SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 27, 1998
-----------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ___________________to____________________
Commission File Number 0-28192
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RENAISSANCE WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2920563
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(State of Incorporation) (IRS Employer Identification No.)
189 WELLS AVENUE
NEWTON, MA 02159
(617)527-6886
(Address, including zip code, and telephone number, including area code
of registrant's principal executive offices)
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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES ___X___ NO ______
As of August 10, 1998, there were 56,121,069 shares of Common Stock, no par
value, outstanding.
RENAISSANCE WORLDWIDE, INC.
INDEX TO FORM 10-Q
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at December 27, 1997 and June
27, 1998 (unaudited) 3
Condensed Consolidated Statement of Income for the three and six
months ended June 28, 1997 and June 27, 1998 (unaudited) 4
Condensed Consolidated Statement of Cash Flows for the three and
six months ended June 28, 1997 and June 27, 1998(unaudited) 5
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
PART II. OTHER INFORMATION 14
SIGNATURES 14
EXHIBIT INDEX 15
This Quarterly Report on Form 10-Q contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
and similar expressions are intended to identify forward-looking statements.
The important factors discussed below under the caption "Certain Factors That
May Affect Future Operating Results," among others, could cause actual results
to differ materially from those indicated by forward-looking statements made
herein and presented elsewhere by management from time to time.
2
RENAISSANCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
DECEMBER 27, JUNE 27,
1997 1998
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 19,944 $ 6,801
Marketable securities 5,867 -
Accounts receivable, net 154,208 192,450
Notes receivable 1,692 1,059
Deferred income taxes 2,166 2,166
Other current assets 6,910 18,544
------------------- ------------------
Total current assets 190,787 221,020
Fixed assets, net 26,732 31,235
Notes receivable from officers 250 480
Goodwill and other intangible assets 94,283 103,579
Other assets 3,086 3,825
Deferred income taxes 855 1,285
------------------- ------------------
Total assets $315,993 $361,424
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 43,300 $ 66,406
Current portion of long-term debt 2,979 1,083
Accounts payable 13,098 10,461
Accrued salaries and wages 10,473 15,365
Other accrued expenses 44,208 38,963
Deferred income taxes 1,405 3,577
------------------- ------------------
Total current liabilities 115,463 135,855
Deferred income taxes 2,484 4,899
Long-term debt 3,648 3,905
Other liabilities 509 1,385
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Total liabilities 122,104 146,044
Commitments and contingencies
Stockholders' equity
Common stock 4,726 4,726
Additional paid-in capital 160,708 177,116
Notes receivable from stockholders (476) (476)
Retained earnings 28,740 33,764
Unrealized gain on investments 22 -
Cumulative translation adjustment 169 250
------------------- ------------------
Total stockholders' equity 193,889 215,380
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$315,993 $361,424
=================== ==================
The accompanying notes are an integral part of these financial statements.
3
RENAISSANCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
JUNE 28, JUNE 27, JUNE 28, JUNE 27,
1997 1998 1997 1998
Revenue $142,077 $196,467 $270,625 $371,831
Cost of revenue 100,868 129,393 189,811 246,461
----------------- ----------------- ----------------- -----------------
41,209 67,074 80,814 125,370
Selling, general and administrative expenses 32,628 49,936 62,443 96,662
Acquisition-related expenses (400) 6,904 (400) 6,904
----------------- ----------------- ----------------- -----------------
Income from operations 8,981 10,234 18,771 21,804
Interest and other income (expense), net 414 (1,083) 757 (1,932)
----------------- ----------------- ----------------- -----------------
Income before taxes 9,395 9,151 19,528 19,872
Income tax provision 3,475 9,590 7,720 14,848
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 5,920 $ (439) $ 11,808 $ 5,024
================= ================= ================== =================
Basic earnings (loss) per share $ 0.11 $ (0.01) $ 0.22 $ 0.09
Weighted average common shares - basic 53,955 55,320 52,961 55,205
Diluted earnings (loss) per share $ 0.10 $ (0.01) $ 0.21 $ 0.09
Weighted average common and potential
common shares outstanding - diluted 57,136 55,320 56,131 58,430
The accompanying notes are an integral part of these financial statements.
