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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 0-25995
NEXTERA ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4700410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Cranberry Hill, Lexington, Massachusetts
02421 (Address of principal executive office,
including zip code)
(781) 778-4400
(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 and 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 [ ]
As of October 31, 2000 there were 31,270,789 shares of $.001 par value
Class A Common Stock outstanding and 3,848,560 shares of $.001 par value Class B
Common Stock outstanding.
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NEXTERA ENTERPRISES, INC.
Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 2000
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations for the
Three Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Operations for the
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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PART I - - FINANCIAL INFORMATION
Item 1. Financial Statements
NEXTERA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
SEPTEMBER 30, 2000 DECEMBER 31, 1999(1)
------------------ -------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,361 $ 7,011
Accounts receivable, net of allowance
for doubtful accounts of $3,206 at
September 30, 2000 and $953 at
December 31, 1999 44,264 38,930
Costs and estimated earnings in
excess of billings 3,023 7,092
Due from affiliates 3 156
Due from officers 98 93
Prepaid expenses and other current
assets 14,384 2,460
-------- --------
Total current assets 63,133 55,742
Property and equipment, net 12,921 10,587
Intangible assets, net of accumulated
amortization of $10,779 at
September 30, 2000 and $6,700 at
December 31, 1999 160,719 155,800
Other assets 10,836 4,633
-------- --------
Total assets $247,609 $226,762
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 19,360 $ 19,512
Notes payable to bank 275 248
Deferred revenue 1,616 1,505
Senior credit facility 46,021 --
Due to affiliates 752 752
Current portion of long-term debt and
capital lease obligations 3,202 690
-------- --------
Total current liabilities 71,226 22,707
Long-term debt and capital lease
obligations 3,346 4,021
Senior credit facility -- 22,946
Debentures due to affiliates 29,831 29,831
Other long-term liabilities 1,666 1,200
Stockholders' equity:
Preferred Stock, $0.001 par value,
10,000,000 shares authorized,
no shares issued and outstanding -- --
Exchangeable shares, no par value,
2,500,000 shares authorized,
0 and 197,813 shares issued and
outstanding at September 30, 2000
and December 31, 1999 -- 495
Class A Common Stock, $0.001 par value,
75,000,000 shares authorized, 31,396,789
and 30,633,049 shares issued at
September 30, 2000 and December 31, 1999 31 31
Class B Common Stock, $0.001 par value,
4,300,000 shares authorized, 3,848,560
and 4,274,630 shares issued and
outstanding at September 30, 2000
and December 31, 1999 4 4
Additional paid-in capital 163,430 162,299
Treasury Stock, at cost, 126,000 shares
Class A Common Stock at
September 30, 2000 (834) --
Retained earnings (deficit) (21,017) (17,105)
Accumulated other comprehensive income (74) 333
-------- --------
Total stockholders' equity 141,540 146,057
-------- --------
Total liabilities and stockholders'
equity $247,609 $226,762
======== ========
(1) Derived from audited financial statements as of December 31, 1999.
