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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
As of and for the quarterly period ended June 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 0-28830
Navigant Consulting, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 36-4094854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
615 North Wabash Avenue, Chicago, Illinois 60611
(Address of principal executive offices, including zip code)
(312) 573-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_]
As of August 14, 2002, 40.6 million shares of the Registrant's common
stock, par value $.001 per share ("Common Stock"), were outstanding.
NAVIGANT CONSULTING, INC.
PERIOD ENDED JUNE 30, 2002
INDEX
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements .................................................................... 3
Notes to Unaudited Consolidated Financial Statements .................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk .............................. 18
PART II--OTHER INFORMATION
Item 1. Legal Proceedings ....................................................................... 19
Item 4. Submission of Matters to a Vote ......................................................... 19
Item 6. Exhibits and Reports on Form 8-K ........................................................ 19
SIGNATURES 20
"Navigant" is a service mark of Navigant International, Inc. The Company is not
affiliated, associated, or in any way connected with Navigant International,
Inc. and the Company's use of "Navigant" is made under license from Navigant
International, Inc.
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2002 2001
--------------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 16,561 $ 35,950
Accounts receivable, net 57,128 52,412
Prepaid expenses and other current assets 5,295 4,804
Deferred income taxes 6,543 5,611
-----------------------
Total current assets 85,527 98,777
Property and equipment, net 21,441 20,648
Goodwill and intangible assets, net 54,299 35,455
Deferred income taxes 3,871 2,445
Other assets 1,416 1,501
-----------------------
Total assets $ 166,554 $ 158,826
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 14,993 $ 13,779
Accrued compensation related costs 11,578 14,798
Income taxes payable 9,292 8,191
Other current liabilities 6,888 8,453
-----------------------
Total current liabilities 42,751 45,221
Other non-current liabilities - 1,500
-----------------------
Total liabilities 42,751 46,721
Stockholders' equity:
Preferred stock - -
Common stock 45 44
Additional paid-in capital 357,405 353,234
Deferred compensation - restricted stock (3,124) (4,504)
Treasury stock (64,415) (67,394)
Accumulated deficit (166,093) (169,214)
Accumulated other comprehensive loss (15) (61)
-----------------------
Total stockholders' equity 123,803 112,105
-----------------------
Total liabilities and stockholders' equity $ 166,554 $ 158,826
=======================
See accompanying notes to the unaudited consolidated financial statements.
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended June 30,
2002 2001
---------------------------
Financial & Claims Consulting revenues $ 42,006 $ 35,392
Energy & Water Consulting revenues 19,009 21,701
---------------------------
Core revenues 61,015 57,093
Energy & Water Consulting - Incremental revenues - 285
---------------------------
Total Revenues 61,015 57,378
Cost of Services
Consulting services expense 40,514 36,970
VSRP cash compensation expense - consultants - 4,190
Stock-based compensation expense - consultants (note 8) 1,005 2,409
---------------------------
Total Cost of Services 41,519 43,569
----------------------------
Gross margin 19,496 13,809
General and administrative expenses 14,659 14,446
Depreciation expense 2,047 1,781
Amortization expense (notes 6 and 7) 449 1,472
VSRP cash compensation expense - other - 350
Stock-based compensation expense - other (note 8) 249 552
Restructuring costs - 1,900
Litigation and settlement provisions - 5,700
---------------------------
Operating income (loss) 2,092 (12,392)
Other income, net 135 160
---------------------------
Income (loss) before income taxes 2,227 (12,232)
Income tax expense (benefit) 934 (4,982)
---------------------------
Net income (loss) $ 1,293 $ (7,250)
===========================
Basic net income (loss) per share: $ 0.03 ($0.19)
Shares used in computing basic income (loss) per share 39,107 38,218
Diluted net income (loss) per share: $ 0.03 ($0.19)
Shares used in computing diluted income (loss) per share 41,583 38,218
Other Comprehensive income (loss):
Net income (loss) $ 1,293 $ (7,250)
Unrealized holding loss on Securities:
Unrealized holding loss arising during period (52) -
Less: reclassification adjustment for gains
included in net income (100) -
---------------------------
Total unrealized holding loss (152) -
Foreign currency translation adjustment 194 50
---------------------------
Comprehensive income (loss) $ 1,335 $ (7,200)
===========================
See accompanying notes to the unaudited consolidated financial statements.
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Six months ended June 30,
2002 2001
-------------------------
Financial & Claims Consulting revenues $ 87,332 $ 71,124
Energy & Water Consulting revenues 34,253 39,871
----------------------
Core revenues 121,585 110,995
Energy & Water Consulting - Incremental revenues - 9,260
----------------------
Total Revenues 121,585 120,255
Cost of Services
Consulting services expense 79,589 76,503
VSRP cash compensation expense - consultants - 8,592
Stock-based compensation expense - consultants (note 8) 2,461 4,275
----------------------
Total Cost of Services 82,050 89,370
----------------------
Gross margin 39,535 30,885
General and administrative expenses 29,033 28,447
Depreciation expense 3,838 3,358
Amortization expense (notes 6 and 7) 787 2,742
VSRP cash compensation expense - other - 700
Stock-based compensation expense - other (note 8) 735 1,104
Restructuring costs - 1,900
Litigation and settlement provisions - 5,700
----------------------
Operating income (loss) 5,142 (13,066)
Other income, net 107 623
----------------------
Income (loss) before income taxes 5,249 (12,443)
Income tax expense (benefit) 2,128 (4,545)
----------------------
Net income (loss) $ 3,121 $ (7,898)
======================
Basic net income (loss) per share: $ 0.08 ($0.21)
Shares used in computing basic income (loss) per share 38,915 38,330
Diluted net income (loss) per share: $ 0.08 ($0.21)
Shares used in computing diluted income (loss) per share 41,244 38,330
Other comprehensive income (loss):
Net income (loss) $ 3,121 $ (7,898)
Unrealized holding loss on Securities:
Unrealized holding loss arising during period (108) -
Less: reclassification adjustment for gains
included in net income (100) -
--------------------------
Total unrealized holding loss (208) -
Foreign currency translation adjustment 254 (20)
--------------------------
Comprehensive income (loss) $ 3,167 $ (7,918)
==========================
See accompanying notes to the unaudited consolidated financial statements.
