12
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
For the quarterly period ended
September 30, 1996
Commission file No. 0-28830
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
The Metzler Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 36-4094854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
520 Lake Cook Road, Suite 500, Deerfield, Illinois 60015
(Address of principal executive office, including zip code)
(847) 914 - 9100
(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 [ ] NO [ X ]
As of November 1, 1996 the Registrant had outstanding
10,585,000 shares of its $.001 par value Common Stock.
THE METZLER GROUP, INC.
Quarter Ended September 30, 1996
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Balance Sheets as of September
30, 1996 and December 31, 1995
(unaudited)................... 3
Statements of Operations for
the three months
and nine months ended
September 30, 1996
and 1995 (unaudited)........... 4
Statements of Cash Flows for
the nine months
ended September 30, 1996
and 1995 (unaudited)........... 5
Notes to Financial Statements
(unaudited).................... 6
Item 2 Management's Discussion and
Analysis of Financial
Condition and Results of
Operations..................... 8
Part II - OTHER
INFORMATION
Item 6 Exhibits and Reports on
Form 8-K....................... 9
SIGNATURES .............................. 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE METZLER GROUP, INC.
BALANCE SHEETS
September 30, December 31,
1996 1995
(unaudited)
ASSETS
Current assets:
Cash..................... $ 758,831 $ 223,235
Trade accounts receivable 5,353,114 2,288,878
Note receivable from officer 744,848 _
Prepaid expenses and other 797,951 7,939
Total current assets 7,654,744 2,520,052
Property and equipment,net... 228,059 259,526
$7,882,803 $2,779,578
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Note payable $ __ $ 405,740
Notes payable to officers 1,000,000 _
Current portion of obligations 15,443 15,443
under capital lease
Accounts payable 375,048 177,576
Accrued compensation and related
costs 2,068,486 1,659,290
Income taxes payable 126,836 14,859
Deferred income taxes 160,000 160,000
Deferred revenue 102,825 15,348
Other current liabilities 265,428 37,786
Total current liabilities 4,114,066 2,486,042
Obligations under capital lease,
less current maturities 18,986 30,443
Deferred income taxes 20,000 20,000
Total liabilities 4,153,052 2,536,485
Stockholders' equity:
Preferred stock, $.001 par value;
3,000,000 shares authorized;
no shares issued or outstanding __ __
Common stock, $.001 par value,
15,000,000 shares authorized;
9,714,285 shares issued and
outstanding in 1996 and 1995 9,714 9,714
Additional paid-in capital 107,682 107,682
Retained earnings 3,612,355 125,697
Total stockholders' equity 3,729,751 243,093
$7,882,803 $2,779,578
See accompanying notes to financial statements.
THE METZLER GROUP, INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
Revenues............... $ 5,602,685 $3,692,238 $16,459,332 $9,317,828
Cost of services....... 2,775,027 1,645,387 7,989,837 4,485,832
Gross profit........... 2,827,658 2,046,851 8,469,495 4,831,996
Selling, general and
administrative
expenses.............. 1,215,870 1,941,596 2,619,211 5,964,921
Operating income (loss) 1,611,788 105,255 5,850,284 (1,132,925)
Other expense,net...... 38,740 930 51,167 98,573
Income (loss) before
income tax
expense (benefit)..... 1,573,048 104,325 5,799,117 (1,231,498)
Income tax expense
(benefit).............. 26,459 37,348 112,459 (440,652)
Net income (loss)....... $ 1,546,589 $ 66,977 $ 5,686,658 $ (790,846)
Pro forma income data:
Net income (loss)
as reported...... $ 1,546,589 $ 66,977 $ 5,686,658 $ (790,846)
Pro forma
adjustments to
income tax expense (602,760) (281,780) (1,799,403) (865,510)
Pro forma
adjustments t0
executive
compensation
expense........... __ 704,451 (1,019,460) 2,163,774
Pro forma net
income............ $ 943,829 $ 489,648 $ 2,867,795 $ 507,418
Pro forma net
income per share.. 0.10 0.05 0.29 0.05
Shares used in
computing pro forma
net income per share 9,803,202 9,803.202 9,803,202 9,785,344
See accompanying notes to financial statements.
