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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 26, 2000
[_] 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 52-2080967
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
84 INVERNESS CIRCLE EAST
ENGLEWOOD, COLORADO 80112
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(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 _________
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As of May 1, 2000, the Registrant had outstanding 13,100,000 shares of
its common stock, par value $0.001 per share and 852,000 shares of treasury
stock outstanding.
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INDEX TO FORM 10-Q
------------------
Part I. FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
March 26, 2000 (Unaudited) and December 26, 1999...........3
Consolidated Statements of Income (Unaudited) -
Three Months Ended March 26, 2000 and March 28, 1999.......4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 26, 2000 and March 28, 1999.......5
Notes to Consolidated Financial Statements................6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................8 - 13
Item 3. Quantitative and Qualitative Disclosures
about Market Risks........................................13
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings.......................................14 - 15
Item 2. Changes in Securities........................................15
Item 3. Defaults Upon Senior Securities..............................15
Item 4. Submission of Matters to a Vote of Security Holders..........15
Item 5. Other Information............................................16
Item 6. Exhibits and Reports on Form 8-K.............................16
SIGNATURES
2
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NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 26, December 26,
--------- ------------
2000 1999
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 2,362 $ 2,003
Restricted cash in NavigantVacations.com.................................. 14,702 14,965
Accounts receivable, less allowance for doubtful accounts of $424 and
$424, respectively....................................................... 52,501 42,278
Prepaid expenses and other current assets................................. 4,129 3,168
Deferred income taxes..................................................... 1,937 1,551
Income tax receivable..................................................... 113 2,368
---------- ----------
Total current assets.................................................. 75,744 66,333
Property and equipment, net.................................................. 22,716 22,282
Intangible assets, net....................................................... 212,594 193,387
Deferred income taxes........................................................ 1,200 1,160
Other assets................................................................. 4,363 4,149
---------- ----------
Total assets.......................................................... $ 316,617 $ 287,311
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term portion of long-term debt...................................... $ 14,673 $ 11,867
Short-term portion of capital lease obligations........................... 800 800
Accounts payable.......................................................... 5,202 4,880
Accrued compensation...................................................... 8,713 8,740
Other accrued liabilities................................................. 25,864 19,979
---------- ----------
Total current liabilities............................................. 55,252 46,266
Long-term debt, net of short-term portion.................................... 113,185 93,844
Capital lease obligations.................................................... 510 708
Other long-term liabilities.................................................. 7,200 6,410
---------- ----------
Total liabilities..................................................... 176,147 147,228
---------- ----------
Minority interest in NavigantVacations.com................................... 15,195 15,120
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock; $.001 par value, 150,000,000 shares authorized;
13,100,000 issued and outstanding (13,075,000 at December 26, 1999)..... 13 13
Additional paid-in-capital................................................ 114,274 114,044
Treasury Stock............................................................ (6,497) (3,520)
Accumulated other comprehensive income (loss)............................. 126 122
Retained earnings......................................................... 17,359 14,304
---------- ----------
Total stockholders' equity............................................ 125,275 124,963
---------- ----------
Total liabilities and stockholders' equity............................ $ 316,617 $ 287,311
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months Ended
March 26, 2000 March 28, 1999
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues............................................................. $ 73,313 $ 54,603
Operating expenses................................................... 40,572 30,472
General and administrative expenses.................................. 20,046 14,485
Depreciation and amortization expense................................ 2,964 2,423
Non-recurring restructuring charge................................... 1,900
-------------- --------------
Operating income................................................ 7,831 7,223
Other (income) expenses:
Interest expense................................................... 2,457 1,095
Interest income.................................................... (218) (7)
Other.............................................................. 49 24
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Income before provision for income taxes............................. 5,543 6,111
Provision for income taxes........................................... 2,413 2,648
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Income before minority interest...................................... 3,130 3,463
Minority interest.................................................... 75
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Net income........................................................... 3,055 3,463
Other comprehensive income:
Foreign currency translation adjustment (4) (29)
-------------- --------------
Comprehensive income $ 3,051 $ 3,434
============== ==============
Weighted average number of common shares outstanding:
Basic.............................................................. 12,503 12,916
Diluted............................................................ 12,773 12,923
Net income per share:................................................
