<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number: 000-23989
PROVANT, Inc.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 04-3395167
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
67 BATTERYMARCH STREET, SUITE 600
BOSTON, MA 02110
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (617) 261-1600
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of common stock outstanding at November 10, 2000:
21,400,965
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<PAGE> 2
PROVANT, INC.
INDEX
PART I. - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30 and September 30, 2000 3
Consolidated Statements of Income for the three months 4
ended September 30, 1999 and 2000
Consolidated Statements of Cash Flows for the three months ended 5
September 30, 1999 and 2000
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Quantitative and Qualitative Disclosure on Market Risk 11
PART II. - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Provant, Inc.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
June 30, September 30,
Assets 2000 2000
-------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................ $ 2,232 $ 603
Accounts receivable, net of allowance for doubtful
accounts of $1,158 and $1,148 respectively ... 44,645 50,749
Inventory ........................................ 4,423 4,537
Deferred income taxes ............................ 3,621 3,621
Costs in excess of billings ...................... 5,834 7,652
Prepaid expenses and other current assets ........ 3,208 3,113
-------- --------
Total current assets ......................... 63,963 70,275
Property and equipment, net ........................ 8,548 10,686
Other assets ....................................... 3,737 3,514
Goodwill, net ...................................... 225,213 234,694
-------- --------
Total assets ................................. $301,461 $319,169
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ................................. $ 9,257 $ 5,715
Accrued expenses ................................. 13,714 14,605
Accrued compensation ............................. 8,639 7,755
Billings in excess of costs ...................... 5,501 4,207
Deferred revenue ................................. 676 1,998
Income taxes payable ............................. 1,110 2,965
Accrued reorganization costs ..................... 4,366 3,579
Current portion of long term debt ................ 10,493 9,977
-------- --------
Total current liabilities .................... 53,756 50,801
Accrued contingent consideration ................... 968 967
Long term debt, net of current portion ............. 41,699 58,576
-------- --------
Total liabilities ............................ 96,423 110,344
Stockholders' Equity:
Preferred stock, $.01 par value; none issued ..... -- --
Common stock, $.01 par value; 20,975,985 and
21,217,415 shares issued and outstanding,
respectively ..................................... 210 212
Additional paid-in capital ....................... 197,937 199,412
Common stock issuable as
contingent consideration ........................ 1,283 1,283
Retained earnings ................................ 5,608 7,918
-------- --------
Total stockholders' equity ................... 205,038 208,825
-------- --------
Total liabilities and stockholders' equity ... $301,461 $319,169
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PROVANT, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------
1999 2000
---- ----
<S> <C> <C>
Total revenue ............................ $ 55,397 $ 53,690
Cost of revenue .......................... 22,452 20,791
------------ ------------
Gross profit ....................... 32,945 32,899
Selling, general and administrative
expenses ................................ 26,303 25,520
Goodwill amortization .................... 1,145 1,446
------------ ------------
Income from operations .................... 5,497 5,933
Other income (expense) .................... 352 (3)
Interest expense, net ..................... (189) (1,082)
------------ ------------
Income before income taxes ......... 5,660 4,848
Provision for income taxes ................ 3,052 2,518
------------ ------------
Net income ......................... $ 2,608 $ 2,330
============ ============
Earnings per common share:
Basic ..................................... $ 0.13 $ 0.11
Diluted ................................... $ 0.12 $ 0.11
Weighted average common shares outstanding:
Basic ..................................... 20,751,359 21,070,011
Diluted ................................... 21,574,095 21,989,619
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PROVANT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) Three Months Ended September 30,
--------------------------------
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 2,608 $ 2,330
Adjustments to reconcile net income to net
cash provided by (used) in operating activities:
Depreciation and amortization ............................. 1,836 2,247
Allowance for doubtful accounts ........................... (34) (28)
Gain on sale of business .................................. (362) --
Changes in operating assets and liabilities:
Accounts receivable ....................................... (4,691) (5,050)
Inventory ................................................. (216) (84)
Costs in excess of billings ............................... (830) (1,818)
Prepaid expenses and other current assets ................. 69 (101)
Other assets .............................................. (651) 320
