbursed for acquisitions, net of cash acquired (10,738) (650)
Cash proceeds from the sale of businesses 10,000 68,797
Net decrease (increase) in notes receivable (1,729) 279
Purchases of fixed assets (13,098) (6,304)
--------- ---------
Net cash provided (used for) investing activities (15,565) 62,122
Cash flows from financing activities:
Net borrowings on revolving credit facilities 4,348 15,286
Principal payments on long-term debt (2,776) (51,406)
Debt issue costs on new credit facility (1,063) -
Purchase of treasury stock - (3,086)
Cash proceeds from exercise of stock options and purchase plans 1,166 1,735
--------- ---------
Net cash provided by (used for) financing activities 1,675 (37,471)
Effect of exchange rate changes on cash and cash equivalents (139) (278)
--------- ---------
Net decrease in cash and cash equivalents (7,041) (6,496)
Cash and cash equivalents, beginning of period 10,957 10,605
--------- ---------
Cash and cash equivalents, end of period $ 3,916 $ 4,109
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Renaissance Worldwide, Inc. ("Renaissance" or the "Company") is a global
provider of business and technology consulting services to organizations with
complex information technology ("IT") operations in a broad range of industries.
The Company's offerings are categorized into four business segments: the
Information Technology Consulting Services Group ("ITCS Group"), the Enterprise
Solutions Group, the Government Consulting Group and GovConnect. The ITCS Group
provides consulting services centered around application design, implementation
and support. The Enterprise Solutions Group provides IT solutions design and
implementation services. The Government Consulting Group provides specialized
management and technology consulting services to the public sector. GovConnect
is focused on the market opportunity for public access to electronic government
services. A fifth segment, the Business Strategy Group which provides management
consulting and technology integration services in connection with performance
support systems, was sold for $67.7 million on March 10, 2000, and is reported
as discontinued operations (see Note 4).
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
Renaissance Worldwide, Inc. and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated.
Deconsolidation Of Real Estate Trust
The Company leased office space from the Wells Avenue Trust ("Trust"), of
which the Chief Executive Officer and Chairman of the Board, and significant
stockholder of the Company, was the sole beneficiary. Effective September 19,
1995, the Company renegotiated its lease with the Trust in conjunction with a
refinancing of the Trust's mortgage. As of that date, the Company obtained
significant control over the operations of the Trust and assumed a significant
portion of the Trust's obligations. As a result, the Company had consolidated
the accounts of the Trust as of September 19, 1995 on a prospective basis. This
office building was sold in March, 2000 and the Company ceased to consolidate
the accounts of the Trust effective with the date of sale.
Interim Financial Statements
The consolidated balance sheet at June 24, 2000 and consolidated statements
of operations and of cash flows for the six month periods ended June 26, 1999
and June 24, 2000 are unaudited and, in the opinion of management, include all
adjustments (consisting of normal and recurring adjustments) necessary for a
fair presentation of results for these interim periods. Certain information and
footnote disclosures normally included in the Company's annual consolidated
financial statements have been condensed or omitted. The results of operations
for the interim period ended June 24, 2000 are not necessarily indicative of the
results to be expected for future quarters or the entire year. The balance sheet
at December 25, 1999 contained herein has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements for the year ended December 25, 1999, which are contained in the
Company's 1999 Report on Form 10-K.
Earnings Per Share
Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
has been computed by dividing net income by the weighted average number of
common shares and dilutive potential common stock outstanding. Potential common
stock includes stock options and warrants, calculated using the treasury stock
method. For the three and six month periods ended June 24, 2000, basic and
diluted earnings per share are the same, as the effect of including common stock
equivalents is anti-dilutive. A reconciliation of the weighted average number of
common shares outstanding is as follows:
6
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RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
------------------------ ------------------------
June 26, June 24, June 26, June 24,
1999 2000 1999 2000
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding-basic 56,166 56,253 56,160 56,479
Assumed exercise of stock options, using the
treasury stock method 611 - 499 -
------ ------ ------ ------
Weighted average number of common and
potential common shares outstanding - diluted 56,777 56,253 56,659 56,479
====== ====== ====== ======
</TABLE>
Other Comprehensive Income
The Company accounts for comprehensive income in accordance with Statement
of Financial Accounting Standards No. 130, "Reporting of Comprehensive Income."
