UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 28, 2004
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 000-24387
NAVIGANT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 52-2080967 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 84 INVERNESS CIRCLE EAST ENGLEWOOD, COLORADO |
80112 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number: (303) 706-0800
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 requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of May 5, 2004, the Registrant had outstanding 15,944,000 shares of its common stock, par value $0.001 per share and 1,231,000 shares of treasury stock outstanding.
| PART I. FINANCIAL INFORMATION: |
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| Item 1. |
Consolidated Financial Statements |
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|
Consolidated Balance Sheets – |
3 | |||||
|
Consolidated Statements of Income (Unaudited) – |
4 | |||||
| 5 | ||||||
| 6 - 9 | ||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 - 14 | ||||
| Item 3. |
15 | |||||
| Item 4. |
15 | |||||
| Item 1. |
16 | |||||
| Item 6. |
16 | |||||
| 17 | ||||||
2
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
| March 28, 2004 |
December 28, 2003 |
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| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
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| Cash and cash equivalents |
$ | 5,033 | $ | 1,880 | ||||
| Accounts receivable, less allowance for doubtful accounts of $957 and $899 |
83,520 | 69,449 | ||||||
| Prepaid expenses and other current assets |
7,097 | 7,283 | ||||||
| Deferred income taxes |
1,453 | 1,452 | ||||||
| Income tax receivable |
6,784 | 11,261 | ||||||
| Total current assets |
103,887 | 91,325 | ||||||
| Property and equipment, net |
20,033 | 19,456 | ||||||
| Goodwill, net |
338,981 | 331,858 | ||||||
| Intangible assets, net of accumulated amortization of $634 and $444 |
1,740 | 1,930 | ||||||
| Other assets |
7,951 | 8,318 | ||||||
| Total assets |
$ | 472,592 | $ | 452,887 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
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| Short-term portion of long-term debt |
$ | 102 | $ | 122 | ||||
| Short-term portion of capital lease obligations |
206 | 303 | ||||||
| Accounts payable |
13,099 | 11,359 | ||||||
| Accrued compensation |
10,756 | 7,280 | ||||||
| Deferred income |
6,406 | 6,419 | ||||||
| Other accrued liabilities |
33,923 | 25,538 | ||||||
| Total current liabilities |
64,492 | 51,021 | ||||||
| Long-term debt |
178,900 | 180,221 | ||||||
| Capital lease obligations |
24 | 44 | ||||||
| Deferred income taxes |
1,206 | 633 | ||||||
| Deferred income |
16,567 | 18,156 | ||||||
| Other long-term liabilities |
2,416 | 1,710 | ||||||
| Total liabilities |
263,605 | 251,785 | ||||||
| Commitments and contingencies (Note 3) |
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| Stockholders’ equity: |
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| Common stock; $.001 par value, 150,000,000 shares authorized; 15,920,000 and 15,732,000 issued |
16 | 16 | ||||||
| Additional paid-in capital |
157,854 | 154,699 | ||||||
| Treasury stock at cost; 1,231,000 shares |
(10,928 | ) | (10,928 | ) | ||||
| Retained earnings |
60,250 | 54,714 | ||||||
| Accumulated other comprehensive income: |
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| Foreign currency translation adjustment |
3,117 | 3,405 | ||||||
| Effect of interest rate swaps |
(1,322 | ) | (804 | ) | ||||
| Total accumulated other comprehensive income |
1,795 | 2,601 | ||||||
| Total stockholders’ equity |
208,987 | 201,102 | ||||||
| Total liabilities and stockholders’ equity |
$ | 472,592 | $ | 452,887 | ||||
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
| For the Three Months Ended |
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| March 28, 2004 |
March 30, 2003 |
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| Revenues |
$ | 107,379 | $ | 88,905 | ||||
| Operating expenses |
62,539 | 47,884 | ||||||
| General and administrative expenses |
31,047 | 28,285 | ||||||
| Depreciation and amortization expense |
2,150 | 2,676 | ||||||
| Operating income |
11,643 | 10,060 | ||||||
| Other (income) expenses: |
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| Interest expense |
2,804 | 3,291 | ||||||
| Interest income |
(1 | ) | (2 | ) | ||||
| Other, net |
16 | (23 | ) | |||||
| Income before provision for income taxes |
8,824 | 6,794 | ||||||
| Provision for income taxes |
3,288 | 2,547 | ||||||
| Net income |
5,536 | 4,247 | ||||||
| Other comprehensive income, net of tax: |
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| Foreign currency translation adjustment |
(288 | ) | 1,747 | |||||
| Unrealized (loss) gain on derivatives designated as hedges |
(518 | ) | 218 | |||||
| Comprehensive income |
$ | 4,730 | $ | 6,212 | ||||
| Weighted average number of common shares outstanding: |
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| Basic |
14,624 | 14,032 | ||||||
| Diluted |
15,086 | 14,265 | ||||||
| Net income per share: |
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| Basic |
$ | 0.38 | $ | 0.30 | ||||
| Diluted |
$ | 0.37 | $ | 0.30 | ||||
