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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-25995
NEXTERA ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4700410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
343 Congress Street, Suite 2100, Boston, Massachusetts 02210-1215
(Address of principal executive office, including zip code)
(617) 603-3100
(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 and 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 requirements for the past 90 days.
Yes [X] No [ ]
As of April 30, 2001 there were 31,371,419 shares of $.001 par value
Class A Common Stock outstanding and 3,873,930 shares of $.001 par value Class B
Common Stock outstanding.
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NEXTERA ENTERPRISES, INC.
Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 2001
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 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 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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PART I - - FINANCIAL INFORMATION
Item 1. Financial Statements
NEXTERA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, 2001 December 31, 2000(1)
-------------- -------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,297 $ 4,322
Accounts receivable, net of allowance for
doubtful accounts of $4,033 at March 31, 2001
and $2,551 at December 31, 2000 34,287 36,890
Costs and estimated earnings in excess of billings 428 422
Due from affiliates 573 610
Due from officers -- 30
Prepaid expenses and other current assets 4,980 7,153
--------- ---------
Total current assets 42,565 49,427
Property and equipment, net 15,368 14,542
Intangible assets, net of accumulated amortization of $13,886
at March 30, 2001 and $12,136 at December 31, 2000 157,726 159,459
Other assets 11,469 10,674
--------- ---------
Total assets $ 227,128 $ 234,102
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 24,758 $ 22,610
Notes payable to bank 241 187
Deferred revenue 1,799 1,758
Senior credit facility 46,022 8,050
Debentures Due to affiliates 10,180 2,503
Current portion of long-term debt and capital lease obligations 2,861 3,222
--------- ---------
Total current liabilities 85,861 38,330
Long-term debt and capital lease obligations 1,379 3,516
Senior credit facility, net of current portion -- 37,972
Debentures due to affiliates, including accrued interest 11,251 10,980
Other long-term liabilities 1,324 1,327
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 600,000
authorized shares designated Series A, 210,000 Series A
issued and outstanding 21,616 21,098
Exchangeable shares, no par value, 2,500,000 shares authorized,
no shares issued and outstanding -- --
Class A Common Stock, $0.001 par value, 75,000,000 shares
authorized, 31,371,419 shares issued
at March 31, 2001 and December 31, 2000 31 31
Class B Common Stock, $0.001 par value, 4,300,000 shares
authorized, 3,873,930 shares issued and
outstanding at March 31, 2001 and December 31, 2000 4 4
Additional paid-in capital 163,033 163,263
Treasury Stock, at cost, 539,400 shares Class A Common
Stock at March 31, 2001 and 301,400 at December 31, 2000 (1,265) (947)
Retained earnings (deficit) (55,263) (41,077)
Accumulated other comprehensive income (loss) (843) (395)
--------- ---------
Total stockholders' equity 127,313 141,977
--------- ---------
Total liabilities and stockholders' equity $ 227,128 $ 234,102
========= =========
(1) Derived from audited financial statements as of December 31, 2000.