This Statement requires disclosure of comprehensive income and its components in
interim and annual reports. For the six month periods ended June 26, 1999 and
June 24, 2000, accumulated other comprehensive income (expense) items included
in stockholders' equity consisted of translation adjustments of $(0.6 million)
and $(0.8 million).
Recent Accounting Developments
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. The Company is required to be in conformity with the
provisions of SAB 101 by the fourth quarter of fiscal 2000 and is currently
evaluating the impact SAB 101 will have on its financial condition or results of
operations.
2. Long-Term Debt
On July 15, 1999, the Company entered into a three-year, $150 million
revolving credit and term loan agreement (the "Credit Facility") with a bank
syndicate. The Credit Facility consisted of a revolving line of credit of $100
million ("Revolving Credit Facility") and a term loan of $50 million ("Term
Loan"). The original Credit Facility bore interest at the higher of the Federal
Funds Rate plus 0.50% or the prime rate, plus up to 1.75% or LIBOR plus up to
3.0%, depending on the Company's level of compliance with certain financial
ratios. The Credit Facility required the Company to pay a commitment fee of
0.375% to 0.50% per annum, depending on certain financial criteria, on the
unused portion of the Credit Facility. The Credit Facility was collateralized
by the majority of the assets of the Company and contained certain restrictions
and various covenants, including the maintenance of defined financial ratios.
On September 15, 1999, the Company announced that it was revising its
revenue and earnings estimates for the third and fourth quarters of 1999 due to
a softening in the demand for services in two of its core business - the
Enterprise Solutions and ITCS Groups. Based upon this revised outlook, the
Company informed the bank syndicate that it would not be in compliance with
certain of its financial covenants for the third quarter of 1999. On November
4, 1999, the Company and the banks signed an amendment to the Credit Facility
amending certain financial covenants for the third quarter of 1999 through the
third quarter of 2000, reverting back to the original financial covenants
established in the Credit Facility thereafter. The Credit Facility, as amended,
bore interest at the higher of the Federal Funds Rate plus 0.50% or the prime
rate, plus up to 2.25% or LIBOR plus up to 3.5%, depending on the Company's
level of compliance with certain financial ratios. In connection with this
amendment, the Company was required to pay amendment fees to the banks and
related expenses of approximately $0.5 million which were recorded in the third
quarter of 1999 as interest and other expense, net.
7
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RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On February 25, 2000, the Company and the banks signed a second amendment
to the Credit Facility which permitted the Company to complete its sale of the
Business Strategy Group (see Note 4) and the Renaissance Worldwide Professionals
Ltd., formerly James Duncan Associates ("JDA"), and amended certain financial
covenants to reflect the sale of the businesses. On March 14, 2000, the Company
used $60.0 million of the proceeds that it received from the sale of its
Business Strategy Group to repay the $50.0 million Term Loan and $10.0 million
of borrowings under the Revolving Credit Facility.
Based upon the results for the first quarter of 2000, the Company informed
the bank syndicate that it would not be in compliance with one of its financial
covenants for the first quarter of 2000 and that it may not be in compliance
with this and other financial covenants for the remainder of 2000 based upon its
current outlook for the remainder of the year. The Company and the banks signed
a third amendment to the Credit Facility waiving the financial covenants for the
first quarter of 2000 until July 31, 2000. On July 31, 2000, the Company and
the banks signed a fourth amendment to the Credit Facility which reduced the
Revolving Credit Facility to $70 million from $100 million and reduced the term
of the Credit Facility to November 30, 2000 from July 15, 2002, waived the
financial covenant violation for the first quarter of 2000, and amended the
financial covenants for the second and third quarter of 2000. The Credit
Facility, as amended, now bears interest at the higher of the Federal Funds Rate
plus 0.50% or the prime rate, plus up to 3.50%, depending on the Company's level
of unused borrowing availability under its borrowing base as now defined in the
amended Credit Facility. In connection with this amendment, the Company is
required to pay amendment fees to the banks and related expenses of
approximately $0.2 million. The Company has begun discussions with other
lenders as well as with certain lenders of the current group with regards to
replacing its existing Credit Facility. While the Company believes that it will
be able to replace the Credit Facility on terms not materially different from
the existing Credit Facility, no assurance can be given that the Company will be
able to do so.
