________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2001
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 0-24343
Answerthink, Inc.
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0750100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1001 Brickell Bay Drive, Suite 3000
Miami, Florida 33131
(Address of principal executive offices) (Zip Code)
(305) 375-8005
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X No ___
-----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
As of September 28, 2001, there were 45,657,456 shares of common stock
outstanding.
________________________________________________________________________________
________________________________________________________________________________
Answerthink, Inc.
TABLE OF CONTENTS
-----------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 28, 2001 and December 29, 2000 3
Consolidated Statements of Operations for the Quarter ended September 28, 2001
and September 29, 2000 and for the Nine Months Ended September 28, 2001
and September 29, 2000 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 28, 2001
and September 29, 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Answerthink, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 28, December 29,
2001 2000
----------------- -----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 53,458 $ 51,662
Accounts receivable and unbilled revenue, net of allowance of $13,884 and
$11,122 in 2001 and 2000, respectively 46,848 59,706
Other receivables 1,654 3,547
Prepaid expenses and other current assets 15,443 15,044
----------------- -----------------
Total current assets 117,403 129,959
Property and equipment, net 18,760 14,655
Other assets 1,155 1,450
Goodwill, net 79,489 82,612
----------------- -----------------
Total assets $ 216,807 $ 228,676
----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,986 $ 10,006
Accrued expenses and other liabilities 24,992 39,270
Media payable 1,898 7,346
----------------- -----------------
Total current liabilities 33,876 56,622
Commitments and contingencies
Shareholders' equity
Preferred stock, $.001 par value, 1,250,000 authorized, none issued and
outstanding -- --
Common stock, $.001 par value, authorized 125,000,000 shares; issued and
outstanding: 45,657,456 shares at September 28, 2001; 44,234,837 shares
at December 29, 2000 46 44
Additional paid-in capital 256,156 243,299
Unearned compensation -- (348)
Accumulated deficit (73,271) (70,941)
----------------- -----------------
Total shareholders' equity 182,931 172,054
----------------- -----------------
Total liabilities and shareholders' equity $ 216,807 $ 228,676
================= =================
The accompanying notes are an integral part of the consolidated financial
statements.
3
Answerthink, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Nine Months Ended
--------------------------------- -----------------------------------
September 28, September 29, September 28, September 29,
2001 2000 2001 2000
-------------- --------------- --------------- ----------------
Net revenues $ 60,016 $ 84,064 $ 197,307 $ 242,090
Costs and expenses:
Project personnel and expenses 36,955 47,101 123,004 138,580
Selling, general and administrative expenses 22,122 25,827 70,123 73,345
Stock compensation expense 211 213 4,855 639
-------------- ---------------- ---------------- -----------------
Total costs and operating expenses 59,288 73,141 197,982 212,564
-------------- ---------------- ---------------- -----------------
Income (loss) from operations 728 10,923 (675) 29,526
Other income (expense):
Litigation settlement -- -- -- 1,850
Interest income 250 336 985 932
Interest expense (42) (59) (126) (216)
-------------- ---------------- ---------------- -----------------
Income before income taxes 936 11,200 184 32,092
Income taxes 3,131 4,592 2,514 13,158
-------------- ---------------- ---------------- -----------------
Net income (loss) $ (2,195) $ 6,608 $ (2,330) $ 18,934
============== ================ ================ =================
Basic net income (loss) per common share $ (0.05) $ 0.16 $ (0.05) $ 0.48
Weighted average common shares outstanding 44,682 40,770 43,631 39,523
Diluted net income (loss) per common share $ (0.05) $ 0.15 $ (0.05) $ 0.42
Weighted average common and common equivalent shares
outstanding 44,682 44,757 43,631 44,852
The accompanying notes are an integral part of the consolidated financial
statements.
