<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1999 Commission File Number 000-26977
LUMINANT WORLDWIDE CORPORATION
(Exact name of registrant as specified in its Charter)
Delaware 752783690
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
4100 Spring Valley Road, Suite 750, Dallas, Texas 75244
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (972) 404-5167
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of shares of common stock (including non-voting common stock)
outstanding at October 30, 1999: 24,213,248
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION Page
-----
<S> <C> <C>
Item 1 Financial Statement
------
Pro Forma Combined Financial Information
Organization and Basis of Presentation 3
Pro Forma Combined Statements of Operations
for the three months ended September 30, 1998 and 1999
and the nine months ended September 30, 1998 and 1999
(unaudited) 4
Consolidated Balance Sheets, September 30, 1999 and
December 31, 1998 (unaudited) 6
Consolidated Statements of Operations
for the three months ended September 30, 1998 and 1999
and the nine months ended September 30, 1998 and 1999
(unaudited) 7
Consolidated Statement of Changes in Stockholders' Equity
for the nine months ended September 30, 1999 (unaudited) 8
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1999
(unaudited) 9
Notes to Consolidated Financial Statements 10
Item 2 Management's Discussion and Analysis of
------ Financial Condition and Results of Operations 11
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
-------
Item 3. Exhibits and Reports on Form 8-K 18
-------
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PRO FORMA COMBINED FINANCIAL INFORMATION
ORGANIZATION AND BASIS OF PRESENTATION
Luminant Worldwide Corporation, a Delaware corporation ("Luminant"), was
founded in August 1998 to create a leading single-source Internet service
company that provides electronic commerce professional services to Fortune
1000 companies, Internet based companies and other organizations. Prior to
September 1999, it did not conduct any material operations. On September 21,
1999, it completed its initial public offering of its common stock and
concurrently acquired seven operating businesses and the assets of Brand
Dialogue-New York (the "Acquired Businesses").
For financial statement presentation purposes, (1) Align Solutions Corp., one
of the Acquired Businesses, is presented as the acquirer of the other
Acquired Businesses and Luminant (2) these acquisitions are accounted for in
accordance with the purchase method of accounting and (3) the effective date
of these acquisitions is September 21, 1999. As used in Item 1 of Part 1, the
term "Company" means (1) Align prior to September 21, 1999 and (2) Align, the
other Acquired Businesses and Luminant on that date and thereafter.
The accompanying unaudited pro forma combined statements of operations for the
nine months ended September 30, 1999 and 1998, respectively, assume that
Luminant completed the following transactions on January 1 in each period
presented and:
Its issuance and sale in the IPO of 4,665,000 shares of its common stock
(excluding shares it sold on the exercise of its underwriters'
over-allotment option) at $18.00 per shares;
Its issuance and sale of 835,000 shares of non-voting common stock to Young &
Rubicam at $18.00 per share;
Its acquisition of the eight Acquired Businesses and its payment of the purchase
prices for those businesses; and
These statements also reflect pro forma adjustments for:
Amortization of goodwill resulting from the acquisitions of the Acquired
Businesses;
The reversal of the Acquired Businesses' income tax provision as on a combined
basis the Company has tax losses;
The reduction in 1999 compensation expense related to non-recurring, non cash
compensation charges related to equity appreciation rights at the
Acquired Businesses, other than Align as the accounting acquirer;
Adjustments to increase expenses related to budgeted corporate compensation,
board of directors' expenses, other administrative expenses, and the
additional expenses of being a public entity;
You should read the accompanying unaudited pro forma combined statements of
operations together with the Company's historical unaudited financial
statements and notes thereto this report includes. The pro forma adjustments
are based on estimates, available information and certain assumptions which
may be revised as additional information becomes available. The pro forma
financial information does not purport to represent what the Company's
combined results of operations would actually have been if such transactions
had in fact occurred when assumed and are not necessarily representative of
the Company's results of operations for any future period. Since Luminant and
the Acquired Businesses were not under common control or management for all
or a portion of the periods presented, historical combined results may not be
comparable to, or indicative of, future performance.
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 26,446 $ 13,392 $ 67,883 $ 38,133
Cost of services 15,285 7,380 40,026 24,776
-------- -------- -------- --------
Gross margins 11,161 6,012 27,857 13,357
Selling, general and
administrative expenses 10,392 6,897 26,507 18,863
Equity based compensation expense 12,307 207 15,795 3,811
Intangibles amortization 26,362 26,362 79,085 79,085
-------- -------- -------- --------
Loss from operations (37,900) (27,454) (93,530) (88,402)
Interest expense,
net (233) (87) (523) (235)
Other expense, net (381) (40) (531) (198)
-------- -------- -------- --------
Loss before provision for
income taxes (38,514) (27,581) (94,584) (88,835)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Net loss ($38,514) ($27,581) ($94,584) ($88,835)
======== ======== ======== ========
Net loss per share:
Basic and fully diluted ($ 1.61) ($ 1.15) ($ 3.96) ($ 3.72)
Weighted average shares
outstanding 23,902 23,902 23,902 23,902
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial statements.
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
SHARES USED IN COMPUTING PRO FORMA NET LOSS PER SHARE
The following table summarizes the number of shares of common stock used in
calculating pro forma net loss per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares issued to owners of the
Acquired Businesses 16,570 16,570 16,570 16,570
Shares issued to initial stockholders
and certain management personnel
of Luminant 1,832 1,832 1,832 1,832
Shares issued in the IPO together
with Young & Rubicam's direct
purchase of shares 5,500 5,500 5,500 5,500
------------- ----------- ------------ ----------
Total 23,902 23,902 23,902 23,902
------------- ----------- ------------ ----------
</TABLE>
The computation of net loss and diluted net loss per share excludes
Common Stock issuable upon exercise of certain employee stock options
and upon exercise of certain outstanding warrants and other options,
as their effect is antidilutive.