See Notes to Consolidated Financial Statements
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NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
Net revenues $ 35,805 $40,094
Cost of revenues 25,492 22,755
-------- -------
Gross profit 10,313 17,339
Selling, general and
administrative expenses 17,268 11,531
Amortization expense 1,362 1,243
-------- -------
Income (loss) from operations (8,317) 4,565
Interest and other expense, net (2,132) (1,222)
-------- -------
Income (loss) before income taxes (10,449) 3,343
Provision (Benefit) for income taxes (4,208) --
-------- -------
Net income (loss) $ (6,241) 3,343
======== =======
Net income (loss) per common share, basic $ (0.18) $ 0.10
======== =======
Net income (loss) per common share, diluted $ (0.18) $ 0.09
======== =======
Weighted average common shares
outstanding, basic 35,114 35,032
======== =======
Weighted average common shares
outstanding, diluted 35,114 35,359
======== =======
See Notes to Consolidated Financial Statements
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NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
Net revenues $126,807 $112,758
Cost of revenues 76,700 63,737
-------- --------
Gross profit 50,107 49,021
Selling, general and administrative expenses 44,896 32,279
Amortization expense 4,079 3,433
Special charges 1,870 6,089
-------- --------
Income (loss) from operations (738) 7,220
Interest and other expense, net (5,660) (7,596)
-------- --------
Loss before income taxes (6,398) (376)
Provision (benefit) for income taxes (2,497) 2
-------- --------
Net loss $ (3,901) $ (378)
======== ========
Net loss per common share, basic and diluted $ (0.11) $ (0.01)
======== ========
Weighted average common shares outstanding,
basic and diluted 35,129 28,303
======== ========
See Notes to Consolidated Financial Statements
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NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
Cash flows from operating activities:
Net loss $ (3,901) $ (378)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 7,283 5,690
Non-cash compensation charges -- 6,031
Change in operating assets and
liabilities, net of effect
of acquired businesses:
Accounts receivable (9,587) (5,483)
Due from affiliate 153 211
Due to affiliate (3) (725)
Prepaid expenses and other
assets (6,124) 2,021
Accounts payable and accrued expenses (6,212) 1,091
Costs and estimated earnings in excess
of billings 4,069 (2,481)
Deferred revenue 111 273
Other 450 (692)
--------- --------
Net cash provided by (used in)
operating activities (13,761) 5,558
--------- --------
Cash flows from investing activities:
Purchase of property and equipment (5,520) (3,678)
Acquisition of businesses, net of
cash acquired (8,205) (14,007)
Other investments (415) --
--------- --------
Net cash used in investing
activities (14,140) (17,685)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of Class A and
Class B Common Stock 636 103,722
Due from officers -- 387
Borrowings (repayments) under notes
payable to bank 23,102 15,704
Borrowings under bridge loan payable -- 2,000
Repayments of bridge loan payable -- (79,564)
Repayment of debentures due to affiliates -- (25,607)
Repurchases of Class A Common Stock (834) --
Repayments of long-term debt and capital
lease obligations (263) (721)
--------- --------
Net cash provided by financing
activities 22,641 15,921
--------- --------
Effects of exchange rates on cash
and cash equivalents (390) --
--------- --------
Net increase (decrease) in cash
and cash equivalents (5,650) 3,794
Cash and cash equivalents at
beginning of period 7,011 1,496
--------- --------
Cash and cash equivalents at
end of period $ 1,361 $ 5,290
========= ========
Supplemental disclosure of cash
flow information:
Cash paid during the period for interest $ 4,005 $ 6,957
========= ========
Cash paid during the period for
income taxes $ 4,471 $ --
========= ========
See Notes to Consolidated Financial Statements
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NEXTERA ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
The accompanying financial statements of Nextera Enterprises, Inc.
("Nextera" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three- and nine-month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
The consolidated balance sheet as of December 31, 1999 has been derived
from the consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
These financial statements should be read in conjunction with the financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
Annual Report on Form 10-K filed by the Company with the Securities and Exchange
Commission on March 30, 2000.
ACQUISITIONS
The Company has used the purchase method of accounting for all
acquisitions. Operating results of acquired companies have been included in the
Company's results of operations only from the date of each respective
acquisition. Allocation of purchase price for these acquisitions was based upon
estimates of the fair value of the net assets acquired and, in certain
instances, is subject to adjustments based upon finalization of the purchase
price allocation. The Company does not expect that the aggregate purchase price
allocation adjustments will be material.
2000
Effective January 1, 2000, the Company acquired substantially all of the
assets and certain liabilities of Cambridge Economics, Inc. ("Cambridge
Economics"), a Massachusetts-based consulting firm that provides strategic,
economic and business transformation and other services to a diverse group of
domestic and international clients. Cambridge Economics was acquired for $8.4
million of cash and a $2.1 million promissory note.
