Navigant: Net income was $7.3M lower than first reported


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].


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