4
RENAISSANCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 28, JUNE 27,
1997 1998
Cash flows from operating activities:
Net income $ 11,808 $ 5,024
Adjustments to reconcile net income to net cash
used for operating activities
Depreciation and amortization 2,829 4,375
Deferred income taxes (35) 4,157
Changes in operating assets and liabilities:
Accounts receivable (35,006) (36,484)
Other current assets (2,597) (2,042)
Other assets (977) (739)
Accounts payable 3,096 (2,836)
Accrued expenses 2,912 1,514
Accrued salaries and wages (167) 4,089
Income taxes payable 528 -
Other liabilities (224) 876
----------------- -----------------
Net cash used for operating activities (17,833) (22,066)
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Cash flows from investing activities
Cash disbursed for acquisitions, net of cash acquired (38,954) (17,718)
Increase in notes receivable from officers (57) (230)
Change in notes receivable (1,525) 633
Purchase of marketable securities (21,360) -
Sales and maturities of marketable securities 10,592 5,845
Purchases of fixed assets (3,985) (7,687)
----------------- -----------------
Net cash used for investing activities (55,289) (19,157)
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Cash flows from financing activities
Cash proceeds from issuance of common stock 53,671 -
Proceeds from reissuance of treasury stock 1,920 -
Cash proceeds from exercise of stock options 769 5,207
Cash proceeds from stock purchase plan 406 1,445
Net borrowings (repayments) on line of credit (5,283) 23,106
Principal payments on long-term debt (5,086) (5,409)
Proceeds from issuance of long-term debt 6 3,651
Distributions (2,000) -
----------------- -----------------
Net cash provided by financing activities 44,403 28,000
----------------- -----------------
Effect of exchange rate changes on cash and cash equivalents (328) 80
----------------- -----------------
Net decrease in cash and cash equivalents (29,047) (13,143)
Cash and cash equivalents, beginning of period 50,967 19,944
----------------- -----------------
Cash and cash equivalents, end of period 21,920 6,801
================= ==================
The accompanying notes are an integral part of these financial statements.
5
RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Renaissance Worldwide, Inc. ("Renaissance" or "the Company") is a provider
of information technology ("IT") and management consulting services to
organizations worldwide.
Basis of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of Renaissance Worldwide, Inc. and its wholly-owned subsidiaries.
On July 31, 1997, November 26, 1997, March 31, 1998 and April 2, 1998 the
Company completed the mergers with Renaissance Solutions, Inc. ("RSI"), The
Hunter Group ("Hunter"), Neoglyphics Media Corporation ("Neoglyphics") and
Triad Data, Inc. ("Triad"), respectively. These transactions have been
accounted for as poolings-of-interests and, therefore, the accompanying
financial statements have been retroactively restated to reflect the
financial position and results of operations and cash flows of the Company,
RSI, Hunter, Neoglyphics and Triad for all periods presented. On March 12,
1998 and March 25, 1998, the Company competed the acquisitions of the
capital stock of Exad Galons and Hackenberg and Partner in transactions
accounted for as purchases. Results of operations for these entities have
been included in the results of operations from the date of acquisition.
All intercompany balances and transactions have been eliminated.
Interim Financial Statements
Effective as of December 27, 1997, the Company changed its fiscal year from
the last Saturday in June to the last Saturday in December. The condensed
consolidated balance sheet at June 27, 1998 and condensed consolidated
statements of operations and of cash flows for the three and six month
periods ended June 28, 1997 and June 27, 1998 are unaudited and, in the
opinion of management, include all adjustments (consisting of normal and
recurring adjustments) necessary for a fair presentation of results for
these interim periods. Certain information and footnote disclosures
normally included in the Company's annual consolidated financial statements
have been condensed or omitted. The results of operations for the interim
period ended June 27, 1998 are not necessarily indicative of the results to
be expected for the entire year. These interim condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements for the transition period ended December
27, 1997 which are contained in the Company's 1997 Transition Report on
Form 10-K , and Form 8-K/A filed with the Securities and Exchange
Commission on June 15, 1998.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current period presentation.
Earnings per share
Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
share has been computed by dividing net income by the weighted average
number of common shares and dilutive potential common stock outstanding.
Potential common stock includes stock options and warrants, calculated
using the treasury stock method.