Basic.............................................................. $ 0.24 $ 0.27
Diluted............................................................ $ 0.24 $ 0.27
</TABLE>
See accompanying notes to consolidated financial statements.
4
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NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
March 26, 2000 March 28, 1999
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 3,055 $ 3,463
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense.................... 2,964 2,423
Minority interest........................................ 75
Non-recurring charges.................................... 213
Changes in current assets and liabilities (net of assets
acquired and liabilities assumed in combinations
accounted for under the purchase method):
Accounts receivable.................................... (4,790) (1,324)
Prepaid expenses and other assets...................... (1,320) (625)
Accounts payable....................................... 138 (252)
Accrued liabilities.................................... 5,251 (3,260)
Other long-term liabilities............................ (102) 4,794
-------------- --------------
Net cash provided by operating activities............ 5,484 5,219
-------------- --------------
Cash flows from investing activities:
Additions to property and equipment, net of disposals..... (1,303) (1,762)
Restricted cash equivalents in NavigantVacations.com, net. 263
Cash paid in acquisitions and earn-outs consideration,
net of cash received..................................... (18,243)
-------------- --------------
Net cash used in investing activities................ (19,283) (1,762)
-------------- --------------
Cash flows from financing activities:
Payments of long-term debt................................ (2,181) (3,277)
Proceeds from credit facility, net........................ 19,200
Repurchase of common stock................................ (2,977) (101)
Proceeds from exercise of stock options, net.............. 230
-------------- --------------
Net cash provided by (used in) financing activities.. 14,272 (3,378)
Effect of exchange rate changes on cash..................... (114) (155)
Net increase (decrease) in cash and cash equivalents........ 359 (76)
Cash and cash equivalents at beginning of period............ 2,003 315
-------------- --------------
Cash and cash equivalents at end of period.................. $ 2,362 $ 239
============== ==============
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 2,084 $ 1,029
Income taxes paid......................................... $ 584 $ 2,806
</TABLE>
See accompanying notes to consolidated financial statements.
5
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NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
NOTE 1--BACKGROUND
Navigant International, Inc. (the "Company"), a Delaware corporation, is
one of the five largest corporate travel management companies in the United
States based on airline sales. 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. Management considers a downturn
in this market segment to be unlikely. 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 related financial information is not
separately stated in the Company's internal reports.
NOTE 2--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 generally accepted accounting
principles 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 26, 1999.
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 26, 2000, and the results of
operations and 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 26, 2000, 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.
NOTE 3--BUSINESS COMBINATIONS
From December 27, 1999 to March 26, 2000, the Company made three
acquisitions. These three acquisitions were accounted for under the purchase
method for an aggregate purchase price of $23,173 consisting of cash, net of
cash acquired, of $18,243 and notes payable of $4,930. The total assets related
to these three acquisitions were $24,721 including intangible assets of $19,760.
The results of these acquisitions have been included in the Company's results
from their respective dates of acquisition.
6
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NOTE 4--NON-RECURRING CHARGES
The Company implemented a cost reduction measure that commenced in March
2000 and resulted in the Company's recording a restructuring charge of $1.9
million in February and March 2000. The 2000 charge provides for the closure of
five facilities and the severance associated with the elimination of
approximately 130 employee positions. To date, three facilities have been closed
or consolidated and 67 employee positions have been eliminated. Management
believes that these measures will be substantially completed as of December
2000. The activity in the restructuring liability during the three months ended
March 26, 2000 is as follows:
Employee Facility
Severance and Closures and
Termination Costs Consolidation Total
Original restructuring accrual. $ 1,584 $ 316 $ 1,900
Payments....................... (762) (762)
Non-cash usage................. (213) (213)
---------- ------- --------
Balance at March 26, 2000...... $ 822 $ 103 $ 925
========== ======= ========
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS.
