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 26, 1999
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
RENAISSANCE WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
________________
Massachusetts 04-2920563
(State of Incorporation) (IRS Employer
Identification No.)
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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 9, 1999, there were 56,446,086 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.......................................... 3
Condensed Consolidated Balance Sheet at December 26, 1998 and
June 26, 1999 (unaudited)..................................... 3
Condensed Consolidated Statement of Operations for the three
and six months ended June 27, 1998 and
June 26, 1999 (unaudited)..................................... 4
Condensed Consolidated Statement of Cash Flows for the six
months ended June 27, 1998 and June 26, 1999 (unaudited)...... 5
Notes to Unaudited Condensed Consolidated Financial
Statements.................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 13
PART II. OTHER INFORMATION............................................. 13
SIGNATURES.................................................... 14
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 26, June 26,
1998 1999
--------------- --------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents............................................................ $ 10,957 $ 3,916
Accounts receivable, net............................................................. 196,190 204,086
Notes receivable..................................................................... 1,039 2,421
Deferred income taxes................................................................ 10,335 10,334
Other current assets................................................................. 22,879 8,912
-------- --------
Total current assets.............................................................. 241,400 229,669
Fixed assets, net...................................................................... 31,157 38,719
Notes receivable from officers......................................................... 1,049 1,341
Goodwill and other intangible assets................................................... 84,869 96,401
Other assets........................................................................... 11,511 13,219
Deferred income taxes.................................................................. 2,079 2,079
-------- --------
Total assets...................................................................... $372,065 $381,428
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit....................................................................... $ 92,476 $ 96,824
Current portion of long-term debt.................................................... 2,070 802
Accounts payable..................................................................... 11,454 7,603
Accrued salaries and wages........................................................... 15,761 14,292
Other accrued expenses............................................................... 56,928 60,799
Deferred income taxes................................................................ 4,181 4,124
-------- --------
Total current liabilities......................................................... 182,870 184,444
Deferred income taxes.................................................................. 5,928 5,928
Long-term debt......................................................................... 2,353 3,445
Other liabilities...................................................................... 1,129 954
-------- --------
Total liabilities................................................................. 192,280 194,771
-------- --------
Commitments and contingencies
Stockholders' equity
Preferred stock...................................................................... -- --
Common stock......................................................................... 4,725 4,725
Additional paid-in capital........................................................... 181,520 182,751
Notes receivable from stockholders................................................... (1,476) (1,500)
Retained earnings (deficit).......................................................... (2,642) 3,652
Accumulated other comprehensive income............................................... 204 (425)
-------- --------
182,331 189,203
Less Treasury stock at cost, 200,000 shares.......................................... (2,546) (2,546)
-------- --------
Total stockholders' equity........................................................ 179,785 186,657
-------- --------
Total liabilities and stockholders' equity........................................ $372,065 $381,428
======== ========
The accompanying notes are an integral part of these financial statements.
