SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Date of Report (Date of earliest event reported): September 23, 2002
Navigant Consulting, Inc.
(Exact name of Registrant as specified in its charter)
Commission File No. 0-28830
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)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
The Registrant's Current Report on Form 8-K dated September 23, 2002 is hereby
amended to add Item 7 below.
"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.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired
Independent Auditors' Report
The Board of Directors
Hunter & Associates Management Services, Inc.:
We have audited the accompanying balance sheets of Hunter & Associates
Management Services, Inc. as of December 31, 2001 and 2000, and the related
statements of operations and cash flows for each of the years in the three-year
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hunter & Associates Management
Services, Inc. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
November 22, 2002
Hunter & Associates Management Services, Inc.
Statement of Operations
(In thousands)
For the years ended December 31,
2001 2000 1999
--------------------------------
Revenues $ 27,993 $ 20,696 $ 25,686
Consulting services expense 18,128 15,633 13,259
--------------------------------
Gross margin 9,865 5,063 12,427
General and administrative expenses 1,520 1,527 2,201
Depreciation and amortization expense 902 922 936
--------------------------------
Operating income 7,443 2,614 9,290
Interest income 161 251 153
Interest expense (245) (474) (743)
Other income (expense), net 219 - (4)
--------------------------------
Income before income taxes 7,578 2,391 8,696
Income tax expense 140 1,228 3,769
--------------------------------
Net income $ 7,438 $ 1,163 $ 4,927
Retained earnings, beginning 7,969 6,806 1,879
Distribution to stockholders (3,929) - -
--------------------------------
Retained earings, ending $ 11,478 $ 7,969 $ 6,806
================================
See accompanying notes to the audited financial statements.
Hunter & Associates Management Services, Inc.
Balance Sheet
(In thousands)
December 31, December 31,
2001 2000
--------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,763 $ 5,303
Accounts receivable, net 3,205 1,925
Prepaid expenses and other current assets 74 134
-----------------------
Total current assets 7,042 7,362
Property and equipment, net 207 114
Goodwill and intangible assets, net 9,674 10,525
-----------------------
Total assets $16,923 $18,001
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related costs $ 1,033 $ 485
Current portion of long-term debt - 2,546
Deferred revenue 1,690 1,739
Other current liabilities 522 290
-----------------------
Total current liabilities 3,245 5,060
Non-current liabilities:
Long-term debt 1,200 3,946
Other non-current liabilities - 26
-----------------------
Total liabilities 4,445 9,032
Stockholders' equity:
Paid-in-capital 1,000 1,000
Retained earnings 11,478 7,969
-----------------------
Total stockholders' equity 12,478 8,969
-----------------------
Total liabilities and stockholders' equity $16,923 $18,001
=======================
See accompanying notes to the audited financial statements.
Hunter & Associates Management Services, Inc.
Statement of Cash Flows
(In thousands)
For the years ended December 31
----------------------------------
2001 2000 1999
----------------------------------
Cash flows from operating activities
Net Income $ 7,438 $ 1,163 $ 4,927
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 902 922 936
Changes in assets and liabilities:
Accounts receivable (1,280) (98) 279
Prepaid and other current assets 64 205 (5)
Accrued compensation and related costs 548 85 15
Stockholders' distribution for S-Corporation income tax payments (3,929) - -
Deferred revenue (49) 776 (304)
Other current liabilities 232 (91) (15)
--------------------------------
Cash flows provided by operating activities 3,926 2,962 5,833
Cash flows from investing activities
Capital expenditures (146) (20) (94)
Other (28) 1 -
--------------------------------
Cash flows used in investing activities (174) (19) (94)
Cash flows from financing activities
Repayments of long-term debt (5,292) (2,459) (12,429)
Proceeds from long-term debt - 1,200 7,750
--------------------------------
Cash flows used in financing activities (5,292) (1,259) (4,679)
--------------------------------
Net increase (decrease) in cash and cash equivalents (1,540) 1,684 1,060
Cash and cash equivalents at beginning of period 5,303 3,619 2,559
--------------------------------
Cash and cash equivalents at end of period $ 3,763 $ 5,303 $ 3,619
================================
See accompanying notes to the audited financial statements.
NOTES TO AUDITED FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Note 1. Description of Business Acquired and Summary of Significant Accounting
Policies
Nature of Operations:
Hunter & Associates Management Services, Inc. ("Hunter"), is a New Jersey
Corporation, established in 1988 and converted to a Delaware Corporation in
1991. Corporate offices are located in St. Petersburg, Florida. Hunter provides
a comprehensive range of performance improvement services to hospitals and
health care systems, including physician practices, faculty practice plans, and
provider owner-managed care organizations. Hunter also provides interim
executive-level management services as well as consulting services related to
hospital restructurings.
THG Investors, Inc. ("THG") was incorporated in the State of Florida on May 8,
1998 as a Florida C-Corporation. THG acquired one hundred percent (100%) of the
stock of Hunter & Associates Management, Inc. on June 12, 1998. Effective
January 1, 2001, THG elected to become an S-Corporation for federal tax purposes
and Hunter & Associates Management Services, Inc. became a qualified Subchapter
S subsidiary company of THG.
Basis of Accounting:
The financial statements of Hunter were prepared in conformity with accounting
principles generally accepted in the United States of America which require
management to make estimates and assumptions that affect the amounts reported in
financial statements and related notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents:
Hunter considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates fair value.
Accounts Receivable:
Accounts receivable are recorded when clients are billed. The allowance for
doubtful accounts is recorded based upon specific identification of potential
uncollectible accounts. Accounts receivable also includes engagements in
process, which represent the amount due for services that have been performed
and earned but have not been billed to clients. Billings are generally done on
a monthly basis for the prior month's service.
Revenue Recognition:
Revenues are derived from consulting and interim management services. Revenues
are recognized as earned over the term of the underlying contractual agreements
as the related professional services are provided. Certain contracts are
accounted for on the percentage of completion method, whereby revenues are
recognized based upon costs incurred in relation to total estimated costs at
completion.
Property and Equipment:
Property and equipment are stated at cost. Depreciation is computed using the
straight line method based on the estimated useful lives, ranging from five to
seven years, of the various classes of property and equipment. Amortization of
leasehold improvements is computed over the shorter of the remaining lease term
or the estimated useful life of the asset.
Income Taxes:
Historically, Hunter's results have been included in THG's consolidated Federal
and state income tax returns. The income tax provision is calculated as if
Hunter had operated as an independent entity. Beginning January 1, 2001, Hunter
became a qualified Subchapter S subsidiary. Therefore, no current or deferred
federal taxes are recorded for 2001 as the individual stockholders include their
pro rata share of Hunter's taxable income in their separate income tax returns.
The income tax provision is comprised of state income taxes for which Hunter was
subject to state income taxes in certain jurisdictions.
Goodwill:
The acquisition of all of the stock of Hunter & Associates Management Services,
Inc. by THG Investors, Inc. resulted in $12.7 million of goodwill, which was
"pushed down" to Hunter following the acquisition. Goodwill has been amortized
for financial reporting purposes on a straight-line basis over a fifteen-year
period. However, this goodwill was not deductible for income tax reporting
purposes.
Note 2. Supplemental Balance Sheet Information
Accounts Receivable:
The components of accounts receivable as of December 31 were as follows
(shown in thousands):
2001 2000
-------- --------
Accounts receivable ......................... $ 2,288 $ 1,698
Engagements in process ...................... 936 258
Allowance for uncollectible accounts ........ (19) (31)
-------- --------
$ 3,205 $ 1,925
======== ========
Goodwill:
The components of goodwill as of December 31 consisted of (shown in
thousands):
2001 2000
-------- --------
Goodwill .................................... $ 12,667 $ 12,667
Less: accumulated amortization .............. (2,993) (2,142)
-------- --------
$ 9,674 $ 10,525
======== ========
Long-term debt:
The components of long-term debt as of December 31 consisted of (shown in
thousands):
2001 2000
-------- --------
Notes payable to SunTrust Bank .............. $ - $ 5,292
Notes payable to stockholders of THG ........ $ 1,200 $ 1,200
-------- --------
Total debt .................................. $ 1,200 $ 6,492
Less: current portion ....................... ( -) (2,546)
-------- --------
$ 1,200 $ 3,946
======== ========
The notes payable to SunTrust Bank are dated December 2, 1999, were secured by
all business assets, and bear interest at the rate of 7.5 percent per annum.