A reconciliation of the weighted average common shares outstanding is as
follows:
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THREE MONTHS ENDED SIX MONTHS ENDED
- --------------------------------------------------------------------------------
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RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONDSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------
JUNE 28, JUNE 27, JUNE 28, JUNE 27,
1997 1998 1997 1998
- ------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding - basic 53,955 55,320 52,961 55,205
- ------------------------------------------------------------------------------------------------
Assumed exercise of stock options,
using the treasury stock method 3,181 0 3,170 2,997
- ------------------------------------------------------------------------------------------------
Escrow shares related to
acquistions 0 0 0 228
- ------------------------------------------------------------------------------------------------
Weighted average number of common
and potential common shares
outstanding - dilutive 57,136 55,320 56,131 58,430
- ------------------------------------------------------------------------------------------------
Recently enacted accounting standards
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting of Comprehensive Income" ("SFAS
130"). This statement requires disclosure of comprehensive income and its
components in interim and annual reports. Total comprehensive income
components included in stockholder's equity include any changes in equity
during a period that are not the result of transactions with owners,
including cumulative translation adjustments, unrealized gains and losses
on available-for-sale securities and minimum pension liabilities. For the
quarters ended June 28, 1997 and June 27, 1998, comprehensive income
(expense) items included in stockholders' equity consisted of translation
adjustments of $(74) and $118, respectively, and gains (losses) on
available-for-sale securities of $(1) and $0, respectively. For the six
months ended June 28, 1997 and June 27, 1998, comprehensive income
(expense) items included in stockholders' equity consisted of translation
adjustments of $(185) and $81, respectively, and gains (losses) on
available-for-sale securities of $(3) and $(0), respectively.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related
Information", ("SFAS 131"). SFAS 131 is effective for fiscal years
beginning after December 15, 1997 and requires restatement of disclosures
for all periods presented. Disclosure of this information for interim
periods is not required in the year of adoption.
SFAS 131 requires that companies disclose information about operating
segments in annual and interim financial statements. SFAS 131 utilizes the
"management approach" in determining what constitutes an operating segment.
An operating segment is defined in SFAS 131 as a business component:
. which engages in business activities from which it may earn revenues and
incur expenses
. whose operating results are regularly reviewed by a chief operating
decision maker to make decisions about resources to be allocated to the
segment and assess its performance; and
. for which discrete financial information is available.
The adoption of SFAS 131 will not impact the Company's financial position,
results of operations or cash flows. Management has determined that the
adoption of SFAS 131 will not materially differ from the Company's current
presentation of operating segments.
7
RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONDSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITION OF SUBSIDIARIES - PURCHASES
Exad Galons On March 12, 1998, the Company, through a wholly-owned
subsidiary, acquired all of the outstanding stock of Exad Galons, a French
corporation ("Exad"), for $5.0 million in cash. Exad is a business
process and information technology consulting firm headquartered in Paris,
France.
Hackenberg & Partner On March 25, 1998, the Company, through a wholly-owned
subsidiary, acquired all of the outstanding common stock of Hackenberg &
Partner, a German corporation ("Hackenberg"), for $3.2 million in cash.
Based in Starnberg, Germany, Hackenberg provides business application,
networking and database services and specializes in custom-developed
solutions and Peoplesoft implementations.
Both Exad and Hackenberg are operating as subsidiaries to Hunter augmenting
the enterprise resource planning solutions business unit of the Solutions
Group.
These acquisitions have been accounted for as purchases and accordingly,
the purchase prices have been allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as of the date
of their respective acquisitions. The excess of the consideration paid
over the estimated fair value of net assets acquired of approximately $7.5
million has been recorded as goodwill and is being amortized on a straight-
line basis over 30 years.
The pro forma results of operations, assuming that the acquisitions
occurred at the beginning of the three and six month periods ended June 28,
1997 and the six month period ended June 27, 1998, would not materially
differ from Renaissance's reported results of operations.
4. ACQUISITION OF SUBSIDIARIES - POOLINGS OF INTERESTS
On March 31, 1998 the Company, through a wholly-owned subsidiary, acquired
all of the outstanding stock of Neoglyphics Media Corporation. Neoglyphics
is an Internet development and applications company based in Chicago,
Illinois and augments the e-commerce business unit of the Solutions Group.
Pursuant to the agreement, each share of Neoglyphics was converted into
the right to receive .12495 shares of Renaissance common stock.
Renaissance also assumed outstanding options for the purchase of
Neoglyphics common stock at the same conversion ratio.