Accounts payable and accrued expenses ..................... 2,012 (2,651)
Accrued compensation ...................................... (1,300) (1,405)
Billings in excess of costs ............................... (114) (1,294)
Deferred revenue .......................................... (3) 1,002
Accrued reorganization costs .............................. -- (781)
Income taxes payable ...................................... (527) 1,855
-------- --------
Total adjustments ....................................... (4,811) (7,788)
-------- --------
Net cash used in operating activities ................... (2,203) (5,458)
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash ................................. -- (3,027)
Payment of acquisition related costs ...................... (795) (110)
Proceeds from sale of business ............................ 833 --
Additions to property and equipment ....................... (1,743) (2,902)
Payment of contingent consideration ....................... (25,850) --
-------- --------
Net cash used in investing activities ................... (27,555) (6,039)
-------- --------
Cash flows from financing activities:
Issuance of common stock, net of offering costs ............ (37) 296
Borrowings under line of credit ............................ 33,500 16,000
Repayment of line of credit ................................ (3,000) (6,000)
Repayment/Borrowings of notes payable ...................... (60) (428)
-------- --------
Net cash provided by financing activities ................ 30,403 9,868
-------- --------
Net increase (decrease) in cash and cash equivalents.......... 645 (1,629)
Cash and cash equivalents, beginning of period ............... 7,616 2,232
-------- --------
Cash and cash equivalents, end of period ..................... $ 8,261 $ 603
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ....................................... $ 66 $ 1,082
======== ========
Cash paid for income taxes ................................... $ 3,806 $ 2,518
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
PROVANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Provant, Inc. (together with its subsidiaries, "Provant" or the "Company")
is a leading provider of performance improvement training services and products.
Provant's clients include Fortune 1000 companies, other large and medium-sized
corporations and government entities. The Company offers both customized and
standardized services and products that are designed to improve the performance
of a client's workforce. In addition, the Company offers consulting, needs
assessment and project management services.
Provant resulted from the May 1998 acquisition, in separate combination
transactions (collectively, the "Combination"), of seven providers of
performance improvement services and products (collectively, the "Founding
Companies"). Subsequent to the Combination through September 30, 2000, the
Company has acquired 16 businesses (collectively, the "Subsequent
Acquisitions"). The Provant companies are recognized leaders in their respective
fields and have developed a wide range of services and products, a substantial
knowledge base created from years of research and development, and a
well-established client base.
BASIS OF PRESENTATION
The information contained in the following notes to the accompanying
financial statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements and
related notes thereto contained in the Annual Report on Form 10-K for the year
ended June 30, 2000 filed by Provant with the Securities and Exchange
Commission.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments considered necessary to present fairly the
financial position of the Company as of September 30, 2000 and the results of
operations and cash flows for the periods presented. The Company prepares its
interim financial information using the same accounting principles as it uses
for its annual financial statements.
On December 14, 1999, Provant acquired Senn-Delaney Leadership Consulting
Group, Inc. and Senn-Delaney Leadership Consulting U.K., Ltd. (together,
"Senn-Delaney Leadership") in an acquisition accounted for as a
pooling-of-interests. As required under the pooling-of-interests method of
accounting, the results for all periods presented include the combined results
of Provant and Senn-Delaney Leadership.
2. CONTINGENT CONSIDERATION
During the three months ended September 30, 2000, Provant issued no
contingent consideration. In October 2000, the Company paid contingent
consideration consisting of cash of $1.0 million and 183,542 shares of Common
Stock valued at $1.3 million.
The merger agreements with respect to four of the Subsequent Acquisitions
continue to provide for the payment of contingent consideration of cash and/or
shares of Common Stock if certain performance criteria are met over future
periods ranging from one to three years. The contingent consideration will be
paid in cash and shares of Common Stock in accordance with a formula based on
the relationship of defined earnings before interest and taxes ("EBIT") of the
acquired business to a specified baseline EBIT target and certain other
adjustments. Contingent consideration of cash and/or shares of Common Stock up
to maximum amounts of $33.6 million could be payable based on performance
criteria associated with the two years ended June 30, 2001. For one Subsequent
Acquisition, contingent consideration of cash and/or shares of Common Stock is
payable based entirely on performance criteria over a three-year period and is
not currently determinable.
