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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 March 29, 2002
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 March 29, 2002, there were 46,846,537 shares of common stock
outstanding.
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Answerthink, Inc.
TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 29, 2002 and December 28, 2001 3
Consolidated Statements of Operations for the Quarters Ended March 29, 2002 and
March 30, 2001 4
Consolidated Statements of Cash Flows for the Quarters Ended March 29, 2002 and
March 30, 2001 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 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Answerthink, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 29, December 28,
2002 2001
--------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 62,727 $ 59,888
Accounts receivable and unbilled revenue, net of allowance of $6,613 and
$6,810 in 2002 and 2001, respectively 34,152 39,164
Other receivables 856 851
Prepaid expenses and other current assets 15,612 15,628
-------------- -------------
Total current assets 113,347 115,531
Property and equipment, net 17,828 18,468
Goodwill, net 46,720 77,920
-------------- -------------
Total assets $ 177,895 $ 211,919
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,970 $ 5,187
Accrued expenses and other liabilities 21,368 27,992
Media payable 898 1,039
-------------- -------------
Total current liabilities 28,236 34,218
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: 46,846,537 shares at March 29, 2002; 45,880,118 shares at
December 28, 2001 47 46
Additional paid-in capital 261,195 257,115
Accumulated deficit (111,583) (79,460)
-------------- -------------
Total shareholders' equity 149,659 177,701
-------------- -------------
Total liabilities and shareholders' equity $ 177,895 $ 211,919
============== =============
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
---------------------------------
March 29, March 30,
2002 2001
------------ --------------
Revenues:
Revenues before reimbursements $ 46,413 $ 72,015
Reimbursements 6,404 9,664
----------- ---------
Total revenues 52,817 81,679
Costs and expenses:
Project personnel and expenses:
Project personnel and expenses before reimbursable expenses 32,348 45,381
Reimbursable expenses 6,404 9,664
----------- ---------
Total project personnel and expenses 38,752 55,045
Selling, general and administrative expenses 15,728 24,401
Stock compensation expense -- 3,031
----------- ---------
Total costs and operating expenses 54,480 82,477
----------- ---------
Loss from operations (1,663) (798)
Other income (expense):
Interest income 170 476
Interest expense (46) (42)
----------- ---------
Loss before income taxes (1,539) (364)
Income taxes (616) (164)
----------- ---------
Loss before cumulative effect of change in accounting principle (923) (200)
Cumulative effect of change in accounting principle (31,200) --
----------- ---------
Net loss $ (32,123) $ (200)
=========== =========
Loss per share - basic and diluted:
Loss before cumulative effect of change in accounting principle $ (0.02) $ (0.00)
Cumulative effect of change in accounting principle $ (0.68) $ --
Net loss per common share $ (0.70) $ (0.00)
Weighted average shares outstanding - basic and diluted 45,868 42,181
The accompanying notes are an integral part of the consolidated financial
statements.
4
Answerthink, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Quarter Ended
---------------------------------
March 29, March 30,
2002 2001
------------ -----------
Cash flows from operating activities:
Net loss $ (32,123) $ (200)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Cumulative effect of change in accounting principle 31,200 --
Non-cash compensation expense -- 3,031
Depreciation and amortization 1,342 2,981
Provision for doubtful accounts 4 1,529
Deferred income taxes (616) --
Changes in assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable and unbilled revenue 5,008 (2,593)
Increase in other receivables (5) (504)
Decrease (increase) in prepaid expenses and other assets 995 (428)
Increase (decrease) in accounts payable 783 (630)
Decrease in accrued expenses and other liabilities (6,428) (9,287)
Decrease in media payable (141) (2,445)
---------- ----------
Net cash provided by (used in) operating activities 19 (8,546)
Cash flows from investing activities:
Purchases of property and equipment (1,026) (4,089)
Cash used in acquisition of business, net of cash acquired (236) --
---------- ----------
Net cash used in investing activities (1,262) (4,089)
Cash flow from financing activity:
Proceeds from issuance of common stock 4,082 1,102
---------- ----------
Net cash provided by financing activity 4,082 1,102
---------- ----------
Net increase (decrease) in cash and cash equivalents 2,839 (11,533)
Cash and cash equivalents at beginning of period 59,888 51,662
---------- ----------
Cash and cash equivalents at end of period $ 62,727 $ 40,129
========== ==========
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 material 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 28, 2001 included in the Form 10-K filed by the Company with the
Securities and Exchange Commission. The consolidated results of operations for
the quarter ended March 29, 2002 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
(see Note 5).
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 quarters ended March 29, 2002 and March
30, 2001, potentially dilutive securities of 589,573 shares and 3,062,497
shares, respectively, of unvested common stock issued under employment
agreements and 753,403 and 851,921 shares, respectively, 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 quarters were the same.