3
RENAISSANCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
(Unaudited)
For the Quarter Ended For the Six Months Ended
---------------------------- --------------------------
June 27, June 26, June 27, June 26,
1998 1999 1998 1999
--------- -------- ------------ ---------
Revenue............................................ $196,467 $209,194 $371,831 $ 418,757
Cost of revenue.................................... 129,393 143,759 246,461 289,897
-------- -------- -------- --------
67,074 65,435 125,370 128,860
Selling, general and administrative expenses....... 49,936 54,372 96,662 112,403
Acquisition related expenses....................... 6,904 - 6,904 -
Asset writedown (note 5)........................... - 2,950 - 2,950
-------- -------- -------- --------
Income from operations............................. 10,234 8,113 21,804 13,507
Interest and other expense, net.................... 1,083 1,740 1,932 4,265
-------- -------- -------- --------
Income before taxes................................ 9,151 6,373 19,872 9,242
Income tax provision............................... 9,590 2,613 14,848 3,781
-------- -------- -------- --------
Income (loss) from continuing operations........... $ (439) $ 3,760 $ 5,024 $ 5,461
Extraordinary item, net of taxes of $579 (note 5).. - 833 - 833
-------- -------- -------- --------
Net income (loss).................................. $ (439) $ 4,593 $ 5,024 $ 6,294
======== ======== ======== ========
Basic earnings per share:
Income (loss) before extraordinary item....... $ (0.01) $ 0.07 $ 0.09 $ 0.10
Extraordinary item............................ - 0.01 - 0.01
-------- -------- -------- --------
Net income (loss) per share................... $ (0.01) $ 0.08 $ 0.09 $ 0.11
======== ======== ======== ========
Diluted earnings per share:
Income (loss) before extraordinary item....... $ (0.01) $ 0.07 $ 0.09 $ 0.10
Extraordinary item............................ - 0.01 - 0.01
-------- -------- -------- --------
Net income (loss) per share................... $ (0.01) $ 0.08 $ 0.09 $ 0.11
======== ======== ======== ========
Weighted average common shares - basic............. 55,320 56,166 55,205 56,160
Weighted average common and potential common
shares outstanding-diluted........................ 55,320 56,777 58,430 56,659
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 27, June 26,
1998 1999
----------- ------------
Cash flows from operating activities:
Net income................................................................................. $ 5,024 $ 6,294
Adjustments to reconcile net income to net cash used for operating activities
Depreciation and amortization .......................................................... 4,375 6,856
Deferred income taxes .................................................................. 4,157 (58)
Extraordinary gain on sale of assets..................................................... - (833)
Writedown of assets...................................................................... - 2,950
Changes in operating assets and liabilities:
Accounts receivable ................................................................... (36,484) (14,519)
Other current assets .................................................................. (2,042) 12,146
Other assets .......................................................................... (739) (750)
Accounts payable and accrued expenses ................................................. 2,767 (4,971)
Other liabilities ..................................................................... 876 (127)
-------- --------
Net cash (used for) provided by operating activities ....................................... (22,066) 6,988
-------- --------
Cash flows from investing activities
Cash disbursed for acquisitions, net of cash acquired .................................... (17,718) (10,738)
Proceeds from sale of assets............................................................... - 10,000
Increase of notes receivable from officers ............................................... (230) (316)
Decrease (increase) in notes receivable .................................................. 633 (1,413)
Sales and maturities of marketable securities ............................................ 5,845 -
Purchases of fixed assets ................................................................ (7,687) (13,098)
-------- --------
Net cash used for investing activities ................................................ (19,157) (15,565)
-------- --------
Cash flows from financing activities
Cash proceeds from exercise of stock options ............................................. 5,207 88
Cash proceeds from stock purchase plan ................................................... 1,445 1,078
Net borrowings (repayments) on old line of credit ........................................ 23,106 (92,476)
Net borrowings on new line of credit ..................................................... -- 96,824
Principal payments on long-term debt ..................................................... (5,409) (2,820)
Proceeds from issuance of long-term debt ................................................. 3,651 44
Debt issue costs on new line of credit ................................................... - (1,063)
-------- --------
Net cash provided by financing activities ............................................. 28,000 1,675
-------- --------
Effect of exchange rate changes on cash and cash equivalents ............................. 80 (139)
-------- --------
Net decrease in cash and cash equivalents .................................................. (13,143) (7,041)
Cash and cash equivalents, beginning of period ............................................. 19,944 10,957
-------- --------
Cash and cash equivalents, end of period ................................................... $ 6,801 $ 3,916
======== ========
Non-cash transactions:
In January 1999, the Company incurred $2.5 million in notes payable in
connection with the acquisition of Infosolutions.edu (Note 2).
In May 1999, the Company sold the assets of certain business units for
$12,000,000 and recognized an after tax gain of $833,000 on the sale of these
assets. In connection with the transaction, a $2 million note receivable was
received from the buyer (Note 5).
