<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 September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period to
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Commission File Number 0-28192
RENAISSANCE WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
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Massachusetts 04-2920563
(State of Incorporation) (IRS Employer
Identification No.)
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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 October 27, 2000, there were 56,063,780 shares of Common Stock, no par
value, outstanding.
<PAGE>
RENAISSANCE WORLDWIDE, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at December 25, 1999 and September 30, 2000 (Unaudited) 3
Condensed Consolidated Statement of Operations for the three and nine months ended
September 25, 1999 and September 30, 2000 (Unaudited) 4
Condensed Consolidated Statement of Cash Flows for the nine months ended September 25, 1999
and September 30, 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
</TABLE>
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, September 30
1999 2000
--------------- -------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,605 $ 69
Accounts receivable, net 155,784 120,028
Deferred income taxes 12,136 9,914
Other current assets 6,882 4,098
Net current assets of discontinued operations 7,765 12,708
--------------- -------------------
Total current assets 193,172 146,817
Fixed assets, net 29,674 25,286
Goodwill and other intangible assets, net 70,868 51,636
Other assets 9,450 5,505
Deferred income taxes 3,336 1,238
Net non-current assets of discontinued operations 32,144 22,835
--------------- -------------------
Total assets $338,644 $253,317
=============== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 18,914 $ 31,000
Current portion of long-term debt 1,544 -
Accounts payable 28,546 15,043
Accrued salaries, wages and related benefit costs 31,754 21,416
Other accrued expenses 13,156 7,086
Deferred income taxes 3,339 1,546
--------------- -------------------
Total current liabilities 97,253 76,091
Deferred income taxes 6,983 6,253
Term loan 50,000 -
Other long-term debt and liabilities 3,051 174
--------------- -------------------
Total liabilities 157,287 82,518
-------------- ------------------
Stockholders' equity:
Common stock and additional paid in capital 188,908 190,791
Notes receivable from stockholders (722) (246)
Retained deficit (3,732) (11,936)
Accumulated other comprehensive loss (551) (2,178)
Treasury stock (2,546) (5,632)
-------------- ------------------
Total stockholders' equity 181,357 170,799
-------------- ------------------
Total liabilities and stockholders' equity $338,644 $253,317
============== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data - unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
-------------------------------- ----------------------------
September 25, September 30, September 25, September 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $140,460 $111,757 $441,657 $343,325
Cost of revenue 101,287 83,996 316,674 258,224
------------- ------------- ------------- -------------
Gross profit 39,173 27,761 124,983 85,101
Selling, general and administrative expenses 39,953 34,014 116,369 103,622
Restructuring charges and asset writedowns - - 2,950 6,810
------------- ------------- ------------- -------------
Income (loss) from operations (780) (6,253) 5,664 (25,331)
Interest and other expense, net 2,867 3,054 7,013 5,433
------------- ------------- ------------- -------------
Loss from continuing operations before taxes (3,647) (9,307) (1,349) (30,764)
Income tax benefit (1,396) (4,004) (551) (12,932)
------------- ------------- ------------- -------------
Loss from continuing operations, net of tax (2,251) (5,303) (798) (17,832)
Income (loss) from discontinued operations, net of tax 3,393 (1,542) 7,401 (2,799)
Gain on disposal of Strategy segment, net of tax - - - 12,427
------------- ------------- ------------- -------------
Income (loss) before extraordinary items 1,142 (6,845) 6,603 (8,204)
Extraordinary gain, net of taxes - - 833 -
------------- ------------- ------------- -------------
Net income (loss) $ 1,142 $ (6,845) $ 7,436 $ (8,204)
============= ============= ============= =============
Basic earnings per share:
Loss from continuing operations $ (0.04) $ (0.09) $ (0.01) $ (0.32)
Discontinued Operations:
Income (loss) from discontinued operations 0.06 (0.03) 0.13 (0.05)
Gain on disposal of Strategy segment - - - 0.22
Extraordinary gain - - 0.01 -
-------------- ------------- ------------- -------------
Net income (loss) $ 0.02 $ (0.12) $ 0.13 $ (0.15)
============= ============= ============= =============
Diluted earnings per share:
Loss from continuing operations $ (0.04) $ (0.09) $ (0.01) $ (0.32)
Discontinued Operations:
Income (loss) from discontinued operations 0.06 (0.03) 0.13 (0.05)
Gain on disposal of Strategy segment - - - 0.22
Extraordinary gain - - 0.01 -
-------------- ------------- ------------- -------------
