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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 June 30, 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)
AnswerThink Consulting Group, Inc.
(Former name, former address and former fiscal year, if changed since
last report)
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 June 30, 2000, there were 43,775,384 shares of common stock
outstanding.
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<PAGE>
answerthink, inc.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the Quarter ended June 30, 2000
and July 2, 1999 and for the Six Months Ended June 30, 2000 and July 2,
1999 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and
July 2, 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 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
answerthink, inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,342 $ 27,124
Short-term investments -- 2,432
Accounts receivable and unbilled revenue, net 81,330 72,655
Other receivables 8,002 5,340
Prepaid expenses and other current assets 9,094 8,058
--------------- ----------------
Total current assets 121,768 115,609
Property and equipment, net 12,515 11,191
Other assets 4,146 3,362
Goodwill, net 79,110 70,551
--------------- ----------------
Total assets $ 217,539 $ 200,713
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,962 $ 8,982
Accrued expenses and other liabilities 29,993 33,065
Media payable 10,336 16,500
Current portion of notes payable 750 1,896
--------------- ----------------
Total current liabilities 48,041 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: 43,775,384 shares at June 30, 2000; 42,731,976 shares at
December 31, 1999 44 43
Additional paid-in capital 236,551 219,884
Unearned compensation (581) (815)
Accumulated deficit (66,516) (78,842)
--------------- ----------------
Total shareholders' equity 169,498 140,270
--------------- ----------------
Total liabilities and shareholders' equity $ 217,539 $ 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 per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------------ ------------------------
June 30, July 2, June 30, July 2,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 81,729 $ 62,738 $ 158,026 $ 120,370
Costs and expenses:
Project personnel and expenses 46,951 37,498 91,905 71,691
Selling, general and administrative expenses 24,980 20,876 47,518 40,399
Merger related expenses -- -- -- 2,500
Impairment of capitalized software -- 989 -- 989
--------- --------- --------- ---------
Total costs and operating expenses 71,931 59,363 139,423 115,579
--------- --------- --------- ---------
Income from operations 9,798 3,375 18,603 4,791
Other income (expense):
Litigation settlement 1,850 -- 1,850 --
Interest income 237 189 596 480
Interest expense (70) (66) (157) (415)
--------- --------- --------- ---------
Income before income taxes and extraordinary loss 11,815 3,498 20,892 4,856
Income taxes 4,844 1,418 8,566 3,498
--------- --------- --------- ---------
Income before extraordinary loss 6,971 2,080 12,326 1,358
Extraordinary loss on early extinguishment of debt (net of
taxes of $1,408) -- -- -- 2,113
--------- --------- --------- ---------
Net income (loss) $ 6,971 $ 2,080 $ 12,326 $ (755)
========= ========= ========= =========
Basic net income (loss) per common share:
Income before extraordinary loss $ 0.17 $ 0.06 $ 0.32 $ 0.04
Extraordinary loss on early extinguishment of debt $ -- $ -- $ -- $ (0.06)
Net income (loss) per common share $ 0.17 $ 0.06 $ 0.32 $ (0.02)
Weighted average common shares outstanding 39,982 35,269 38,900 33,303
Diluted net income (loss) per common share:
Income before extraordinary loss $ 0.16 $ 0.05 $ 0.27 $ 0.04
Extraordinary loss on early extinguishment of debt $ -- $ -- $ -- $ (0.06)
Net income (loss) per common share $ 0.16 $ 0.05 $ 0.27 $ (0.02)
Weighted average common and common equivalent shares
outstanding 44,742 42,482 44,899 33,303
</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>
Six Months Ended
----------------------
June 30, July 2,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 12,326 $ (755)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Extraordinary loss on early extinguishment of debt -- 2,113
Gain on litigation settlement (1,850) --
Depreciation and amortization 6,006 4,737
Deferred income taxes 1,045 600
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable and unbilled revenue (9,924) (12,970)
Increase in other receivables (2,662) (7,649)
Decrease (increase) in prepaid expenses and other current and
non-current assets (1,906) 2,042
Decrease in accounts payable (2,020) (5,759)
Increase (decrease) in accrued expenses and other liabilities (3,250) 684
Increase (decrease) in media payable (6,164) 11,128
-------- --------
Net cash used in operating activities (8,399) (5,829)
Cash flows from investing activities:
Purchases of property and equipment (3,957) (2,320)
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) (5,880)
-------- --------
Net cash used in investing activities (5,842) (7,700)
Cash flows from financing activities:
Proceeds from issuance of common stock 11,459 8,485
Proceeds from revolving credit facility -- 402
Repayment of revolving credit facility -- (1,015)
Repayment of notes payable (1,000) (3,448)
Repayment of redeemable subordinated notes -- (8,000)
-------- --------
Net cash provided by (used in) financing activities 10,459 (3,576)
-------- --------
Net decrease in cash and cash equivalents (3,782) (17,105)
Cash and cash equivalents at beginning of period 27,124 36,931
-------- --------
Cash and cash equivalents at end of period $ 23,342 $ 19,826
======== ========
</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 six months ended June
30, 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 (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net
income (loss) 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 (loss) per share
computation is significantly lower than actual shares issued and outstanding.
