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 |
As of and for the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 0-28830
Navigant Consulting, Inc.
(Exact name of Registrant as specified in its charter)
| Delaware | 36-4094854 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 615 North Wabash Avenue, Chicago, Illinois 60611 | ||
| (Address of principal executive offices, including zip code) | ||
| (312) 573-5600 | ||
| (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 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 7, 2004, 45.9 million shares of the Registrant’s common stock, par value $.001 per share (“Common Stock”), were outstanding.
NAVIGANT CONSULTING, INC.
AS OF AND FOR THE QUARTER ENDED MARCH 31, 2004
| Page | ||||
| PART I—FINANCIAL INFORMATION |
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| Item 1. | 3 | |||
| 6 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||
| Item 3. | 21 | |||
| Item 4. | 22 | |||
| PART II—OTHER INFORMATION |
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| Item 1. | 23 | |||
| Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
23 | ||
| Item 3. | 23 | |||
| Item 4. | 23 | |||
| Item 5. | Other Information |
23 | ||
| Item 6. | 23 | |||
| 25 | ||||
“Navigant” is a service mark of Navigant International, Inc. The Company is not affiliated, associated, or in any way connected with Navigant International, Inc. and the Company’s use of “Navigant” is made under license from Navigant International, Inc.
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
(In thousands)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 10,196 | $ | 38,402 | ||||
| Accounts receivable, net |
100,133 | 68,715 | ||||||
| Prepaid expenses and other current assets |
6,763 | 5,741 | ||||||
| Deferred income taxes |
6,707 | 3,805 | ||||||
| Total current assets |
123,799 | 116,663 | ||||||
| Property and equipment, net |
22,773 | 19,958 | ||||||
| Goodwill and intangible assets, net |
199,030 | 112,075 | ||||||
| Deferred income taxes, non-current |
4,123 | 4,326 | ||||||
| Other assets |
2,202 | 2,294 | ||||||
| Total assets |
$ | 351,927 | $ | 255,316 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Bank borrowings |
$ | 40,000 | $ | — | ||||
| Accounts payable and accrued liabilities |
10,587 | 7,015 | ||||||
| Accrued compensation-related costs |
21,122 | 35,552 | ||||||
| Income taxes payable |
8,365 | 2,539 | ||||||
| Other current liabilities |
35,105 | 19,691 | ||||||
| Total current liabilities |
115,179 | 64,797 | ||||||
| Non-current liabilities |
10,918 | 1,761 | ||||||
| Total liabilities |
126,097 | 66,558 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock |
51 | 51 | ||||||
| Preferred stock |
— | — | ||||||
| Additional paid-in capital |
413,450 | 398,699 | ||||||
| Deferred stock issuance |
18,753 | 4,375 | ||||||
| Restricted stock units outstanding |
2,209 | 1,459 | ||||||
| Deferred compensation—restricted stock |
(8,913 | ) | (6,376 | ) | ||||
| Treasury stock |
(65,984 | ) | (68,100 | ) | ||||
| Accumulated deficit |
(133,867 | ) | (141,645 | ) | ||||
| Accumulated other comprehensive income |
131 | 295 | ||||||
| Total stockholders’ equity |
225,830 | 188,758 | ||||||
| Total liabilities and stockholders’ equity |
$ | 351,927 | $ | 255,316 | ||||
See accompanying notes to the unaudited consolidated financial statements.
3
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| For the three months ended March 31, | |||||||
| 2004 |
2003 | ||||||
| Revenues before reimbursements |
$ | 92,436 | $ | 64,024 | |||
| Reimbursements |
10,325 | 9,740 | |||||
| Total revenues |
102,761 | 73,764 | |||||
| Cost of services before reimbursable expenses |
52,712 | 38,434 | |||||
| Reimbursable expenses |
10,325 | 9,740 | |||||
| Total cost of services |
63,037 | 48,174 | |||||
| Stock-based compensation expense |
2,604 | 1,712 | |||||
| General and administrative expenses |
20,152 | 15,926 | |||||
| Depreciation expense |
1,914 | 1,701 | |||||
| Amortization expense |
657 | 495 | |||||
| Restructuring costs |
891 | — | |||||
| Operating income |
13,506 | 5,756 | |||||
| Other income (expense), net |
(323 | ) | 172 | ||||
| Income before income taxes |
13,183 | 5,928 | |||||
| Income tax expense |
5,405 | 2,422 | |||||
| Net income |
$ | 7,778 | $ | 3,506 | |||
| Basic net income per share |
$ | 0.17 | $ | 0.08 | |||
| Shares used in computing basic net income per share |
45,864 | 42,207 | |||||
| Diluted net income per share |
$ | 0.16 | $ | 0.08 | |||
| Shares used in computing diluted net income per share |
49,285 | 46,250 | |||||
| Comprehensive income: |
|||||||
| Net income |
$ | 7,778 | $ | 3,506 | |||
| Foreign currency translation adjustment |
(164 | ) | 138 | ||||
| Comprehensive income |
$ | 7,614 | $ | 3,644 | |||
See accompanying notes to the unaudited consolidated financial statements.
