<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) September 17, 1998
-------------------------------
NAVIGANT INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 000-24387 52-2080967
- ------------------------------- ------------------------ -------------------
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
84 INVERNESS CIRCLE EAST
ENGLEWOOD, COLORADO 80112
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (303) 706-0800
--------------
Former name or former address, if changed since last report: Not Applicable
--------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSET
-----------------------------------
As previously reported, Navigant International, Inc., ("Navigant" or the
"Company") acquired on September 17, 1998 all of the common stock of World
Express Travel, Inc. ("WET"). This amended report on Form 8-K is filed to
include the financial statements listed in Item 7 relating to this acquisition.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements. The following financial statements are filed as
exhibits to this amendment to Report on Form 8-K and such exhibits are
incorporated herein by reference.
(1) Financial statements of World Express Travel, Inc. as of and for
the twelve months ended August 30, 1998. (Exhibit 99.1)
(b) Pro Forma Financial Information. Exhibit 99.2 contains an unaudited
pro forma balance sheet of the Company as of July 25, 1998 reflecting the
acquisition of WET as though the acquisition occurred on July 25, 1998. This
Exhibit also contains unaudited pro forma combined statements of income for the
twelve months ended April 25, 1998, and for the three months ended July 25,
1998, reflecting the acquisition of WET and certain other transactions as if
they occurred at the beginning of each period. The material in the Exhibit is
incorporated herein by reference.
(c) The following exhibits are filed with this report:
Exhibits Description
-------- -----------
99.1 Financial statements of World Express Travel, Inc. as of and
for the twelve months ended August 30, 1998.
99.2 Pro forma Combined Financial Statements of Navigant
International, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: November 30, 1998.
NAVIGANT INTERNATIONAL, INC.
a Delaware corporation
By: /s/ Robert C. Griffith
----------------------------
Name: Robert C. Griffith
Title: Chief Financial Officer and Treasurer (Principal Financial and
Accounting Officer)
2
<PAGE>
Exhibit 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder
of World Express Travel, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income and retained earnings (deficit) and of cash flows present fairly, in all
material respects, the financial position of World Express Travel, Inc. (the
"Company") at August 30, 1998, and the results of its operations and its cash
flows for the twelve months then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
November 23, 1998
3
<PAGE>
WORLD EXPRESS TRAVEL, INC.
BALANCE SHEET
AUGUST 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Current assets:
Cash $ 161,973
Accounts receivable, less allowance
for doubtful accounts of $35,000 811,163
Override receivables 118,639
Other receivables 134,453
Prepaid expenses and other current assets 102,772
----------------
Total current assets 1,329,000
Property and equipment, net 124,382
Intangibles, net 15,207
Other non-current assets 16,726
----------------
Total assets $ 1,485,315
================
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 660,461
Accrued liabilities:
Compensation 232,103
Other 33,064
Customer deposits 77,000
Short term debt 561,574
----------------
Total current liabilities 1,564,202
Deferred rent liability 13,500
----------------
Total liabilities 1,577,702
Commitments (Note 4)
Shareholder's deficit:
Common stock ($1.00 par value; 100,000 shares authorized;
5,000 shares issued and outstanding) 5,000
Additional paid-in capital 1,815
Retained earnings (deficit) (99,202)
----------------
Total shareholder's deficit (92,387)
----------------
Total liabilities and shareholder's deficit $ 1,485,315
================
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
WORLD EXPRESS TRAVEL, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
FOR THE TWELVE MONTHS ENDED AUGUST 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Revenue $ 6,765,796
Operating expenses 4,032,522
----------------
Gross profit 2,733,274
General and administrative expenses 1,091,385
----------------
Operating income 1,641,889
Interest expense 59,695
----------------
Net income 1,582,194
Retained earnings at beginning of period 103,799
Distributions to shareholder (1,785,195)
----------------
Retained earnings (deficit) at end of period $ (99,202)
================
</TABLE>
These accompanying notes are an integral
part of these financial statements.
5
<PAGE>
WORLD EXPRESS TRAVEL, INC.
STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED AUGUST 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,582,194
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 105,818
Deferred income (3,000)
Gain on sale of assets (8,406)
Change in assets and liabilities:
Receivables 259,013
Other assets 194,511
Accounts payable 65,965
Accrued liabilities (3,751)
----------------
Net cash provided by operating activities 2,192,344
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of assets 76,506
Purchases of office equipment (5,320)
----------------
Net cash provided by investing activities 71,186
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholder (1,785,195)
Net borrowings on revolving commercial loan 501,574
Payments of notes payable (501,418)
Net payments on line of credit (499,000)
----------------
Net cash used in financing activities (2,284,039)
----------------
Net decrease in cash (20,509)
Cash at beginning of period 182,482
----------------
Cash at end of period $ 161,973
================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 55,000
================
</TABLE>
6
<PAGE>
WORLD EXPRESS TRAVEL, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. REPORTING ENTITY AND BASIS OF ACCOUNTING
World Express Travel, Inc. (the "Company") is a full-service provider of
travel reservation services and information to commercial, individual and
group customers. The Company has its headquarters in Anchorage, Alaska in
addition to twelve full service branch offices and three on-site offices at
customer locations. The Company's operations are primarily concentrated in
one market segment - airline travel - and the customers are geographically
concentrated in Alaska; management considers a downturn in this market
segment and geographic location to be unlikely.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company records revenues from air reservations and hotel and car
reservations when earned, which is at the time a reservation is booked and
ticketed. The Company provides a reserve for cancellations and reservation
changes, and provisions for such amounts are reflected in net revenues. The
reserves netted against net revenues are not material in the period
reflected. Cruise revenues are recorded when the customer is no longer
entitled to a full refund of the cost of the cruise. The Company records
override commissions on an accrual basis in the month it is earned based upon
the Company's estimated ticket sales in excess of required thresholds.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of
the assets, which range from three to seven years, and leasehold improvements
are amortized over the shorter of their economic useful lives or the lease
term. Depreciation expense for twelve months ended August 30, 1998 was
approximately $55,200.
INTANGIBLES
Intangible assets consist of covenants not-to-compete. The convenants not-to-
compete are being amortized on the straight-line method over the periods
specified in the agreements, which range from three to five years.
Amortization expense for the twelve months ended August 30, 1998 was
approximately $50,600.
INCOME TAXES
Effective July 1, 1987, the Company was granted S-Corporation reporting
status by the Internal Revenue Service. As a result, there is no federal or
state income tax liability reflected in the financial statements. Any
liability arising due to such taxes is the responsibility of the shareholder
of the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash,
receivables and payables and loans payable, approximate their fair values.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of certain assets and
liabilities. Actual results could differ from those estimates. Management
believes that the estimates used are reasonable.
3. PROPERTY AND EQUIPMENT
7
<PAGE>
WORLD EXPRESS TRAVEL, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Property and equipment consist of the following at August 30, 1998:
Office furniture $ 257,284
Leasehold improvements 206,777
Computer equipment 98,883
---------
562,944
Less: accumulated depreciation (438,562)
---------
Net property and equipment $ 124,382
=========
4. COMMITMENTS
The Company leases office space for several locations and office equipment
under various noncancelable operating leases. Four of the office leases
provide for annual escalations of the rental payments. Rent expense for the
twelve months ended August 30, 1998 was approximately $294,000. Future
minimum rental payments under these operating leases as of August 30, 1998
are as follows:
Periods Ending Operating
August 30, Leases
---------- --------------
1999 $ 297,912
2000 154,202
2001 36,545
2002 12,005
--------------
Total $ 500,664
==============
5. INDEBTEDNESS
The Company's outstanding indebtedness at August 30, 1998 is comprised of the
following:
Unsecured revolving commercial loan from 1st
National Bank of Anchorage, interest at 10%,
semi-monthly payments of $65,000 $ 501,574
Line of credit 60,000
----------
Short term debt $ 561,574
==========
At August 30, 1998, the Company had drawn approximately $60,000 on a $450,000
line of credit with a bank which bears interest at the bank's prime rate plus
one and expires on November 30, 1998. This line is secured by the Company's
accounts receivable.
6. EMPLOYEE BENEFIT PLAN
8
<PAGE>
WORLD EXPRESS TRAVEL, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has established a profit sharing plan under Internal Revenue Code
section 401(k) based on a percentage of contributions made by eligible
employees. The Company makes matching contributions on behalf of the
employees. During the twelve months ended August 30, 1998, the Company
contributed approximately $16,000 to this plan.
7. RELATED PARTY TRANSACTIONS
The Company leases office space for its downtown Anchorage office from the
Company's shareholder. Rent expense for this facility was approximately
$21,000 during the twelve months ended August 30, 1998. See Note 4.
The Company purchases some of its air tickets that are used primarily for
leisure business from a ticket consolidator in which the Company's
shareholder owns a 65% interest. For the twelve months ended August 30, 1998,
the Company purchased approximately $743,000 worth of tickets, from which it
earned an average 12.5% commission, or approximately $92,000.
