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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-24343
answerthink, inc.
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0750100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1001 Brickell Bay Drive, Suite 3000
Miami, Florida 33131
(Address of principal executive offices) (Zip Code)
(305) 375-8005
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of September 29, 2000, there were 44,156,933 shares of common stock
outstanding.
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<PAGE>
answerthink, inc.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 29, 2000 and
December 31, 1999 3
Consolidated Statements of Operations for the Quarter ended
September 29, 2000 and October 1, 1999 and for the Nine
Months Ended September 29, 2000 and October 1, 1999 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 29, 2000 and October 1, 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
answerthink, inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 29, December 31,
2000 1999
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,838 $ 27,124
Short-term investments -- 2,432
Accounts receivable and unbilled revenue, net 82,939 72,655
Other receivables 4,983 5,340
Prepaid expenses and other current assets 10,374 8,058
--------- ---------
Total current assets 136,134 115,609
Property and equipment, net 12,773 11,191
Other assets 4,720 3,362
Goodwill, net 83,866 70,551
--------- ---------
Total assets $ 237,493 $ 200,713
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,910 $ 8,982
Accrued expenses and other liabilities 36,531 33,065
Media payable 11,169 16,500
Notes payable -- 1,896
--------- ---------
Total current liabilities 55,610 60,443
Commitments and contingencies
Shareholders' equity
Preferred stock, $.001 par value, 1,250,000 authorized,
none issued and outstanding -- --
Common stock, $.001 par value, authorized 125,000,000
shares; issued and outstanding: 44,156,933 shares at
September 29, 2000; 42,731,976 shares at December 31, 1999 44 43
Additional paid-in capital 242,212 219,884
Unearned compensation (465) (815)
Accumulated deficit (59,908) (78,842)
--------- ---------
Total shareholders' equity 181,883 140,270
--------- ---------
Total liabilities and shareholders' equity $ 237,493 $ 200,713
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
answerthink, inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
----------------------- -----------------------
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 84,064 $ 69,038 $ 242,090 $ 189,408
Costs and expenses:
Project personnel and expenses 47,314 40,670 139,219 112,361
Selling, general and administrative expenses 25,827 21,181 73,345 61,580
Merger related expenses -- -- -- 2,500
Impairment of capitalized software -- -- -- 989
--------- --------- --------- ---------
Total costs and operating expenses 73,141 61,851 212,564 177,430
--------- --------- --------- ---------
Income from operations 10,923 7,187 29,526 11,978
Other income (expense):
Litigation settlement -- -- 1,850 --
Interest income 336 183 932 663
Interest expense (59) (139) (216) (554)
--------- --------- --------- ---------
Income before income taxes and extraordinary loss 11,200 7,231 32,092 12,087
Income taxes 4,592 2,892 13,158 6,390
--------- --------- --------- ---------
Income before extraordinary loss 6,608 4,339 18,934 5,697
Extraordinary loss on early extinguishment of debt
(net of taxes of $1,408) -- -- -- 2,113
--------- --------- --------- ---------
Net income $ 6,608 $ 4,339 $ 18,934 $ 3,584
========= ========= ========= =========
Basic net income per common share:
Income before extraordinary loss $ 0.16 $ 0.12 $ 0.48 $ 0.17
Extraordinary loss on early extinguishment of debt $ -- $ -- $ -- $ (0.06)
Net income per common share $ 0.16 $ 0.12 $ 0.48 $ 0.11
Weighted average common shares outstanding 40,770 36,242 39,523 34,283
Diluted net income per common share:
Income before extraordinary loss $ 0.15 $ 0.10 $ 0.42 $ 0.13
Extraordinary loss on early extinguishment of debt $ -- $ -- $ -- $ (0.05)
Net income per common share $ 0.15 $ 0.10 $ 0.42 $ 0.08
Weighted average common and common equivalent shares
outstanding 44,757 43,175 44,852 42,742
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
answerthink, inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
September 29, October 1,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18,934 $ 3,584
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary loss on early extinguishment of debt -- 2,113
Gain on litigation settlement (1,850) --
Depreciation and amortization 9,377 7,249
Deferred income taxes 1,605 600
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable and unbilled revenue (11,783) (19,491)
Decrease (increase) in other receivables 357 (16,174)
Decrease (increase) in prepaid expenses and other assets (4,460) 2,268
Decrease in accounts payable (1,072) (3,488)
Increase (decrease) in accrued expenses and other liabilities (1,945) 5,351
Increase (decrease) in media payable (5,331) 25,458
-------- --------
Net cash provided by operating activities 3,832 7,470
Cash flows from investing activities:
Purchases of property and equipment (5,726) (3,964)
Purchases of short-term investments (500) (500)
Sales and redemptions of short-term investments 2,932 1,000
Cash used in acquisition of businesses, net of cash acquired (4,317) (10,269)
-------- --------
Net cash used in investing activities (7,611) (13,733)
Cash flows from financing activities:
Proceeds from issuance of common stock 16,243 11,349
Proceeds from revolving credit facility -- 402
Repayment of revolving credit facility -- (1,015)
Proceeds from notes payable -- 28
Repayment of notes payable (1,750) (4,654)
Repayment of redeemable subordinated notes -- (8,000)
-------- --------
Net cash provided by (used in) financing activities 14,493 (1,890)
-------- --------
Net increase (decrease) in cash and cash equivalents 10,714 (8,153)
Cash and cash equivalents at beginning of period 27,124 36,931
-------- --------
Cash and cash equivalents at end of period $ 37,838 $ 28,778
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
answerthink, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements of answerthink, inc.
("answerthink" or the "Company") include the accounts of the Company and all of
its wholly owned subsidiaries. All intercompany transactions and balances have
been eliminated in consolidation. answerthink merged with THINK New Ideas, Inc.
("THINK New Ideas") in November 1999. The merger with THINK New Ideas was
accounted for using the pooling-of-interests method of accounting. All prior
historical consolidated financial statements presented herein have been restated
to include the financial position, results of operations, and cash flows of
THINK New Ideas.
In the opinion of management, the accompanying consolidated financial
statements reflect all normal and recurring adjustments which are necessary for
a fair presentation of the Company's financial position, results of operations,
and cash flows as of the dates and for the periods presented. The consolidated
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission regarding interim financial reporting.
Accordingly, these statements do not include all the disclosures normally
required by generally accepted accounting principles for annual financial
statements and should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1999 included in
the Form 10-K filed by the Company with the Securities and Exchange Commission.
The consolidated results of operations for the quarter and nine months ended
September 29, 2000 are not necessarily indicative of the results to be expected
for any future period or for the full fiscal year. Certain prior period amounts
have been reclassified to conform to current period presentation.
2. Net Income Per Common Share
Basic net income per common share is computed by dividing net income by
the weighted average number of common shares outstanding during the period. With
regard to common shares issued to employees under employment agreements, the
calculation includes only the vested portion of such shares. Accordingly, common
shares outstanding for the basic net income per share computation are lower than
actual shares issued and outstanding.
Income per common share assuming dilution is computed by dividing net
income by the weighted average number of common shares outstanding, increased by
the assumed conversion of other potentially dilutive securities during the
period. For the quarter ended September 29, 2000 and October 1, 1999,
potentially dilutive securities included 3,293,166 and 5,926,432 shares,
respectively, of unvested common stock issued under employment agreements and
693,820 and 1,006,573 shares, respectively, of common stock issuable upon the
exercise of stock options and warrants accounted for under the treasury stock
method. For the nine months ended September 29, 2000 and October 1, 1999,
potentially dilutive securities included 4,166,491 and 7,198,634 shares,
respectively, of unvested common stock issued upon employment agreements and
1,161,760 and 1,260,429 shares, respectively, of common stock issuable upon the
exercise of stock options and warrants accounted for under the treasury stock
method.
3. Acquisitions and Non-Cash Investing Activities
During the three year period ended December 31, 1999, the Company
acquired thirteen businesses providing information-technology, e-commerce and
marketing services (collectively, the "Acquired Entities") in separate
transactions accounted for as purchase business combinations. Seven of these
acquisitions were completed in 1997, two were completed in 1998 and four were
completed in 1999. During the first nine months of 2000, the Company paid
additional contingent consideration of $12.4 million, consisting of $4.3 million
in cash and $8.1 million in the Company's common stock, based on certain of the
Acquired Entities achieving certain performance targets under the respective
acquisition agreements. Such contingent consideration was recorded as additional
goodwill. Additionally, the Company recorded a liability of $5.2 million for an
earn-out to be paid in the Company's common stock in March 2001. The amount is
included in accrued expenses and other liabilities in the consolidated balance
sheet as of September 29, 2000.