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six months ended June 30,
-----------------------------
2002 2001
-----------------------------
Cash flows from operating activities:
Net income (loss) $ 3,121 $ (7,898)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities, net of acquisitions:
Depreciation expense 3,838 3,358
Amortization expense 787 2,742
Stock-based compensation expense 3,196 5,379
Deferred income taxes (2,359) (225)
Other - (24)
Changes in assets and liabilities:
Accounts receivable (4,001) (10,361)
Prepaid expenses and other current assets (453) (2,013)
Accounts payable and accrued liabilities 1,008 2,463
Accrued compensation related costs (3,319) (1,292)
Income taxes 1,102 (2,990)
Other current liabilities (982) (2,582)
-----------------------------
Net cash provided by (used in) operating activities 1,938 (13,443)
Cash flows from investing activities:
Purchases of property and equipment (3,955) (3,686)
Acquisition of businesses (14,292) (5,425)
Contingent acquistion payments (2,146) (1,980)
Payment of notes payable related to acquisition (1,500) -
Other, net (569) (209)
-----------------------------
Net cash used in investing activities (22,462) (11,300)
Cash flows from financing activities:
Issuance of common stock 2,795 620
Stock repurchases (1,660) (2,199)
-----------------------------
Net cash provided by (used in) financing activities 1,135 (1,579)
-----------------------------
Net decrease in cash and cash equivalents (19,389) (26,322)
Cash and cash equivalents at beginning of the period 35,950 48,798
-----------------------------
Cash and cash equivalents at end of the period $ 16,561 $ 22,476
=============================
See accompanying notes to the unaudited consolidated financial statements.
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
Navigant Consulting, Inc. (the "Company") have been prepared pursuant to the
rules of the Securities and Exchange Commission for quarterly reports on Form
10-Q and do not include all of the information and note disclosures required by
accounting principles generally accepted in the United States of America. The
information furnished herein includes all adjustments, consisting of normal
recurring adjustments except where indicated, which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
these interim periods.
The results of operations for the three and six months ended June 30, 2002
are not necessarily indicative of the results to be expected for the entire year
ending December 31, 2002.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto as of and for the
year ended December 31, 2001 included in the Annual Report on Form 10-K, as
filed by the Company with the Securities and Exchange Commission on March 11,
2002.
Note 2. Basic and Diluted Shares
The components of the weighted average basic and diluted shares (shown in
thousands) were as follows:
Three months ended Six months ended
June 30, June 30,
--------------------------------------
2002 2001 2002 2001
--------------------------------------
Basic weighted average shares outstanding ........ 39,107 38,218 38,915 38,330
Employee stock options and restricted shares ..... 2,476 - 2,329 -
------ ------ ------ ------
Diluted weighted average shares outstanding ...... 41,583 38,218 41,244 38,330
====== ====== ====== ======
In January 2001, the Company issued 1.9 million restricted shares. As of June
30, 2002, 1.0 million restricted shares were outstanding. These restricted
shares have voting rights but are not vested and, accordingly, are excluded from
the basic earnings per share calculation until vesting occurs.
For the three months and six months ended June 30, 2001, the weighted average
effect of employee stock options and restricted shares was 3.5 million and 3.2
million, respectively. However, the Company incurred a net loss in the
respective periods; therefore, those options were excluded from the calculation
of diluted per share amounts.
Note 3. Treasury Stock
In October 2000, the Board of Directors authorized the repurchase of up to
5.0 million shares of the Company's common stock. During the six months ended
June 30, 2002, the Company repurchased 0.3 million shares for $1.7 million. The
Company has repurchased a total of 2.1 million shares for $9.1 million since
October 2000.
As part of consideration for certain acquisitions, the Company issued a total of
0.7 million shares (with a market value of $4.5 million at closing) out of
treasury stock in the second quarter of 2002.
Note 4. Segment Information
The Company is comprised of two business segments: Financial & Claims
Consulting and Energy & Water Consulting.
The Financial & Claims Consulting business segment provides consulting and
advisory services to clients facing the challenges of dispute, litigation,
bankruptcy, regulation and change. Its services include analyzing complex
accounting, finance, economic, operations and information management issues.
The Energy & Water business segment provides a wide range of management
consulting services to companies facing the challenges of the deregulating
energy, water and telecommunications industries. Services include strategy
development, financial transaction support, operations support, regulatory
advisement, technical analysis and engineering support.
The Company currently evaluates segment performance and allocates resources
based upon revenues and operating results. The basis of measurement of segment
operating results is consistent between the periods. All intercompany
transactions between segments have been eliminated. Information on the Company's
operations for the three months and six months ended June 30, 2002 and 2001 have
been summarized as follows (shown in thousands):
Three months Six months
ended June 30, ended June 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues:
Financial & Claims Consulting .................. $42,006 $35,392 $ 87,332 $ 71,124
Energy & Water Consulting ...................... 19,009 21,701 34,253 39,871
Energy & Water Consulting -
Incremental revenues .................... - 285 - 9,260
--------- --------- --------- ---------
Combined segment revenues .................... $61,015 $57,378 $121,585 $120,255
========= ========= ========= =========
Operating profit :
Financial & Claims Consulting .................. $ 6,220 $ 3,664 $ 14,086 $ 8,706
Energy & Water Consulting ...................... 939 3,501 194 9,385
--------- --------- --------- ---------
Combined segment operating profit ............ $ 7,159 $ 7,165 $ 14,280 $ 18,091
--------- --------- --------- ---------
Operating Profit and Statement of Operations reconciliation:
Unallocated:
Other non-recurring general and
administrative expenses ....................... $ - $ - $ - $ 380
Acquisition-related compensation expense ....... - 1,203 - 2,406
VSRP cash compensation expense ................. - 4,540 - 9,292
Depreciation expense ........................... 2,047 1,781 3,838 3,358
Amortization expense ........................... 449 1,472 787 2,742
Acquisition/integration costs .................. 1,317 - 1,317 -
Restructuring costs ............................ - 1,900 - 1,900
Litigation and settlement provisions ........... - 5,700 - 5,700
Stock-based compensation expense ............... 1,254 2,961 3,196 5,379
Other income ................................... (135) (160) (107) (623)
--------- --------- --------- ---------
Sub-total .................................... 4,932 19,397 9,031 30,534
--------- --------- --------- ---------
Income (loss) before income tax expense .......... $ 2,227 ($12,232) $ 5,249 $(12,443)
========= ========= ========= =========
The information presented does not necessarily reflect the results of segment
operations that would have occurred had the segments been stand-alone
businesses.