As of June 24, 2000, the total amount outstanding under the Revolving
Credit Facility, was $34.2 million at an interest rate of 9.91% with a remaining
unused borrowing base availability under the Credit Facility of approximately
$30.1 million.
3. NON-RECURRING CHARGES.
In the second quarter of 2000, the Company recorded a non-recurring charge
which includes costs associated with severance ($4.0 million) for approximately
130 employees and facility closings ($3.0 million) incurred as a result of the
Company's efforts to re-size its businesses based upon its extended outlook, the
costs associated with the evaluation and discontinuance of one of its proposed
strategic business initiatives ($1.2 million) and a loss on the sale of JDA
($0.2 million). As of June 24, 2000, the Company has $3.2 million accrued for
remaining costs in connection with these severance and facility closings.
4. DISCONTINUED OPERATIONS AND OTHER DISPOSITIONS
In the fourth quarter of 1999, the Company decided to sell its management
consulting practice, the Business Strategy Group in an initiative to support the
Company's new strategic direction. The cash transaction of $67.7 million closed
on March 10, 2000 and resulted in a gain for the Company of $12.4 million, net
of taxes of approximately $10.0 million. Accordingly, the Company has reported
the results of operations of the Business Strategy Group as discontinued
operations in the accompanying financial statements and related notes for all
periods shown. During the second quarter of 2000, the Company adjusted its gain
on the sale as it finalized its tax basis in the business and reduced the tax
provision by $1.8 million.
At December 25, 1999, assets of the Business Strategy Group consisted
primarily of accounts receivable, goodwill and deferred income taxes amounting
to $47.7 million; and liabilities of $7.8 million consisted primarily of accrued
expenses and deferred income taxes.
Following is summary financial information for the Company's discontinued
Strategy segment operations:
8
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RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
------------------------- --------------------------
June 26, June 24, June 26, June 24,
1999 2000 1999 2000
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Revenue $ 7,169 $ - $ 18,561 $ 10,029
Cost of revenue 3,988 - 11,360 6,159
Selling, general and administrative expenses 1,763 - 5,346 1,743
Interest expense, net 17 - (5) -
Income tax provision 486 - 665 976
------- ------- ------- -------
Income from discontinued Strategy segment, net of tax 915 - 1,195 1,151
Gain on disposal of Strategy segment, net of tax - 1,782 - 12,427
------- ------- ------- -------
Net income $ 915 $ 1,782 $ 1,195 $ 13,578
======= ======= ======= ========
</TABLE>
In February 2000, the Company also signed a letter of intent to sell JDA
back to its management for approximately $1.2 million. In connection with this
transaction, which closed on March 31, 2000, the Company recorded a non-
recurring charge of $4.0 million in the fourth quarter of 1999 to write-down
goodwill and recorded a loss on the sale of this business of $0.2 million in the
second quarter of 2000 which was included in the non-recurring charge.
6. SEGMENT REPORTING
The Company adopted SFAS 131 in fiscal 1998. The Company's four primary
business segments include: the ITCS Group, the Enterprise Solutions Group, the
Government Consulting Group and GovConnect. The following presents information
about reported segments for the three and six months ended June 26, 1999 and
June 24, 2000. In the first quarter of 2000, the Company changed the structure
of its internal organization such that the Government Solutions segment became
two reportable segments, the Government Consulting Group and GovConnect. Certain
amounts previously reported have been reclassified to conform to the Company's
current basis of presentation.