6
<PAGE>
answerthink, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. Income Taxes
The Company's effective tax rate for the first nine months of 2000 was
41% compared to an effective tax rate of 53% for the first nine months of 1999.
The higher effective tax rate in the first nine months of 1999 was the result of
the Company incurring non-deductible merger related expenses and the
establishment of a deferred tax liability for triSpan, Inc. as a result of its
conversion from an S corporation to a C corporation in the first quarter of
1999. In February 1999, the Company merged with triSpan, Inc. in a transaction
which was accounted for under the pooling-of-interests method.
5. Securities Purchase Agreement
In March 1999, THINK New Ideas entered into a Securities Purchase
Agreement with Capital Ventures International and Marshall Capital Management,
Inc. (the "Purchasers") whereby the Purchasers agreed to purchase shares of
common stock and warrants to acquire shares of common stock. Pursuant to the
Securities Purchase Agreement, on March 5, 1999, THINK New Ideas issued, for
proceeds of $6.0 million, 609,799 shares of its common stock at $9.84 per share
and warrants to purchase an additional 121,961 shares of common stock
exercisable for a five-year term, at an exercise price of $14.76.
At any time prior to March 5, 2000, the Purchasers also had the right
but not the obligation to purchase 371,353 additional shares of common stock at
$13.46 per share, together with warrants for 1/5 share for each additional share
purchased, exercisable at an exercise price of 150% of the market price on the
date the related additional shares were purchased. Pursuant to the Securities
Purchase Agreement, the additional shares were sold in March 2000 for $5.0
million and warrants to acquire 74,270 shares of common stock, exercisable for a
five-year term, were issued at an exercise price of $36.94.
6. New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 no later than the fourth quarter of
fiscal 2000 and is evaluating the effect that such adoption may have on its
consolidated results of operations and financial position.
7. Litigation
THINK New Ideas and three of its former officers are defendants in a
consolidated class action filed in federal court in New York. This suit was
previously described in answerthink's Annual Report on Form 10-K for the year
ending December 31, 1999. In February 1999, a Consolidated and Amended Class
Action Complaint ("Consolidated Complaint") was filed seeking to assert claims
on behalf of all individuals who purchased THINK New Ideas' common stock from
November 5, 1997 through September 21, 1998. The defendants filed a motion to
dismiss the Consolidated Complaint and the plaintiffs opposed the motion. On
March 15, 2000, the Court granted the defendants' motion to dismiss the
Consolidated Complaint. The Court order granting the motion allowed the
plaintiffs the option to file an amended complaint. The plaintiffs filed a
Second Consolidated and Amended Class Action Complaint ("Second Amended
Complaint) on April 14, 2000. The defendants filed a motion to dismiss the
Second Amended Complaint on May 1, 2000. On September 14, 2000, the Court denied
the motion. The defendants filed an answer to the Second Amended Complaint on
November 10, 2000. No schedule has been set for any further proceedings. We
believe there are meritorious defenses to the claims made in the Second Amended
Complaint and we intend to contest those claims vigorously. Although there can
be no assurance as to the outcome of these matters, an unfavorable resolution
could have a material adverse effect on our results of operations and/or our
financial condition in the future.
7
<PAGE>
answerthink, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
7. Litigation (continued)
In June 2000, pursuant to a confidential settlement agreement, the
Company settled litigation in which it was the plaintiff. The Company recorded a
gain of $1.85 million as a result of this settlement.
The Company is involved in legal proceedings, claims, and litigation
arising in the ordinary course of business not specifically discussed herein. In
the opinion of management, the final disposition of such other matters will not
have a material adverse effect on the financial position or results of
operations of the Company.
8. Related Party Transaction
Revenues for the quarter ended September 29, 2000 included $1.5 million
for the sale of a license for a proprietary knowledge management system to a
company in which answerthink has an ownership interest of approximately 5%.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-Q are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
the results, performance or achievements expressed or implied by the forward
looking statements. Factors that impact such forward looking statements include
our ability to attract additional business, changes in expectations regarding
the information technology industry, our ability to attract and retain skilled
employees, possible changes in collections of accounts receivable, risks of
competition, price and margin trends, changes in general economic conditions and
interest rates. An additional description of our risk factors is set forth in
our Registration Statement on Form S-3 (Registration Form 333-32342).