THE METZLER GROUP, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
1996 1995
Cash flows from operating
activities:
Net income (loss).................... $ 5,686,658 $ (790,846)
Adjustments to reconcile net
income (loss) to net
cash provided by operating
expenses:
Depreciation and amortization..... 69,430 71,662
Loss on sale of property
and equipment................... 665 62,379
Deferred income taxes............. -- (408,000)
Changes in assets and liabilities:
Receivables..................... (3,064,236) (1,088,275)
Prepaid expenses................ (790,012) (199,007)
Accounts payable................ 197,472 (1,446)
Accrued compensation
and related costs............. 409,196 2,520,266
Other accrued
liabilities................... 339,619 153,939
Deferred revenues............... 87,477 51,439
Net cash provided by operating
activities.......................... 2,936,269 372,111
Cash flows from investing activities:
Purchase of property and
equipment......................... (38,628) (30,409)
Proceeds from sale of
property and equipment -- 1,458
Net cash used in investing activities (38,628) (28,951)
Cash flows from financing activities:
Sale of common stock............... -- 61,579
Repayment of note payable.......... (405,740) --
Issuance of note payable........... -- 49,447
Issuance of notes payable to
officers......................... 1,000,000 --
Note receivable from officer....... (744,848) --
Distributions to stockholders...... (2,200,000) --
Payments for obligation
under capital lease.............. (11,457) (11,457)
Net cash provided by (used in)
financing activities.............. (2,362,045) 99,569
Net increase in cash................ 535,596 442,729
Cash at beginning of period......... 223,235 63,631
Cash at end of period............... $ 758,831 $ 506,360
Supplemental information:
Interest payments.................. $ 20,621 $ 42,047
Income tax payments................ $ 2,400 $ 7,830
See accompanying notes to financial statements.
THE METZLER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim financial statements of
The Metzler Group, 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 by
generally accepted accounting principles. The information
furnished herein includes all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of results for these interim
periods.
The results of operations for the three and nine months
ended September 30, 1996 are not necessarily indicative of the
results to be expected for the entire fiscal year ending
December 31, 1996.
These financial statements should be read in conjunction
with the Company's audited financial statements and notes
thereto for the year ended December 31, 1995, included in the
Registration Statement (No. 333-9019) on Form S-1 filed by the
Company with the Securities and Exchange Commission on July 26,
1996, as amended.
Note 2. Summary of Significant Accounting Policies
Pro Forma Net Income Per Share
Net income (loss) per share is computed using the weighted
average number of shares of common stock and dilutive common
equivalent shares resulting from the grant of 355,666 common
stock options on June 30, 1996 (using the treasury stock method).
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common and common equivalent shares issued by
the Company during the twelve-month period prior to the proposed
initial public offering have been included in the calculation of
common and common equivalent shares using the treasury stock
method and the initial public offering price per share as if they
were outstanding for all periods presented.
The pro forma adjustments during the three and nine month
periods ended September 30, 1995 and the nine months ended
September 30, 1996 reflect the impact of a compensation plan
effective July 1, 1996, and the related tax effect of such
adjustments.
The pro forma adjustments for the three and nine month
periods ended September 30, 1996 include federal and the
additional state income tax expense that would have been required
had the Company not made the S-corporation election effective
January 1, 1996.
