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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-28491
Xpedior Incorporated
(Exact name of Registrant as specified in its charter)
Delaware 76-0556713
(State of Incorporation) (I.R.S. Employer Identification Number)
One North Franklin, Suite 1500,
Chicago, Illinois 60606
(Address of Principal Executive Offices)
(Zip Code)
(800) 462-6301
(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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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As of May 15, 2000, the Company had 50,000,000 shares of Common Stock,
par value $.01 per share, outstanding.
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XPEDIOR INCORPORATED AND SUBSIDIARIES
FORM 10-Q
QUARTERLY REPORT
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Facing Sheet 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit 27 Financial Data Schedule 16
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,886 $ 49,718
Accounts receivable, net of allowance of $1,550 and $971 56,247 43,000
Work in process 3,571 3,295
Prepaid expenses and other 9,968 4,012
---------- ----------
Total current assets 73,672 100,025
Fixed Assets, net 21,097 15,496
Notes Receivable 1,926 --
Intangible Assets, net of accumulated amortization of $11,607 and $9,716 149,127 145,157
Other 1,587 787
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Total Assets $ 247,409 $ 261,465
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Amounts due to parent $ 15,494 $ 18,891
Accounts payable 4,119 3,517
Payroll and related taxes 7,428 5,045
Other accrued liabilities 8,047 3,908
Amounts due sellers of acquired businesses -- 19,836
Deferred revenues 3,807 2,480
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Total current liabilities 38,895 53,677
Deferred Income Taxes and Other 1,770 1,849
Convertible Subordinated notes 10,916 9,066
Commitments and Contingencies -- --
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized;
none outstanding -- --
Common stock, par value $.01; 100,000,000 shares authorized; 50,000,000
shares issued and outstanding 500 500
Additional paid-in capital 204,936 204,224
Accumulated deficit (9,234) (6,278)
Accumulated other comprehensive income 160 --
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196,362 198,446
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Less - note receivable from stockholder -- (1,000)
Less - deferred compensation (534) (573)
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Total stockholders' equity 195,828 196,873
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Total Liabilities and Stockholders' Equity $ 247,409 $ 261,465
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
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<S> <C> <C>
Revenues from Services $ 50,974 $ 27,769
Cost of Services 26,598 16,044
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Gross Profit 24,376 11,725
Operating Costs and Expenses:
Selling, general and administrative 26,923 7,334
Stock compensation 1,413 --
Depreciation and amortization 3,197 2,053
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31,533 9,387
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Operating Income (Loss) (7,157) 2,338
Other Income (Expense):
Interest expense (310) (1,756)
Other 3,202 (552)
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2,892 (2,308)
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Income (Loss) from Continuing Operations before
Income Taxes (4,265) 30
Provision (Benefit) for Income Taxes (1,309) 119
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Loss from Continuing Operations (2,956) (89)
Income from Discontinued Operations, net of income
taxes of $347 -- 479
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Net Income (Loss) $ (2,956) $ 390
========== ==========
Earnings (Loss) per Share (Basic and Diluted):
Loss from continuing operations $ (0.06) $ (0.00)
Income from discontinued operations -- 0.01
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Net income (loss) $ (0.06) $ 0.01
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (2,956) $ 390
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 3,197 2,053
Deferred income tax benefit (202) (473)
Provision for doubtful accounts 579 224
Gain on sale of securities (2,792) --
Stock compensation 1,413 --
Other (32) --
Changes in assets and liabilities net of effects of acquisitions:
Accounts receivable (10,797) (35)
Prepaid expenses and other (6,970) (447)
Accounts payable 602 (734)
Payroll and related taxes 2,384 (66)
Deferred revenue 1,327 698
Accrued liabilities 4,139 (1,812)
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Net cash used in operating activities (10,108) (202)
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Cash Flows from Investing Activities:
Cash paid for acquisitions, net of cash acquired (23,428)
Issuance of note receivable (1,926) --
Capital expenditures (6,890) (1,191)
Cash received from stockholder 1,000 --
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Net cash used in investing activities (31,064) (1,191)
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Cash Flows from Financing Activities:
Working capital advances from (payments to) Parent, net (3,996) 429
Payments of offering costs (664) --
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Net cash provided by (used in) financing activities (4,660) 429
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Net decrease in cash and cash equivalents (45,832) (964)
Cash and cash equivalents at beginning of period 49,718 191
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Cash and cash equivalents at end of period $ 3,886 $ (773)
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The consolidated financial statements of Xpedior Incorporated and its
wholly-owned subsidiaries ("Xpedior" or the "Company") included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. The consolidated financial
statements reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the interim periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements included in its Annual
Report on Form 10-K for the year ended December 31, 1999.