6
<PAGE> 7
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
common share (dollars in thousands except per share data):
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------
Numerator: 1999 2000
---- ----
<S> <C> <C>
Basic and diluted net income ........................... $ 2,608 $ 2,330
=========== ===========
Denominator:
Basic weighted average common shares outstanding ......... 20,751,359 21,070,011
Shares to be issued as Contingent Consideration .......... 82,820 657,542
Effect of dilutive securities: stock options, warrants and
convertible notes payable ................................ 739,916 262,066
----------- -----------
Diluted weighted average common shares outstanding ....... 21,574,095 21,989,619
Basic earnings per common share .......................... $ 0.13 $ 0.11
=========== ===========
Diluted earnings per common share ........................ $ 0.12 $ 0.11
=========== ===========
</TABLE>
The following securities that could potentially dilute future basic earnings per
common share were not included in the computation of diluted earnings per common
share because to do so would have been anti-dilutive:
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------
1999 2000
---- ----
<S> <C> <C>
Stock options ............................................ 320,656 3,273,286
Warrants ................................................. - 726,388
Convertible notes payable................................. - 422,880
----------- -----------
Total .................................................... 320,656 4,422,554
=========== ===========
</TABLE>
4. REORGANIZATION AND OTHER CHARGES
In the third and fourth quarters of fiscal 2000, the Company recorded charges
related to its reorganization program of $11.7 million. Of this $11.7 million,
approximately $1.4 million was recorded through cost of sales, $2.0 million was
recorded through selling, general and administrative expense and $8.3 million
was recorded as a reorganization charge.
The reorganization program includes the elimination of executive positions,
reduction in service delivery and administrative employees, combination of
certain redundant operating facilities, abandonment of certain property,
equipment and leasehold improvements, and the elimination of certain services
and products, which are not material to the Company's business. As part of the
reorganization program, the Company plans to terminate approximately 190
employees, of which, 178 employees were terminated as of September 30, 2000.
The following table summarizes the activity related to the reorganization
program reserves during the quarter ended September 30, 2000 (in thousands):
<TABLE>
<CAPTION>
Beginning Non-Cash Cash Ending
Balance Charges Payments Balance
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Severance benefits........ $2,145 $ -- $ 447 $1,698
Exit costs ............... 2,221 6 334 1,881
------ ------ ------ ------
Total .................... $4,366 $ 6 $ 781 $3,579
====== ====== ====== ======
</TABLE>
The Company expects to make future cash payments of approximately $3.6 million
in fiscal 2001 and beyond. The severance and lease obligations will be disbursed
over a period based upon the terms of the severance and lease agreements.
7
<PAGE> 8
5. LINE OF CREDIT FACILITY
The Company has a $105.0 million credit facility with related borrowings of $48
million at September 30, 2000. The credit facility, which terminates on December
31, 2001, (i) prohibits the payment of dividends and other distributions by the
Company, (ii) generally does not permit the Company to incur or assume other
indebtedness, and (iii) requires the Company to comply with certain financial
covenants.
The most restrictive covenant under the credit facility restricts total debt to
three times the prior four fiscal quarters earnings before interest, taxes,
depreciation and amortization. As a result of the reorganization charge taken in
the quarters ended March 31, 2000 and June 30, 2000, available borrowings under
the credit facility have been reduced by $35 million for the quarter ended
December 31, 2000. The Company expects to have the full availability under the
facitily restored for the quarter ended March 31, 2001.
6. PURCHASE BUSINESS COMBINATIONS
During the quarter ended September 30, 2000, the Company acquired two companies
that provide performance improvement services and products. Consideration paid
by the Company was $11.2 million, consisting of $3.3 million in cash, $6.8
million in convertible and non-convertible notes payable, 152,381 shares of
Common Stock and warrants to purchase 244,278 shares of Common Stock. The
allocation of the respective purchase prices to assets acquired and liabilities
assumed resulted in $10.8 million of goodwill for these acquisitions which were
accounted for as purchase transactions. Goodwill is amortized on a straight-line
basis over 40 years. The cash portion of the acquisitions was funded from cash
provided by $3.3 million of borrowings from the Company's credit facility.