3. Goodwill and Other Intangibles
Effective December 29, 2001, the Company adopted Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets". Under SFAS 142, goodwill and intangible assets deemed to
have indefinite lives are no longer amortized but are reviewed at least annually
for impairment. Other intangible assets will continue to be amortized over their
estimated useful lives. SFAS 142 requires that goodwill be tested for impairment
at the reporting unit level at adoption and at least annually thereafter,
utilizing a "fair value" methodology versus an undiscounted cash flow method
required under previous accounting rules. The Company evaluated the fair values
of its reporting units utilizing various valuation techniques including
discounted cash flow analysis. Based on the new method for recording impairment,
the Company recognized a transitional impairment loss of $31.2 million as the
cumulative effect of a change in accounting principle. This charge related to
the Technology Integration reporting unit.
6
Answerthink, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
3. Goodwill and Other Intangibles (continued)
Goodwill amortization for the quarter ended March 30, 2001 was $1.7
million. The following schedule reconciles net loss and per share amounts for
the period ended March 30, 2001 adjusted for SFAS 142 (in thousands, except per
share data):
Quarter Ended
-------------------------------------
March 29, 2002 March 30, 2001
-------------- ---------------
Net loss as reported $ (32,123) $ (200)
Add back: Goodwill amortization -- 1,657
------------ --------------
Adjusted net income (loss) $ (32,123) $ 1,457
============ ==============
Basic and diluted net income (loss) per share:
Net loss as reported $ (0.70) $ (0.00)
Goodwill amortization -- 0.03
------------ --------------
Adjusted net income (loss) per share $ (0.70) $ 0.03
============ ==============
4. Reimbursable Expenses
During the quarter, the Company adopted Emerging Issues Task Force
Topic No. D-103, "Income Statement Characterization of Reimbursements Received
for "Out of Pocket" Expenses Incurred". In accordance with the provisions of
Topic No. D-103, reimbursements received from customers for out-of-pocket
expenses incurred by employees are classified as revenue in the statement of
operations. The Company has historically accounted for reimbursements received
for out-of-pocket expenses incurred as a reduction to project personnel and
expenses in the statement of operations. The statement of operations for the
quarter ended March 30, 2001 was reclassified to comply with the guidance in
Topic No. D-103. Adoption of the provisions had no impact on the reported net
loss or net loss per share.
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 were granted on February 9, 2002, which was six months and one day after
acceptance of the old options for exchange and cancellation. The exercise price
of the new options was $6.03, which was the last reported sale price of the
Company's common stock on the Nasdaq Stock Market's National Market on February
8, 2002. Options for 4,400,893 shares were tendered on August 8, 2001 in the
exchange program. On February 9, 2002, the Company granted 2,479,699 shares of
the Company's common stock in exchange for the shares tendered.
7
Answerthink, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
6. Restructuring Accrual
The Company recorded restructuring costs of $8.5 million in fiscal
year 2001 for reduction in consultants and functional support personnel and for
closure and consolidation of facilities and related exit costs. These actions
were taken as a result of the continued decline in demand for technology
services in 2001. The Company took steps to reduce its costs to better align its
overall cost structure and organization with anticipated demand for its
services.
The following table sets forth the detail and activity in the
restructuring expense accrual during the quarter ended March 29, 2002 (in
thousands):
Accrual Balance Accrual Balance
at December 28, at March 29,
2001 Expenditures 2002
------------------ -------------- -----------------
Severance and other employee costs $ 1,153 $ (824) $ 329
Closure and consolidation of facilities and
related exit costs 4,524 (1,058) 3,466
----------------- ------------- --------------
Total restructuring accrual $ 5,677 $ (1,882) $ 3,795
================= ============= ==============
7. 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 28, 2001. On April 18, 2002, the parties reached an
agreement in principle to settle this action for an amount that is within the
limits of applicable insurance coverage. Final settlement is subject to court
and shareholders class approval.
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 and our
financing plans 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 contract
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, changes in U.S.
demand for information technology spending and interest rates. An additional
description of our risk factors is set forth in our Annual Report on Form 10-K
for the year ended December 28, 2001. 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 best practices, business transformation, interactive direct
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.
Critical Accounting Policies
Revenue Recognition
Revenues include all amounts that are billable to clients. Our revenues are
derived from fees for services generated on a project-by-project basis. Revenues
for services rendered are recognized on a time and materials basis based on the
number of hours worked by our consultants at an agreed upon rate per hour or on
a fixed-fee or capped-fee basis. Revenues related to time and material contracts
are recognized in the period in which services are performed. Revenues related
to fixed-fee or capped-fee contracts are recognized based on our evaluation of
actual costs incurred to date compared to total estimated costs using the
percentage of completion method of accounting. The cumulative impact of any
revisions in estimated total revenues and direct contract costs are recognized
in the period in which they become known. Unbilled revenues represent revenues
for services performed that have not been billed. If we do not accurately
estimate the resources required or the scope of the work to be performed, or we
do not manage our projects properly within the planned periods of time or we do
not meet our clients' expectations under the contracts, then future consulting
margins may be significantly and negatively affected or losses on existing
contracts may need to be recognized. Any such resulting reductions in margins or
contract losses could be material to our results of operations. Revenues before
reimbursements exclude reimbursable expenses charged to clients. Reimbursements,
including those related to travel and out-of-pocket expenses, are included in
revenues, and an equivalent amount of reimbursable expenses is included in
project personnel and expenses.