- ----------------------
Statements contained in this Quarterly Report on Form 10-Q which are not
historical in nature are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements include, without limitation, statements in Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
regarding intent, belief or current expectations of the Company or its officers
with respect to, among other things, trends in the travel industry, the
Company's business and growth strategies, the Company's use of technology, the
Company's distribution of services, the continued use of travel management
companies by corporate clients, the use of co-branding involving the Company's
subsidiaries, the Company's payment or non-payment of dividends, implementation
by the Company of management contracts and service fees with corporate clients,
planned cost reduction measures and fluctuations in the Company's quarterly
results of operations.
Forward-looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from anticipated results. These
risks and uncertainties include changes or reductions in the commission
structure in the travel service industry, changes in laws or regulations
concerning the travel service industry, trends in the travel service industry
(including competition, consolidation and increased use of the Internet and
computer on-line services), the ability of the Company to successfully integrate
the operations of existing or acquired travel management companies, limitations
on the availability of funds or other capital resources to finance future
acquisitions, limitations on the Company's use of the pooling-of-interest
methods to account for future acquisitions, the Company's ability to negotiate
favorable travel management contracts with its current and future clients, any
loss or modification of material contracts the Company has with travel suppliers
or current clients, liabilities arising under indemnification and contribution
agreements entered into by the Company in connection with its spin-off from U.S.
Office Products Company ("U.S. Office Products") in June 1998, changes in the
Company's ability to amortize goodwill, an impairment of goodwill due to
downturn in the cash flows relating to past acquisitions, and a variety of
factors such as a recession or slower economic growth, weather conditions and
concerns for passenger safety that could cause a decline in travel demand, as
well as the risk factors set forth in Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Risk Factors," of
the Company's Annual Report on Form 10-K for the fiscal year ended December 26,
1999, and other factors as may be identified from time to time in the Company's
filings with the Securities and Exchange Commission or in the Company's press
releases.
Introduction
The Company provides corporate travel management services and, to a more
limited extent, other travel services, throughout the United States, in Canada
and in the United Kingdom.
The Company's consolidated financial statements include the results of
operations for the three companies acquired in business combinations in 2000
accounted for under the purchase method (the "2000 Purchased Companies") and the
ten companies acquired in business combinations in 1999 accounted for under the
purchase method (the "1999 Purchased Companies") from their respective dates of
acquisition.
Sources of Revenue
Historically, arrangements between corporate travel management companies
and their clients generally did not provide for any direct compensation from
clients for travel bookings and services completed on their behalf.
Consequently, corporate travel management companies were largely dependent for
their revenues on the point of sale percentage commissions paid by the airlines
for each ticket issued and to a lesser extent on hotel and car rental
commissions. In 1995, the airlines instituted a commission cap of $50 on round-
trip domestic tickets and $25 on one-way domestic tickets. In October 1997, the
airlines cut the base commission on domestic and international tickets from 10%
to 8% of the ticket price. The Company and other travel management companies
were significantly affected by these commission reductions, particularly the
October 1997 reduction, which resulted in a decrease in gross revenue per
transaction. In October 1998, the airlines instituted a commission cap of $100
on
8
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round-trip international tickets and $50 on one-way international tickets.
Most recently, in October 1999, the airlines further cut the base commission on
domestic and international tickets from 8% to 5% of the ticket price. The
previous commission caps of $50 on round-trip domestic tickets and $25 on one-
way domestic tickets and $100 on round-trip international tickets and $50 on
one-way international tickets remained in effect.
In response to the reduction in airline commissions and consistent with
growing industry practice, the Company has entered into management contracts and
service fee arrangements with a significant number of its clients. Although the
terms of the Company's management contracts vary depending on the type of
services provided and by client, the Company typically deducts a pre-negotiated
management fee, its direct operating expenses and its indirect overhead costs
from commissions collected for travel arrangements made on behalf of the client.