The following is a reconciliation of net cash paid for acquisitions during the
three months ended September 30, 2000 (Dollars in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired ................................... $ 12,079
Liabilities assumed ............................................. (840)
Convertible and non-convertible notes payable issued ............ (6,789)
Fair value of Common Stock and warrant consideration ............ (1,168)
--------
Cash paid ....................................................... 3,282
Less cash acquired .............................................. 255
--------
Net cash paid for acquisitions ............................... $ 3,027
========
</TABLE>
The Company did not acquire any companies that were accounted for under the
purchase method of accounting during the three months ended September 30, 1999.
7. POOLING OF INTERESTS
On December 14, 1999, Provant acquired Senn-Delaney Leadership for an
aggregate purchase price of 2,168,286 shares of the Company's Common Stock in an
acquisition accounted for as a pooling-of-interests. In connection with the
merger, the Company also assumed outstanding Senn-Delaney Leadership options
that were converted into options to purchase an aggregate of 352,212 shares of
the Company's Common Stock.
Senn-Delaney Leadership, based in Long Beach, California, specializes in
creating organizational and team effectiveness at the senior executive level,
including assisting senior management in fostering the success of mergers and
acquisitions by aligning the newly merged organization.
In accordance with the pooling-of-interests method of accounting, the
results of operations previously reported by the separate enterprises and the
combined amounts presented in the accompanying consolidated financial statements
are summarized below:
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------
Revenue: 1999 2000
---- ----
<S> <C> <C>
Provant ........................... $48,102 $46,124
Senn-Delaney Leadership............ 7,295 7,566
------- -------
Combined .......................... $55,397 $53,690
======= =======
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------
Net income: 1999 2000
---- ----
<S> <C> <C>
Provant ........................... $ 3,119 $ 928
Senn-Delaney Leadership............ (511) 1,402
------- -------
Combined .......................... $ 2,608 $ 2,330
======= =======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Provant, Inc. (together with its subsidiaries, "Provant" or the "Company")
is a leading provider of performance improvement training services and products.
Provant's clients include Fortune 1000 companies, other large and medium-sized
corporations and government entities. The Company offers both customized and
standardized services and products that are designed to improve the performance
of a client's workforce. In addition, the Company offers consulting, needs
assessment and project management services.
In the third and fourth quarters of fiscal 2000, the Company recorded
charges related to its reorganization program of $11.7 million. Of this $11.7
million, approximately $1.4 million was recorded through cost of sales, $2.0
million was recorded through selling, general and administrative expense and
$8.3 million was recorded as a reorganization charge. The reorganization program
includes the elimination of executive positions, reduction in service delivery
and administrative employees, combination of certain redundant operating
facilities, abandonment of certain property, equipment and leasehold
improvements, and the elimination of certain services and products.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
AND 2000 (DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
Three months ended September 30,
1999 2000
------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue ....................... $ 55,397 100.0% $ 53,690 100.0%
Cost of revenue ..................... 22,452 40.5 20,791 38.7
------------------------------------------------------------
Gross profit ........................ 32,945 59.5 32,899 61.3
Operating expenses .................. 26,303 47.5 25,520 47.5
Goodwill amortization ............... 1,145 2.1 1,446 2.7
------------------------------------------------------------
Income from operations .............. 5,497 9.9 5,933 11.1
Other income (expense) .............. 352 0.6 (3) 0.0
Interest expense, net ............... 189 0.3 1,082 2.0
Provision for income taxes........... 3,052 5.5 2,518 4.7
------------------------------------------------------------
Net income .......................... $ 2,608 4.7% $ 2,330 4.3%
============================================================
</TABLE>
RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (THE "FISCAL 2000
QUARTER") COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000 (THE "FISCAL
2001 QUARTER")
Revenue. Revenue decreased $1.7 million, or 3.1%, from $55.4 million in the
Fiscal 2000 Quarter to $53.7 million in the Fiscal 2001 Quarter. The decrease
was primarily attributable to the recent discontinuance of certain un-profitable
business lines through our reorganization program.
Cost of Revenue. Cost of revenue as a percentage of revenue decreased from
40.5% in the Fiscal 2000 Quarter to 38.7% in the Fiscal 2001 Quarter, primarily
due to the recent discontinuance of certain un-profitable business lines through
the implementation of our reorganization program.