On April 2, 1998, the Company, through a wholly-owned subsidiary, acquired
all of the outstanding stock of Triad Data, Inc. Triad is an information
technology consulting firm based in New York City performing services
similar to those of the Services Group of the Company. Pursuant to the
agreement, each share of Triad common stock was converted into the right to
receive 24,409.2 shares of Renaissance common stock.
In total 4,554,759 shares of the Company's Common Stock were exchanged for
all of the outstanding common stock of Neoglyphics and Triad. In addition,
outstanding stock options to purchase Neoglyphics common stock were
converted into options to purchase 119,940 shares of the Company's Common
Stock. These transactions have been accounted for as poolings-of-interests
and, therefore, the financial statements of the Company have been restated
to include the financial condition, results of operations and cash flows of
these two companies for all periods presented. The Company incurred $6.9
million in acquisition-related expenses during the period related to these
transactions. These costs are disclosed as a separate line in the
statement of income for the period.
5. SUBSEQUENT EVENTS
On July 30, 1998, the Company announced a strategic restructuring program
in which the
8
RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONDSOLIDATED FINANCIAL STATEMENTS
Company expects to take a charge of $4 million to $6 million in the third
quarter of fiscal 1998. This charge will include certain personnel costs,
the termination of certain leases, the consolidation of facilities and the
write down of certain assets.
9
PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following table summarizes the Company's significant operating
results as a percentage of revenue for each of the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, JUNE 27, JUNE 28, JUNE 27,
1997 1998 1997 1998
Revenue 100.0 % 100.0% 100.0 % 100.0%
Cost of revenue 71.0 65.9 70.1 66.3
-------------- -------------- -------------- --------------
Gross profit 29.0 34.1 29.9 33.7
Selling, general and administrative expenses 23.0 25.4 23.1 26.0
Acquisition-related expenses (0.3) 3.5 (0.1) 1.8
-------------- -------------- -------------- --------------
Income from operations 6.3 5.2 6.9 5.9
Interest and other income (expense), net 0.3 (0.5) 0.3 (0.5)
-------------- -------------- -------------- --------------
Income before taxes 6.6 4.7 7.2 5.4
Income tax provision 2.4 4.9 2.8 4.0
-------------- -------------- -------------- --------------
Net income (loss) 4.2% (0.2)% 4.4% 1.4%
============== ============== ============== ==============
THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 27, 1998
Revenue. Revenue increased 38% to $196.5 million for the second quarter
of fiscal 1998 from $142.1 million in the second quarter of fiscal 1997.
This increase was attributable primarily to a 148% increase in the
revenue of the Company's Solutions Group as compared with the prior
period. This increase is due to organic growth, the addition of the
Eligibility Management Services acquisition in August of 1997 and the
redeployment of services and strategy consultants into the solutions group
in mid 1997 as well as the first quarter of 1998 in response to increasing
demand and new solutions offerings developed in this segment. Revenue of
the Services Group also increased 14% in the quarter resulting in a
greater number of IT consultants being placed with the Company's clients
during the period. In addition, revenues of the Company's Strategy
Group increased 39% as compared with the prior period due to both organic
growth and the inclusion of the results of the C.M. Management Systems,
Ltd., Inc. and COBA Consulting Limited subsidiaries which were acquired
during the first quarter of calendar 1997.
Gross Profit. Gross profit increased 62.8% to $67.1 million for the
second quarter of fiscal 1998 from $41.2 million in the comparable prior
period. As a percentage of revenue, gross profit increased to 34.1% for
the period compared to 29.0% for the comparable prior period. The increase
in gross margin percentage was attributable to increases in the number of
higher margin strategic, management and solutions consulting engagements
resulting from both acquisitions as well as internal growth and the
increased utilization of salaried consultants compared with the prior
period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 53% to $49.9 million for the second
quarter of fiscal 1998 from $32.6 million in the comparable prior period.
As a percentage of revenue, selling, general and administrative expenses
increased to 25.4% from 23.0% for the comparable prior period. This
increase was attributable primarily to the costs of the integration of and
redundant processes in the recently added acquisitions, as well as the
investments in the Company's infrastructure to accommodate the growth of
the past year.
Acquisition-Related Expenses. Acquisition related expenses of $6.9 million
for the second quarter of fiscal 1998 were incurred in connection with the
Neoglyphics and Triad acquisitions. In the second quarter of fiscal 1997, a
reversal of previously accrued transaction costs of $400,000 was recorded.
