11
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
March 31, 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 May 1, 1997, the Registrant had outstanding 10,627,181
shares of its $.001 par value Common Stock.
THE METZLER GROUP, INC.
Quarter Ended March 31, 1997
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets as
of March 31,1997 (unaudited)
and December 31, 1996 ...... 3
Consolidated Statements of
Operations for the three
months ended March 31, 1997
and 1996 (unaudited)........ 4
Consolidated Statements of
Cash Flows for the three
months ended March 31, 1997
and 1996 (unaudited) ....... 5
Notes to Consolidated
Financial Statements
(unaudited)................... 6
Item 2 Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 7
Part II - OTHER
INFORMATION
Item 6 Exhibits and Reports on
Form 8-K...................... 8
SIGNATURES .............................. 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE METZLER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents... $28,612,480 $32,732,670
Accounts receivable 5,429,813 4,333,968
Prepaid expenses and other 196,571 155,531
Total current assets 34,238,864 37,222,169
Property and equipment,net 356,207 358,709
$34,595,071 $37,580,878
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable to officers $ __ $ 1,000,000
Current portion of obligations 11,394 15,495
under capital lease
Accounts payable 41,345 531,719
Accrued compensation and related 827,465 783,346
costs
Income taxes payable 703,440 734,994
Deferred income taxes 36,000 25,000
Deferred revenue 237,245 93,875
Other current liabilities 125,000 166,000
Total current liabilities 1,981,889 3,350,429
Obligations under capital lease, 13,600 13,600
less current maturities
Deferred income taxes 169,000 125,000
Total liabilities 2,164,489 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;
10,627,181 and 10,585,000 shares
issued and outstanding in 1997
and 1996 10,627 10,585
Additional paid-in capital 29,311,376 29,301,418
Retained earnings 3,108,579 4,779,846
Total stockholders' equity 32,430,582 34,091,849
Total liabilities and stockholders' $34,595,071 $37,580,878
equity
See accompanying notes to consolidated financial statements.
THE METZLER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
March 31,
1997 1996
Revenues........................ $6,257,893 $5,343,891
Cost of services................ 3,204,219 2,546,128
Gross profit.................... 3,053,674 2,797,763
Selling, general and
administrative expenses......... 1,429,075 708,778
Operating income................ 1,624,599 2,088,985
Other (income) expense, net..... (292,933) 13,451
Income before income tax
expense........................ 1,917,532 2,075,534
Income tax expense.............. 687,577 42,000
Net income...................... $1,229,955 $2,033,534
Pro forma income data :
Net income as reported..... $1,229,955 $2,033,534
Pro forma adjustments to
income tax expense....... __ (584,428)
Pro forma adjustments to
executive compensation
expense.................. __ (509,588)
Pro forma net income........... $1,229,955 $ 939,518
Pro forma net income per
share.................... $ 0.12 $ 0.10
Shares used in computing pro
forma net income per share..... 10,627,181 9,803,202
See accompanying notes to consolidated financial statements.
THE METZLER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
1997 1996
Cash flows from operating
activities:
Net income ................. $1,229,955 $2,033,534
Adjustments to reconcile net
income to net cash used in
operating activities, net of
acquisition:
Depreciation and
amortization............ 28,989 22,992
Deferred income taxes.... (11,000) (25,000)
Changes in assets and
liabilities:
Accounts receivable.... (921,067) (2,149,166)
Prepaid expenses....... (41,040) (1,492)
Accounts payable........ (490,374) (56,014)
Accrued compensation
and related costs...... 44,119 (747,253)
Other accrued liabilities (72,554) 10,141
Deferred revenues....... 143,370 58,940
Net cash used in operating
activities.................. (89,602) (853,318)
Cash flows from investing activities:
Purchase of property and
equipment.................... (26,487) (12,162)
Net cash used in investing
activities................... (26,487) (12,162)
Cash flows from financing
activities:
Issuance of notes payable..... __ 177,851
Issuance of notes payable to
officers...................... __ 1,000,000
Repayment of notes payable
to officers.................. (1,000,000) --
Distributions to former S-
corporation stockholders..... (3,000,000) --
Payments for obligation
under capital lease.......... (4,101) (3,736)
Net cash provided by (used in)
financing activities........... (4,004,101) 1,174,115
Net increase (decrease) in
cash.......................... (4,120,190) 308,635
Cash and cash equivalent at
beginning of period........... 32,732,670 223,235
Cash and cash equivalent at
end of period................. $28,612,480 $ 531,870
Supplemental information:
Interest payments $ 47,009 $ 14,700
Income tax payments........... $ 730,131 $ 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 three months ended March
31, 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 three month period
ended March 31, 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 month period
ended March 31, 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
$509,588 for the three month period ended March 31, 1996.