9
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RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
----------------------- ------------------------
June 26, June 24, June 26, June 24,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
ITCS Group $ 143,599 $102,670 $ 283,618 $210,820
Enterprise Solutions Group 48,928 30,557 98,999 62,054
Government Consulting Group 6,740 5,787 12,258 11,828
GovConnect.com 2,758 4,775 5,321 8,920
--------- --------- --------- --------
Total (1) $ 202,025 $143,789 $ 400,196 $293,622
========= ========= ========= ========
Income (loss) from operations:
ITCS Group $ 12,948 $ 6,668 $ 24,236 $ 8,919
Enterprise Solutions Group 4,433 246 5,208 (1,110)
Government Consulting Group 1,470 857 2,618 1,617
GovConnect.com (75) (892) (16) (538)
--------- --------- --------- --------
Total (1) $ 18,776 $ 6,879 $ 32,046 $ 8,888
========= ========= ========= ========
Corporate expenses (2) $ 9,131 $10,839 $ 17,444 $22,266
Restructuring charges and asset writedowns 2,950 8,415 2,950 8,415
Interest and other expense, net 1,723 833 4,270 2,426
--------- --------- --------- ---------
Total income (loss) before taxes $ 4,972 $ (13,208) $ 7,382 $ (24,219)
========= ========= ========= =========
</TABLE>
(1) Intersegment revenues were not material and have been eliminated in the
above presentation.
(2) Corporate expenses include centralized functions such as accounting,
billing, credit and collection, human resources, legal and information
technology.
10
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RENAISSANCE WORLDWIDE, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JUNE 26, 1999 AND JUNE 24, 2000
Revenue. Total revenue decreased 28.8% to $143.8 million for the second
quarter of 2000 from $202.0 million in the second quarter of 1999. This revenue
decrease was attributable to a 37.5% decrease in the Enterprise Solutions
Group's revenue which decreased to $30.6 million in 2000 from $48.9 million in
1999, a 28.5% decrease in the ITCS Group's revenue which decreased to $102.7
million in 2000 from $143.6 million in 1999 and a 14.1% decrease in the
Government Consulting Group's revenue which decreased to $5.8 million in 2000
from $6.7 million in 1999. These decreases were partially offset by a 73.1%
increase in GovConnect revenue which increased to $4.8 million in 2000 from $2.8
million in 1999. The decrease in the Enterprise Solutions Group's revenue was
partially due to the sale by the Company of its Customer Management Solutions
Vantive practice and Neoglyphics Media Corporation in May of 1999 which
generated $1.9 million of revenue in the quarter ended June 26, 1999. The
decrease in the ITCS revenue was partially due to the sale of JDA on March 31,
2000. The Company believes that the remaining decrease in the Enterprise
Solutions Group's revenue as well as the decrease in the ITCS Group's revenue
continues to be attributable to the continued slow-down of business in the post
Year 2000 environment, resulting in delayed starts of new projects.
Gross Profit. Gross profit decreased 37.9% to $38.7 million for the second
quarter of 2000 from $62.3 million for the comparable prior period. As a
percentage of revenue, gross profit decreased to 26.9% for the period compared
to 30.8% for the comparable prior period. This decrease in gross profit
percentage was attributable to a reduction in the ITCS and Enterprise Solutions
Groups' margins as both experienced a decrease in their respective utilization
rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by 18.9% to $42.7 million for the second
quarter of 2000 from $52.6 million for the comparable prior period. As a
percentage of revenue, selling, general and administrative expenses increased to
29.7% from 26.0% for the comparable prior period. This decrease in expense was
attributable primarily to the Company's efforts to re-size supporting functions
to match the lower revenue levels discussed above.
Non-recurring charges. In the second quarter of 2000, the Company recorded
a non-recurring charge which includes costs associated with severance ($4.0
million) for approximately 130 employees and facility closings ($3.0 million)
incurred as a result of the Company's efforts to re-size its businesses based
upon its extended outlook, the costs associated with the evaluation and
discontinuance of one of its proposed strategic business initiatives ($1.2
million) and a loss on the sale of "JDA" ($0.2 million). As of June 24, 2000,
the Company has $3.2 million accrued for remaining costs in connection with
these severance and facility closings.
