<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 March 31,2000 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)
13737 NOEL ROAD, SUITE 1400, DALLAS, TEXAS 75240-7367
(Address of principal executive offices and zip code)
(972) 581-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of shares of common stock (including non-voting common stock)
outstanding at May 1, 2000: 26,386,888
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TABLE OF CONTENTS
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PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Organization and Basis of Presentation 2
Pro Forma Combined Statements of Operations:
Actual and Pro Forma Combined Statements of Operations for the three
months ended March 31, 2000 and 1999 (unaudited) 4
Historical Financial Statements:
Consolidated Balance Sheets, March 31, 2000 and December 31, 1999
(unaudited) 5
Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999 (unaudited) 6
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRO FORMA COMBINED FINANCIAL INFORMATION
ORGANIZATION AND BASIS OF PRESENTATION
Luminant Worldwide Corporation, a Delaware corporation, was formed in
August 1998 for the purpose of acquiring existing Internet and electronic
commerce professional services businesses providing a wide range of interactive
services throughout the United States. Prior to September 1999, Luminant did not
conduct any material operations. On September 21, 1999, we closed our initial
public offering of 4,665,000 shares of common stock and the direct sale of
835,000 shares of non-voting common stock to Young & Rubicam, at a price of
$18.00 per share. On October 19, 1999, we issued 278,986 additional shares of
common stock in connection with the exercise of the underwriters' over-allotment
option, at a price of $18.00 per share.
Simultaneously with our initial public offering and sale of shares to Young
& Rubicam, we closed the acquisition of the following eight Internet and
electronic commerce professional services businesses (we may refer to these
eight businesses in this Quarterly Report on Form 10-Q as the "eight companies",
the "eight businesses", or the "Acquired Businesses"):
- Align Solutions Corp.;
- Brand Dialogue-New York, the New York branch of a division of Young &
Rubicam, Inc.;
- Free Range Media, Inc.;
- Integrated Consulting, Inc. (d/b/a/ i.con interactive);
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- InterActive8, Inc.;
- Multimedia Resources, LLC;
- Potomac Partners Management Consulting, LLC; and
- RSI Group, Inc. and subsidiaries.
For financial statement presentation purposes, (i) Align Solutions Corp.,
one of the Acquired Businesses, is presented as the acquirer of the other
Acquired Businesses and Luminant, (ii) these acquisitions are accounted for in
accordance with the purchase method of accounting, and (iii) 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 actual and pro forma combined statements of
operations for the three months ended March 31, 2000 and 1999, 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 share;
- issuance and sale of 835,000 shares of non-voting common stock to
Young & Rubicam at $18.00 per share;
- issuance of 1,676,039 shares in payment of contingent consideration
issued under the terms of the acquisition agreements;
- acquisition of the eight Acquired Businesses and its payment of the
purchase prices for those businesses; and
The pro forma combined statement of operations for the three months ended
March 31,1999 also reflects pro forma adjustments for:
- amortization of goodwill resulting from the acquisitions of the
Acquired Businesses;
- reversal of the Acquired Businesses' income tax provision, as Luminant
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 and equity-related compensation charges related to equity
appreciation rights; and
- adjustments to increase expenses related to budgeted compensation for
additional corporate management, board of directors' expenses, other
administrative expenses, and other additional expenses of being a
public entity.
The pro forma combined results of operations of the Acquired Businesses
for the three months ended March 31,1999 do not represent combined results of
operations presented in accordance with generally accepted accounting
principles. They are only a summation of the revenues, cost of services and
selling, general and administrative expenses of the individual Acquired
Businesses on a pro forma basis. The pro forma combined results may not be
comparable to, and may not be indicative of, Luminant's post-combination
results of operations. The discussion of the pro forma combined results of
operations should be read in conjunction with our financial statements and
related "Notes to the Consolidated Financial Statements" appearing in "Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this Quarterly Report on
Form 10-Q.
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LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
ACTUAL AND PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
(ACTUAL) (PRO FORMA)
-------- -----------
2000 1999
---- ----
<S> <C> <C>
Revenues $ 33,605 $ 18,414
Cost of services 17,855 10,885
-------- --------
Gross margins 15,750 7,529
Selling, general and administrative expenses 13,970 7,753
Equity-related & non-cash compensation expense 748 6,023
Intangibles amortization 30,779 30,387
-------- --------
Loss from operations (29,747) (36,634)
Interest income (expense), net 101 (128)
Other expense, net --- (17)
-------- --------
Loss before provision for income taxes (29,646) (36,779)
Provision for income taxes --- ---
-------- --------
Net loss $(29,646) $(36,779)
======== ========
Net loss per share:
Basic & diluted $ (1.19) $ (1.54)
======== ========
Weighted average shares outstanding 24,963 23,934
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE PRO FORMA COMBINED FINANCIAL STATEMENTS.
LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO ACTUAL AND PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The following table summarizes the number of shares of common stock used in
calculating pro forma net loss per share:
SHARES USED IN COMPUTING PRO FORMA NET LOSS PER SHARE
(In thousands; Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------
(ACTUAL) (PRO FORMA)
-------- -----------
2000 1999
---- ----
<S> <C> <C>
Shares issued:
To owners of the Acquired businesses 16,602 16,602
To initial stockholders and certain management personnel
of Luminant 1,832 1,832
In the IPO together with Young & Rubicam's direct
purchase of shares 5,500 5,500
For contingent consideration 314 ---
Under underwriters' over-allotment option 279 ---
For option exercises 436 ---
------ ------
Total 24,963 23,934
====== ======
</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
anti-dilutive.
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LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts; Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,436 $ 30,508
Accounts receivable, net of allowance of $2,034 and
$1,609 24,718 20,524
Unbilled revenues 3,363 3,185
Related party, employee and other receivables 8,201 3,216
Prepaid expenses and other assets 559 1,432
--------- ---------
Total current assets 46,277 58,865
Property and equipment, net 10,758 6,193
Other assets:
Goodwill and other intangibles, net of accumulated
amortization of $62,571 and $31,792 302,246 332,679
Other assets 461 430
--------- ---------
Total assets $ 359,742 $ 398,167
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including cash overdraft of $380
in 1999 2,811 9,447
Contingent consideration 170 45,006
Customer deposits 821 2,415
Accrued liabilities 10,691 11,167
Notes payable 5,135 6,013
Current maturities of long-term debt 735 497
--------- ---------
Total current liabilities 20,363 74,545
Long-term liabilities:
Long-term debt, net of current maturities 917 1,531
--------- ---------
Total liabilities 21,280 76,076
Stockholders' equity:
Common stock 264 246
Additional paid-in capital 438,822 390,645
Retained deficit (100,624) (68,800)
--------- ---------
Total stockholders' equity 338,462 322,091
--------- ---------
Total liabilities and stockholders' equity $ 359,742 $ 398,167
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
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LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
Revenues $ 33,605 $ 4,341
Cost of services 17,855 2,226
-------- --------
Gross margins 15,750 2,115
Selling, general and administrative expenses 13,970 1,788
Equity-related & non-cash compensation expense 748 3,248
Intangibles amortization 30,779 397
-------- --------
Loss from operations (29,747) (3,318)
Interest expense, net 101 (13)
-------- --------
Loss before provision for income taxes (29,646) (3,331)
Provision for income taxes --- ---
-------- --------
Net loss $(29,646) $ (3,331)
======== ========
Net loss per share:
Basic & diluted $ (1.19) $ (0.82)
======== ========
Weighted average shares outstanding 24,963 4,086
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
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LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Net loss $(29,646) $(3,331)
Equity related and non-cash compensation expenses 748 3,248
Expenses related to warrants issued to a customer 42 ---
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 31,591 507
Non-cash interest expense 81 ---
Loss on disposition of assets 1 ---
Changes in assets and liabilities, excluding effects of acquisitions:
Accounts receivable (4,194) 142
Unbilled revenues (178) (609)
Related party and other receivables (4,985) ---
Prepaid expenses and other current assets 873 10
Other non-current assets (31) (125)
Accounts payable (6,636) 333
Customer deposits (1,594) ---
Accrued liabilities (588) (409)
-------- -------
Net cash used in operating activities (14,516) (234)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (5,379) (174)
Payments for acquisitions accounted for as purchases (176) (35)
-------- -------
Net cash used in investing activities (5,555) (209)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable --- 40
Repayments of notes payable (640) (18)
Repayments of long-term debt (624) 630
Proceeds from issuances of common stock:
Options exercised 263 ---
-------- -------
Net cash (used in) provided by financing activities (1,001) 652
-------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (21,072) 209
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 30,508 ---
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,436 $ 209
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 93 $ 13
======== =======
NONCASH INVESTING AND FINANCING ACTIVITY:
Extinquishment of contingent consideration through
issuance of common stock, including dividend to
Accounting Acquirer $ 47,184 $ ---
Dividend to Accounting Acquirer (2,178) ---
Additional contingent consideration payable
to former owners 170 ---
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
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LUMINANT WORLDWIDE CORPORATION AND SUBSIDIARIES
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 Global 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, (i) Align Solutions Corp.
("Align"), one of the Acquired Businesses, is presented as the acquirer of
the other Acquired Businesses and Luminant; (ii) these acquisitions are
accounted for in accordance with the purchase method of accounting; and (iii)
the effective date of these acquisitions is September 21, 1999. As used in
Item 1 of Part I, the term "Company" is used to describe (i) Align prior to
September 21, 1999, and (ii) 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.