See Notes to Consolidated Financial Statements
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NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)
Three Months Three Months
Ended Ended
March 31, 2001 March 31, 2000
-------------- --------------
Net revenues $ 34,238 $ 46,962
Cost of revenues 24,135 26,216
-------- --------
Gross profit 10,103 20,746
Selling, general and administrative expenses 15,033 13,388
Amortization expense 1,358 1,352
Special charges 5,409 --
-------- --------
Income (loss) from operations (11,697) 6,006
Interest expense, net (1,763) (1,700)
Other expense (645) --
-------- --------
Income (loss) before income taxes (14,105) 4,306
Provision for income taxes 81 1,821
-------- --------
Net income (loss) $(14,186) $ 2,485
Preferred Stock dividends (518) --
-------- --------
Net income (loss) applicable to Common Stockholders $(14,704) $ 2,485
======== ========
Net income (loss) per common share, basic $ (0.42) $ 0.07
======== ========
Net income (loss) per common share, diluted $ (0.42) $ 0.07
======== ========
Weighted average common shares outstanding, basic 34,873 35,157
======== ========
Weighted average common shares outstanding, diluted 34,873 36,689
======== ========
See Notes to Consolidated Financial Statements
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NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Three Months Three Months
Ended Ended
March 31, 2001 March 31, 2000
-------------- --------------
Cash flows from operating activities:
Net income (loss) $(14,186) $ 2,485
Adjustments to reconcile net income loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,602 2,420
Provision for bad debts 1,350 --
Non-cash charges, other 810 --
Change in operating assets and liabilities, net of
effect of acquired businesses:
Accounts receivable 1,253 (16,361)
Due from affiliate 37 (67)
Due to affiliate -- (8)
Prepaid expenses and other assets 3,158 (2,903)
Accounts payable and accrued expenses 368 166
Costs and estimated earnings in excess of billings (6) 2,333
Deferred revenue 41 (345)
Other (21) 540
-------- --------
Net cash used in operating activities (4,594) (11,740)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (2,122) (1,808)
Acquisition of businesses, net of cash acquired -- (8,205)
Other investments -- (415)
-------- --------
Net cash used in investing activities (2,122) (10,428)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of Class A and Class B Common Stock -- 520
Due from officers 30 --
Borrowings under Senior Credit Facility -- 19,993
Proceeds from debentures due to affiliates 7,500 --
Repurchases of Class A Common Stock (318) (502)
Repayments of long-term debt and capital lease obligations (2,498) (514)
Other (73) --
-------- --------
Net cash provided by financing activities 4,641 19,497
-------- --------
Effects of exchange rates on cash and cash equivalents 50 (77)
-------- --------
Net decrease in cash and cash equivalents (2,025) (2,748)
Cash and cash equivalents at beginning of period 4,322 7,011
-------- --------
Cash and cash equivalents at end of period $ 2,297 $ 4,263
======== ========
See Notes to Consolidated Financial Statements
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NEXTERA ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Nextera
Enterprises, Inc. ("Nextera" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2001.
The balance sheet as of December 31, 2000 has been derived from the
audited 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 financial statements should be read in conjunction with the
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and results of operations, contained in the
Company's Annual Report on Form 10-K filed by the Company with the Securities
and Exchange Commission on April 17, 2001.
Acquisitions
The Company has used the purchase method of accounting for all
acquisitions. Operating results of acquired companies have been included in the
Company's results of operations only from the date of each respective
acquisition.
2000
Effective January 1, 2000, the Company acquired substantially all of the
assets and certain liabilities of Cambridge Economics, Inc. ("Cambridge
Economics"), a Massachusetts-based consulting firm that provides strategic,
economic and business transformation and other services to a diverse group of
domestic and international clients. Cambridge Economics was acquired for $8.4
million of cash and a $2.1 million promissory note due January 2002.
Note 2. Earnings (Loss) per Share
Basic net income (loss) per share ("Basic EPS") is computed by dividing
net income (loss) available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income (loss) per common share
("Diluted EPS") is computed by dividing net income available to common
stockholders by the weighted average number of common shares and dilutive common
share equivalents then outstanding.
Basic and diluted earnings (loss) per share were calculated as follows:
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(In thousands, except per share amounts; unaudited)
Three Months Ended
March 31, March 31,
2001 2000
-------- --------
Net income (loss) $(14,186) $ 2,485
Preferred Stock dividends
(518) --
Net income (loss) available to common
stockholders (14,704) 2,485
======== ========
Weighted average common shares
outstanding -- basic
34,873 35,157
Dilutive effect of options and
warrants -- 1,532
-------- --------
Weighted average common shares
outstanding -- diluted 34,873 36,689
Basic net income (loss) per
common share $ (0.42) $ 0.07
======== ========
Diluted net income (loss) per
common share $ (0.42) $ 0.07
======== ========
Note 3. Comprehensive Income (Loss)
Comprehensive income combines net income (loss) and "other comprehensive
items," which represents certain amounts that are reported as components of
stockholders' equity in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale investments, net of taxes and reclassification adjustments.
During the first quarter of 2001 and 2000, the Company's comprehensive income
(loss) totaled a loss of $14.6 million and income of $2.4 million, respectively.