If the commissions do not exceed the amounts deducted, the client pays the
difference to the Company. If the commissions exceed the amounts deducted, the
Company typically pays the excess to the client. In addition, the Company
typically charges a service fee for each ticket and other transactions to
clients who do not have a management contract with the Company. The Company
typically charges between $20 and $40 for each air travel ticket issued to such
clients and retains all of the related commissions collected from the airlines.
The Company believes that its management contracts and service fee
arrangements should minimize the financial impact of this commission cap, as
well as any future changes in the airline commission rates. The Company believes
that at least 95% of its total transactions are currently generated from clients
under management contracts and service fee arrangements and expects this
percentage to increase to 100% by June 2000.
The Company has entered into agreements with major airlines for the payment
of ``incentive override'' commissions in addition to the base commissions
described above. Under these agreements, the airlines generally pay additional
commissions on domestic and international air travel if the volume of the
Company's ticket sales surpasses specified thresholds, which typically are based
on the airlines' share of the relevant markets. Additionally, the Company has
negotiated favorable contracts with selected computer reservation systems
vendors, hotel commission clearinghouses and rental car companies. Some of
these contracts provide payments to the Company of up-front fees or annual
payments or cost savings to the Company.
Expenses
The Company's direct operating expenses include principally labor expense
(which comprised approximately 66.9% of total direct operating expenses in the
three months ended March 26, 2000), net commission payments to clients under
management contracts, communication costs and other costs associated with the
selling and processing of travel reservations.
The Company's general and administrative expenses include principally labor
expense (which comprised approximately 54.1% of total general and administrative
expenses in the three months ended March 26, 2000), occupancy costs and other
costs.
2000 Non-Recurring Charges
As part of the Company's increased focus on regional operational structures
and process flow in 2000, it undertook a formal plan approved by its Board of
Directors for cost reduction measures including the elimination duplicative
facilities and the consolidation of certain regional operating functions. The
implementation of the cost reduction measures commenced in March 2000 and
resulted in the Company's recording an aggregate restructuring charge of $1.9
million in February and March 2000.
The 2000 charge provides for the closure of five facilities and the
severance associated with the elimination of approximately 130 employee
positions. To date, three facilities have been closed or consolidated and
approximately 67 employee positions have been eliminated. Management anticipates
that these measures will be completed by December 2000.
9
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Results of Operations
The following table sets forth various items as a percentage of
revenues for the three months ended March 26, 2000 and March 28, 1999.
<TABLE>
<CAPTION>
For the Three Months
--------------------
Ended
------
March 26, March 28,
2000 1999
---- ----
<S> <C> <C>
Revenues..................................................................... 100.0% 100.0%
Operating expenses........................................................... 55.3 55.8
General and administrative expenses.......................................... 27.3 26.5
Depreciation and amortization expense........................................ 4.0 4.4
Non-recurring restructuring charge........................................... 2.7
-------- --------
Operating income.......................................................... 10.7 13.3
Interest expense, net........................................................ 3.1 2.1
-------- --------
Other (income) expense.......................................................
Income before provision for income taxes..................................... 7.6 11.2
Provision for income taxes................................................... 3.3 4.8
-------- --------
Income before minority interest.............................................. 4.3% 6.4%
======== ========
</TABLE>
Revenues
Consolidated revenues increased 34.3%, from $54.6 million for the three months
ended March 28, 1999 to $73.3 million for the three months ended March 26, 2000.
This increase was primarily due to the inclusion of the revenues from the 2000
and 1999 Purchased Companies from their respective dates of acquisition, which
added approximately $16 million in consolidated revenues. Additionally, the
Company has increased revenues in 2000 through internal growth of 5.0% and
improved national contracts with certain of its vendors.
Operating Expenses
Operating expenses increased 33.1%, from $30.5 million, or 55.8% of revenues,
for the three months ended March 28, 1999 to $40.6 million, or 55.3% of
revenues, for the three months ended March 26, 2000. The decrease in operating
expense as a percentage of revenues was due primarily to 5% internal growth and
the result of spreading certain fixed operating expenses over a larger revenue
base.
