Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

          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   o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes  x No   o

          As of May 7, 2003, the Registrant had outstanding 15,295,000 shares of its common stock, par value $0.001 per share and 1,231,000 shares of treasury stock outstanding.

Table of Contents

INDEX TO FORM 10-Q

2

Table of Contents

NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

See accompanying notes to consolidated financial statements.

3

Table of Contents

NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)

See accompanying notes to consolidated financial statements.

4

Table of Contents

NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

See accompanying notes to consolidated financial statements.

5

Table of Contents

NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Unless Otherwise Noted)

NOTE 1—BACKGROUND

          Navigant International, Inc. (the “Company”), a Delaware corporation, is the second largest travel management business services provider in North America serving corporate, government, military, leisure and meetings and incentive clients.  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.  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—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 accounting principles generally accepted in the United States of America 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 29, 2002.

          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 30, 2003, and the results of its operations and its 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 30, 2003 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.

Reclassifications

          Certain reclassifications have been made to prior years’ balances to conform with current year presentation.

Goodwill

          The Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“FAS 142”), which became effective for the Company on December 31, 2001.  Under FAS 142, goodwill is no longer amortized.  Rather, it is tested for impairment upon adoption and on an annual basis.

          For the purpose of impairment testing, the Company has two reporting units: general travel management and meetings and incentives.  The total carrying value of goodwill held by the Company as of March 30, 2003 that is no longer amortized is $313,430, which consists of $306,014 related to the general travel management unit and $7,416 related to the meetings and incentives unit.  The overall carrying value of goodwill increased by $3,319 from December 29, 2002 as a result of foreign currency adjustments, the acquisition of one immaterial agency, earn-out payments and purchase price adjustments resulting from the completion of financial audits of the previously acquired entities.

          Upon adoption of FAS 142, the Company tested goodwill for impairment effective December 30, 2001 and, going forward, will test goodwill for impairment on an annual basis in the third quarter of each fiscal year.  Testing upon adoption and in the third quarter of 2002 compared the Company’s capitalization, defined as the sum of long-term debt and stockholders’ equity, to the estimated enterprise value calculated using Earnings Before Income Tax, Depreciation and Amortization (“EBITDA”) amounts and a predetermined multiplier for each reporting unit.  Based

6

Table of Contents

on this testing, management of the Company believes the goodwill held in both reporting units is fully recoverable and that no impairment charges are necessary for the quarter ended March 30, 2003.

Derivatives

          The Company may enter into derivative financial instruments to mitigate or eliminate certain risks, primarily interest changes, associated with the Company’s debt structure.  The Company has entered into a forward interest rate swap to convert floating-rate loans to fixed-rate loans.  Specific amounts that the Company hedges are determined based on the prevailing market conditions and the current shape of the yield curve.  The specific terms and notional amounts of the swaps are determined based on management’s assessment of future interest rates, as well as other factors, including short-term strategic initiatives.  The notional amount of these types of interest rate swaps aggregated $75.0 million.  For derivatives qualifying as hedges of future cash flows, the effective portion of changes in fair value is recorded temporarily as a component of equity, and is then recognized in earnings along with the related effects of the hedged items.  Any ineffective portion of a hedge is reported in earnings as it occurs.  All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.  For the three months ended March 30, 2003, the Company did not report a loss or a gain associated with the total ineffectiveness of all cash flow hedges.  As of March 30, 2003, the aggregate fair value of the cash flow hedges is an unrealized loss of $2,460 and is recorded in Other Long-Term Liabilities and as an offset to Accumulated Other Comprehensive Loss and Deferred Income Taxes.  The change in value for the three months ended March 30, 2003 is a gain of $218, net of taxes of $131.

Stock-Based Compensation

          As permitted under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”), the Company accounts for options issued to employees and non-employee directors in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“ABP No. 25”).  Accordingly, because the exercise prices of the options have equaled the market price on the date of grant, no compensation expense has been recognized for the options granted.  Any grants to non-employees under these plans are accounted for in accordance with Emerging Issues Task Force (“EITF”) Issue No. 96-18.

          Had compensation cost for the Company’s stock options been recognized based upon the fair value of the stock options on the grant date under the methodology prescribed by FAS 123 and using the assumptions described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002, the Company’s net income and net income per share would have been impacted as indicated in the following table:

New Accounting Pronouncements

          In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“FAS 146”).  This statement requires costs associated with exit or disposal

7

Table of Contents

activities, such as lease termination or employee severance costs, to be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan.  FAS 146 replaces Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring), which previously provided guidance on this topic.  FAS 146 will be applied prospectively to exit or disposal activities initiated after December 30, 2002.  FAS 146 has had no effect on the Company’s results of operations or financial position during the first quarter of 2003 as no exit or disposal activities were initiated.

          In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“FAS 149”).  This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS 133.  FAS 149 is effective for contracts entered into or modified after June 30, 2003.  Management believes the adoption of FAS 149 will not have a significant effect on the Company’s results of operations or its financial condition.

          In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN 46”).  FIN 46 provides guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights.  Such entities are known as variable-interest entities.  The Company will apply the provisions of FIN 46 prospectively to any variable-interest entities created after January 31, 2003.  Since Navigant has no current interests in variable-interest entities, the adoption of FIN 46 did not have a significant effect on the Company’s results of operations or its financial position.

          In September 2002, the EITF issued EITF Issue No. 02-17, Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination (“EITF 02-17”).  EITF 02-17 provides additional guidance and analysis on when it is appropriate to separately classify a customer relationship as an intangible asset.  Management believes the adoption of EITF 02-17 will not have a significant effect on the Company’s results of operations or its financial condition.

          In November 2002, the EITF issued EITF Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (“EITF 00-21”).  EITF 00-21 addresses how to determine whether a revenue arrangement involving multiple deliverables contains more than one unit of accounting for the purposes of revenue recognition and how the revenue arrangement consideration should be measured and allocated to the separate units of accounting.  EITF 00-21 applies to all revenue arrangements that the Company enters into after June 27, 2003.  Management believes the adoption of EITF 00-21 will not have a significant effect on the Company’s results of operations or its financial condition.

NOTE 3—COMMITMENTS AND CONTINGENCIES

Litigation

          The Company and its subsidiaries are involved in various legal actions in the ordinary course of their business.  The Company believes that none of these actions will have a material adverse effect on its business, financial condition and results of operations.

          In June 1998, U.S. Office Products, the Company’s former corporate parent, completed a strategic restructuring.  This restructuring included the distribution of U.S. Office Products’ ownership of four of its wholly-owned subsidiaries, including the Company, to all existing U.S. Office Products shareholders (the “Strategic Restructuring”).

          Prior to, and after, the Strategic Restructuring, numerous actions were filed against U.S. Office Products asserting various claims arising from U.S. Office Products’ conduct before and during the Strategic Restructuring, as well as its acquisition of various companies, including Mail Boxes Etcetera.  These actions include claims that U. S. Office Products violated Sections 10(b) and/or 14 of the Securities Exchange Act of 1934 and Rules 10b-5 and 14a-9

8

Table of Contents

in connection with the Strategic Restructuring, and violated Sections 11, 12 and/or 15 of the Securities Act of 1933 in connection with the acquisitions of Mail Boxes Etcetera.  The Company is no longer a party to any of these actions.

          As part of the Strategic Restructuring, however, 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 all the lawsuits described in this section.  If U.S. Office Products were entitled to indemnification under this indemnification 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.  To date, however, neither U.S. Office Products nor any representative of its bankruptcy estate has made a demand or claim for indemnification.

          Under an Agreement and Plan of Merger dated June 7, 2001, regarding the acquisition of SatoTravel, the Company agreed to pay additional, contingent consideration of approximately $4.8 million, provided SatoTravel achieved certain specified goals.  On June 26, 2002, the former stockholders of SatoTravel notified the Company that, in their opinion, SatoTravel had achieved the specified goals, and that the Contingent Merger Consideration had been earned.  On July 23, 2002, the Company issued its Contingent Payment Notice, taking the position that SatoTravel had not met the required goals, and that the Contingent Merger Consideration had not been earned.  On August 5, 2002, the former shareholders, including a current member of the Company’s board of directors, objected to the Company’s Contingent Payment Notice.  Following this formal exchange of notices and objections, the parties met and agreed to submit the dispute to binding arbitration.  The parties did so, submitting the matter for resolution with the American Arbitration Association on September 13, 2002.  This matter is scheduled for an arbitration hearing in May 2003.  The Company intends to vigorously defend this matter.

Indemnities, Commitments and Guarantees

          During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include indemnities for liabilities associated with claims against their former Corporate parent, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, commitments associated with certain vendor contracts and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The duration of these indemnities, commitments and guarantees varies, and in certain cases is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. The Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable.

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 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 online 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, 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, 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, including changes or reductions in revenue as a consequence of, or related to, the failure, liquidation, bankruptcy or other reorganization of major travel suppliers, including airlines, rental car companies or hotel companies, and 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 29, 2002, 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.

9

Table of Contents

Introduction

          The Company provides travel management services to corporate, government, military, leisure and meetings and incentive clients.  The Company has operations throughout the United States, Canada, the United Kingdom, Germany, France, Belgium, Brazil and thirteen other countries.

          The Company has been adversely affected by the continued weak economic conditions in the United States, the war with Iraq and general concerns regarding Severe Acute Respiratory Syndrome (“SARS”).  During the three months ended March 30, 2003, the Company’s transactions levels were down 6% from 2002 levels as a result of these world conditions.

          In the second quarter, the general concerns regarding SARS became even more evident in the travel sector and, based on recent transaction levels, management of the Company believes this fear is now impacting transactions at a rate even greater than the war with Iraq. As a result, based on current transactions levels, which are depressed both by the war with Iraq and SARS, the Company expects second quarter transactions to be approximately 10-15% below prior year.

Sources of Revenue

          Historically, arrangements between 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, 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.  Since 1995, the airlines have instituted various commission caps and cut the base commission on domestic and international tickets.  In the first quarter of 2002 most U.S. airlines eliminated the base commissions paid to travel management companies, although several foreign carriers still pay base commissions.

          In response to the reduction and elimination of U.S. airline commissions and consistent with growing industry practice, the Company has entered into management contracts and service fee arrangements with nearly all 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 monthly.  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.  With the elimination of commissions by most U.S. airlines, the Company does not expect any excess domestic airline commissions available to pay to clients.  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 charges between $35 and $55 for each air travel ticket issued to such clients and retains any commissions collected from the airlines and other vendors.

          The Company believes that its management contracts and service fee arrangements have minimized the financial impact of past commission caps and cuts and will continue to do so as base airline commissions are eliminated.  The Company believes that nearly all of its total transactions are currently generated from clients under management contracts and service fee arrangements.

          The Company has entered into agreements with major airlines for the payment of incentive override commissions.  Under these agreements, the airlines generally pay 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, annual payments or cost savings to the Company.

          The Company enters into agreements with certain customers for meetings and incentive business.  Revenues and expenses for this business are recognized using percentage completion methodology based on the terms of the contracts.

Expenses

The Company’s direct operating expenses primarily are labor expense (which comprised approximately 65.8% and 63.5% of total direct operating expenses in the three months ended March 30, 2003 and March 31, 2002,

10

Table of Contents

respectively), net 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 primarily are labor expense (which comprised approximately 54.9% and 56.5% of total general and administrative expenses in the three months ended March 30, 2003 and March 31, 2002, respectively), occupancy costs and other costs.

          Labor expense as a percentage of total direct operating expense increased from the prior year as a result of the restoration in the second and third quarters of 2002 of salary cuts that were put in place after the September 11, 2001 attacks.  Labor expense as a percentage of general and administrative expenses decreased from prior year as a result of an increase in productivity due to the implementation of more efficient procedures by the Company, synergies from common systems and the continued integration of general and administrative expenses of previously purchased companies.

Results of Operations

          The following table sets forth various items as a percentage of revenues for the three months ended March 30, 2003:

Revenues

          Consolidated revenues decreased 5.0%, from $93.6 million for the three months ended March 31, 2002 to $88.9 million for the three months ended March 30, 2003.  This decrease was due to a 6% decrease in overall transaction levels as a result of the overall downturn in the economy, the war with Iraq and the threat of SARS.

Operating Expenses

          Operating expenses decreased 9.0%, from $52.6 million, or 56.3% of revenues, for the three months ended March 31, 2002 to $47.9 million, or 53.9% of revenues, for the three months ended March 30, 2003.  This decrease was due to several cost cutting measures instituted by the Company in an effort to manage expenses to meet lower transaction levels, an increase in productivity due to the implementation of more efficient procedures by the Company and synergies from common systems.

General and Administrative Expenses

          General and administrative expenses increased 2.8%, from $27.5 million, or 29.4% of revenues, for the three months ended March 31, 2002 to $28.3 million, or 31.8% of revenues, for the three months ended March 30, 2003.  This increase was primarily due to the restoration in the second and third quarters of 2002 of the 10% salary cuts that were put in place after the September 11, 2001 attacks.

11

Table of Contents

Depreciation and Amortization Expense

          Depreciation and amortization expense increased 17.0%, from $2.3 million, or 2.4% of revenues, for the three months ended March 31, 2002 to $2.7 million, or 3.0% of revenues, for the three months ended March 30, 2003.  This increase was due to additional depreciation expense as a result of larger additions to property and equipment in the last quarter of 2002 and the first quarter of 2003 than those additions in the same periods in prior year.

Interest Expense, Net

          Interest expense, net, decreased from $4.2 million for the three months ended March 31, 2002 to $3.3 million for the three months ended March 30, 2003.  The decrease was attributable to a decrease in the weighted average debt balance from $209.9 million for the three months ended March 31, 2002 to $177.3 million for the three months ended March 30, 2003, resulting in approximately $604 less in interest expense.  The decrease in the weighted average debt balance was due to normal repayments from operations as well as a $17 million repayment from a cash payment the Company received in September 2002 when entering into a contract with one of its vendors.  Additionally, the decrease in interest rates in the first quarter resulted in $490 less in interest expense as the Company’s average interest rate decreased from 8.5% for the three months ended March 31, 2002 to 7.4% for the three months ended March 30, 2003.  These decreased interest rates resulted from two interest rate cuts aggregating 0.75% by the Federal Reserve Board and also a decrease to the Company’s rates as its financial condition improved throughout 2002 as defined in the Company’s amended debt agreements.  The offsetting increase is attributable to $200 in interest expense related to amendment fees.

Provision for Income Taxes

          Provision for income taxes decreased from $2.6 million for the three months ended March 31, 2002 to $2.5 million for the three months ended March 30, 2003, reflecting an effective income tax rate of 37.5% for both periods.  This decrease is due to a slight decrease in income before taxes.  The effective income tax rate for the three months ended March 30, 2003 reflects the recording of the tax provision at the federal statutory rate of 35% plus appropriate state and local taxes.

Liquidity and Capital Resources

          At March 30, 2003, the Company had cash of $263, working capital of $31.7 million, borrowings of $83.7 million under the Amended and Restated Credit Agreement from NationsBank, N.A. as Administrative Agent (the “Credit Facility”), $80.0 million in Senior Secured Notes (the “Notes”), $3.5 million of other indebtedness, including capital lease obligations, and available capacity under the Credit Facility of $51.3 million. The Company’s capitalization, defined as the sum of long-term debt and stockholders’ equity at March 30, 2003 was approximately $355.7 million.

          The Company has financed its operational growth and acquisitions primarily from internally generated cash flow from operations and borrowings under the Credit Facility and the Notes.

          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 2003 based on current budgets.

          On March 20, 2003, the Company signed an amendment to the Credit Facility modifying certain of its terms and conditions.  The amendment adjusted certain ratios including the consolidated leverage ratio.  For the fiscal quarter ended March 30, 2003, the consolidated leverage ratio may not exceed 3.00:1.00.  The maximum consolidated leverage ratio allowed is decreased until December 31, 2003, where it returns to its original level of 2.50:1.00.  This amendment is valid through December 31, 2003.  As of March 30, 2003, the Company was in compliance with the financial covenants of this agreement.

12

Table of Contents

          On March 20, 2003, the Company signed an amendment to the Senior Secured Notes Purchase Agreements dated November 15, 2000 modifying certain of its terms and conditions.  The amendment adjusted certain ratios including the consolidated leverage ratio.  For the fiscal quarter ended March 30, 2003, the consolidated leverage ratio may not exceed 3.25:1.00.  The maximum consolidated leverage ratio allowed is decreased until June 28, 2003, where it returns to its original level of 2.75:1.00.  This amendment is valid through December 31, 2003.  As of March 30, 2003, the Company was in compliance with the financial covenants of this agreement.

          The Company intends to continue to evaluate acquisition opportunities, although management does not intend to complete as many acquisitions in 2003 as the Company completed in prior years.  In addition, amendments to the Credit Facility and the Notes restrict the size and form of acquisitions the Company may complete during the term of the amendments.  Nevertheless, the Company 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 flows 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 flows 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.  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, changes in the mix of services offered by the Company, extreme weather conditions, world political and health issues 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 may also 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

          In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“FAS 146”).  This statement requires costs associated with exit or disposal activities, such as lease termination or employee severance costs, to be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan.  FAS 146 replaces Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring), which previously provided guidance on this topic.  FAS 146 will be applied prospectively to exit or disposal activities initiated after December 30, 2002.  FAS 146 has had no effect on the Company’s results of operations or financial position during the first quarter of 2003 as no exit or disposal activities were initiated.

13

Table of Contents

          In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“FAS 149”).  This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS 133.  FAS 149 is effective for contracts entered into or modified after June 30, 2003.  Management believes the adoption of FAS 149 will not have a significant effect on the Company’s results of operations or its financial condition.

          In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN 46”).  FIN 46 provides guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights.  Such entities are known as variable-interest entities.  The Company will apply the provisions of FIN 46 prospectively to any variable-interest entities created after January 31, 2003.  Since Navigant has no current interests in variable-interest entities, the adoption of FIN 46 did not have a significant effect on the Company’s results of operations or its financial position.

          In September 2002, the EITF issued EITF Issue No. 02-17, Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination (“EITF 02-17”).  EITF 02-17 provides additional guidance and analysis on when it is appropriate to separately classify a customer relationship as an intangible asset.  Management believes the adoption of EITF 02-17 will not have a significant effect on the Company’s results of operations or its financial condition.

          In November 2002, the EITF issued EITF Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (“EITF 00-21”).  EITF 00-21 addresses how to determine whether a revenue arrangement involving multiple deliverables contains more than one unit of accounting for the purposes of revenue recognition and how the revenue arrangement consideration should be measured and allocated to the separate units of accounting.  EITF 00-21 applies to all revenue arrangements that the Company enters into after June 27, 2003.  Management believes the adoption of EITF 00-21 will not have a significant effect on the Company’s results of operations or its financial condition.

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 8 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 29, 2002.  Based upon the Company’s borrowings under the Credit Facility at March 30, 2003, a 50 basis point movement in the base rate or the LIBOR rate would result in approximately $419 annualized increase or decrease in interest expense.  The Company also enters into certain hedging activities that mitigate or offset the risk of changes in interest rates.  See the “Derivatives” section in Note 2 of the Notes to Consolidated Financial Statements for details on these hedging activities.

ITEM 4.  CONTROLS AND PROCEDURES.

          The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that the Company files or submits under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  The Chief Executive Officer and the Chief Financial Officer have reviewed the effectiveness of the Company’s disclosure controls and procedures within the last ninety days and have concluded that the disclosure controls and procedures are effective.  There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

14

Table of Contents

PART II.  OTHER INFORMATION.

ITEM 1.  LEGAL PROCEEDINGS.

          See the disclosure included in Note 3 of the Notes to Consolidated Financial Statements.

          Navigant is involved in various 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 6.  EXHIBITS AND REPORTS ON FORM 8-K.

15

Table of Contents

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 12, 2003.

16

Table of Contents

CERTIFICATION

I, Edward S. Adams, Chief Executive Officer of Navigant International, Inc., certify that:

17

Table of Contents

CERTIFICATION

I, Robert C. Griffith, Chief Financial Officer of Navigant International, Inc., certify that:

18