Certain general and administrative expenses, which relate to general corporate
costs, were allocated to operating segments on the basis of consulting fee
revenues. Certain general and administrative expenses, which primarily relate to
operating segments, have been excluded from the segment operating profit
amounts, and included in the costs not allocated to segments, for comparative
purposes.
For the three and six months ended June 30, 2002, the Company incurred $1.3
million of costs related to the strategic review and integration of certain
business acquisitions, which were not allocated to either operating segment.
For the six months ended June 30, 2001, the Company incurred $0.4 million of
personnel related costs, which were not allocated to either operating segments.
Note 5. Acquisitions
Effective as of April 5, 2002, the Company acquired portions of Arthur D.
Little's assets for $6.1 million cash payment at closing. The acquisition
consisted of two consulting units, with approximately 30 consulting and
administrative professionals that serve the energy industry.
On May 24, 2002, the Company issued 0.3 million shares of its common stock
(valued at $1.8 million at closing) and paid $4.1 million cash at closing for
the assets of Financial Analytics Consulting Group, LLC ("FACG"). The purchase
agreements for FACG also provides for additional payments in cash over the next
two and one-half years from closing and are contingent on revenues earned and
the attainment of certain gross margin targets. FACG was a management buyout
from Arthur Andersen, LLP and consisted of 90 consulting and administrative
professionals from five different Arthur Andersen practices. FACG has been
acquired primarily to augment the Company's Financial & Claims Consulting
business segment.
On June 19, 2002, the Company issued 0.4 million shares of its common stock
(valued at $2.7 million at closing) and paid $4.0 million cash at closing, with
another $0.5 million in cash due in April 2003 for the assets of Keevan
Consulting, LLC ("Keevan"). The purchase agreement for Keevan also provides for
additional payments in cash and the Company's common stock over the next two and
one-half years from closing, and are contingent on revenues earned and the
attainment of certain gross margin targets. Keevan was a management buyout from
Arthur Anderson, LLP and consisted of 37 consulting and administrative
professionals. Keevan was acquired to enhance the construction and government
contracts practice within the Financial & Claims Consulting business segment.
Note 6. Goodwill and Intangible Assets
In accordance with SFAS 142, the Company tested the goodwill assigned to each
reporting unit for impairment, using the discounted cash flow valuation method.
The Company concluded that there was no indication of goodwill impairment for
either of the two reporting units. If indicators of impairment are deemed to be
present after the date of adoption, and future cash flows are not expected to be
sufficient to recover the assets' carrying amounts, an impairment loss would be
charged to expense in the period identified.
Goodwill and other intangible assets consisted of (shown in thousands):
June 30, December 31,
2002 2001
-------- --------
Goodwill ....................................... $ 56,389 $ 36,758
Less - accumulated amortization ................ (5,425) (5,425)
-------- --------
Goodwill, net ............................ 50,964 31,333
Intangible assets:
Customer lists ................................. 4,470 4,470
Non-compete agreements ......................... 5,200 5,200
-------- --------
9,670 9,670
Less: accumulated amortization ................. (6,335) (5,548)
-------- --------
Intangible assets, net .................. 3,335 4,122
-------- --------
Goodwill and intangible assets, net ........ $ 54,299 $ 35,455
======== ========
The carrying balances of goodwill and intangible assets by reporting segment as
of June 30, 2002 are as follows (shown in thousands):
Intangible
Goodwill Assets Total
-------- ------- --------
Financial & Claims Consulting $ 44,398 $ 3,223 $ 47,621
Energy & Water Consulting 6,566 112 6,678
-------- ------- --------
Total $ 50,964 $ 3,335 $ 54,299
======== ======= ========
The Company made certain reclassifications of balances between goodwill and
intangible assets. In accordance with SFAS 141, the Company reclassified the
amounts allocated to employee workforce from intangible assets to goodwill.
Previously, the Company amortized goodwill and intangible assets at a composite
rate of seven years. The Company recalculated the accumulated amortization of
goodwill and intangible assets using the specific amortization rates per class.
Accordingly, the Company reclassified the respective accumulated amortization
balances at December 31, 2001 for goodwill and intangible assets.
The Company reviewed the intangible assets' net book values and estimated useful
lives by class. As of June 30, 2002, there was no impairment related to the
intangible assets. The Company will amortize the remaining net book values of
intangible assets over their remaining useful lives. The weighted average
remaining lives of customer lists and non-compete agreements are approximately
three and two years, respectively.
Total amortization expense for the three months and six months ended June 30,
2002 was $0.4 million and $0.8 million, respectively. Below is the estimated
annual aggregate amortization expense of intangible assets for each of the five
succeeding years and thereafter from December 31, 2001 based on intangible
assets at June 30, 2002 (shown in thousands):
Year ending December 31, Amount
- ------------------------ --------
2002 ...................................................... $ 1,684
2003 ...................................................... 1,491
2004 ...................................................... 291
2005 ...................................................... 263
2006 ...................................................... 263
Thereafter ................................................ 131
--------
Total.................................................... $ 4,123
========
Note 7. Pro forma Disclosure
As of January 1, 2002, the Company in accordance with SFAS 142 ceased the
amortization of goodwill. The following unaudited pro forma financial
information presents the combined results of operations for the three months and
six months ended June 30, 2002 and 2001.
