SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-28830
Navigant Consulting, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 36-4094854
(State or other jurisdiction of (IRS Employer
incorporation or organization) Indentification No.)
615 North Wabash Avenue, Chicago, Illinois 60611
(Address of principal executive offices, including zip code)
(312) 573-5600
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per New York Stock Exchange
share Preferred Stock Purchase Rights
Securities Registered Pursuant to Section 12(g) of the Act:
None
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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
As of March 6, 2000, 41.1 million shares of the Registrants common stock,
par value $.001 per share ("Common Stock"), were outstanding. The aggregate
market value of shares of Common Stock held by non-affiliates, based upon the
closing sale price of the stock on the New York Stock Exchange on March 6, 2000,
was approximately $401.0 million.
The Registrant's Annual Meeting of Stockholders is scheduled to be held in
the latter part of 2000.
Statements included in this report which are not historical in nature, are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the Private Securities Litigation Reform Act of 1995. Such
statements appear in a number of places in this report, including, without
limitation, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations." When used in this report, the words "anticipate,"
"believe," "intend," "estimate," and "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. 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. The Company undertakes no obligation to publicly update or revise any
forward-looking statements to reflect current or future events or circumstances.
EXPLANATORY NOTE:
This document incorporates our Annual Report on Form 10-K for the period
ended December 31, 1999, as filed with the Securities and Exchange Commission
(the "SEC") on March 28, 2000 (the "Original Filing") and the amendments to Form
10-K filed with the SEC on April 29, 2000, May 4, 2000 and on June 16, 2000.
This report continues to speak as of the date of the Original Filing and we
have not updated the disclosure in this report to speak to any later date. While
this report primarily relates to the historical period covered, events may have
taken place since the date of the Original Filing that might have been reflected
in this report if they had taken place prior to the Original Filing. Any items
in the Original Filing not expressly changed hereby shall be as set forth in the
Original Filing. All information contained in this amendment and the Original
Filing is subject to updating and supplementing as provided in the Company's
periodic reports filed with the SEC.
<PAGE>
PART I
Item 1. Business
General
Navigant Consulting, Inc., formerly The Metzler Group, Inc., ("We" or the
"Company") is a provider of consulting services to electric and gas utilities,
insurance companies and pharmaceutical companies, as well as other Fortune 100
companies. As of December 31, 1999, our services included: management
consulting, strategic consulting, financial and claims services, and economics
and policy consulting. We believe that our experience, reputation, industry
focus and broad range of services will enable us to compete effectively in the
consulting marketplace. Our growth strategy is to:
-- Continue to build a complementary spectrum of consulting services;
-- Leverage existing relationships and expand our client base in both
domestic and international markets;
-- Continue to recruit and retain highly skilled professionals; and
-- Continue to acquire consulting companies that provide complementary
services or geographic presence.
Our executive office is located at 615 North Wabash Avenue, Chicago,
Illinois 60611. Our telephone number is (312) 573-5600.
Marketing and Sales
We market our services directly to mid-level and senior executives using a
variety of business development and marketing techniques to communicate directly
with current and prospective clients, including on-site presentations, industry
seminars and industry-specific articles and other publications.
A significant portion of new business arises from prior client engagements.
In addition, we seek to leverage the client relationships of firms we have
acquired by cross-selling existing services. Clients frequently expand the scope
of engagements during delivery to include follow-on complementary activities.
Also, our on-site presence affords us the opportunity to become aware of, and to
help define, additional project opportunities as they are identified by the
client. The client relationships arising out of many engagements often
facilitate our ability to market additional capabilities to clients in the
future.
Human Resources
As of December 31, 1999, we had approximately 2,200 employees. Our success
depends in large part on attracting, retaining and motivating talented, creative
and experienced professionals at all levels. In connection with our hiring
efforts, we employ internal recruiters, retain executive search firms and
utilize personal and business contacts to recruit professionals with significant
industry or consulting experience. Our consultants are drawn from the industries
we serve and from accounting and other consulting organizations. We seek to
promote loyalty and continuity of our consultants by offering packages of base
and incentive compensation and benefits that we believe are attractive and
competitive.
We derive our revenues almost exclusively from services performed by our
professional consultants. Our future performance will continue to depend in
large part upon our ability to attract and retain highly skilled professionals
possessing appropriate skills and senior academics with superior professional
reputations. Qualified professional consultants are in great demand and are
likely to remain a limited resource for the foreseeable future. We may not be
able to retain a substantial majority of our existing or future consultants for
the long term. In addition, many of our consultants are not subject to
non-competition or similar restrictions or are subject to such restrictions for
only a limited period of time. The loss of the services of, or the failure to
recruit, a significant number of consultants would adversely affect our ability
to secure and complete engagements and would have a material adverse effect on
our business.
In addition to the employees discussed above, we supplement our consultants
on certain engagements with independent contractors, some of whom are former
employees. We believe that the practice of retaining independent contractors on
a per-engagement basis provides us with greater flexibility in adjusting
professional personnel levels in response to changes in demand for our services.
Competition
We compete in the worldwide market for consulting services, although our
principal market is North America, which accounted for over 95% of our revenues
in 1999 and 1998. The market for consulting services is intensely competitive,
highly fragmented and subject to rapid change. The market includes a large
number of participants from a variety of market segments, including general
management, information technology, and marketing consulting firms, as well as
the consulting practices of national accounting firms, and other local,
regional, national and international firms. Many of these companies are national
and international in scope and have greater personnel, financial, technical and
marketing resources than we do. We believe that our experience, reputation,
industry focus and broad range of services will enable us to compete effectively
in the consulting marketplace.
Item 2. Properties
Our headquarters are currently located in a 15,000 square foot building in
Chicago, Illinois which we own. In addition to our headquarters, we have
approximately 100 operating leases for office facilities worldwide. Additional
space may be required as our business expands geographically, but we believe we
will be able to obtain suitable space as needed. We have principal offices in
the following cities:
Austin, TX Westminster, CO Menlo Park, CA
Baltimore, MD Emeryville, CA New York City, NY
Boston, MA Ft. Lauderdale, FL Princeton, NJ
Burlington, MA Houston, TX Sacramento, CA
Chicago, IL London, England San Francisco, CA
Cleveland, OH Los Angeles, CA Washington, DC
Dallas, TX
Item 3. Legal Proceedings
Numerous purported class action lawsuits have been filed against the
Company since November 1999 in the United States District Court for the Northern
District of Illinois. These actions name as defendants the Company and certain
former directors and former executive officers (one of whom, however, remains an
employee of the Company) of the Company and are purported to be on behalf of
persons who purchased shares of the Company's common stock during various
periods through November 1999. The complaints allege various violations of
federal securities law, including violations of Section 10(b) of the Securities
Exchange Act of 1934, and that the defendants made materially misleading
statements and/or material omissions which artificially inflated prices for the
Company's common stock. The plaintiffs seek a judgement awarding damages and
other relief. The Company believes it has meritorious defenses and intends to
vigorously defend these actions. The outcome of these lawsuits cannot be
predicted with certainty and a material adverse judgement against the Company
could have a material adverse effect on the Company.
Navigant International, Inc., a national travel agency headquartered in
Denver, Colorado, sued the Company in July 1999 in the United States District
Court for the District of Colorado claiming that the use of "Navigant" in our
name infringes on their use of and rights in such name. The complaint seeks
declaratory relief and an injunction against our use of "Navigant," attorneys'
fees and other related relief. The Company believes it has meritorious defenses
and intends to vigorously defend this action.
During the fourth quarter of 1999 the Company settled a previously
disclosed lawsuit initially brought by the Company against Deborah T. Kearns,
Alan G. Carnrite, the Estate of Laurel Dell Manning, and David R. Watkins, who
were the former shareholders of Sterling Consulting Group, Inc. Ms. Kearns and
Mr. Carnrite filed a counterclaim asserting various causes of action against the
Company and two of its officers. The lawsuit was settled by payment by the
Company of $1.3 million to Ms. Kearns and $0.1 million to Mr. Carnrite, no
payment by Ms. Kearns or Mr. Carnrite and no admission of liability or
wrongdoing by any party in connection with any claims or causes of action in the
lawsuit.
In addition, from time to time, we are party to various other lawsuits and
claims in the ordinary course of business. While the outcome of those lawsuits
or claims cannot be predicted with certainty, we do not believe that any of
those lawsuits or claims will have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Executive Officers of the Registrant
At February 1, 2000, the Registrant had the following executive officers:
Mitchell H. Saranow, 54, has served as Chairman of the Board and co-CEO of
the Company since November 1999. He has served as one of our directors since
1996. Mr. Saranow has served as Chairman of The Saranow Group L.L.C. and its
affiliated companies since October 1984. He founded Fluid Management, L.P. in
April 1987 and served as Chairman and Chief Executive Officer until January
1997. Mr. Saranow also serves on the boards of Lawson Products, Mid-Atlantic
CATV, ELF Machinery, L.L.C., and HyperLOCK Technologies.
John J. Reed, 45, has served as Vice-Chairman and co-CEO of the Company
since November 1999. He was appointed a director of the Company on November 21,
1999. Prior to being named Vice-Chairman and co-CEO, Mr. Reed was the Executive
Managing Director of the Company's Management Consulting practice. From 1988
until 1999, Mr. Reed was President of Reed Consulting Group, which the Company
acquired in August 1997.
Carl S. Spetzler, 58, has served as President and co-CEO of the Company
since November 1999. He was appointed a director of the Company on November 21,
1999. Prior to being named President and co-CEO, Dr. Spetzler was the Executive
Managing Director of the Company's Strategic Consulting practice. From 1986
until 1999, Dr. Spetzler was the President of Strategic Decisions Group, which
the Company acquired in February 1999.
James F. Hillman, 42, has served as the Chief Financial Officer and
Treasurer of the Company since December 1999. From May 1999 through November
1999, he was President of Azimuth Consulting LLC. Mr. Hillman had previously
served as the Company's Chief Financial Officer and Treasurer from June 1996
through April 1999. From 1988 until he joined the Company in 1996, he was with
the Ameritech Corporation, most recently as the Chief Financial Officer of
Ameritech Monitoring Services, Inc. Mr. Hillman is a certified public
accountant.
Philip P. Steptoe, 48, has served as the Company's Vice President,
Secretary and General Counsel since February 2000. Previously, Mr. Steptoe was a
partner with the national law firm of Sidley & Austin. During 1994-1995 he
served for four months as Acting General Counsel for Orange and Rockland
Utilities, Inc., a New York electric and gas utility. Prior to joining Sidley &
Austin in 1988, he was an associate and later a partner in the Chicago law firm
of Isham, Lincoln & Beale.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
The shares of Common Stock of the Company are traded on the New York Stock
Exchange (the "NYSE") under the symbol "NCI."
The following table sets forth, for the periods indicated, the high and low
sale prices per share. Sales prices for periods beginning July 27, 1999 are as
reported on the NYSE Composite Tape. Prior to July 27, 1999 the Company's Common
Stock was traded on the Nasdaq National Market under the symbol "METZ" and
prices for such periods are as as reported on the Nasdaq National Market.
High Low
1999
Fourth quarter.... $48.50 $8.69
Third quarter..... $54.25 $26.13
Second quarter.... $36.13 $22.81
First quarter..... $52.00 $28.44
1998
Fourth quarter.... $49.00 $28.88
Third quarter..... $37.75 $27.25
Second quarter.... $36.63 $24.25
First quarter..... $33.92 $24.00
Holders
As of March 6, 2000, there were approximately 244 holders of record of
shares of common stock of the Company.