THE METZLER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(continued)
Note 3. Subsequent Events
Board of Director Actions
During September and October 1996, Metzler & Associates,
Inc. amended its articles of incorporation effecting a 9,714,285
for 1 stock split of the Company's common stock and an increase
in the number of authorized shares of the Company's common stock
to 15,000,000 shares and filed articles of merger to merge
Metzler & Associates, Inc. with a newly formed subsidiary of The
Metzler Group, Inc., whereby Metzler & Associates, Inc. became a
wholly-owned subsidiary of The Metzler Group, Inc. Also in
October 1996, The Metzler Group, Inc. filed an amended and
restated certificate of incorporation authorizing 3,000,000
shares of preferred stock of the Company. The accompanying
financial statements and notes thereto have been adjusted
retroactively to give effect to the aforementioned actions.
Initial Public Offering
On October 4, 1996, the Company completed an initial public
offering of its common stock in which 2,300,000 shares were sold
by the Company, along with an additional over-allotment of
285,000 shares, sold by the Company, resulting in net proceeds
of approximately $38 million.
Concurrent with the completion of the initial public
offering and in accordance with an agreement entered into during
July 1996 between the Company and its founding shareholder, the
Company redeemed 1,714,285 shares of the shareholder's common
stock and issued to the shareholder a promissory note for
$7,975,000. This promissory note was non-interest bearing and
was paid in full on November 8, 1996.
Following the closing of the Company's initial public
offering and in accordance with an agreement entered into during
September 1996 between the Company and an officer, a note
receivable from the officer with a principal amount of $725,000
became due and payable. The principal and accrued interest on
the note were paid, to the Company, in full on November 8, 1996.
Item 2.
THE METZLER GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues. Revenue increased by 52% to $5.6 million in the
three months ended September 30, 1996 from $3.7 million in the
comparable 1995 period. Revenues for the first nine months of
1996 increased 77% to $16.5 million from $9.3 million for the
first nine months of 1995. These increases were primarily caused
by increased demand for management consulting services in the
electric utility industry and a change in the Company's
management compensation structure that places more emphasis on
the generation of new client engagements. These factors
generated increases in both the number of client projects and the
average size of client projects for the third quarter and the
first nine months of 1996 versus the comparable 1995 periods.
Gross Profit. Gross profit consists of revenues less cost
of services, which includes consultant salaries, benefits and
travel-related direct project expenses. Gross profit increased
38% to $2.8 million in the third quarter of 1996 from $2.0
million in the third quarter of 1995. For the first nine months
of 1996, gross profit grew 75% to $8.5 million from $4.8 million
in the same period in 1995. Gross profit as a percentage of
revenues was 50% for the third quarter of 1996 as compared to
55% in the year earlier period. Gross profit margins were
51% and 52% for the first nine months of 1996 and 1995,
respectively. Changes in the Company's gross profit margins are
typically the result of changes in the utilization rates for the
professional staff. While average utilization rates for the
third quarter of 1996 and the nine month periods ended September
30, 1996 and 1995 were largely consistent, the utilization rate
for the three month period ended Swptember 30, 1995 was
significantly in excess of expected standard levels.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses include salaries and benefits
of management and support personnel, facilities costs, training,
direct selling, outside professional fees and all other corporate
costs. Compared to the year earlier periods, selling, general
and administrative expenses decreased 37% to $1.2 million from
$1.9 million for the third quarter and 56% to $2.6 million from
$6.0 million for the first nine months. As a percentage of
revenues, selling, general and administrative expenses decreased
to 22% in the third quarter of 1996 from 53% in the third
quarter of 1995. For the nine months ended September 30, 1996
and 1995, selling, general and administrative expenses
represented 16% and 64% of revenues, respectively. The decrease
is attributable to a change in the compensation of the Company's
principal executives. Effective January 1, 1996, the Company
restructured its approach to compensating these executives,
discontinuing the use of incentive compensation based on revenues
and gross margins in favor of profit distributions under an
alternative corporate tax structure (see Income Taxes, below).
Operating Income (Loss). Operating income for the third
quarter of 1996 increased to $1.6 million from $0.1 million in
the comparable year earlier period. For the first nine months of
1996 operating income was $5.9 million, as opposed to an
operating loss for the nine months ended September 30, 1995 of
$1.1 million. The improvement is attributable to the increased
revenues and the decrease in selling, general and administrative
expenses resulting from the change in compensation for the
Company's key executives, as described above.