The pro forma adjustments for the three month period ended
March 31, 1996 include federal and the additional state income
tax expense of $584,428 that would have been required had the
Company not made the S-corporation election effective January 1,
1996.
Note 3. Acquisition of Burgess Consulting, Inc.
On March 13, 1997, the Company acquired all of the
outstanding capital stock of Burgess Consulting, Inc. (BCI) in
exchange for 42,181 shares of Common Stock, which had a market
value of approximately $945,000 at the time of the acquisition.
BCI provides consulting and litigation support services to
electric utilities and other energy-related entities. The
transaction was accounted for as a pooling-of-interests.
The stockholder's equity and operations of BCI are not
material in relation to those of the Company. As such, the
Company has recorded the combination by restating stockholders'
equity as of January 1, 1997 without restating prior periods'
statements of earnings to reflect the pooling-of-interest
combination.
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 17% to $6.3 million in the
three months ended March 31, 1997 from $5.3 million in the first
quarter 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
9% to $3.1 million in the first quarter of 1997 from $2.8 million
in the first quarter of 1996. Gross profit as a percentage of
revenues was 49% for the first quarter of 1997 as compared to 52%
in the year earlier period. 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 first quarter of 1997 were largely
consistent with expected standard levels, the utilization rate
for the three month period ended March 31, 1996 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. Selling, general and administrative expenses for the three
months ended March 31, 1997 were $1.4 million, or 23% of
revenues, as compared to $0.7 million in the first quarter of
1996. The increase is 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 to reflect the impact of
this compensation plan. After giving effect to this pro forma
adjustment, selling, general and administrative expenses would
represent $1.2 million, or 23% of revenue, in the first quarter
of 1996.
Operating Income. Operating income for the first quarter of
1997 decreased to $1.6 million from $2.1 million in the
comparable year earlier period. The change is attributable to
the increase in selling, general and administrative expenses
resulting from the change in compensation for the Company's key
executives, as described above, offset in part by increased gross
profit.
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 as an S-corporation
were the responsibility of the Company's stockholders as were
certain state income taxes. Accordingly, the statement of
operations for the three month period ended March 31, 1996 does
not include a provision for federal or certain state income
taxes. The Company's S-corporation status was terminated on
October 4, 1996 upon the completion of the initial public
offering of the Company's common stock. (See accompanying notes
to financial statements; Note 2.)
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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 eighteen months.
Cash used in financing activities was $4.0 million during the
three month period ended March 31, 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 March 31, 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 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 March 31, 1997.
Item 6.
Exhibit 27
Financial Data Schedule
March 31, 1997
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE METZLER GROUP, INC'S., CONSOLIDATED
BALANCE SHEET AT MARCH 31, 1997 AND CONSOLIDATED STATEMENTS
OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1997
Three Months
(unaudited)
Article............................... 5
Period-Type........................... 3 mos
Fiscal-Year-End....................... Dec 31, 1997
Period-End............................ Mar 31, 1997
Cash.................................. 28,612,480
Securities............................ ---
Receivables........................... 5,429,813
Allowances............................ ---
Inventory............................. ---
Current-Assets........................ 34,238,864
PP&E.................................. 926,090
Depreciation.......................... 569,883
Total-Assets.......................... 34,595,071
Current Liabilities................... 1,981,889
Bonds................................. ---
Preferred-Mandatory................... ---
Mandatory.............................
Preferred............................. ---
Common................................ 10,627
Other - Securities.................... ---
Total Liabilities and Equity.......... 34,595,071
Sales................................. 6,257,893
Total Revenue......................... 6,257,893
CGS................................... 3,204,219
Total Costs........................... 4,633,294
Other - Expenses...................... (292,933)
Loss Provision........................ ---
Interest-Expense...................... ---
Income-Pretax......................... 1,917,532
Income-Tax............................ 687,577
Income-Continuing..................... ---
Discontinued.......................... ---
Extraordinary......................... ---
Changes............................... ---
Net Income............................ 1,229,955
EPS-Primary........................... 0.12
EPS-Diluted........................... 0.12
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: May 15, 1997 By:/s/ Robert P. Maher
Robert P. Maher
Chairman of the Board,
President and
Chief Executive Officer
Date: May 15, 1997 By:/s/ James F. Hillman
James F. Hillman
Chief Financial Officer
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<PERIOD-END> MAR-31-1997
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