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 global
provider of business and technology consulting services to organizations with
complex IT operations in a broad range of industries. The Company's offerings
are categorized into four segments: Business Strategy, Enterprise Solutions,
Government Solutions, and Information Technology (IT) Consulting Services. The
Business Strategy Group provides management consulting and technology
integration services in connection with performance support systems. The
Enterprise Solutions Group provides IT solutions design and implementation
services. The Government Solutions Group provides specialized management and
technology consulting services to the public sector. The IT Consulting Services
Group provides consulting services centered around application design,
implementation and support. The Company's primary locations are in North America
with subsidiaries in Europe and Asia/Pacific.
Basis of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of Renaissance Worldwide, Inc. and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated.
Interim Financial Statements
The condensed consolidated balance sheet at June 26, 1999 and condensed
consolidated statements of operations and of cash flows for the six month
periods ended June 27, 1998 and June 26, 1999 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 26, 1999
are not necessarily indicative of the results to be expected for future quarters
or the entire year. The balance sheet at December 26, 1998 contained herein has
been derived from the audited consolidated financial statements at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These interim
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements for the year ended December 26,
1998, which are contained in the Company's 1998 Report on Form 10-K.
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.
6
RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of the weighted average number of common shares outstanding is
as follows:
Three Months Ended Six Months Ended
------------------------ --------------------------
June 27, June 26, June 27, June 26,
1998 1999 1998 1999
------------ --------- ----------- ------------
Weighted average number of common shares outstanding-basic . 55,320 56,166 55,205 56,160
Assumed exercise of stock options, using the treasury stock 0 611 2,997 499
method
Escrow shares related to acquisitions 0 0 228 0
------ ------ ------ ------
Weighted average number of common and potential common
shares outstanding - dilutive 55,320 56,777 58,430 56,659
====== ====== ====== ======
Translation of foreign currencies
The functional currency for the Company's subsidiaries is the local currency.
Assets and liabilities are translated into U.S. dollars at exchange rates in
effect at the balance sheet date. Income and expense items and cash flows are
translated at average exchange rates for the period. Cumulative net translation
adjustments are included in stockholders' equity. Gains and losses resulting
from foreign currency transactions, not significant in amount, are included in
the results of operations as other income (expense).
Other Comprehensive Income
The Company accounts for comprehensive income in accordance with Statement of
Financial Accounting Standards No. 130, "Reporting of Comprehensive Income."
This Statement requires disclosure of comprehensive income and its components in
interim and annual reports. For the quarters ended June 27, 1998 and June 26,
1999, comprehensive income items included in stockholders' equity consisted of
translation adjustments of $118 and $11. For the six months ended June 27, 1998
and June 26, 1999, comprehensive income (expense) items included in
stockholders' equity consisted of translation adjustments of $81 and $(629).
2. Acquisition of Subsidiaries--Purchases
In January 1999, the Company completed the acquisition of Infosolutions.edu
for approximately $5.2 million. Infosolutions.edu is an addition to the
Company's Enterprise Solutions Group and specializes in providing services to
universities and other non-profit organizations.
In connection with certain earnout agreements related to previous
acquisitions, the Company paid $8.0 million in contingent consideration during
the six months ended June 26, 1999, which was recorded as additional purchase
price.
3. Acquisition of Subsidiaries--Poolings of Interests
In the second quarter of 1998, the Company, through a wholly-owned
subsidiary, acquired all of the outstanding stock of Neoglyphics Media
Corporation ("Neoglyphics") and Triad Data, Inc. ("Triad"). 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
7
RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
converted into options to purchase 119,940 shares of the Company's Common Stock.
These transactions were accounted for as poolings-of-interests and, therefore,
the financial statements were 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.