OVERVIEW
answerthink, inc. ("answerthink") provides comprehensive eBusiness
strategy, marketing and technology-enabled solutions focused on the emerging
digital marketplace. As an eBusiness leader, we offer a wide range of integrated
solutions, including best practices benchmarking, eBusiness strategy and
architecture, interactive marketing and design, business applications and
technology integration. These solutions span all functional areas of a company
including supply chain, sales and marketing, customer support, finance, human
resources, information technology and procurement as well as a line of business
specialty markets such as retail, life sciences, and financial services.
In November 1999, we merged with THINK New Ideas, Inc. ("THINK New
Ideas"), a provider of interactive marketing, branding and creative web site
development services. The merger with THINK New Ideas was accounted for using
the pooling-of-interests method of accounting. All prior historical consolidated
financial statements presented herein have been restated to include the
financial position, results of operations, and cash flows of THINK New Ideas.
Results of Operations
The following table sets forth, for the periods indicated, our results
of operations and the percentage relationship to net revenues of such results:
<TABLE>
<CAPTION>
(dollars in thousands) Quarter Ended Nine Months Ended
-------------------------------------- --------------------------------------
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 84,064 100.0% $ 69,038 100.0% $242,090 100.0% $189,408 100.0%
Costs and expenses:
Project personnel and expenses 47,314 56.3% 40,670 58.9% 139,219 57.5% 112,361 59.4%
Selling, general and administrative expenses 25,827 30.7% 21,181 30.7% 73,345 30.3% 61,580 32.5%
Merger related expenses -- -- -- -- -- -- 2,500 1.3%
Impairment of capitalized software -- -- -- -- -- -- 989 0.5%
------------------ ------------------ ------------------ ------------------
Total costs and operating expenses 73,141 87.0% 61,851 89.6% 212,564 87.8% 177,430 93.7%
------------------ ------------------ ------------------ ------------------
Income from operations 10,923 13.0% 7,187 10.4% 29,526 12.2% 11,978 6.3%
Other income (expense):
Litigation settlement -- -- -- -- 1,850 0.7% -- --
Interest income, net 277 0.3% 44 0.1% 716 0.3% 109 0.1%
------------------ ------------------ ------------------ ------------------
Income before income taxes and 11,200 13.3% 7,231 10.5% 32,092 13.2% 12,087 6.4%
extraordinary loss
Income taxes 4,592 5.4% 2,892 4.2% 13,158 5.4% 6,390 3.4%
------------------ ------------------ ------------------ ------------------
Income before extraordinary loss 6,608 7.9% 4,339 6.3% 18,934 7.8% 5,697 3.0%
Extraordinary loss on early extinguishment
of debt (net of taxes of $1,408) -- -- -- -- -- -- 2,113 1.1%
------------------ ------------------ ------------------ ------------------
Net income $ 6,608 7.9% $ 4,339 6.3% $ 18,934 7.8% $ 3,584 1.9%
================== ================== ================== ==================
</TABLE>
9
<PAGE>
Net Revenues. Net revenues for the quarter ended September 29, 2000
increased by $15.0 million or 21.8% compared to the quarter ended October 1,
1999. For the first nine months of fiscal 2000, net revenues increased $52.7
million or 27.8% over the comparable period of 1999. These increases resulted
primarily from increases in the average size of our engagements both for new
clients and follow-up work for existing clients.
Project Personnel and Expenses. Project personnel costs and expenses
consist primarily of salaries, benefits and bonuses for consultants. Project
personnel costs and expenses for the quarter ended September 29, 2000 increased
by 16.3% to $47.3 million compared to $40.7 million in the quarter ended October
1, 1999. For the first nine months of fiscal 2000, project personnel costs and
expenses increased 23.9% over the comparable period of 1999. These increases in
project personnel costs and expenses were primarily due to an increase in the
number of consultants required to serve our clients. Project personnel and
expenses as a percentage of net revenues decreased to 56.3% in the quarter ended
September 29, 2000 from 58.9% in the comparable quarter of 1999. For the first
nine months of fiscal 2000, project personnel and expenses as a percentage of
net revenues decreased to 57.5% from 59.4% in the comparable nine months of
1999. These decreases were primarily due to an increase in the average billing
rate for consultants and the sale of a license for a proprietary knowledge
management system in the third quarter.