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, 1999. For a description of these policies,
see Note 3 of Notes to Consolidated Financial Statements of Luminant
Worldwide Corporation and Subsidiaries in Luminant's December 31, 1999 Annual
Report on Form 10-K.
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:
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<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
Number of Shares issued:
To Align's owners 4,678 4,086
To owners of Acquired Businesses other than Align 11,924 -
To the initial stockholders and certain management
personnel of Luminant 1,832 -
In the IPO, together with Young & Rubicam's direct purchase
of shares 5,500 -
In the exercise of underwriters' over-allotment option 279 -
In contingent consideration to former shareholders of
Acquired Businesses 314 -
Exercise of options granted to former option holders of
Acquired Business and employee incentives 436 -
------ -----
Number of shares used in calculating basic and diluted net
(loss) per share 24,963 4,086
====== =====
</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
anti-dilutive.
4. AGREEMENT WITH UNITED AIR LINES, INC.
The Company has entered into an agreement with United Air Lines, Inc.
("United") under which it has 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 the Company. Under this
agreement, the Company has issued to United a warrant to purchase up to 300,000
shares of our common stock at an exercise price of $18.00 per share. 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 the Company receives from United up to $50 million of
revenue. Selling, general and administrative expenses for the three months ended
March 31, 2000 include a charge of approximately $42,000 related to the fair
market value of shares underlying the portion of the warrant earned during the
period.
5. SEGMENT REPORTING
Statement of Financial Accounting Standards ("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 operated as one segment and all
operations and long-lived assets were in the United States.
6. SUBSEQUENT EVENT
In March 2000, we entered into a revolving credit agreement with Wells
Fargo Business Credit, Inc. for a senior secured credit facility. The initial
term of the credit agreement extends until March 31, 2003 and is renewable for
successive one year terms thereafter. Borrowings under this credit agreement
accrue interest at a rate of, at our option, either (1) the prime rate of Wells
Fargo Bank, N.A.-San Francisco, or (2) the rate at which U.S. Dollar deposits
are offered to major banks in the London interbank Eurodollar market (as
adjusted to satisfy the reserve requirements of the Federal Reserve System) plus
250 basis points. If we generate
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operating cash flow of at least $14.0 million for the fiscal year ended
December 31, 2000, the available interest rates described in the preceding
sentence will be reduced to (1) the prime rate of Wells Fargo Bank N.A. minus
25 basis points, and (2) the rate at which U.S. Dollar deposits are offered
to the major banks in the London interbank Eurodollar market (as adjusted to
satisfy the reserve requirements of the Federal Reserve System) plus 225
basis points, respectively. The credit agreement also contains
representations, warranties, covenants and other terms and conditions typical
of credit facilities of such size, including financial covenants and
restrictions on certain acquisitions. Among other financial covenants, the
credit agreement requires us to maintain liquid assets of at least $15
million and unrestricted cash of at least $10 million at all times. Under the
terms of the credit facility, we are required to use net proceeds of any
borrowing under the credit agreement to repay existing debt and for working
capital purposes. Subsequent to March 31, 2000, we borrowed $2.5 million
under this revolving credit agreement and used the proceeds, combined with
other operating cash flows, to retire $2.7 million of other outstanding
secured indebtedness.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis compares the three-month period ended
March 31, 2000 to the corresponding period ended March 31, 1999 for Luminant
Worldwide Corporation and its subsidiaries (in Items 2 and 3 of Part I and in
Part II we will refer to Luminant Worldwide Corporation and its subsidiaries as
"Luminant," the "Company," "we," "us" and "our"). The following discussion
should be read 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 Annual Report on Form 10-K filed with the Securities and
Exchange Commission (the "SEC")for the year ended December 31, 1999.
This discussion contains or incorporates both historical and
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievement expressed or implied by
such forward-looking statements. These forward-looking statements relate to
future events and/or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions. Moreover, neither
we nor any other person assume responsibility for the accuracy and completeness
of such statements. We are under no duty to update any of the forward-looking
statements after the date of this Quarterly Report on Form 10-Q to conform such
statements to actual results and do not intend to do so.
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 Quarterly Report on Form 10-Q have been restated to reflect
this stock split.
Luminant Worldwide Corporation, a Delaware corporation, was founded in
August 1998 to create a single-source Internet service company providing
electronic commerce professional services to Global 1000 companies, Internet
based companies and other organizations. Prior to September 1999, it did not
conduct any material operations. 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 the Acquired
Businesses. On October 19, 1999, our underwriters exercised their over-allotment
option resulting in the issuance of an additional 278,986 shares of Luminant's
common stock. One of the Acquired Businesses, Align Solutions Corp., 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
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electronic commerce industries are in the early stage of development and are
continuing to evolve rapidly, the recorded goodwill from the acquisitions is
being amortized on a straight line basis over three years, the estimated period
of benefit. In addition, the pro forma combined financial information 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 of $18.00 per share, our
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
250,000 remaining available 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 for the three months ended March 31, 2000
include a charge of $42,000 related to the estimated fair market value of
shares underlying the portion of this warrant earned during this period.