Note 4. Senior Credit Facility
Effective March 30, 2001, the Senior Credit Facility was amended to
waive compliance with certain covenants through January 2002. In connection with
this waiver, the Company has agreed to permanently reduce the borrowings
outstanding under the facility by $8.05 million between April 2001 and December
31, 2001. Additionally, no further borrowings or Letters of Credit may be drawn
or issued under the facility. Borrowings under the amended facility will bear
interest at the bank's base rate plus 3.50%, with payment of 2% of this rate
deferred until January 2, 2002 and waived if the facility is fully repaid by
December 15, 2001. The waiver requires the Company to pay a fee to the Senior
Lenders of $0.9 million and to issue the senior lenders warrants to purchase
1,418,351 shares of the Company's Class A Common Stock at an exercise price of
$0.86 per share, exercisable at the senior lenders' sole discretion at any time
prior to 18 months after payment in full of all of the Company's obligations due
under the amended Senior Credit Facility. The Company also agreed that upon the
sale or other disposition (or any series of sales or dispositions) by the
Company of any of the Company's assets with gross proceeds, in the aggregate, in
excess of $10,000,000, the senior lenders can elect in their sole discretion to
require the Company to redeem the warrants for a $500,000 cash payment by the
Company (except to the extent prohibited by a non-waiveable applicable law or
regulation). In
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addition, the Company has the right to call the warrants for a cash payment of
$750,000, which payment may only be made from new financing sources.
Additionally, an affiliate of Knowledge Universe, an entity that indirectly
controls Nextera, guaranteed $2.5 million of the Company's obligation under the
Senior Credit Facility. This affiliate was granted a security interest and lien
in all of the Company's assets, junior and subordinated to the security interest
and lien of the senior lenders. Under the provisions of the amendment, on
January 15, 2002 the Company will be required to deliver cash collateral for all
outstanding letters of credit ($2.9 million as of March 30, 2001). The amended
Senior Credit Facility contains covenants related to the maintenance of
financial ratios, operating restrictions, partial payment of excess consolidated
EBITA to the lenders, and restrictions on the payment of dividends and
disposition of assets. The revised covenants were based on the Company's
operating plan for 2001. The Company's ability to remain in compliance will be
dependent on its ability to successfully execute its operating plan and take
appropriate corrective actions if circumstances arise which could cause actual
operating results to vary from the plan.
Note 5. Special charges
During the quarter ended March 31, 2001, the Company approved actions
to re-align and re-size the Company's cost structure, primarily within the
Technology Solutions Group, as a result of softening market conditions and
reduced demand for technological services. As a result, the Company recorded
special charges totaling $5.4 million, consisting of $1.6 million for severance,
$0.6 million for the termination of certain Company initiatives, $0.8 million
related to the costs of exiting or reducing certain leased premises, and $2.4
million related to certain employee incentives. The headcount reductions
included 48 consultants and 7 administrative personnel.
The total cash outlays related to the special charges recorded during
the quarter ended March 31, 2001 are expected to be approximately $4.1 million.
The remaining $1.3 million of the special charges primarily related to non-cash
write-offs of leasehold improvements. As of March 31, 2001, approximately $0.7
million of cash was expended on special charges. $3.3 million of future cash
outlays related to the special charge incurred in the first quarter are expected
to occur throughout the remainder of 2001.
Also, in April 2001, an additional charge of approximately $1.4
million was incurred primarily in connection with severance associated with
additional headcount reductions of 44 consultants and 7 administrative personnel
in the Technology Solutions Group.
Note 6. Other Expense
During the quarter ended March 31, 2001, the Company recorded Other
Expense of $0.645 million associated with the write down to fair market value of
certain available for sale investments.
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NEXTERA ENTERPRISES, INC.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The disclosure and analysis in this quarterly report contain
"forward-looking statements." Forward-looking statements give our current
expectations or forecasts of future events. These statements can be identified
by the fact that they do not relate strictly to historic or current facts. They
use words such as "anticipate," "estimate," "foresee," "should,", "expect,"
"project," "intend," "plan," "believe," and other words and terms of similar
meaning in connection with any discussion of future operating or financial
performance. In particular, these forward-looking statements include statements
relating to future actions or the outcome of financial results. From time to
time, we also may provide oral or written forward-looking statements in other
materials released to the public. Any or all of the forward-looking statements
in this report and in any other public statements may turn out to be incorrect.
They can be affected by inaccurate assumptions or by known or unknown risks and
uncertainties. Consequently, no forward-looking statement can be guaranteed.
Actual results may vary materially.