Distributions
The Company has not paid any cash dividends since its organization and does
not anticipate that it will make any such distributions in the foreseeable
future.
Sale of Unregistered Securities
Within the past three years, we have issued the following unregistered
securities:
<TABLE>
<CAPTION>
Type of Number of Exemption
Date Securities Shares Purchaser Consideration(1) Claimed
---- ---------- ------ --------- ---------------- -------
<S> <C> <C> <C> <C> <C>
January 1, 1997 Common 63,272 Former stockholders All outstanding Section
Stock of L.E.Burgess shares of 4(2)
Consultants, Inc. L.E.Burgess
Consultants, Inc.
July 31, 1997 Common 3,205,767 Former stockholders All outstanding Section
Stock of Resource shares of Resource 4(2)
Management Management
International, International,
Inc. Inc.
<PAGE>
Type of Number of Exemption
Date Securities Shares Purchaser Consideration(1) Claimed
---- ---------- ------ --------- ---------------- -------
December 1, 1997 Common 578,727 Former stockholders All outstanding Section
Stock of Sterling shares of Sterling 4(2)
Consulting Consulting Group
Group, Inc. Inc.
December 1, 1997 Common 45,000 Former stockholders All outstanding Section
Stock of Reed-Stowe & shares of Reed- 4(2)
Co., Inc. Stowe & Co., Inc.
April 3, 1998 Common 137,931 Former stockholders All outstanding Section
Stock of AUC Management shares of AUC 4(2)
Consultants, Inc. Management
Consultants, Inc.
April 3, 1998 Common 51,562 Former stockholders All outstanding Section
Stock of Hydrologic shares of 4(2)
Consultants Inc. Hydrologic
of California. Consultants Inc.
of California.
June 1, 1998 Common 9,200 Former members of All membership Section
Stock The VisionTrust interest of The 4(2)
Marketing Group, VisionTrust
LLC Marketing Group,
LLC
August 31, 1998 Common 5,596,488 Former members of All outstanding Section
Stock Peterson Consultin membership 4(2)
LLC interest of
Peterson
Consulting LLC
August 31, 1998 Common 616,737 Former stockholders All outstanding Section
Stock of Saraswati Systems shares of 4(2)
Corporation Saraswati Systems
Corporation
August 31, 1998 Common 103,900 Former stockholders All outstanding Section
Stock of Applied Health shares of Applied 4(2)
Outcomes, Inc. Health Outcomes, Inc.
February 7, 1999 Common 2,437,223 Former stockholders All outstanding Section
Stock of Strategic shares of Strategic 4(2)
Decisions Group Decisions Group
March 31, 1999 Common 952,227 Former stockholders All outstanding Section
Stock of Triad shares of Triad 4(2)
International, Inc. International, Inc.
March 31, 1999 Common 670,592 Former stockholders All outstanding Section
Stock of GeoData shares of GeoData 4(2)
Solutions, Inc. Solutions, Inc.
March 31, 1999 Common 234,109 Former stockholders All outstanding Section
Stock of Dowling shares of Dowling 4(2)
Associates, Inc. Associates, Inc.
</TABLE>
(1) Does not take into account assumed debt or cash paid to dissenting
shareholders or for fractional shares.
<PAGE>
Item 6. Selected Financial Data.
The following financial and operating data should be read in conjunction
with the information set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and related notes thereto appearing elsewhere in this
report.
<TABLE>
<CAPTION>
Years Ended December 31,
(1)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues......................................... $397,694 $287,626 $228,731 $181,375 $154,426
Cost of services................................. 266,080 174,175 145,144 117,559 99,879
---------- ---------- ---------- ----------- --------
Gross profit..................................... 131,614 113,451 83,587 63,816 54,547
General and administrative expenses(2)........... 107,274 62,093 55,579 48,031 53,930
Amortization..................................... 24,300 -- -- -- --
Merger related costs and restructuring charges
(benefit)..................................... (206) 12,778 1,312 -- --
Stock option compensation expense................ 3,850 -- -- -- --
-------- ------- ----- ---- ----
Operating income (loss).......................... (3,604) 38,580 26,696 15,785 617
Other expense (income), net(2)................... 2,191 (2,638) (1,205) 332 (5,270)
-- ----- ------ ------ --- ------
Income (loss) before income tax expense.......... (5,795) 41,218 27,901 15,453 5,887
Income tax expense(3)............................ 8,827 25,637 9,237 97 480
-- ----- ------ ----- -- ---
Net income (loss)................................ $ (14,622) $15,581 $18,664 $15,356 $ 5,407
========= ======= ======= ======= =======
Net income (loss) per basic share................ $ (.35) $ 0.43 $ 0.56 $ 0.47 $ 0.17
====== ======- ======- ====== ======
Net income (loss) per diluted share.............. $ (.35) $ 0.41 $ 0.55 $ 0.47 $ 0.17
====== ======- ======- ====== ======
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
(1)
1999 1998 1997 1996 1995
----------- ----------- ----------- ---- ------ --------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........................ $42,345 $119,704 $45,972 $33,859 $ 1,999
Working capital.................................. 67,598 146,509 58,708 45,551 11,112
Total assets..................................... 414,676 230,517 125,827 94,542 52,280
Long-term debt, less current portion............. -- -- 319 1,561 1,202
Total stockholders' equity....................... $300,669 $164,904 $69,215 $50,686 $12,558
</TABLE>
(1) The amounts above have been restated and reclassified as described in Note
3 of Notes to Consolidated Financial Statements. Certain billable expenses
which had previously been presented net of related revenues have been
reclassified. As a result, both revenue and cost of sales for the years
1998, 1997, 1996 and 1995 have increased by $13.9 million, $12.9 million,
$12.7 million and $13.9 million, respectively.
(2) For the year ended December 31, 1995, general and administrative expenses
include $4.3 million reported by Peterson Consulting LLC for a
restructuring charge related to the settlement of obligations under
non-cancelable operating leases and other moving and transition costs.
Other income for the year ended December 31, 1995 includes an extraordinary
gain of $5.7 million recorded by Peterson in connection with the
extinguishment of certain other debt obligations.
(3) During the periods presented, certain of our operating subsidiaries were
entities not subject to federal income taxation. The provision for income
taxes for the year ended December 31, 1998 reflects a one-time, non-cash
charge of $7.2 million resulting from the conversion of Peterson from the
modified cash basis to the accrual basis for tax purposes.
<PAGE>
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations relates to the Consolidated Financial Statements included
in this annual report on Form 10-K.
Overview
We are a nationwide provider of consulting services to electric and gas
utilities, insurance companies and pharmaceutical companies, as well as other
Fortune 100 companies. We derive substantially all of our revenues from fees for
professional services. Over the last three years, the substantial majority of
our revenues have been generated under standard hourly or daily rates billed on
a time-and-expenses basis. Our clients are typically invoiced on a monthly basis
with revenue recognized as the services are provided.
Our most significant expenses are project personnel costs, which consist of
consultant salaries and benefits, and travel-related direct project expenses. We
typically employ our project personnel on a full-time basis, although we
supplement our project personnel through the use of independent contractors. We
retain contractors for specific client engagements on a task-specific, per diem
basis during the period their expertise or skills are required. We believe that
retaining contractors on a per-engagement basis provides us with greater
flexibility in adjusting project personnel levels in response to changes in
demand for our services.
Acquisitions
As part of our growth strategy, we expect to continue to pursue
complementary acquisitions to expand our geographic reach, expand the breadth
and depth of our service offerings and enhance our consultant base. In
furtherance of this growth strategy, we acquired twenty-four consulting firms
since our initial public offering in October 1996.
During 1997, we acquired five companies: Resource Management International,
Inc. (RMI), Reed Consulting Group, Inc. (Reed), Sterling Consulting Group, Inc.
(Sterling), Reed-Stowe & Co., Inc. (RSC), and L.E. Burgess Consultants, Inc.
(Burgess). These transactions were accounted for as poolings of interests. The
Company's consolidated financial statements have been restated as if RMI, Reed,
Sterling and RSC had been combined for all periods presented. The stockholders'
equity and the operations of Burgess were not significant in relation to those
of the Company. As such, the Company recorded the Burgess transaction by
restating stockholders' equity as of the date of the acquisition without
restating prior period financial statements.
RMI. As of July 31, 1997, we acquired substantially all of the common stock
of RMI in exchange for 3.2 million shares of our common stock (valued at the
time of closing at approximately $75.3 million) and acquired the remaining
minority interest in exchange for cash. RMI, based in Sacramento, California, is
a provider of consulting services to gas, water, and electric utilities, with
operations in the western and eastern United States and international
marketplace. RMI's broad range of engineering, technical and economic regulatory
services complemented our management consulting and information technology
services.
Reed. As of August 15, 1997, we acquired substantially all of the common
stock of Reed in exchange for 0.8 million shares of our common stock (valued at
the time of closing at approximately $17.6 million) and acquired the remaining
minority interest in exchange for cash. Reed, based in the Boston, Massachusetts
area, provides strategic planning, operations management and economic and
regulatory services to electric and natural gas utilities. Reed's operations
expanded our services and client base in the northeast United States and
internationally.
Other 1997 Acquisitions. We acquired all of the common stock of Burgess as
of January 1, 1997, and all of the common stock of Sterling and of RSC as of
December 1, 1997. In the aggregate for these three transactions, we issued 0.7
million shares of our common stock (valued at the time of closing at
approximately $18.5 million). The consulting operations of these three companies
were complementary to our existing businesses and have been integrated within
the operations of other existing or acquired companies.
During 1998, we acquired eight companies: LECG, Inc. (LECG), Peterson
Consulting, LLC (Peterson), Saraswati Systems Corporation (SSC), Applied Health
Outcomes, Inc. (AHO), AUC Management Consultants, Inc. (AUC), Hydrologic
Consultants, Inc. of California (HCI), American Corporate Resources, Inc. (ACR),
and The Vision Trust Marketing Group, LLC (VTM). These transactions were
accounted for as poolings of interests. The Company's consolidated financial
statements have been restated as if LECG, Peterson, SSC, AHO, AUC, and HCI had
been combined for all periods presented. The stockholders' equity and the
operations of ACR and VTM were not significant in relation to those of the
Company. As such, the Company recorded the ACR and VTM transactions by restating
stockholders' equity as of the dates of the acquisition without restating prior
period financial statements.
LECG. As of August 19, 1998, we acquired substantially all of the common
stock of LECG in exchange for 7.3 million shares of our common stock (valued at
the time of closing at approximately $228.9 million) and acquired the remaining
minority interest in exchange for cash. LECG, based in the San Francisco,
California area, is a provider of economic consulting and litigation support
services. LECG's operations further increased our economic and regulatory
expertise and expanded our presence in the telecommunications industry.
Peterson. As of August 31, 1998, we acquired substantially all of the
common stock of Peterson in exchange for 5.6 million shares of our common stock
(valued at the time of closing at approximately $156.7 million) and acquired the
remaining minority interest in exchange for cash. Peterson, based in the Chicago
area, is a provider of information management services. Peterson's operations
expanded our service offerings in claims management, litigation support, and
information management.
Other 1998 Acquisitions. We acquired all of the common stock of AUC, HCI,
ACR as of April 3, 1998 and all of the common stock of VTM as of June 1, 1998.
We acquired all of the common stock of SSC and AHO as of September 1, 1998. In
the aggregate for these six transactions, we issued 1.2 million shares of our
common stock (valued at the time of closing at approximately $35.3 million). The
consulting operations of all six companies were complementary to our existing
businesses and have been integrated within the operations of other existing or
acquired companies.