10
Interest and Other Income(Expense), Net. Interest and other
income(expense), net, decreased to $1.1 million in expense for second
quarter of fiscal 1998 from $414,000 in income for the comparable prior
period. This change was a result of increased balances in the Company's
line of credit due to payments for acquisitions made in the quarter, other
contingent payments made for 1997 acquisitions as well as increased working
capital needs.
SIX MONTHS ENDED JUNE 28, 1997 AND JUNE 27, 1998
Revenue. Revenue increased 37% to $371.8 million for the first six
months of fiscal 1998 from $270.6 million in the first six months of
fiscal 1997. This increase was attributable primarily to a 140% increase
in the revenue of the Company's Solutions business unit compared with the
prior period due to primarily to organic growth, the addition of the
Eligibility Management Services acquisition in August of 1997 and the
redeployment of services and strategy consultants into the solutions group
in mid 1997 as well as the first quarter of 1998 in response to increasing
demand and new solutions offerings developed in this segment. In addition,
revenues of the Company's Strategy business unit increased 39% as compared
with the comparable prior period due to both organic growth and the
inclusion of the results of the C.M. Management Systems, Ltd., Inc. and
COBA Consulting Limited acquisitions during the first quarter of calendar
1997. The Company's Services business unit increased 15% as compared with
the prior period resulting in a greater number of IT consultants being
placed with the Company's clients during the period.
Gross Profit. Gross profit increased 55% to $125.4 million for the first
six months of fiscal 1998 from $80.8 million in the comparable prior
period. As a percentage of revenue, gross profit increased to 33.7% for
the period compared to 29.9% for the comparable prior period. The increase
in gross margin percentage was attributable to increases in the number of
higher margin strategic, management and solutions consulting engagements
resulting from both acquisitions in the strategic consulting services area
as well as internal growth and the increased utilization of staff IT
consultants compared with the prior period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 55% to $96.7 million for the first six
months of fiscal 1998 from $62.4 million in the comparable prior period.
As a percentage of revenue, selling, general and administrative expenses
increased to 26.0% from 23.1% for the comparable prior period. This
increase was attributable primarily to the costs of the integration of and
redundant processes in the recently added acquisitions, as well as the
investments in the Company's infrastructure to accommodate the growth of
the past year.
Acquisition-Related Expenses. Acquisition related expenses of $6.9 million
for the second quarter of fiscal 1998 were incurred in connection with the
Neoglyphics and Triad acquisitions. In the second quarter of fiscal 1997, a
reversal of previously accrued transaction costs of $400,000 was recorded.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net, decreased to $1.9 million in expense for the first six
months of fiscal 1998 from $757,000 in income for the comparable prior
period. This change was a result of increased balances in the Company's
line of credit due to payments for acquisitions made in the quarter, other
contingent payments made for 1997 acquisitions as well as increased working
capital needs.
LIQUIDITY AND CAPITAL RESOURCES
Renaissance has a revolving advance facility with BNY Financial
Corporation (the "Line of Credit") under which it can borrow the lesser of
$75.0 million or 85% of eligible receivables. The Line of Credit is
secured by all of the Company's assets and contains certain restrictive
covenants, including limitations on amounts of loans the Company may extend
to officers and employees, the incurrance of additional debt and the
payment of dividends on the Company's Common and Preferred Stock.
Additionally, the agreement requires the maintenance of certain financial
ratios, including minimum tangible net worth and a limit on the ratio of
total liabilities to total tangible net worth.
11
As of June 27, 1998, there was $58.5 million outstanding with
availability under the Line of Credit of $16.5 million. The Line of Credit
bears an interest rate of LIBOR plus 2.5% or the Bank of New York
alternative base rate plus 0.5% at the Company's option.
The Company had negative cash flows from operations of $22.1 million for
the six months ended June 27, 1998. The negative operating cash flows were
due primarily to a $36.5 million increase in accounts receivable in the
period due primarily to the growth of revenues, particularly in the newly
acquired entities, as well as an increase in contracts with a monthly
invoicing cycle. In addition, operating cash flows were impacted by a $4.1
million decrease in accrued salaries and wages due to the timing of payroll
and payroll tax related payments. Other changes in accounts payable and
current assets relate primarily to the timing of payments made at the end
of each reporting period.