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
2002 2001 2002 2001
-------- -------- -------- --------
(In thousands, except earnings per share amounts)
- -------------------------------------------------
Net income (loss) ................................. $ 1,293 $ (7,250) $ 3,121 $ (7,898)
Elimination of goodwill amortization expense,
net of tax ....................................... 0 696 0 1,235
-------- -------- -------- --------
Pro forma net income (loss) ....................... $ 1,293 $ (6,554) $ 3,121 $ (6,663)
======== ======== ======== ========
Basic earnings per share:
Net income (loss) ................................. $ 0.03 $ (0.19) $ 0.08 $ (0.21)
Elimination of goodwill amortization expense,
net of tax ....................................... 0.00 0.02 0.00 0.04
-------- -------- -------- --------
Pro forma net income (loss) ....................... $ 0.03 $ (0.17) $ 0.08 $ (0.17)
======== ======== ======== ========
Diluted earnings per share:
Net income (loss) ................................. $ 0.03 $ (0.19) $ 0.08 $ (0.21)
Elimination of goodwill amortization expense,
net of tax ....................................... 0.00 0.02 0.00 0.04
-------- -------- -------- --------
Pro forma net income (loss) ....................... $ 0.03 $ (0.17) $ 0.08 $ (0.17)
======== ======== ======== ========
Note 8. Stock-based Compensation Expense
Stock-based compensation expense is related to Value Sharing Retention
Program ("VSRP") stock options, exchanged stock options, restricted shares and
stock appreciation rights awarded to the Company's employees.
Stock-based compensation expense is recorded for VSRP stock options, exchanged
stock options and stock appreciation rights ("awards") that are subject to
variable accounting. Compensation expense for these awards is recorded, on a
cumulative basis, for the increase in the Company's stock price above the grant
prices. Stock-based compensation expense includes compensation expense for
restricted stock awards, in which expense is recorded on a straight-line basis
over the vesting term for the valuation at grant date.
For the three months ended June 30, 2002, the Company recorded total stock-based
compensation expense of $1.3 million, which includes $0.7 million of
compensation expense related to restricted shares that has been recorded on a
straight-line basis. The remaining $0.6 million relates to the valuation
increase of awards subject to variable accounting. The valuation increase
resulted from the increase in the Company's stock price to $6.99 at June 30,
2002, from $6.48 at March 31, 2002. Approximately $1.0 million of the total $1.3
million stock-based compensation expense is related to equity compensation to
consultants, which has been charged to cost of services. The remaining $0.3
million is related to equity compensation to administrative managers and
corporate officers.
For the three months ended June 30, 2001, the Company recorded total stock-based
compensation expense of $3.0 million, which includes $0.8 million of
compensation expense related to restricted shares that has been recorded on a
straight-line basis. The remaining $2.2 million relates to the valuation
increase of awards subject to variable accounting. The valuation increase
resulted from the increase in the Company's stock to $8.20 at June 30, 2001 from
$6.66 at March 31, 2001. Approximately $2.4 million of the total $3.0 million
stock-based compensation expense is related to equity compensation to
consultants, which has been charged to cost of services. The remaining $0.6
million is related to equity compensation to administrative managers and
corporate officers.
For the six months ended June 30, 2002, the Company recorded total stock-based
compensation of $3.2 million, which includes $1.4 million of compensation
expense related to restricted shares that has been recorded on a straight-line
basis. The remaining $1.8 million relates to the valuation increase of awards
subject to variable accounting. The valuation increase resulted from the
increase in the Company's stock price to $6.99 at June 30, 2002 from the higher
of exercise prices of the awards or the Company's stock price of $5.50 at
December 31, 2001. Approximately $2.5 million of the total $3.2 million
stock-based compensation expense is related to equity compensation to
consultants, which has been charged to cost of services. The remaining $0.7
million is related to equity compensation to administrative managers and
corporate officers.
For the six months ended June 30, 2001, the Company recorded total stock-based
compensation of $5.4 million, which includes $1.4 million of compensation
expense related to restricted shares that has been recorded on a straight-line
basis. The remaining $4.0 million relates to the valuation increase of awards
subject to variable accounting. The valuation increase resulted from the
increase in the Company's stock to $8.20 at June 30, 2001 from the exercise
prices of the awards. Approximately $4.3 million of the total $5.4 million
stock-based compensation expense is related to equity compensation to
consultants, which has been charged to cost of services. The remaining $1.1
million is related to equity compensation to administrative managers and
corporate officers.
Note 9. Supplemental Consolidated Balance Sheet Information
Accounts Receivable:
The components of accounts receivable were as follows (shown in thousands):
June 30, December 31,
2002 2001
-------- --------
Billed amounts ................................... $ 40,624 $ 41,814
Engagements in process ........................... 25,948 20,546
Allowance for uncollectible accounts ............. (9,444) (9,948)
-------- --------
$ 57,128 $ 52,412
======== ========
Engagements in process represent balances accrued by the Company for services
that have been performed and earned but have not been billed to the customer.
Billings are generally done on a monthly basis for the prior month's services.
Accounts Payable and Accrued Liabilities:
The components of accounts payable and accrued liabilities were as follows
(shown in thousands):
June 30, December 31,
2002 2001
-------- --------
Accounts payable ................................ $ 7,016 $ 4,334
Accrued liabilities ............................. 2,494 3,562
Litigation settlement ........................... 2,000 2,000
Accrued restructuring costs ..................... 3,483 3,883
-------- --------
$ 14,993 $ 13,779
======== ========
The litigation settlement accrual of $2.0 million at June 30, 2002 and December
31, 2001 relates to the second and final installment of the GeoData litigation
settlement and was paid on July 25, 2002.
The activity affecting the accrued restructuring costs for the six months ended
June 30, 2002 consisted of $0.4 million utilized for facility closing costs. The
costs the Company may ultimately incur may change as the balance of the
Company's restructuring plan is executed. The Company periodically reviews the
balances of the restructuring accrual to determine if the accrual is sufficient
to cover the remaining costs of executing its restructuring plan. Based on the
information available at June 30, 2002, the restructuring accrual as of June 30,
2002 is sufficient.
Note 10. Supplemental Consolidated Cash Flow Information
Total interest paid during the six months ended June 30, 2002 and 2001 was
$0.2 million and $0.1 million, respectively. Total income taxes paid during the
six months ended June 30, 2002 and 2001 were $4.4 million and $2.5 million,
respectively. Total income tax refunds during the six months ended June 30, 2002
and 2001 were $1.2 million and $3.8 million, respectively.