4
Answerthink, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
---------------------------------------
September 28, September 28,
2001 2001
----------------- -----------------
Cash flows from operating activities:
Net income (loss) $ (2,330) $ 18,934
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Non-cash compensation expense 4,855 639
Depreciation and amortization 9,267 8,738
Provision for doubtful accounts 4,776 1,572
Gain on litigation settlement -- (1,850)
Deferred income taxes 1,457 1,605
Changes in assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable and unbilled revenue 8,082 (13,355)
Decrease in other receivables 1,893 357
Increase in prepaid expenses and other assets (1,708) (4,460)
Decrease in accounts payable (3,020) (1,072)
Decrease in accrued expenses and other liabilities (9,046) (1,945)
Decrease in media payable (5,448) (5,331)
----------------- -----------------
Net cash provided by operating activities 8,778 3,832
Cash flows from investing activities:
Purchases of property and equipment (8,340) (5,726)
Purchases of short-term investments -- (500)
Sales and redemptions of short-term investments -- 2,932
Cash used in acquisition of businesses, net of cash acquired (2,051) (4,317)
----------------- -----------------
Net cash used in investing activities (10,391) (7,611)
Cash flows from financing activities:
Proceeds from issuance of common stock 3,409 16,243
Repayment of notes payable -- (1,750)
----------------- -----------------
Net cash provided by financing activities 3,409 14,493
----------------- -----------------
Net increase in cash and cash equivalents 1,796 10,714
Cash and cash equivalents at beginning of period 51,662 27,124
----------------- -----------------
Cash and cash equivalents at end of period $ 53,458 $ 37,838
================= =================
The accompanying notes are an integral part of the consolidated financial
statements.
5
Answerthink, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements of Answerthink, Inc. ("Answerthink"
or the "Company") include the accounts of the Company and all of its wholly
owned subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation.
In the opinion of management, the accompanying consolidated financial
statements reflect all normal and recurring adjustments which are necessary for
a fair presentation of the Company's financial position, results of operations,
and cash flows as of the dates and for the periods presented. The consolidated
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission regarding interim financial reporting.
Accordingly, these statements do not include all the disclosures normally
required by accounting principles generally accepted in the United States of
America for annual financial statements and should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
December 29, 2000 included in the Form 10-K filed by the Company with the
Securities and Exchange Commission. The consolidated results of operations for
the quarter and nine months ended September 28, 2001 are not necessarily
indicative of the results to be expected for any future period or for the full
fiscal year. Certain prior period amounts have been reclassified to conform to
current period presentation.
2. Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period. With regard to common shares issued to employees under employment
agreements, the calculation includes only the vested portion of such shares.
Accordingly, common shares outstanding for the basic net income (loss) per share
computation are lower than actual shares issued and outstanding.
Income (loss) per common share assuming dilution is computed by dividing
net income (loss) by the weighted average number of common shares outstanding,
increased by the assumed conversion of other potentially dilutive securities
during the period. For the quarter ended September 28, 2001, potentially
dilutive securities of 822,638 shares of unvested common stock issued under
employment agreements and 1,156,696 shares of common stock issuable upon the
exercise of stock options and warrants assuming the treasury stock method were
excluded from the diluted loss per share calculation because their effects would
have been anti-dilutive to the loss incurred by the Company. Therefore the
amounts reported for the basic and diluted net loss per share for the quarter
were the same. For the quarter ended September 29, 2000, potentially dilutive
securities included 3,293,166 shares of unvested common stock issued under
employment agreements and 693,820 shares of common stock issuable upon the
exercise of stock options and warrants accounted for under the treasury stock
method.
Potentially dilutive shares were excluded from the diluted loss per share
calculation for the nine months ended September 28, 2001 because their effects
would have been anti-dilutive to the loss incurred by the Company. Therefore,
the amounts reported for basic and diluted net loss per share were the same for
the nine months ended September 28, 2001. Potentially dilutive shares which were
not included in the diluted loss per share calculation for the nine months ended
September 28, 2001 included 1,705,812 shares of unvested common stock issued
under employment agreements and 986,591 shares issuable upon the exercise of
stock options and warrants assuming the treasury stock method. For the nine
months ended September 29, 2000, potentially dilutive securities included
4,166,491 shares of unvested common stock issued under employment agreements and
1,161,760 shares of common stock issuable upon the exercise of stock options and
warrants assuming the treasury stock method.
6
Answerthink, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
3. Acquisitions and Non-Cash Transactions
On August 26, 2001, the Company acquired certain assets and assumed certain
liabilities of the SAP application business of Condor Technology Solutions, Inc.
("Condor") for $2.0 million in cash. Under the purchase agreement, the Company
may be required to pay additional contingent consideration of $750,000 based on
the SAP application business's achievement of certain performance targets over
the six-month period ending December 31, 2001. This business provides
consulting, design, development, integration and implementation services
relating to the SAP products suite.
This acquisition has been accounted for using the purchase method of
accounting. Accordingly, the results of operations of the acquisition are
included in the Company's consolidated results of operations from the date of
acquisition. The excess of the purchase price of the acquisition over the
estimated fair value of the net identifiable assets acquired has been recorded
as goodwill and is not being amortized in accordance with the provisions of
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (See Note 7). The pro forma impact of these acquisitions was
not significant to the results of the Company's consolidated operations for the
nine months ended September 28, 2001.