The Company experienced negative cash flows from investing activities of
$19.2 million for the six months ended June 27, 1998. The negative
investing cash flows were attributable to $17.7 million in net payments
made for acquisitions and acquisition-related contingent consideration
during the period and $7.7 million in fixed asset purchases during the
period. These decreases were offset by the sale and maturities of $5.8
million in marketable securities during the period.
The Company experienced positive cash flows from financing activities of
$28.0 million for the six months ended June 27, 1998. The positive cash
flows were attributable primarily to $23.1 million in net borrowings on the
Company's line of credit as well as $6.7 million in cash received from
employees for the exercise of stock options and purchases under the
employee stock purchase plan. Certain of the options exercised resulted in
an additional tax benefit to the Company of $9.8 million which is included
in additional paid in capital.
On July 30, 1998, the Company announced a strategic restructuring program
in which the Company expects to take a charge of between $4 million and $6
million in the third quarter. This charge will include certain personnel
costs, the termination of certain leases, the consolidation of facilities
and the write down of certain assets.
The Company anticipates that its primary uses of working capital in
future periods will be for funding growth, either through acquisitions, the
internal development of existing branch offices or the development of new
branch offices and new service offerings. The Company also anticipates
making approximately $10.0 million in capital expenditures in the next
twelve months principally to upgrade its computer system. On August 6, 1998
the Company announced a stock repurchase program for the repurchase of up
to 200,000 shares of its Common Stock. In connection with certain of its
acquisitions, the Company may be obligated to make certain contingent
payments during the next several years. The Company does not believe that
these payments would have a material impact on the Company's liquidity,
results of operations or capital requirements. The Company's principal
capital requirement is working capital to support the accounts receivable
associated with its revenue growth. The Company believes that the cash flow
from operations and borrowings under the Line of Credit, will be sufficient
to meet the Company's presently anticipated working capital needs for at
least the next 12 months.
The Company is currently reviewing its IT infrastructure for year 2000
considerations and capacity given the recent growth and anticipated growth
in the next five years. Three significant IT projects are currently
underway to expand and improve the Company's IT capabilities. The Company
expects to use internal resources to address its Year 2000 compliance
issues and does not expect that the costs of bringing its system into
compliance will have a material adverse affect on its financial condition
or results of operations.
RECENT ACQUISITIONS
Exad Galons On March 12, 1998, the Company, through a wholly-owned
subsidiary, acquired all of the outstanding stock of Exad Galons, a French
corporation ("Exad"), for $5.0 million in cash. Exad is a business
process and information technology consulting firm headquartered in Paris
France.
Hackenberg & Partner On March 25, 1998, the Company, through a wholly-owned
subsidiary, acquired all of the outstanding common stock of Hackenberg &
Partner, a German corporation
12
("Hackenberg"), for $3.2 million in cash. Based in Starnberg, Germany,
Hackenberg provides business application, networking and database services
and specializes in custom-developed solutions and Peoplesoft
implementations.
Both Exad and Hackenberg are operating as subsidiaries to Hunter augmenting
the enterprise resource planning solutions business unit of the Solutions
Group.
These acquisitions have been accounted for as a purchases and accordingly,
the purchase prices have been allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as of the date
of their respective acquisitions. The excess of the consideration paid
over the estimated fair value of net assets acquired of approximately $7.5
million has been recorded as goodwill and is being amortized on a straight-
line basis over 30 years.
The pro forma results of operations, assuming that the acquisitions
occurred at the beginning of the periods ended June 28, 1997 and June 27,
1998 would not materially differ from Renaissance's reported results of
operations.
RECENTLY ENACTED ACCOUNTING STANDARD
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting of Comprehensive Income" ("SFAS
130"). This statement requires disclosure of comprehensive income and its
components in interim and annual reports. Total comprehensive income
components included in stockholder's equity include any changes in equity
during a period that are not the result of transactions with owners,
including cumulative translation adjustments, unrealized gains and losses
on available-for-sale securities and minimum pension liabilities. For the
quarters ended June 28, 1997 and June 27, 1998, comprehensive income
(expense) items included in stockholders' equity consisted of translation
adjustments of $(74) and $118, respectively, and gains (losses) on
available-for-sale securities of $(1) and $0, respectively. For the six
months ended June 28, 1997 and June 27, 1998, comprehensive income
(expense) items included in stockholders' equity consisted of translation
adjustments of $(185) and $81, respectively, and gains (losses) on
available-for-sale securities of $(3) and $(0), respectively.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related
Information", ("SFAS 131"). SFAS 131 is effective for fiscal years
beginning after December 15, 1997 and requires restatement of disclosures
for all periods presented. Disclosure of this information for interim
periods is not required in the year of adoption.
