<PAGE>
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, 2000
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.)
Chicago, Illinois 60611
(Address of principal executive office, 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 [_]
As of May 12, 2000, 41.3 million shares of the Registrants common stock, par
value $.001 per shares ("Common Stock) were outstanding
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NAVIGANT CONSULTING, INC.
QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999..................................................... 3
Unaudited Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999........ .......... ..................... 4
Unaudited Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999......................................... 5
Notes to Unaudited Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 11
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................... 12
Item 6. Exhibits and Reports on Form 8-K................................ 12
SIGNATURES............................................................... 13
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
NAVIGANT CONSULTING, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents ............................ $ 3,719 $ 42,345
Accounts receivable, net ............................. 126,313 116,100
Prepaid expenses and other current assets ............ 7,641 7,364
Income tax receivable ................................ -- 8,211
Deferred income taxes ................................ 3,003 2,385
-------- --------
Total current assets ............................. 140,676 176,405
Property and equipment, net .............................. 35,162 33,763
Intangible assets, net ................................... 194,059 202,096
Other non-current assets, net ............................ 2,299 2,412
-------- --------
Total assets ................................. $372,196 $414,676
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term debt ...................................... $ 10,960 $ 10,000
Accounts payable and accrued liabilities ............. 14,119 20,709
Accrued compensation and project costs ............... 29,530 58,425
Income tax payable ................................... 110 --
Other current liabilities ............................ 15,000 19,673
-------- --------
Total current liabilities ........................ 69,719 108,807
Deferred income taxes .................................... 120 725
Other non-current liabilities ............................ 4,978 4,475
-------- --------
Total liabilities ............................ 74,817 114,007
-------- --------
Stockholders' equity:
Common stock ......................................... 43 43
Additional paid-in capital ........................... 341,490 340,528
Treasury stock ....................................... (52,811) (52,811)
Notes receivable from stockholders ................... (2,583) (2,583)
Retained earnings .................................... 11,471 15,650
Accumulated other comprehensive loss ................. (231) (158)
-------- --------
Total stockholders' equity ....................... 297,379 300,669
-------- --------
Total liabilities and stockholders' equity ... $372,196 $414,676
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
NAVIGANT CONSULTING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31
--------------------
<S> <C> <C>
2000 1999
-------- -------
Revenues....................................................... $107,440 $84,388
Cost of services............................................. 75,926 50,418
-------- -------
Gross profit................................................... 31,514 33,970
General and administrative expenses.......................... 24,747 15,343
Amortization expense......................................... 8,090 2,800
Stock option compensation expense............................ 184 1,698
-------- -------
Operating (loss) income........................................ (1,507) 14,129
Other income, net............................................ (58) (1,115)
-------- -------
Income (loss) before income tax expense........................ (1,449) 15,244
Income tax expense........................................... 2,730 8,020
-------- -------
Net (loss) income.......................................... $ (4,179) $ 7,224
======== =======
Earnings (loss) per common share:
Net (loss) income per basic share............................ $ (0.10) $ 0.18
Net (loss) income per dilutive share......................... $ (0.10) $ 0.17
Shares used in computing net income (loss) per basic share..... 41,119 39,402
Shares used in computing net income (loss) per dilutive share.. 41,119 41,786
Other comprehensive income:
Foreign currency translation adjustments..................... $ (73) $ (69)
Comprehensive income (loss).................................. $ (4,252) $ 7,155
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
NAVIGANT CONSULTING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
------------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net (loss)income............................................................ $ (4,179) $ 7,224
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation.............................................................. 2,645 1,592
Amortization.............................................................. 8,090 2,800
Deferred income taxes..................................................... (1,223) (1,576)
Stock option compensation expense......................................... 184 1,698
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net................................................. (10,213) (3,956)
Prepaid expenses and other............................................... (277) (102)