General and Administrative Expenses
General and administrative expenses increased 38.4%, from $14.5 million, or
26.5% of revenues, for the three months ended March 28, 1999 to $20.0 million,
or 27.3% of revenues, for the three months ended March 26, 2000. The increase in
general and administrative expenses as a percentage of revenues was due
primarily to incremental costs associated with the start-up of
NavigantVacations.com prior to the new release of its website adding
approximately $400,000 of additional general and overhead costs. Additionally,
the 2000 Purchased Companies and the 1999 Purchased Companies acquired in the
latter part of 1999 had a higher general and administrative expenses as a
percentage of revenues than the Company due to the recency of these acquisitions
and the general overlap of several of their administrative functions as the
regions formalized their operating structure. The Company took the non-recurring
restructuring charge to eliminate several of these positions throughout the
balance of 2000.
10
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Depreciation and Amortization Expense
Depreciation and amortization expense increased 22.3%, from $2.4 million,
or 4.4% of revenues, for the three months ended March 28, 1999 to $3.0 million,
or 4.0% of revenues, for the three months ended March 26, 2000. This increase
was due to the increase in the number of purchase acquisitions and the resultant
higher goodwill amortization included in the results for 2000 compared to 1999.
Non-recurring Restructuring Charge
As part of the Company's increased focus on regional operational structures
and process flow in 2000, it undertook a formal plan approved by its Board of
Directors for cost reduction measures including the elimination of duplicative
facilities and the consolidation of certain regional operating functions. The
implementation of the cost reduction measures commenced in March 2000 and
resulted in the Company's recording an aggregate restructuring charge of $1.9
million in February and March 2000. The Company did not incur any non-recurring
charges in the three months ended March 28, 1999.
Interest Expense, Net
Interest expense, net, increased from $1.1 million or 2.1% of revenues, for
the three months ended March 28, 1999 to $2.3 million, or 3.1% of revenues, for
the three months ended March 26, 2000. The increase was attributable to
financing the acquisitions of the 1999 and 2000 Purchased Companies with
borrowings under the Company's credit facility as the average debt balance for
the three months ended March 26, 2000 increased to $117.8 million compared to
$61.0 million for the three months ended March 28, 1999 resulting in
approximately $1.0 million in interest expense. Additionally, the increase in
interest rates associated with the Federal Reserve rate increases resulted in
$340,000 additional interest expense as the Company's average interest rate
increased from 7.2% for the three months ended March 28, 1999 to 8.3% for the
three months ended March 26, 2000.
Provision for Income Taxes
Provision for income taxes decreased from $2.6 million for the three months
ended March 28, 1999 to $2.4 million for the three months ended March 26, 2000,
reflecting effective income tax rates of 43.3% and 43.5%, respectively. The
high effective income tax rate compared to the federal statutory rate of 35%,
was primarily due to an increase in non-deductible goodwill amortization
resulting from acquisition activity. The effective rates in the three months
ended March 26, 2000 was slightly higher than the effective rates in the three
months ended March 28, 1999 due to a lower ratio of non-deductible goodwill
amortization to pre-tax income in the earlier period as a result of the non-
recurring restructuring charge recorded in the three months ended March 26,
2000.
Liquidity and Capital Resources
At March 26, 2000, the Company had cash of $2.4 million, excluding
restricted cash in NavigantVacations.com, working capital of $20.5 million ($5.8
million excluding restricted cash in NavigantVacations.com), borrowings of
$109.2 million under the Amended and Restated Credit Agreement from NationsBank,
N.A. as Administrative Agent (the "Credit Facility"), $20.0 million of other
indebtedness, including capital lease obligations, and available capacity under
the Credit Facility of $15.8 million. The Company's capitalization, defined as
the sum of long-term debt and stockholders' equity at March 26, 2000 was
approximately $254.4 million.
11
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The Company has financed its operational growth and acquisitions primarily
from internally generated cash flow from operations and borrowings under the
Credit Facility. These borrowings are secured by the accounts receivable and
other assets of the Company.