Income (loss) per common share assuming dilution is computed by
dividing the net income (loss) 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 June 30, 2000 and July 2,
1999, potentially dilutive securities included 3,861,178 and 6,393,971 shares,
respectively, of unvested common stock issued under employment agreements and
899,243 and 818,874 shares, respectively, issuable upon the exercise of stock
options and warrants assuming the treasury stock method. For the six months
ended June 30, 2000, potentially dilutive securities included 4,603,154 shares
of unvested common stock issued upon employment agreements and 1,395,730 shares
issuable upon the exercise of stock options and warrants assuming the treasury
stock method.
Potentially dilutive shares were excluded from the diluted loss per
share calculation for the six months ended July 2, 1999 because their effects
would have been anti-dilutive to the loss incurred by the Company. Therefore,
the amounts reported for basic and diluted net loss per share were the same for
the six months. Potentially dilutive shares which were not included in the
diluted loss per share calculation for the six months ended July 2, 1999 include
7,834,735 shares of unvested common stock issued under employment agreements and
1,387,357 shares issuable upon the exercise of stock options and warrants
assuming the treasury stock method.
6
<PAGE>
answerthink, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 six months of 2000, the Company paid
additional contingent consideration of $11.5 million, consisting of $4.3 million
in cash and $7.2 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.
4. Income Taxes
The Company's effective tax rate for the first six months of 2000 was
41% compared to an effective tax rate of 72% for the first six months of 1999.
The high effective tax rate in the first six 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
<PAGE>
answerthink, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
7. Litigation
In February 1999, a Consolidated and Amended Class Action Complaint
("Consolidated Complaint") was filed on behalf of all individuals who purchased
THINK New Ideas' common stock from November 5, 1997 through September 21, 1998.
The suit was previously described in the Company's Form 10-K for the year ended
December 31, 1999. Prior to the merger with answerthink, inc., THINK New Ideas
filed a motion to dismiss the Consolidated Complaint on a number of grounds, and
the plaintiffs filed a memorandum in opposition. On March 15, 2000, the motion
to dismiss the Consolidated Complaint was granted. The court order granting the
motion allowed the plaintiffs the option to file an amended complaint, and the
plaintiffs filed an amended complaint on April 14, 2000. The Company filed a
motion to dismiss the amended complaint on May 1, 2000. Management believes that
the Company has meritorious defenses to the Consolidated Complaint and intends
to contest it vigorously. Although there can be no assurance as to the outcome
of these matters, an unfavorable resolution could have a material adverse effect
on the results of operations and/or financial condition of the Company in the
future.
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
<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, branding, interactive marketing, web design and implementation,
and technology integration. These solutions span multi-entity functional areas
and include supply chain, sales and marketing, customer support, finance, human
resources, information technology and procurement.