4. Long Term Debt
The Company's line of credit existing at December 26, 1998 was terminated
on March 24, 1999. In February of 1999, the Company entered into a new interim
line of credit with a different bank to provide a borrowing base of 85% of
eligible accounts receivable as defined, up to a maximum borrowing of $110
million. Interest was payable on the termination date of the borrowings or, in
the case of borrowings bearing a LIBOR interest rate, monthly, in arrears at
the LIBOR rate plus 2.0% or the higher of the bank's prime rate or the
Federal Funds Rate plus 0.50%, plus 0.75%, at the Company's option. The line was
collateralized by substantially all of the assets of the Company, contained
certain restrictions, and required maintenance of certain financial covenants.
The Company was in compliance with, or obtained waivers in the event of non-
compliance with, the terms of the new interim line of credit as of June 26,
1999. The line was used to fund the debt previously funded by the line of credit
which was terminated on March 24, 1999.
On July 15, 1999 the Company entered into a senior credit facility (the
"Credit Facility") with a bank syndicate. The Credit Facility consists of a
revolving line of credit of up to $100.0 million and a term loan of $50 million.
The Credit Facility currently bears interest at the higher of the Federal Funds
Rate plus 0.50% or the prime rate, plus 1.75% or LIBOR plus 3.0%. The Credit
Facility contains various covenants, including the maintenance of defined
financial ratios and is collateralized by substantially all of the assets of
the Company.
As of June 26, 1999, the availability under the interim line of credit was
$11 million. The interest rate on the interim line of credit at June 26, 1999
was 7.43%.
5. Extraordinary Item and Writedown of Assets
In May 1999, the Company sold certain assets related to the e-commerce and
business strategy group for $10 million in cash and $2 million in notes
receivable. The assets that were sold were a component of the enterprise
solutions segment of the Company. In connection with this sale, the Company
recognized an after tax gain of $833,000. The gain on sale has been classified
as en extraordinary item because the pooling of interests method of accounting
was applied to the original acquisition of these assets within the last two
years. The Company also recorded a $2.9 million charge associated with this
sale which has been classified as a writedown of assets within income from
operations. This charge relates to other assets disposed of in the acquisition
that were not related to prior pooling of interests transactions.
6. Segment Reporting
The Company adopted SFAS 131 in fiscal 1998. The Company's four primary
business segments include: Business Strategy, Enterprise Solutions, Government
Solutions and IT Consulting Services. The following presents information about
reported segments for the three and six months ended June 27, 1998 and June 26,
1999.
For the three For the three For the six For the six
months ended months ended months ended months ended
---------------- ------------- ------------------ --------------
June 27, June 26, June 27, June 26,
1998 1999 1998 1999
8
RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Revenues:
Business Strategy .............................. $ 19,630 $ 7,169 $ 37,455 $ 18,561
Enterprise Solutions ........................... 41,527 48,928 73,688 98,999
Government Solutions ........................... 4,255 9,498 8,063 17,579
IT Consulting Services ......................... 131,055 143,599 252,625 283,618
-------- -------- -------- --------
Total (1) ................................... $196,467 $209,194 $371,831 $418,757
======== ======== ======== ========
Income from operations:
Business Strategy .............................. $ 2,247 $ 1,418 $ 3,623 $ 1,855
Enterprise Solutions ........................... 5,816 4,433 10,959 5,208
Government Solutions ........................... 1,277 1,395 2,479 2,602
IT Consulting Services ......................... 9,266 12,948 13,736 24,236
-------- -------- -------- --------
Total ....................................... 18,606 20,194 30,797 33,901
Corporate expenses(2) .......................... 8,372 12,081 8,993 20,394
Interest and other income(expense),net ......... 1,083 1,740 1,932 4,265
-------- -------- -------- --------
Total income before taxes ................... $ 9,151 $ 6,373 $ 19,872 $ 9,242
======== ======== ======== ========
______________
(1) Intersegment revenues were not material and have been eliminated in the
above presentation.