Forward-looking statements are based on many factors that may be outside
our control, causing actual results to differ materially from those suggested.
These factors include, but are not limited to, those disclosed in the Company's
filings with the Securities and Exchange Commission, which include risks
associated with: our limited operating history; availability of credit and
capital resources; effects of economic uncertainty on client expenditures;
growth of the Internet; dependence on key personnel; attracting and retaining
qualified consultants; new business solicitation efforts; intense competition;
changes in technology; and the continued quotation of our Class A common stock
on the Nasdaq National Market System. New factors emerge from time to time, and
it is not possible for us to predict all these factors nor can we assess the
impact of these factors on our business or the extent to which any factor or
combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, you should not place undue reliance on forward-looking statements
as a prediction of actual results.
Overview
Nextera Enterprises is a distinctive consulting firm with deep
expertise in economics, business strategy, organizational structure, human
capital and technology. We understand how to leverage the intricate relationship
of knowledge, people and technology to drive corporate value, delivering
powerful, end-to-end solutions - from strategy through implementation. In our
highly-collaborative environment, our experienced, accomplished consultants work
closely with clients to develop and implement innovative, impactful solutions
for managing the complex network relationships companies have with customers and
employees. Through our CUSTOMER RELATIONSHIP MANAGEMENT (CRM) SOLUTIONS and our
TALENT RELATIONSHIP/HUMAN CAPITAL MANAGEMENT (TR/HCM) SOLUTIONS approaches--we
have the insights and capabilities needed to strengthen anything and everything
that touches our clients' customers and talent.
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Our approach integrates the deep competencies and industry experience of
our four central business groups:
LEXECON CONSULTING GROUP: Cutting-edge economic and financial analysis
and litigation support to board-level clientele on a myriad of complex business
and transactional issues. Lexecon consultants -- comprising renowned economists,
academics, and Nobel laureates -- provide unparalleled economic insights,
industry points-of-view and strategies.
STRATEGIC SERVICES GROUP: Provides clients with solutions to their most
complex corporate-level and business-unit strategy problems, developing
comprehensive frameworks that incorporates both external market perspectives and
internal organizational perspectives. Our approach couples deep expertise in
human capital strategies, channel and market strategies, pricing and customer
loyalty with on-the-ground management and operations experience.
SIBSON CONSULTING GROUP: The global leader in motivating and mobilizing
people and aligning their actions toward strategic goals, Sibson has been
providing human capital management services for more than 40 years. With a
client list that has included more than half of the Fortune 500, Sibson has a
powerful presence in key practice areas such as talent management, employee
performance and rewards, management performance and rewards, sales force
effectiveness and change management.
TECHNOLOGY SOLUTIONS GROUP: High value-added technology consulting that
emphasizes proven software packages in managing customers and talent, among
other applications. Our technology consultants are experts with proven track
records assembling, customizing and executing a wide range of software
solutions, as well as developing web-based applications and systems and
technical architecture design.
Nextera's integrated approach to relationship management blends aspects
of all of its core competencies:
ECONOMICS
- Identifying the potential value and impact of relationship management
solutions on the business
- Conducting pricing and cost structure analysis
STRATEGY
- Developing effective corporate, business unit and channel strategies
- Aligning relationship management structures and models with overall
business strategy
HUMAN CAPITAL
- Developing programs that motivate and reward employees to maximize new
solutions
- Aligning sales forces with incentive and structure strategies
- Creating appropriate behavior-driven employee communication and
leadership initiatives to ensure that new processes are adopted across
the organization
TECHNOLOGY
- Defining appropriate systems specifications and strategies
- Integrating best-in-class package solutions into existing organizational
structures and processes
- Designing and supporting call centers
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The breadth of Nextera's practice portfolio also allows it to assist
clients across a broad spectrum of industries, while providing specific focus
and depth in financial services, insurance, utilities, professional services,
capital services, high technology, pharmaceuticals and hospitality.