8. SUBSEQUENT EVENT
Effective September 17, 1998, the Company was acquired by Professional Travel
Corporation, a wholly-owned subsidiary of Navigant International, Inc.
Additionally, the line of credit and commercial loan were both fully paid on
September 17, 1998.
9
<PAGE>
Exhibit 99.2
NAVIGANT INTERNATIONAL, INC.
PRO FORMA FINANCIAL INFORMATION
($ IN THOUSANDS)
(UNAUDITED)
In the first fiscal quarter ended July 25, 1998, Navigant International,
Inc. ("Navigant" or the "Company") made two acquisitions under the purchase
method for an aggregate purchase price of $20,372 in cash (the "First Quarter
Fiscal 1999 Purchase Acquisitions"). Additionally, the Company completed the
acquisition of Arrington Travel Center, Inc. ("ATC") on July 28, 1998 and World
Express Travel, Inc. ("WET") on September 17, 1998 that will be accounted for
under the purchase method for a purchase price of $17,098 and $8,177,
respectively, in cash. The total assets related to these four acquisitions were
$53,968 including intangible assets of $45,603. The results of these
acquisitions have been or will be included in the Company's results from their
respective dates of acquisition.
In fiscal 1998, the Company made seven acquisitions accounted for under the
purchase method for an aggregate purchase price of $82,362, consisting of
3,802,367 shares of common stock with a market value of $83,780 and net of
$1,418 of cash acquired (the "Fiscal 1998 Purchase Acquisitions"). The total
assets related to these seven acquisitions were $104,776, including intangible
assets of $82,218. The results of these acquisitions have been included in the
Company's results from their respective dates of acquisition.
The unaudited pro forma combined financial statements which follows gives effect
to the impact of these acquisitions, the refinancing of all amounts that were
payable to U.S. Office Products Company ("USOP"), and the distribution of
10,969,000 shares of Navigant Common Stock to the former stockholders of USOP
which was completed on June 9, 1998 (the "Distribution"). The pro forma offering
adjustments further adjust such pro forma combined financial statements to give
effect to the June 9, 1998 stock offering of 2,000,000 shares of Common Stock
(the "Offering") and the use of the proceeds therefrom to repay debt. The pro
forma combined financial statements do not give effect to the three additional
acquisitions which occurred subsequent to September 17, 1998 which are
considered insignificant.
The unaudited pro forma combined balance sheet as of July 25, 1998 gives effect
to the acquisition of ATC and WET by the Company as if these transactions had
occurred as of the Company's most recent balance sheet date, July 25, 1998.
The unaudited pro forma combined statement of income for the fiscal year ended
April 25, 1998 gives effect to (i) the Fiscal 1998 Purchase Acquisitions; (ii)
the First Quarter Fiscal 1999 Purchase Acquisitions; (iii) the acquisition of
ATC; (iv) the acquisition of WET; (v) the refinancing of all amounts payable to
USOP; (vi) the Distribution; and (vii) the Offering, as if all such transactions
had occurred on April 27, 1997.
The unaudited pro forma combined statement of income for the fiscal year ended
April 25, 1998 includes (i) the audited financial information of the Company for
the fiscal year ended April 25, 1998; (ii) the unuadited financial information
of the Fiscal 1998 Purchase Acquisitions for the period from April 27, 1997
through their respective acquisition dates; (iii) the unaudited financial
information of the First Quarter Fiscal 1999 Purchase Acquisitions for the
period from April 27, 1997 through April 25, 1998; (iv) the unaudited financial
information of ATC for the period from April 27, 1997 through April 25, 1998;
and (v) the unaudited financial information of WET for the period from April 27,
1997 through April 25, 1998.
The unaudited pro forma combined statement of income for the three months ended
July 25, 1998 gives effect to (i) the First Quarter Fiscal 1999 Purchase
Acquisitions; (ii) the acquisition of ATC; (iii) the acquisition of WET; (iv)
the refinancing of all amounts payable to USOP; (v) the Distribution; and (vi)
the Offering, as if all such transactions had occurred on April 26, 1998.
The unaudited pro forma combined statement of income for the three months ended
July 25, 1998 includes (i) the unaudited financial information of the Company
for the three months ended July 25, 1998; (iii) the unaudited financial
information of the First Quarter Fiscal 1999 Purchase Acquisitions for the
period from April 26, 1998 through their respective acquisition date; (iv) the
unaudited financial information of ATC for the period from April 26, 1998
through July 25, 1998; and (v) the unaudited financial information of WET for
the period from April 26, 1998 through July 25, 1998.