(2) During 1998, certain back office operations and expenses were centralized
into corporate office control thereby increasing the expenses in the
corporate area. These expenses are not specifically identifiable to any one
business unit.
9
RENAISSANCE WORLDWIDE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Item 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 27, June 26, June 27, June 26,
1998 1999 1998 1999
----------------- --------------- ----------------- -------------
Revenue ............................................ 100.0% 100.0% 100.0% 100.0%
Cost of revenue .................................... 65.9 68.7 66.3 69.2
----- ----- ----- -----
Gross profit ....................................... 34.1 31.3 33.7 30.8
Selling, general and administrative expenses ....... 25.4 26.0 26.0 26.8
Acquisition-related expenses......................... 3.5 - 1.8 -
Restructuring and other asset writedowns............. - 1.4 - 0.7
----- ----- ----- -----
Income from operations ............................. 5.2 3.9 5.9 3.3
Interest and other expense, net .................... 0.5 0.9 0.5 1.0
----- ----- ----- -----
Income before taxes ................................ 4.7 3.0 5.4 2.3
Income tax provision ............................... 4.9 1.2 4.0 0.9
----- ----- ----- -----
Net (loss) income from continuing operations ....... (0.2) 1.8 1.4% 1.4
Extraordinary item, net of tax....................... - 0.2 - 0.1
----- ----- ----- -----
Net income........................................... (0.2%) 2.0% 1.4% 1.5%
----- ----- ----- -----
Three Months ended June 27, 1998 and June 26, 1999
Revenue. Revenue increased 6.5% to $209.2 million for the second quarter of
fiscal 1999 from $196.5 million in the second quarter of 1998. This increase was
attributable primarily to a 17% increase in the revenue of the Company's
Services business unit in the quarter as a result of a greater number of IT
consultants being placed with the Company's clients during the period. The
Company's Enterprise Solutions group increased 55.7% as compared to the prior
period due primarily to organic growth, the transfer of certain consultants from
other business units into this group and the introduction of additional service
offerings. The Company's Government Solutions group increased 112.2% as compared
to the prior period due primarily to the acquisition of IPAT in July of 1998.
The Business Strategy group experienced revenue decreases of 36.1% as compared
to the prior period due to the disposition of the COBA UK and Technomics
subsidiaries during the quarter and to the transfer during 1998 of certain
Strategy consultants to the growing Enterprise Solutions group.
Gross Profit. Gross profit decreased 2.5% to $65.4 million for the second
quarter of 1999 from $67.1 million in the comparable prior period. As a
percentage of revenue, gross profit decreased to 31.3% for the period compared
to 34.1% for the comparable prior period. The decrease in gross profit
percentage was attributable primarily to a slight shift in the mix of the
Company's business from the prior quarter resulting in lower revenues from the
higher margin Business Strategy group and greater revenues from the relatively
lower margin IT Consulting Services group.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 8.9% to $54.4 million for the second
quarter of 1999 from $49.9 million in the comparable prior period. As a
percentage of revenue, selling, general and administrative expenses increased to
26% from 25.4% for the comparable prior period. This increase was attributable
primarily to investments in the Company's information technology,
telecommunications and facilities infrastructure.
10
RENAISSANCE WORLDWIDE, INC.
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.
Asset writedowns. Asset writedowns of $2.9 million for the second quarter of
fiscal 1999 were incurred in connection with the sale of certain assets and were
related to other assets disposed of in the transaction that were not related to
prior pooling of interests transactions.
Interest and Other expense, Net. Interest and other expense, net, increased
to $1.7 million for the second quarter of fiscal 1999 from $1.1 million in
expense for the comparable prior period. This change was a result of increased
balances under the Company's line of credit due to payments for acquisitions
made in 1998, other contingent payments made for acquisitions, fixed asset
expenditures as well as increased working capital needs.
Income tax provision. The effective tax rate in 1998 was significantly
affected by non-deductible acquisition related expenses.