1999
Effective September 30, 1999, the Company, through Sibson AP, LLC, a newly
formed acquisition subsidiary of the Company, acquired substantially all of the
assets of SCCAP Pty Limited ("SCCAP"). SCCAP, an Australian human resources
consulting firm, was acquired for $1.7 million in cash.
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Effective June 1, 1999, the Company acquired substantially all of the
assets and certain liabilities of The Economics Resource Group, Inc. ("ERG"), a
Massachusetts-based consulting firm that provides economic and strategic
services primarily to energy and other regulated industries. ERG was acquired
for $9.6 million of cash and a $2.4 million promissory note.
Effective May 18, 1999, the Company acquired NeoEnterprises, Inc.
("NeoEnterprises"), a Connecticut-based electronic commerce, or "e-commerce,"
consulting and development company. NeoEnterprises was acquired for 170,000
shares of Class A Common Stock and was merged into Neonext LLC ("Neonext"), a
newly-formed acquisition subsidiary of the Company, as a part of the
acquisition.
Effective January 29, 1999, the Company acquired The Alexander Corporation
Limited ("Alexander"), a United Kingdom-based human resources consulting firm.
Alexander was acquired for (pound)360,000 (approximately $590,000 as of January
29, 1999) and 150,000 shares of Class A Common Stock.
Note 2. EARNINGS (LOSS) PER SHARE
Basic net income (loss) per share ("Basic EPS") is computed by dividing net
income by the weighted average number of common shares outstanding. Diluted net
income (loss) per common share ("Diluted EPS") is computed by dividing net
income by the weighted average number of common shares and dilutive common share
equivalents then outstanding.
Basic and diluted earnings (loss) per share were calculated as follows:
(In thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ (6,241) $ 3,343 $ (3,901) $ (378)
========= ======= ======== =========
Weighted average common shares
outstanding - basic
35,114 35,032 35,129 28,303
Dilutive effect of options and warrants -- 327 -- --
--------- ------- -------- ---------
Weighted average common shares
outstanding - diluted
35,114 35,359 35,129 28,303
========= ======= ======== =========
Basic net income (loss) per common share $ (0.18) $ 0.10 $ (0.11) $ (0.01)
========= ======= ======== =========
Diluted net income (loss) per common share $ (0.18) $ 0.09 $ (0.11) $ (0.01)
========= ======= ======== =========
</TABLE>
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Note 3. COMPREHENSIVE INCOME (LOSS)
Comprehensive income combines net income (loss) and "other comprehensive
items," which represents certain amounts that are reported as components of
stockholders' equity in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains and losses on
available-for-sale investments. During the third quarter of 2000 and 1999, the
Company's comprehensive income (loss) totaled a loss of $6.4 million and income
of $3.3 million, respectively. For the nine months of 2000 and 1999, the
Company's comprehensive loss totaled $4.3 million and $0.4 million,
respectively.
Note 4. RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101, as
amended, summarizes certain of the SEC staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company will adopt the accounting provisions of SAB No. 101 in the fourth
quarter of 2000. The Company does not believe that the implementation of SAB No.
101 will have a significant effect on its results of operations.
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NEXTERA ENTERPRISES, INC.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The disclosure and analysis in this quarterly report contain
"forward-looking statements." Forward-looking statements give our current
expectations or forecasts of future events. These statements can be identified
by the fact that they do not relate strictly to historic or current facts. They
use words such as "anticipate," "estimate," "foresee," "should," "expect,"
"project," "intend," "plan," "believe," and other words and terms of similar
meaning in connection with any discussion of future operating or financial
performance. In particular, these forward-looking statements include statements
relating to future actions or the outcome of financial results. From time to
time, we also may provide oral or written forward-looking statements in other
materials released to the public. Any or all of the forward-looking statements
in this report and in any other public statements may turn out to be incorrect.
They can be affected by inaccurate assumptions or by known or unknown risks and
uncertainties. Consequently, no forward-looking statement can be guaranteed.
Actual results may vary materially.
Forward-looking statements are based on many factors that may be outside
our control, causing actual results to differ materially from those suggested.