In addition to the practice areas and service offerings noted above,
Nextera has made selective minority investments in independently managed
companies that it believes are well positioned to take advantage of
opportunities created by the connected economy. It has co-invested in these
companies with other well-known early-stage investors.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2001 AND THREE MONTHS ENDED
MARCH 31, 2000
Net Revenues. Net revenues decreased 27.1% to $34.2 million for the
three months ended March 31, 2001 from $47.0 million for the three months ended
March 31, 2000. This decrease was primarily attributable to a decrease of the
Technology Solutions Group revenues due to the industry wide decline in demand
for such services. To a lesser extent, the human capital management services
revenue declined due to the softening of the economy which has lead to companies
delaying the purchasing of such services. The Company expects that the decreased
demand level for the Company's services will continue into the second quarter
and that the second quarter revenues will approximate those recorded in the
first quarter.
Gross Profit. Gross profit decreased 51.3% to $10.1 million for the
three months ended March 31, 2001 from $20.7 million for the three months ended
March 31, 2000. Gross margin as a percentage of sales decreased to 29.5% for the
three months ended March 31, 2001 from 44.2% for the three months ended March
31, 2000. The decrease in gross margin was primarily due to lower chargeability,
primarily in the Technology Solutions Group. As a result of decreased demand for
technology services, the company reduced its headcount by 48 consultants at the
end of the first quarter of 2001 and by an additional 44 consultants in the
beginning of the second quarter of 2001. The annual savings from these headcount
reductions is estimated to be approximately $15 million. Savings from these
initiatives will begin to be realized in the second quarter of 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 12.3% to $15.0 million for the three months
ended March 31, 2001 from $13.4 million for the three months ended March 31,
2000. As a percentage of revenues, such expenses increased to 43.9% for the
three months ended March 31, 2001 from 28.5% for the three months ended March
31, 2000. The increase in selling, general and administrative expenses from the
first quarter of 2000 is largely attributed to an increase of $1.0 million of
bad debt expense in 2001, primarily due to the Technology Solutions Group. The
March 31, 2001 costs do not reflect the savings associated with 14 headcount
reductions of administrative personnel that occurred at the end of the first
quarter and the beginning of the second quarter of 2001 along with the
termination of certain Company initiatives.
Interest Expense, Net. Interest expense, net increased to $1.8 million
for the three months ended March 31, 2001 from $1.7 million for the three months
ended March 31, 2000.
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Special Charges. During the quarter ended March 31, 2001, the Company
approved actions to re-align and re-size the Company's cost structure, primarily
within the Technology Solutions Group, as a result softening market conditions
and reduced demand for technological services. As a result, the Company recorded
special charges totaling $5.4 million, consisting of $1.6 million for severance,
$0.6 million for the termination of certain Company initiatives, $0.8 million
related to the costs of exiting or reducing certain leased premises, and $2.4
million related to certain employee incentives. The headcount reductions
included 48 consultants and 7 administrative personnel.
The total cash outlays related to the special charges recorded during
quarter ended March 31, 2001 are expected to be approximately $4.1 million. The
remaining $1.3 million of the special charges primarily related to non-cash
write-offs of leasehold improvements. As of March 31, 2001, approximately $0.7
million of cash was expended on special charges. $3.3 million of future cash
outlays related to the special charge incurred in the first quarter are expected
to occur throughout the remainder of 2001.
Also, in April of 2001, an additional charge of approximately $1.4
million was incurred primarily in connection with severance associated with
additional headcount reductions of 44 consultants and 7 administrative personnel
in the Technology Solutions Group.
Other Expense. During the quarter ended March 31, 2001, the Company
recorded Other Expense of $0.65 million associated with the write down to fair
market value of certain available for sale investments.
Income tax expense. No tax benefit was recorded during the three months
ended March 31, 2001 due to the potential inability of the Company to utilize
its net operating losses. Income tax expense of $1.8 million, or 42.3% of pretax
income, was recorded for the three months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital deficit was $43.3 million on March 31,
2001, compared with working capital of $11.1 million on December 31, 2000.
Included in working capital were cash and cash equivalents of $2.3 million and
$4.3 million on March 31, 2001 and December 31, 2000, respectively. The change
in consolidated working capital in the quarter is primarily due to the
classification of the Senior Credit Facility, which matures on March 29, 2002,
from long-term to current as of March 31, 2001.
Net cash used in operating activities was $4.6 million for the three
months ended March 31, 2001. The primary components of net cash used in
operating activities was the net loss of $14.2 million offset in part by an
increase in cash flows from prepaid expenses and other current assets of $3.2
million, accounts receivable of $1.3 million and non-cash items relating to the
provision for bad debts of $1.4 million and depreciation and amortization
expense of $2.6 million.