Accounts payable and other accrued liabilities........................... (6,590) (2,279)
Accrued compensation and project costs................................... (28,394) (15,331)
Income taxes payable..................................................... 8,321 5,991
Other current liabilities................................................ (4,673) (4,068)
-------- --------
Net cash used in operating activities................................... (36,309) (8,007)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment.......................................... (4,000) (2,978)
Acquisition of new businesses, net of cash acquired......................... -- (15,038)
Other, net.................................................................. (55) 197
-------- --------
Net cash used in investing activities................................... (4,055) (17,819)
-------- --------
Cash flows from financing activities:
Issuance of common stock.................................................... 778 1,377
Borrowings of short term debt............................................... 960 --
-------- --------
Net cash provided by financing activities............................... 1,738 1,377
-------- --------
Net decrease in cash and cash equivalents.................................... (38,626) (24,449)
Cash and cash equivalents, beginning of period............................... 42,345 119,704
-------- --------
Cash and cash equivalents, end of period..................................... $ 3,719 $ 95,255
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
NAVIGANT CONSULTING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
Navigant Consulting, Inc., formerly The Metzler Group, 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 generally accepted accounting principles. 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 results for these interim
periods.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 2000.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto for the year ended
December 31, 1999 included in the Annual Report on Form 10-K, as filed by the
Company with the Securities and Exchange Commission on March 29, 2000 and as
subsequently amended.
Note 2. Business Combinations
During 1999, the Company completed eleven acquisitions (collectively, the
"1999 Acquisitions") in exchange for Company stock and cash having an aggregate
value of $235.7 million. On February 7, 1999, the Company issued 2.4 million
shares of common stock (valued at the time of closing at approximately $123.7
million) for substantially all of the outstanding common stock of Strategic
Decisions Group, Inc. and acquired the remaining minority interest in exchange
for $13.3 million in cash. On March 31, 1999, the Company completed the
acquisitions of all of the outstanding stock of Triad International, Inc.,
GeoData Solutions, Inc., and Dowling Associates, Inc. in exchange for 1.8
million shares of the Company's common stock (valued at the time of closing at
approximately $57.3 million). On September 30, 1999, the Company completed its
acquisition of the business operations and certain assets of Penta Advisory
Services LLC (Penta) and the stock of Scope International, Inc. (Scope) for a
total cash purchase price of $15.1 million. The purchase agreements for Penta
and Scope also provide for additional payments, payable in cash or Company
common stock, over the next two to five years contingent on future revenue
growth and gross margin targets. The additional payments, if any, will be
accounted for as additional goodwill. On October 1, 1999, the Company completed
the acquisition of the stock of Brooks International AB, Brooks International
Consulting OY, and Brooks International SPRL for an aggregate cash purchase
price of $3.3 million. On November 1, 1999, the Company completed the
acquisition of the stock of The Barrington Consulting Group, Inc. (Barrington)
in exchange for $14.4 million in cash paid at closing and total deferred cash
payments of $7.8 million, payable in two equal annual installments. The
liability related to the deferred cash payments is reflected in the consolidated
balance sheet as of December 31, 1999 as $3.9 million of other current
liabilities and $3.9 million of other non-current liabilities. The purchase
agreement for Barrington also provides for additional cash payments of up to
$7.7 million in the aggregate, which are contingent on continued employment by
the Company of certain Barrington shareholders and are payable in cash in two
annual installments. The contingent payments will be charged to expense ratably
over the period of employment. The Company's cost of sales for the first quarter
of 2000 included $1.6 million of compensation expense related to this
employment-related contingency. On December 1, 1999, the Company completed the
acquisition of all of the assets of Glaze Creek Partners, LLC in exchange for
$0.8 million in cash. There were no pre-acquisition intercompany transactions
between the Company and the 1999 Acquisitions.
The 1999 Acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the results of operations have been included in the
accompanying consolidated financial statements from the date of acquisition.
Certain assets acquired of $46.2 million and liabilities assumed of $36.9
million have been recorded at their estimated fair values. The excess of cost
over the net assets acquired of approximately $226.4 million has been recorded
as intangible assets, including goodwill. The allocation of the excess cost over
the net assets acquired to identifiable intangible assets and goodwill was based
upon independent appraisals, as were the estimated useful lives. The estimated
lives range from between one and 20 years, and approximate, on a straight-line
basis, an average life of 7 years.