Discontinued Operations. In the fourth quarter of 1999, the Company
decided to sell its management consulting practice, the Business Strategy Group
in an initiative to support the Company's new strategic direction. The cash
transaction of $67.7 million closed on March 10, 2000 and resulted in a gain for
the Company estimated at $12.4 million, net of taxes of approximately $10.0
million. During the second quarter of 2000, the Company adjusted its gain on
the sale as it finalized its tax basis in the business and reduced the tax
provision by $1.8 million.
Interest and Other Expense, Net. Interest and other expense, net,
decreased to $.8 million for the second quarter of 2000 from $1.7 million for
the comparable prior period. This decrease was due to lower borrowings in 2000,
and the repayment on March 14, 2000 of the $50.0 million Term Loan and $10.0
million of borrowings under the Revolving Credit Facility from the proceeds of
the sale of the Business Strategy Group.
Extraordinary Gain. In May 1999, the Company sold substantially all of the
assets of Neoglyphics and its Customer Management Solutions Vantive practice for
$10.0 million in cash, a $2.0 million convertible note receivable and 400,000
shares of the purchaser's common stock. The note is convertible into common
stock at the time of a qualifying initial public offering by the purchaser at a
20% discount from the offering price. The purchaser filed a preliminary
registration statement with the Securities and Exchange Commission in early
2000. In connection with this sale, the Company recognized an after tax gain of
$.8 million. The gain on the sale was classified as an extraordinary item
because the pooling of interests method of accounting was applied to the
original acquisition of these assets within the last two years.
11
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RENAISSANCE WORLDWIDE, INC.
SIX MONTHS ENDED JUNE 26, 1999 AND JUNE 24, 2000
Revenue. Total revenue decreased 26.6% to $293.6 million for the first six
months of 2000 from $400.2 million in the first six months of 1999. This revenue
decrease was attributable to a 37.3% decrease in the Enterprise Solutions
Group's revenue which decreased to $62.1 million in 2000 from $99.0 million in
1999, a 25.7% decrease in the ITCS Group's revenue which decreased to $210.8
million in 2000 from $283.6 million in 1999 and a 3.5% decrease in the
Government Consulting Group's revenue to $11.8 million in 2000 from $12.3
million in 1999. These decreases were partially offset by a 67.6% increase in
GovConnect revenue which increased to $8.9 million in 2000 from $5.3 million in
1999 The decrease in the Enterprise Solutions Group's revenue was partially due
to the sale by the Company of its Customer Management Solutions Vantive practice
and Neoglyphics Media Corporation in May of 1999 which generated $5.7 million of
revenue in the first six months of 1999. The decrease in the ITCS revenue was
partially due to the sale of JDA on March 31, 2000. The Company believes that
the remaining decrease in the Enterprise Solutions Group's revenue as well as
the decrease in the ITCS Group's revenue continues to be attributable to the
continued slow-down of business in the post Year 2000 environment, resulting in
delayed starts of new projects.
Gross Profit. Gross profit decreased 38.1% to $75.4 million for the first
six months of 2000 from $121.7 million for the comparable prior period. As a
percentage of revenue, gross profit decreased to 25.7% for the period compared
to 30.4% for the comparable prior period. This decrease in gross profit
percentage was attributable to a reduction in the ITCS and Enterprise Solutions
Groups' margins as both experienced a decrease in their respective utilization
rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by 17.1% to $88.7 million for the first six
months of 2000 from $107.1 million for the comparable prior period. As a
percentage of revenue, selling, general and administrative expenses increased to
30.2% from 26.8% for the comparable prior period. This decrease in expense was
attributable primarily to the Company's efforts to re-size supporting functions
to match the lower revenue levels discussed above.