2. Income Taxes
The Company and its subsidiaries are included in the consolidated federal
income tax return of Metamor Worldwide, Inc. ("Metamor" or the "Parent"). Income
taxes for Xpedior have been calculated as if it had filed a separate
consolidated return with its subsidiaries.
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statement and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The Company's interim provisions for
income taxes were computed using its estimated effective tax rate for the year.
3. New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). The Company is required to adopt
FAS 133 effective January 1, 2001. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. The Company does
not anticipate that the adoption of this Statement will have a significant
effect on its results of operations or financial position.
In December of 1999, the SEC issued Staff Accounting Bulletin 101 ("SAB
101"), Revenue Recognition, which the Company is required to adopt in the second
quarter of 2000. SAB 101 clarifies how existing revenue recognition rules should
be applied. The Company is currently evaluating its revenue recognition policies
and the effect of adopting this Bulletin.
4. Amounts Due to Parent and Transactions with Parent
Amounts due to Parent consist of advances from Metamor for working capital
totaling $15.5 million and $18.9 million as of March 31, 2000 and December 31,
1999, respectively. Advances for working capital relate to net cash transfers
between Xpedior and Metamor, expense and tax allocations from Metamor and
interest on intercompany indebtedness with Metamor. For the three months ended
March 31, 2000 and 1999, Metamor charged $41,000 and $.6 million respectively
for expense allocations and $127,000 and $2.2 million respectively for interest.
This interest is charged at the incremental borrowing rate of Metamor's senior
credit agreement. Xpedior is currently working to obtain a separate credit
facility.
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XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Until this facility is obtained, Metamor has agreed to fund Xpedior's working
capital requirements.
5. Loss per Share
The following table sets forth the computation of basic and diluted loss
per share from continuing operations (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Numerator:
Net loss - numerator for basic and diluted loss per
share $ (2,956) $ (89)
========== ==========
Denominator:
Denominator for basic and diluted loss per share -
weighted-average shares 49,950 41,285
Effect of dilutive securities
Stock options -- --
Convertible notes -- --
---------- ----------
Total 49,950 41,285
========== ==========
Basic and diluted loss per share $ (.06) $ (.00)
========== ==========
</TABLE>
The convertible notes and outstanding options to purchase 10,681,300 shares
of common stock outstanding were not included in the computation of diluted
earnings per share because the assumed exercise or conversion would be
antidilutive.
6. Segment Reporting
The Company operates in one reportable segment and its foreign-based
revenues and assets represented less than ten percent of the Company's
consolidated revenues and assets.
7. Commitments and Contingencies
Xpedior has agreed to provide its president and CEO the benefits under a
non-competition agreement between him and a former employer, in the event the
former employer ceases to make the payments. Under this agreement, the CEO is
entitled to monthly payments aggregating $255,000 per year through November
2002, thereafter reduced to $165,000 per year until his death. The CEO is also
entitled to receive benefits under the former employer's benefit plan and
through November 2002, reimbursement for medical premiums and payment of
premiums for a life insurance policy.
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In September 1999, the former employer terminated all of the benefits owed
to the executive, including those which Xpedior has agreed to undertake. Xpedior
believes that the agreement has not been breached by its president and CEO and
that the former employer is obligated to make the required payments. Although
Xpedior plans to pursue this matter vigorously and believes that it has strong
legal defenses, there can be no assurance as to the outcome of this matter.