The agreements entered into in connection with a project, whether time and
materials based or fixed-fee or capped-fee based, are typically terminable by
the client upon 30 days notice. Upon early termination of an engagement, the
client is required to pay for all time, materials and expenses incurred by us
through the effective date of the termination. In addition, provisions in some
of the agreements we have with our clients limit our right to enter into
9
business relationships with specific competitors of that client for a specific
time period. These provisions typically prohibit us from performing a defined
range of our services that we might otherwise be willing to perform for
potential clients. These provisions are generally limited to six to twelve
months and usually apply only to specific employees or the specific project
team.
Accounts Receivable and Allowances for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our clients to make required payments. Our management
makes estimates of the uncollectibility of our accounts receivables. Management
critically reviews accounts receivable and analyzes historical bad debts, past-
due accounts, client credit-worthiness and current economic trends when
evaluating the adequacy of the allowance for doubtful accounts. If the financial
condition of our clients were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
Litigation and Contingencies
Litigation and contingencies are reflected in our consolidated financial
statements based on management's assessment, along with legal counsel, of the
expected outcome from such litigation. If the final outcome of such litigation
and contingencies differs adversely from that currently expected, it would
result in a charge to earnings when determined.
Results of Operations
The following table sets forth, for the periods indicated, our results of
operations and the percentage relationship to revenues of such results:
Quarter Ended
---------------------------------------
(dollars in thousands) March 29, 2002 March 30, 2001
----------------- ----------------
Revenues:
Revenues before reimbursements $ 46,413 87.9% $ 72,015 88.2%
Reimbursements 6,404 12.1% 9,664 11.8%
----------------- ----------------
Total revenues 52,817 100.0% 81,679 100.0%
Costs and expenses:
Project personnel and expenses:
Project personnel and expenses before reimbursable expenses 32,348 61.3% 45,381 55.6%
Reimbursable expenses 6,404 12.1% 9,664 11.8%
----------------- ----------------
Total project personnel and expenses 38,752 73.4% 55,045 67.4%
Selling, general and administrative expenses 15,728 29.8% 24,401 29.9%
Stock compensation expense -- -- 3,031 3.7%
----------------- ----------------
Total costs and operating expenses 54,480 103.2% 82,477 101.0%
----------------- ----------------
Loss from operations (1,663) (3.2%) (798) (1.0%)
Other income:
Interest income, net 124 0.2% 434 0.6%
----------------- ----------------
Loss before income taxes (1,539) (3.0%) (364) (0.4%)
Income taxes (616) (1.2%) (164) (0.2%)
----------------- ----------------
Loss before cumulative effect of change in accounting principle (923) (1.8%) (200) (0.2%)
Cumulative effect of change in accounting principle (31,200) (59.0%) -- --
----------------- ----------------
Net loss $ (32,123) (60.8%) $ (200) (0.2%)
================= ================
10
Revenues. Revenues for the quarter ended March 29, 2002 decreased by $28.9
million or 35.3% compared to the quarter ended March 30, 2001. Revenues before
reimbursements for the quarter ended March 29, 2002 decreased by $25.6 million
or 35.6% compared to the quarter ended March 30, 2001. The decrease in revenues
was primarily attributable to a decrease in the number of customers resulting
from reduced demand for information technology services, and to a lesser extent,
a decrease in our average billing rate reflecting a more competitive
environment. For the quarters ended March 29, 2002 and March 30, 2001, three
customers each had revenues before reimbursements greater than 5% of total
revenues before reimbursements. In the aggregate, the respective three customers
each accounted for approximately 41% and 29% of total revenues before
reimbursements for the quarters ended March 29, 2002 and March 30, 2001,
respectively.
Project Personnel and Expenses. Project personnel costs and expenses
consist of salaries, benefits and bonuses for consultants and reimbursable
expenses associated with projects. Project personnel costs and expenses were
$38.8 million in the quarter ended March 29, 2002, a decrease of $16.3 million
or 29.6% over the quarter ended March 30, 2001. Project personnel costs and
expenses before reimbursable expenses were $32.3 million in the quarter ended
March 29, 2002, a decrease of $13.0 million or 28.7% over the quarter ended
March 30, 2001. These decreases were predominantly due to the reduction in the
number of consultants in order to balance workforce capacity with market demand
for services. Consultant headcount was 909 as of March 29, 2002 compared to
1,334 as of March 30, 2001.