Gross Profit. Gross profit decreased $46,000, or 0.1%, from $32.9 million
in the Fiscal 2000 Quarter to $32.9 million in the Fiscal 2001 Quarter,
primarily due to the recent discontinuance of certain un-profitable business
lines through the implementation of our reorganization program. As a percentage
of revenue, gross profit increased from 59.5% in the Fiscal 2000 Quarter to
61.3% in the Fiscal 2001 Quarter.
9
<PAGE> 10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $800,000 or 3.0%, from $26.3 million in the
Fiscal 2000 Quarter to $25.5 million in the Fiscal 2001 Quarter, primarily due
to the implementation of our reorganization program. Included in selling,
general and administrative expenses for the Fiscal 2000 Quarter is $1.6 million
of compensation differential, which on a pro forma basis is excluded from
selling, general and administrative expenses. The compensation differential
represents pro forma adjustments to salary, bonuses and benefits paid to
certain contractually agreed prospectively. Excluding the compensation
differential, as a percentage of revenue, selling, general and administrative
expenses increased from 44.6% in the Fiscal 2000 Quarter to 47.5% in the Fiscal
2001 Quarter.
Goodwill Amortization. Goodwill amortization increased $301,000 or 26.3%,
from $1.1 million in the Fiscal 2000 Quarter to $1.4 million in the Fiscal 2001
Quarter, due to additional goodwill recorded in connection with contingent
consideration paid during fiscal 2000.
Other Income. Other income for the Fiscal 2000 Quarter consisted of a
$362,000 gain recorded on proceeds of $833,000 from the sale of a business.
Interest Expense, net. Interest expense, net increased from $189,000 in the
Fiscal 2000 Quarter to $1.1 million in the Fiscal 2001 Quarter, primarily due to
increased borrowings under the line of credit and also higher interest rates
during fiscal 2001.
Income Taxes. Provision for income taxes decreased from $3.0 million in the
Fiscal 2000 Quarter to $2.5 million in the Fiscal 2001 Quarter due to lower
pre-tax income in the Fiscal 2001 Quarter.
Net Income. Net income decreased $2.6 million in the Fiscal 2000 Quarter to
$2.3 million in the Fiscal 2001 Quarter.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash of approximately $600,000
and outstanding indebtedness of $68.6 million. The Company has a $105.0 million
credit facility with related borrowings of $48.0 million at September 30, 2000.
The credit facility, which terminates on December 31, 2001, (i) prohibits the
payment of dividends and other distributions by the Company, (ii) generally does
not permit the Company to incur or assume other indebtedness, and (iii) requires
the Company to comply with certain financial covenants.
The most restrictive covenant under the credit facility restricts total
debt to three times the prior four fiscal quarters earnings before interest,
taxes, depreciation and amortization. As a result of the reorganization charge
taken in the quarters ended March 31, 2000 and June 30, 2000, available
borrowings under the credit facility have been reduced by $35 million for the
quarter ended December 31, 2000. The Company expects to have the full
availability under the facility restored for the quarter ended March 31, 2001.
The Company anticipates that its cash flow from operations and availability
under the credit facility will provide cash sufficient to satisfy the Company's
working capital requirements, debt service requirements and planned capital
expenditures for the next 12 months. In connection with the reorganization
program, the Company expects to make future cash payments of approximately $3.6
million in fiscal 2001 and beyond. The severance and lease obligations will be
disbursed over a period based upon the terms of the severance and lease
agreements.
The Company has two effective shelf registration statements on Form S-4.
Each registration statement relates to the issuance of up to 3,000,000 shares of
Common Stock in connection with acquisitions. Of these shares, 3,942,430 shares
have been issued through November 10, 2000 and a currently undeterminable number
of shares may become issuable as contingent consideration under the registration
statements with respect to acquisitions completed before such date.
During the three months ended September 30, 2000, Provant issued no
contingent consideration. In October 2000 the Company issued contingent
consideration consisting of cash of $1.0 million and 183,542 shares of Common
Stock valued at $1.3 million.