These factors include, but are not limited to, those disclosed in the Company's
filings with the Securities and Exchange Commission, which include risks
associated with: our limited combined operating history; our history of losses
and the possibility that we may not be able to attain or increase profitability;
uncertainties concerning the growth rate for commerce on the Internet; our
ability to attract and retain skilled consultants; our ability to successfully
integrate recent acquisitions; and voting control held by a single large
stockholder whose interests may be different than those of other stockholders.
Additional risks relating to the continued quotation of our Class A common stock
on the Nasdaq National Market System are contained in Item 5 of Part II. New
factors emerge from time to time, and it is not possible for us to predict all
these factors nor can we assess the impact of these factors on our business or
the extent to which any factor or combination of factors may cause actual
results to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, you should not place undue
reliance on forward-looking statements as a prediction of actual results.
OVERVIEW
Nextera Enterprises, Inc. is a provider of consulting services and
integrated Internet solutions. Our end-to-end professional service offerings
encompass business and digital strategy, customer relationship management,
economic analysis, organizational and process design and Internet technology
consulting to both innovative Fortune 500 as well as emerging companies. The
breadth of our practice portfolio allows us to assist clients in achieving
enhanced business performance, building new businesses, entering new markets and
redefining the way in which their existing work is conducted. We do this by
utilizing proprietary econometric modeling tools and capitalizing on our
knowledge of vertical markets.
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Our practice portfolio includes:
- Strategy and Research Services. This practice provides economic analyses of
business conditions, pricing models, relevant business frameworks, business
practices and litigation support. Through this practice we also assist
senior management in proactively developing electronic business strategies
and implementing business plans.
- Human Capital Services. This practice assists clients in implementing
organizational and strategic changes through all levels of an organization.
In addition, this practice also helps organizations solve complex
operational issues through major business transformation programs,
redesigned business processes and best practices adaptation.
- Interactive Technology Consulting Services. This practice applies emerging
web-based technologies ranging from business and technical architecture, to
creative consulting to applications development, implementation and
hosting. Our breadth of expertise enables us to deliver services from
across each of our service offerings on a stand alone or combined basis and
offers our clients creative Internet solutions.
During the second quarter of 2000, we began the development of certain new
service offerings. These offering seek to leverage and expand our core
competencies and include:
- Capital Services. A service offering which focuses on private equity
investors. This practice has initiated four assignments exceeding $1
million each from portfolio company investments of Nextera's private equity
clients.
- Accelerated Transformation. A service offering which combines Nextera's
core competencies in strategy, marketing, people and technology consulting
to build integrated, end-to-end solutions for large-scale business
transformation.
- E-pay. An e-business compensation program for configuring e-business
organizations, designing capital structure and equity incentives, and
deploying rewards and performance management systems.
- Turnover Reduction. A service uncovering the true costs of turnover and the
return on retention investments.
- Nexcel. A web-based organizational assessment tool that quickly collects
and analyzes employee data about the behaviors that drive an organization's
ability to compete in the New Economy.
In addition to the practice areas and service offerings noted above, we
have made selective minority investments in independently managed companies that
we believe are well positioned to take advantage of opportunities created by the
Internet. We have co-invested in these companies with other well-known
early-stage investors. We believe that our relationships with Knowledge
Universe, Inc. and its affiliates, coupled with the broad based expertise
resident in our consulting practices, allow us access to early-stage investment
opportunities and the ability to focus our investment capital in the most
promising of those entities.