Metamor and NDC Group, Inc., an acquired company, filed suit in May 1999
against some former officers and shareholders of NDC and other parties for
several causes of action, including breaches of fiduciary duties and numerous
covenants and agreements. Metamor and NDC are seeking monetary and injunctive
relief against the defendants. Some of the defendants have filed Cross-Bills
alleging breach of employment and other agreements and duties of good faith and
fair dealings and other tort claims against NDC, Metamor and Xpedior.
Additionally, some of these same defendants have filed similar claims in the
United States District Court for the Eastern District of Virginia. The
defendants that filed the Cross-Bills and the complaint in District Court are
seeking indeterminable damages.
A trial of these actions is currently anticipated to begin in June 2000.
Management believes that Xpedior, NDC and Metamor have strong cases in these
matters and strong defenses against each of the complaints. However, NDC and
Metamor may not prevail in this litigation because litigation is subject to
inherent uncertainties.
On December 7, 1999, Expedia, Inc., a subsidiary of Microsoft Corporation,
filed a trademark infringement lawsuit against Xpedior in the United States
District Court for the Central District of California. The lawsuit alleges that
our use of the Xpedior trademark infringes on the Expedia trademark. The suit
also alleges that uses of the Xpedior mark are likely to cause confusion and
dilution of the marks held by Expedia. The lawsuit further alleges that Xpedior
engaged in unfair competition and unlawful or unfair business practices in
violation of the California Business and Professions Code.
We do not believe that Expedia's claims have merit, however, we are in
discussions with Expedia to explore the possibility of a mutually amicable
solution to this lawsuit. We are not currently able to estimate the likelihood
of an adverse result or the range of possible loss relating to this matter.
8. Comprehensive Income (Loss)
Comprehensive income (loss) is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
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<S> <C> <C>
Net income (loss) $ (2,956) $ 390
Other comprehensive income, net of income taxes:
Unrealized gains on available-for-sale securities 192 --
Foreign currency translation adjustments (32) --
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Other comprehensive income --
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160
Comprehensive income (loss) $ (2,796) $ 390
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</TABLE>
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements.
Introduction
We were formed by Metamor to be the holding company for its eBusiness
solutions unit. Metamor commenced operations of this unit with the acquisition
of Metamor Technologies, Ltd., our predecessor company, on March 27, 1997, and
acquired six additional companies in 1998 as part of the eBusiness solutions
unit. Effective April 30, 1999, Metamor contributed to Xpedior all the
outstanding capital stock of the seven companies comprising its eBusiness
solutions unit. All seven companies were wholly owned subsidiaries of Metamor.
As the entities were under common control, the contribution has been accounted
for at historical cost in a manner similar to a pooling of interests. In
September 1999, we acquired one additional company, Kinderhook Systems, Inc.
Before Metamor acquired them, our eBusiness unit companies were managed as
independent, private companies. As a consequence, their operating procedures and
results reflected different financial objectives, business practices, service
offerings and tax structures (S corporations and C corporations), which
influenced their historical operations, client base and compensation levels.
Since mid-1998, we have been integrating our eBusiness companies to implement a
collective corporate strategy. The major initiative of our integration process
has been to leverage the success of our eBusiness companies by sharing our
expertise and practices over a unified platform. The Xpedior Process and our
best practices and procedures have been refined and are being implemented
throughout our company. We have also analyzed and reviewed our internally
developed solutions to develop our Xpediators. This integration of methodologies
and reusable solutions from the best practices found within our organization may
present opportunities to increase revenues and reduce costs, but may also
necessitate additional costs and expenditures for corporate administration,
including expenses necessary to continue to train our professionals and
implement our unified Xpedior Process. These various costs and possible
cost-saving and revenue enhancements may make historical operating results
difficult to compare with, and not indicative of, future performance.
In December 1999, we completed our initial public offering for the sale of
9.8 million shares of common stock. Net proceeds from the offering totaled
$169.0 million. Of this amount, $122.6 million was paid to Metamor, which was
applied to repay debt of $100 million and to redeem 1,280,250 common shares
owned by Metamor.