The Company anticipates that its cash flow from operations and borrowings
under the Credit Facility will provide sufficient cash to enable the Company to
meet its working capital needs, debt service requirements and planned capital
expenditures for property and equipment through at least fiscal 2002 based on
current budgets.
During the three months ended March 26, 2000, net cash provided by
operating activities was $5.5 million. Net cash used in investing activities was
$19.3 million, including $1.3 million for additions to property and equipment,
such as computer equipment and office furniture, and $18.2 million for the
acquisition of the 2000 Purchased Companies. Net cash provided by financing
activities was $14.3 million, consisting of $2.2 million for repayments by the
Company of long-term indebtedness and $3.0 million for the repurchase of common
stock offset by net increases of $19.2 million in the Company's credit facility
primarily to finance the 2000 Purchased Companies.
During the three months ended March 28, 1999, net cash provided by
operating activities was $5.2 million. Net cash used in investing activities was
$1.8 million, which was for additions to property and equipment, such as
computer equipment and office furniture. Net cash used in financing activities
was $3.4 million, consisting of $3.3 million for repayments by the Company of
long-term indebtedness.
In August 1999, the Company obtained the Credit Facility, a secured $125.0
million revolving credit facility to replace the Company's existing $60.0
million revolving credit facility and a $15.0 million short term bridge loan
agreement. The Credit Facility is available for working capital, capital
expenditures, and acquisitions, subject to compliance with the applicable
covenants. The Credit Facility is scheduled to expire in August 2004. Interest
on borrowings under the Credit Facility accrues at a rate of, at the Company's
option, either (i) LIBOR plus a margin of between 1.25% and 2.75%, depending on
the Company's funded debt to EBITDA ratio, or (ii) the Alternative Base Rate
(defined as the higher of (x) the NationsBank, N.A. prime rate and (y) the
Federal Funds rate plus .50%) plus a margin of between .25% and 1.75%, depending
on the Company's funded debt to EBITDA ratio. Indebtedness under the Credit
Facility is secured by substantially all of the assets of the Company. The
Credit Facility is subject to terms and conditions typical of facilities of such
size and includes certain financial covenants.
The Company intends to continue to pursue acquisition opportunities and may
be in various stages of negotiation, due diligence and documentation of
potential acquisitions at any time. The timing, size or success of any
acquisition effort and the associated potential capital commitments cannot be
predicted. The Company expects to fund future acquisitions primarily with cash
flow from operations and borrowings, including borrowings under the Credit
Facility, as well as issuance of additional equity or debt. To the extent the
Company funds a significant portion of the consideration for future acquisitions
with cash, it may have to increase the amount available for borrowing under the
Credit Facility or obtain other sources of financing through the public or
private sale of debt or equity securities. There can be no assurance that the
Company will be able to secure such financing if and when it is needed or on
terms the Company deems acceptable. If the Company is unable to secure
acceptable financing, its acquisition program could be negatively affected.
Capital expenditures for equipment and expansion of facilities are expected to
be funded from cash flow from operations and supplemented as necessary by
borrowings under the Credit Facility.
Fluctuations in Quarterly Results of Operations
The business travel industry is seasonal and the Company's results have
fluctuated because of these seasonal variations. Net revenues and net income for
the Company are generally higher in the second and third calendar quarters. The
Company expects this seasonality to continue in the future. The Company's
quarterly results of operations may also be subject to fluctuations as a result
of changes in relationships with certain travel suppliers,
12
<PAGE>
changes in the mix of services offered by the Company, extreme weather
conditions or other factors affecting travel. Unexpected variations in quarterly
results could also adversely affect the price of the Company's common stock,
which in turn could limit the ability of the Company to make acquisitions.
As the Company continues to complete acquisitions, it may become subject to
additional seasonal influences. Quarterly results also may be materially
affected by the timing of acquisitions, the timing and magnitude of costs
related to such acquisitions, variations in the prices paid by the Company for
the products it sells, the mix of products sold and general economic conditions.