Project personnel and expenses as a percentage of total revenues increased
to 73.4% in the quarter ended March 29, 2002 from 67.4% in the comparable
quarter of 2001. Project personnel and expenses before reimbursable expenses as
a percentage of revenues before reimbursements increased to 70.0% in the quarter
ended March 29, 2002 from 63.0% in the comparable quarter of 2001. These
increases were primarily due to lower revenues during the first quarter of 2002
compared to the first quarter of 2001 which resulted in lower consultant
utilization.
Selling, General and Administrative. Selling, general and administrative
expenses decreased 35.5% to $15.7 million in the quarter ended March 29, 2002
from $24.4 million in the quarter ended March 30, 2001. The overall decrease in
selling, general and administrative expenses was attributable to a reduction in
functional support headcount as well as lower recruiting, selling and bad debt
expenses. Sales and functional support headcount was 158 as of March 29, 2002
compared to 275 as of March 30, 2001. Selling, general and administrative
expenses as a percentage of total revenues were comparable between the first
quarter of 2002 and 2001 at 29.8% and 29.9%, respectively.
Stock Compensation Expense. Stock compensation expense in the first quarter
of 2001 primarily related to the granting of stock options to participants in
our Employee Stock Purchase Plan. 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 $2.8 million in the
quarter ended March 20, 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.
Income Taxes. Our effective tax rate for the first quarter of 2002 was 40%
compared to an effective tax rate of 45% for the comparable period of 2001. The
lower effective tax rate for the first quarter of 2002 was primarily due to the
impact of lower permanent differences resulting from the elimination of the
amortization of goodwill as a result of the adoption of Statement of Accounting
Standards No. 142, "Goodwill and Other Intangible Assets". Our effective tax
rate may vary from period to period based on changes in our estimated annual
taxable income or loss.
Cumulative Effect of Change in Accounting Principle. We adopted Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets", during the first quarter of 2002. The new accounting rule eliminates
the amortization of goodwill and changes the method of determining whether there
is a goodwill impairment from an undiscounted cash flow method to a fair value
method. As a result of the adoption of this standard, we incurred a non-cash
transitional impairment charge of $31.2 million due to the cumulative effect of
a change in accounting principle. This charge related to the Technology
Integration reporting unit.
11
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 for $15.0 million. The credit
facility includes, among other things, covenants relating to the maintenance of
certain financial ratios. At March 29, 2002, we had no borrowings under this
credit facility. Letters of credit of $2.6 million were outstanding under the
agreement. There is an additional $560,000 available under the credit facility
for letters of credit or borrowings based on limitations imposed by the
financial covenants. At March 29, 2002, we had approximately $62.7 million in
cash and cash equivalents compared to $59.9 million at December 28, 2001.
Net cash provided by operating activities was $19,000 for the quarter ended
March 29, 2002 compared to $8.5 million used in operating activities during the
comparable period of 2001. During the quarter ended March 29, 2002, net cash
provided by operating activities was primarily attributable to our net loss
adjusted for the non-cash expense of $31.2 million for the write-off of goodwill
and a $5.0 million decrease in accounts receivable and unbilled revenue,
partially offset by a $6.4 million decrease in accrued expenses and other
liabilities. During the quarter ended March 30, 2001, net cash used in operating
activities was primarily attributable to a $9.3 million decrease in accrued
expenses and other liabilities, a $2.4 million decrease in media payable and a
$2.5 million increase in accounts receivable and unbilled revenue, partially
offset by our net loss adjusted for non-cash expenses of $7.5 million.
Net cash used in investing activities was $1.3 million for the quarter
ended March 29, 2002 compared to $4.1 million used during the comparative period
of 2001. The uses of cash for investing activities in 2002 were attributable to
$1.0 million of purchases of property and equipment and $236,000 used in the
acquisition of Exult Process Intelligence Center, a business unit of Exult,
Inc., in February 2002. The use of cash in investing activities in 2001 was $4.1
million for purchases of property and equipment.
Net cash provided by financing activities was $4.1 million for the quarter
ended March 29, 2002 compared to $1.1 million provided during the comparable
period of 2001. The source of cash from financing activities during 2002 and
2001 was 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.
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. There is no assurance, however, that additional
financing will be available when needed or desired on terms favorable to us or
at all.
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.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 28, 2001. On April 18, 2002, the parties reached an agreement in
principle to settle this action for an amount that is within the limits of
applicable insurance coverage. Final settlement is subject to court and
shareholders class approval.
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
March 29, 2002.
13
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: May 13, 2002 By: /s/ John F. Brennan
-----------------------------------------
John F. Brennan
Executive Vice President and Chief
Financial Officer
14