During 2000, the Company recorded a liability of $5.2 million for an earned
contingent consideration to be paid in the Company's common stock in March 2001.
This amount was included in accrued expenses and other liabilities in the
consolidated balance sheet as of December 29, 2000. In March 2001, the Company
issued 755,374 shares of the Company's common stock for the earned contingent
consideration.
4. Stock Compensation Expense
In 2001, the Company granted stock options to participants in the Company's
Employee Stock Purchase Plan. These options were granted in lieu of the Employee
Stock Purchase Plan shares that could not be issued because the plan was
oversubscribed for the purchase periods ending December 31, 2000 and June 30,
2001. The Company recorded a non-cash compensation charge of $4.2 million in the
nine months ended September 28, 2001 based on the vesting provision of the
options for the difference between the fair market value of the stock on the
option grant date and the exercise price. The options fully vested on June 30,
2001. Therefore, operating results in future periods will not be impacted by
this special grant.
5. Stock Options
On June 27, 2001, the Company filed with the Securities and Exchange
Commission a Schedule TO describing a program offering a voluntary stock option
exchange for the Company's employees. The offering period for the stock option
exchange ended on August 8, 2001. Under the program, employees holding
nonqualified options to purchase the Company's common stock or incentive stock
options to purchase the Company's common stock with an exercise price of $10.00
per share or more were given the opportunity to exchange their existing options
for new options to purchase shares of the Company's common stock equal in number
to 66 2/3% of the number of options tendered and accepted for exchange. The new
options will not be granted until at least six months and one day after
acceptance of the old options for exchange and cancellation. The exercise price
of the new options will be the last reported sale price of the Company's common
stock on the Nasdaq Stock Market's National Market on their grant date. Options
for 12.3 million shares of the Company's common stock were eligible for
participation and options for 4.4 million shares were tendered in the exchange
program.
7
Answerthink, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
6. Income Taxes
Our effective tax rate for the first nine months of 2001 was 1,366%
compared to an effective tax rate of 41% for the comparable period of 2000. The
higher effective tax rate for 2001 was the result of an increase in the impact
of permanent differences on the tax rate as a result of lower pretax income.
7. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 ("SFAS 141"), Business Combinations,
effective for all business combinations completed after June 30, 2001, and No.
142 ("SFAS 142"), Goodwill and Other Intangible Assets, effective for fiscal
years beginning after December 15, 2001. SFAS 141 eliminates the pooling-of-
interest method for business combinations and requires the application of the
purchase method. Under SFAS 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their estimated useful lives. Under the provisions of SFAS 142, goodwill and
indefinite lived intangible assets arising from a business combination completed
after June 30, 2001 will not be amortized even though a company has not
otherwise adopted SFAS 142. Accordingly, the Company adopted the provisions of
SFAS 142 in its accounting for the acquisition of the SAP application business
of Condor on August 26, 2001 and therefore, the goodwill resulting from this
acquisition is not being amortized. The Company will apply the provisions of
SFAS 142 to its remaining goodwill and intangible assets beginning in the first
quarter of 2002. During 2002, the Company will perform the first of the required
tests of goodwill and indefinite lived intangible assets as of December 29,
2001, and has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.
8. Litigation
THINK New Ideas, Inc. ("THINK New Ideas") and three of its former officers
are defendants in a consolidated class action filed in federal court in New
York. Think New Ideas merged with Answerthink on November 5, 1999. This suit was
previously described in Answerthink's Annual Report on Form 10-K for the year
ended December 29, 2000. In February 1999, a Consolidated and Amended Class
Action Complaint ("Consolidated Complaint") was filed seeking to assert claims
on behalf of all individuals who purchased THINK New Ideas' common stock from
November 5, 1997 through September 21, 1998. The defendants filed a motion to
dismiss the Consolidated Complaint and the plaintiffs opposed the motion. On
March 15, 2000, the court granted the defendants' motion to dismiss the
Consolidated Complaint. The plaintiffs filed a Second Consolidated and Amended
Class Action Complaint ("Second Amended Complaint") on April 14, 2000. The
defendants filed a motion to dismiss the Second Amended Complaint on May 1,
2000. On September 14, 2000, the Court denied the motion. The defendants filed
an answer to the Second Amended Complaint on November 10, 2000. The parties are
engaged in discovery. A discovery order was entered initially setting the
discovery deadline for October 26, 2001. The deadline for discovery has been
extended to December 20, 2001. No trial date has been set. The Company believes
there are meritorious defenses to the claims made in the Second Amended
Complaint and intends to contest those claims vigorously. Although there can be
no assurance as to the outcome of these matters, an unfavorable resolution could
have a material adverse effect on the results of operations and/or financial
condition of the Company in the future.