Extraordinary gain. The extraordinary gain recognized during the quarter
related to the sale of certain assets related to the e-commerce and business
strategy group for $10 million in cash and $2 million in notes receivable. The
assets that were sold were a component of the enterprise solutions segment of
the Company. In connection with this sale, the Company recognized an after tax
gain of $833,000. The gain on sale has been classified as en extraordinary item
because the pooling of interests method of accounting was applied to the
original acquisition of these assets within the last two years.
Six months ended June 27, 1998 and June 26, 1999
Revenue. Revenue increased 12.6% to $418.8 million for the first six months of
fiscal 1999 from $371.8 million for the first six months of fiscal 1998. This
increase was attributable primarily to a 12.3% increase in the revenue of the
Company's Services business unit as a result of a greater number of IT
consultants being placed with the Company's clients during the period. The
Company's Enterprise Solutions group increased 34.3% as compared to the prior
period due primarily to organic growth, the transfer of certain consultants from
other business units into this group and the introduction of additional service
offerings. The Company's Government Solutions group increased 118% as compared
to the prior period due primarily to the acquisition of IPAT in July of 1998.
The Business Strategy group experienced revenue decreases of 50.4% as compared
to the prior period due to the disposition of the COBA UK and Technomics
subsidiaries during the quarter and to the transfer during 1998 of certain
Strategy consultants to the growing Enterprise Solutions group.
Gross Profit. Gross profit increased 2.8% to $128.9 million for the second
quarter of 1999 from $125.4 million in the comparable prior period. As a
percentage of revenue, gross profit decreased to 30.8% for the period compared
to 33.7% for the comparable prior period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 16.3% to $112.4 million for first six
months of fiscal 1999 from $96.7 million in the comparable prior period. As a
percentage of revenue, selling, general and administrative expenses increased to
26.8% from 26% for the comparable prior period. This increase was attributable
primarily to investments in the Company's information technology,
telecommunications and facilities infrastructure.
Acquisition-related expenses. Acquisition related expenses of $6.9 million
for the first six months of fiscal 1998 were incurred in connection with the
Neoglyphics and Triad acquisitions.
11
RENAISSANCE WORLDWIDE, INC.
Asset writedowns. Asset writedowns of $2.9 million for the second quarter of
fiscal 1999 were incurred in connection with the sale of certain assets and were
related to other assets disposed of in the transaction that were not related to
prior pooling of interests transactions.
Interest and Other expense, Net. Interest and other expense, net, increased
to $4.3 million for the first six months of fiscal 1999 from $1.9 million in
expense for the comparable prior period. This change was a result of increased
balances under the Company's line of credit due to payments for acquisitions
made in 1998, other contingent payments made for acquisitions, fixed asset
expenditures as well as increased working capital needs.
Income tax provision. The effective tax rate in 1998 was significantly
affected by non-deductible acquisition related expenses.
Extraordinary gain. The extraordinary gain recognized during the quarter
related to the sale of certain assets related to the e-commerce and business
strategy group for $10 million in cash and $2 million in notes receivable. The
assets that were sold were a component of the enterprise solutions segment of
the Company. In connection with this sale, the Company recognized an after tax
gain of $833,000. The gain on sale has been classified as en extraordinary item
because the pooling of interests method of accounting was applied to the
original acquisition of these assets within the last two years.
Liquidity and Capital Resources
The Company's line of credit existing at December 26, 1998 was terminated
on March 24, 1999. In February of 1999, the Company entered into a new interim
line of credit with a different bank to provide a borrowing base of 85% of
eligible accounts receivable as defined, up to a maximum borrowing of $110
million. Interest was payable on the termination date of the borrowings or, in
the case of borrowings bearing a LIBOR interest rate, monthly, in arrears at the
LIBOR rate plus 2.0% or the higher of the bank's prime rate or the Federal Funds
Rate plus 0.50%, plus 0.75%, at the Company's option. The line was
collateralized by substantially all of the assets of the Company, contained
certain restrictions, and required maintenance of certain financial covenants.