Under the terms of the acquisition agreements by which we acquired the
Acquired Businesses, we issued in March 2000 approximately $47.2 million in
contingent consideration to the former owners of five of the eight companies
as a result of the operations of the individual Acquired Businesses during
the period from July 1, 1999 through December 31, 1999, including $.055
million in cash and 1,661,392 shares of common stock. 558,032 of the
1,661,392 shares issued as contingent consideration are being held by and
escrow agent pending agreement between us and a former owner of one of the
eight companies regarding the amount of contingent consideration payable
under the terms of the acquisition agreement. Of the $47.2 million paid in
contingent consideration, $45.0 million is being amortized over the remaining
term of the goodwill resulting from the purchase of the Acquired Businesses.
The $2.2 million remainder represents contingent consideration paid to the
former stockholders of Align, the accounting acquirer. The former owners of
the Acquired Businesses are also eligible to receive additional contingent
consideration based on Luminant's combined operating results during the
period from January 1, 2000 through June 30, 2000.
In addition, certain former owners of one of the Acquired Businesses are
eligible to receive additional contingent consideration based on revenues
derived from a particular client from contracts we enter into with that
client between July 1, 1999 and June 30, 2002. During the period from July 1,
1999 through December 31, 1999, the amount earned by these former owners
resulting from the aforementioned revenues totaled approximately $170,000. On
May 10, 2000, we issued 14,645 shares in payment of this contingent
consideration, which shares are being held in escrow prior to distribution to
the respective shareholders.
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
actual 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 time and materials 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 professionals 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. To a lesser extent, we also provide services on a
fixed price-fixed time frame 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
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
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economic conditions. In addition, revenue from a large customer or project
may constitute a significant portion of our total revenue in a particular
quarter. In the future, we anticipate that the general size of our individual
client projects will grow and that a larger portion of total revenues in any
given period may be derived from our largest customers.
Our cost of services is comprised primarily of salaries, employee benefits
and incentive compensation of billable 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 facilities costs including
depreciation, and computer and office equipment operating leases.
RESULTS OF OPERATIONS - ACTUAL AND PRO FORMA COMBINED
The pro forma financial statements herein 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
Luminant 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 and equity-related
compensation charges related to equity appreciation rights,
and
- adjustments to increase expenses related to budgeted
compensation for additional corporate management, board of
directors' expenses, other administrative expenses, and other
additional expenses of being a public entity.
The pro forma combined results of operations of the Acquired Businesses for
the period presented do not represent combined results of operations presented
in accordance with generally accepted accounting principles. They are only a
summary of revenues, cost of services and selling, general and administrative
expenses of the individual Acquired Businesses on a pro forma basis. The pro
forma combined results may not be comparable to, and may not be indicative of,
Luminant's post-combination results of operations. The discussion of the pro
forma combined results of operations should be read in conjunction with our
financial statements and related "Notes to Consolidated Financial Statements"
appearing in Item 1. "Financial Statements" of this Quarterly Report on Form
10-Q.
The following table sets forth for us on an actual a pro forma combined
basis selected statement of operations information as a percentage of
revenues for the periods indicated.
PAGE 12
<PAGE>
<TABLE>
<CAPTION>
ACTUAL AND PRO FORMA RESULTS
FOR
THE THREE MONTHS
ENDED MARCH 31,
-----------------------------
(ACTUAL) (PRO FORMA)
-------- -----------
2000 1999
---- ----
<S> <C> <C>
Revenues $ 33,605 $ 18,414
Cost of services 17,855 10,885
-------- --------
Gross margins 15,750 7,529
Selling, general and administrative expenses 13,970 7,753
Equity-related & non-cash compensation expense 748 6,023
Intangibles amortization 30,779 30,387
-------- --------
Loss from operations $(29,747) $(36,634)
======== ========
</TABLE>
REVENUES
For the three-month period ended March 31, 2000, revenue increased $15.2
million, or 83%, to $33.6 million from $18.4 million for the three-month period
ended March 31, 1999. This increase in revenue is primarily the result of an
increase in the size and number of client engagements. This increase is also due
to some extent to the continuing implementation of higher company-wide billing
rates which began late in the fourth quarter of 1999.
COST OF SERVICES
Cost of services consists primarily of salaries, associated employee
benefits and incentive compensation for personnel directly assigned to client
projects. Total cost of services increased $7.0 million, or 64%, to $17.9
million for the three-month period ended March 31, 2000 from $10.9 million for
the three-month period ended March 31, 1999. These increases were due primarily
to an increase of approximately 224 additional billable professionals needed to
service anticipated demand for our services.