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents 29,349 --
Accounts receivable, net of allowance of
$895 and $115 20,966 2,162
Unbilled revenues 1,224 11
Employee and other receivables 212 --
Prepaid expense and other assets 1,406 74
-------- -------
Total current assets 53,157 2,247
Property and equipment, net 4,457 776
Other assets:
Goodwill and other intangible, net of
accumulated amortization of
$6,925 and $108 311,430 42
Other 341 2
-------- -------
Total assets 369,385 $ 3,067
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 12,305 $ 332
Payable for eight companies' stock and other
acquisition related obligations 310 --
Dividends payable 2,386 --
Customer deposits 132 --
Accrued liabilities 5,356 714
Notes payable 3,413 325
Current maturities of long-term debt 259 71
-------- -------
Total current liabilities 24,161 1,442
Long-term liabilities:
Long-term debt, net of current maturities 4,619 156
------- -------
Total liabilities 28,780 1,598
Stockholders' equity
Common stock 239 46
Additional paid-in capital 385,271 1,873
Retained deficit (44,905) (450)
------- ------
Total stockholders' equity 340,605 1,469
------- -------
Total liabilities and stockholders'
equity 369,385 $ 3,067
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 11,219 $ 2,899 $ 22,012 $ 5,896
Cost of services
6,944 1,351 13,316 3,156
-------- ------ --------- -------
Gross margin 4,275 1,548 8,696 2,740
Selling, general and administrative expenses 3,612 1,070 10,838 2,743
Equity based compensation expense 13,020 -- 13,020 --
Intangibles amortization 4,079 13 5,445 38
-------- ------ --------- -------
Income (loss) from operations (16,436) 465 (20,607) (41)
Other expense:
Interest expense, net (24) (12) (49) (41)
Other, net (14) (82) (14) (82)
-------- ------ --------- -------
Income (loss) before provision for
income taxes (16,474) 371 (20,670) (164)
Provision for income taxes -- -- -- --
-------- ------ --------- -------
Net income (loss) $(16,474) $ 371 $ (20,670) $ (164)
======== ====== ========= =======
Net income (loss) per share:
Basic and Diluted $(2.12) $ 0.08 $(3.63) ($0.04)
======== ====== ========= =======
Number of shares used in calculating net
income (loss) per share:
Basic and Diluted 7,784 4,646 5,702 4,646
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- - Paid-In Retained
Shares Amount Capital Deficit
-----------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1999 3,756 $ 38 $ 2,283 $ (450)
Issuance of common stock 890 9 14,541 --
Equity related compensation -- -- 3,346 --
Value of stock options granted in acquisitions -- -- 489 --
Issuance of common stock to owners of
Acquired Businesses other than Align, as 13,756 137 213,323 --
well as to initial stockholders and certain
management personnel of Luminant
Issuance of common stock in IPO, including
shares issued to Young & Rubicam, net of costs 5,500 55 83,751 --
Equity related charge for shares and options issued to
officers and a former officer -- -- 11,184 --
Value of options granted to Young and Rubicam -- -- 25,974 --
Equity based acquisition fees to sponsor -- -- 21,038 --
Value of options issued to Acquired Businesses -- -- 9,342 --
Distributions to stockholders -- -- -- (23,785)
Net loss -- -- -- (20,670)
-----------------------------------------------
BALANCE, September 30, 1999 23,902 $ 239 $385,271 $(44,905)
===============================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($20,670) ($194)
Equity related compensation 14,020 --
Charges related to UAL warrant 1,175 --
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 5,245 168
Changes in assets and liabilities, excluding effects of acquisitions:
Accounts receivable (4,925) (756)
Unbilled revenues 611 43
Prepaid expenses and other (571) 13
Other assets 1,496 (7)
Accounts payable including cash overdraft 7,344 171
Accrued liabilities and customer deposits (610) 324
-------- -----
Net cash provided by (used in) operating activities 3,115 (238)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,245) (509)
Payments for acquisitions accounted for as purchases, net of
cash received of $1,986 (33,303) --
-------- -----
Net cash used in investing activities (34,548) (509)
-------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,061 --
Repayments of long-term debt (64) (62)
Proceeds from issuances of common stock 83,806 944
Distributions to stockholders (21,473) --
Proceeds from notes payable 510 --
Repayments of notes payable (3,058) (24)
-------- -----
Net cash provided by financing activities 60,782 858
-------- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 29,349 111
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -- 11
-------- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,349 $ 122
======== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 85 $ 41
===== =====
NONCASH INVESTING ACTIVITY:
Acquisition through issuance of common stock $213,460 $ --
======== =====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LUMINANT WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Luminant Worldwide Corporation, a Delaware Corporation, was founded in August
1998 to create a leading single-source Internet service company that provides
electronic commerce professional services to Fortune 1000 companies, Internet
based companies and other organizations. Prior to September 1999, it did not
conduct any material operations. On September 21, 1999, it completed its
initial public offering of its common stock and concurrently acquired seven
operating businesses and the assets of Brand Dialogue-New York (the "Acquired
Businesses").
For financial statement presentation purposes, (1) Align Solutions Corp., one
of the Acquired Businesses, is presented as the acquirer of the other
Acquired Businesses and Luminant, (2) these acquisitions are accounted for in
accordance with the purchase method of accounting and (3) the effective date
of these acquisitions is September 21, 1999. As used in Item 1 of Part I, the
term "Company" means (1) Align prior to September 21, 1999 and (2) Align, the
other Acquired Businesses and Luminant on that date and thereafter.
Under applicable regulations of the SEC, the historical financial statements in
this report are unaudited and omit information and footnote disclosures that
financial statements prepared in accordance with generally accepted accounting
principles normally would include. In the opinion of management, (1) the
disclosures herein are adequate to make the information presented not misleading
and (2) the financial statements reflect all elimination entries and normal
adjustments that are necessary for a fair presentation of the results for the
interim periods presented.
The purchase accounting in this filing is based on estimates made by
management based on the information currently available and is subject to
change in the fourth quarter.