Moreover, the operating margins of companies acquired may differ substantially
from those of the Company, which could contribute to the further fluctuation in
its quarterly operating results. Therefore, results for any quarter are not
necessarily indicative of the results that the Company may achieve for any
subsequent fiscal quarter or for a full fiscal year.
Inflation
The Company does not believe that inflation has had a material impact on its
results of operations.
New Accounting Pronouncements
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (``FAS 133''). FAS 133, as subsequently amended, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000 (January 1, 2001 for the Company). FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are to be recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
Company believes that, due to its limited use of derivative instruments, the
adoption of FAS 133 will not have a significant effect on the Company's results
of operations or its financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
- -------------------------------------------------------------------
Market risks relating to the Company's operations result primarily from
changes in interest rates. The Company's interest rate exposure relates
primarily to long-term debt obligations. A significant portion of the Company's
interest expense is based upon variable interest rates of its bank's prime rate
or the Eurodollar rate, as discussed in Footnote 9 of the Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the year
ended December 26, 1999. Based upon the Company's average borrowings under the
Credit Facility for the three months ended March 26, 2000, a 50 basis point
movement in the base rate or the LIBOR rate would approximate $150,000
annualized increase or decrease in interest expense.
13
<PAGE>
PART II. OTHER INFORMATION.
- ----------------------------
ITEM 1. LEGAL PROCEEDINGS.
---------------------------
The Company has been named as a defendant in a lawsuit filed by the
previous stockholders of two of the Company's subsidiaries. The lawsuit
also names U.S. Office Products Company and certain former and present
executive officers of U.S. Office Products Company as defendants. The
lawsuit was instituted on January 19, 1999, in the Circuit Court for the
County of Kent, State of Michigan. The defendants removed the suit to the
Southern Division of the United States District Court for the Western
District of Michigan. The case was subsequently transferred to the United
States District Court for the District of Columbia, to be consolidated with
other pending actions against U. S. Office Products.
The plaintiffs allege that U.S. Office Products and the named U.S.
Office Products executive officers made fraudulent misrepresentations and
omissions about among other things, U.S. Office Products' plans to engage
in a restructuring which would include a spin-off of its travel business to
its existing shareholders (the "Travel Distribution"). The plaintiffs
contend that such alleged misrepresentations and omissions induced the
plaintiffs to sell their businesses to U.S. Office Products. The Company
has been named in the lawsuit as a successor to U.S. Office Products'
travel businesses. The plaintiffs contend that they may seek rescission of
the purchases of these two subsidiaries or damages for the value of the
assets of the two subsidiaries from the Company and have requested that the
Company be required to hold such assets in a constructive trust for the
plaintiffs. As of March 26, 2000, the approximate book value of these
two subsidiaries was $12.5 million. The Company intends to vigorously
defend against this lawsuit.
Individuals purporting to represent various classes composed of
stockholders who purchased shares of U.S. Office Products common stock
between June 5, 1997 and November 2, 1998 filed six actions in the United
States District Court for the Southern District of New York and four
actions in the United States District Court of the District of Columbia in
late 1998 and early 1999. Each of the actions named Jonathan Ledecky (a
former director of Navigant), U.S. Office Products, and, in some cases,
Sands Brothers & Co. Ltd. as defendants. Navigant has not been named as a
defendant in these actions. The actions claim that the defendants made
misstatements, failed to disclose material information, and otherwise
violated Sections 10(b) and/or 14 of the Securities Exchange Act of 1934
and Rules 10b-5 and 14a-9 thereunder in connection with U.S. Office
Products' Strategic Restructuring. Two of the actions alleged a violation
of Sections 11, 12 and/or 15 of the Securities Act of 1933 and/or breach of
contract under California law relating to U.S. Office Products' acquisition
of Mail Boxes Etcetera. The actions seek declaratory relief, unspecified
money damages and attorney's fees. All of these actions have been
consolidated and transferred to the United States District Court for the
District of Columbia. A consolidated amended complaint was filed on July
29, 1999, naming U.S. Office Products and Mr. Ledecky as defendants.