The following unaudited pro forma financial information presents the combined
results of operations as if the 1999 Acquisitions had occurred as of January 1,
1999, after giving effect to certain adjustments. The adjustments include the
amortization of goodwill and other intangibles, a reduction in interest income
and related income tax effects, and an increase in the weighted average common
shares outstanding. The pro forma information is for informational purposes
only. The information presented does not necessarily reflect the results of
operations that would have occurred had the acquisitions been completed as of
January 1, 1999, nor are they indicative of future results.
<PAGE>
<TABLE>
<CAPTION>
Three month period
ended March 31, 1999
--------------------
<S> <C>
Revenue ................................... $105,460
Net Income (loss) ......................... 4,395
Net Income (loss) per Diluted Share........ $ .10
</TABLE>
Note 3. Accounts Receivable
The components of accounts receivable were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Billed amounts ........................................... $ 91,798 $ 86,849
Engagements in process.................................... 51,585 45,581
Allowance for uncollectible accounts...................... (17,070) (16,330)
-------- --------
$126,313 $116,100
======== ========
</TABLE>
Engagements in process represent balances accrued by the Company for services
that have been performed but have not been billed to the customer. Billings are
generally done on a monthly basis for the prior month's services.
Note 4. Segment Information
Beginning January 1, 2000, the Company adopted a management reporting
structure with five operating divisions which represent three reportable
segments: Financial and Claims Consulting, Economics and Policy Consulting, and
Management Consulting. Operating results for the quarter ended March 31, 1999
have been restated to reflect these reportable segments. The Financial and
Claims Consulting segment provides information management, technology services,
damages analysis, business and property valuation, regulatory compliance,
process operations management and litigation support services. The Economics and
Policy Consulting segment provides economic and financial analysis, expert
testimony, litigation support and strategic management consulting services. The
Management Consulting segment provides strategic and management consulting and
information technology services to clients that include global 1000 companies
and clients in the utility and energy industries.
The Company currently evaluates segment performance and allocates resources
based upon revenues and gross profit. The basis of measurement of segment gross
profit is consistent between periods. All intercompany transactions between
segments have been eliminated. Information on the Company's operations for the
three months ended March 31, 2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
-------- -------
<S> <C> <C>
Revenues:
Financial and Claims Consulting $ 39,444 $28,140
Economics and Policy Consulting 22,380 19,604
Management Consulting 45,616 36,644
-------- -------
Consolidated revenues $107,440 $84,388
======== =======
</TABLE>
Gross Profit and Income Statement Reconciliation:
<PAGE>
<TABLE>
<S> <C> <C>
Financial and Claims Consulting $ 15,554 $12,716
Economics and Policy Consulting 5,792 6,678
Management Consulting 10,168 14,576
-------- -------
Consolidated gross profit $ 31,514 $33,970
======== =======
Unallocated:
General and administrative expenses $ 24,747 $15,343
Amortization expense 8,090 2,800
Stock option compensation expense 184 1,698
Other income (58) (1,115)
-------- -------
Sub-total 32,963 18,726
-------- -------
Income(loss) before income tax expense $ (1,449) $15,244
======== =======
</TABLE>
The following unaudited pro forma financial information presents the combined
revenues for each segment as if the 1999 Acquisitions had occurred as of January
1, 1999. The Management consulting segment includes Strategic Decisions Group,
Inc., Triad International, Inc., GeoData Solutions, Inc., Dowling Associates,
Inc. Brooks International AB, Brooks International Consulting OY, Brooks
International SPRL and Glaze Creek Partners, LLC. The Economics and Policy
Consulting segment includes Penta Advisory Services LLC. The Financial and
Claims Consulting segment includes Scope International, Inc. and The Barrington
Consulting Group, Inc.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------
<S> <C>
Revenues:
Financial and Claims Consulting $ 32,653
Economics and Policy Consulting 21,175
Management Consulting 51,632
--------
Consolidated pro forma revenues $105,460
========
</TABLE>
Note 5. Merger-Related costs and Restructuring charges
The company had reserves of $3.4 million as of December 31, 1999 related to
facility closings and workforce reductions associated with certain business
combinations and restructuring in 1998 and 1999. During the quarter ending
March 31, 2000 reserves were utilized of $.5 million primarily associated with
the payment of severance.