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We provide our services across a broad spectrum of industries, including
communications, consumer products, diversified services, energy, entertainment,
financial services, government, health care, insurance, manufacturing, media,
retail and technology. Our clients principally consist of Fortune 500 and other
multinational companies.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 AND THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net Revenues. Net revenues decreased 10.7% to $35.8 million for the three
months ended September 30, 2000 from $40.1 million for the three months ended
September 30, 1999. This decrease was primarily attributable to a decrease in
Interactive Technology Consulting Services revenues, offset in part by the
inclusion of revenues generated by SCCAP, which was acquired September 30, 1999
and Cambridge Economics, which was acquired January 1, 2000. The decrease in
revenues from Interactive Technologies Consulting Services primarily resulted
from an industry wide decline in demand for information technology consulting
services as many Global 2000 entities are readdressing their Internet technology
needs, resulting in longer sales cycles. The Company expects that this decreased
demand level will continue at least for the balance of the year and that its
fourth quarter revenues will approximate those recorded in the third quarter.
Gross Profit. Gross profit decreased 40.5% to $10.3 million for the three
months ended September 30, 2000 from $17.3 million for the three months ended
September 30, 1999. Gross margin as a percentage of sales decreased to 28.8% for
the three months ended September 30, 2000 from 43.2% for the three months ended
September 30, 1999. The decrease in gross margin was due primarily to decreased
chargeability from Interactive Technology Consulting Services as a result of the
decline in demand for services in this practice area.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 49.8% to $17.3 million for the three months
ended September 30, 2000 from $11.5 million for the three months ended September
30, 1999. As a percentage of revenues, such expenses increased to 48.2% for the
three months ended September 30, 2000 from 28.8% for the three months ended
September 30, 1999. The increase in spending principally reflects higher
spending in sales and marketing activities as the Company seeks to support
certain new service offerings, the inclusion of bad debt provision in the
quarter of approximately $2.0 million for potential write offs, as well as the
incremental costs associated with acquired entities.
Interest and Other Expense, Net. Interest and other expense, net increased
to $2.1 million for the three months ended September 30, 2000 from $1.2 million
for the three months ended September 30, 1999. The increase principally related
to borrowings incurred in connection with acquisitions, as well as debt incurred
to finance working capital needs.
Special Charges. As a result primarily of the reduction in demand for
technology services, the Company initiated a restructuring in the fourth quarter
of 2000, resulting in a reduction of workforce totaling 114 consulting and
administrative personnel, principally in the Interactive Technology Consulting
Services practice area. The Company will record a restructuring charge of $1.5
to $2.0 million in the fourth quarter, primarily for severance, as a result of
this workforce reduction. Additionally, the
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company expects to incur a charge of approximately $5.0 million in the fourth
quarter of 2000 as a special one time incentive-related expense.
Income tax expense. The Company recorded an income tax benefit of $4.2
million, or 40.3% of pretax loss for the three months ended September 30, 2000.
The provision varies from the statutory rate primarily due to state income taxes
and the unfavorable impact of nondeductible goodwill amortization.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net Revenues. Net revenues increased 12.5% to $126.8 million for the nine
months ended September 30, 2000 from $112.8 million for the nine months ended
September 30, 1999. This increase was primarily attributable to the inclusion of
revenues generated by ERG, which was acquired effective June 1, 1999, SCCAP,
which was acquired September 30, 1999 and Cambridge Economics, which was
acquired January 1, 2000.
Gross Profit. Gross profit increased 2.2% to $50.1 million for the nine
months ended September 30, 2000 from $49.0 million for the nine months ended
September 30, 1999. Gross margin as a percentage of sales decreased to 39.5% for
the nine months ended September 30, 2000 from 43.5% for the nine months ended
September 30, 1999, primarily due to decreased chargeability from Interactive
Technology Consulting Services as a result of the decline in demand for services
in this practice area.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 39.1% to $44.9 million for the nine months
ended September 30, 2000 from $32.3 million for the nine months ended September
30, 1999. As a percentage of revenues, such expenses increased to 35.4% for the
nine months ended September 30, 2000 from 28.6% for the nine months ended
September 30, 1999. The increase in spending principally reflects higher
spending in sales and marketing activities as the Company seeks to support
certain new service offerings, as well as the incremental costs associated with
acquired entities.