Selling, General and Administrative. Selling, general and
administrative expenses increased 21.9% to $25.8 million in the quarter ended
September 29, 2000 from $21.2 million in the quarter ended October 1, 1999. For
the first nine months of fiscal 2000, selling, general and administrative
expenses increased 19.1% to $73.3 million from $61.6 million in the comparable
period of 1999. These increases in selling, general and administrative expenses
primarily related to an increase in selling costs due to higher sales volume,
increased marketing costs associated with our name change and branding campaign,
increased information technology costs, increased bad debt expense and
additional goodwill amortization expense associated with acquired businesses.
Selling, general and administrative expenses as a percentage of net revenues
were consistent at 30.7% during the quarters ended September 29, 2000 and
October 1, 1999. For the first nine months of fiscal 2000, selling, general and
administrative expenses as a percentage of net revenues decreased to 30.3% from
32.5% in the comparable nine months of 1999. This decrease was primarily
attributable to the higher revenue levels during 2000 as well as cost savings
attributable to the elimination of redundancies in infrastructures and support
systems of our acquired companies.
Merger Related Expenses. Merger related expenses were $2.5 million for
the nine months ended October 1, 1999. These expenses related primarily to our
merger with triSpan, Inc. ("triSpan") in February 1999, which was accounted for
as a pooling-of-interests. The expenses included investment banking, legal and
accounting fees as well as the costs of combining operations and eliminating
duplicate facilities.
Income Taxes. Our effective tax rate for the nine months ended
September 29, 2000 was 41% compared to an effective tax rate of 53% for the
comparable period of 1999. The higher effective tax rate in the first nine
months of 1999 was the result of incurring non-deductible merger related
expenses and the establishment of a deferred tax liability for triSpan, Inc. as
a result of its conversion from an S corporation to a C corporation in the first
quarter of 1999.
Extraordinary Loss on Early Extinguishment of Debt. The extraordinary
loss on early extinguishment of debt resulted from the repayment of subordinated
notes in the first quarter of 1999 that were assumed in connection with our
triSpan merger. These notes, which had a face amount of $8.0 million and a
stated interest rate of 8.0%, were originally issued at a substantial discount
and were due on June 26, 2003. Immediately following our merger with triSpan, we
repaid these notes in full, which resulted in an extraordinary loss of $2.1
million, net of a $1.4 million tax benefit.
Liquidity and Capital Resources
We have primarily funded our operations with cash flow generated from
operations and the proceeds from our initial public offering. In addition, we
have a revolving credit facility for $20.0 million. The credit facility is
unsecured and contains, among other things, the maintenance of certain financial
covenants such as a minimum level of tangible net worth, maximum leverage ratio,
and minimum ratio of earnings to interest expense. At September 29, 2000, we had
no borrowings under this credit facility. At September 29, 2000, we had
approximately $37.8 million in cash, cash equivalents and short-term investments
compared to $29.6 million at December 31, 1999.
10
<PAGE>
Net cash provided by operating activities was $3.8 million for the nine
months ended September 29, 2000 compared to $7.5 million provided by operating
activities during the comparable period of 1999. During the nine months ended
September 29, 2000, net cash provided by operating activities was primarily
attributable to our operating income which was partially offset by an $11.8
million increase in accounts receivable and unbilled revenue, a $4.5 million
increase in prepaid expenses and other assets, a $5.3 million decrease in media
payable and a $3.0 million decrease in accounts payable and accrued expenses and
other liabilities. Media payables represent media placement costs owed to media
providers on behalf of our customers. Amounts in media payables which have been
billed to our customers are included in other receivables. The level of media
payables and the related receivables will vary with the timing of our customers'
media campaigns. During the nine months ended October 1, 1999, net cash provided
by operating activities was primarily attributable to our net income, excluding
the effects of non-cash charges, a $25.5 million increase in media payable, a
$5.4 million increase in accrued expenses and other liabilities, a $2.3 million
decrease in prepaid expenses and other assets, all of which were partially
offset by a $19.5 million increase in accounts receivable and unbilled revenue,
a $16.2 million increase in other receivables and a $3.5 million decrease in
accounts payable.
