Back to GetFilings.com

Table of Contents

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, 2003

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)

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 (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  ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES  x        NO  ¨

As of August 8, 2003, 43.5 million shares of the Registrant’s common stock, par value $.001 per share (“Common Stock”), were outstanding.

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

AS OF AND FOR THE PERIOD ENDED JUNE 30, 2003

INDEX

“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.

2

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

See accompanying notes to the unaudited consolidated financial statements.

3

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

See accompanying notes to the unaudited consolidated financial statements.

4

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

See accompanying notes to the unaudited consolidated financial statements.

5

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

See accompanying notes to the unaudited consolidated financial statements.

6

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited 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 in comprehensive financial statements presented in conformity with 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 the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for full years.

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, 2002 included in the Annual Report on Form 10-K, as filed by the Company with the Securities and Exchange Commission on March 14, 2003.

Note 2. 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 and water industries. Its services include strategy development, financial transaction support, operations support, regulatory advisement and technical analysis.

The Company evaluates segment performance and allocates resources based upon revenues and operating results. The basis of measurement of segment operating results is consistent among the periods. Transactions between segments have been eliminated. Information on the segment operations for the three and six months ended June 30, 2003 and 2002 have been summarized as follows (shown in thousands):

7

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The information presented does not necessarily reflect the results of segment operations that would have occurred had the segments been stand-alone businesses.

Certain operating expenses, which relate to general corporate costs, were allocated to operating segments based on revenues. Additionally, certain operating expenses have been excluded from the segment operating profit amounts, and included in the costs not allocated to segments.

For the six months ended June 30, 2003, the operating income of Energy & Water Consulting reflected $1.2 million in severance expense for consulting and administrative personnel. During the period, the Company reduced excess personnel capacity and eliminated unprofitable service offerings within the Energy & Water segment, which included employee terminations and reassignment of consulting resources.

Pro Forma Information

The following unaudited pro forma financial information for the three and six months ended June 30, 2002 presents the combined financial information as if the acquisition of the assets of Hunter & Associates Management Services, Inc. (“Hunter”) had been effective as of January 1, 2002. Hunter was acquired effective on September 17, 2002 and is included in the Financial & Claims Consulting business segment. The pro forma financial information (shown in thousands, except per share amounts) includes income tax adjustments to Hunter’s operating results, formerly an S Corporation, as if Hunter had been included in the Company’s income tax returns:

8

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 3. Goodwill and Intangible Assets:

Goodwill and other intangible assets consisted of (shown in thousands):

In accordance with Statement of Financial Accounting Standards No. 142, the Company is required to perform an annual goodwill impairment test. The Company completed the annual impairment test based on May 31, 2003 balances and there was no impairment recognized as of that date. As of June 30, 2003, there is no indication of impairment to the Company’s goodwill balances at June 30, 2003.

The Company reviewed the intangible assets’ net book values and estimated useful lives by class. As of June 30, 2003, there was no indication of impairment related to the intangible assets. The Company will amortize the remaining net book values of intangible assets over their remaining useful lives.

The changes in carrying balances of goodwill and intangible assets by reporting segment during the six months ended June 30, 2003 are as follows (shown in thousands):

9

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the six months ended June 30, 2003, the Company recorded $1.0 million in goodwill related to the 2002 earnout provisions of certain acquired businesses. The remaining $0.3 million in goodwill relates to an asset purchase consummated in June 2003.

Note 4. Earnings per share (EPS)

Basic earnings per share (EPS) is computed by dividing income by the basic shares. Basic shares are the total of the common shares outstanding and the equivalent shares from obligations presumed payable in common stock, both weighted for the average of days outstanding for the period. Diluted shares include the dilutive effect of common shares that could potentially be issued due to the exercise of stock options, restricted shares, or contingently issuable shares. Diluted EPS is computed by dividing income by the diluted shares, which are the total of the basic shares outstanding and all potentially issuable shares, weighted for the average days outstanding for the period.

The components of basic and diluted shares (weighted for the average days outstanding for the periods) are as follows (shown in thousands):

As a result of the Hunter business combination, the Company is obligated to issue a certain number of shares of its common stock based on the trading price share value at the time of issuance. The weighted average of these shares for the three and six months ended June 30, 2003 is included in the basic earnings per share calculation.

In January 2001, the Company granted 1.9 million restricted shares of its common stock in conjunction with the Value Sharing Retention Program. As of June 30, 2003, approximately 0.4 million shares remained unvested and outstanding and are scheduled to vest in September 2003. In November 2002, the Company granted 0.8 million restricted shares of its common stock, as part of an exchange for stock options that were subject to variable accounting treatment. Approximately, 0.6 million shares were unvested and outstanding as of June 30, 2003. In addition, in December 2002, the Company granted 0.3 million restricted shares that remain unvested as of June 30, 2003. These unvested restricted shares, which total 1.3 million, have voting rights but are excluded from the basic earnings per share calculation until vesting occurs; these shares are 100 percent dilutive and are included in the diluted earnings per share calculation based on weighted average days outstanding.

The Company granted 1.6 million restricted stock units in October and November of 2002, as a part of the Management Stock Purchase Plan. The restricted stock units are treated as an equivalent to restricted shares in the diluted earnings per share calculation.

As part of the earnout provisions for certain acquisition agreements, the Company will settle a portion of its obligations through the issuance of its common stock. Issuance of these shares is contingent based on certain provisions of the acquisition agreements and the shares are included in the diluted earnings per share calculation. On April 1, 2003, the Company issued 0.2 million shares for which the contingency was satisfied.

10

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 5. Stockholders’ Equity

The following summarizes the activity of stockholders’ equity during the six months ended June 30, 2003 (shown in thousands):

Note 6. Stock-based Compensation Expense

Stock-based compensation expense is recorded for restricted stock awards on a straight-line basis over the term based on the valuation amount at grant date. In addition, stock-based compensation expense is recorded for certain Value Sharing Retention Program (“VSRP”) stock options, exchanged stock options and stock appreciation rights (“variable accounting awards”) that have been awarded to the Company’s employees and are subject to variable accounting treatment. Compensation expense (or credit) for these variable accounting awards is recorded, on a cumulative basis, for the increase (or decrease) in the Company’s stock price above the grant prices at quarter end.

Total stock-based compensation expense consisted of the following (shown in thousands):

The following table summarizes the stock-based compensation expense for the Company’s consultants and administrative support personnel (shown in thousands):

11

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 7. Recent Accounting Pronouncements

In accordance with SFAS No. 148, the Company presents the following disclosures for the three and six months ended June 30, 2003 and 2002:

Other than equity awards subject to variable accounting, the Company accounts for stock-based compensation using the intrinsic value-based method as prescribed under Accounting Principles Board (“APB”) Opinion 25 “Accounting for Stock Issued to Employees” and related interpretations for its stock-based compensation plans. Accordingly, no stock-based compensation costs have been recognized for those option grants where the exercise price was equal to the fair market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the purported “fair value” recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, to its stock-based compensation plans (shown in thousands, except per share amounts):

Note 8. Supplemental Consolidated Balance Sheet Information

Accounts Receivable:

The components of accounts receivable were as follows (shown in thousands):

Engagements in process represent balances accrued by the Company for services that have been performed and revenues earned but have not been billed to the customer. Billings are generally done on a monthly basis for the prior month’s professional services.

12

Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Below are the components of accounts receivable by segment as of the quarter ended (shown in thousands):

Other Current Liabilities:

The components of other current liabilities were as follows (shown in thousands):