10
<PAGE>
The unaudited pro forma adjustments are based upon preliminary estimates,
available information and certain assumptions that management deems appropriate.
The unaudited pro forma combined financial data presented herein does not
purport to represent what the Company's financial position or results of
operations would have been had the transactions which are the subject of pro
forma adjustments occurred on those dates, as assumed, and are not necessarily
representative of the Company's financial position or results of operations in
any future period. The pro forma combined financial statements should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Current Report on Form 8-K and in the Company's Annual Report
on Form 10-K for the fiscal year ended April 25, 1998 and its Quarterly Report
on Form 10-Q for the three months ended July 25, 1998. The financial data for
the Fiscal 1998 Purchase Acquisitions is shown combined but is presented by
company in Navigant's Report on Form S-1.
11
<PAGE>
NAVIGANT INTERNATIONAL, INC.
PRO FORMA COMBINED BALANCE SHEET
JULY 25, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
World
Navigant Arrington Express
International, Travel Center, Travel Pro Forma Pro Forma
Inc. Inc. Inc. Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 5,202 $ 181 $(1,268) (a) $ 4,115
Total receivables 22,271 $2,966 968 26,205
Due from U.S. Office Products 1,458 1,458
Prepaid and other assets 2,977 530 124 3,631
-------- ------ ------ ------- --------
Total current assets 31,908 3,496 1,273 (1,268) 35,409
Net property and equipment 18,402 428 114 18,944
Net intangible assets 107,990 28 16,147 (b) 132,517
8,352 (c)
Other assets 1,447 190 17 1,654
-------- ------ ------ ------- --------
Total assets $159,747 $4,114 $1,432 $23,231 $188,524
======== ====== ====== ======= ========
Short-term debt $ 1,180 $ 1,180
Payable to former shareholder $1,268 $(1,268) (a) 0
Accounts payable 2,934 $ 439 3,373
Accrued compensation 5,669 548 241 6,458
Accrued taxes 758 758
Other accrued liabilities 12,252 763 42 250 (b) 13,457
150 (c)
-------- ------ ------ ------- --------
Total current liabilities 22,793 2,579 722 (868) 25,226
Long-term debt 21,438 735 17,098 (b) 47,448
8,177 (c)
Other long-term liabilities 1,688 334 2,022
Deferred income taxes 97 97
-------- ------ ------ ------- --------
Total liabilities 46,016 2,913 1,457 24,407 74,793
Common stock 13 10 5 (10) (b) 13
(5) (c)
Additional paid-in capital 111,843 2 (2) (c) 111,843
Retained earnings 2,034 1,191 (32) (1,191) (b) 2,034
32 (c)
Cumulative translation adjustment (159) (159)
-------- ------ ------ ------- --------
Total stockholders' equity 113,731 1,201 (25) (1,176) 113,731
-------- ------ ------ ------- --------
Total liabilities and
stockholders' equity $159,747 $4,114 $1,432 $23,231 $188,524
======== ====== ====== ======= ========
</TABLE>
See accompanying notes to pro forma combined financial statements.
12
<PAGE>
NAVIGANT INTERNATIONAL, INC.
Pro Forma Combined Statement of Income
Three Months Ended July 25, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
First Quarter
Navigant Arrington Fiscal 1999
International, Travel Center, World Express Purchase Pro Forma Pro Forma
Inc. Inc. Travel, Inc. Acquisitions Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Revenues $40,578 $4,278 $1,468 $4,574 $50,898
Operating Expenses 23,155 2,438 741 2,479 28,813
------- ------ ------ ------ -------
Gross Profit 17,423 1,840 727 2,095 22,085
General and administrative expenses 12,054 1,033 420 1,460 $ (591) (d) 14,376
Amortization expense 712 302 (f) 1,014
Strategic restructuring costs 2,826 (2,826) (g)
------- ------ ------ ------ ------- -------
Operating Income 1,831 807 307 635 3,115 6,695
Other (Income) Expense 220 (89) 22 (12) 717 (h) 858
------- ------ ------ ------ ------- -------
Income before provision
for income taxes 1,611 896 285 647 2,398 5,837
Provision for income taxes 878 21 1,623 (i) 2,522
------- ------ ------ ------ ------- -------
Net income $ 733 $ 896 $ 285 $ 626 $ 775 $ 3,315
======= ====== ====== ====== ======= =======
Weighted average shares (j)
Basic 13,183 12,978
Diluted 13,264 12,997
Net income per share
Basic $0.06 $ 0.26
Diluted $0.06 $ 0.26
</TABLE>
See accompanying notes to pro forma combined financial statements.