We contract on the basis that best fits our clients' needs. Our primary
form of offering services is on a time-and-materials basis. In this form of
contracting, we get paid at an agreed upon hourly rate for the time that we
expend on our clients' projects, and revenues are recorded at the time services
are performed. We also offer our services on a fixed-fee basis. When we contract
on a fixed-fee basis, we realize revenues on a percentage of completion basis.
Payments on our fixed-fee contracts usually require an advance payment from the
client with additional payments due on either a milestone or a predetermined
schedule. Payments billed in excess of revenues earned are recorded as deferred
revenues. Revenues earned but not yet billed are recorded as work in process. In
December of 1999, the SEC issued Staff Accounting Bulletin 101 (SAB 101) Revenue
Recognition, which the Company is required to adopt in the second quarter of
2000. SAB 101 clarifies how existing revenue recognition rules should be
applied. The company is currently evaluating its revenue recognition policies
and the effect of adopting this bulletin.
During the quarter ended March 31, 2000, average annualized revenue from
our top ten customers rose 72.5% to $7.5 million. There were significant
increases among the rest of our top 50 clients. Average annualized revenue from
our next 15 largest customers grew 54.3% to $2.6 million and from our next 25
largest customers, average annualized revenue rose to $1.3 million, an increase
of 53.6%. Historically, we begin a client relationship with a single project
and, as our relationship grows, we increase both the number of projects that we
perform for a particular client and the size of the engagement.
Our most significant expense is cost of services, which consists primarily
of project personnel salaries, benefits and non-reimbursed direct expenses
incurred to complete projects. The number of professionals assigned to a project
will vary according to the size, complexity, duration and demands of the
project. An unanticipated termination of a significant project could also cause
us to experience lower revenues and gross profit.
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To sustain our growth and improve profitability, we have made and continue
to make substantial investments in the infrastructure of our business. These
investments include the addition of senior management, administrative personnel,
business development managers, facilities and recruiting capabilities. Selling,
general and administrative expenses include the costs of recruiting, training,
marketing, facilities, as well as administrative and executive compensation
consisting of salaries, bonuses and benefits.
Results of Operations
Three Months Ended March 31, 2000
Compared with the Three Months Ended March 31, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Revenues from services $ 50,974 $ 27,769
Gross profit $ 24,376 $ 11,725
Operating income (loss) $ (7,157) $ 2,338
Net income (loss) $ (2,956) $ 390
Earnings (loss) per share (basic and diluted) $ (0.06) $ 0.01
</TABLE>
REVENUES. Revenues for the current quarter increased 84% to $51.0 million,
up from $27.8 million in the first quarter of 1999. This increase was the result
of strong internal growth, as well as the effects the acquisition made after the
first quarter of 1999. All acquisitions made by the Company were purchases and,
accordingly, the operating results of the acquired businesses are included in
the consolidated results from the date of acquisition.
GROSS PROFIT. Gross profit for the current quarter increased 108% to $24.4
million. This improvement is the result of the increase in revenues and
expansion in gross margin. Gross margin for the current quarter was 47.8%
compared with 42.2% in the first quarter of 1999. The increase in gross margin
primarily resulted from increases in our average billing rate. Our average
billing rate was $126 for the three months ending March 31, 2000, compared with
$98 for the three months ended March 31, 1999, an increase of 29%.
OPERATING COSTS AND EXPENSES. Selling, general and administrative ("SG&A")
expenses for the three months ended March 31, 2000 totaled $26.9 million,
compared with $7.3 million for the three months ended March 31, 1999. The
increase in SG&A expenses primarily related to increased sales and marketing
expenses to support the Xpedior brand, increases in recruiting and human
resource costs related to an increase in headcount and a revised benefits plan,
and investments in infrastructure necessary to support the integration of our
company.
During the three months ended March 31, 2000, a non-cash stock compensation
charge totaling $1.4 million was incurred as a result of Xpedior stock option
grants below fair value, which were granted prior to our initial public
offering.
Depreciation and amortization totaled $3.2 million and $2.1 million for the
three months ended March 31, 2000 and 1999, respectively. The increase primarily
related to the fixed assets of the businesses acquired and, to a lesser extent,
capital expenditures. Additionally, amortization of intangible assets of the
acquired businesses contributed to this increase.