Sellers of two businesses that U.S. Office Products acquired in the
fall of 1997 and that were spun off in connection with U.S. Office
Products' Strategic Restructuring (which included the Travel Distribution)
also have filed complaints in the United States District Court for the
District of Delaware, and the United States District Court for the District
of Connecticut. These lawsuits were filed on February 10, 1999 and March 3,
1999, respectively, and name, among others, U.S. Office Products as a
defendant. Both of these cases have been transferred and consolidated for
pretrial purposes with the purported class-action pending in the United
States District Court for the District of Columbia.
Sellers of two other businesses acquired in October 1997 and December
1997 that were not spun off by U.S. Office Products have also filed
complaints in state court in Kentucky and state court in Indiana in which
U.S. Office Products is named as defendant. Those complaints were filed on
or about September 2, 1999, and September 30, 1999. These cases have been
removed to federal district court, and U.S. Office Products has sought to
have both cases transferred and consolidated with the cases pending in the
United
14
<PAGE>
States District Court for the District of Columbia. Each of these disputes
generally relates to events surrounding the Strategic Restructuring, and
the complaints that have been filed assert claims of violation of federal
and/or state securities and other laws, fraud, misrepresentation,
conspiracy, breach of contract, negligence, and/or breach of fiduciary
duty.
In October 1999, the United States District Court for the District of
Columbia ordered that the parties in all of the cases before it engage in
mediation, and "administratively closed" the cases that had been
consolidated until completion of the mediation process. Mediation sessions
were held in December 1999 and January 2000. If the cases are not settled
by mediation, the cases will be reopened with the court.
On April 14, 1998, a stockholder purporting to represent a class
composed of all U.S. Office Products' stockholders filed an action in the
Delaware Chancery Court. The action names U.S. Office Products and its
directors, including Mr. Ledecky, as defendants, and claims that the
directors breached their fiduciary duty to stockholders of U.S. Office
Products by changing the terms of the self tender offer for U.S. Office
Products' common stock that was a part of the Strategic Restructuring Plan
to include employee stock options. The complaint seeks injunctive relief,
damages and attorneys' fees. The directors filed an answer denying the
claims against them, and U.S. Office Products has moved to dismiss all
claims against it.
In connection with the Travel Distribution, the Company agreed to
indemnify U.S. Office Products for certain liabilities, which could include
claims such as those made against U.S. Office Products in these lawsuits.
If U.S. Office Products were entitled to indemnification under this
agreement, the Company's indemnification obligation, however, likely would
be limited to 5.2% of U.S. Office Products' indemnifiable loss, up to a
maximum of $1.75 million.
Navigant is also involved in various other legal actions arising in
the ordinary course of its business. Navigant believes that none of these
actions will have a material adverse effect on its business, financial
condition and results of operations.
ITEM 2. CHANGES IN SECURITIES.
-------------------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-----------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
---------------------------------------------------------------
Not applicable.
15
<PAGE>
ITEM 5. OTHER INFORMATION.
---------------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
------------------------------------------
(a) Exhibits
27.1 Financial Data Schedules
(b) Reports on Form 8-K
Not applicable.
16
<PAGE>
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: May 8, 2000.
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)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NAVIGANT'S
2000 1ST QUARTER AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-26-2000
<CASH> 17,064
<SECURITIES> 0
<RECEIVABLES> 52,925
<ALLOWANCES> 424
<INVENTORY> 0
<CURRENT-ASSETS> 75,744
<PP&E> 37,402
<DEPRECIATION> 14,686
<TOTAL-ASSETS> 316,617
<CURRENT-LIABILITIES> 55,252
<BONDS> 0
0
0
<COMMON> 107,790
<OTHER-SE> 17,485
<TOTAL-LIABILITY-AND-EQUITY> 316,617
<SALES> 73,313
<TOTAL-REVENUES> 73,313
<CGS> 40,572
<TOTAL-COSTS> 63,582
<OTHER-EXPENSES> 1,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,288
<INCOME-PRETAX> 5,543
<INCOME-TAX> 2,413
<INCOME-CONTINUING> 3,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,051
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
</TABLE>