Operating results for interim periods are not necessarily indicative of the
results for full years. You should read these condensed consolidated financial
statements together with the audited financial statements and the notes thereto
of Luminant and the Acquired Businesses which Luminant's registration statement
for its IPO includes.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company has not added to or changed its accounting policies significantly
since December 31, 1998. For a description of these policies, see Note 2 of
Notes to Financial Statements of Align and Luminant in Luminant's IPO
registration statement.
3. SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE
The following table summarizes the number of shares (in thousands) of common
stock we have used on a weighted average basis in calculating net income
(loss) per share:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1999 1998 1999 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Shares issued to Align's owners 4,646 4,646 4,646 4,646
Shares issued to owners of Acquired Businesses
other than Align 1,944 -- 655 --
Shares issued to the initial stockholders and
certain management personnel of Luminant 298 -- 100 --
Shares issued in the IPO 896 -- 301 --
----- ----- ----- -----
Number of shares used in calculating basic and
diluted net income (loss) per share 7,784 4,646 5,702 4,646
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The computation of net loss and diluted net loss per share excludes Common
Stock issuable upon exercise of certain employee stock options and upon
exercise of certain other outstanding warrants and other options, as their
effect is antidilutive.
4. AGREEMENT WITH UNITED
We have entered into an agreement with United Air Lines, Inc. ("United")
under which we have agreed to provide electronic commerce strategy, business
planning and design services to United until June 30, 2004, but United has no
obligation to purchase any services from us. Under this agreement, we have
issued to United a warrant to purchase up to 300,000 shares of our common
stock at an exercise price per share equal to the initial public offering
price. Under the warrant, United has the immediate right to purchase 50,000
shares of common stock. Over the five year term of the agreement, United will
have the right to purchase 5,000 shares of the remaining shares under the
warrant for every $1 million of revenues we receive from United up to $50
million of revenue. Our selling, general and administrative expenses include
a charge of $1.2 million related to the value of shares underlying this
warrant. We based this amount on a Black-Scholes pricing model with a
volatility of 70%, a risk-free rate of return of 5.26%, a dividend yield of
0% and exercise of warrants five years from date of grant.
5. INCOME TAXES
Prior to September 21, 1999, Align was an S corporation and was not subject to
federal income taxes. In addition, three other acquired businesses were limited
liability companies and therefore were not subject to federal income taxes.
Effective with their acquisition they became C corporations subject to those
taxes, and we have recorded an estimated deferred tax asset as a result of the
difference between the book and tax bases of the net assets of these
corporations. Because the Company has not yet demonstrated that it expects to
generate taxable income, a valuation allowance has been established for the
carrying amount of this asset. In addition, because of the lack of taxable
income, no provision for income taxes has been provided in the accompanying
statements.
6. SEGMENT REPORTING
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that companies report separately information about each
significant operating segment reviewed by the chief operating decision maker.
All segments that meet a threshold of 10% of revenues, reported profit or loss,
or combined assets are defined as significant segments. The Company currently
operates under one segment and all operations and long-lived assets are in the
United States.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis compares the three- and nine-month
periods ended September 30, 1999 to the corresponding periods ended September
30, 1998 for Luminant Worldwide Corporation and its subsidiaries ("Luminant,"
the "Company," "we," "us" and "our"). You should read the following
discussion in conjunction with (1) the pro forma and historical financial
statements and related notes contained elsewhere in this Form 10-Q, and (2)
the pro forma and historical financial statements and related notes and
management's discussion and analysis of financial condition and results of
operations contained in our Registration Statement on Form S-1 filed with the
Securities and Exchange Commission (the "SEC") on June 8, 1999, as amended
(S.E.C. File No. 333-80161) (the "Registration Statement"). This discussion
contains "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements include, without limitation, any statement
that may predict, forecast, indicate or imply future results, performance or
achievements and may contain the words "believe," "anticipate," "expect,"
"estimate," "project," "will be," "will continue," "will likely result" or
similar words or phrases. These statements are based on our current plans and
expectations and involve risks and uncertainties that could cause future
activities and actual results of operations to materially differ from those
set forth and described in the forward-looking statements. Risks that could
cause actual results to differ materially from those in the forward-looking
statements include, but are not limited to, the risk that we may not be
profitable in the future, the risk that we may not successfully integrate
each of the companies and businesses we acquire, the possibility that we may
not be able to hire, train and retain skilled employees, the rate at which we
will write off significant goodwill on our balance sheet, risks related to
increased competition in our industry, changes in government regulation of
the Internet and electronic commerce industry and risks posed by the Year
2000 problem. Additional information concerning these and other risks and
uncertainties is contained from time to time in the Company's filings with
the Securities and Exchange Commission. Given these risks and uncertainties,
investors should not place undue reliance on forward-looking statements as a
prediction of actual results.
On September 15, 1999, Luminant declared a 16,653-for-one stock split. All share
and per-share amounts, including stock option information, set forth in this
Form 10-Q have been restated to reflect this stock split.
On September 21, 1999, Luminant completed its initial public offering of
4,665,000 shares of its common stock, concurrently with the sale of 835,000
shares of non-voting common stock to Young & Rubicam, Inc. (collectively, the
"Offering") and the acquisition of seven operating businesses and the assets
of Brand Dialogue-New York (the "Acquired Businesses"). One of the Acquired
Businesses, Align Solutions Corp. ("Align"), has been identified as the
"accounting acquirer" for our financial statement presentation, and its
assets and liabilities have been recorded at historical cost levels. The
acquisition of each of the other Acquired Businesses was accounted for using
the purchase method of accounting. Because the Internet and electronic
commerce industries are in the early stage of development and are continuing
to evolve rapidly, the recorded goodwill from the acquisitions will be
amortized on a straight line basis over three years, the estimated period of
benefit. In addition, the pro forma combined financial information in this
report covers periods during which the Acquired Businesses had different tax
structures and operated independently of each other as private,
owner-operated companies.
In September, 1999 we entered into an agreement with United Air Lines, Inc.