NON-OPERATING COSTS AND EXPENSES. Interest expense totaled $0.3 million and
$1.8 million for the three months ended March 31, 2000 and 1999, respectively.
Included in non-operating income for the three months ending March 31, 2000 is
a gain of $2.8 million realized from the sale of securities.
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PROVISION FOR INCOME TAXES. The provision (benefit) for income taxes for
the current quarter was $(1.3) million, compared with $119,000 for the three
months ended March 31, 1999. The Company's effective tax rate includes the
effects of state income taxes and the portion of goodwill amortization not
deductible for federal income tax purposes.
NET LOSS. Net loss for the three months ended March 31, 2000 was $3.0
million, or $(0.06) per share, compared with income of $390,000, or $.01 per
share, for the three months ended March 31, 1999 due to the above factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have principally related to working
capital needs and capital expenditures. These requirements have been met
primarily through funds provided by Metamor and cashflows from operations.
As of March 31, 2000, we had outstanding borrowings from Metamor of $15.5
million at a weighted average interest rate of 8.75%. These borrowings relate to
IPO costs advanced by Metamor on our behalf, payment of $25 million in earnouts
(to sellers of acquired businesses), and working capital requirements.
Capital expenditures totaled $6.9 million and $1.2 million for the three
months ended March 31, 2000 and 1999, respectively. The majority of these
expenditures related to computer equipment and software for technical
consultants, and leasehold improvements, furniture, fixtures and equipment
related to business expansion.
The Company estimates that capital expenditures for the remainder of 2000
will be approximately $18.0 to $23.0 million. The remaining planned capital
expenditures for 2000 are normal recurring items necessary to support business
expansion and the anticipated growth in the number of technical consultants.
The Company had working capital of $34.8 million and $13.3 million at March
31, 2000 and 1999, respectively. The Company had cash and cash equivalents of
$3.9 million and $(0.8) million at March 31, 2000 and 1999, respectively. The
Company's operating cash flows and working capital requirements are
significantly affected by the timing of payroll and the receipt of payment from
our clients. Cash flows used in operating activities were $10.1 million and $0.2
million for the three months ended March 31, 2000 and 1999, respectively.
In addition, we have contingent liabilities of up to $11.4 million related
to earnouts that are based on the performance of one of the acquired companies,
NDC Group, Inc. We expect that approximately one-half of the NDC earnout, if
earned and payable, will be paid in Metamor common stock, for which Metamor has
agreed to contribute to our capital and not require repayment by us. We also
have assumed the cash portion of any future settlement associated with a
guarantee of the value of approximately 308,000 shares of Metamor common stock
issued in connection with the acquisition of NDC. We are obligated to pay the
difference between $14 million and $7.8 million which is the fair market value
of these shares based upon the average market price for the 20 trading days
preceding April 16, 2000 to the former NDC shareholders. We expect that the
settlement of this guarantee, if triggered, will be paid one-half in cash, which
we have assumed, and one-half in Metamor common stock. Metamor has agreed to
contribute to our capital the stock it issues for the non-cash portion of the
settlement and not require repayment by us. There is currently litigation
against some former officers and shareholders of NDC and other parties. The
payment of the earnout liabilities is contingent upon the outcome of this
litigation.
Xpedior issued approximately $9.1 million aggregate principal amount of 7%
Convertible Subordinated Promissory Notes due 2002 that are convertible into
shares of Xpedior at $19.00 per share in connection with the acquisition of
Kinderhook Systems, Inc. Xpedior may also redeem the notes under certain
circumstances. The notes are guaranteed by Metamor. The holders of the notes
have certain registration rights with respect to the shares of Xpedior stock to
be issued upon conversion of the notes. Xpedior also issued a 7% Convertible
Subordinated Note due 2002 in the principal amount of $1,850,000 in connection
with the purchase of Enterprise eQ Software from NewTHINK, Inc.
We have received proposals from certain commercial banks for a senior
revolving credit facility. We are in the process of selecting a lender and
negotiating terms.