The Company is involved in legal proceedings, claims, and litigation
arising in the ordinary course of business not specifically discussed herein. In
the opinion of management, the final disposition of such other matters will not
have a material adverse effect on the financial position or results of
operations of the Company.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and the information incorporated by reference in it include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend
the forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. All statements regarding our
expected financial position and operating results, our business strategy, our
financing plans and forecasted demographic and economic trends relating to our
industry are forward-looking statements. These statements can sometimes be
identified by our use of forward-looking words such as "may," "will,"
"anticipate," "estimate," "expect," or "intend" and similar expressions. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially
different from the results, performance or achievements expressed or implied by
the forward looking statements. We cannot promise you that our expectations in
such forward-looking statements will turn out to be correct. Factors that
impact such forward looking statements include, among others, our ability to
attract additional business, the timing of projects and the potential for
project cancellation by our customers, changes in expectations regarding the
information technology industry, our ability to attract and retain skilled
employees, possible changes in collections of accounts receivable, risks of
competition, price and margin trends, changes in general economic conditions and
interest rates. An additional description of our risk factors is set forth in
our Registration Statement on Form S-3 (Registration Form 333-32342). We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
OVERVIEW
Answerthink is a leading provider of technology-enabled business
transformation solutions. We bring together multi-disciplinary expertise in
benchmarking and research, business transformation, interactive marketing,
business applications and technology integration to serve the needs of Global
2000 clients. Answerthink's solutions span all functional areas of a company
including finance, human resources, information technology, sales, marketing,
customer service, and supply-chain, as well as across a variety of industry
sectors.
Results of Operations
The following table sets forth, for the periods indicated, our results of
operations and the percentage relationship to net revenues of such results:
Quarter Ended Nine Months Ended
--------------------------------------------------------------------------------
September 28, September 29, September 28, September 29,
(dollars in thousands) 2001 2000 2001 2000
-------------------------------------------------------------------------------
Net revenues $ 60,016 100.0% 84,064 100.0% $ 197,307 100.0% $ 242,090 100.0%
Costs and expenses:
Project personnel and expenses 36,955 61.5% 47,101 56.0% 123,004 62.3% 138,580 57.2%
Selling, general and administrative expenses 22,122 36.9% 25,827 30.7% 70,123 35.5% 73,345 30.3%
Stock compensation expense 211 0.4% 213 0.3% 4,855 2.5% 639 0.3%
-------------------------------------------------------------------------------
Total costs and operating expenses 59,288 98.8% 73,141 87.0% 197,982 100.3% 212,564 87.8%
-------------------------------------------------------------------------------
Income (loss) from operations 728 1.2% 10,923 13.0% (675) (0.3%) 29,526 12.2%
Other income:
Litigation settlement -- -- -- -- -- -- 1,850 0.8%
Interest income, net 208 0.3% 277 0.3% 859 0.4% 716 0.3%
-------------------------------------------------------------------------------
Income before income taxes 936 1.5% 11,200 13.3% 184 0.1% 32,092 13.3%
Income taxes 3,131 5.2% 4,592 5.4% 2,514 1.3% 13,158 5.5%
-------------------------------------------------------------------------------
Net income (loss) $ (2,195) (3.7%) 6,608 7.9% $ (2,330) (1.2%) $ 18,934 7.8%
-------------------------------------------------------------------------------
9
Net Revenues. Net revenues for the quarter ended September 28, 2001
decreased by $24.0 million or 28.6% compared to the quarter ended September 29,
2000. For the first nine months of fiscal 2001, net revenues decreased $44.8
million or 18.5% over the comparable period of 2000. These decreases in net
revenues were primarily attributable to a decrease in the number of customers
and the average size of our projects resulting from reduced demand for
information technology services.
Project Personnel and Expenses. Project personnel costs and expenses
consist primarily of salaries, benefits and bonuses for consultants. Project
personnel costs and expenses for the quarter ended September 28, 2001 decreased
by 21.5 % to $37.0 million compared to $47.1 million in the quarter ended
September 29, 2000. For the first nine months of fiscal 2001, project personnel
costs and expenses decreased 11.2% over the comparable period of 2000. These
decreases in project personnel and expenses were the result of a decrease in the
number of consultants, partially offset by an increase in average salaries.