GROSS MARGIN
Gross margin increased $8.2 million, or 109%, to $15.8 million for the
three month period ended March 31, 2000 from $7.5 million for the three-month
period ended March 31, 1999. The gross margin increase reflects an increase
in revenue during the three-month period ended March 31, 2000 compared to the
three-month period ended March 31, 1999. As a percentage of revenue, gross
margin improved from 41% for the three-month period ended March 31, 1999 to
47% for the three-month period ended March 31, 2000. The percentage increase
primarily resulted from general increases in billing rates and an increased
portion of business revenues derived from high margin consulting projects
which generally do not result in a commensurate increase in direct costs. The
margin improvement was offset to some extent by increases in direct headcount
expenses, including addition of personnel at competitive market salaries and
wage adjustments to existing personnel.
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 facilities costs, depreciation,
and computer and office equipment operating leases. Selling, general and
administrative costs increased $6.2 million, or 80%, from $7.8 million for the
three month period ended March 31, 1999, to $14.0 million for the three-month
period ended March 31, 2000. This increase was due primarily to expenses
associated with integration-related costs and expansion of facilities to support
our growth, including insurance, utilities and depreciation of leasehold
improvements, furniture, and additional computer hardware and software. The
increase was also attributable to an increase in the number of administrative
personnel to service the larger number of billable professionals on staff.
Lastly, the increase was also partially due to significantly increased spending
for sales and marketing efforts.
As a percentage of revenue, selling, general and administrative expenses
remained constant at 42% for the three-month periods ended March 31, 1999 and
2000. We do not expect that selling, general and administrative expenses will
increase materially as a percentage of sales during the remainder of 2000.
- --------------------------------------------------------------------------------
PAGE 13
<PAGE>
EQUITY-RELATED AND NON-CASH COMPENSATION EXPENSE
For the three months ended March 31, 1999, the pro forma statement of
operations includes $6.0 million of equity-related compensation expenses for
the value of options granted at exercise prices below fair market value to
employees of Align and certain employees of businesses acquired by Align. As
all of these options continue to vest, non-cash equity-related expense
relating to these options will decline. For the quarter ended March 31, 2000,
the charge for these options is $0.7 million.
INTANGIBLES AMORTIZATION
As a result of the purchase of our Acquired Businesses, we recorded
approximately $303.6 million of goodwill. This amount, as well as goodwill
resulting from certain historical acquisitions by the Acquired Businesses, are
being amortized over a period of three years.
Under the terms of the acquisition agreements by which we acquired the
Acquired Businesses, we issued in March 2000 approximately $47.2 million in
contingent consideration to the former owners of five of the eight companies
as a result of the operations of the individual Acquired Businesses during
the period from July 1, 1999 through December 31, 1999, including $.055
million in cash and 1,661,392 shares of common stock. 558,032 of the
1,661,392 shares issued as contingent consideration are being held by and
escrow agent pending agreement between us and a former owner of one of the
eight companies regarding the amount of contingent consideration payable
under the terms of the acquisition agreement. Of the $47.2 million paid in
contingent consideration, $45.0 million is amortized over the remaining term
of the goodwill resulting from the purchase of the Acquired Businesses. The
$2.2 million remainder represents contingent consideration paid to the former
stockholders of Align, the accounting acquirer. The former owners of the
Acquired Businesses are eligible to receive additional contingent
consideration based on Luminant's combined operating results during the
period from January 1, 2000 through June 30, 2000.
In addition, certain former owners of one of the Acquired Businesses are
eligible to receive additional contingent consideration based on revenues
derived from a particular client from contracts we enter into with that
client between July 1, 1999 and June 30, 2002. During the period from July 1,
1999 through December 31, 1999, the amount earned by these former owners
resulting from the aforementioned revenues totaled approximately $170,000. On
May 10, 2000, we issued 14,645 shares in payment of this contingent
consideration, which are being held in escrow prior to distribution to the
respective shareholders.
In connection with the goodwill resulting from the acquisition of the
Acquired Businesses and subsequent valuation of contingent consideration, we
recorded amortization expense of approximately $30.4 and $30.8 in the pro forma
and actual statements of operations for the three month periods ended March 31,
1999 and 2000, respectively.
RESULTS OF OPERATIONS - HISTORICAL
For historical financial statement purposes, Align has been determined to
be the accounting acquirer. For the three months ended March 31, 1999, the
information relates to Align on a stand-alone basis. For the three months
ended March 31, 2000, the information relates to Luminant and its
subsidiaries on a consolidated basis and presents Align as the accounting
acquirer. Except as we note below, the addition of the operating results for
all of the Acquired Businesses beginning on September 21, 1999 principally
accounts for the changes in the 2000 periods from the 1999 periods. For a
discussion of pro forma operations for the year ended December 31, 1999, see
"Results of Operations - Actual and Pro Forma Combined."