SFAS 131 requires that companies disclose information about operating
segments in annual and interim financial statements. SFAS 131 utilizes the
"management approach" in determining what constitutes an operating segment.
An operating segment is defined in SFAS 131 as a business component:
. which engages in business activities from which it may earn revenues and
incur expenses
. whose operating results are regularly reviewed by a chief operating
decision maker to make decisions about resources to be allocated to the
segment and assess its performance; and
. for which discrete financial information is available.
The adoption of SFAS 131 will not impact the Company's financial position,
results of operations or cash flows. Management has determined that the
adoption of SFAS 131 will not materially differ from the Company's current
presentation of operating segments.
13
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The foregoing forward-looking statements involve risks and uncertainties.
The Company's actual performance and results may differ materially due to
many important factors, including, but not limited to, the Company's
dependence on the availability of qualified IT consultants, its ability to
sustain and manage growth, the risks associated with acquisitions, its
dependence on key clients, risks associated with international operations,
its dependence on key personnel, the relatively short history of
profitability, the impact of the government regulation of immigration,
fluctuations in operating results due in part to the opening of new branch
offices, general economic conditions, employment liability risks, and the
like. For additional and more comprehensive discussion of the risks
associated with ownership of Common Stock of the Company, please see the
Risk Factors section of the Company's Annual Report on Form 10-K. As a
result of these and other factors, there can be no assurance that the
Company will not experience material fluctuations in future operating
results on a quarterly or annual basis.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable
Item 2 - Change in Securities
Not applicable.
Item 3 - Defaults Upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
On May 28, 1998 the Company held its Annual Meeting of Stockholders. At the
meeting the following proposals were voted on as follows:
1. Election of G. Drew Conway as a Class III director - Votes were
46,201,091 for and 1,097,231 withheld.
2. Approval of an increase in the number of shares of common stock
available for issuance under the Company's 1996 Stock Plan. Votes were
30,882,818 for, 13,693,393 against, 24,129 absentions and 2,697,982
broker non-votes.
3. Approval of amendments to the Company's 1996 Employee Stock Purchase
Plan. Votes were 43,408,845 for, 1,166,530 against, 24,965 abstentions
and 2,697,982 broker non-votes.
4. Approval of the adoption of the 1998 Directors Stock Plan. Votes were
32,416,551 for, 12,116,957 against, 66,832 abstentions and 2,697,982
broker non-votes.
Item 5 - Other Information
Under the Company's By-laws, stockholders who wish to make a proposal at
the 1999 Annual Meeting - other than one that will be included in the
Company's proxy materials - must notify the Company no earlier than
February 27, 1999 and not later than March 29, 1999. Under recent changes
to the Federal proxy rules, if a stockholder who wishes to present such a
proposal fails to notify the Company by March 29, 1999, then the proxies
that management solicits for the 1999 Annual Meeting will include
discretionary authority to vote on the stockholder's proposal in the event
it is properly brought before the meeting nonwithstanding the Company's By-
laws.
Item 6 - Exhibits and Reports on Form 8-K
a. See Exhibit Index, Page 15
b. Reports on Form 8-K
Reports on Forms 8-K, 8-K and 8-K/A related to the Company's
acquisitions of Neoglyphics Media Corporation and Triad Data, Inc. were
filed on April 15, 1998, June 5, 1998 and June 15, 1998, respectively.
The Forms included a summary of the transactions, one month of combined
financial activity through May 2, 1998, and two years of audited financial
statements of Neoglyphics and Triad and the required proforma financial
information.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENAISSANCE WORLDWIDE, INC.
(Registrant)
Date: August 11, 1998 By: /s/ G. Drew Conway
--------------------------
G. Drew Conway, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1998 By: /s/ Robert E. Foley
---------------------------
Robert E. Foley, Chief Financial
Officer
(Principal Financial and
Accounting Officer)
14
RENAISSANCE WORLDWIDE, INC.
EXHIBIT INDEX
Exhibit Page
10.5 Amended and Restated Accounts Receivable
Management and Security Agreement dated as of
April 9, 1998 with BNY Financial Corporation.
27 Financial Data Schedule
15