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 Six Months Ended
---------------------------------- -----------------------------------
June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $81,729 100.0% $62,738 100.0% $158,026 100.0% $120,370 100.0%
Costs and expenses:
Project personnel and expenses 46,951 57.4% 37,498 59.8% 91,905 58.1% 71,691 59.6%
Selling, general and
administrative expenses 24,980 30.6% 20,876 33.3% 47,518 30.1% 40,399 33.6%
Merger related expenses -- -- -- -- -- -- 2,500 2.1%
Impairment of capitalized software -- -- 989 1.5% -- -- 989 0.8%
---------------- ----------------- ----------------- -----------------
Total costs and operating expenses 71,931 88.0% 59,363 94.6% 139,423 88.2% 115,579 96.1%
---------------- ----------------- ----------------- -----------------
Income from operations 9,798 12.0% 3,375 5.4% 18,603 11.8% 4,791 3.9%
Other income (expense):
Litigation settlement 1,850 2.2% -- -- 1,850 1.2% -- --
Interest income, net 167 0.2% 123 0.2% 439 0.2% 65 0.1%
---------------- ----------------- ----------------- -----------------
Income before income taxes and
extraordinary loss 11,815 14.4% 3,498 5.6% 20,892 13.2% 4,856 4.0%
Income taxes 4,844 5.9% 1,418 2.3% 8,566 5.4% 3,498 2.9%
---------------- ----------------- ----------------- -----------------
Income before extraordinary loss 6,971 8.5% 2,080 3.3% 12,326 7.8% 1,358 1.1%
Extraordinary loss on early extinguishment
of debt (net of taxes of $1,408) -- -- -- -- -- -- 2,113 1.7%
---------------- ----------------- ----------------- -----------------
Net income (loss) $ 6,971 8.5% $ 2,080 3.3% $ 12,326 7.8% $ (755) (0.6%)
---------------- ----------------- ----------------- -----------------
</TABLE>
9
<PAGE>
Net Revenues. Net revenues for the quarter ended June 30, 2000
increased by $19.0 million or 30.3% compared to the quarter ended July 2, 1999.
For the first six months of fiscal 2000, net revenues increased $37.7 million or
31.3% 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-on 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 June 30, 2000 increased by
25.2% to $47.0 million compared to $37.5 million in the quarter ended July 2,
1999. For the first six months of fiscal 2000, project personnel costs and
expenses increased 28.2% 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 57.4% in the quarter ended
June 30, 2000 from 59.8% in the comparable quarter of 1999. For the first six
months of fiscal 2000, project personnel and expenses as a percentage of net
revenues decreased to 58.1% from 59.6% in the comparable six months of 1999.
These decreases were primarily due to an increase in the average billing rate
for consultants.
Selling, General and Administrative. Selling, general and
administrative expenses increased 19.7% to $25.0 million in the quarter ended
June 30, 2000 from $20.9 million in the quarter ended July 2, 1999. For the
first six months of fiscal 2000, selling, general and administrative expenses
increased 17.6% to $47.5 million from $40.4 million in the comparable period of
1999. These increases in selling, general and administrative expenses primarily
related to an increase in selling costs related to the higher sales volume,
increased marketing costs associated with our name change and branding campaign,
and additional goodwill amortization expense associated with acquired
businesses. Selling, general and administrative expenses as a percentage of net
revenues decreased to 30.6% in the quarter ended June 30, 2000 from 33.3% in the
comparable quarter of 1999. For the first six months of fiscal 2000, selling,
general and administrative expenses as a percentage of net revenues also
decreased to 30.1% from 33.6% in the comparable six months of 1999. These
decreases were 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 six months ended July 2, 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 six months ended June 30,
2000 was 41% compared to an effective tax rate of 72% for the comparable period
of 1999. The high effective tax rate in the first six 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 was a result of 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 June 30, 2000, we had no
borrowings under this credit facility. At June 30, 2000, we had approximately
$23.3 million in cash, cash equivalents and short-term investments compared to
$29.6 million at December 31, 1999.
10
<PAGE>
Net cash used in operating activities was $8.4 million for the six
months ended June 30, 2000 compared to $5.8 million used during the comparable
period of 1999. During the six months ended June 30, 2000, net cash used in
operating activities was primarily attributable to a $9.9 million increase in
accounts receivable and unbilled revenue, a $5.3 million decrease in accounts
payable and accrued expenses and other liabilities, a $6.2 million decrease in
media payable and a $2.7 million increase in other receivables, which were
partially offset by our operating income. 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 six months ended
July 2, 1999, net cash used in operating activities was primarily attributable
to a $13.0 million increase in accounts receivable and unbilled revenue, a $7.6
million increase in other receivables and a $5.8 million decrease in accounts
payable, which were partially offset by our net income, excluding the effects of
non-cash charges, and a $11.1 million increase in media payable and a $2.0
million decrease in prepaid expenses and other current and non-current assets.