Non-recurring charges. In the second quarter of 2000, the Company
recorded a non-recurring charge which includes costs associated with severance
($4.0 million) for approximately 130 employees and facility closings ($3.0
million) incurred as a result of the Company's efforts to re-size its businesses
based upon its extended outlook, the costs associated with the evaluation and
discontinuance of one of its proposed strategic business initiatives ($1.2
million) and a loss on the sale of JDA ($0.2 million). As of June 24, 2000, the
Company has $3.2 million accrued for remaining costs in connection with these
severance and facility closings.
Discontinued Operations. In the fourth quarter of 1999, the Company
decided to sell its management consulting practice, the Business Strategy Group
in an initiative to support the Company's new strategic direction. The cash
transaction of $67.7 million closed on March 10, 2000 and resulted in a gain for
the Company estimated at $12.4 million, net of taxes of approximately $10.0
million. During the second quarter of 2000, the Company adjusted its gain on
the sale as it finalized its tax basis in the business and reduced the tax
provision by $1.8 million.
Interest and Other Expense, Net. Interest and other expense, net,
decreased to $1.6 million for the first six months of 2000 from $2.5 million for
the comparable prior period. This decrease was due to lower borrowings in 2000,
and the repayment on March 14, 2000 of the $50.0 million Term Loan and $10.0
million of borrowings under the Revolving Credit Facility from the proceeds of
the sale of the Business Strategy Group.
Extraordinary Gain. In May 1999, the Company sold substantially all of the
assets of Neoglyphics and its Customer Management Solutions Vantive practice for
$10.0 million in cash, a $2.0 million convertible note receivable and 400,000
shares of the purchaser's common stock. The note is convertible into common
stock at the time of a qualifying initial public offering by the purchaser at a
20% discount from the offering price. The purchaser filed a preliminary
registration statement with the Securities and Exchange Commission in early
2000. In connection with this sale, the Company recognized an after tax gain of
$.8 million. The gain on the sale was classified as an extraordinary item
because the pooling of interests method of accounting was applied to the
original acquisition of these assets within the last two years.
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RENAISSANCE WORLDWIDE, INC.
LIQUIDITY AND CAPITAL RESOURCES
On July 15, 1999 the Company entered into a three-year, $150 million
revolving credit and term loan agreement with a bank syndicate. The Credit
Facility consisted of a revolving line of credit of $100 million and a term loan
of $50 million. The original Credit Facility bore interest at the higher of the
Federal Funds Rate plus 0.50% or the prime rate, plus up to 1.75% or LIBOR plus
up to 3.0%, depending on the Company's level of compliance with certain
financial ratios. The Credit Facility required the Company to pay a commitment
fee of 0.375% to 0.50% per annum, depending on certain financial criteria, on
the unused portion of the Credit Facility. The Credit Facility was
collateralized by the majority of the assets of the Company and contained
certain restrictions and various covenants, including the maintenance of defined
financial ratios.
On September 15, 1999, the Company announced that it was revising its
revenue and earnings estimates for the third and fourth quarters of 1999 due to
a softening in the demand for services in two of its core business - the
Enterprise Solutions and ITCS Groups. Based upon this revised outlook, the
Company informed the bank syndicate that it would not be in compliance with
certain of its financial covenants for the third quarter of 1999. On November
4, 1999, the Company and the banks signed an amendment to the Credit Facility
amending certain financial covenants for the third quarter of 1999 through the
third quarter of 2000, reverting back to the original financial covenants
established in the Credit Facility thereafter. The Credit Facility, as amended,
bore interest at the higher of the Federal Funds Rate plus 0.50% or the prime
rate, plus up to 2.25% or LIBOR plus up to 3.5%, depending on the Company's
level of compliance with certain financial ratios. In connection with this
amendment, the Company was required to pay amendment fees to the banks and
related expenses of approximately $0.5 million which were recorded in the third
quarter of 1999 as interest and other expense, net.