Income Taxes. Effective January 1, 1996, the stockholders of
the Company elected to be taxed under Subchapter S of the
Internal Revenue Code. Federal income taxes are the
responsibility of the Company's stockholders as are certain state
income taxes. Accordingly, the statements of operations for the
three and nine month periods September 30, 1996 do not include a
provision for Federal or certain state income taxes. The
Company's S Corporation status will terminate upon the
consummation of the initial public offering of the Company's
stock. (See accompanying notes to financial statements; Note 2.)
Liquidity and Capital Resources
The Company's primary source of liquidity has been operating
cash flow, periodically supplemented by borrowings under a bank
line of credit and by loans from shareholders. The Company has a
line of credit which expires on December 31, 1996 and provides
for maximum borrowing of $1.2 million.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
At September 30, 1996 the Company had notes payable to
shareholders in the aggregate amount of $1.0 million. The notes,
each with a principal amount of $0.5 million, bear interest at a
rate of 10% and mature on December 31, 1996.
On October 4, 1996, the Company completed an initial
offering of its common stock which resulted in net proceeds to
the Company of approximately $30 million, following the
redemption of a portion of the stock of the Company's founding
shareholder. The Company believes the net proceeds from this
offering, together with existing sources of liquidity and funds
generated from operations, will provide adequate cash to fund its
anticipated cash needs, which may included future acquisitions of
complementary businesses, at least through the next eighteen
months.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended September 30,1996.
Item 6.
Exhibit 27
Financial Data Schedule
September 30, 1996
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE METZLER GROUP, INC'S., BALANCE
SHEET AT SEPTEMBER 30, 1996 AND STATEMENTS OF
OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1996
Nine Months
(unaudited)
Article.................. 5
Period-Tupe.............. 3 mos
Fiscal-Year-End.......... Dec 31, 1996
Period-End............... Sep 30, 1996
Cash..................... 758,831
Securities............... --
Receivables.............. 5,353,114
Allowances............... --
Inventory................ --
Current-Assets........... 7,654,744
PP&E..................... 753,424
Depreciation............. 525,365
Total-Assets............. 7,882,803
Current Liabilities...... 4,114,066
Bonds.................... --
Preferred-Mandatory...... --
Preferred................ --
Common................... 9,714
Other Securities......... --
Total Liabilities and
Equity................... 7,882,803
Sales.................... 16,459,332
Total
Revenue.................. 16,459,332
CGS...................... 7,989,837
Total
Costs.................... 11,679,675
Other-Expenses........... 51,167
Loss
Provision................ --
Interest-Expense......... 87,156
Income-Pretax............ 4,779,657
Income-Tax............... 1,911,862
Income-Continuing........ 2,867,795
Discontinued............. --
Extraordinary............ --
Changes.................. --
Net Income............... 2,867,795
EPS-Primary.............. .29
EPS-Diluted.............. .29
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.
THE METZLER GROUP, INC.
Date: November 15, 1996 By:/s/ Robert P. Maher
Robert P. Maher
Chairman of the Board,
President and
Chief Executive Officer
Date: November 15, 1996 By:/s/ James F.Hillman
James F. Hillman
Chief Financial Officer
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.
THE METZLER GROUP, INC.
Date: November 15, 1996
By:_____________________
Robert P. Maher
Chairman of the Board,
President and
Chief Executive Officer
Date: November 15, 1996
By:_____________________________
James F. Hillman
Chief Financial Officer
<TABLE> <S> <C>
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE METZLER GROUP, INC'S., BALANCE SHEET AT SPETEMBER 30, 1996
AND STATEMENTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1996.
</LEGEND>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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<RECEIVABLES> 5,353,114
<ALLOWANCES> 0
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