Net cash used in investing activities was $5.8 million for the six
months ended June 30, 2000 compared to $7.7 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 $4.0 million of purchases of property and
equipment, offset by net sales and redemptions of short-term investments of $2.4
million. During the six months ended July 2, 1999, the primary uses of investing
activities were $5.9 million used in the acquisition of businesses and $2.3
million used for the purchase of property and equipment, offset by sales and
redemptions of short-term investments of $500,000.
Net cash provided by financing activities was $10.5 million for the six
months ended June 30, 2000 compared to $3.6 million used in financing activities
during the comparable period of 1999. The primary source of cash from financing
activities during the six months ended June 30, 2000 was $11.5 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 the employee stock purchase
plan. This was offset by a repayment of $1.0 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, as well as the repayment of other notes
payable totaling $3.4 million and net repayment of $613,000 on the revolving
credit facility, partially offset by 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 August 14, 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.
12
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In February 1999, a Consolidated and Amended Class Action Complaint
("Consolidated Complaint") was filed on behalf of all individuals who purchased
THINK New Ideas' common stock from November 5, 1997 through September 21, 1998.
The suit was previously described in answerthink's Form 10-K for the year ended
December 31, 1999. Prior to the merger with answerthink, inc., THINK New Ideas
filed a motion to dismiss the Consolidated Complaint on a number of grounds, and
the plaintiffs filed a memorandum in opposition. On March 15, 2000, the motion
to dismiss the Consolidated Complaint was granted. The court order granting the
motion allowed the plaintiffs the option to file an amended complaint, and the
plaintiffs filed an amended complaint on April 14, 2000. We filed a motion to
dismiss the amended complaint on May 1, 2000. We believe that we have
meritorious defenses to the Consolidated Complaint and intend to contest it
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 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Stockholders held on May 10, 2000, the following
proposals were adopted by the votes specified below:
(i) The election of four Class II Directors (Robert J. Bahash,
David N. Dungan, Allan R. Frank, and William C. Kessinger) to
serve until the year 2003. The security holders elected the
Directors with votes cast as follows: Mr. Bahash: 28,353,989
shares for and 142,755 against; Mr. Dungan 28,098,930 shares
for and 397,814 against; Mr. Frank 27,727,086 shares for and
769,658 against; Mr. Kessinger 28,251,009 for and 245,735
against. There were no abstentions or broker non-votes
applicable to the election of directors. In addition to the
directors listed above whom were elected at the meeting, the
terms of the following directors continued after the meeting:
Edmund R. Miller, Ulysses S. Knotts, III, Jeffrey E. Keisling,
Ted A. Fernandez, Fernando Montero, Bruce V. Rauner, and Alan
T.G. Wix.
(ii) The approval of an amendment to the Company's Articles of
Incorporation changing the name of the Company from
AnswerThink Consulting Group, Inc., to "answerthink, inc." The
security holders approved this amendment to the Company's
Articles of Incorporation with votes cast as follows:
28,325,149 shares for; 123,752 shares against; and 47,843
shares abstained. There were no broker non-votes.
(iii) The approval of an amendment to the Company's 1998 Stock
Option and Incentive Plan increasing the number of shares of
Common Stock available for issuance thereunder from 10,000,000
to 15,000,000. The approval passed with votes cast as follows:
19,620,477 shares for; 3,337,637 shares against; 42,097 shares
abstained; and 5,496,533 broker non-votes.
(iv) The ratification of the appointment of PricewaterhouseCoopers
LLP as independent auditors of the Company for the current
fiscal year ending December 29, 2000. The appointment was
ratified with votes cast as follows: 28,341,488 shares for;
116,985 shares against; and 38,271 shares abstained.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Exhibit
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27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed a Form 8-K with the Securities and Exchange
Commission on June 29, 2000. In this filing the Registrant announced the formal
change of its name from AnswerThink Consulting Group, Inc. to answerthink, inc.
The name change was effective June 20, 2000 with the Florida Department of State
Division of Corporation and the NASDAQ Stock Market.
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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: August 14, 2000 By: /s/ John F. Brennan
------------------------------------------
John F. Brennan
Executive Vice President and Chief
Financial Officer
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Exhibit Index
Exhibit No. Description
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27.1 Financial Data Schedule