Net cash used in investing activities was $2.1 million for the three
months ended March 31, 2001, representing expenditures for furniture, equipment
and leasehold improvements.
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Net cash provided by financing activities was $4.6 million for the three
months ended March 31, 2001. The primary components of net cash generated from
financing activities were borrowings under debentures issued to an affiliate of
Knowledge Universe of $7.5 million partially offset by a reduction of long-term
debt and capital leases of $2.5 million.
Effective March 30, 2001, the Senior Credit Facility was amended to
waive compliance with certain covenants through January 2002. In connection with
this waiver, the Company has agreed to permanently reduce the borrowings
outstanding under the facility by $8.05 million between April 2001 and December
31, 2001. Additionally, no further borrowings or Letters of Credit may be drawn
or issued under the facility. Borrowings under the amended facility will bear
interest at the bank's base rate plus 3.50%, with payment of 2% of this rate
deferred until January 2, 2002 and waived if the facility is fully repaid by
December 15, 2001. The waiver requires the Company to pay a fee to the Senior
Lenders of $0.9 million and to issue the senior lenders warrants to purchase
1,418,351 shares of the Company's Class A Common Stock at an exercise price of
$0.86 per share, exercisable at the senior lenders' sole discretion at any time
prior to 18 months after payment in full of all of the Company's obligations due
under the amended Senior Credit Facility. The Company also agreed that upon the
sale or other disposition (or any series of sales or dispositions) by the
Company of any of the Company's assets with gross proceeds, in the aggregate, in
excess of $10,000,000, the senior lenders can elect in their sole discretion to
require the Company to redeem the warrants for a $500,000 cash payment by the
Company (except to the extent prohibited by a non-waiveable applicable law or
regulation). In addition, the Company has the right to call the warrants for a
cash payment of $750,000, which payment may only be made from new financing
sources. Additionally, an affiliate of Knowledge Universe guaranteed $2.5
million of our obligation under the Senior Credit Facility. This affiliate was
granted a security interest and lien in all of the Company's assets, junior and
subordinated to the security interest and lien of the senior lenders. Under the
provisions of the amendment, on January 15, 2002 the Company will be required to
deliver cash collateral for all outstanding letters of credit ($2.9 million as
of March 30, 2001). The amended Senior Credit Facility contains covenants
related to the maintenance of financial ratios, operating restrictions, partial
payment of excess consolidated EBITA to the lenders, and restrictions on the
payment of dividends and disposition of assets. The revised covenants were based
on the Company's operating plan for 2001. The Company's ability to remain in
compliance will be dependent on its ability to successfully execute its
operating plan and take appropriate corrective actions if circumstances arise
which could cause actual operating results to vary from the plan.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company is exposed to changes in interest rates primarily from our
senior credit facility. We do not currently use interest rate derivative
instruments to manage exposure to interest rate changes. A hypothetical 100
basis point adverse move in interest rates along the interest rate yield curve
would not have a material adverse effect on interest sensitive financial
instruments at March 31, 2001.
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Foreign Currency Risk
Currently, the majority of the Company's sales and expenses are
denominated in U.S. dollars and as a result we have not experienced significant
foreign exchange gains and losses to date. While the Company is conducting some
transactions in foreign currencies, no significant foreign exchange gains or
losses are anticipated. The Company has not engaged in foreign currency hedging
activities to date.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Fourth Amendment to Credit Agreement dated as of December
30, 1999 by and among Nextera Enterprises, Inc., Fleet
National Bank and the entities listed on the signature
pages thereto, dated March 30, 2001.
10.2 Limited Guaranty Agreement dated as of March 30, 2001 by
Knowledge Universe Capital Co. LLC.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three months ended March 31, 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.
NEXTERA ENTERPRISES, INC.
(Registrant)
Date: May 15, 2001 By: /s/ David Schneider
-----------------------------------
David Schneider
President and Chief Executive Officer
(Principal Executive Officer)
NEXTERA ENTERPRISES, INC.
(Registrant)
Date: May 15, 2001 By: /s/ Michael P. Muldowney
-----------------------------------
Michael P. Muldowney
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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