Note 6. Related Party Transactions
In April 1999, Mr. Cain and Mr. Demirjian, respectively the company's Chief
Administrative Officer and the company's General Counsel at that time, each
borrowed $425,063 from the company to exercise all 18,750 of their then-vested
options at an exercise price of $22.67 per share. The notes which evidence these
borrowings are full recourse, are due on or before the third anniversary date
and bear interest at a rate equal to 5.75%, payable annually. The notes were
accompanied by pledge agreements which pledge the exercised option shares as
collateral security for repayment of the notes, which shares are currently held
by the company. In late August, Mr. Cain, Mr. Demirjian and Mr. Kingsbury (the
company's Chief Financial Officer at that time) borrowed $2.625 million, $2.625
million and $1.75 million, respectively, from the company, related to their
purchases of 75,000, 75,000 and 50,000 shares, respectively, of the company's
common stock from third parties at $35 per share. The notes which evidence these
borrowings are full recourse, are due on or before the third anniversary date
and bear interest at a rate equal to 5.75%, payable annually. These notes were
accompanied by pledge agreements which pledge the shares as collateral security
for repayment of the notes, which shares are currently held by the company.
Although the notes receivable are full recourse, are not due until the year 2002
and there has been no event of default, the company is not certain that it will
be able to collect the full amount due. In March 2000, the borrowers either
challenged the enforceability or declined to confirm their intention to comply
with the terms of the notes and each have refused to provide the company with
personal financial information that would support their ability to pay the full
amounts due. The company has accrued a loss contingency at December 31, 1999 in
the amount of $5.3 million, representing the difference between the principal
amount of the notes receivable and the value of the shares held by the company
as collateral. The company is negotiating with the borrowers concerning deferral
or compromise of their obligations under their notes.
Note 7. Supplemental Cash Flow Information
Total interest paid during the three months ended March 31, 2000 and 1999 were
$0.3 million and $0.1 million, respectively. Total income taxes paid during the
three months ended December 31, 2000 and 1999 were $2.1 million and $3.3
million, respectively.
During the first quarter of 1999, the Company issued 4.2 million shares of
common stock (valued at the time at approximately $181.0 million) for
substantially all of the outstanding common stock of four companies acquired in
transactions accounted for by the purchase method of accounting. See also Note
2, "Business Combinations".
<PAGE>
Item 2.
NAVIGANT CONSULTING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-67. Forward-looking statements may be
identified by words including "anticipate," "believe," "intends," "estimates,"
"expect" and similar expressions. The Company cautions readers that forward-
looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity, and
income, are subject to risks and uncertainties that could cause actual results
to differ materially from those indicated in the forward looking statements, due
to important risks and factors herein identified or identified from time to time
in the Company's reports filed with the SEC.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues. Revenues increased $23.0 million, or 27%, to $107.4 million in the
three months ended March 31, 2000 from $84.4 million for the same period in
1999. The growth in revenue is primarily due to acquisitions. During 1999, the
Company made acquisitions consistent with its strategy of acquiring consulting
companies that provide complementary services or broaden the Company's
geographic presence. Had the 1999 Acquisitions been included in the results of
operations of the Company as of January 1, 1999, the Company's pro forma
revenues would have been $105.5 million for the quarter ended March 31, 1999. On
a pro forma basis, revenues increased $1.9 million, or 2%, in the three months
ended March 31, 2000 from $105.5 million for the same period in 1999.