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2000
REVENUES
Revenues increased $29.3 million, or 674%, from $4.3 million for the three
months ended March 31, 1999 to $33.6 million for the three months ended March
31, 2000.
- --------------------------------------------------------------------------------
PAGE 14
<PAGE>
GROSS MARGIN
Gross margin increased $13.6 million, or 645% from $2.1 million for the
three months ended March 31, 1999 to $15.8 million for the three months ended
March 31, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $12.2 million, or
681% from $1.8 million for the three months ended March 31, 1999 to $14.0
million for the three months ended March 31, 2000. As a percent of sales,
this expense category increased from 41% to 42% for the quarters ended March
31, 1999 and 2000, respectively.
EQUITY-RELATED & NON-CASH COMPENSATION EXPENSE
For the three months ended March 31, 1999, Align recorded $3.2 million
of equity-related compensation expenses for the value of options granted at
exercise prices below fair market value to employees of Align and certain
employees of businesses acquired by Align. As all of these options continue
to vest, non-cash equity-related expense relating to these options will
decline. For the quarter ended March 31, 2000, the charge for these options
is $0.7 million.
INTANGIBLES AMORTIZATION
During 1999, Align, the accounting acquirer, completed the acquisitions of
Synapse, Fifth Gear Media Corporation and inmedia, inc. Goodwill of
approximately $15.9 million was recorded in connection with these transactions.
As a result of the purchase of our Acquired Businesses, we recorded
approximately $303.6 million of goodwill. These amounts, as well as goodwill
resulting from certain historical acquisitions by the Acquired Businesses, are
being amortized over a period of three years.
Please see "Results of Operations--Actual and Pro Forma
Combined--Intangibles Amortization" for a discussion of additional
amortization related to contingent consideration paid pursuant to the terms
of the acquisition agreements by which we acquired the Acquired Businesses.
LIQUIDITY AND CAPITAL RESOURCES
Luminant Worldwide Corporation is a holding company that conducts its
operations through its subsidiaries. Accordingly, its principal sources of
liquidity are the cash flows of its subsidiaries, the unallocated net proceeds
of the Offering and cash available from Luminant's line of credit.
- --------------------------------------------------------------------------------
PAGE 15
<PAGE>
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 March 31, 2000, we had $9.4 million in cash, cash equivalents and
short-term investments. Net cash used by operations for the three months ended
March 31, 2000 was $14.5 million, as compared to net cash used in operations of
$0.2 million for the three months ended March 31, 1999.
The decrease in cash balances resulted from the fact that while we paid
salaries and other employment related costs for personnel on a current basis,
the amount of uncollected revenues earned by these personnel relating to
services performed for certain of our clients including Young & Rubicam
and certain of its clients, grew from December 31, 1999 to March 31, 2000.
Simultaneously, accounts payable decreased $6.6 million in the first quarter
of 2000, which decrease was primarily driven by acceleration in the
payment of vendors during the first quarter of 2000 due to greater
efficiencies resulting from the centralization of accounts payable functions.
Net cash used in investing activities amounted to $5.6 million during the
three months ended March 31, 2000, representing primarily capital expenditures
for leasehold improvements relating to new offices in New York, New York and in
Dallas, Texas, as well as installation of a integrated financial accounting
information technology system. Our capital expenditures for the three months
ended March 31, 2000 were approximately $5.4 million. This amount includes $3.8
million for the completion and occupation of our consolidated offices in New
York and in Dallas. Also, we incurred $0.3 million for implementation of an
integrated financial platform consolidating the financial reporting systems of
the Acquired Businesses. Historically, capital expenditures have been used
primarily for leasehold improvements, furniture, 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.
Net cash used by financing activities amounted to $1.0 million for the
three months ended March 31, 2000, primarily representing a reduction of our
outstanding borrowings under our lines of credit and other long-term debt,
partially offset by proceeds from the exercise of stock options under our
long-term incentive plan.
Under the terms of the acquisition agreements by which we acquired the
Acquired Businesses, 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 the
Acquired Businesses 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, although
under the credit agreement described below we have agreed not to pay more than
25% of the total contingent consideration in cash.
The maximum aggregate amount of the cash portion of these contingent
payments, assuming all targets are fully achieved and the minimum amount of 75%
of the contingent consideration is paid in stock, would be approximately $53.6
million. On March 14, 2000, we issued approximately $47.2 million in contingent
consideration to the former owners of five of the eight Acquired Businesses as a
result of the operations of the individual businesses during the period from
July 1, 1999 through December 31, 1999,
- --------------------------------------------------------------------------------
PAGE 16
<PAGE>
including $0.055 million in cash and 1,661,392 shares of common stock. 558,032
of the 1,661,392 shares issued as contingent consideration are being held by
an escrow agent pending agreement between us and a former owner of one of the
Acquired Businesses regarding the amount of contingent consideration payable
under the terms of the acquisition agreement. The former equity holders of
the Acquired Businesses are eligible to receive additional contingent
consideration based on Luminant's combined results during the period from
January 1, 2000 through June 30, 2000.