Net cash used in investing activities was $7.6 million for the nine
months ended September 29, 2000 compared to $13.7 million used during the
comparative period of 1999. The use of cash for investing activities in 2000 was
primarily attributable to $4.3 million of additional contingent consideration
paid for certain prior acquisitions and $5.7 million of purchases of property
and equipment, offset by net sales and redemptions of short-term investments of
$2.4 million. During the nine months ended October 1, 1999, the primary uses of
cash in investing activities were $10.3 million used in the acquisition of
businesses and $4.0 million used for the purchase of property and equipment,
offset by net sales and redemptions of short-term investments of $500,000.
Net cash provided by financing activities was $14.5 million for the
nine months ended September 29, 2000 compared to $1.9 million used in financing
activities during the comparable period of 1999. The primary source of cash from
financing activities during the nine months ended September 29, 2000 was $16.2
million of proceeds from the sale of common stock as a result of exercises of
stock options and warrants as well as the sale of stock through our employee
stock purchase plan. This was offset by a repayment of $1.8 million of notes
payable. The use of cash for financing activities during 1999 was primarily the
result of the repayment of $8.0 million of subordinated notes, which were
assumed in connection with the triSpan merger, the repayment of other notes
payable totaling $4.7 million and the net repayment of $613,000 on the revolving
credit facility. This was partially offset by $11.3 million in proceeds from the
sale of common stock as a result of the employee stock purchase plan and
exercises of stock options.
Based on our current financial position and funds available under our
credit facility or that may be generated from operations, we believe that we
will be able to meet all of our currently anticipated short-term and long-term
financial requirements.
Year 2000
The "Year 2000 Issue" refers to the problem of many computer programs
using the last two digits to represent a year rather than four digits (i.e.,
"99" for 1999). As of the date of this filing, our systems have functioned
properly with respect to dates starting in the year 2000 and, to date, our
clients have not informed us of any Year 2000 problems associated with the
solutions we developed for them. However, we may incur significant costs if
unanticipated internal or external Year 2000 compliance problems arise. The cost
associated with these unanticipated problems, or our failure to correct any
unanticipated Year 2000 problems in a timely manner, could have a material
adverse effect on our business, financial condition, results of operations and
prospects for growth. As of November 13, 2000, we are not aware of any
significant issues as a result of Year 2000 problems and do not anticipate
incurring material incremental costs in future periods due to such issues.
11
<PAGE>
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
We are required to adopt SAB 101 no later than the fourth quarter of fiscal 2000
and we are evaluating the effect that such adoption may have on our consolidated
results of operations and financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not believe that there is any material market risk exposure with
respect to derivative or other financial instruments, which would require
disclosure under this item.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
THINK New Ideas and three of its former officers are defendants in a
consolidated class action filed in federal court in New York. This suit was
previously described in answerthink's Annual Report on Form 10-K for the year
ending December 31, 1999. In February 1999, a Consolidated and Amended Class
Action Complaint ("Consolidated Complaint") was filed seeking to assert claims
on behalf of all individuals who purchased THINK New Ideas' common stock from
November 5, 1997 through September 21, 1998. The defendants filed a motion to
dismiss the Consolidated Complaint and the plaintiffs opposed the motion. On
March 15, 2000, the Court granted the defendants' motion to dismiss the
Consolidated Complaint. The Court order granting the motion allowed the
plaintiffs the option to file an amended complaint. The plaintiffs filed a
Second Consolidated and Amended Class Action Complaint ("Second Amended
Complaint) on April 14, 2000. The defendants filed a motion to dismiss the
Second Amended Complaint on May 1, 2000. On September 14, 2000, the Court denied
the motion. The defendants filed an answer to the Second Amended Complaint on
November 10, 2000. No schedule has been set for any further proceedings. We
believe there are meritorious defenses to the claims made in the Second Amended
Complaint and we intend to contest those claims vigorously. Although there can
be no assurance as to the outcome of these matters, an unfavorable resolution
could have a material adverse effect on our results of operations and/or our
financial condition in the future.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Exhibit
------ -------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by answerthink during the quarter
ended September 29, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
answerthink, inc.
Date: November 13, 2000 By: /S/ John F. Brennan
--------------------------------------------
John F. Brennan
Executive Vice President and Chief
Financial Officer
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27.1 Financial Data Schedule