Interest and Other Expense, Net. Interest and other expense, net decreased
to $5.7 million for the nine months ended September 30, 2000 from $7.6 million
for the nine months ended September 30, 1999. This decrease was due primarily to
the repayment of a portion of the Company's outstanding indebtedness with the
proceeds from the Company's initial public offering of Class A Common Stock,
which was completed in May 1999.
Special Charges. In June 2000, the Company recorded a charge of $1.9
million as a result of severance costs incurred in connection with management
changes at the Company's Interactive Technologies Services Group.
The Company recorded a non-cash compensation expense of $1.7 million in May
1999, which represented the difference between the fair value of fully-vested
options granted to certain non-stockholder employees of Lexecon on the date of
grant of $10.00 per share, and the $1.50 exercise price of the options.
In March 1999, the Company granted to certain non-employee consultants of
Lexecon fully-vested options to purchase 445,245 shares of Class A Common Stock
at an exercise price of $14.00 per share. The Company recorded a non-
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cash compensation charge of $4.4 million related to the grant of these options
in the three months ended March 31, 1999.
Income tax expense. Income tax benefit of $2.5 million, or 39.0% of pretax
income, was recorded for the nine months ended September 30, 2000. The provision
varies from the statutory rate primarily due state income taxes and the
unfavorable impact of nondeductible goodwill amortization. No tax benefit was
recorded during the nine months ended September 30, 1999 due to the Company's
inception to date lack of cumulative profitability.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was a deficit of $8.1 million on September 30,
2000, compared with $33.0 million on December 31, 1999. The decrease in working
capital principally relates to the reclassification of the $46.0 million of debt
incurred under the Company's Senior credit facility to current as of September
30, 2000. As a result of the Company's third quarter operating loss, the Company
was not in compliance with certain covenants contained in the senior credit
facility. The Company's lenders have granted a waiver of non-compliance through
December 31, 2000. In connection with this waiver, the lenders are requiring
that Nextera obtain commitments for investments in Nextera's equity or
subordinated debt securities of at least $10.0 million by December 15, 2000 and
an additional $20.0 million by December 29, 2000. The Company will also be
required to deliver approximately $2.4 million in additional funds to the
lenders to collateralize certain letters of credit that will become due in the
fourth quarter of 2000. Prior to December 31, 2000, the terms of the waiver
generally prevent Nextera from incurring capital expenditures in excess of $3.0
million, incurring additional indebtedness, making acquisition and making other
specified investments. The Company is working with its lenders to amend
the senior credit facility to achieve more favorable covenants. However, there
can be no assurances that such negotiations will be successful or that Nextera
will be able to comply with the requirements of the waiver described above. Any
inability to successfully conclude such negotiations or comply with the waiver
conditions could have a material adverse effect on Nextera's results of
operations and financial condition.
Net cash used in operating activities was $13.8 million for the nine months
ended September 30, 2000. The primary components of net cash used in operating
activities were a net loss of $3.9 million, an increase in prepaid expenses and
other assets of $6.1 million, an increase in accounts receivables of $9.6
million and a decrease of $6.2 million in accounts payable and accrued expenses,
offset in part by depreciation and amortization expense of $7.3 million.
Net cash used in investing activities was $14.1 million for the nine months
ended September 30, 2000. The primary components of cash used in investing
activities were the acquisition of Cambridge Economics in January 2000, totaling
$8.2 million, net of cash acquired, expenditures of $5.5 million for furniture,
equipment and leasehold improvements and other investments of $0.4 million.
Net cash provided by financing activities was $22.6 million for the nine
months ended September 30, 2000. The primary components of cash generated from
financing activities were borrowings under notes payable to banks totaling $23.1
million, of which $8.4 million was incurred in connection with acquisitions.
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IMPACT OF YEAR 2000
Although the date is now past January 1, 2000 and the Company has not
experienced immediate adverse impact from the transition to the Year 2000, we do
not know whether we, our customers or our vendors have been affected in a manner
that is not yet apparent. We will continue to monitor our Year 2000 compliance
and the Year 2000 compliance of our customers and vendors. Due to the general
uncertainty inherent in the Year 2000 problem, especially the uncertainty
regarding the Year 2000 compliance of our customers and vendors, we are unable
to determine at this time whether the Year 2000 problem will have a material
adverse effect on our business, results of operations and financial condition.
