DENVER -- After
completing its long-awaited financial reviews, Navigant
International restated its earning last week, reporting net income
over the last five years that was $7.3 million less than originally
reported.
The restatement cut
the travel management companys earnings per share by 49 cents from
2000 to 2004.
Navigant, which was
delisted by Nasdaq for failing to file certain financial reports,
remains under investigation by the Securities and Exchange
Commission (SEC).
Navigant submitted
its overdue 2004 annual report on Oct. 7. The company said its
lenders agreed last month to give it until Oct. 28 to submit
quarterly reports for the first and second quarters of 2005, as
well as compliance certificates.
The company said it
intends to file quarterly reports as soon as possible, adding that
once it is up to date with SEC filings, it will apply to get its
stock relisted. Navigants stock, FLYR, trades on Pink Sheets, which
trades over-the-counter securities.
Navigant revealed early
this year that it would have to review acquisitions and leases from
1997 to 2004 because of the way it accounted for them. The company
brought in new accountants, Deloitte & Touche, to conduct the
review, and the firm found that all was not in order.
Navigant management
and Deloitte & Touche LLP have identified material weaknesses
and have issued opinions that the company has not maintained
effective internal controls over financial reporting as of Dec. 26,
2004, because of material weaknesses, Navigant stated.
The company has
initiated, or plans to undertake, measures to address these
weaknesses, Navigant added. The indicated weaknesses concern
controls over accounting for acquisitions and segregation of duties
with the companys finance and accounting functions.
The restated yearly
results were as follows: 2000, $13.9 million profit; 2001, 896,000
loss; 2002, $16.8 million profit; 2003, $5 million profit; 2004,
$18.9 million profit.
While the
restatement resolves many of Navigants woes, it still owes the SEC
quarterly reports, is still under investigation and faces numerous
financial challenges.
The company has a
lot of debt and needs additional financing to maintain its strategy
of growth through acquisitions.
As of June 26,
Navigant had $225.4 million in consolidated debt, amounting to 48%
of its capitalization, according to the company.
Navigant has
brought into its fold dozens of acquired travel management
companies over the last several years, and it noted in its newly
filed 2004 annual report that industry consolidation may have upped
the price for future acquisitions.
If we are unable to
identify and successfully negotiate suitable acquisitions at the
pace we desire or at all, we may not be able to generate sufficient
internal growth to sustain our historical growth rate, the company
said.
In 2004, Navigants
revenue grew 28.1% to $451.4 million, with acquisitions driving the
growth. Only $11.2 million of that revenue boost came from internal
growth, while $92.9 million resulted from acquisitions made from
the middle of 2003 to the halfway point of 2004, the company
said.
Ian Corydon, an
analyst for B Riley & Co., termed the restatements a
yawner.
We expected them to
be a little bit worse than Navigant previously said, and they were,
he said.
Corydon noted that
while earnings per share were reduced, the restatements did not
affect Navigants cash flow.
However, he added
that future acquisitions might not be as immediately accretive as
Navigants past acquisitions appeared to be. They werent allocating
enough goodwill to intangibles.
The issue hinged on
Navigants bookkeeping regarding its string of acquisitions and how
much of the purchase prices were considered goodwill, or the amount
by which the purchase price exceeded the acquired companies net
tangible assets.
With the
restatements, Navigant had to increase the amount identified as
intangibles and reduce goodwill. As a result, more of the acquired
companies assets were subject to depreciation, which inflates the
bottom line and reduces net income.
To contact
reporter Dennis Schaal, send e-mail to [email protected].