On February 25, 2000, the Company and the banks signed a second amendment
to the Credit Facility which permitted the Company to complete its sale of the
Business Strategy Group (see Note 4) and JDA and amended certain financial
covenants to reflect the sale of the businesses. On March 14, 2000, the Company
used $60.0 million of the proceeds that it received from the sale of its
Business Strategy Group to repay the $50.0 million Term Loan and $10.0 million
of borrowings under the Revolving Credit Facility.
Based upon the results for the first quarter of 2000, the Company informed
the bank syndicate that it would not be in compliance with one of its financial
covenants for the first quarter of 2000 and that it may not be in compliance
with this and other financial covenants for the remainder of 2000 based upon its
current outlook for the remainder of the year. The Company and the banks signed
a third amendment to the Credit Facility waiving the financial covenants for the
first quarter of 2000 until July 31, 2000. On July 31, 2000, the Company and
the banks signed a fourth amendment to the Credit Facility which reduced the
Revolving Credit Facility to $70 million from $100 million and reduced the term
of the Credit Facility to November 30, 2000 from July 15, 2002, waived the
financial covenant violation for the first quarter of 2000, and amended the
financial covenants for the second and third quarter of 2000. The Credit
Facility, as amended, now bears interest at the higher of the Federal Funds Rate
plus 0.50% or the prime rate, plus up to 3.50%, depending on the Company's level
of unused borrowing availability under its borrowing base as now defined in the
amended Credit Facility. In connection with this amendment, the Company is
required to pay amendment fees to the banks and related expenses of
approximately $0.2 million. The Company has begun discussions with other
lenders as well as with certain lenders of the current group with regards to
replacing its existing Credit Facility. While the Company believes that it will
be able to replace the Credit Facility on terms not materially different from
the existing Credit Facility, no assurance can be given that the Company will be
able to do so.
As of June 24, 2000, the total amount outstanding under the Revolving
Credit Facility, was $34.2 million at an interest rate of 9.91% with a remaining
unused borrowing base availability under the Credit Facility of approximately
$30.1 million.
The Company had negative cash flows from operations of $30.9 million for
the six months ended June 24, 2000. The negative operating cash flows were due
primarily to a decrease of $19.1 million in accounts payable, accrued expenses
and other liabilities due primarily to payments of year end obligations and
certain contingent earnouts. This decrease was partially offset by
approximately $3.2 million ($1.6 million for severance and $1.6 million for
excess facilities) in remaining obligations associated with the $8.4 million
non-recurring charge recorded in the second quarter of 2000.
The Company had cash flows of $62.1 million from investing activities for
the six months ended June 24, 2000 due primarily to the sale of the Business
Strategy Group and JDA for $68.8 million, offset by purchases of fixed assets of
$6.3 million.
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RENAISSANCE WORLDWIDE, INC.
The Company used cash flows of $37.5 million from financing activities for
the six months ended June 24, 2000 due primarily to the repayment of the $50
million Term Loan from proceeds from the sale of the Business Strategy Group and
the purchase of 952,500 shares of common stock for $3.1 million, offset by
increased Revolving Credit Facility borrowings of $15.3 million.
The Company anticipates that its primary uses of working capital in future
periods will be for funding growth, either through acquisitions, the internal
development of existing branch offices or the development of new branch offices
and new service offerings. The Company also anticipates making approximately $12
to $16 million in capital expenditures over the next twelve months, primarily
related to information systems. In connection with certain of its past
acquisitions, the Company may be obligated to make certain contingent payments
during the next several years, including approximately $6 million which the
Company is currently required to pay over the next 12 months. The Company's
principal capital requirement is working capital to support the accounts
receivable associated with its expected revenue growth. The Company believes
that it is necessary for the Company to secure a new revolving credit facility
which, together with cash flows from operations, will allow the Company to
adequately meet its presently anticipated working capital and financing needs
for the next 18 months. While the Company believes that it will be able to
secure a new revolving credit facility on terms not materially different from
the existing Credit Facility, no assurance can be given that the Company will be
able to do so.