10
<PAGE> 11
The merger agreements in connection with four of the Subsequent
Acquisitions continue to provide for the payment of contingent consideration of
cash and/or shares of Common Stock if certain performance criteria are met over
future periods ranging from one to three years. The contingent consideration
will be paid in cash and shares of Common Stock in accordance with a formula
based on the relationship of defined earnings before interest and taxes ("EBIT")
of the acquired business to a specified baseline EBIT target and certain other
adjustments. Contingent consideration of cash and/or shares of Common Stock up
to maximum amounts of $33.6 million could be payable based on performance
criteria associated with the two years ended June 30, 2001. For one Subsequent
Acquisition, contingent consideration of cash and/or shares of Common Stock is
payable based entirely on performance criteria over a three-year period and is
not currently determinable.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants, issued Staff Accounting
Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements, " ("SAB
101"), which provides guidance on the ability to recognize revenue when it is
realized and earned. Subsequently, the Staff issued SAB 101B, which delayed the
required implementation until the fourth fiscal quarter for years beginning
after December 15, 1999. SAB 101 requires companies currently not in compliance
to retroactively apply the SAB to all periods presented. The Company is
evaluating the impact the adoption of SAB 101 may have on the Company's
financial condition of results of operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK
The Company invests its cash in money market instruments. These instruments
are denominated in U.S. dollars. Due to the conservative nature of these
instruments, the Company does not believe that it has a material exposure to
interest rate or market risk. The investment portfolio is used to preserve the
Company's capital until it is required to fund operations or acquisitions. None
of these instruments are held for trading purposes. The Company does not own
derivative financial instruments.
The Company is exposed to interest rate risk in the ordinary course of
business. For fixed rate debt, interest rate changes affect the fair value but
do not affect earnings or cash flow. Conversely, for floating rate debt,
interest rate changes generally do not affect the fair market value, but do
affect future earnings or cash flow. Based on the Company's borrowings of $48.0
million under the credit facility as of September 30, 2000, a one-percentage
increase in interest rates would decrease cash flow by approximately $0.5
million and earnings, net of taxes, by approximately $0.3 million.
One of the Company's subsidiaries conducts operations in Europe. The
Company does not believe currency fluctuations would have a material effect on
the Company's future earnings or cash flow.
This report on form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use
of forward-looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and
involve significant risks and uncertainties, and that actual results may
vary materially from those in the forward-looking statements as a result of
any number of factors, many of which are beyond the control of management.
These factors include the Company's risks of integration, risks of internal
growth, risks associated with the Company's acquisition strategy, and the
Company's ability to attract and retain key personnel, to name a few, and
are hereby incorporated by reference from the risk factors included in
Company's Registration Statement on Form S-4 (file no. 333-74725) filed
with the Securities and Exchange Commission.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 28, 2000, in connection with the acquisition of Hughes Research
Corporation, the Company issued 152,381 shares of Common Stock and warrants to
purchase an aggregate of 64,278 shares of Common Stock at an exercise price of
$14.00 per share. The warrants become exercisable in accordance with a formula
based on the relationship between EBIT of the acquired business to a specified
baseline EBIT target and certain other adjustments. The warrants expire on
September 28, 2005. The issuance of shares of Common Stock and warrants to
purchase shares of Common Stock in connection with the acquisition of Hughes
Research Corporation was exempt from registration by virtue of Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act").
On September 29, 2000, in connection with the acquisition of Executive Education
Institute, Inc., the Company issued two promissory notes, each in the original
principal amount of $3.225 million, and a warrant to purchase 180,000 shares of
Common Stock. Under certain circumstances, the promissory notes are convertible
into shares of Common Stock at the election of the Company or the payee. The
warrant to purchase shares of Common Stock became exercisable on October 1, 2000
and expires on September 30, 2005. The issuance of the promissory notes and the
warrant to purchase shares of Common Stock in connection with the acquisition of
Executive Education Institute, Inc. was exempt from registration by virtue of
Section 4(2) of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
27. Financial Data Schedule
B. Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated July 21, 2000,
that disclosed under Item 5 that the Company had adopted a Shareholders Rights
Plan, pursuant to which a dividend of one preferred share purchase right for
each outstanding share of Common Stock of the Company was distributed to the
stockholders of record as of the close of business on July 28, 2000.
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SIGNATURE
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.
PROVANT, INC.
Date: November 14, 2000 By: /s/ Rajiv Bhatt
--------------------------
Rajiv Bhatt
Executive Vice President and Chief
Financial Officer
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