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, unless otherwise noted)
(Unaudited)
| For the Three Months Ended |
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| March 28, 2004 |
March 30, 2003 |
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| Cash flows from operating activities: |
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| Net income |
$ | 5,536 | $ | 4,247 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation and amortization expense |
2,150 | 2,676 | ||||||
| Income tax benefit from employee exercise of stock options |
195 | 249 | ||||||
| Deferred tax benefit |
859 | 2,018 | ||||||
| Changes in current assets and liabilities (net of assets acquired and liabilities assumed in combinations accounted for under the purchase method): |
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| Accounts receivable, net |
(10,968 | ) | (6,155 | ) | ||||
| Prepaid expenses and other assets |
770 | (809 | ) | |||||
| Income tax receivable |
4,477 | 605 | ||||||
| Accounts payable |
1,204 | 963 | ||||||
| Other accrued liabilities |
4,414 | 635 | ||||||
| Deferred income |
(1,602 | ) | (1,971 | ) | ||||
| Other |
(51 | ) | (106 | ) | ||||
| Net cash provided by operating activities |
6,984 | 2,352 | ||||||
| Cash flows from investing activities: |
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| Additions to property and equipment, net of disposals |
(2,518 | ) | (1,546 | ) | ||||
| Cash paid in acquisitions and earn-out consideration, net of cash received |
(765 | ) | (914 | ) | ||||
| Net cash used in investing activities |
(3,283 | ) | (2,460 | ) | ||||
| Cash flows from financing activities: |
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| Payments of long-term debt |
(137 | ) | (439 | ) | ||||
| Payments of credit facility, net |
(1,321 | ) | (3,050 | ) | ||||
| Proceeds from exercise of stock options |
960 | 1,501 | ||||||
| Net cash used in financing activities |
(498 | ) | (1,988 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
(50 | ) | 666 | |||||
| Net increase (decrease) in cash and cash equivalents |
3,153 | (1,430 | ) | |||||
| Cash and cash equivalents at beginning of period |
1,880 | 1,693 | ||||||
| Cash and cash equivalents at end of period |
$ | 5,033 | $ | 263 | ||||
| Supplemental disclosures of cash flow information: |
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| Interest paid |
$ | 1,700 | $ | 1,890 | ||||
| Income taxes paid |
$ | 1,139 | $ | 644 | ||||
See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, unless otherwise noted)
(Unaudited)
NOTE 1—BACKGROUND
Navigant International, Inc. (the “Company”), a Delaware corporation, is the second largest provider of corporate travel management services in the United States, based on the number of airline tickets sold in 2002. The Company serves corporate, government, military, leisure and meetings and incentive clients. The Company manages all aspects of its clients’ travel processes, focusing on reducing their travel expenses.
The Company’s operations are primarily concentrated in one market segment—airline travel—and its customers are geographically diverse with no single customer base concentrated in a single industry. The Company’s operations are seasonal, with the November and December periods having the lowest airline bookings. The majority of the leisure travel services the Company provides are directed to the Company’s corporate customers and the Company does not compile separate internal reporting of leisure travel activities.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. A description of the Company’s accounting policies and other financial information is included in the audited consolidated financial statements as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 28, 2003.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 28, 2004, and the results of its operations and its cash flows for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three months ended March 28, 2004 are not necessarily indicative of the results that may be achieved for the full fiscal year and cannot be used to indicate financial performance for the entire year.
Reclassifications
Certain reclassifications have been made to prior years’ balances to conform with current year presentation.
Goodwill
The changes in the carrying amount of goodwill for the three months ended March 28, 2004 are as follows:
| General Travel Management Unit |
Meetings and Unit |
Total |
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| Balance as of December 28, 2003 |
$ | 324,442 | $ | 7,416 | $ | 331,858 | |||||
| Goodwill acquired during quarter |
200 | 6,953 | 7,153 | ||||||||
| Additional purchase consideration paid during quarter |
205 | 205 | |||||||||
| Foreign currency adjustments |
(235 | ) | (235 | ) | |||||||
| Balance as of March 28, 2004 |
$ | 324,612 | $ | 14,369 | $ | 338,981 | |||||
6
Intangible Assets
The Company has intangible assets related to technology and trade names. The majority of these intangible assets were acquired in acquisitions in 2003. The Company amortizes technology assets over a life of three to five years and trade name assets over a life of ten years. Intangible assets, excluding goodwill, as of March 28, 2004 and December 28, 2003 consist of: