13
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
June 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file no. 0-28830
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 [ X ] NO [ ]
As of August 11, 1997, the Registrant had outstanding
12,769,048 shares of its $.001 par value Common Stock.
THE METZLER GROUP, INC.
Quarter Ended June 30, 1997
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets as
of June 30, 3
1997 (unaudited) and December
31, 1996 ......
Consolidated Statements of
Operations for the three
months ended June 30, 1997 and 4
1996 (unaudited)
Consolidated Statements of
Operations for the six months 5
ended June 30, 1997 and
1996 (unaudited)
Consolidated Statements of
Cash Flows for the six months
ended June 30, 1997 and 6
1996 (unaudited)
Notes to Consolidated
Financial Statements 7
(unaudited)...................
Item 2 Management's Discussion and
Analysis of Financial 8
Condition and Results of
Operations....................
Part II - OTHER
INFORMATION
Item 6 Exhibits and Reports on Form 8- 10
K........
Financial Data
Schedule 11
SIGNATURES .............................. 12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE METZLER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents... $29,161,169 $32,732,670
Accounts receivable 6,246,284 4,333,968
Prepaid expenses and other 659,503 155,531
Total current assets 36,066,956 37,222,169
Property and equipment, net 346,888 358,709
$36,413,844 $37,580,878
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable to officers $ -- $ 1,000,000
Current portion of obligations 7,202 15,495
under capital lease
Accounts payable 54,582 531,719
Accrued compensation and related
costs 1,280,683 783,346
Income taxes payable 460,275 734,994
Deferred income taxes 36,000 25,000
Deferred revenue __ 93,875
Other current liabilities 115,000 166,000
Total current liabilities 1,953,742 3,350,429
Obligations under capital lease,
less current maturities 13,600 13,600
Deferred income taxes 169,000 125,000
Total liabilities 2,136,342 3,489,029
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; 10,630,046 and
10,585,000 shares
issued and outstanding in 1997
and 1996................ 10.630 10,585
Additional paid-in capital 29,357,214 29,301,418
Retained earnings 4,909,658 4,779,846
Total stockholders' equity 34,277,502 34,091,849
Total liabilities and
stockholders' equity $36,413,844 $37,580,878
See accompanying notes to consolidated financial statements.
THE METZLER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
June 30,
1997 1996
Revenues........................ $7,824,333 $5,512,756
Cost of services............... 3,884,819 2,668,682
Gross profit................... 3,939,514 2,844,074
Selling, general and
administrative expenses....... 1,377,820 694,563
Operating
income.......................... 2,561,694 2,149,511
Other (income) expense,
net.......................... (306,024) (1,024)
Income before income tax expense 2,867,718 2,150,535
Income tax expense.............. 1,066,639 44,000
Net income................. $1,801,079 $2,106,535
Pro forma income data :
Net income as $1,801,079 $2,106,535
reported
Pro forma adjustments to -- (612,216)
income tax expense
Pro forma adjustments to
executive compensation -- (509,872)
compensation
expense
Pro forma net $1,801,079 $ 984,447
income
Pro forma net income per
share $0.17 $0.10
Shares used in computing pro
forma net income per share 10,629,498 9,803,202
See accompanying notes to consolidated financial statements.
THE METZLER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six months ended
June 30,
1997 1996
Revenues........................ $14,082,226 $10,856,647
Cost of services................ 7,089,037 5,214,810
Gross profit.................... 6,993,189 5,641,837
Selling, general and
administrative expenses...... 2,806,896 1,403,341
Operating income................ 4,186,293 4,238,496
Other (income) expense, net..... (598,957) 12,427
Income before income tax expense 4,785,250 4,226,069
Income tax expense.............. 1,754,216 86,000
Net income...................... $3,031,034 $4,140,069
Pro forma income data :
Net income as reported..... $3,031,034 $4,140,069
Pro forma adjustments to
income tax expense....... __ (1,196,644)
Pro forma adjustments to
executive compensation
expense.................. -- (1,019,460)
Pro forma net income........... $3,031,034 $1,923,965
Pro forma net income per
share................... $0.29 $0.20
Shares used in computing pro
forma net income per share...... 10,628,340 9,803,202
See accompanying notes to consolidated financial statements.
THE METZLER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
1997 1996
Cash flows from operating activities:
Net income ......................... $3,031,034 $4,140,069
Adjustments to reconcile net
income to net cash provided by
operating activities,net of acquisition:
Depreciation and amortization.... 60,394 49,571
Loss on sale of property
and equipment................... __ 665
Deferred income taxes............ (11,000) __
Changes in assets and liabilities:
Accounts receivable............ (1,737,538) (2,026,477)
Prepaid expenses............... (503,972) (136,492)
Accounts payable............... (477,137) (37,016)
Accrued compensation and
related costs................ 497,337 (331,762)
Other accrued liabilities...... (325,719) 105,270
Deferred revenues.............. (93,875) 9,790
Net cash provided by operating
activities......................... 439,524 1,773,618
Cash flows from investing activities:
Purchase of property and
equipment......................... (48,573) (32,358)
Net cash used in investing activities: (48,573) (32,358)
Cash flows from financing activities:
Repayment of notes payable.......... __ (405,740)
Issuance of notes payable to
officers.......................... __ 1,000,000
Repayment of notes payable to
officers.......................... (1,000,000) __
Note receivable from officers....... __ (725,000)
Distributions to former S-
corporation stockholders............. (3,000,000) (1,600,000)
Common stock issued................. 45,841 __
Payments for obligation under
capital lease..................... (8,293) (7,555)
Net cash used in financing
activities........................ (3,962,452) (1,738,295)
Net increase (decrease) in cash...... (3,571,501) 2,965
Cash and cash equivalents at
beginning of period............... 32,732,670 223,235
Cash and cash equivalents at
end of period..................... $29,161,169 $ 226,200
Supplemental information:
Interest payments................... $ 47,864 $ 20,621
Income tax payments................. 2,130,230 2,400
See accompanying notes to consolidated financial statements.
THE METZLER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated 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 six months ended June 30,
1997 are not necessarily indicative of the results to be
expected for the entire fiscal year ending December 31, 1997.
These financial statements should be read in conjunction
with the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 1996, included in
the Annual Report on Form 10-K filed by the Company with the
Securities and Exchange Commission on March 31, 1997.
Note 2. Summary of Significant Accounting Policies
Pro Forma Net Income Per Share
Pro forma net income per share for the six month period
ended June 30, 1996 is computed using the weighted average number
of shares of common stock and dilutive common equivalent shares
resulting from the grant of 363,666 common stock options during
the period from June 30, 1996 to September 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 six month
periods ended June 30, 1996 reflect the impact of a compensation
plan effective July 1, 1996. The pro forma effect of this
compensation plan was an increase in officer compensation of
$509,872 and $1,019,460 for the three and six month periods ended
June 30, 1996, respectively.
The pro forma adjustments for the three and six month
periods ended June 30, 1996 include additional federal and state
income tax expense of $612,216 and $1,196,644, respectively, that
would have been required had the Company not made the S-
corporation election effective January 1, 1996.
Note 3. Subsequent Event
On July 31, 1997, the Company issued 2,137,178 shares of common
stock for substantially all the outstanding common stock of
Resource Management International Inc. (RMI). RMI is a leading
strategic management, resource management, and engineering
consulting company serving electric, gas and water utilities, as
well as the telecommunications industry and governmental
entities. This business combination will be accounted for as a
pooling-of-interests and, accordingly, the Company's historical
consolidated financial statements presented in future reports
will be restated to include the accounts and results of
operations of RMI.
Item 2.
THE METZLER GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements included in Management's Discussion and
Analysis of Financial Condition and Results of
Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward
looking statements" for purposes of the safe harbor
provided by Section 21E of the Securities Exchange Act
of 1934, as amended by Public Law 104-67. Forward-
looking statements may be identified by words
including "anticipate," "believe," `intends,"
"estimates," "expect" and similar expressions. The
Company cautions readers that forward-looking
statements, including without limitation, those
relating to the Company's future business prospects,
revenues, working capital, liquidity, and income, are
subject to certain risks and uncertainties that could
cause actual results to differ materially from those
indicated in the forward looking statements, due to
several important factors herein identified, among
others, and other risks and factors identified from
time to time in the Company's reports filed with the
SEC.
Results of Operations
Revenues. Revenue increased by 42% to $7.8 million in the
three months ended June 30, 1997 from $5.5 million in the second
quarter of 1996. Revenue for the first six months of 1997
increased 30% to $14.1 million from $10.9 million for the first
six months of 1996. The growth in revenues was due to increases
in both the number of client projects and the average size of
client projects.
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
39% to $3.9 million in the second quarter of 1997 from $2.8
million in the second quarter of 1996. For the first six months
of 1997, gross profit grew 24% to $7.0 million from $5.6 million
in the comparable 1996 period. Gross profit as a percentage of
revenues was 50% for the three month and six month periods ended
June 30, 1997 as compared to 52% for the three month and six
month periods ended June 30, 1996. Changes in the Company's
gross profit margins are typically the result of changes in the
utilization rates for the professional staff. Utilization rates
for the three and six month periods ended June 30, 1997 were
lower than those in the comparable year earlier periods. The
average utilization rates in 1997 were largely consistent with
the Company's expected standard levels, while utilization rates
in 1996 were in excess of such 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. Selling, general and administrative expenses for the three
months and six months ended June 30, 1997 were $1.4 million and
$2.8 million, respectively, as compared to $0.7 million and $1.4
million for the three month and six month periods ended June 30,
1996, respectively. The increases are attributable primarily to
the change in the taxable status of the Company from a C-
corporation to an S-corporation commencing January 1, 1996, with
the Company's profits being distributed to its principal
executives. In conjunction with the change in taxable status, the
Company eliminated all other incentive compensation programs for
these key executives. Effective July 1, 1996, in contemplation
of the termination of the Company's S-corporation status in
connection with the closing of the Company's initial public
offering of common stock, the Company adopted a new executive
compensation plan. The pro forma adjustments for 1996 include an
increase in officer compensation of $0.5 million for the second
quarter and an increase of $1.0 million for the first six months
of the year to reflect the impact of this compensation plan.
After giving effect to this pro forma adjustment, selling,
general and administrative expenses would have been $1.2 million
for the second quarter of 1996 and $2.4 million for the first six
months of 1996. Pro forma expenses for both the three and six
month periods ended June 30, 1996 were 22% of revenues. As a
percentage of revenues, selling, general and administrative
expenses decreased to 18% in the second quarter of 1997 and to
20% for the year to date. Although selling, general and
administrative expenses generally increase as the Company's
revenues increase, the Company has leveraged, and believes it can
continue to leverage, its existing overhead structure to lower
its selling, general and administrative expenses as a percentage
of revenues.
Liquidity and Capital Resources
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 the initial offering of
its common stock, together with funds generated by operations,
will provide adequate cash to fund its anticipated cash needs,
which may include future acquisitions of complementary
businesses, at least through the next twelve months.
Cash used in financing activities was $4.0 million during the
six month period ended June 30, 1997. In January 1997, the
Company repaid notes payable to two shareholders in the aggregate
amount of $1.0 million. The notes, each with a principal amount
of $0.5 million, bore interest at a rate of 10%. During the
period from January 1, 1996 to October 4, 1996 the Company was
taxed as an S-corporation. As an S-corporation, all the Company's
net income from that period will be distributed to its key
executives and included in their personal taxable income. During
the first quarter of 1997, the Company distributed $3.0 million
of S-corporation earnings. Undistributed S-corporation earnings
amount to $0.5 million as of June 30, 1997.
Recently Issued Accounting Pronouncements
In February of 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). Implementation of SFAS 128 is
required for periods ending after December 15, 1997. The
standard establishes new methods for computing and presenting
earnings per share (EPS) and replaces the presentation of primary
and fully-diluted EPS with basic and diluted EPS. SFAS 128 is
not expected to have a significant impact and the Company's
financial statements.
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 21, 1997, The Metzler Group, Inc. held its 1997 Annual
Meeting to Stockholders, and three items were voted upon by the
Company's stockholders. First, the stockholders elected Mr.
Peter B. Pond and Mr. Mitchell H. Saranow as directors to serve
until the Annual Meeting of Stockholders in the year 2000. The
voting results were as follows:
Number of Votes
Name of Nominee For Withheld
Peter B. Pond 6,522,949 2,120,700
Mitchell H. Saranow 8,642,949 700
Secondly, the stockholders approved the Metzler Group, Inc.
Employee Stock Purchase Plan (the "Plan"). The purpose of the
Plan is to enable eligible employees of the Company and its
subsidiaries to acquire a proprietary interest in the Company by
purchasing common stock through payroll deductions. The Plan
authorizes the granting of purchase rights to purchase up to
300,000 shares of the Company's common stock. The voting results
were as follows:
For Against Withheld
6,983,803 1,657,246 2,600
Finally, the stockholders ratified the selection of KPMG Peat
Marwick LLP as the independent auditors for the Company for the
year ending December 31, 1997. The voting results were as
follows:
For Against Withheld
5,579,520 3,063,429 700
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 June 30, 1997.
Item 6.
Exhibit 27
Financial Data Schedule
June 30, 1997
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE METZLER GROUP, INC'S., BALANCE
SHEET AT JUNE 30, 1997 AND STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30, 1997
Six months
(unaudited)
Article............................... 5
Period-Type........................... 3 mos
Fiscal-Year-End....................... Dec 31, 1997
Period-End............................ Jun 30, 1997
Cash.................................. 29,161,169
Securities............................ ---
Receivables........................... 6,246,284
Allowances............................ ---
Inventory............................. ---
Current-Assets........................ 36,066,956
PP&E.................................. 948,176
Depreciation..........................(601,288)
Total-Assets.......................... 36,413,844
Current Liabilities................... 1,953,742
Bonds................................. ---
Preferred-Mandatory................... ---
Preferred............................. ---
Common................................ 10,630
Other - Securities.................... ---
Total Liabilities and Equity.......... 36,413,844
Sales................................. 14,082,226
Total Revenue......................... 14,082,226
CGS................................... 7,089,037
Total Costs........................... 9,895,933
Other - Expenses......................(598,957)
Loss Provision........................ ---
Interest-Expense...................... ---
Income-Pretax......................... 4,785,250
Income-Tax............................ 1,754,216
Income-Continuing..................... ---
Discontinued.......................... ---
Extraordinary......................... ---
Changes............................... ---
Net Income............................ 3,031,034
EPS-Primary........................... 0.29
EPS-Diluted........................... 0.29
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: August 13, 1997 By:_/s/ Robert P. Maher
Robert P. Maher
Chairman of the Board,
President and
Chief Executive Officer
Date: August 13, 1997 By:_/s/James F. Hillman______________
James F. Hillman
Chief Financial Officer
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<PERIOD-END> JUN-30-1997
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