The principal was due in equal installments of $0.7 million, commencing on
January 1, 2000 and then each successive quarter thereafter through and
including October 1, 2002. The notes payable to SunTrust Bank were paid in full
in 2001.
The notes payable to stockholders of THG, shown in aggregate, are dated December
22, 2000 and are due to individual stockholders of THG. The notes payable to
stockholders of THG bear interest at an interest rate of 7.25 percent per annum.
Note 3. Operating leases
Hunter leases office space located in St. Petersburg, Florida. The lease term is
three years commencing on November 16, 2001 and expiring November 15, 2004. In
addition, Hunter leases copier equipment under a two year lease agreement. Lease
expense totaled $0.1 million in each of the years ended December 31, 2001, 2000
and 1999.
Future minimum annual lease payments, in the aggregate, for the years subsequent
to 2001 are as follows (shown in thousands):
Year ending December 31, Amount
------------------------ -------
2002 ....................................................... $ 83
2003 ....................................................... 84
2004 ....................................................... 64
2005 ....................................................... -
Thereafter ................................................. -
-----
$ 231
=====
Note 4. Income Tax Expense
For the years ended December 31, the components of income tax expense are as
follows (shown in thousands):
------------------------
2001 2000 1999
------- ------- ------
Current:
Federal ...................................... $ - $ 981 $3,034
State ........................................ 140 247 744
------- ------- ------
Total ...................................... 140 1,228 3,778
------- ------- ------
Deferred:
Federal ...................................... - - (4)
State ........................................ - - (5)
------- ------- ------
Total ...................................... - - (9)
------- ------- ------
Total income tax expense ................... $ 140 $1,228 $3,769
======= ======= ======
Year 2001: Effective January 1, 2001, THG elected to become an S-corporation for
federal tax purposes and Hunter became a qualified Subchapter S subsidiary
company of THG. Therefore, no current or deferred federal taxes are recorded for
2001 as the individual stockholders include their pro rata share of Hunter's
taxable income in their separate income tax returns. The income tax provision is
comprised of state income taxes for which Hunter was subject to state income
taxes in certain jurisdictions.
Year 2000 and 1999: The income tax provision differs from the expense that would
result from applying federal statutory rates to income before income taxes
because certain expenses are not deductible for tax purposes.
Item 7.
(b) Pro Forma Financial Information
The following unaudited pro forma information is presented to show the estimated
effects of the acquisition of Hunter & Associates Management Services, Inc.
(Hunter) by Navigant Consulting, Inc. ("the Company").
The pro forma combined statements of operations combine the companies'
respective statements of operations as if the acquisition had occurred at the
beginning of the periods presented. The unaudited pro forma combined statements
of operations are based on the assumptions and adjustments described in the
accompanying notes.
The pro forma adjustments to give effect to the acquisition are based upon the
purchase method of accounting and upon the assumptions set forth in the
accompanying notes. This pro forma combined financial information should be read
in conjunction with the historical financial statements of the Company, filed as
part of the Company's Annual Report on Form 10-K for the year ended December 31,
2001 and the historical financial statements of Hunter, which are contained
herein.
The pro forma adjustments do not reflect cost savings from synergies which may
be realized nor integration costs to be incurred subsequent to the acquisition.
The unaudited pro forma combined statements of operations are not necessarily
indicative of the operating results that would have occurred had the acquisition
been consummated at the beginning of the periods. Therefore these unaudited pro
forma combined financial statements should not be construed as representative of
future operations. For purposes of preparing the Company's consolidated
financial statements subsequent to the acquisition, the Company will establish a
new basis for Hunter's assets and liabilities based upon the fair values thereof
and the aggregate purchase price, including the costs of the acquisition. A
final determination of required purchase accounting adjustments, including the
allocation of the purchase price to the assets acquired and liabilities assumed
based on their respective fair values, has not yet been completed. Accordingly,
the purchase accounting adjustments made in connection with the development of
the pro forma combined financial information are preliminary and have been made
solely for purposes of developing such pro forma combined financial information.