13
<PAGE>
NAVIGANT INTERNATIONAL, INC.
Pro Forma Combined Statement of Income
Twelve Months Ended April 25, 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
First Quarter
Navigant Arrington Fiscal 1998 Fiscal 1999
International, Travel Center, World Express Purchase Purchase Pro Forma Pro Forma
Inc. Inc. Travel, Inc. Acquisitions Acquisitions Adjustments Combined
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $120,424 $18,238 $7,250 $36,618 $17,419 $199,949
Operating Expenses 69,643 10,396 3,654 19,372 9,468 112,533
-------- -------- -------- -------- -------- --------
Gross Profit 50,781 7,842 3,596 17,246 7,951 87,416
General and administrative
expenses 38,531 5,597 1,948 11,935 6,146 $(3,050) (d) 61,229
122 (e)
Amortization expense 2,353 111 1,706 (f) 4,170
Nonrecurring costs 2,263 (1,000) (g) 1,263
-------- -------- -------- -------- -------- -------- --------
Operating income 7,634 2,245 1,648 5,200 1,805 2,222 20,754
Other (Income) Expense 176 (316) 85 (24) 30 3,319 (h) 3,270
-------- -------- -------- -------- -------- -------- --------
Income before provision
for income taxes 7,458 2,561 1,563 5,224 1,775 (1,097) 17,484
Provision for income taxes 4,081 12 303 44 3,637 (i) 8,077
-------- -------- -------- -------- -------- -------- --------
Net income $ 3,377 $ 2,549 $1,563 $ 4,921 $ 1,731 $(4,734) $ 9,407
======== ======= ======== ======== ======== ======== ========
Weighted average shares (j)
Basic 11,956 12,978
Diluted 12,193 12,997
Net income per share
Basic $0.28 $0.72
Diluted $0.28 $0.72
</TABLE>
See accompanying notes to pro forma combined financial statements.
14
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
($ In Thousands)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
a) Adjustment to reflect the repayment of payable to former shareholder of ATC
as a result of the acquisition of ATC by the Company.
b) Adjustment to reflect purchase price adjustments associated with the
acquisition of ATC for cash of $17,098. The portion of the consideration
assigned to goodwill ($16,147) in the transaction accounted for under the
purchase method represents the excess of the cost over the fair market value
of the net assets acquired. The Company amortizes goodwill over a period of
35 years. The recoverability of the unamortized goodwill will be assessed on
an ongoing basis by comparing anticipated undiscounted future cash flows
from operations to net book value.
c) Adjustment to reflect purchase price adjustments associated with the
acquisition of WET for cash of $8,177. The portion of the consideration
assigned to goodwill ($8,352) in the transaction accounted for under the
purchase method represents the excess of the cost over the fair market value
of the net assets acquired. The Company amortizes goodwill over a period of
35 years. The recoverability of the unamortized goodwill will be assessed on
an ongoing basis by comparing anticipated undiscounted future cash flows
from operations to net book value.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS
d) Adjustment to reflect reductions in executive compensation as a result of
the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions. The
Company believes that these reductions are expected to remain in place for
the foreseeable future and are not reasonably likely to affect the operating
performance of the Company.
e) Adjustment to reflect additional corporate overhead expenses to be incurred
as a stand-alone, publicly traded entity, rather than as a division of USOP.
f) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1998 Purchase
Acquisitions, First Quarter Fiscal 1999 Purchase Acquisitions, ATC and WET
acquisition for the periods prior to the respective dates of acquisition.
The Company has recorded goodwill amortization in the historical financial
statements from the respective dates of acquisition forward. The goodwill is
being amortization over an estimate life of 35 years.
g) Adjustment to reflect the elimination of nonrecurring costs that were
associated with the Distribution.
h) Adjustment to reflect the increase in interest expense. Interest expense is
being calculated on an average pro forma debt outstanding during the
applicable periods at a weighted average interest rate of approximately
7.75%. The adjustment also reflects the reduction in interest income to zero
as the Company generally expects to use available cash to repay debt. Pro
forma interest expense will fluctuate $55 on an annual basis for each 0.125%
change in interest rates.
i) Adjustment to calculate the provision for income taxes on the pro forma
combined results. The difference between the effective tax rates and the
statutory tax rate of 35% relates primarily to non-deductible goodwill,
restructuring costs and state income taxes.
j) The weighted average shares outstanding used to calculate pro forma combined
earnings per share is calculated based upon the weighted average shares of
the Company, as adjusted to reflect the shares sold in the Offering, as if
the Offering had occurred on April 27, 1997.
15