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<PAGE> 12
In the interim, Metamor has agreed to make advances to fund our working capital
requirements and to reduce the interest rate on our outstanding intercompany
indebtedness. These advances bear interest at Metamor's incremental borrowing
rate, which was approximately 8.75% at March 31, 2000.
On March 21, 2000, Metamor entered into an Agreement and Plan of Merger
with PSINet Inc. ("PSINet"), a Herndon, Virginia based provider of Internet and
eCommerce solutions to businesses, and PSINet Shelf IV Inc., a wholly-owned
subsidiary of PSINet. Pursuant to the agreement, each share of Metamor common
stock will be exchanged for 0.9 of a share of PSINet common stock upon the
closing of the merger. Completion of the transaction is subject to a number of
conditions, including approval of PSINet and Metamor stockholders and certain
regulatory approvals. The transaction is expected to be completed by mid-2000.
In connection with the agreement, PSINet plans to invest $50 million in
Xpedior convertible preferred stock that will have an initial conversion rate of
$37.50 per share. The Company plans to use the proceeds of this investment for
general corporate purposes.
We believe that the availability of interim borrowings from Metamor of
between $25 - $30 million, borrowings under our proposed credit facility, the
proposed preferred stock investment by PSINet, cash flow from operating
activities, and our ability to access other external capital resources will be
sufficient to meet our commitments. We may also issue debt, or equity securities
to meet our capital requirements.
INFLATION
The effects of inflation on the Company's operations were not significant
during the periods presented in the financial statements.
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, and information that is
based on management's beliefs, as well as assumptions made by, and information
currently available to, management. All statements and information relating to
the Company, other than statements of historical fact, are forward-looking
statements. When used in this document, the words "believe," "anticipate,"
"will," "should," "would," "estimate," "project," "expect," and similar
expressions, and the negative thereof, are intended to identify forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated,
projected or expected. Among the key factors that may have a direct bearing on
the Company's operating results are fluctuations in the economy, the degree and
nature of competition, demand for the Company's services, and the Company's
ability to acquire businesses that are accretive to earnings, to integrate the
operations of acquired businesses, to recruit and place temporary professionals,
to expand into new markets, to complete fixed price agreements in accordance
with their terms and to maintain profit margins in the face of pricing
pressures. In addition, important factors that could cause results to differ
materially are set forth under the caption "Risk Factors" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
12
<PAGE> 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the applicable disclosures since
those set forth in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not involved in any legal proceedings which would, in management's opinion, have
a material adverse effect on the Company's business or results of operations.
For information concerning certain pending matters, please see Note 6,
"Contingencies," to Notes to Unaudited Consolidated Financial Statements.
Item 2. Changes in Securities
There have been no changes in securities during the quarter ended March 31,
2000.
Item 3. Defaults Upon Senior Securities
There have been no defaults by the Company on any Senior Securities during the
quarter ended March 31, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders during the
quarter ended March 31, 2000, through the solicitation of proxies or otherwise.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized this 15th day of May,
2000.
XPEDIOR INCORPORATED
By: /s/ David N. Campbell
---------------------------------
David N. Campbell
President and Chief Executive Officer
(Duly Authorized Officer)
By: /s/ Steven M. Isaacson
----------------------------------
Steven M. Isaacson
Senior Vice President and Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 3,886
<SECURITIES> 0
<RECEIVABLES> 57,797
<ALLOWANCES> 1,550
<INVENTORY> 0
<CURRENT-ASSETS> 73,672
<PP&E> 29,629
<DEPRECIATION> 8,532
<TOTAL-ASSETS> 247,409
<CURRENT-LIABILITIES> 38,895
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 195,328
<TOTAL-LIABILITY-AND-EQUITY> 247,409
<SALES> 0
<TOTAL-REVENUES> 50,974
<CGS> 0
<TOTAL-COSTS> 26,598
<OTHER-EXPENSES> 31,533
<LOSS-PROVISION> 579
<INTEREST-EXPENSE> 310
<INCOME-PRETAX> (4,265)
<INCOME-TAX> (1,309)
<INCOME-CONTINUING> (2,956)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,956)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