The Company has undertaken a study to determine the fair value of certain of
Hunter's assets and liabilities and will make appropriate purchase accounting
adjustments upon completion of that study. The actual financial position and
results of operations will differ, perhaps significantly, from the pro forma
amounts reflected herein.
UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(In thousands, except per share data)
Historical
-----------------------------
Pro forma
Adjustments
Navigant Hunter (Note a) Pro forma
-------------- ---------- ----------- -------------
Revenues $ 235,580 $ 27,993 $ - $ 263,573
Consulting services expense 152,007 18,128 - 170,135
VSRP cash compensation expense - consultants 11,296 - - 11,296
Stock-based compensation - consultants 3,238 - - 3,238
-------------- ---------- ----------- -------------
Gross margin 69,039 9,865 - 78,904
General and administrative expenses 55,413 1,520 - 56,933
Depreciation expense 7,118 53 - 7,171
Amortization expense 5,700 849 1,651(b) 8,200
VSRP cash compensation expense - other 1,103 - - 1,103
Stock-based compensation - other 574 - - 574
Restructuring costs and merger-related costs (credits) 1,900 - - 1,900
Litigation and settlement provisions 5,700 - - 5,700
-------------- ---------- ----------- -------------
Operating income (loss) (8,469) 7,443 (1,651) (2,677)
Other income (loss), net 874 135 1,009
-------------- ---------- ----------- -------------
Income (loss) before income taxes (7,595) 7,578 (1,651) (1,668)
Income tax expense (benefit) (2,284) 140 2,094(c) (50)
-------------- ---------- ----------- -------------
Net income (loss) (5,311) 7,438 (3,745) (1,618)
============== ========== =========== =============
Basic loss per share ($0.14) ($0.04)
Shares used in computing net loss per basic share 38,439 2,585(d) 41,024
Diluted loss per share ($0.14) ($0.04)
Shares used in computing net loss per diluted share 38,439 2,585(d) 41,024
See accompanying notes to the unaudited pro forma
combined financial statements.
UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(In thousands, except per share data)
Historical
----------------------
Pro forma
Adjustments
Navigant Hunter (Note a) Pro forma
----------- --------- ----------- ----------
Revenues $188,186 $ 19,524 $ - $207,710
Consulting services expense 122,984 13,986 - 136,970
VSRP cash compensation expense - consultants - - - -
Stock-based compensation - consultants 1,313 - - 1,313
----------- --------- --------- ---------
Gross margin 63,889 5,538 - 69,427
General and administrative expenses 44,827 1,188 - 46,015
Depreciation expense 5,754 35 - 5,789
Amortization expense 1,235 - - 1,235
VSRP cash compensation expense - other - - - -
Stock-based compensation - other 356 - - 356
----------- --------- --------- ---------
Operating income 11,717 4,315 - 16,032
Other income (loss), net 63 (43) - 20
----------- --------- --------- ---------
Income before income taxes 11,780 4,272 - 16,052
Income tax expense 4,721 32 1,655(c) 6,408
----------- --------- --------- ---------
Net income (loss) $ 7,059 $ 4,240 $ (1,655) $ 9,644
=========== ========= ========= =========
Basic income per share $ 0.18 $ 0.22
Shares used in computing net income per basic share 39,535 2,585(d) 42,120
Diluted income per share $ 0.17 $ 0.21
Shares used in computing net income per diluted share 41,690 2,585(d) 44,275
See accompanying notes to the unaudited pro forma
combined financial statements.
UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(In thousands, except per share data)
Historical
----------------------
Pro forma
Adjustments
Navigant Hunter (Note a) Pro forma
----------- --------- ----------- -------------
Revenues $ 177,383 $ 19,011 $ - $ 196,394
Consulting services expense 114,406 12,794 - 127,200
VSRP cash compensation expense - consultants 11,296 - - 11,296
Stock-based compensation - consultants 2,095 - - 2,095
----------- ---------- ---------- ----------
Gross margin 49,586 6,217 - 55,803
General and administrative expenses 42,372 984 - 43,356
Depreciation expense 5,229 54 - 5,283
Amortization expense 4,218 630 1,245(b) 6,093
VSRP cash compensation expense - other 1,103 - - 1,103
Stock-based compensation - other 333 - - 333
Restructuring costs and merger-related costs (credits) 1,900 - - 1,900
Litigation and settlement provisions 5,700 - - 5,700
----------- ---------- ---------- ----------
Operating income (loss) (11,269) 4,549 (1,245) (7,965)
Other income (loss), net 794 (86) - 708
----------- ---------- ---------- ----------
Income before income taxes (10,475) 4,463 (1,245) (7,257)
Income tax expense (3,526) 12 1,259 (2,255)
----------- ---------- ---------- ----------
Net income (loss) (6,949) $ 4,451 $ (2,504) $ (5,002)
=========== ========== ========== ==========
Basic loss per share ($0.18) ($0.12)
Shares used in computing net loss per basic share 38,375 2,585 40,960
Diluted loss per share ($0.18) ($0.12)
Shares used in computing net loss per diluted share 38,375 2,585 40,960
See accompanying notes to the unaudited pro forma combined
financial statements.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
a) The accompanying pro forma combined statement of operations for the year
ended December 31, 2001 combines the Navigant Consulting Inc. ("the
Company") consolidated statement of operations with the statement of
operations of Hunter & Associates Management Services, Inc. ("Hunter") for
the period then ended, as if the acquisition had been consummated at
January 1, 2001.
The accompanying pro forma combined statements of operations for the nine
month periods ended September 30, 2002 and 2001 combine the Company
consolidated statements of operations through the periods then ended with
the statements of operations of Hunter for the nine month period ended
September 30, 2001 and for the period from January 1, 2002 through
September 17, 2002 (Hunter's results after September 17, 2002 are included
in the Company's results), as if the acquisition had been consummated as of
the beginning of each period.
The pro forma combined statements of operations do not include pro forma
adjustments to give effect to cost savings from synergies which may be
realized subsequent to the acquisition. One-time, nonrecurring transaction
and integration costs associated with the acquisition are not included in
these pro forma combined statements of operations.
b) This adjustment represents the recognition of amortization expense
attributable to the excess purchase price over the net assets acquired.
Since the study to determine the fair value of certain acquired assets and
liabilities is not yet complete, the excess purchase price has not been
allocated to any intangible assets other than goodwill. An amortization
period of ten years was assumed given the Company's historical policy for
determining the estimated useful life of goodwill.
Amortization of goodwill has not been recorded in the nine month period
ended September 30, 2002 because the Company ceased amortization beginning
January 1, 2002, as required by Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangibles".
c) This adjustment represents Federal income taxes that would have been
recorded by Hunter had it not been a Subchapter S corporation and had
instead been required to pay Federal income taxes.
d) This adjustment gives effect to the impact on weighted average shares
outstanding for the 1.465 million shares issued by the Company upon the
closing of the acquisition of Hunter, plus the shares distributable in the
future as described in the next paragraph.
Under the terms of the acquisition agreement, the Company must distribute
to the seller its common stock with an aggregate value of $6.5 million, in
equal installments, on the first and second anniversaries of the
acquisition. If either party elects, up to 67 percent of such distribution
would be payable, in cash. For purposes of the pro forma combined
statements of operations, the Company has assumed that the maximum number
of shares (1.120 million shares) would be distributed, and such shares were
deemed be outstanding throughout each of the periods.
Item 7.
(c) Exhibits
(a) The following exhibits are filed with the Form 8-K/A:
Exhibit 23.1 - Consent of KPMG LLP.
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/ Ben W. Perks
By:
---------------------------------
Ben W. Perks
Executive Vice President and Chief
Financial Officer
Date: December 6, 2002