On a pro forma basis, revenues in the Company's Financial and Claims
Consulting segment increased $6.7 million, or 20%, to $39.4 million in the first
quarter of 2000 due to expansion of services provided to existing clients,
engagements with new clients, and increased selling and business development
efforts. Pro forma revenues in the Economics and Policy Consulting segment
increased $1.2 million, or 6%, to $22.4 million principally from higher billings
by the affiliated outside experts. Pro forma revenues for the Management
Consulting segment declined $6.0 million, or 11%, to $45.6 million for the three
months ended March 31, 2000 due to the deferral of three strategic consulting
projects totaling $2.0 million and due to substantially lower revenues from
change management consulting projects as compared to the prior year.
Gross Profit. Gross profit consists of revenues less cost of services, which
includes consultant salaries, benefits and travel-related direct project
expenses. Gross profit decreased $2.5 million, or 7.2%, to $31.5 million in the
first quarter of 2000 from $34.0 million in the corresponding period in 1999.
Higher revenues for the quarter ended March 31, 2000 would have resulted in an
$9.3 million increase in gross profit had the gross profit margin as a
percentage of revenues been consistent with that in the prior year period.
However, gross profit as a percentage of revenue decreased to 29.3% in 2000
from 40.3% in 1999. The decline in gross margin was due to $11.7 million of
increased costs of sales, partially offset by $1.9 million of higher revenues.
The higher first quarter 2000 costs of sales were $4.2 million of consultant
salaries and benefits which reflects lower utilization levels for the period,
$4.1 million of bonus accruals to promote employee retention, $0.9 million of
outside contractor and other billable expenses, and $2.5 million of selling,
recruiting and other non-billable expenses.
For the quarter ended March 31, 2000, gross profit margins as a percentage of
revenues declined in all three of the Company's reportable segments. The gross
profit margin in the financial and Claims Consulting segment declined to 38%, or
$15.0 million, from 45% in the prior year period, due to higher salaries,
benefits and bonus accruals in the current period. The gross profit margin in
the Economics and Policy Consulting segment declined to 27%, or $6.0 million,
from 34% in the prior year, due to a higher proportion of low-margin revenues
derived from affiliated outside experts and increased retention bonuses. The
gross profit margin for the Management Consulting segment declined to 23%, or
$10.6 million, from 40% in the prior year due to lower revenues and the
resulting lower utilization levels, as well as higher selling, recruiting and
other non-billable expenses.
General and Administrative Expenses. General and administrative expenses
include salaries and benefits of management and support personnel, facilities
costs, training, direct selling, outside professional fees and all other
corporate costs. General and administrative expenses for the three months ended
March 31, 2000 increased $9.4 million to $24.7 million, or 23% of revenues, from
$15.3 million, or 18.2% of revenues, in the prior corresponding period. Higher
revenues for the quarter ended March 31, 2000 would have resulted in a $4.2
million increase in general and administrative expenses had they remained at a
percentage of revenue consistent with that in the prior year period. The
increase in general and administrative expenses as a percentage of revenue was
due to $5.2 million of higher costs: $1.9 million of higher facilities and
infrastructure costs, $1.7 million of salaries and bonuses, $0.8 million of
benefits and taxes and $0.8 million of allowances for uncollectible amounts and
other miscellaneous indirect costs.
Amortization Expense. The excess of cost over the net assets acquired for the
1999 Acquisitions of approximately $226.4 million has been recorded as
intangible assets, including goodwill, and is being amortized on a straight-line
basis over 7 years. The $2.8 million of non-cash amortization expense recorded
in the first quarter of 1999 represents the pro rata amortization from the
respective acquisition dates through March 31, 1999. Amortization would have
been approximately $8.1 million for the first quarter of 1999 had the 1999
acquisitions occurred as of January 1, 1999.
Stock option Compensation Expense. The Company recorded $0.2 million for stock
option compensation expense in 2000 versus $1.7 million in 1999. These amounts
are attributable to 0.3 million option grants in 1999 to a total of sixteen
individuals which were issued at prices below fair market value and includes
amortization of the value of certain options retained by a former employee upon
separation from the Company. The amount charged to expense was calculated using
the intrinsic value method for employees and the Black-Scholes option pricing
model for non-employees and approximates the aggregate dollar amount by which
the grant prices of the options differ from the market prices as of the dates
for which the Company has independent evidence to support the issuance of the
options.