("United") under which we have agreed to provide electronic commerce
strategy, business planning and design services to United until June 30,
2004, but United has no obligation to purchase any services from us. Under
this agreement, we have issued to United a warrant to purchase up to 300,000
shares of our common stock at an exercise price per share equal to the
initial public offering price. Under the warrant, United has the immediate
right to purchase 50,000 shares of common stock. Over the five year term of
the agreement, United will have the right to purchase 5,000 shares of the
remaining shares under the warrant for every $1 million of revenues we
receive from United up to $50 million of revenue. Our selling, general and
administrative expenses include a charge of $1.2 million related to the value
of shares underlying this warrant. We based this amount on a Black-Scholes
pricing model with a volatility of 70%, a risk-free rate of return of 5.26%,
a dividend yield of 0% and exercise of warrants five years from date of grant.
Our customers generally retain us on a project-by-project basis. We typically do
not have material contracts that commit a customer to use our services on a
long-term basis. Revenue is recognized primarily using the percentage of
completion method on a contract-by-contract basis. Our use of the percentage of
completion method of revenue recognition requires management to estimate the
degree of completion of each project. To the extent these estimates prove to be
inaccurate, the revenues and gross profits reported for periods during which
work on the project is ongoing may not accurately reflect the final financial
results of the project. We make provisions for estimated losses on uncompleted
contracts on a contract-by-contract basis and recognize these provisions in the
period in which the losses are determined.
We provide our services primarily on a fixed-price, fixed-time frame basis. We
use internally developed processes to estimate and propose fixed prices for our
projects. The estimation process applies a standard billing rate to each project
based upon the level of expertise and number of consultants required, the
technology environment, the overall technical complexity of the project and
whether strategic, creative or technology solutions or value-added services are
being provided to the client. We also provide services on a time and materials
basis.
Our financial results may fluctuate from quarter to quarter based on such
factors as the number, complexity, size, scope and lead time of projects in
which we are engaged. More specifically, these fluctuations can result from the
<PAGE>
contractual terms and degree of completion of such projects, any delays incurred
in connection with projects, employee utilization rates, the adequacy of
provisions for losses, the accuracy of estimates of resources required to
complete ongoing projects and general economic conditions. In addition, revenue
from a large client may constitute a significant portion of our total revenue in
a particular quarter.
The Company's cost of services are comprised primarily of salaries, employee
benefits and incentive compensation of billable employees and a proportionate
share of facilities costs, including depreciation, and computer and office
equipment operating leases, based on the ratio of billable to total
employees.
Selling expenses consist of salaries, bonuses, commissions and benefits for our
sales and marketing staff as well as other marketing and advertising expenses.
General and administrative costs consist of salaries, bonuses and related
employee benefits for executive, senior management, finance, recruiting and
administrative employees, training, travel and other corporate costs. General
and administrative costs also include a proportionate share of facilities costs
including depreciation, and computer and office equipment operating leases,
based on the ratio of non-billable to total employees.
The pro forma financial statements herein also reflect pro forma adjustments
for amortization of goodwill resulting from the acquisitions of the Acquired
Businesses, reversal of the Acquired Businesses' income tax provision, as the
Company has not demonstrated that it will generate future taxable income, a
reduction in 1999 compensation expense of the Acquired Businesses, other than
Align as the accounting acquirer, related to non-recurring, non-cash
compensation charges related to equity appreciation rights, and adjustments
to increase expenses related to budgeted corporate compensation, board of
directors' expenses, other administrative expenses, and other additional
expenses of being a public entity.
RESULTS OF OPERATIONS - PRO FORMA COMBINED
The following table sets forth for us on a pro forma combined basis selected
statement of operations information and that information as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues $ 26,446 $ 13,392 $ 67,883 $ 38,133
Cost of services 15,285 7,380 40,026 24,776
-------- -------- -------- --------
Gross margin 11,161 6,012 27,857 13,357
Selling, general and administrative expenses 10,392 6,897 26,507 18,863
Equity based compensation expense 12,307 207 15,795 3,811
Intangibles amortization 26,362 26,362 79,085 79,085
-------- -------- -------- --------
Loss from operations ($37,900) ($27,454) ($93,530) ($88,402)
======== ======== ======== ========
</TABLE>
Revenues
For the three-month period ended September 30, 1999, revenue increased $13.1
million, or 97%, to $26.4 million from $13.4 million for the three-month
period ended September 30, 1998. For the nine-month period ended
<PAGE>
September 30, 1999, revenue increased $29.8 million, or 78%, to $67.9 million
from $38.1 million for the nine-month period ended September 30, 1998. This
increase in revenue is primarily the result of an increase in the size and
number of client engagements. This increase also resulted from an increase in
the proportion of strategy consulting services provided, which tend to have
higher average billing rates than other services. The increase in revenue
resulted as well from an overall growth in the number of billable
professionals on staff, which grew to approximately 608 as of September 30,
1999 from approximately 440 as of September 30, 1998.
Cost of Services
Cost of services consists primarily of salaries, associated employee benefits
and incentive compensation for personnel directly assigned to client projects
as well as a proportionate share of all facilities costs, including
depreciation, and computer and office equipment operating leases, based on
the ratio of billable professionals compared to total employees. These costs
increased $7.9 million, or 107%, to $15.3 million for the three-month period
ended September 30, 1999 from $7.4 million for the three-month period ended
September 30, 1998, and increased $15.2 million, or 62%, to $40.0 million for
the nine-month period ended September 30, 1999 from $24.8 million for the
nine period ended September 30, 1998. These increases were due primarily to
an increase of approximately 168 additional billable professionals needed to
service our increased client engagements. The growth in headcount resulted
primarily from organic growth.
Gross Margin
For the three-month period ended September 30, 1999, gross margin increased
$5.2 million, or 87%, to $11.2 million from $6.0 million for the three-month
period ended September 30, 1998. The gross margin increase reflects an
increase in revenue during the three-month period ended September 30, 1999
compared to the three-month period ended September 30, 1998. As a percentage
of revenue, gross margin decreased from 45% to 42% for the three-month
period ended September 30, 1999, as compared to the three-month period ended
September 30, 1998. The percentage decrease primarily resulted from general
increases in salary expenses, including increases in salaries to existing
personnel and the addition of salaries for our new hires.
For the nine-month period ended September 30, 1999, gross margin increased
$14.5 million, or 109%, to $27.9 million from $13.4 million for the
nine-month period ended September 30, 1998. The gross margin increase
reflects an increase in revenue during the nine-month period ended September
30, 1999 compared to the nine-month period ended September 30, 1998. As a
percentage of revenue, gross margin increased from 35% to 41% for the
nine-month period ended September 30, 1999, as compared to the nine-month
period ended September 30, 1998. The percentage increase primarily reflects
increased overall utilization of billable professionals as well as an
increase in the proportion of strategy consulting services provided, which
tend to have higher average billing rates than other services. A variety of
factors can affect employee utilization rates, including growth in the size
of staff and changes in the number, size and duration of projects in any
period. Any reduction in employee utilization rates could cause gross margin
to decline as a percentage of revenue.
Selling, General and Administrative Expenses
Selling expenses consist of salaries, bonuses, commissions, and benefits for
our sales and marketing staff as well as other marketing and advertising
expenses. General and administrative costs consist of salaries, bonuses and
related employee benefits for executive, senior management, finance,
recruiting and administrative employees, training, travel and other corporate
costs. General and administrative costs also include a proportionate share of
facilities costs including depreciation, and computer and office equipment
operating leases, based on the ratio of non-billable to total employees.
These costs increased $3.5 million, or 51%, to $10.4 million for the
three-month period ended September 30, 1999 from $6.9 million for the
three-month period ended September 30, 1998. These costs increased $7.6
million, or 40%, to $26.5 million for the nine-month period ended September
30, 1999 from $18.9 million for the nine-month period ended September 30,
1998. This increase was due primarily to expenses associated with an
expansion of facilities and incursion of related expenses to support our
growth. The increase was also attributable to an increase in the number of
administrative personnel to service the larger number of billable
professionals on staff. The increase is further attributable to a $1.2
million charge taken in the nine months ended September 30, 1999 for the
value of warrants granted to United Air Lines, Inc. under the terms of a
strategic relationship agreement we entered into with them in September,
1999. As a percentage of revenue, selling, general and administrative
expenses decreased from 52% to 39% for the three-month period ended September
30, 1999, as compared to the three-month period ended September 30, 1998, and
from 50%
<PAGE>
to 39% for the nine-month period ended September 30, 1999, as compared to the
nine-month period ended September 30, 1998. This decrease as a percentage of
sales resulted from greater efficiency in our administrative departments.
Equity based compensation expense
Following the third quarter of 1998, the Company recorded equity based
compensation expenses related to 663,002 shares of common stock Luminant
issued during 1998 and the six months ended June 30, 1999 to management and
nonemployee directors at a nominal cost. The amount of this charge reflected
a fair value of $12.22 per share, which represented a 32% discount from the
initial offering price of $18.00 per share. In addition, equity based
compensation expense also includes the value of options issued to employees
of Align, the accounting acquirer.
Intangibles Amortization
As a result of the purchase of our Acquired Businesses, we recorded
approximately $301.0 million of goodwill and other intangibles. These amounts
as well as goodwill resulting from certain historical acquisitions, are being
amortized over a period of three years. Accordingly, we have recorded pro
forma amortization expense of approximately $26.4 million per quarter in both
the 1999 and 1998 pro forma presentations.
RESULTS OF OPERATIONS - HISTORICAL
The Company conducted no significant operations between August 21, 1998
(inception) and September 21, 1999 other than organizational activities and
activities relating to the Offering and the acquisition of the Acquired
Businesses. The Company incurred costs of approximately $4 million for
various legal, accounting, printing and other costs in connection with the
Offering and the acquisition of the Acquired Businesses.
The Offering and the acquisition of the Acquired Businesses closed on
September 21, 1999. For financial reporting purposes, the acquisition of the
Acquired Businesses, other than Align as the accounting acquirer, has been
accounted for under the purchase method of accounting from September 21,
1999. Activity that occurred between September 21, 1999 and September 30,
1999 was not material to the results of operations for the quarter. For a
discussion of pro forma operations for the three months ended September 30,
1998 and 1999, see "Results of Operations - Pro Forma Combined."
LIQUIDITY AND CAPITAL RESOURCES
We raised $85.9 million from the issuance of 4,665,000 shares of common stock
in our initial public offering and the simultaneous sale of 835,000 shares of
non-voting common stock to Young & Rubicam, Inc. on September 21, 1999, and
the subsequent sale of an additional 278,986 shares of Common Stock upon
exercise of the underwriters' over-allotment option, net of underwriting
discounts, commissions and the expenses of the Offering and of the
acquisitions of the Acquired Businesses. We have used and are using a portion
of the net proceeds to pay the purchase prices for the Acquired Businesses
and for general corporate purposes, including working capital expenditures. A
portion of the proceeds may also be used for the acquisition of additional
businesses and payment of contingent consideration to the former owners of
the Acquired Businesses. Pending such uses, we have invested the net proceeds
of the Offering in investment grade, interest-bearing securities.
As of September 30, 1999, we had $29.3 million in cash, cash equivalents and
short-term investments. Net cash provided by operations for the nine
months ended September 30, 1999 was $3.1 million as compared to net cash used
in operations of $.2 million for the nine months ended September 30, 1998.
Net cash used in investing activities amounted to $34.5 million during the
nine months ended September 30, 1999, representing primarily the payment of
the cash portion of the purchase prices for the Acquired Businesses, net of
cash acquired.
Net cash provided by financing activities amounted to $60.8 million for the
nine months ended September 30, 1999, primarily representing $85.9 million in
net proceeds of the Offering offset by the underwriting discounts and
commissions and expenses of the Offering and the related acquisition of the
Acquired Businesses also offset by $2.0 million in costs of acquiring the
Acquired Businesses.
<PAGE>
Our capital expenditures for the nine months ended September 30, 1999 were
approximately $1.2 million. Historically, capital expenditures have been used
primarily for computer and software purchases. We expect that capital
expenditures will continue to increase to the extent we continue to increase our
headcount or expand our operations.