The Company was in compliance with, or obtained waivers in the event of non-
compliance with, the terms of the new interim line of credit as of June 26,
1999. The line was used to fund the debt previously funded by the line of credit
which was terminated on March 24, 1999.
On July 15, 1999 the Company entered into a senior credit facility (the
"Credit Facility") with a bank syndicate. The Credit Facility consists of a
revolving line of credit of up to $100.0 million and a term loan of $50 million.
The Credit Facility currently bears interest at the higher of the Federal Funds
Rate plus 0.50% or the prime rate, plus 1.75% or LIBOR plus 3.0%. The Credit
Facility contains various covenants, including the maintenance of defined
financial ratios and is collateralized by substantially all of the assets of
the Company.
As of June 26, 1999, the availability under the interim line of credit was
$11 million. The interest rate on the interim line of credit at June 26, 1999
was 7.43%.
The Company had positive cash flows from operations of $7.0 million dollars
for the six months ended June 26, 1999. The positive operating cash flows were
due primarily to 12.1 million decrease in other current assets primarily
attributed to a reduction in prepaid expenses and the refund on income taxes.
The Company experienced negative cash flows from financing activities of
$15.6 million for the six months ended June 26, 1999. The negative investing
cash flows were attributable to $10.7 million in net payments made for
acquisitions and $13.1 million in fixed asset purchases during the period.
Negative investing cash flows were favorable impacted by $10.0 million by the
sales of certain assets in the Enterprise Solutions segment.
The Company had positive cash flows from financing of $1.7 million dollars
for the six months ended June 26, 1999. The positive operating cash flows were
attributtable to $4.3 million in net borrowings on the company's lines of
credit as wall as $1.1 million in cash received from employees for purchases
under the
12
RENAISSANCE WORLDWIDE, INC.
employee stock purchase plan. Financing cash flows were negatively impacted by
$2.8 million for the repayment of long-term debt related to acquisitions.
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
$13.0 million in capital expenditures in the next twelve months principally to
upgrade its computer systems. In connection with certain of its acquisitions,
the Company may be obligated to make certain contingent payments during the next
several years, including $5.5 million which the Company is currently required to
pay over the next 12 months. The Company does not believe that such payments
will 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 its new Credit Facility, together with cash flows from
operations, will be sufficient to meet the Company's presently anticipated
working capital needs for at least the next 12 months.
Item III. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates on its borrowings. The Company does
not engage in trading market risk sensitive instruments for speculative
purposes. There have been no material changes in market risk exposures from the
information disclosed in the Form 10-K for the year ended December 26, 1998.
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 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
13
RENAISSANCE WORLDWIDE, INC.
Not applicable
Item 4--Submission of Matters to a Vote of Security Holders
On May 27, 1999 the Company held its Annual Meeting of Stockholders. At the
meeting the following proposals were voted on as follows:
1. Election of Robert P. Badavas as a Class I director -- votes were
46,082,946 for and 1,068,346 withheld.
2. Election of Terry L. Hunter as a Class I director -- votes were 46,004,605
for and 1,146,687 withheld.
Item 5--Other Information
Not applicable
Item 6--Exhibits and Reports on Form 8-K
a. Exhibits
10.5 Amended and Restated Credit Agreement among Renaissance Worldwide,
Inc., Bank of America, N.A., BNY Factoring LLC, and the Lenders
named therein.
27 Financial Data Schedule
b. Reports on Form 8-K
Not applicable
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 10, 1999 By: /s/ G. Drew Conway
______________________________________________
G. Drew Conway,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 1999 By: /s/ Joseph F. Pesce
_______________________________________________
Joseph F. Pesce
Executive Vice President of Finance, Chief Financial
Officer and Treasurer
14