Consultant headcount was 1,180 as of September 28, 2001 compared to 1,533 as of
September 29, 2000. Project personnel and expenses as a percentage of net
revenues increased to 61.5% in the quarter ended September 28, 2001 from 56.0%
in the comparable quarter of 2000. For the first nine months of fiscal 2001,
project personnel and expenses as a percentage of net revenues increased to
62.3% from 57.2% in the comparable nine months of 2000. These increases in
project personnel costs and expenses as a percentage of net revenues were due to
lower consultant utilization, partially offset by higher billing rates.
Selling, General and Administrative. Selling, general and administrative
expenses decreased 14.3% to $22.1 million in the quarter ended September 28,
2001 from $25.8 million in the quarter ended September 29, 2000. For the first
nine months of fiscal 2001, selling, general and administrative expenses
decreased 4.4% to $70.1 million from $73.3 million in the comparable period of
2000. These decreases in selling, general and administrative expenses were
primarily a result of lower salary and benefit expenses associated with a
decrease in functional support associates as well as lower recruiting and
training costs resulting from a decrease in the number of consultants. These
decreases were partially offset by an increase in bad debt expense. Sales and
functional support headcount was 209 as of September 28, 2001 compared to 270 as
of September 29, 2000. Selling, general and administrative expenses as a
percentage of net revenues increased to 36.9% in the quarter ended September 28,
2001 from 30.7% in the comparable quarter of 2000. For the nine months ended
September 28, 2001, selling, general and administrative expenses as a percentage
of net revenues also increased to 35.5% from 30.3% in the comparable nine months
of 2000. The increases in selling, general and administrative expenses as a
percentage of net revenues were attributable to an increase in bad debt expense
as well as the lower revenue levels during 2001. We are currently evaluating
several measures to reduce future payroll and real estate related costs and it
is expected that these measures will result in charges of $5.0 million to $7.0
million in the fourth quarter of 2001.
Stock Compensation Expense. Stock compensation expense in 2001 primarily
related to the granting of stock options to participants in our Employee Stock
Purchase Pan. These stock options were granted in lieu of the Employee Stock
Purchase Plan shares that could not be issued because the plan was
oversubscribed for the purchase periods ending on December 31, 2000 and June 30,
2001. We recorded a non-cash compensation charge of $4.2 million in the nine
months ended September 28, 2001 based on the vesting provision of the options
for the difference between the fair market value of the stock on the option
grant date and the exercise price. The options fully vested on June 30, 2001.
Income Taxes. Our effective tax rate for the first nine months of 2001 was
1,366% compared to an effective tax rate of 41% for the comparable period of
2000. The higher effective tax rate for 2001 was the result of an increase in
the impact of permanent differences on the tax rate as a result of lower pretax
income.
Liquidity and Capital Resources
We have funded our operations primarily with cash flow generated from
operations and the proceeds from our initial public offering. In addition, we
have a revolving credit facility with a bank. Effective November 13, 2001, we
reduced the amount available under our credit facility from $25.0 million to
$15.0 million. The credit facility includes covenants relating to the
maintenance of certain financial ratios. At September 28, 2001, we had no
borrowings under this credit facility. At September 28, 2001, we had
approximately $53.5 million in cash and cash equivalents compared to $51.7
million at December 29, 2000.
10
Net cash provided by operating activities was $8.8 million for the nine
months ended September 28, 2001 compared to $3.8 million provided during the
comparable period of 2000. During the nine months ended September 28, 2001, net
cash provided by operating activities was primarily attributable to an $8.1
million decrease in accounts receivable and unbilled revenue and non-cash
expenses of $20.4 million, partially offset by a $9.0 million decrease in
accrued expenses and other liabilities, a $5.4 million decrease in media payable
and a $3.0 million decrease in accounts payable. During the nine months ended
September 29, 2000, net cash provided by operating activities was primarily
attributable to our operating income and non-cash items of $10.7 million,
partially offset by a $13.3 million increase in accounts receivable and unbilled
revenue, a $5.3 million decrease in media payable and a $4.5 million increase in
prepaid expenses and other assets. Media payables represent media placement
costs owed to media providers for services purchased on behalf of our customers.