Other Income, Net. Other income, net includes interest expense, interest
income and other non-operating income and expenses. Other income, net for the
first quarter of 1999 decreased $1.0 million to $ 0.1 million from $1.1 million
in the comparable quarter last year. The decrease is the result of lower
interest income due to lower average cash balances outstanding during the period
and an increase in interest expense from debt financing. The lower average cash
balance in 2000 was largely the result of $31.0
<PAGE>
million annual bonus incentives paid to the Company's employees, cash
acquisition totaling $15.6 million during the third and fourth quarter 1999, and
$52.8 million treasury stock purchase during the third and fourth quarter 1999.
Income Tax Expense. Income tax expense decreased $5.3 million to $2.7 million
for the three months ended March 31, 2000 from $8.0 million in the prior year
quarter. The Company's results of operations in the first quarter of 2000
included $8.1 million of non-cash, non-deductible amortization expenses
resulting from the 1999 acquisitions and $0.2 million of non-cash, non-
deductible stock options compensation expense. Excluding the effect of these
non-deductible items, the effective tax rate for the quarter would have been
40.4%. The Company's effective income tax rate for the first quarter of 1999
would have been 40.6% excluding the effect $2.8 million of non-cash, non-
deductible amortization expenses resulting from the 1999 acquisitions and $1.7
million of non-cash, non-deductible stock options compensation expense.
Net Income (Loss). Net Income decreased $11.4 million to a net loss of $4.2
million in the three months ended March 31, 2000 from a net income of $7.2
million in the same period the previous year. The increase in revenues of $23.0
million was offset by a $25.5 million increase in cost of sales resulting in a
net decrease in gross profit of $2.5 million. The decrease in gross profit was
further exacerbated by $9.4 million of higher general and administrative
expenses, $5.3 million of higher non-cash amortization expense, and $1.0 million
lower other income. The net loss for the first quarter of 2000 was reduced by
$1.5 million of lower stock option compensation expense and $5.3 million of
lower income tax expenses.
Liquidity and Capital Resources
As of March 31, 2000, the Company had $3.7 million in cash and cash
equivalents and working capital of $71.0 million. The Company's primary source
of liquidity has been cash provided by cash flows from operations, debt
financing and the various public stock offerings during previous years.
Net cash used in operating activities was $36.3 million during the three
months ended March 31, 2000. For the period, the primary use of cash provided by
operating activities were compensation related payments of $31.0 million and a
reduction of accounts payable and accrued liabilities of $6.6 million. In
addition, higher unbilled receivables and slower collection of accounts
receivable for the quarter negatively affected operating cash flow by $10.2
million. Offsetting these items was the receipt of an income tax refund of
$6.5 million.
Year to date the Company has used $4.0 million for capital spending to support
growth in personnel and services. The investments to support growth in personnel
and services included leasehold improvements, furniture and equipment for new
leased facilities, additional computer and related equipment for information
management consulting services and the implementation of enterprise financial
and project software system.
Net cash provided by financing activities was $1.7 million in the three months
ended March 31, 2000. Net borrowings from the unsecured revolving line of credit
were $0.9 million. During the first quarter 2000, the Company received $0.8
million primarily from the Company's employee stock purchase plan.
The Company maintains an unsecured revolving line of credit with LaSalle Bank
which supports up to $50 million of borrowings and bears interest at prime or
LIBOR plus 1.0%. The line of credit expires in May 2001. The Company intends to
utilize this line of credit to finance short-term working capital needs or to
finance short-term cash acquisition needs. The Company believes that current
projected levels of cash flows and the availability of financing, including
borrowings under the Company's credit facility, will be adequate to fund its
anticipated short-term and long-term cash needs for normal operations, including
commitments related to rental expenses under operating leases and possible
contingent payments resulting from the purchases of Penta, Barrington and Scope.