We may be required to make contingent payments through June 30, 2002 to some
of the former equity holders of the Acquired Businesses. The amount of these
payments depends upon the financial performance of each of our operating
companies and of Luminant as a whole, and for certain former equity holders,
upon the amount of certain types of revenue we receive from a particular
client. We have the discretion to pay anywhere from 0% to 50% of the
contingent consideration in cash, with the balance to be paid in stock. The
maximum aggregate amount of the cash portion of these contingent payments,
assuming all targets are fully achieved and the minimum amount of 50% of the
contingent payment is paid in stock, would be approximately $214.3 million.
Prior to the initial filing of the Registration Statement, we entered into
agreements to acquire the Acquired Businesses. On or about September 2, 1999,
we amended the acquisition agreements to change what the former owners of the
Acquired Businesses would receive. It is possible that the former owners of
the Acquired Businesses who received common stock as part of the acquisition
may allege that the offering and sale of the shares of common stock to them
should be integrated with the offering and sale of the common stock to the
public in connection with our initial public offering, and that the offering
and sale of shares to the former owners of the Acquired Businesses was not
made in accordance with the requirements of Section 5 of the Securities Act
of 1933. Generally, the statute of limitations for this type of claim is one
year after the date of the alleged violation and, if successful, would
entitle the owners to rescind the issuance of the shares to them and demand a
return to them of the shares of the applicable Acquired Business or make a
monetary claim for the value of those shares. This claim could be made for
all of the 16,602,462 shares of voting and non-voting common stock received
by the owners of the Acquired Businesses as consideration, which represents a
total potential claim of $298.8 million. We believe that the offer and sale
of common stock to the former owners of the Acquired Businesses should not be
integrated with the offer and sale of the common stock to the public in
connection with our initial public offering and qualifies for a private
placement exemption. We also believe that the agreement by the former owners
of the Acquired Businesses to release and not to pursue any rescission or
other claims and to recontribute proceeds from any rescission or other claims
should be enforceable and not in violation of Section 14 because the former
owners entered into the agreement with knowledge of the existence of their
potential rescission and other claims after those potential claims had
matured by virtue of their execution of the amended acquisition agreement. We
cannot assure you, however, that the former owners of the Acquired Businesses
would fail in arguing that the offering of shares of common stock to them
should be integrated with the initial public offering or that their
agreements to forego any rescission or other claims and to recontribute the
proceeds of any rescission or other claims to us will be enforceable under
applicable law. We intend to vigorously defend any rescission or other claim
by the owners of the eight companies.
We are currently engaged in negotiations with Wells Fargo Bank to obtain a
senior credit facility. If a senior credit facility is obtained, we expect to
use it for working capital and general corporate purposes. There can be no
assurance that we will be able to obtain a credit facility on advantageous
terms, if at all.
We intend to pursue acquisition opportunities. The timing, size or success of
any acquisition and the associated potential capital expenditures and
commitments are unpredictable. We believe that cash flow from operations,
borrowings under the proposed credit facility and the unallocated net
proceeds of the Offering will be sufficient to fund our capital requirements
for at least the next 12 months, excluding potential acquisitions. To the
extent that we are successful in closing acquisitions, it may be necessary to
finance the acquisitions through the issuance of additional equity
securities, incurrence of indebtedness, or both. In addition, we cannot
assure you that our working capital needs will not exceed anticipated levels
or working capital generated will be sufficient to fund our operations. As a
result, we may be required to obtain additional financing from bank
borrowings or debt or equity offerings.
YEAR 2000 READINESS DISCLOSURE STATEMENT
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. As a result, date-sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices or engage in similar business activities.
In connection with the acquisitions of the Acquired Businesses, we received a
representation from the former owners of each Acquired Business that their
company does not face material unresolved Year 2000 issues. To the extent
these representations are breached and we suffer damages, our operating
results and financial condition may be adversely affected. Additionally, many
of our companies have contacted their major clients and vendors to assess
their Year 2000 readiness.
We depend on smooth and timely interactions with our vendors, clients and other
third parties. Any unexpected costs or disruption in the operations or
activities of such vendors, clients or other third parties as a result of Year
2000 compliance issues within such entities could materially adversely affect
our business, operating results or financial condition. As part of our plan to
integrate the back-office functions of the Acquired Businesses, we are
implementing uniform internal information systems, such as general ledger,
billing, accounts payable and knowledge management throughout our organization.
Although we have received assurances from our vendors that these systems are
Year 2000 compliant, our internal systems may experience operational
difficulties because of undetected errors or defects in the technology used.
We intend to continue identifying Year 2000 problems related to our clients and
vendors and to formulate a system of working with key third parties to
understand their ability to continue providing services and products through the
change to Year 2000. We intend to work directly with our key vendors, including
financial institutions and utility providers, and partner with them if
necessary, to avoid any business interruptions.
We believe the most likely worst case scenario related to Year 2000 risks is a
material business interruption that leads to client dissatisfaction and the
termination of an engagement or engagements by dissatisfied clients. Such an
interruption in services could occur due to a breakdown in any number of our
computer systems and applications on other systems, or the systems of third
parties. Examples are failures in our application software, computer chips
embedded in equipment, supply of materials from our suppliers, or lack of
adequate telecommunications, power, or other utilities. Any such failure could
prevent us from being able to deliver our services as expected, which could
materially adversely affect our business, operating results and financial
condition.
Based upon the representations made and information supplied by the former
owners of the Acquired Companies, we do not anticipate costs associated with the
Year 2000 issue to have a material adverse financial impact on us. However, as
we continue to implement our Year 2000 compliance program, our cost estimates
may need to be significantly revised, which could have a material adverse effect
on our business. There may be interruptions or other limitations of financial
and operating systems' functionality, and we may incur additional costs to avoid
these interruptions or limitations. Our expectations about future costs
associated with the Year 2000 issue are limited by uncertainties that could
cause actual results to have a greater financial impact than currently
anticipated. Factors that could influence the amount and timing of future costs
include:
- - our success in identifying systems and programs that contain two-digit
year codes;
- - the nature and amount of programming required to upgrade or replace
each of the affected programs;
- - the rate and magnitude of related labor and consulting costs; and
- - our success in addressing Year 2000 issues with our clients, vendors
and other third parties with which we do business.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have not purchased any futures contracts nor have we purchased or held any
derivative financial instruments for trading purposes during the nine months
ended September 30, 1999.
We currently have various lines of credit with aggregate maximum borrowings
totaling less than $4.8 million. Our borrowings under these lines of credit are
subject to the risk that interest rates may increase. For example, a 10 percent
increase in the prime rate (a benchmark pursuant to which interest rates
applicable to borrowings under the credit facilities may be set) would have
increased our pro forma consolidated interest by $8,000 for the quarter ended
September 30, 1999 and $24,000 for the nine months ended September 30, 1999. We
have not entered into any interest rate swaps or other hedging arrangements with
respect to the interest obligations under these lines of credit.
<PAGE>
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Unregistered Sales of Securities
The following sets forth information as to all equity securities sold by us
during the period covered by this report that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
On September 21, 1999, we issued an aggregate of 16,562,215
shares of common stock and 40,247 shares of non-voting common stock to
certain former owners of the Acquired Businesses as part of the consideration
for their respective interests in the Acquired Businesses. An indeterminate
number of shares of common stock may be issued to these former owners in
payment of contingent consideration, if earned. An exemption is claimed under
Rule 506 of Regulation D promulgated under the Securities Act.
On September 21, 1999, we issued 835,000 shares of non-voting
common stock directly to Young & Rubicam, Inc. at the initial public offering
price of $18.00 per share. An exemption is claimed under Rule 506 of Regulation
D promulgated under the Securities Act.
On September 15, 1999, we issued options exercisable for an
aggregate of 2,202,511 shares of common stock under our 1999 Long-Term
Incentive Plan to former option holders of certain of the Acquired Businesses
to replace outstanding options of certain of the Acquired Businesses. We have
relied on no sale to grant those options.
On September 15, 1999, we granted options exercisable for a
total of 1,703,027 shares of common stock under our 1999 Long-Term Incentive
Plan to our directors, officers and employees and a former officer. On
September 15, 1999, we granted options exercisable for a total of 1,800,000
shares of common stock to Young & Rubicam outside of the 1999 Long-Term
Incentive Plan. An exemption for each grant is claimed under Section 4(2) of
the Securities Act.
On September 16, 1999, we granted to United Air Lines, Inc. a
warrant to purchase up to 300,000 shares of common stock at the initial public
offering price of $18.00 per share. An exemption is claimed under Rule 506 of
Regulation D promulgated under the Securities Act.
(d) Use of proceeds
On September 15, 1999, the Securities and Exchange Commission
declared our Registration Statement on Form S-1, filed with the Securities
and Exchange Commission on June 30, 1999, as amended (S.E.C. File No.
333-80161), effective. Our initial public offering commenced on September 16,
1999 and on September 21, 1999, we sold 4,665,000 shares of Company common
stock, par value $.01 per share, at an offering price of $18.00 per share for
an aggregate offering price of approximately $83.9 million. On October 13,
1999, the underwriters exercised their option to purchase, solely for the
purpose of covering over-allotments, an additional 278,986 shares of
<PAGE>
common stock from the Company and 420,764 shares of common stock from certain of
our selling stockholders, at an offering price of $18.00 per share for aggregate
offering prices of $5.0 million and $7.6 million, respectively. We closed the
sale of these over-allotment shares on October 21, 1999 and our initial public
offering then terminated. The managing underwriters for the offering were
Deutsche Bank Securities, Inc., Hambrecht & Quist LLC and SoundView Technology
Group, Inc. In our initial public offering, we registered and sold an aggregate
of 4,943,986 shares of common stock for the account of the Company and 420,764
shares of common stock for the account of our selling stockholders.
We realized gross proceeds of approximately $89.0 from the sale of
shares in the offering (including the over-allotment shares). We did not
receive any proceeds from the sale of shares by our selling stockholders. In
connection with the sale of shares in the offering (including the
over-allotment shares), we paid an aggregate amount of $6.8 million in
discounts and commissions to the underwriters. In addition, the following
table sets forth a reasonable estimate of the other expenses incurred in
connection with the offering and the sale of shares of non-voting common
stock to Young & Rubicam, through September 30, 1999:
<TABLE>
<S> <C>
Registration fee under the Securities Act.............$52,820
Hart-Scott-Rodino Filing Fee...........................45,000
NASD filing fee........................................18,000
The Nasdaq National Market fees........................95,000
Legal fees and expenses.............................2,300,000
Accounting fees and expenses........................4,000,000
Printing and engraving expenses.....................1,775,000
Registrar and transfer agent fees......................50,000
Miscellaneous fees and expenses.......................650,000
</TABLE>
The expenses incurred in the offering include (a) a fee for legal services
which we paid to Wilmer, Cutler & Pickering, of which George P. Stamas, one
of our directors, is a partner; and (b) a fee of approximately $320,000 for
financial consulting services which we paid to ARC Group LLC, of which Thomas
G. Bevivino, our Vice President of Finance, is a member. Other than as set
forth above, no expenses incurred in the offering were paid directly or
indirectly to our directors or officers or their associates, or to persons
owning 10% or more of any class of our equity securities or to any of our
other affiliates. After deducting the underwriting discounts and commissions
and the estimated offering expenses described above as well as expenses of
$2.0 million related to the acquisition of the Acquired Businesses which have
been capitalized as goodwill, we received net proceeds of approximately $75.3
million from the sale of shares in the offering (including the over-allotment
shares).
From the effective date of our Registration Statement through
September 30, 1999, we applied the net offering proceeds as follows. We paid
approximately $3.9 million of the net proceeds to Commonwealth Principals II,
LLC, a former stockholder of the Company, to repay indebtedness which accrued
interest at the prime rate and was payable upon demand. We used approximately
$59.7 million of the net proceeds to pay the cash portion of the purchase
prices for the Acquired Companies. Of this $59.7 million, an aggregate of
approximately $5.6 million was paid to James Corey and an affiliate of James
Corey, and approximately $3.4 million was paid to Richard Scruggs. Mr. Corey
is the President of the Company and Mr. Scruggs is a Vice Chairman of the
Company, and Messrs.
<PAGE>
Corey and Scruggs are each former equity holders of certain of the Acquired
Businesses. Other than as set forth above, none of the net proceeds of the
offering were paid directly or indirectly to our directors or officers or their
associates, or to persons owning 10% or more of any class of our equity
securities or to any of our other affiliates. We are using the balance of the
net proceeds of the offering for general corporate purposes, including working
capital expenditures. Pending such application, we have invested the balance
of the net proceeds of the offering in investment-grade, interest-bearing
securities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits 3.6 through 10.31 are incorporated herein by
reference to the exhibit with the corresponding number filed as part of the
Company's Registration Statement on Form S-1 filed on June 8, 1999, as amended
by Amendment Nos. 1 through 8 thereto (S.E.C. File No. 333-80161):
<TABLE>
<S> <C>
3.6 Form of Amended and Restated Certificate of Incorporation of
the Registrant in effect upon closing of the offering made
under the Registration Statement, as amended from the Form of
Amended and Restated Certificate of Incorporation filed as
Exhibit 3.6 to Amendment No. 1 to the Registration Statement.
3.8 Form of Amended and Restated By-Laws of the Registrant in
effect upon closing of the offering made under the Registration
Statement
10.1 1999 Long-Term Incentive Plan, as amended from the form filed
as Exhibit 10.1 to Amendment No. 1 to the Registration
Statement.
10.3 Form of Transition Services Agreement by and among Clarant
Worldwide Corporation and Young & Rubicam Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.13 Form of Registration Rights Agreement by and among Luminant
Worldwide Corporation, Commonwealth Principals II, LLC and
Guillermo G. Marmol.
10.15 Employment Agreement of Derek Reisfield
10.16 Luminant Worldwide Corporation Senior Bonus Plan, as amended
from the form filed as Exhibit 10.17 to Amendment No. 1 to
the Registration Statement
10.17 Employment Agreement of Thomas G. Bevivino
10.19 Amendment to Agreement and Plan of Reorganization by and among
Luminant Worldwide Corporation, Align Solutions Acquisition
Corp., Align Solutions Corp. and the Stockholders named
therein, dated as of September 2, 1999.
10.20 Amendment to Agreement and Plan of Reorganization by and among
Luminant Worldwide Corporation, Free Range Media Acquisition
Corp., Free Range Media, Inc., John C. Dimmer, John B. Dimmer
and Andrew L. Fry, dated as of September 2, 1999.
10.21 Amendment to Agreement and Plan of Reorganization by and among
Luminant Worldwide Corporation, Icon Acquisition Corp.,
Integrated Consulting, Inc. (d/b/a i.con interactive), Calvin
W. Carter, Elliot W. Hawkes and David Todd McGee, dated as of
September 2, 1999.
10.22 Amendment to Agreement and Plan of Reorganization by and among
Luminant Worldwide Corporation, InterActive8 Acquisition
Corp., InterActive8, Inc. and the Stockholders named therein,
dated as of September 2, 1999.
10.23 Amendment to Agreement and Plan of Reorganization by and among
Luminant World Heilbrunn, Lynn J. Branigan and Norman L.
Dawley, dated as of September 3, 1999.
10.24 Amendment to Agreement and Plan of Reorganization by and among
Luminant Worldwide Corporation, Potomac Partners Acquisition
LLC, Potomac Partners Management Consulting, LLC and the
Members named therein, dated as of September 2, 1999.
10.25 Amendment to Agreement and Plan of Reorganization by and among
Luminant
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Worldwide Corporation, RSI I Acquisition Corp., RSI
Group, Inc., Resource Solutions International, LLC, Charles
Harrison, Carolyn Brown and Bruce Grant, dated as of September
2, 1999.
10.26 Amendment to Contribution Agreement by and between Luminant
Worldwide Corporation and Young & Rubicam Inc, dated as of
September 2, 1999.
10.27 Form of Release Agreement
10.28 Form of Recontribution Agreement
10.29 Form of Amendment to Employment Agreement of Guillermo G.
Marmol.
10.30 Form of Common Stock Purchase Warrant to be issued to United
Air Lines, Inc., as of 9 a.m., September 16, 1999.
10.31 Form of Registration Rights Agreement by and between Luminant
Worldwide Corporation and United Air Lines, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
LUMINANT WORLDWIDE CORPORATION
Date: November 15, 1999 By: /S/ GUILLERMO G. MARMOL
--------------------------------------
Guillermo G. Marmol
Chief Executive Officer and Director
Date: November 15, 1999 By: /S/ THOMAS G. BEVIVINO
--------------------------------------
Thomas G. Bevivino
Vice President of Finance
(principal accounting and chief financial
officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF LUMINANT WORLDWIDE CORPORATION AS
OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER
30, 1999 ADN 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998 SEP-30-1998
<CASH> 29,349 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 20,966 2,162 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 53,157 2,247 0
<PP&E> 4,457 776 0
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 369,385 3,067 0
<CURRENT-LIABILITIES> 24,161 1,442 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 239 46 0
<OTHER-SE> 340,366 1,423 0
<TOTAL-LIABILITY-AND-EQUITY> 369,385 3,067 0
<SALES> 0 0 0
<TOTAL-REVENUES> 22,012 0 5,896
<CGS> 0 0 0
<TOTAL-COSTS> 13,316 0 3,156
<OTHER-EXPENSES> 29,317 0 2,863
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 49 0 41
<INCOME-PRETAX> (20,670) 0 (164)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (20,670) 0 (164)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (20,670) 0 (164)
<EPS-BASIC> (3.62) 0 (0.03)
<EPS-DILUTED> (3.62) 0 (0.03)
</TABLE>