4
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| For the three months ended March 31, |
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| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 7,778 | $ | 3,506 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation expense |
1,914 | 1,701 | ||||||
| Amortization expense |
657 | 495 | ||||||
| Stock-based compensation expense |
2,604 | 1,712 | ||||||
| Tax benefit of issuances of common stock |
1,913 | 142 | ||||||
| Amortization of consultants’ non-solicitation agreements |
463 | 433 | ||||||
| Payments related to consultants’ non-solicitation agreements |
— | (193 | ) | |||||
| Amortization of discount on deferred obligations |
185 | — | ||||||
| Deferred income taxes |
(2,700 | ) | (596 | ) | ||||
| Other, net |
— | 10 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(31,501 | ) | (4,244 | ) | ||||
| Prepaid expenses and other current assets |
(461 | ) | (934 | ) | ||||
| Accounts payable and accrued liabilities |
3,488 | (2,522 | ) | |||||
| Accrued compensation-related costs |
(11,673 | ) | (3,450 | ) | ||||
| Income taxes payable |
5,825 | 2,571 | ||||||
| Other current liabilities |
1,146 | (277 | ) | |||||
| Net cash used in operating activities |
(20,362 | ) | (1,646 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(3,574 | ) | (1,777 | ) | ||||
| Acquisition of business |
(45,603 | ) | — | |||||
| Payment of acquisition liabilities |
(169 | ) | (560 | ) | ||||
| Payment of notes payable related to acquisition |
— | (1,500 | ) | |||||
| Other, net |
(532 | ) | 28 | |||||
| Net cash used in investing activities |
(49,878 | ) | (3,809 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Issuance of common stock |
2,034 | 980 | ||||||
| Stock repurchases |
— | (5,295 | ) | |||||
| Borrowings from bank, net |
40,000 | 7,000 | ||||||
| Net cash provided by financing activities |
42,034 | 2,685 | ||||||
| Net decrease in cash and cash equivalents |
(28,206 | ) | (2,770 | ) | ||||
| Cash and cash equivalents at beginning of the period |
38,402 | 8,109 | ||||||
| Cash and cash equivalents at end of the period |
$ | 10,196 | $ | 5,339 | ||||
See accompanying notes to the unaudited consolidated financial statements.
5
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Navigant Consulting, Inc. (the “Company”) have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. The information furnished herein includes all adjustments, consisting of normal recurring adjustments except where indicated, which are, in the opinion of management, necessary for a fair presentation of the results of operations for these interim periods.
The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2004.
These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2003 included in the Annual Report on Form 10-K, as filed by the Company with the Securities and Exchange Commission on March 9, 2004.
Note 2. Acquisition
On January 30, 2004, the Company acquired substantially all of the assets of Tucker Alan, Inc. (“Tucker”) for $89.5 million, which included $45.6 million cash at closing and 0.3 million shares of its common stock valued at $6.0 million at closing, and $37.9 million payable in two installments of cash and the Company’s common stock within the first two years following the closing date of the transaction. In connection with the Tucker acquisition, the Company acquired tangible assets of $2.0 million and assumed liabilities of $0.5 million. The Tucker acquisition included 230 consulting professionals active primarily in the litigation, construction and healthcare practices. The Company acquired Tucker to strengthen its national platform in these practices. Tucker has a significant presence in the western region of the United States that complements the Company’s other geographic regions. Tucker’s service offerings and industry expertise are also complementary to those of the Company. The Tucker acquisition has been accounted for by the purchase method of accounting for business combinations and, accordingly, the results of operations have been included in the consolidated financial statements since the date of acquisition.
Pro Forma Information
The following unaudited pro forma financial information (shown in thousands, except diluted net income per share) for the three months ended March 31, 2004 and 2003 presents the combined financial information as if the acquisition of Tucker had been effective as of January 1, 2003. The unaudited pro forma financial information includes adjustments to Tucker’s operating results as if Tucker had been included in the Company’s operating results. The adjustments consist of amortization expense for intangible assets with finite lives, reduction of revenues and expenses for certain projects not acquired as part of the Tucker acquisition, incentive compensation cost adjustments as if Tucker’s employees were compensated under the Company’s incentive compensation model, interest amortization adjustments and income tax expense adjustments as if Tucker had been included in the Company’s income tax return. As a subchapter S corporation, Tucker paid all excess cash flow in the form of incentive compensation and had not been required to pay Federal and State income taxes.
6
| For the three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Total revenues |
$ | 108,148 | $ | 87,596 | ||||
| Total cost of services |
66,269 | 55,253 | ||||||
| Stock-based compensation expense |
2,604 | 1,712 | ||||||
| General and administrative expenses |
21,168 | 19,815 | ||||||
| Depreciation expense |
1,949 | 1,842 | ||||||
| Amortization expense |
934 | 1,325 | ||||||
| Restructuring costs |
891 | 0 | ||||||
| Other (expense) |
(415 | ) | (97 | ) | ||||
| Income tax expense |
5,710 | 3,096 | ||||||
| Net income |
$ | 8,208 | $ | 4,456 | ||||
| Diluted net income per share |
$ | 0.16 | $ | 0.09 | ||||
Note 3. Segment Information
The Company is comprised of two business segments: Financial & Claims Consulting and Energy Consulting. The Financial & Claims Consulting business segment provides consulting and advisory services to clients facing the challenges of dispute, litigation, bankruptcy, regulation and change. Its services include analyzing complex accounting, finance, economic, operations and information management issues. The Energy Consulting business segment provides a wide range of management consulting services to companies facing the challenges of the deregulating energy industries. Its services include strategy development, financial transaction support, operations support, regulatory advisement, and technical analysis.
The Company evaluates segment performance and allocates resources based upon revenues and operating results. The bases of measurement of segment operating results is consistent among the periods. Transactions between segments have been eliminated. Information on the segment operations for the three months en