Amounts in media payables which have been billed to our customers are included
in other receivables. The level of media payables and the related receivables
will vary with the timing of our customers' media campaigns.
Net cash used in investing activities was $10.4 million for the nine
months ended September 28, 2001 compared to $7.6 million used during the
comparative period of 2000. The use of cash for investing activities in 2001 was
attributable to $8.3 million of purchases of property and equipment and $2.1
million used in the acquisition of businesses. During 2000, the uses of cash in
investing activities were $5.7 million of purchases of property and equipment
and $4.3 million of additional contingent consideration paid for certain prior
acquisitions, partially offset by net sales and redemptions of short-term
investments of $2.4 million.
Net cash provided by financing activities was $3.4 million for the nine
months ended September 28, 2001 compared to $14.5 million provided during the
comparable period of 2000. The source of cash from financing activities during
2001 was $3.4 million of proceeds from the sale of common stock as a result of
exercises of stock options as well as the sale of stock through our Employee
Stock Purchase Plan. During 2000, the primary source of cash from financing
activities was $16.2 million of proceeds from the sale of common stock as a
result of exercises of stock options and warrants as well as the sale of stock
through our Employee Stock Purchase Plan, partially offset by $1.8 million
repayment of notes payable.
We currently believe that available funds and cash flows generated by
operations, if any, will be sufficient to fund our working capital and capital
expenditure requirements for at least the next 12 months. We may decide to raise
additional funds in order to fund expansion, to develop new or enhanced products
and services, to respond to competitive pressures or to acquire complementary
businesses or technologies. We cannot assure you, however, that additional
financing will be available when needed or desired on terms favorable to us or
at all.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141 ("SFAS 141"), Business Combinations,
effective for all business combinations completed after June 30, 2001, and No.
142 ("SFAS 142"), Goodwill and Other Intangible Assets, effective for fiscal
years beginning after December 15, 2001. SFAS 141 eliminates the pooling-of-
interest method for business combinations and requires application of the
purchase method. Under SFAS 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their estimated useful lives. Under the provisions of SFAS 142, goodwill and
indefinite lived intangible assets arising from a business combination completed
after June 30, 2001 will not be amortized even though a company has not
otherwise adopted SFAS 142. Accordingly, we adopted the provisions of SFAS 142
in our accounting for our acquisition of the SAP application business of Condor
on August 26, 2001 and therefore, the goodwill resulting from this acquisition
is not being amortized. We will apply the provisions of SFAS 142 to its
remaining goodwill and intangible assets beginning in the first quarter of 2002.
During 2002, we will perform the first of the required tests of goodwill and
indefinite lived intangible assets as of December 29, 2001, and we have not yet
determined what the effect of these tests will be on our earnings and financial
position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not believe that there is any material market risk exposure with
respect to derivative or other financial instruments, which would require
disclosure under this item.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
THINK New Ideas and three of its former officers are defendants in a
consolidated class action filed in federal court in New York. Think New Ideas
merged with Answerthink on November 5, 1999. This suit was previously described
in Answerthink's Annual Report on Form 10-K for the year ended December 29,
2000. In February 1999, a Consolidated and Amended Class Action Complaint
("Consolidated Complaint") was filed seeking to assert claims on behalf of all
individuals who purchased THINK New Ideas' common stock from November 5, 1997
through September 21, 1998. The defendants filed a motion to dismiss the
Consolidated Complaint and the plaintiffs opposed the motion. On March 15, 2000,
the Court granted the defendants' motion to dismiss the Consolidated Complaint.
The plaintiffs filed a Second Consolidated and Amended Class Action Complaint
("Second Amended Complaint") on April 14, 2000. The defendants filed a motion to
dismiss the Second Amended Complaint on May 1, 2000. On September 14, 2000, the
Court denied the motion. The defendants filed an answer to the Second Amended
Complaint on November 10, 2000. The parties are engaged in discovery. A
discovery order was entered initially setting the discovery deadline for October
26, 2001. The deadline for discovery has been extended to December 20, 2001. No
trial date has been set. We believe there are meritorious defenses to the claims
made in the Second Amended Complaint and we intend to contest those claims
vigorously. Although there can be no assurance as to the outcome of these
matters, an unfavorable resolution could have a material adverse effect on our
results of operations and/or our financial condition in the future.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Answerthink during the quarter
ended September 28, 2001.
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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.
Answerthink, Inc.
Date: November 13, 2001 By: /s/ John F. Brennan
---------------------------------
John F. Brennan
Executive Vice President and
Chief Financial Officer
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