In addition, certain former owners of one of the Acquired Businesses are
eligible to receive additional contingent consideration based on revenues from
services performed for a particular client. We have the discretion to pay
anywhere from 0% to 50% of this contingent consideration in cash, with the
balance to be paid in stock. During the period from July 1, 1999 through
December 31, 1999, the amount earned by these former owners resulting from
services provided to this client totaled approximately $170,000. On May 10,
2000, we issued 14,645 shares in payment of this contingent consideration, which
shares are being held in escrow prior to the distribution to the respective
stockholders.
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 as consideration for their interests
in the Acquired Businesses. 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 18,278,501 shares of voting and non-voting common stock received
by the owners of the Acquired Businesses as consideration (including the
shares issued as contingent consideration in March 2000 and May 2000), which
represents a total potential claim of $346.2 million. We believe that the
offer and sale of common stock to the former owners of the Acquired
Businesses qualifies for a private placement exemption and should not be
integrated with the offer and sale of the common stock to the public in
connection with our initial public offering. 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 these agreements 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.
In March 2000, we entered into a $15 million revolving credit agreement
with Wells Fargo Business Credit, Inc. for a senior secured credit facility. The
initial term of the credit agreement extends until March 31, 2003 and is
renewable for successive one year terms thereafter. Borrowings under this credit
agreement accrue interest at a rate of, at our option, either (1) the prime rate
of Wells Fargo Bank, N.A.-San Francisco, or (2) the rate at which U.S. Dollar
deposits are offered to major banks in the London interbank Eurodollar market
(as adjusted to satisfy the reserve requirements of the Federal Reserve System)
plus 250 basis points. If we generate operating cash flow of at least $14.0
million for the fiscal year ended December 31, 2000, the available interest
rates described in the preceding sentence will be reduced to (1) the prime rate
of Wells Fargo Bank N.A. minus 25 basis points, and (2) the rate at which U.S.
Dollar deposits are offered to the major banks in the London Eurodollar market
(as adjusted to satisfy the reserve requirements of the Federal Reserve System)
plus 225 basis points, respectively.
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<PAGE>
The credit agreement also contains representations, warranties, covenants and
other terms and conditions typical of credit facilities of such size,
including financial covenants and restrictions on certain acquisitions. Among
other financial covenants, the credit agreement requires us to maintain
liquid assets of at least $15 million and unrestricted cash of at least $10
million at all times. Under the terms of the credit facility, we are required
to use net proceeds of any borrowing under the credit agreement to repay
existing debt and for working capital purposes. As of May 8, 2000, we had
total borrowings of $2.5 million outstanding under the facility, incurring
interest at 9% per annum.
As a result of the acquisitions of the Acquired Businesses, we assumed
current and long-term debt of $5.7 million and $3.7 million, respectively. Of
those amounts, $1.4 million current debt and $2.6 million long-term debt were
repaid from proceeds of our initial public offerings or from operations. As
of March 31, 2000, we had a total of $6.8 million in outstanding current and
long-term indebtedness (excluding obligations under our revolving credit
facility with Wells Fargo Business Credit, Inc.). The weighted average
interest rate on our obligations (excluding obligations under our revolving
credit facility with Wells Fargo Business Credit, Inc.) at March 31, 2000 was
9.2%.
Certain notes payable contain restrictive covenants, the most restrictive
of which requires us to maintain certain levels of eligible receivables as well
as financial ratios related to total debt, tangible net worth, and working
capital, among other restrictions. At March 31, 2000, we were in compliance
with, or had obtained waivers for, all debt covenants.
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 our revolving 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, creation of
new debt, 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.
Luminant has devoted substantial time and resources to integration. In
addition, as a result of the integration and combination of eight privately-held
businesses into a single, publicly-held business, we are incurring additional
costs and expenditures for corporate management and administration, corporate
expenses related to being a public company, systems integration and expansion of
facilities. These costs may make comparison of historical operating results not
comparable to, or indicative of, future performance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the potential change in an instrument's value caused by, for
example, fluctuations in interest and currency exchange rates. We have not
purchased any futures contracts nor have we purchased or held any derivative
financial instruments for trading purposes during the three months ended March
31, 2000. Our primary market risk exposure is the risk that interest rates on
our outstanding borrowings may increase.