In the event that the Company were to make significant cash expenditures in the
future for major acquisitions or other non-operating activities, the Company
would seek additional debt or equity financing, as appropriate. The Company had
no plans or intentions for such expenditures as of March 31, 2000.
Recently Issued Financial Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities in June 1998, as amended by SFAS No. 137.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities, It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999 and SFAS No. 137 is effective for
fiscal years beginning after December 31, 2000. The Company does not currently
have any derivative instruments or complete any hedging activities. The adoption
of this standard is not expected to be significant.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
<PAGE>
The Company's primary exposure to market risks relates to changes in interest
rates associated with its investment portfolio and its borrowings under the line
of credit. The Company's general investment policy is to limit the risk of
principal loss by limiting market and credit risks. As of March 31, 2000, the
Company's investments were primarily limited to fully collateralized, Double-A
or Triple-A rated securities with maturity dates of 90 days or less. If interest
rates average 25 basis points less in fiscal year 2000, than they did in 1999,
the Company's interest income would be decreased by less than $0.1 million. This
amount is determined by considering the impact of this hypothetical interest
rate on the Company's investment portfolio at March 31, 2000. The Company does
not expect any loss with respect to its investment portfolio. The Company's
market risk associated with its line of credit relates to changes in interest
rates. Borrowings under the line of credit bear interest, at the Company's
option, based on either the London Interbank Offered Rate (LIBOR) or the prime
rate. If interest rates average 25 basis points higher in 2000, than they did in
1999, the Company's interest expense would increase by less than $.1 million.
This amount is determined based on the amount of short-term debt at March 31,
2000. The Company does not currently have any long-term debt, interest rate
derivatives, forward exchange agreements, firmly committed foreign currency
sales transactions, or derivative commodity instruments.
The Company operates in foreign countries which exposes it to market risk
associated with foreign currency exchange rate fluctuations; however, such risk
is immaterial at this time to the Company's consolidated financial statements.
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Numerous purported class action lawsuits have been filed against the Company
since November 1999 in the United States District Court for the Northern
District of Illinois. These actions name as defendants the Company and certain
former directors and former executive officers (one of whom, however, remains an
employee of the Company) of the Company and are purported to be on behalf of
persons who purchased shares of the Company's common stock during various
periods through November 1999. The complaints allege various violations of
federal securities law, including violations of Section 10(b) of the Securities
Exchange Act of 1934, and that the defendants made materially misleading
statements and/or material omissions which artificially inflated prices for the
Company's common stock. The plaintiffs seek a judgement awarding damages and
other relief. The Company believes it has meritorious defenses and intends to
vigorously defend these actions. These complaints were consolidated in February
2000 and a consolidated amended complaint is due to be filed in June 2000. The
outcome of this lawsuit cannot be predicted with certainty and a material
adverse judgment against the Company could have a material adverse effect on the
Company.
Navigant International, Inc., a national travel agency headquartered in
Denver, Colorado, sued the Company in July 1999 in the United States District
Court for the District of Colorado claiming that the use of "Navigant" in our
name infringes on their use of and rights in such name. The complaint seeks
declaratory relief and an injunction against our use of "Navigant," attorneys'
fees and other related relief. The parties have agreed to engage in voluntary
non-binding mediation in May 2000. The Company believes it has meritorious
defenses and intends to vigorously defend this action.
In addition, from time to time, we are party to various other lawsuits and
claims in the ordinary course of business. While the outcome of those lawsuits
or claims cannot be predicted with certainty, we do not believe that any of
those lawsuits or claims will have a material adverse effect on the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(27) Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the reporting period ended March
31, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
Navigant Consulting, Inc.
By: /s/ Mitchell Saranow
--------------------------------------------
Mitchell H. Saranow
Chairman and Co-Chief Executive Officer
By: /s/ James F. Hillman
--------------------------------------------
James F. Hillman
Chief Financial Officer
Date: May 15, 2000
13
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