The Company had non-cash investing activities during the six months ended
June 30, 2002. The Company entered in a commitment for a deferred cash payment
of $0.5 million as part of the purchase price in the Keevan acquisition. The
Company issued a total of 0.7 million shares of its common stock, valued at $4.5
million in conjunction with the purchases of Keevan and FACG (See Note 4,
"Acquisitions"). The Company also incurred a $0.4 million obligation for the
purchase of computer software.
The Company had non-cash investing activities during the six months ended June
30, 2001. The Company issued $3.0 million in notes payable in the Barba-Arkhon
acquisition. The Company incurred $0.7 million of capital lease obligations for
the purchase of new computer equipment.
For the six months ended June 30, 2002 and 2001, the Company recorded, in
each period, $1.4 million for deferred compensation expense related to
restricted stock.
Item 2.
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
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 Securities and
Exchange Commission.
Results of Continuing Operations
The following table sets forth, for the periods indicated, selected statement of
operations data as a percentage of revenues:
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
2002 2001 2002 2001
---------------------------------------
Revenues .......................................... 100.0% 100.0% 100.0% 100.0%
Cost of Services:
Consulting services expense ..................... 66.4 64.4 65.5 63.6
VSRP cash compensation expense - consultants .... 0.0 7.3 0.0 7.1
Stock-based compensation expense - consultants .. 1.7 4.2 2.0 3.6
----- ----- ----- -----
Total Cost of Services ............................ 68.1 75.9 67.5 74.3
----- ----- ----- -----
Gross margin ...................................... 31.9 24.1 32.5 25.7
General and administrative expenses ............. 24.0 25.2 23.9 23.7
Depreciation expense ............................ 3.4 3.1 3.2 2.8
Amortization expense ............................ 0.7 2.6 0.6 2.3
VSRP cash compensation expense - other .......... 0.0 0.6 0.0 0.6
Stock-based compensation expense - other ....... 0.4 1.0 0.6 0.9
Restructuring costs ............................. 0.0 3.3 0.0 1.6
Litigation and settlement provision ............. 0.0 9.9 0.0 4.7
----- ----- ----- -----
Operating income (loss) ........................... 3.4 (21.6) 4.2 (10.9)
Other income (loss), net ........................ 0.2 0.3 0.1 (0.5)
----- ----- ----- -----
Income (loss) before
income taxes ............................. 3.6 (21.3) 4.3 (10.4)
Income tax expense (benefit) .................... 1.5 (8.7) 1.8 (3.8)
----- ----- ----- -----
Net income (loss) ................................. 2.1% (12.6)% 2.5% (6.6)%
===== ===== ===== =====
2002 Compared to 2001 - For the three month period ended June 30.
Revenues. Revenues are primarily a function of billable hours and consultant
headcount. Revenues increased $3.6 million, or 6.3 percent, to $61.0 million in
2002, from $57.4 million in 2001. The increase in revenues is primarily
attributed to an increase in billable hours and a 12.6 percent headcount
increase in the consulting staff, as of the end of the period. The Company has
increased its employee base from a combination of new hires and business
acquisitions. The average employee utilization percentage and average revenue
per consultant for the second quarter of 2002 and for the second quarter of 2001
were approximately the same.
Consulting Services Expense. Consulting services expense includes consultant
wages and benefits, direct project-related expenses and client development
expenses. Consulting services expense increased $3.5 million, or 9.6 percent, to
$40.5 million in 2002, from $37.0 million in 2001. Included in the second
quarter 2002 expenses was $0.8 million in costs associated with the acquisition
and integration of acquired business practices. Included in the second quarter
2001 expense was $1.2 million of acquisition compensation expense related to the
employment provisions of the Barrington Consulting purchase agreement. When
excluding the acquisition related charge for comparative purposes, consulting
services expense for the second quarter 2002 increased $3.9 million, or 10.9
percent, to $39.7 million, from $35.8 million, adjusted for these charges. The
increase in consulting services expense is primarily attributed to the increase
in headcount.
VSRP Cash Compensation Expense - Consultants. VSRP ("Value Sharing Retention
Program") cash compensation expense is the cash compensation component of the
Value Sharing Retention Program that was adopted in September 2000. For the
three months ended June 30, 2002, there was no VSRP cash compensation expense.
The cash compensation portion of Value Sharing Retention Program was paid out
over a one-year term that commenced in September 2000 and ended in September
2001. The compensation expense was recorded on a straight-line basis over the
term. VSRP cash compensation expense for the second quarter 2001 was $4.2
million.
Stock-based Compensation Expense - Consultants. Stock-based compensation expense
- - consultants includes non-cash compensation expense related to restricted
shares, exchanged stock options and VSRP stock options awarded to the Company's
consultants. Stock-based compensation expense is recorded for VSRP stock options
and exchanged stock options that are subjected to variable accounting.
Compensation expense for these awards are recorded, on a cumulative basis, for
the increase in the Company's stock price above the exercise prices. Similarly,
stock-based compensation expense is recorded for stock appreciation rights for
the cumulative valuation increase from the Company's stock price above the grant
price. Stock-based compensation expense includes compensation expense for
restricted shares, in which expense is recorded on a straight-line basis over
the vesting term for the valuation at grant date.
For the three months ended June 30, 2002, the Company recorded total stock-based
compensation of $1.0 million, which includes $0.6 million of compensation
expense related to restricted shares that have been recorded on a straight-line
basis. The remaining $0.4 million relates to the valuation increase of
stock-appreciation rights and options awards subjected to variable accounting.
The valuation increase resulted from the increase in the Company's stock price
to $6.99 at June 30, 2002 from $6.48 at March 31, 2002. For the three months
ended June 30, 2001, the Company recorded total stock-based compensation of $2.4
million, which includes $0.7 million of compensation expense related to
restricted shares that have been recorded on a straight-line basis. The
remaining $1.7 million relates to the valuation increase of then outstanding
options awards subjected to variable accounting. The valuation increase resulted
from the increase in the Company's stock to $8.20 at June 30, 2001 from $6.66 at
March 31, 2001.
General and Administrative Expenses. General and administrative expenses include
corporate management and administrative wages and benefits, facility-related
costs, bad debt provisions, corporate professional fees, and all other corporate
and business support costs. General and administrative expenses increased $0.2
million, or 1.5 percent, to $14.7 million for the three months ended June 30,
2002, from $14.5 million for the same three-month period in 2001. The Company
incurred non-recurring charges of $0.5 million primarily related to acquisition
and integration expenses. Excluding this non-recurring charge, general and
administrative expenses for the second quarter 2002 decreased by $0.3 million
when compared to the same period in 2001. The Company incurred higher
facility-related costs and wages for the three-month period 2002 compared to
2001. However, lower bad debt provisions more than offset the increase in
facility-related and wage expenses.
Depreciation Expense. For the three months ended June 30, 2002, depreciation
expense was $2.0 million, compared to $1.8 million for the second quarter 2001,
an increase of $0.2 million, or 14.9 percent. The increase in depreciation
expense is primarily attributed to depreciation recorded on new capital
purchases consisting of computer equipment and computer software.
Amortization Expense. For the three months ended June 30, 2002, amortization
expense was $0.4 million, compared to $1.5 million for the second quarter of
2001, a decrease of $1.1 million. The Company adopted SFAS 142 in 2002. In
accordance with SFAS 142, goodwill is no longer subject to amortization but
subject to annual impairment testing. The decrease in amortization expense
relates to not having any goodwill amortization for 2002.
Other Expense (Income). Other expense (income) includes the net of interest
income, interest expense and other non-operating income and expenses. For the
three months ended June 30, 2002, the Company had $0.1 million in other income
compared to $0.2 million in other income for the second quarter 2001, a decrease
of $0.1 million. Included in the $0.1 million other income was $0.2 million of
realized gain on the sale of marketable securities. Excluding this realized gain
of marketable securities, other income for the second quarter 2002 decreased
from the second quarter 2001. The Company had a lower average cash balance and
interest rates have declined over the past year causing lower interest earnings.
In addition, the Company had more interest bearing obligations during the second
quarter 2002 compared to the second quarter 2001.
Income Tax Expense (Benefit). Income tax expense increased $5.9 million to $0.9
million expense for the three months ended June 30, 2002, from $5.0 million
benefit for same period in 2001. The increase is primarily due to a higher
taxable income in 2002 than 2001. Operating results for the second quarter 2001
included certain charges that are not included in the second quarter 2002. These
charges are, among others, $5.7 million of litigation settlement provisions,
$1.9 million of restructuring costs, and $4.5 million of VSRP cash compensation
expense.
2002 Compared to 2001 - For the six month period ended June 30.
Revenues. Revenues are primarily a function of billable hours and consultant
headcount. Revenues increased $1.3 million, or 1.1 percent, to $121.6 million in
2002, from $120.3 million in 2001. The revenues earned in the first six months
of 2001 included $9.3 million of incremental revenues. The Company did not have
any incremental revenues, commonly referred to as "success fees," during the
first six months of 2002. Core revenues, which excludes success fees, increased
$10.6 million, or 9.5 percent, from $111.0 million. The increase in the core
revenues is primarily attributed to an increase in billable hours and the
headcount increase in the consulting staff. The Company has increased its
employee base from a combination of new hires and business acquisitions. The
average employee utilization percentages and bill rates for the first six months
of 2002 and 2001 were approximately the same.
Consulting Services Expense. Consulting services expense includes consultant
wages and benefits, direct project-related expenses and client development
expenses. Consulting services expense increased $3.1 million, or 4.0 percent, to
$79.6 million in 2002 from $76.5 million in 2001. Consulting service expense for
the six months ended June 30, 2002 included $0.8 million in costs associated
with the acquisition and integration of acquired business practices. Consulting
service expense for the six month period ended June 30, 2001 included $2.4
million of acquisition compensation expense related to the employment provisions
of the Barrington Consulting purchase agreement, and $2.3 million in costs
associated with generating the incremental revenues. When excluding those
charges for comparative purposes, consulting services expense for the first six
months of 2002 increased $7.0 million, or 9.7 percent, to $78.8 million, from
$71.8 million. This increase in consulting services expense (after the excluded
charges) is primarily attributable to the increase in headcount and higher
direct project-related expenses.
VSRP Cash Compensation Expense - Consultants. VSRP cash compensation expense -
consultants was the cash compensation component of the Value Sharing Retention
Program. For the six months ended June 30, 2002, there was no VSRP cash
compensation expense. The cash compensation portion of Value Sharing Retention
Program was paid over a one-year term that commenced in September 2000 and ended
in September 2001. The compensation expense was recorded on a straight-line
basis over the term. VSRP cash compensation expense for the six months ended
June 30, 2001 was $8.6 million.
Stock-based Compensation Expense - Consultants. Stock-based compensation expense
- - consultants includes non-cash compensation expense related to restricted
shares, exchanged stock options and VSRP stock options awarded to the Company's
consultants.
For the six months ended June 30, 2002, the Company recorded total stock-based
compensation of $2.5 million, which includes $1.2 million of compensation
expense related to restricted shares that have been recorded on a straight-line
basis. The remaining $1.3 million relates to the valuation increase of
stock-appreciation rights and options awards subjected to variable accounting.
The valuation increase resulted from the increase in the Company's stock price
to $6.99 at June 30, 2002 from the higher of exercise prices of the awards or
the Company's stock price of $5.50 at December 31, 2001. For the six months
ended June 30, 2001, the Company recorded total stock-based compensation of $4.3
million, which includes $1.2 million of compensation expense related to
restricted shares that have been recorded on a straight-line basis. The
remaining $3.1 million relates to the valuation increase of stock-appreciation
rights and options awards subjected to variable accounting. The valuation
increase resulted from the increase in the Company's stock to $8.20 at June 30,
2001 from the exercise prices of the awards.
General and Administrative Expenses. General and administrative expenses include
corporate management and administrative wages and benefits, facility-related
costs, bad debt provisions, corporate professional fees, and all other corporate
and business support costs. General and administrative expenses increased $0.6
million, or 2.1 percent, to $29.0 million for the six months ended June 30,
2002, from $28.4 million for the same six-month period in 2001. The Company
incurred non-recurring charges of $0.5 million primarily related to acquisitions
and integration expenses. The Company incurred higher facility-related costs and
wages for the six-month period 2002 compared to 2001. However, lower bad debt
provisions offset the increase in facility-related and wage expenses.
Depreciation Expense. For the six months ended June 30, 2002, depreciation
expense was $3.8 million compared to $3.4 million for the same period in 2001,
an increase of $0.4 million, or 14.3 percent. The increase in depreciation
expense is primarily attributed to depreciation recorded on new capital
purchases, consisting of computer equipment and computer software.
Amortization Expense. For the three months ended June 30, 2002, amortization
expense was $0.8 million compared to $2.7 million for the six months ended June
30, 2001, a decrease of $1.9 million. The Company adopted SFAS 142 in the first
quarter 2002. In accordance with SFAS 142, goodwill is no longer subject to
amortization but subject to annual impairment testing. The decrease in
amortization expense relates to not having any goodwill amortization in 2002.
Other Expense (Income). Other expense (income) includes the net of interest
income, interest expense and other non-operating income and expenses. For the
six months ended June 30, 2002, the Company had $0.1 million in other income
compared to $0.6 million in other income for the same period in 2001. Included
in the $0.1 million other income was $0.2 million of realized gain for the sale
of marketable securities. Excluding this realized gain of marketable securities,
other income for the six months end June 30, 2002 decreased $0.7 million from
the $0.6 million in other income for 2001. The Company had a lower average cash
balance and interest income rates have declined over the past year causing lower
interest earnings. In addition, the Company had more interest bearing
obligations during the first quarter 2002 compared to the first quarter 2001.
Income Tax Expense (Benefit). Income tax expense increased $6.6 million to $2.1
million expense for the six months ended June 30, 2002, from a $4.5 million
benefit for same period in 2001. The increase is primarily due to a higher
taxable income in 2002 than 2001. Operating results for 2001 included certain
charges that are not included in 2002. These charges are, among others, $5.7
million of litigation settlement provisions, $1.9 million of restructuring
costs, and $9.3 million of VSRP cash compensation expense.
Human Capital
Consultant headcount increased by 56 consultants in the second quarter, to 1054
consultants as of June 30, 2002. This net increase includes approximately 140
acquisition hires, offset by higher than normal attrition rates in the quarter.
In the normal course of business, the Company needs to retain highly skilled
professionals, particularly those not bound by non-compete or non-solicitation
agreements. Senior and mid-level consultants hired in 2000 and thereafter are
subject to non-solicitation covenants that are consistent with standard industry
practices, which provide for non-solicitation arrangements that extend beyond
the employee's separation date. A significant number of senior and mid-level
consultants hired prior to 2000, however, are subject to non-solicitation
agreements that expire in November 2002. The Company is considering potential
alternative compensation programs to effectuate the adoption of industry
standard non-solicitation agreements Company-wide. The Company's inability to
retain highly skilled professionals, coupled with departures of a significant
number of senior employees, could have a material effect on the Company's
business.
Liquidity and Capital Resources
Summary
The Company had approximately $16.6 million in cash and cash equivalents at
June 30, 2002, compared to $36.0 million at December 31, 2001. The Company's
cash equivalents were primarily limited to commercial paper or securities (rated
A or better), with maturities of one year or less.
Working capital, the excess of current assets over current liabilities, at June
30, 2002 was $42.8 million, compared to $53.6 million at December 31, 2001. The
decrease in working capital is primarily related to the use of cash to finance
business acquisitions during the six months ended June 30, 2002, and to pay for
other acquisition-related obligations.
The Company calculates accounts receivable days sales outstanding ("DSO") on a
gross basis by dividing the net accounts receivable balance at the end of the
quarter by daily net revenues. Daily net revenues are calculated by taking net
quarter revenues divided by 90 days, approximately equal to the number of days
in a quarter. Calculated as such, DSO was 84 days at June 30, 2002, compared to
81 days at December 31, 2001.
Cash Flow
Net cash provided by operating activities was $1.9 million for the six months
ended June 30, 2002.
Net cash used in investing activities was $22.5 million, primarily due to
acquisition-related transactions. The Company paid $14.3 million for businesses
acquired during the six months ended June 30, 2002. The Company paid a $2.1
million obligation related to the PENTA purchase agreement and $1.5 million as
the first of two installments of notes payable issued with respect to the
Barba-Arkhon purchase agreement. In addition, the Company used $4.0 million for
capital spending to support personnel and services.
Net cash provided by financing activities was $1.1 million. The Company
received net cash and related tax benefits of $2.8 million as a result of stock
options exercised and stock purchased by employees. The Company used $1.7
million to purchase 0.3 million shares of its common stock.
Debt, Commitments and Capital
The Company maintains a $35.0 million unsecured revolving line of credit
arrangement with LaSalle Bank that expires on May 31, 2003. The line of credit
bears interest at prime or LIBOR plus 1.0 percent. Under the agreement, the
Company may borrow a maximum amount of up to 85 percent of eligible accounts
receivable. Based on the balances at June 30, 2002, the Company may borrow a
maximum amount of up to $30.0 million. The agreement contains certain covenants,
the most restrictive of which require the Company to maintain a minimum level of
earnings before interest, taxes, depreciation and amortization. The Company was
in compliance with the terms of the agreement as of June 30, 2002 and December
31, 2001. The Company did not have a balance outstanding under the line of
credit at June 30, 2002 or December 31, 2001.
The Company has $3.0 million in notes payable under the Barba-Arkhon
purchase agreement due in two equal annual installments on the anniversaries of
the March 1, 2001 acquisition date. The Company paid the first annual
installment of $1.5 million on March 1, 2002. The second installment is due on
March 1, 2003 and bears interest at a 6 percent annual percentage rate payable
on a quarterly basis.
As of June 30, 2002, the Company had no significant commitments for capital
expenditures, except for those related to rental expense under operating leases.
In addition, as part of a litigation settlement, the Company had a $2.0 million
remaining obligation, with accrued interest, due July 2002. This obligation was
paid July 25, 2002.
The Company entered into a foreign exchange future contract for (pounds
sterling) 2.0 million (equivalent of $3.1 million at June 30, 2002) to
hedge its pounds sterling position in its London-based subsidiary.
The Company believes that the current cash and cash equivalents, the future
cash flows from operations and the $35.0 million line of credit facility provide
adequate cash to fund anticipated short-term and long-term cash needs from
normal operations. In the event the Company were to make significant cash
expenditures in the future for major acquisitions or other non-operating
activities, the Company might need additional debt or equity financing, as
appropriate.
Critical Accounting Policies
The preparation of the financial statements requires management to make
estimates and assumptions that affect amounts reported therein. The Company
bases its estimates on historical experience and on various assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements:
Revenue Recognition Policies
The Company recognizes revenues as the related professional services are
provided. In connection with recording revenues, estimates and assumptions are
required in determining the expected conversion of the revenues to cash. From
time to time, the Company also earns incremental revenues, commonly referred to
as "success fees," based on the successful closing of client asset sales. These
success fee amounts are generally contingent on a specific event, after which
revenue is recognized on the percentage of completion method.
Accounts Receivable Realizablity Determinations
The Company maintains allowances for doubtful accounts for estimated losses
based on the Company's review and assessment of its clients' ability to make
required payments, and the estimated realization, in cash, by the Company of
amounts due from its clients. If the financial condition of the Company's
clients were to deteriorate resulting in an impairment of their ability to make
payments, additional allowances might be required.
Valuation of Net Deferred Tax Assets
The Company has recorded net deferred tax assets as it expects to realize future
tax benefits related to the utilization of these assets. Although the Company
has experienced net losses in recent fiscal years, no valuation allowance has
been recorded related to these deferred tax assets because management believes
that it is more likely than not that future taxable income will be sufficient to
realize the future tax benefits. Should the Company determine that it would not
be able to realize all or part of its net deferred tax assets in the future, it
would need to establish an allowance which would be recorded as a charge to
income in the period in which such determination was made.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary exposure to market risks relates to changes in interest
rates associated with its investment portfolio, classified as cash equivalents,
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 June 30, 2002, the Company's investments were primarily limited to
A rated securities with maturity dates of 90 days or less. If interest rates
average 25 basis points less in fiscal year 2002 than they did in 2001, the
Company's interest income will decrease by $0.1 million on an annualized basis.
This amount is determined by considering the impact of this hypothetical
interest rate on the Company's investment portfolio at June 30, 2002. 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 prime rate or London Interbank Offered
Rate (LIBOR) plus 1.0 percent. The Company entered into a foreign exchange
future contract for (pounds sterling) 2.0 million (equivalent of $3.1 million at
June 30, 2002) to hedge its pounds sterling position in its London-based
subsidiary.
Other than the second installment of the Barba-Arkhon notes payable and the
foreign exchange future contract mentioned above, the Company does not have any
short-term debt, long-term debt, interest rate derivatives, forward exchange
agreements, firmly committed foreign currency sales transactions, or derivative
commodity instruments as of June 30, 2002.
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 in relation to the Company's consolidated financial
statements.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed, in August 2000 the Company agreed to settle for $23.0
million a consolidated securities law class action. The federal district court
approved this settlement in March 2001. The settlement funds were paid into
escrow pending resolution of all appeals. The Company subsequently recovered
from one of its insurers an additional contribution of $4.0 million, which it
agreed to share with the class on a 50/50 basis, net of the Company's costs. In
July 2002 the last remaining appeal was settled along with a separate, related,
previously disclosed purported class action, Grimes v. Navigant Consulting,
Inc. The lawyers for the consolidated class are solely responsible for
allocation and distribution of all settlement funds to the class. The Company
anticipates that such distribution will occur promptly. Further information
concerning the distribution of settlement funds can be obtained by calling the
following class action "hotline" number: 1-888-290-4368.
In addition to the settlement of the consolidated securities law class action
and the other legal proceedings discussed in Item 3 of the Company's most recent
annual report on SEC Form 10-K, from time to time the Company is 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, the
Company does not believe that any of those lawsuits or claims will have a
material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The 2002 annual meeting of shareholders of the Company was held on April 26,
2002. The Company solicited proxies for the annual meeting pursuant to Section
14 of the Securities Exchange Act of 1934, as amended, and Regulation 14A
thereunder. Two nominees, Mr. William M. Goodyear and Ms. Valerie B. Jarrett,
were elected for a term expiring at the annual meeting of shareholders in 2005.
The vote for Mr. Goodyear was 31,272,574 shares for and 2,038,068 shares to
withhold authority. The vote for Ms. Jarrett was 32,937,914 shares for and
372,729 shares to withhold authority.
Item 5. Other Events
On July 15, 2002, the Company issued 0.7 million of its common stock
(valued at $4.8 million at closing) and paid $4.8 million in cash at closing,
with another $1.5 million cash payable on the first anniversary of the closing
date, for the assets of Barrington Energy Partners, LLC ("Barrington Energy").
In addition to the initial consideration value of $11.1 million, the purchase
agreement for Barrington Energy provides for additional contingent payments,
based on certain performance targets, over the next two and one-half years from
closing. Barrington Energy consisted of 10 senior-level professionals that will
complement the Company's Energy and Water Consulting unit.
Barrington Energy Partners, LLC is not associated with the Company's 1999
acquisition of The Barrington Consulting Group, Inc.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with the Form 10-Q:
Exhibit 99.1 - Certification of Chief Executive Officer
Pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code.
Exhibit 99.2 - Certification of Chief Financial Officer
Pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
Navigant Consulting, Inc.
/s/ William M. Goodyear
By: ---------------------------------
William M. Goodyear
Chairman and Chief Executive
Officer
/s/ Ben W. Perks
By: ---------------------------------
Ben W. Perks
Executive Vice President and Chief
Financial Officer
Date: August 14, 2002