RECENT ACCOUNTING DEVELOPMENTS
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. The Company is required to be in conformity with the
provisions of SAB 101 by the fourth quarter of fiscal 2000 and is currently
evaluating the impact SAB 101 will have on its financial condition or results of
operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This section of the Company's Form 10-Q, entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contains forward-
looking statements regarding risks and uncertainties. The Company's actual
performance and results may differ materially due to many important factors,
including, but not limited to, the risk in transforming the Company to an e-
solutions provider, the need for additional financing, the Company's dependence
on the availability of qualified IT consultants, its ability to sustain and
manage growth, the risks associated with acquisitions, the Company's dependence
on key clients and personnel, risks associated with international operations,
the relatively short history of profitability, the impact of the government
regulation on immigration, fluctuations in operating results due in part to the
opening of new branch offices, general economic conditions, employment liability
risks, and the like. For additional and more comprehensive discussions of the
risks associated with ownership of Common Stock of the Company, please see the
Risk Factors section of the Company's Report on Form 10-K, filed on March 24,
2000. As a result of these and other factors, there can be no assurance that the
Company will not experience material fluctuations in future operating results on
a quarterly or annual basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates on its borrowings. The Company does
not engage in trading market risk sensitive instruments for speculative
purposes. There have been no material changes in market risk exposures from the
information disclosed in the Form 10-K for the year ended December 25, 1999.
PART II. OTHER INFORMATION
ITEM 1--LEGAL PROCEEDINGS
Not applicable
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RENAISSANCE WORLDWIDE, INC.
ITEM 2--CHANGE IN SECURITIES
Not applicable
ITEM 3--DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company conducted its Annual Meeting of Shareholders on May 25, 2000.
Mr. Paul O'Brien was re-elected as a Class II director at the Meeting with
49,595,367 shares voted in favor of such re-election. Mssrs. G. Drew Conway and
Robert P. Badavas have terms of office that extend beyond the Meeting and,
therefore, did not stand for re-election at the Meeting. Proposal #2 to amend
the 1996 Stock Option Plan was approved by a vote of 37,979,728 votes for,
10,517,885 votes against, and 97,755 abstentions. Proposal #3 to amend the 1996
Employee Stock Purchase Plans was approved by a vote of 33,800,246 votes for,
5,149,235 votes against, 9,545,549 broker non-votes, and 100,338 abstentions.
Proposal #4 to adopt the 2000 Stock Plans for four subsidiary companies was
approved by a vote of 31,026,009 votes for, 7,922,717 votes against, 9,545,549
broker non-votes, and 101,093 abstentions.
ITEM 5--OTHER INFORMATION
Not applicable
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1 Limited Waiver of the Amended and Restated Credit Agreement among
Registrant, Bank of America, N.A., GMAC Commercial Credit LLC
(formerly BNY Factoring LLC), and lenders named within, dated March
25, 2000.
10.2 Limited Waiver of the Amended and Restated Credit Agreement among
Registrant, Bank of America, N.A., GMAC Commercial Credit LLC, and
lenders named within, dated June 30, 2000.
10.3 Third Amendment to and Limited Waiver of the Amended and Restated
Credit Agreement among Registrant, Bank of America, N.A., GMAC
Commercial Credit LLC, and lenders named within, dated July 14, 2000.
10.4 Fourth Amendment to the Amended and Restated Credit Agreement among
Registrant, Bank of America, N.A., GMAC Commercial Credit LLC, and
lenders named within, dated July 31, 2000.
27.1 Financial Data Schedule
b. Reports on Form 8-K
On June 21, 2000, the Company filed a Current Report on Form 8-K dated June
13, 2000, reporting under Item 5 (Other Event) the adoption of a so-called
Poison Pill.
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RENAISSANCE WORLDWIDE, INC.
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.
Renaissance Worldwide, Inc.
(Registrant)
Date: August 8, 2000 By:/s/ G. Drew Conway
--------------------
G. Drew Conway,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 8, 2000 By:/s/ Joseph F. Pesce
----------------------
Joseph F. Pesce,
Executive Vice President of Finance,
Chief Financial Officer and Treasurer
16