To date we have spent immaterial amounts to comply with requirements
regarding the Year 2000. We believe that we will spend minimal additional
amounts for Year 2000 issues in the foreseeable future. These assessments have
not been independently verified. If we discover Year 2000 errors or defects in
our internal systems, we may have to spend substantial amounts in making
repairs.
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Item 3. Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Risk
We are exposed to changes in interest rates primarily from our senior
credit facility. We do not currently use interest rate derivative instruments to
manage exposure to interest rate changes. A hypothetical 100 basis point adverse
move in interest rates along the interest rate yield curve would not have a
material adverse effect on interest sensitive financial instruments at September
30, 2000.
Foreign Currency Risk
Currently, the majority of our sales and expenses are denominated in U.S.
dollars and as a result we have not experienced significant foreign exchange
gains and losses to date. While we are conducting some transactions in foreign
currencies during 2000, we do not anticipate that foreign exchange gains or
losses will be significant. We have not engaged in foreign currency hedging
activities to date.
PART II. Other Information
Item 5 Other Information.
Our common stock may be delisted from the Nasdaq National Market, which may
adversely affect the market for our common stock.
On September 11, 2000, we were notified that our common stock will be
delisted from the Nasdaq National Market on December 13, 2000, as a result of
our failure to meet the maintenance requirements of the Nasdaq National Market.
Specifically, our common stock had failed to maintain a minimum bid price of
$5.00 over the previous 30 trading days. As a result of this development, we
have entered into negotiations with Nextera Enterprises Holdings, Inc., the
Knowledge Universe subsidiary which holds $30 million of our subordinated debt,
concerning the conversion of all or part of the debt into an equity instrument.
While we believe that the conversion of the debt will satisfy an alternative
maintenance requirement of the Nasdaq National Market, the net tangible assets
test, there can be no assurance that the conversion of the debt into an equity
instrument will meet the maintenance requirements of the Nasdaq National Market,
that we will be able to successfully complete the conversion, or that we will be
able to complete the conversion and obtain Nasdaq approval prior to December 11,
2000, the last day that we can take action without being delisted from the
Nasdaq National Market.
In the event we are unable to maintain the listing of our Common Stock on
the Nasdaq National Market, we will apply to list our Common Stock on the Nasdaq
SmallCap Market. While we believe that we meet the requirements to have our
common stock listed on the Nasdaq SmallCap Market, there can be no assurance
that our common stock would be approved for listing on the Nasdaq SmallCap
Market. If we are unable to either maintain our listing on the Nasdaq National
Market or be approved for listing on the Nasdaq SmallCap Market, our common
stock would be delisted. The effects of delisting include limited news coverage
and the limited release of the market prices of our common stock. Delisting may
diminish investors' interest in our common stock, restrict the trading market of
our common stock and reduce the price
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for our Common Stock. Delisting may also
restrict us from issuing additional securities or securing additional financing.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.55 Employment Agreement dated September 30, 2000 between
Nextera Enterprises, Inc. and Vincent C. Perro
10.56 Employment Agreement dated October 24, 2000 between
Nextera Enterprises, Inc. and Michael P. Muldowney
10.57 Employment Agreement dated October 25, 2000 between
Nextera Enterprises, Inc. and David Schneider
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Nextera during the three months ended
September 30, 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.
NEXTERA ENTERPRISES, INC.
(Registrant)
Date: November 14, 2000 By: /s/ David M. Schneider
-------------------------------------------
David M. Schneider
President and Chief Executive Officer
(Principal Executive Officer)
NEXTERA ENTERPRISES, INC.
(Registrant)
Date: November 14, 2000 By: /s/ Michael P. Muldowney
-------------------------------------------
Michael P. Muldowney
Chief Financial Officer
(Principal Financial and Accounting Officer)
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