Net income (loss) $ 0.02 $ (0.12) $ 0.13 $ (0.15)
============== ============= ============= =============
Weighted average common shares:
Basic 56,507 55,982 56,274 56,313
============== ============= ============= =============
Diluted 56,507 55,982 56,274 56,313
============== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
RENAISSANCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands - unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------------
September 25, September 30,
1999 2000
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,436 $ (8,204)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 10,573 11,920
Deferred income taxes (49) -
Gain on disposal of Strategy segment - (12,427)
Extraordinary gain on sale of assets (833) -
Writedown of assets 2,950 434
Changes in operating assets and liabilities:
Accounts receivable (5,084) 3,891
Other current assets 13,074 2,447
Other assets 4,493 70
Accounts payable, accrued expenses and other liabilities 3,487 (25,553)
------------------ ------------------
Net cash provided by (used for) operating activities 36,047 (27,422)
Cash flows from investing activities:
Cash disbursed for acquisitions, net of cash acquired (12,149) (1,150)
Cash proceeds from the sale of businesses 10,000 68,797
Net decrease (increase) in notes receivable (1,428) 476
Purchases of fixed assets (15,420) (7,377)
------------------ ------------------
Net cash provided (used for) investing activities (18,997) 60,746
Cash flows from financing activities:
Net borrowings (repayments) on revolving credit facilities (62,310) 12,086
Proceeds (repayments) on Term Loan 50,000 (50,000)
Principal payments on other long-term debt (2,226) (1,368)
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 2,175 1,883
------------------ ------------------
Net cash used for financing activities (13,424) (40,485)
Effect of exchange rate changes on cash and cash equivalents (155) (562)
------------------ ------------------
Net decrease in cash and cash equivalents 3,471 (7,723)
Cash and cash equivalents, beginning of period 10,957 10,605
------------------ ------------------
Cash and cash equivalents, end of period $ 14,428 $ 2,882
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
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
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 two primary business segments: the
Information Technology Consulting Services Group ("ITCS Group") and the
GovConnect Group. The ITCS Group provides consulting services centered on
application design, implementation and support. The GovConnect Group provides
specialized management and technology consulting services to the public sector
and is focused on the market opportunity for public access to electronic
government services. The Company sold two of its segments in 2000. The Business
Strategy Group, which provided management consulting and technology integration
services in connection with performance support systems, was sold for $67.7
million on March 10, 2000. The Enterprise Solutions Group (primarily the Hunter
Group), which provided IT solutions design and implementation services, was sold
for net proceeds of approximately $75 million on October 20, 2000. Both of these
segments have been 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 September 30, 2000 and consolidated
statements of operations and of cash flows for the nine month periods ended
September 25, 1999 and September 30, 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 September 30,
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 nine month periods ended September 25, 1999 and
September 30, 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 Nine Months Ended
------------------------------------ -----------------------------------
September 25, September 30, September 25, September 30,
1999 2000 1999 2000
------------- -------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding-basic 56,507 55,982 56,274 56,313
Assumed exercise of stock options, using the
treasury stock method - - - -
---------- ---------- ---------- ----------
Weighted average number of common and
potential common shares outstanding - diluted 56,507 55,982 56,274 56,313
========== ========== ========== ==========
</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 nine month periods ended September 25, 1999
and September 30, 2000, accumulated other comprehensive income (expense) items
included in stockholders' equity consisted of translation adjustments of $(0.6
million) and $(1.6 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 businesses - 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 revised 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, bore 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 defined in the amended
Credit Facility. In connection with this amendment, the Company was required to
pay amendment fees to the banks and related expenses of approximately $0.2
million.
As of September 30, 2000, the total amount outstanding under the Revolving
Credit Facility, was $31.0 million at an interest rate of 10.75%.
In connection with the sale of the Enterprise Solutions Group, the Company
used approximately $33.8 million of its proceeds to repay all outstanding
obligations under the Credit Facility on October 20, 2000 and the Credit
Facility was terminated in its entirety.
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, of which $1.2
million pertained to the Enterprise Solution Group) for approximately 130
employees and facility closings ($3.0 million, of which $0.4 million pertained
to the Enterprise Solution Group) 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
September 30, 2000, the Company has approximately $1.2 million accrued for
remaining costs in connection with these severance ($0.2 million) and facility
closings ($1.0 million).
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.
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.
8
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RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Following is summary financial information for the Company's discontinued
Business Strategy segment:
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
---------------------------------- -----------------------------------
September 25, September 30, September 25, September 30,
1999 2000 1999 2000
--------------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Revenue $ 8,510 $ - $ 27,071 $ 10,029
Cost of revenue 4,630 - 15,990 6,159
Selling, general and administrative expenses 1,181 - 6,527 1,743
Interest and other expense (income), net (351) - (356) -
Income tax provision (benefit) 1,058 - 1,723 976
-------- ----- -------- --------
Income from discontinued operations, net of tax 1,992 - 3,187 1,151
Gain on disposal of Strategy segment, net of tax - - - 12,427
-------- ----- -------- --------
Net income $ 1,992 $ - $ 3,187 $ 13,578
======== ===== ======== ========
</TABLE>
In the third quarter of 2000, the Company decided to sell the Enterprise
Solutions Group, a worldwide information management consulting group and
provider of enterprise business solutions, in an initiative to further support
the Company's new strategic direction. The Company received net proceeds of
approximately $75.1 million. This transaction closed on October 20, 2000 and
will result in a net gain for the Company of approximately $25 million.
Accordingly, the Company has reported the results of operations of the
Enterprise Solutions Group as discontinued operations in the accompanying
financial statements and related notes for all periods shown.
At September 30, 2000, assets of the Enterprise Solution Group consisted
primarily of accounts receivable, fixed assets, goodwill and deferred income
taxes amounting to $58.2 million; and liabilities of $22.7 million consisted
primarily of accrued expenses and deferred income taxes
Following is summary financial information for the Company's discontinued
Enterprise Solutions segment:
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
--------------------------------- ---------------------------------
September 25, September 30, September 25, September 30,
1999 2000 1999 2000
------------- -------------- -------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Revenue $ 40,439 $ 26,128 $139,438 $ 88,182
Cost of revenue 25,319 18,089 88,469 62,120
Selling, general and administrative expenses 12,796 9,378 43,437 28,511
Non-recurring charge - - - 1,605
Interest and other expense (income), net (208) 429 (84) 476
Income tax provision (benefit) 1,131 (226) 3,402 (580)
-------- -------- -------- --------
Income (loss) from discontinued operations, net of tax $ 1,401 $ (1,542) $ 4,214 $ (3,950)
======== ======== ======== ========
</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.
9
<PAGE>
RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. Segment Reporting
The Company's two primary business segments include the ITCS Group and the
GovConnect Group. The following presents information about reported segments for
the three and nine months ended September 25, 1999 and September 30, 2000.
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
--------------------------------- ---------------------------------
September 25, September 30, September 25, September 30,
1999 2000 1999 2000
-------------- ------------- -------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
ITCS Group $131,212 $102,824 $414,830 $313,644
GovConnect Group 9,248 8,933 26,827 29,681
-------- -------- -------- --------
Total (1) $140,460 $111,757 $441,657 $343,325
======== ======== ======== ========
Income (loss) from operations:
ITCS Group $ 9,141 $ 7,213 $ 33,377 $ 16,132
GovConnect Group 1,265 (3,379) 3,867 (2,300)
-------- -------- -------- --------
Total (1) $ 10,406 $ 3,834 $ 37,244 $ 13,832
======== ======== ======== ========
Corporate expenses (2) $ 11,186 $ 10,087 $ 28,630 $ 32,353
Restructuring charges and asset writedowns - - 2,950 6,810
Interest and other expense, net 2,867 3,054 7,013 5,433
-------- -------- -------- --------
Total loss before taxes $ (3,647) $ (9,307) $ (1,349) $(30,764)
======== ======== ======== ========
</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 September 25, 1999 and September 30, 2000
Revenue. Total revenue decreased 20.4% to $111.8 million for the third
quarter of 2000 from $140.5 million in the third quarter of 1999. This revenue
decrease was attributable to a 21.6% decrease in the ITCS Group's revenue which
declined to $102.8 million in 2000 from $131.2 million in 1999 and a 3.4%
decrease in the GovConnect Group's revenue which decreased to $8.9 million in
2000 from $9.2 million in 1999. The decrease in the ITCS revenue was partially
due to the sale of JDA on March 31, 2000 and the continued slow-down of business
in the post Year 2000. The GovConnect Group's revenue decreased due to the
completion of several large projects.
Gross Profit. Gross profit decreased 29.1% to $27.8 million for the third
quarter of 2000 from $39.2 million for the comparable prior period. As a
percentage of revenue, gross profit decreased to 24.8% for the period compared
to 27.9% for the comparable prior period. This decrease in gross profit
percentage was attributable to a reduction in the ITCS and GovConnect Groups'
margins as both experienced a fall-off in their respective utilization rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by 14.9% to $34.0 million for the third
quarter of 2000 from $40.0 million for the comparable prior period. As a
percentage of revenue, selling, general and administrative expenses increased to
30.4% from 28.4% 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. These reductions were offset
by an increase in GovConnect selling, general and administrative expense as the
group invests in its sales and marketing groups to support its expected revenue
growth.
Interest and Other Expense, Net. Interest and other expense, net, increased
to $3.1 million for the third quarter of 2000 from $2.9 million for the
comparable prior period. Interest expense decreased 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. This decrease was offset by
the write-off of deferred financing fees of $1.8 million during the third
quarter of 2000 as the Credit Facility was fully repaid with the proceeds from
the sale of the Enterprise Solutions Group and the facility was terminated on
October 20, 2000.
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 of $12.4 million, net of taxes of approximately $10.0 million. In
the third quarter of 2000, the Company decided to sell the Enterprise Solutions
Group, a worldwide information management consulting group and provider of
enterprise business solutions, in an initiative to further support the Company's
new strategic direction. The Company received net proceeds of approximately $75
million. This transaction closed on October 20, 2000 and will result in a net
gain for the Company of approximately $25 million. Accordingly, the Company has
reported the results of operations of the Business Strategy and Enterprise
Solutions Groups as discontinued operations in the accompanying financial
statements and related notes for all periods shown (see Note 4).
Nine months ended September 25, 1999 and September 30, 2000
Revenue. Total revenue decreased 22.3% to $343.3 million for the first nine
months of 2000 from $441.7 million in the first nine months of 1999. This
revenue decrease was attributable to a 24.4% decrease in the ITCS Group's
revenue which declined to $313.6 million in 2000 from $414.8 million in 1999.
This decrease was partially offset by a 10.6% increase in GovConnect revenue
which increased to $29.7 million in 2000 from $26.8 million in 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 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 31.9% to $85.1 million for the first
nine months of 2000 from $125.0 million for the comparable prior period. As a
percentage of revenue, gross profit decreased to 24.8% for the period compared
to 28.3% for the comparable prior period. This decrease in gross profit
percentage was attributable to a reduction in the ITCS and GovConnect Groups'
margins as both experienced a fall-off in their respective utilization rates.
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RENAISSANCE WORLDWIDE, INC.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by 11.0% to $103.6 million for the first nine
months of 2000 from $116.4 million for the comparable prior period. As a
percentage of revenue, selling, general and administrative expenses increased to
30.2% from 26.3% 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. This reductions were offset
by an increase in GovConnect selling, general and administrative expense as the
group invests in its sales and marketing groups to support its expected revenue
growth.
Restructuring Charges and Other Asset Writedowns. In the second quarter of
2000, the Company recorded a non-recurring charge which includes costs
associated with severance ($4.0 million, of which $1.2 million pertained to the
Enterprise Solution Group) for approximately 130 employees and facility closings
($3.0 million, of which $0.4 million pertained to the Enterprise Solution Group)
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 September 30,
2000, the Company has approximately $1.2 million accrued for remaining costs in
connection with these severance ($0.2 million) and facility closings ($1.0
million).
Interest and Other Expense, Net. Interest and other expense, net, decreased
to $5.4 million for the first nine months of 2000 from $7.0 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. This decrease was partially offset by the write-
off of deferred financing fees of $1.8 million during the third quarter of 2000
as the Credit Facility was fully repaid with the proceeds from the sale of the
Enterprise Solutions Group and the facility was terminated on October 20, 2000.
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 of $12.4 million, net of taxes of approximately $10.0 million. In
the third quarter of 2000, the Company decided to sell its IT solutions design
and implementation practice, the Enterprise Solutions Group in an initiative to
further support the Company's new strategic direction. The Company received net
proceeds of approximately $75 million. This transaction closed on October 20,
2000 and will result in a net gain for the Company of approximately $25 million.
Accordingly, the Company has reported the results of operations of the Business
Strategy and Enterprise Solutions Groups as discontinued operations in the
accompanying financial statements and related notes for all periods shown (see
Note 4).
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. In connection with this sale, the Company
recognized an gain of $.8 million, net of taxes of $0.6 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.
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.
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RENAISSANCE WORLDWIDE, INC.
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 businesses - 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 revised 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, bore 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 defined in the amended
Credit Facility. In connection with this amendment, the Company was required to
pay amendment fees to the banks and related expenses of approximately $0.2
million.
In connection with the sale of the Enterprise Solutions Group, the Company
used approximately $33.8 million of its proceeds to repay all outstanding
obligations under the Credit Facility on October 20, 2000 and the Credit
Facility was terminated in its entirety. The Company has begun discussions with
other lenders as well as with certain lenders of the current group with regards
to establishing a new credit facility. While the Company believes that it will
be able to establish a new 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.
The Company had negative cash flows from operations of $27.4 million for
the nine months ended September 30, 2000. The negative operating cash flows were
due primarily to a decrease of $25.6 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 $1.2 million ($0.2 million for severance and $1.0 million for
excess facilities) in remaining obligations associated with the non-recurring
charge recorded in the second quarter of 2000. The Company did experience
positive cash flows form operations in excess of $3.0 million for the three
months ended September 30, 2000.
The Company had cash flows of $60.7 million from investing activities for
the nine months ended September 30, 2000 due primarily to the sale of the
Business Strategy Group and JDA for $68.8 million, offset by purchases of fixed
assets of $7.4 million.
The Company used cash flows of $40.5 million from financing activities for
the nine months ended September 30, 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 $12.1 million.
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RENAISSANCE WORLDWIDE, INC.
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 $8
to $12 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 the net proceeds of approximately $75 million from the sale of the
Enterprise Solutions Group, together with cash flows from operations, will allow
the Company to adequately meet its presently anticipated working capital and
liquidity needs for the next 15 months. The Company will, however, actively
pursue to secure a new revolving credit facility to replace the Credit Facility
which was terminated on October 20, 2000 in connection with the sale of the
Enterprise Solutions Group. 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.
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RENAISSANCE WORLDWIDE, INC.
Part II. Other Information
Item 1--Legal Proceedings
Not applicable
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
Not applicable
Item 5--Other Information
Not applicable
Item 6--Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Fifth Amendment to the Amended and Restated Credit Agreement among
Registrant, Bank of America, N.A., GMAC Commercial Credit LLC, and
lenders named within, dated October 12, 2000.
10.2 Termination of Commitments Under Credit Agreement among
Registrant, Bank of America, N.A., GMAC Commercial Credit LLC, and
lenders named within, dated October 20, 2000.
27.1 Financial Data Schedule
b. Reports on Form 8-K
Not applicable
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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: October 31, 2000 By: /s/ G. Drew Conway
--------------------------------------
G. Drew Conway,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: October 31, 2000 By: /s/ Joseph F. Pesce
--------------------------------------
Joseph F. Pesce,
Executive Vice President of Finance,
Chief Financial Officer and Treasurer
16