We currently have various lines of credit and notes payable with
aggregate maximum borrowings totaling approximately $19.0 million. An
increase in the prime rate (a benchmark pursuant to which interest rates
applicable to borrowings under the credit facilities may be set) equal to 10%
of the prime rate, for example, would have increased our consolidated
interest on our outstanding borrowings by less than $15,000 for the quarter
ended March 31, 2000. Based on maximum borrowing levels under the Wells Fargo
line of credit, a 10% increase in the line of credit would increase annual
interest expense by approximately $0.2 million. We have not entered into any
interest rate swaps or other hedging arrangements with respect to the
interest obligations under these lines of credit.
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PAGE 18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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 January 26, 2000, Reagan McLemore exercised options to purchase 4,270
shares of our common stock at a price of $2.86 per share. In addition, on
January 28, February 11, and March 15, 2000, David Faulkner exercised options
to purchase 1,500, 300, and 600 shares of our common stock, respectively, at
a price of $2.86 per share. An exemption is claimed under Section 4(2) of the
Securities Act.
On March 14, 2000, we issued an aggregate of 1,661,392 shares of common
stock to certain former owners of the Acquired Businesses as contingent
consideration for their equity interests in the Acquired Businesses. The
number of shares issued as contingent consideration was based on the
operations of the individual Acquired Businesses during the period from July
1,1999 through December 31, 1999. 558,032 of the 1,661,392 shares issued as
contingent consideration are being held by an escrow agent pending agreement
between us and a former owner of one of the Acquired Businesses regarding the
amount of contingent consideration payable under the terms of the acquisition
agreement. An exemption is claimed under Rule 506 of Regulation D promulgated
under the Securities Act.
On May 10, 2000, we issued an aggregate of 14,645 shares of common stock
to the former owners of one of the Acquired Companies as payment of
additional contingent consideration for their equity interest in the Acquired
Company. The number of shares issued as contingent consideration was based on
revenues we derived from a particular client from contracts we entered into
with that client between July 1, 1999 and December 31, 1999. The shares are
being held in escrow prior to distribution to the respective shareholders. 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 8, 1999, as amended (S.E.C. File No. 333-80161),
effective. From the effective date of our Registration Statement through
March 31, 2000, we have applied the net offering proceeds from our initial
public offering as follows. We paid approximately $3.9 million of the net
proceeds to Commonwealth Principals II, LLC, a former stockholder of
Luminant, 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
Businesses, including the cash portion of the contingent consideration paid
in March 2000. Of this $59.7 million, an aggregate of approximately $5.6
million was paid to James Corey and an affiliate of James Corey,
approximately $3.4 million was paid to Richard Scruggs, and approximately
$.056 million was paid to Donald Perkins. Mr. Corey is the President, Chief
Operating Officer, and a director of Luminant, Mr. Scruggs is a Vice
Chairman, Executive Vice President and a director of Luminant, and Mr.
Perkins is a director of Luminant. Messrs. 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 executive 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.
- --------------------------------------------------------------------------------
PAGE 19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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: May 12, 2000 By: /S/ GUILLERMO G. MARMOL
--------------------------------------
Guillermo G. Marmol
Chief Executive Officer and Director
Date: May 12, 2000 By:/S/ THOMAS G. BEVIVINO
--------------------------------------
Thomas G. Bevivino
Chief Financial Officer & Secretary
(Principal Accounting and Chief Financial
Officer)
- --------------------------------------------------------------------------------
PAGE 20
<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 MARCH 31, 2000 AND DECEMBER 31, 1999 AND THE THREE MONTHS ENDED MARCH 31,
2000 AND 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999 JAN-01-1999
<PERIOD-END> MAR-31-2000 DEC-31-1999 MAR-31-1999
<CASH> 9,436 30,508 0
<SECURITIES> 0 0 0
<RECEIVABLES> 26,752 22,133 0
<ALLOWANCES> 2,034 1,609 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 46,277 58,865 0
<PP&E> 12,880 7,521 0
<DEPRECIATION> 2,122 1,328 0
<TOTAL-ASSETS> 359,742 398,167 0
<CURRENT-LIABILITIES> 20,363 74,545 0
<BONDS> 917 1,531 0
0 0 0
0 0 0
<COMMON> 264 246 0
<OTHER-SE> 338,198 321,845 0
<TOTAL-LIABILITY-AND-EQUITY> 359,742 398,167 0
<SALES> 33,605 0 4,341
<TOTAL-REVENUES> 33,605 0 4,341
<CGS> 17,855 0 2,226
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 45,497 0 5,433
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 101 0 (13)
<INCOME-PRETAX> (29,646) 0 (3,331)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (29,747) 0 (3,318)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (29,646) 0 (3,331)
<EPS-BASIC> (1.19) 0 (.82)
<EPS-DILUTED> (1.19) 0 (.82)
</TABLE>