1999 Acquisitions. During 1999, the Company completed eleven acquisitions
(collectively, the "1999 Acquisitions"). The 1999 Acquisitions were accounted
for by the purchase method of accounting and, accordingly, the results of
operations have been included in the consolidated financial statements from the
respective dates of acquisition. On February 7, 1999, the Company issued 2.4
million shares of common stock (valued at the time of closing at approximately
$123.7 million) for substantially all of the outstanding common stock of
Strategic Decisions Group and acquired the remaining minority interest in
exchange for cash. On
March 31, 1999, the Company completed the acquisitions of all of the
outstanding stock of Triad International, Inc., GeoData Solutions, Inc., and
Dowling Associates, Inc. in exchange for 1.8 million shares of the Company's
common stock (valued at the time of closing at approximately $57.3 million). On
September 30, 1999, the Company completed its acquisition of the business
operations and certain assets of Penta Advisory Services LLC (Penta) and the
stock of Scope International, Inc. (Scope) for a total cash purchase price of
$15.1 million. The purchase agreements for Penta and Scope also provide for
additional payments, payable in cash or Company common stock, over the next two
to five years contingent on future revenue growth and gross margin targets. The
additional payments, if any, will be accounted for as additional goodwill. On
October 1, 1999, the Company completed the acquisition of the stock of Brooks
International AB, Brooks International Consulting OY, and Brooks International
SPRL for an aggregate cash purchase price of $3.3 million. On November 1, 1999,
the Company completed the acquisition of the stock of The Barrington Consulting
Group, Inc. (Barrington) in exchange for $14.4 million in cash paid at closing
and total deferred cash payments of $7.8 million, payable in two equal annual
installments. The purchase agreement for Barrington also provides for additional
cash payments of up to $7.8 million in the aggregate, which are contingent on
continued employment with the Company of certain Barrington shareholders and are
payable in cash in two annual installments. On December 1, 1999, the Company
completed the acquisition of all of the assets of Glaze Creek Partners, LLC in
exchange for $0.8 million in cash. There were no pre-acquisition intercompany
transactions between the Company and the 1999 Acquisitions.
An inability to effectively integrate the acquisitions or any companies
acquired in the future may adversely affect our ability to bid successfully on
engagements and to grow our business. Performance problems or dissatisfied
clients at one company could have an adverse effect on our reputation as a
whole. If our reputation were damaged, for those or other reasons, this could
make it more difficult to market our services or to acquire additional companies
in the future. In addition, acquired companies may not operate profitably.
Acquisitions also involve a number of additional risks, including, among
others, the following:
-- Diversion of management's attention;
-- Potential loss of key clients or personnel;
-- Risks associated with unanticipated assumed liabilities and problems;and
-- Risks of managing businesses or entering markets in which we have
limited or no direct expertise.
We expect to continue to acquire companies as an element of our growth
strategy. Acquisitions involve certain risks that could cause our actual growth
to differ from our expectations. For example
-- We may not be able to continue to identify suitable acquisition
candidates or to acquire additional consulting firms on favorable terms.
-- We compete with other companies to acquire consulting firms. We cannot
predict whether this competition will increase. If competition does
increase, there may be fewer suitable consulting firms available to be
acquired and the price for suitable acquisitions may increase.
-- We may not be able to integrate the operations (accounting and billing
functions, for example) of businesses we acquire to realize the
economic, operational and other benefits we anticipate.
-- We may not be able to successfully integrate acquired businesses in a
timely manner or we may incur substantial costs, delays or other
operational or financial problems during the integration process.
-- It may be difficult to integrate a business with personnel who have
different business backgrounds and corporate cultures.
Results of Operations
The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of revenues:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------- - ------- - ----
<S> <C> <C> <C>
Revenues.............................................. 100.0 % 100.0 % 100.0 %
Cost of services................................. 66.9 60.6 63.5
----------------------------
Gross profit.......................................... 33.1 39.4 36.5
General and administrative expenses.............. 26.9 21.6 24.3
Amortization expense............................. 6.1 -- --
Merger-related costs and restructuring charges... -- 4.4 0.5
Stock option compensation expense................ 1.0 -- --
----------------------------
Operating income...................................... (0.9) 13.4 11.7
Other expense (income), net...................... 0.6 (0.9) (0.5)
-----------------------------
Income before income tax expense...................... (1.5) 14.3 12.2
Income tax expense............................... 2.2 8.9 4.0
----------------------------
Net income (loss)..................................... (3.7)% 5.4 % 8.2 %
============================
</TABLE>
1999 Compared to 1998
Revenues. Revenues increased $110.1 million, or 38%, to $397.7 million in
the year ended December 31, 1999 from $287.6 million in 1998. The growth in
revenue was primarily due to acquisitions, expansion of services provided to
existing clients, engagements with new clients, and increased selling and
business development efforts. During 1999, the Company made acquisitions
consistent with its strategy of acquiring consulting companies that provide
complementary services or broaden the Company's geographic presence. The 1999
Acquisitions had pre-acquisition revenues for 1999 and 1998 of $39.4 million and
$115.0 million, respectively, which were not included in the Company's
consolidated results of operations. Pro forma revenues, adjusted for the effect
of the 1999 acquisitions, increased $34.4 million, or 9%, to $437.1 million in
the year ended December 31, 1999 from $402.7 million in 1998.
The Company's consolidated 1998 revenues included certain operations which
were not reflected in 1999. The 1998 reported and pro forma revenues include
revenues of $5.3 million related to certain principals who departed from
Peterson in July 1998 and $3.4 million of revenues related to Insurance Data
Resources, Inc., a subsidiary of Peterson, which was disposed of on September 1,
1998. Excluding the effects of the departed principals and the disposed
operations, the revenue increase in 1999 would have been $43.1 million, or 11%,
to $437.1 million from $394.0 million in the prior year. Consulting engagements
with new clients and an increase in the average size of client consulting
engagements contributed $34.6 million and $8.5 million, respectively, of the
$43.1 million of organic revenue growth in 1999.
Gross Profit. Gross profit consists of revenues less cost of services,
which includes consultant compensation and benefits and direct project-related
expenses. Gross profit increased $18.1 million, or 16%, to $131.6 million in
1999 from $113.5 million in 1998. Higher 1999 revenues would have resulted in a
$43.4 million increase in gross profit had 1999 gross profit margins as a
percentage of revenue been consistent with those in 1998. However, the gross
margin in 1999 declined to 33.1% of revenue from 39.4% in 1998. The decline in
gross margin in 1999 was primarily due to higher consultant compensation of
$23.1 million.
General and Administrative Expenses. General and administrative expenses
include facilities costs, salaries and benefits of management and support
personnel, allowances for uncollectible accounts receivable, depreciation
expense, outside professional fees, and all other corporate support costs.
General and administrative expenses for 1999 increased $45.2 million to $107.3
million from $62.1 million in 1998. The $45.2 million increase in general and
administrative expenses in 1999 is comprised of: $10.6 million in facilities
costs, $2.3 million in personnel related expenses, $12.8 million in allowances
for uncollectible accounts receivable, $8.8 million in depreciation expense,
$7.1 million in professional fees, and $3.6 million in other corporate support
costs. In total, general and administrative expenses as a percentage of revenue
increased to 27.0% in 1999 from 21.6% in 1998. This higher level of expenses as
a percentage of revenue in 1999 represents approximately $21.4 million of growth
in expenses in excess of the rate of growth in revenues. The incremental $21.4
million of general and administrative expenses is the result of $0.9 million in
higher facilities costs, $11.8 million in higher allowances for uncollectible
accounts receivable established in the fourth quarter of 1999, $6.3 million in
higher depreciation expense principally from impairments of certain fixed
assets, $5.7 million in higher professional fees primarily related to
litigation, partially offset by $3.3 million in lower personnel related
expenses.
Amortization Expense. The excess of cost over the net assets acquired for
the 1999 Acquisitions of approximately $226.4 million has been recorded as
intangible assets, including goodwill, and is being amortized on a straight-line
basis over 7 years. The $24.3 million non-cash expense recorded in 1999
represents the pro rata amortization from the respective acquisition dates
through December 31, 1999. Amortization would have been approximately $32.4
million had the 1999 Acquisitions occurred as of January 1, 1999.
Merger Related Cost and Restructuring Charges (Benefit). In the third
quarter of 1998, the Company incurred merger-related costs of $12.8 million
related to the acquisitions of LECG and Peterson, which were accounted for as
poolings of interests. These costs included legal, accounting and other
transaction related fees and expenses, as well as accruals to consolidate
certain facilities. The Company has reviewed the merger-related accruals and
determined that certain amounts previously accrued are no longer necessary given
subsequent acquisition activity and changes in the Company's organizational
structure. The results of operations for the year ended December 31, 1999
reflect a benefit of $1.4 million for the reversal of the previously accrued
amounts. The Company recognized $1.2 million of expense in 1999 for employee
separations associated with consolidation of certain accounting and human
resources functions. In July 1999, the Company announced a restructuring
initiative and offered involuntary severance packages to 73 employees in the
administrative, accounting and human resources functions.
Stock Option Compensation Expense. The Company recorded $3.5 million for
stock option compensation expense in 1999 attributable to 0.3 million option
grants to a total of sixteen individuals which were issued at prices below fair
market value. The amount charged to expense was calculated using the intrinsic
value method for employees and the Black-Scholes option pricing model for
non-employees and approximates the aggregate dollar amount by which the grant
prices of the options differ from the market prices as of the dates for which
the Company has independent evidence to support the issuance of the options. The
Company recorded an additional $0.4 million of stock option compensation expense
to amortize the value of certain options retained by a former employee upon
separation from the Company.
Other Income (Expense), Net. Other income (expense), net includes interest
expense, interest income and other non-operating income and expenses. For 1999,
the Company incurred a net non-operating expense of $2.2 million, which
represented $4.8 million of net incremental expense from the $2.6 million other
income realized in 1998. The incremental expense was principally the result of a
$5.3 million charge to earnings in 1999 to reflect the likely impairment in the
value of certain loans receivable from shareholders. This incremental expense
was partially offset by higher interest income in 1999.
Income Tax Expense. Income tax expense decreased $16.8 million to $8.8
million for 1999 from $25.6 million in 1998. The Company's results of operations
in 1999 included $24.3 million of non-cash, non-deductible amortization expenses
resulting from the 1999 acquisitions and $3.9 million of non-cash,
non-deductible stock options compensation expense. Excluding the effect of these
non-deductible items, the effective tax rate for 1999 would have been 39.5%. The
Company's effective income tax rate for 1998 would have been 39.8% excluding the
effect of the one-time, non-cash charge to income tax expense of $7.2 million
related to the conversion of Peterson from the modified cash basis to the
accrual basis of accounting for tax purposes and the effect of certain
merger-related costs resulting from the mergers completed during the third
quarter of 1998 that are not tax deductible.
Net Income (Loss). The Company's 1999 net loss of $14.6 million represents
a $30.2 million decline from the 1998 net income of $15.6 million. Higher 1999
revenues resulted in a $18.1 million increase in gross profits over the prior
year, which was more than offset by increases of $45.2 million in general and
administrative expense, $24.3 million in amortization expenses, $3.9 million in
stock option compensation expense and $4.8 million of other non-operating
expenses. These expense increases were partially offset by $16.8 million in
lower income tax expenses and $13.0 million in lower merger-related costs.
1998 Compared to 1997
Revenues. Revenues increased $58.9 million, or 26%, to $287.6 million in
1998 from $228.7 million in 1997 due to continued strong demand for management
consulting services, and increased selling and business development efforts.
Selling and business development efforts in support of the Company's strategy to
expand the client base and leverage existing client relationships resulted in
$57.2 million of the incremental $58.9 million 1998 revenues. Engagements with
new clients and an increase in the average size of client engagements
contributed $40.4 million and $16.8 million of that total, respectively.
Gross Profit. Gross profit increased $29.9 million, or 36%, to $113.5
million in 1998 from $83.6 million in 1997. Higher 1998 revenues contributed
$21.5 million of the increase in gross profit. The remaining $8.4 million of the
increase in gross profit reflects an increase in gross profit as a percentage of
revenues to 39.4% in 1998 from 36.5% in 1997. The increase in the 1998 gross
profit margin was the result of increased utilization of the Company's
professional consultants coupled with higher average billing rates and a lower
proportion of non-margin billable expenses to fee revenues.
General and Administrative Expenses. General and administrative expenses
for the year ended December 31, 1998 increased $6.5 million, or 12%, to $62.1
million, which represented 21.6% of revenues, compared to $55.6 million, or
24.3% of revenues, in the comparable 1997 period. The increase in general and
administrative costs was primarily due to a $3.3 million increase in facilities
expenses, a $1.8 million increase in administrative salaries, and a $1.3 million
increase in incentive compensation. However, these expenses increased at a
slower rate than the Company's revenues and overall volume of business,
resulting in a 2.7% decrease in general and administrative expenses as a percent
of revenue. This improvement is attributable to increased efficiencies in
certain support functions (i.e., human resources, benefits administration and
accounting), improved economies of scale and the closing of certain duplicate
facilities at the beginning of 1998.
Merger-Related Cost and Restructuring Charges. Merger-related costs
increased $11.5 million to $12.8 million in 1998 from $1.3 million in 1997.
During 1998, the Company incurred merger-related costs of $12.8 million related
to the acquisitions of LECG and Peterson, which were accounted for as poolings
of interests. These costs include legal, accounting and other merger-related
fees and expenses, as well as accruals to consolidate certain facilities. In the
prior year period, the Company incurred legal, accounting and other
merger-related fees and expenses of $1.3 million related to the acquisitions of
RMI and Reed, which were accounted for as poolings of interests. The increased
direct merger-related costs in 1998 were the result of the greater size and
complexity of the 1998 transactions.
Other Income, Net. For the fiscal year ended December 31, 1998, other
income, net increased $1.4 million to $2.6 million from $1.2 million for 1997.
This increase was largely the result of higher interest income due to larger
average cash balances outstanding during the period. The larger average cash
balance in 1998 was largely the result of $86.4 million in net proceeds from two
offerings of the Company's common stock supplemented by $21.2 million of
operating cash flows and $10.6 million of cash inflow primarily from employee
stock option exercises. These sources of cash were partially offset by $13.6
million of capital spending, $18.9 million of cash used to acquire certain
minority interests in business combinations, $8.2 million of payments to retire
pre-existing short-term debt of acquired companies, and $6.1 million in payments
of pre-acquisition undistributed earnings of purchased companies.
Income Tax Expense. Income tax expense increased $16.4 million to $25.6
million in 1998 from $9.2 million in 1997. The Company's effective income tax
rate was 62.2% for the year ended December 31, 1998. The effective rate for this
period would have been 39.8%, excluding the effect of the one-time, non-cash
charge to income tax expense of $7.2 million related to the conversion of
Peterson from the modified cash basis to the accrual basis of accounting for tax
purposes and the effect of certain merger-related expenses resulting from the
acquisitions of LECG and Peterson that are not tax deductible. The Company's
effective income tax rate was 33.1% for the year ended December 31, 1997. The
effective rate would have been 38.2%, including federal and certain state income
taxes that would have been required had all the Company's subsidiaries been
taxable entities during this period.
Net Income. Net Income decreased approximately $3.1 million to $15.6
million in 1998 from $18.7 million in 1997. Higher 1998 revenues resulted in a
$29.9 million increase in gross profits over the prior year. However, the higher
level of 1998 gross profits was offset by a $6.5 million increase in general and
administrative expenses, a $11.5 million increase in merger-related costs, and a
$16.4 million increase in income tax expense. An increase in other income in
1998 of $1.4 million accounted for the remainder of the change in net income
between the periods.
<PAGE>
Unaudited Quarterly Results
The following table sets forth certain unaudited quarterly operating
information. These data have been prepared on the same basis as the audited
financial statements contained elsewhere in this Form 10-K and include all
normal recurring adjustments necessary for the fair presentation of the
information for the periods presented, when read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto. Results
for any previous fiscal quarter are not necessarily indicative of results for
the full year or for any future quarter.
<TABLE>
<CAPTION>
Quarters Ended
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
-------- -------- --------- -------- -------- -------- --------- --------
1998 1998 1998 1998 1999 1999 1999 1999
----- ----- ----- ----- ----- ------ ------ ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 66,134 $ 70,231 $ 73,967 $ 77,294 $ 84,388 $ 104,732 $ 107,452 $ 101,123
Cost of services................... 41,254 42,254 44,302 46,364 50,418 59,118 61,735 94,809
------ ------ ------ ------ ------ ------ ------ ------
Gross profit....................... 24,880 27,977 29,665 30,930 33,970 45,614 45,717 6,314
General and administrative expenses 16,355 18,232 13,552 13,955 15,343 20,964 21,077 49,890
Amortization expense............... -- -- -- -- 2,800 6,830 6,830 7,840
Merger-related costs and
restructuring -- -- 12,778 -- -- -- (206) --
charges..........................
Stock option compensation expense.. -- -- -- 1,698 532 1,063 557
------ ------ ------ ----- ----- --- ----- ---
Operating income (loss)............ 8,525 9,745 3,335 16,975 14,129 17,288 16,953 (51,973)
Other (income) expense, net........ (550) (791) (523) (773) (1,115) (1,037) (1,218) 5,561
------ ------ ------ ------ ------- ------- -----
Income (loss) before income tax 9,075 10,536 3,858 17,748 15,244 18,325 18,171 (57,534)
expense............................
Income tax expense (benefit)....... 3,773 4,215 10,680 6,968 8,020 10,186 10,310 (19,689)
----- ----- ------ ----- ----- ------ ------ -------
Net income (loss).................. $ 5,302 $6,321 $(6,822)$ 10,780 $ 7,224 $ 8,139 $ 7,861 $(37,845)
======= ====== ========= ======== ======= ======= ======= =======
Net income (loss), per diluted share $ 0.15 $ 0.17 $(0.19) $ 0.28 $ 0.17 $ 0.19 $ 0.17 $(0.91)
====== ====== ====== ====== ====== ====== ====== =====
Diluted shares..................... 36,477 37,752 36,610 39,093 41,786 43,508 45,357 41,798
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Revenues and operating results fluctuate from quarter to quarter as a
result of a number of factors, including the significance of client engagements
commenced and completed during a quarter, the number of business days in a
quarter and employee hiring and utilization rates. The timing of revenues varies
from quarter to quarter due to factors such as the Company's sales cycle, the
ability of clients to terminate engagements without penalty, the size and scope
of assignments and general economic conditions. Because a significant percentage
of the Company's expenses are relatively fixed, a variation in the number of
client assignments or the timing of the initiation or the completion of client
assignments can cause significant variations in operating results from quarter
to quarter. Furthermore, the Company has on occasion experienced a seasonal
pattern in its operating results, with a smaller proportion of the Company's
revenues and lower operating income occurring in the fourth quarter of the year
or a smaller sequential growth rate than in other quarters.
During the quarter ended December 31, 1999, the Company incurred certain
pre-tax expenses which varied significantly from expense levels recorded in
prior interim periods during the year. The aggregate of these expenses amounted
to $62.6 million and consisted of the following: $28.5 million of additional
costs of sales, $28.2 million of incremental general and administrative
expenses, and $5.9 million of other incremental non-operating expenses. The
higher fourth quarter cost of sales was principally due to $26.3 million of
incremental compensation expense accruals to provide for competitive levels of
incentive compensation and promote employee retention. Fourth quarter general
and administrative expenses included the following significant incremental
expenses: $12.8 million of allowances for uncollectible accounts receivable;
$5.5 million of write-downs of certain fixed assets, $5.5 million of
professional fees and other costs related to settlement of certain then
outstanding litigation; $1.2 million of compensation expense to provide for
competitive levels of incentive compensation and promote employee retention; and
$0.5 million of stock option compensation expense. The increase in non-operating
expenses for the fourth quarter was primarily the result of a loss contingency
accrued at December 31, 1999 in the amount of $5.3 million, related to the
impairment of notes receivable from certain former company officers.
<PAGE>
The following table sets forth select unaudited quarterly information as
previously reported and as amended. The amended amounts have been restated to
retroactively reflect the results of operations for certain business
combinations completed in 1998 which were accounted for as poolings of
interests. At the respective dates of acquisition, the Company had determined
that the stockholders' equity and the results of operations of these businesses
were not material, individually or in the aggregate, in relation to those of the
Company. As such, the Company had recorded these combinations by restating
stockholders' equity as of the effective date of each acquisition without
restating prior period financial statements. However, based in part on comments
received from the Securities and Exchange Commission, the Company has restated
the financial statements for 1998 to reflect the results of operations of AUC,
HCI, SSC, and AHO.
The amended amounts also incorporate certain reclassifications to conform
the presentation of revenue and cost of sales for 1998 and previously issued
interim 1999 periods to the 1999 presentation. Certain billable expenses which
had previously been presented net of related revenues have been reclassified.
The amended amounts for the first three quarters of 1999 also reflect
adjustments to correct the application of certain accounting principles related
to stock option compensation expense. See also Note 13, "Long-Term Incentive
Plan".
<TABLE>
<CAPTION>
Quarters
Ended
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
-------- -------- --------- -------- -------- -------- ---------
1998 1998 1998 1998 1999 1999 1999
----- ----- ----- ---- ----- ------ ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue as previously reported....... $ 60,809 $ 64,863 $ 68,311 $ 72,894 $ 82,151 $ 103,623 $ 106,185
Retroactive effect of pooling accounting... 2,854 2,269 1,721 -- -- -- --
Reclassifications.......................... 2,471 3,099 3,935 4,400 2,237 1,109 1,267
----- ----- ----- ----- ----- ----- -----
Revenues, as amended....................... $ 66,134 $ 70,231 $ 73,967 $ 77,294 $ 84,388 $ 104,732 $ 107,452
========-========- ========-======== ========-=========-=========
Gross profit, as previously reported....... $ 24,786 $ 27,848 $ 28,991 $ 30,930
Retroactive effect of pooling accounting...
94 129 673 --
-- --- --- ---
Gross profit, as amended................... $ 24,880 $ 27,977 $ 29,664 $ 30,930
========-========- ========-========
Operating income, as previously reported... $ 8,899 $ 10,101 $ 2,909 $ 16,975 $ 15,827 $17,820 $18,016
Retroactive effect of pooling accounting... (374) (356) 426 -- -- -- --
Stock option compensation expense.......... -- -- -- -- (1,698) (532) (1,063)
======= ======== ======== ======== ======= ======= =======
Operating income (loss), as amended $ 8,525 $9,745 $ 3,335 $ 16,975 $ 14,129 $17,288 $16,953
=======- ======- =======-======== ========- =======- =======
Net income (loss) as previously reported... $ 5,658 $6,658 (6,973)$ 10,780 $ 8,922 $ 8,671 $ 8,924
Retroactive effect of pooling accounting... (356) (337) 151 -- -- -- --
Stock option compensation expense.......... -- -- -- -- (1,698) (532) (1,063)
------------------------------------------------------------------
Net income (loss), as amended.............. $ 5,302 $6,321 $(6,822)$ 10,780 $ 7,224 $ 8,139 $ 7,861
=======- ======-========= ======== =======- =======- =======
Net income (loss) per share as previously $ 0.16 $ 0.18 $ (0.19) $ 0.28 $ 0.21 $ 0.20 $ 0.20
reported...................................
Retroactive effect of pooling accounting... (0.01) (0.01) -- -- -- -- --
Stock option compensation expense..........
-- -- -- -- (0.04) (0.01) (0.03)
---- ---- ---- --- ------ ------ ------
Net income (loss) per diluted share, as $ 0.15 $ 0.17 $(0.19) $ 0.28 $ 0.17 $ 0.19 $ 0.17
====== ====== ===== ====== ====== ====== ======
amended....................................
Diluted shares, as previously reported..... 35,566 37,031 36,129
Retroactive effect of pooling accounting...
911 721 481
=== === ===
Diluted shares, as amended................. 36,477 37,752 36,610
====== ====== ======
</TABLE>
Liquidity and Capital Resources
Net cash provided by operating activities was $17.4 million for the year
ended December 31, 1999. During the year, the primary sources of cash provided
by operating activities was net income adjusted for non-cash charges of
depreciation, amortization, stockholder notes impairment provision and stock
compensation expense. Net income adjusted for these non-cash charges was $32.5
million. Operating cash flow was also positively affected by increases in
accrued compensation and project costs of $10.6 million and other current
liabilities of $3.4 million. Operating cash flow was negatively affected by the
increase in accounts receivable of $19.5 million, the decrease in income taxes
payable of $13.0 million and the non-cash charge relating to deferred income
taxes of $11.0 million.
The Company used $18.6 million for capital spending to support growth in
personnel and services. These investments included leasehold improvements,
furniture and equipment for new leased facilities, additional computer and
related equipment for information management consulting services and the
purchase and implementation of enterprise financial and project software system.
The Company used $42.1 million in cash during 1999 in conjunction with the 1999
Acquisitions.
Net cash used in financing activities was $32.5 million in 1999. During the
year, the Company received net cash and related tax benefits of $17.4 million
from transactions related to stock option exercises and employee stock
purchases. In addition, the Company received proceeds of $10.0 million from
borrowings on the line of credit facility. The Company used $40.0 million to
purchase treasury shares in 1999. Borrowing by stockholders used approximately
$17.0 million of funds during the year.
As of December 31, 1999, the Company had no significant commitments for
capital expenditures, except for those related to rental expense under operating
leases and related leasehold improvements. The total amount of operating lease
payments in 2000 is expected to be approximately $15.2 million. The total amount
of capital spending in the year 2000 related to leasehold improvements is
expected to be approximately $6.9 million.
The Company had approximately $42.3 million in cash and cash equivalents at
December 31, 1999, resulting principally from cash flows from operations and the
various public stock offerings during the previous three years. The company
believes that the current cash and cash equivalents, the future cash flows from
operations and the $50 million line of credit facility will provide adequate
cash to fund anticipated short-term and long-term cash needs from normal
operations. In the event the Company were to make significant cash expenditures
in the future for major acquisitions or other non-operating activities, the
Company would seek additional debt or equity financing, as appropriate. The
Company had no plans or intentions for such expenditures as of December 31,
1999.
Recently Issued Financial Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities in June 1998. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities,
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement is effective for fiscal years beginning after June
15, 1999. The Company does not currently have any derivative instruments or
complete any hedging activities. The adoption of this standard is not expected
to be significant.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
The Company's primary exposure to market risks relates to changes in
interest rates associated with its investment portfolio and its borrowings under
the line of credit. The Company's general investment policy is to limit the risk
of principal loss by limiting market and credit risks. As of December 31, 1999,
the Company's investments were primarily limited to fully collateralized,
Double-A or Triple-A rated securities with maturity dates of 90 days or less. If
interest rates average 25 basis points less in fiscal year 2000, than they did
in 1999, the Company's interest income would be decreased by $0.1 million. This
amount is determined by considering the impact of this hypothetical interest
rate on the Company's investment portfolio at December 31, 1999. The Company
does not expect any loss with respect to its investment portfolio. The Company's
market risk associated with its line of credit relates to changes in interest
rates. Borrowings under the line of credit bear interest, at the Company's
option, based on either the London Interbank Offered Rate (LIBOR) or the primate
rate. If interest rates average 25 basis points higher in 2000, than they did in
1999, the Company's interest expense would increase by less than $.1 million.
This amount is determined based on the amount of short-term debt at December 31,
1999. The Company does not currently have any long-term debt, interest rate
derivatives, forward exchange agreements, firmly committed foreign currency
sales transactions, or derivative commodity instruments.
The Company operates in foreign countries which exposes it to market risk
associated with foreign currency exchange rate fluctuations; however, such risk
is immaterial at this time to the Company's consolidated financial statements.
Item 8. Consolidated Financial Statements and Supplemental Data.
The Consolidated Financial Statements of the Company are annexed to the
report as pages F-1 through F-22. An index to such materials appears on page
F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Board of Directors is divided into three classes, with a class of
directors elected each year for a three-year term.
A listing of the principal occupation, other major affiliations and age of
the directors of Navigant Consulting is set forth below:
Directors Whose Terms Continue Until the Annual Meeting of Shareholders in 2000:
Mitchell H. Saranow, 54, has served as one of our directors since 1996 and
became Chairman of the Board and Co-Chief Executive Officer in November 1999.
Since 1984, Mr. Saranow has served as Chairman of The Saranow Group L.L.C. and
its affiliated companies. He founded Fluid Management, L.P., the world's leading
manufacturer of color formulation equipment, in April 1987 and served as
Chairman and Chief Executive Officer until January 1997. From 1979 to 1983, Mr.
Saranow was Vice President Finance and Chief Financial Officer of CFS
Continental, then the nation's second largest food service distributor. Mr.
Saranow also serves on the boards of Lawson Products, Inc., ELF Machinery,
L.L.C., and BroadBridge Media, L.L.C.
Peter B. Pond, 55, has served as one of our directors since November 1996.
He served as the Midwest Head of Investment Banking for Donaldson, Lufkin &
Jenrette Securities Corporation from June 1991 to March 2000. Mr. Pond is a
director of Maximus, Inc., a provider of program management and consulting
services to state, county and local government health and human services
agencies.
Directors Whose Terms Continue Until the Annual Meeting of Shareholders in 2001:
John J. Reed, 45, has served as our Vice-Chairman and Co-Chief Executive
Officer since November 1999. He was appointed a director of the company on
November 21, 1999. Prior to being named Vice-Chairman and Co-Chief Executive
Officer, Mr. Reed was the Executive Managing Director of our Management
Consulting practice. From 1988 until 1999, Mr. Reed was President of Reed
Consulting Group, which we acquired in August 1997.
James R. Thompson, 63, has served as one of our directors since August
1998. Governor Thompson was named Chairman of the Chicago law firm of Winston &
Strawn in January 1993. He joined the firm in January 1991 as Chairman of the
Executive Committee after serving four terms as Governor of the State of
Illinois from 1977 until January 1991. Prior to his terms as Governor, he served
as U.S. Attorney for the Northern District of Illinois from 1971 to 1975.
Governor Thompson served as the Chief of the Department of Law Enforcement and
Public Protection in the Office of the Attorney General of Illinois, as an
Associate Professor at Northwestern University School of Law, and as an
Assistant State's Attorney of Cook County. He is a former Chairman of the
President's Intelligence Oversight Board. Governor Thompson is currently a
member of the Boards of Directors of Union Pacific Resources, Inc., Prime
Retail, Inc., American National Can Co., Metal Management, Inc., Prime Group
Realty Trust, FMC Corporation, and Hollinger International. He serves on the
Board of the Chicago Historical Society, the Art Institute of Chicago, the
Museum of Contemporary Art, the Lyric Opera and the Illinois Math & Science
Academy Foundation.
Samuel K. Skinner, 61, has served as a director since December 15, 1999. He
currently serves as Co-Chairman of Hopkins & Sutter, a law firm based in
Chicago. Mr. Skinner recently retired as President of the Commonwealth Edison
Company and its holding company Unicom Corporation. Prior to joining
Commonwealth Edison, he served as Chief of Staff to President George Bush. Prior
to his White House service, Mr. Skinner served in the President's cabinet for
nearly three years as Secretary of Transportation. From 1977 to 1989, Mr.
Skinner practiced law as a senior partner in the Chicago law firm Sidley &
Austin. From 1984 to 1988, while practicing law full time, he also served as
Chairman of the Regional Transportation Authority of northeastern Illinois and
was appointed by President Reagan as Chairman of the President's Commission on
Organized Crime. From 1968 to 1975, Mr. Skinner served in the office of the
United States Attorney for the Northern District of Illinois and in 1977,
President Ford appointed him United States Attorney, one of the few career
prosecutors ever to hold such position.
Directors Whose Terms Continue Until the Annual Meeting of Shareholders in 2002:
Carl S. Spetzler, 58, has served as our President and Co-Chief Executive
Officer since November 1999. He was appointed a director of the company on
November 21, 1999. Prior to being named President and Co-Chief Executive
Officer, Dr. Spetzler was the Executive Managing Director of our Strategic
Consulting practice. From 1986 until 1999, Dr. Spetzler was the President of
Strategic Decisions Group, which we acquired in February 1999.
William M. Goodyear, 51, has served as a director since December 15, 1999.
He is immediate past chairman and former Chief Executive Officer of Bank of
America, Illinois. In addition, he was President of the Bank of America's Global
Private Bank until January of 1999. He was Vice Chairman and a member of the
Board of Directors of Continental Bank, prior to the 1994 merger between
Continental Bank Corporation and BankAmerica Corporation. Mr. Goodyear joined
Continental Bank in 1972 and subsequently held a variety of assignments
including corporate finance, large corporate lending, trading and distribution.
He was stationed in London from 1986 to 1991 where he was responsible for
European and Asian Operations. Mr. Goodyear is currently a member of Chicago's
Commercial Club, the board of Trustees for the Museum of Science and Industry
and the finance council of the Archdiocese of Chicago. He is a member of the
board of trustees of the University of Notre Dame, the Chicago Public Library
Foundation and serves on the Rush-Presbyterian Hospital Board. Mr. Goodyear is a
director of Equity Office Properties Trust where he is Chairman of its audit
committee. He is an advisory director of Shorebank in Chicago and a member and
director of the executive committee of Home Place of America, Inc.
Information as to our executive officers is provided under the caption
"Executive Officers of the Registrant" under Item 4 of this Form 10-K. Officers
of the company are elected annually for a term of one year.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and any persons who beneficially own more than ten
percent of our common stock, to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock. To our knowledge, based
solely on review of the copies of such reports sent to us and written
representations that no other reports were required, we believe that during the
year ended December 31, 1999, our directors, officers and ten percent
shareholders complied with their Section 16(a) filing requirements, except that
Messrs. Reed and Spetzler filed their Initial Statements of Beneficial Ownership
on Form 3 late.
Item 11. Executive Compensation.
General
The following table sets forth compensation awarded or earned by our three
Co-Chief Executive Officers, one other executive officer who earned more than
$100,000 during the year ended December 31, 1999 and two other executive
officers who earned more than $100,000 during that year but were not executive
officers at December 31, 1999:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term
Compensation
Securities All
Other Annual Underlying Other
Name and Principal Position Year Salary Bonus Compensation Options (No. Compensation
---------------------------- ---- ------ ----- ------------ ------------ ------------
Salary ($) ($) ($) of Shares)
------ --- --- --- ----------
<S> <C> <C> <C> <C> <C> <C>
Mitchell H. Saranow 1999 69,232 35,000 -- 19,500 --
Chairman and Co-Chief
Executive Officer(1)
John J. Reed 1997 145,000 217,861 -- -- 204(9)
Vice Chairman and 1998 164,430 315,668 -- 100,000 255(9)
Co-Chief 1999 246,474 363,525 -- 50,000 908(9)
Executive Officer(2)
Carl S. Spetzler 1999 311,058 298,942 -- 108,895 2,516(9)
President and Co-Chief
Executive Officer(3)
James F. Hillman 1997 206,250 -- 625(7) 37,500 --
Chief Financial Officer (4) 1998 250,000 -- 1,994,063(8) 75,000 204(9)
1999 162,692 -- -- -- 204(9)
Robert P. Maher 1997 411,250 -- 1,500(7) 150,000 --
Former Chairman, 1998 462,060 -- -- 375,000 717(9)
President and Chief 1999 426,613 -- -- 112,500 1,188(9)
Executive Officer (5)
Timothy D. Kingsbury 1997 223,958 85,619 4,500(7) -- 1,530(9)
Former Chief Financial 1998 225,000 -- 4,500(7) 6,000 1,734(9)
Officer and Treasurer (6) 1999 240,625 87,500 -- 144,000 324(9)
</TABLE>
(1) Mr. Saranow was elected to his positions as an executive officer in
November 1999. Prior to that time he was a non-employee director of the
company. See also the discussion of Mr. Saranow's employment agreement
under "Employment Agreements," below.
(2) Mr. Reed was elected to his positions in November 1999. Prior to that time
he was an employee but not an executive officer of the company. Mr. Reed
joined the company in August 1997 when it acquired Reed Consulting Group.
See also the discussion of Mr. Reed's employment agreement under
"Employment Agreements," below.
(3) Mr. Spetzler was elected to his positions in November 1999. Prior to that
time he was an employee but not an executive officer of the Company. Mr.
Spetzler joined the company in February 1999 when it acquired Strategic
Decisions Group. See also the discussion of Mr. Spetzler's employment
agreement under "Employment Agreements," below.
(4) Mr. Hillman has been our Chief Financial Officer and Treasurer from April
1996 to May 1999 and since November 1999. See also the discussion of Mr.
Hillman's employment arrangement under "Employment Agreements," below.
(5) Mr. Maher was our Chairman, President and Chief Executive Officer until he
resigned in November 1999.
(6) Mr. Kingsbury was our Chief Financial Officer and Treasurer from May 1999
until he resigned from those positions in November 1999. Before and after
this period he has served as an employee but not an executive officer of
the Company.
(7) Represents matching payments and profit sharing under applicable 401(k)
Plan.
(8) Consists of compensation resulting from the exercise of stock options.
(9) Represents earnings associated with group term life insurance.
Executive Option Grants
The following table sets forth the stock option grants we made to each of
the named executive officers in 1999.
<TABLE>
<CAPTION>
Options Grants in Fiscal 1999
Individual Grants (1), (9)
Percent of
Total
Number of Options
Securities Granted to
Underlying Employees Exercise Grant Date
Options in Fiscal Price Per Expiration Present
Name Granted Year 1999 Share Date Value (1)
---- --------- ----------- ------- ----- ---------
<S> <C> <C> <C> <C> <C>
Mitchell H. Saranow....... 19,500(2) .44% $26.5625 6/30/2009 $ 272,000
John J. Reed.............. 50,000(3) 1.12% $30.5000 3/22/2009 $ 802,000
Carl S. Spetzler.......... 25,000(4) .56% $26.5625 6/30/2009 $ 349,000
8,895(5) .20% $30.5000 3/22/2009 $ 143,000
75,000(6) 1.67% $50.7500 2/7/2009 $2,026,000
James F. Hillman.......... -- -- -- -- --
Robert P. Maher........... 112,500(7) 2.51% $26.5625 2/20/2002 $1,571,000
Timothy D. Kingsbury...... 144,000(8) 3.21% $26.5625 6/30/2009 $2,011,000
</TABLE>
(1) The fair value of the option grant is estimated as of the date of grant
using the Black-Scholes option pricing model. The following assumptions
were used
Expected Volatility...... 75%
Risk-free interest rate.. 5.5%
Dividend yield........... 0%
Expected life............ 3 years
(2) The options were granted on July 1, 1999 at the fair market value of common
stock on that date; 50% of these options become exercisable on July 1, 2001
and the remainder become exercisable 25% on July 1, 2002 and 25% on July 1,
2003.
(3) The options were granted on March 23, 1999 at the fair market value of
common stock on that date and become exercisable 50% on March 23, 2001, 25%
on March 23, 2002 and 25% on March 23, 2003.
(4) The options were granted on July 1, 1999 at the fair market value of common
stock on that date and became exercisable 100% on February 8, 2000.
(5) The options were granted on March 23, 1999 at the fair market value of
common stock on that date and became exercisable 100% on March 23, 2000.
(6) The options were granted on February 8, 1999 at the fair market value of
common stock on that date; 33% of these options become exercisable on
February 8, 2001 and the remainder become exercisable 33% on February 8,
2002 and 33% on February 8, 2003.
(7) The options were granted on July 1, 1999 at the fair market value of common
stock on that date; 37,500 of these options become exercisable on November
21, 2000. Pursuant to Mr. Maher's Consulting Agreement signed in November,
1999 he relinquished the remaining 75,000 options granted on July 1, 1999.
(8) The options were granted on July 1, 1999 at the fair market value of common
stock on that date; 50% of these options become exercisable on July 1, 2001
and the remainder become exercisable 25% on July 1, 2002 and 25% on July 1,
2003.
(9) See also the discussion of options granted in January 2000 to Messrs.
Saranow, Reed, Spetzler and Hillman under "Employment Agreements," below.
Option Exercises and Holdings
The following table sets forth the exercise of options during 1999 by the
named executive officers and the number of options and approximate values for
in-the-money options at December 31, 1999. Because the exercise price of all
such stock options is greater than $10.875 per share, the closing price of the
common stock as reported by the New York Stock Exchange on December 31, 1999,
the table shows that there were no in-the-money options at that date.
<TABLE>
Price
<CAPTION>
Aggregated Option Exercises in 1999 and
Fiscal Year End Option Values
Shares Number of Shares
Acquired Underlying Unexercised Value of Unexercised
on Value Options at Fiscal Year In-The-Money Options
Name Exercise(#) Realized($) End(#)(3) at Fiscal Year End
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Mitchell H. Saranow 0 $ 0.00 24,750 75,250 $0.00 $0.00
John J. Reed 0 $ 0.00 0 150,000 $0.00 $0.00
Carl S. Spetzler 0 $ 0.00 0 108,895 $0.00 $0.00
James J. Hillman -- -- -- -- -- --
Robert P. Maher 112,500 $ 0.00 75,000 225,000 $0.00 $0.00
Timothy D. Kingsbury 0 $ 0.00 0 150,000 $0.00 $0.00
</TABLE>
Price
Employment Agreements
In January 2000, the company entered into employment agreements with its
three Co-Chief Executive Officers, Messrs. Saranow, Reed and Spetzler. Each
agreement provides for a three year term ending November 12, 2002, an annual
base salary of $500,000 with annual increases in the discretion of the
compensation committee, a maximum annual bonus opportunity of 100% of base
salary and a target payment of 65% of the base salary. Each agreement also
provides for a grant to the executive of an option to purchase 300,000 shares
under the company's long-term incentive plan at an exercise price of $10 per
share, which option vests and becomes exercisable 50% on the date of grant, 25%
six months after the date of grant and 25% 18 months after the date of grant
(subject to immediate vesting in the event of a change of control, termination
of the executive without cause (as defined in the agreement) or termination of
the executive for good reason (as defined in the agreement)). (Because the date
of grant is January 18, 2000, these options are not shown in the tables above.)
Each agreement provides that if either the company terminates the executive's
employment (other than for cause, death or disability), the executive terminates
his employment for good reason or the executive terminates his employment after
change of control for any reason, then the company will pay to the executive an
amount equal to two times the sum of his base salary and most recent bonus. Each
agreement also provides that if the executive's employment terminates because of
the executive's death or disability, the company will pay to the executive an
amount equal to his base salary and most recent bonus. If a payment or benefit
received by the executive would be subject to excise tax as a result of Section
280G of the Internal Revenue Code, the agreement provides for a reduction of the
post-termination payments to the executive if, as a result of the excise tax,
the net amount of post-termination payments retained by the executive (taking
into account income and excise taxes) are increased by the reduction. In
addition, the employment agreement with Mr. Saranow provides that he will be
nominated to serve as a director of the company at the annual meeting of
shareholders in 2000 and that he shall be required to devote a reasonable amount
of his time (which shall be less than full-time) to the business and affairs of
the company.
The company has employment agreements with other of its executive officers.
The employment agreement with Mr. Steptoe, our Vice President, General Counsel
and Secretary, provides for an annual base salary of $250,000, a maximum annual
bonus opportunity of 50% of base salary and a grant to Mr. Steptoe of an option
to purchase 100,000 shares under the company's long-term incentive plan at an
exercise price of $9 per share, which option vests and becomes exercisable as to
25,000 of those shares six months after the date of grant and as to an
additional 25,000 of those shares every six months thereafter (subject to
immediate vesting in the event of a change of control). The agreement provides
that if the company terminates Mr. Steptoe's employment without cause, the
company will continue his base salary for six months. The arrangement with Mr.
Hillman, our Chief Financial Officer, provides for an annual base salary of
$350,000, a maximum annual bonus opportunity of 50% of base salary and a grant
to Mr. Hillman of an option to purchase 150,000 shares under the company's
long-term incentive plan at an exercise price of $10.125 per share, which option
vests and becomes exercisable as to 100,000 of those shares on the date of grant
and as to the remaining 50,000 of those shares one year after the date of grant.
The arrangement also provides for payments to Mr. Hillman in consideration of
his execution of a release of the company of $200,000 in January 2000 and
$200,000 one year thereafter. If the company terminates Mr. Hillman's employment
without cause, the company will continue his base salary for six months.
Director Compensation
Under our current long-term incentive plan, we grant each director not
employed by us an option to purchase 3,000 shares of common stock for each year
of the term to be served upon the director's initial election or re-election to
the Board. Thus, a director elected to a three-year term receives 9,000 options.
The options have an exercise price equal to the fair market value of the common
stock on the date of grant and become exercisable in equal installments over the
term to be served beginning on the first anniversary of the date of grant, so
that 3,000 options become exercisable each year. From time to time, we also
grant our non-employee directors additional options after reviewing the level of
compensation other companies similarly situated to us pay their non-employee
directors.
Beginning in January 2000, we also pay each Non-Employee Director an annual
retainer of $35,000 and a fee of $1,500 for each Board meeting or Committee
meeting attended. All directors are reimbursed for travel expenses incurred in
connection with attending Board and Committee meetings.
Compensation Committee Interlocks and Insider Participation
Prior to December 1999 the Compensation Committee of our Board of Directors
consisted of Messrs. Maher, Pond, Saranow and Thompson. Prior to his resignation
in November, 1999, Mr. Maher was the Chairman and Chief Executive Officer of the
company. In November 1999, Mr. Saranow was elected as our Chairman and Co-Chief
Executive Officer. In December 1999 the Board appointed Messrs. Skinner and
Goodyear as the sole members of the Compensation Committee. In February 2000 the
Board reconstituted the Compensation Committee as the Compensation and
Organization Committee. Messrs. Skinner and Goodyear continued as the sole
members of this Committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial
ownership of common stock as of April 14, 2000 by: (i) each person we know to
own beneficially more than five percent of the outstanding shares of common
stock; (ii) each of our directors and nominees; (iii) each of the named
executive officers; and (iv) all of our directors and executive officers as a
group. We believe that each person named below has sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
such holder, subject to community property laws where applicable. Except where
noted otherwise, the address of each person named below is care of our principal
executive offices.
<TABLE>
<CAPTION>
Shares Beneficially
Officers, Directors and 5% Shareholders Owned(1)
Number Percent
<S> <C> <C>
Blum Capital Partners, L.P., Richard C. Blum Associates, Inc. and Richard C. Blum (2)...... 2,506,200 6.10%
Mitchell H. Saranow (3).................................................................... 254,875 *
John J. Reed (4)........................................................................... 152,446 *
Carl S. Spetzler (5)....................................................................... 323,435 *
James F. Hillman (6)....................................................................... 100,000 *
Peter B. Pond (7).......................................................................... 34,875 *
William M. Goodyear........................................................................ 0 *
Samuel K. Skinner.......................................................................... 0 *
James R. Thompson (8)...................................................................... 3,000 *
Robert P. Maher (9)........................................................................ 170,481 *
Timothy D. Kingsbury....................................................................... 128,123 *
All current directors and executive officers as a group (9 persons)........................ 890,956 2.10%
</TABLE>
*less than 1%
(1) Applicable percentage of ownership as of April 14, 2000 is based upon
approximately 41.3 million shares of common stock outstanding. Beneficial
ownership is a technical term determined in accordance with the rules of
the SEC. Beneficial ownership generally means that a shareholder can vote
or sell the stock either directly or indirectly.
(2) Based on information provided in the Schedule 13D filed by Blum Capital
Partners, L.P., Richard C. Blum & Associates, Inc. and Richard C. Blum with
the Securities and Exchange Commission on April 7, 2000, those persons
share voting and dispositive power with respect to such shares. The address
of each of those persons is 909 Montgomery Street, Suite 400, San
Francisco, California 94133.
(3) Includes 184,875 shares of common stock subject to options that are or
become exercisable within 60 days of April 14, 2000.
(4) Includes 150,000 shares of common stock subject to options that are or
become exercisable within 60 days of April 14, 2000.
(5) Includes 183,895 shares of common stock subject to options that are or
become exercisable within 60 days of April 14, 2000.
(6) Includes 100,000 shares of common stock subject to options that are or
become exercisable within 60 days of April 14, 2000.
(7) Includes 34,875 shares of common stock subject to options that are or become
exercisable within 60 days of April 14, 2000.
(8) Includes 3,000 shares of common stock subject to options that are or become
exercisable within 60 days of April 14, 2000.
(9) Includes 75,000 shares of common stock subject to options that are or
become exercisable within 60 days of April 14, 2000. Mr. Maher's address is
c/o Robert T. Markowski, Jenner & Block, One IBM Plaza, Chicago, Illinois
60611.
Item 13. Certain Relationships and Related Transactions.
In April 1999, Mr. Maher, the company's Chairman and Chief Executive
Officer at that time, borrowed $2.7 million from the company so that he could
exercise his then-vested options. Mr. Maher exercised all 112,500 of his
then-vested options at an exercise price of $24.00 per share. In August 1999,
Mr. Maher borrowed an additional $10 million from the company. The applicable
interest rate for this loan was 5.75%, payable annually. In November 1999, the
company received from Mr. Maher 605,684 shares of the company's common stock
with a then market value of $12.9 million as payment for the principal amount of
the loans plus accrued interest.
Five non-employees related by blood or marriage to Mr. Maher received stock
option grants. Mr. Maher has informed the company that each of these persons
provided services to the company from time to time and received no other
compensation for those services. In addition, one other individual not employed
by the company, but who was an employee of an unrelated company owned or
controlled by Mr. Maher, received stock option grants. Mr. Maher has informed
the company that this individual provided certain services to the company from
time to time. These persons are among sixteen as to whom the company has
determined, based in part on the absence of contemporaneous documentation, that
0.3 million nonqualified options issued to a total of sixteen individuals were
issued at prices below fair market value. The company recorded an expense in
1999 of $3.5 million for stock option compensation expense attributable to such
options issued to the sixteen individuals. Of the total stock option
compensation expense of $3.5 million, $0.6 million is attributable to the first
six persons described above.
In April 1999, Mr. Cain and Mr. Demirjian, respectively the company's Chief
Administrative Officer and the company's General Counsel at that time, each
borrowed $425,063 from the company to exercise all 18,750 of their then-vested
options at an exercise price of $22.67 per share. The notes which evidence these
borrowings are full recourse, are due on or before the third anniversary date
and bear interest at a rate equal to 5.75%, payable annually. The notes were
accompanied by pledge agreements which pledge the exercised option shares as
collateral security for repayment of the notes, which shares are currently held
by the company. In late August, Mr. Cain, Mr. Demirjian and Mr. Kingsbury (the
company's Chief Financial Officer at that time) borrowed $2.625 million, $2.625
million and $1.75 million, respectively, from the company, related to their
purchases of 75,000, 75,000 and 50,000 shares, respectively, of the company's
common stock from third parties at $35 per share. The notes which evidence these
borrowings are full recourse, are due on or before the third anniversary date
and bear interest at a rate equal to 5.75%, payable annually. These notes were
accompanied by pledge agreements which pledge the shares as collateral security
for repayment of the notes, which shares are currently held by the company.
Although the notes receivable are full recourse, are not due until the year 2002
and there has been no event of default, the company is not certain that it will
be able to collect the full amount due. In March 2000, the borrowers either
challenged the enforceability or declined to confirm their intention to comply
with the terms of the notes and each have refused to provide the company with
personal financial information that would support their ability to pay the full
amounts due. The company has accrued a loss contingency at December 31, 1999 in
the amount of $5.3 million, representing the difference between the principal
amount of the notes receivable and the value of the shares held by the company
as collateral. The company is negotiating with the borrowers concerning deferral
or compromise of their obligations under their notes.
In November 1999, the company entered into an agreement with Mr. Maher,
pursuant to which, among other things, Mr. Maher agreed to provide certain
consulting services to the company over a two year period, including providing
information about past transactions or other matters as to which he may be
familiar, and the company agreed to pay Mr. Maher twenty-four monthly payments
of $25,000. To date, the company has made one such payment to Mr. Maher, in
December 1999.
Mr. Pond, one of our directors, was a principal of Donaldson, Lufkin &
Jenrette Securities Corporation prior to March 2000. DLJ has provided in the
past and may provide us in the future with investment banking services. DLJ
served as an advisor on certain matters during 1999.
Mr. Thompson, one of our directors, is Chairman of the law firm of Winston
& Strawn. Winston & Strawn has provided in the past and may provide us in the
future with legal representation.
Part IV
Item 14 Exhibits, Financial Statements and Reports on Form 8-K
(a) The consolidated financial statements filed as part of this report are
listed in the accompanying Index to Consolidated Financial Statements. The
financial statement schedule filed as part of this report is listed below.
(b) The Registrant filed the following Current Reports on Form 8-K during
the quarter ended December 31, 1999:
(1) A Form 8-K dated November 22, 1999 reporting under Item 5 of Form
8-K certain changes to the Board of Directors and management of the
Registrant.
(2) A Form 8-K dated December 15, 1999 reporting under Item 5 of Form
8-K the adoption of a Stockholder Rights Plan and the addition of two
directors to the Board of Directors of the Registrant.
(c) The exhibits filed as part of this report are listed below:
a. Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
2.1* Plan and Agreement of Merger, dated as of February 7, 1999, by and among the Metzler Group,
Inc., MGI Acquistion III, Inc., Strategic Decisions Group (SDG), and certain SDG Executives
3.1 Amended and Restated Certificate of Incorporation of the Registrant (1)
3.2 Amendment No. 1 to Amended and Restated Certificate of Incorporation of the Registrant (2)
3.3 Amendment No. 2 to Amended and Restated Certificate of Incorporation of the Registrant (3)
3.4 Amended and Restated By-Laws of the Registrant (4)
4.2 Form of Registration Agreement (6)
4.3 Rights Agreement dated as of December 15, 1999 between the
Registrant and American Stock Transfer & Trust Company, as
Rights Agent, (which includes the form of Certificate of
Designations setting forth the terms of the Series A Junior
Participating Preferred Stock as Exhibit A, the form of Rights
Certificate as Exhibit B and the Summary of Rights to Purchase
Preferred Stock as Exhibit C) (7)
10.1+ Form of Indemnification Agreement (5)
10.2*+ The Metzler Group, Inc. Long-Term Incentive Plan
10.3+ The Metzler Group, Inc. Employee Stock Purchase Plan (8)
10.4+ Amendment No. 1 to The Metzler Group, Inc. Employee Stock Purchase Plan (6)
10.5+ Amendment No. 2 to The Metzler Group, Inc. Employee Stock Purchase Plan (6)
10.6*+ Amendment No. 3 to The Metzler Group, Inc. Employee Stock Purchase Plan
10.7*+ Amendment No. 4 to The Metzler Group, Inc. Employee Stock Purchase Plan
10.8*+ Employment Agreement dated as of November 12, 1999 between the Registrant and Mitchell H.
Saranow
10.9*+ Employment Agreement dated as of November 12, 1999 between the Registrant and John J. Reed
10.10*+ Employment Agreement dated as of November 12, 1999 between the Registrant and Carl S.
Spetzler
10.11*+ Letter agreement dated February 1, 2000 between the Registrant and Philip P. Steptoe
10.12*+ Consulting Agreement and General Release dated as of November 21, 1999 between the Registrantand Robert P. Maher
10.13*+ Letter agreement dated February 27, 2000 between the Registrant and Barry S. Cain
21.1* Significant Subsidiaries of the Registrant.
23.1* Consent of KPMG LLP
23.2 Consent of Arthur Andersen LLP and Report of Independent Accountants 23.3
Consent of PricewaterhouseCoopers LLP and Report of Independent Accountants 23.4
Consent of Crowe, Chizek and Company LLP and Report of Independent Accountants
27.1* Financial Data Schedule--for the period ended December 31, 1999
</TABLE>
----------
(1) Incorporated by reference from the Registrant's Registration
Statement on Form S-1 (Registration No. 333-9019) filed with the SEC
on July 26, 1996
(2) Incorporated by reference from the Registrant's Registration
Statement on Form S-3 (Registration No. 333-40489) filed with the SEC
on November 18, 1997.
(3) Incorporated by reference from the Registrant's Form 8-A12B filed with the
SEC on July 20, 1999.
(4) Incorporated by reference from the Registrant's Amendment No. 1 to
Registration Statement on Form S-3 (Registration No. 333-40489) filed
with the SEC on February 12, 1998
(5) Incorporated by reference from the Registrant's Amendment No. 2 to
Registration Statement on Form S-1 (Registration No. 333-9019) filed with the
SEC on September 20, 1996.
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
(7) Incorporated by reference from the Registrant's Current Report on Form 8-K
dated December 15, 1999.
(8) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 (Registration No. 333-30265) filed with the SEC on June 27, 1997.
*Indicates filed herewith.
+Indicates a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K.
b. Financial Statement Schedule:
Report of Independent Auditors
Schedule II: Valuation and Qualifying Accounts
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amended report to be signed on
its behalf by the undersigned thereunto duly authorized.
Navigant Consulting, Inc.
By: /s/ William M. Goodyear
---------------------------
William M. Goodyear
Chairman and Chief Executive Officer
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
Audited Consolidated Financial Statements as of December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999
Independent Auditors' Reports...................... F-2
Consolidated Balance Sheets........................ F-6
Consolidated Statements of Operations.............. F-7
Consolidated Statements of Stockholders' Equity.... F-8
Consolidated Statements of Cash Flows.............. F-9
Notes to Consolidated Financial Statements......... F-10
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Navigant Consulting, Inc.:
We have audited the accompanying consolidated balance sheets of Navigant
Consulting, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the results of
operations, stockholders' equity, and cash flows for the year ended December 31,
1997 related to companies acquired that were accounted for under the pooling of
interests method, which statements reflect total revenues and net income
constituting 69 percent and 61 percent, respectively, of the related restated
consolidated totals. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to the
amounts included for companies acquired that were accounted for under the
pooling of interests method, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
The 1998 and 1997 consolidated financial statements have been restated as
discussed in note 3 to the consolidated financial statements.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Navigant Consulting, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/S/ KPMG LLP
Chicago, Illinois
March 28, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of LECG, Inc.:
We have audited the statements of income, shareholders' equity and cash flows of
LECG, Inc. (a California corporation) and subsidiaries for the year ended
December 31, 1997, which were audited prior to the restatement (and, therefore,
are not presented herein) for the pooling-of-interest as described in Note 3 to
the restated financial statements included on pages F-1 - F-14.
We have audited the statements of income, shareholders' equity and cash flows of
LECG, Inc. (a California corporation) and subsidiaries as of December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of their operations and their cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen & Co.
San Francisco, California
January 30, 1998
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members Peterson Consulting L.L.C.
We have audited the consolidated statements of operations, members' equity, and
cash flows for the year ended December 31, 1997 (not included herein) of
Peterson Consulting L.L.C. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flow for
the year ended December 31, 1997 of Peterson Consulting L.L.C. in conformity
with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
March 17, 1998
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Resources Management International, Inc.
Rancho Cordova, California
We have audited the accompanying consolidated balance sheet of Resource
Management International, Inc. and Subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Resource
Management International, Inc. and Subsidiaries at December 31, 1997, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Sacramento, California
February 11, 1998
F-5
<PAGE>
<TABLE>
<CAPTION>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December
31,
1999 1998
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $42,345 $119,704
Accounts receivable, net......................................................... 116,100 80,163
Prepaid and other current assets................................................. 7,364 6,979
Income tax receivable............................................................ 8,211 --
Deferred income taxes............................................................ 2,385 --
----- -----
Total current assets........................................................ 176,405 206,846
Property and equipment, net........................................................... 33,763 22,197
Intangible assets, net................................................................ 202,096 --
Other assets 2,412 1,474
------ --------
Total assets................................................................ $414,676 $230,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................................................. $10,000 $ --
Accounts payable and accrued liabilities......................................... 20,709 17,955
Accrued compensation and project costs........................................... 58,425 28,142
Income taxes payable............................................................. -- 2,942
Deferred income taxes............................................................ -- 2,171
Other current liabilities........................................................ 19,673 9,127
------- ------
Total current liabilities................................................... 108,807 60,337
Deferred income taxes................................................................. 725 5,276
Other non-current liabilities......................................................... 4,475 --
------ ------
Total liabilities........................................................... 114,007 65,613
------- ------
Stockholders' equity:
Preferred stock, $.001 par value; 3,000 shares authorized; no shares issued or
outstanding................................................................... -- --
Common stock, $.001 par value; 75,000 shares authorized; 43,129 and 38,004
shares issued and outstanding in 1999 and 1998, respectively.................. 43 38
Additional paid-in capital....................................................... 340,528 134,624
Treasury stock 2,086 shares at December 31, 1999................................. (52,811) --
Notes receivable from stockholders............................................... (2,583) --
Accumulated other comprehensive income........................................... (158) (30)
Retained earnings................................................................ 15,650 30,272
------- ------
Total stockholders' equity.................................................. 300,669 164,904
------- -------
Total liabilities and stockholders' equity.................................. $414,676 $230,517
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-6
<PAGE>
<TABLE>
Price
<CAPTION>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended
December 31,
1999 1998 1997
----------- ----------- ---- ----
<S> <C> <C> <C>
Revenues $397,694 $287,626 $228,731
Cost of services.......................................... 266,080 174,175 145,144
---------- ---------- -------
Gross profit......................................... 131,614 113,451 83,587
General and administrative expenses....................... 107,274 62,093 55,579
Amortization 24,300 -- --
Merger related cost and restructuring charges (benefit)... (206) 12,778 1,312
Stock option compensation expense......................... 3,850 -- --
------ ------ ------
Operating income (loss).............................. (3,604) 38,580 26,696
------ ------ -------
Other expense (income):
Interest income...................................... (3,857) (3,063) (1,184)
Interest expense..................................... 376 688 446
Other, net........................................... 5,672 (263) (467)
----- ---- ----
Total other expense (income).................... 2,191 (2,638) (1,205)
----- ------ ------
Income (loss) before income tax expense................... (5,795) 41,218 27,901
Income tax expense................................... 8,827 25,637 9,237
----- ------ -----
Net Income (loss).........................................$ (14,622) $15,581 $18,664
========= ======= =======
Earnings (loss) per share:
Basic $ (0.35) $ 0.43 $ 0.56
Diluted $ (0.35) $ 0.41 $ 0.55
Weighted average shares outstanding:
Basic 41,601 36,476 33,289
Diluted 41,601 37,707 33,798
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-7
<PAGE>
<TABLE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
Notes
Receiv- Accum.
able Other
Additional From Compre- Total
Preferred Stock Common Stock Paid-In Share- hensive Retained Treasury Stock Stockholders'
Shares Amount Shares Dollars Capital holders Income Earnings Shares Amount Equity
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- -- 33,446 34 $41,313 ($3,045) $6 $12,378 -- -- $50,686
Comprehensive income -- -- -- -- -- -- (63) 18,664 -- -- 18,601
Issuance of common stock -- -- 2,043 2 25,412 (87) -- 780 -- -- 26,107
Purchase of common stock -- -- (535) (1) 10,340 44 -- (228) -- -- (10,525)
Distributions -- -- -- -- -- (351) -- (16,182) -- -- (16,533)
Interest on notes
receivable from stockholders -- -- -- -- 195 (195) -- -- -- -- --
Collection of notes receivable
from stockholders -- -- -- -- -- 879 -- -- -- -- 879
----- ----- -------- ------- -------- -------- ------ ------- ------ ----- --------
Balance at December 31, 1997 -- -- 34,954 35 56,580 (2,755) (57) 15,412 -- -- 69,215
Comprehensive income -- -- -- -- -- -- 27 15,581 -- -- 15,608
Issuance of common stock -- -- 3,645 4 96,965 -- -- -- -- -- 96,969
Purchase of common stock -- -- (595) (1) (18,921) -- -- -- -- -- (18,922)
Distributions -- -- -- -- -- -- -- (721) -- -- (721)
Interest on notes receivable
from stockholders -- -- -- -- -- -- -- -- -- -- --
Collection of notes receivable
from stockholders 2,755 2,755
----- ----- -------- ------- -------- -------- ------ ------- ------ ----- --------
Balance at December 31, 1998 -- -- 38,004 38 134,624 -- (30) 30,272 -- -- 164,904
Comprehensive income (loss) -- -- (128) (14,622) -- -- (14,750)
Issuance of common stock -- -- 5,387 5 215,160 -- -- -- 215,165
Purchase of common stock -- -- (263) (13,335) -- -- -- (2,086)(52,811) (66,146)
Stock option compensation
expense -- -- -- -- 3,850 -- -- -- 3,850
Issuance of notes receivable
from stockholders -- -- -- -- -- (20,550) -- -- (20,550)
Interest on notes receivable
from stockholders -- -- -- -- 229 (229) -- -- -- -- --
Collection of notes receivable
from stockholders -- -- -- -- -- 12,929 -- -- -- -- 12,929
Impairment of notes receivable
from stockholders -- -- -- -- -- 5,267 -- -- -- -- 5,267
----- ----- ------- --- -------- -------- ----- ------- ------ -------- --------
Balance at December 31, 1999 -- -- 43,129 $43 $340,528 ($2,583) ($158) $15,560 (2,086)($52,811)$300,669
===== ===== ======= === ======== ======= ===== ======= ====== ======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended December 31,
1999 1998 1997
----------- ----------- -------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ (14,622) $15,581 $18,664
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation......................................................... 13,460 4,876 3,337
Amortization......................................................... 24,300 -- --
Impairment of stockholder notes...................................... 5,267 -- --
Stock option compensation expense.................................... 3,850 -- --
Provision for bad debts.............................................. 14,900 1,094 172
Deferred income taxes................................................ (10,970) 1,777 2,499
Other non-cash items, net............................................ 404 (107) (728)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable............................................. (19,543) (20,917) (12,339)
Prepaid expenses and other current assets....................... 1,478 (3,467) (1,292)
Accounts payable and accrued liabilities........................ (2,069) 7,291 2,099
Accrued compensation and project costs.......................... 10,591 11,029 134
Income taxes payable............................................ (13,023) (858) 2,923
Other current liabilities....................................... 3,426 4,907 1,353
----- ----- -----
Net cash provided by operating activities.................. 17,449 21,206 16,822
------ ------ ------
Cash flows from investing activities:
Purchase of property and equipment........................................ (18,641) (13,340) (7,871)
Acquisition of businesses, net of cash acquired........................... (42,055) -- --
Other, net (1,582) (296) 54
------ ---- --
Net cash used in investing activities...................... (62,278) (13,636) (7,817)
------- ------- ------
Cash flows from financing activities:
Issuance of common stock.................................................. 17,387 96,969 26,107
Purchase of common stock.................................................. (40,011) (18,922) (10,525)
Repayment of long-term debt............................................... (322) (319) (1,550)
Proceeds from long-term debt.............................................. -- -- 3,300
Net repayments of short-term debt......................................... (2,584) (8,242) (3,007)
Proceeds from short-term debt............................................. 10,000 -- --
Issuance of notes receivable from stockholders............................ (17,000) -- --
Payments of pre-acquisition undistributed income to former
stockholders........................................................... -- (6,079) (10,121)
Other, net................................................................ -- 2,755 (1,096)
------- ------- --------
Net cash (used in) provided by financing activities........ (32,530) 66,162 3,108
------- ------ -----
Net (decrease) increase in cash and cash equivalents........................... (77,359) 73,732 12,113
Cash and cash equivalents at beginning of year................................. 119,704 45,972 33,859
------- ------ ------
Cash and cash equivalents at end of year....................................... $42,345 $119,704 $45,972
======= ======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-9
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Navigant Consulting, Inc. (the "Company") is a provider of consulting
services to electric and gas utilities, insurance companies, and pharmaceutical
companies, as well as other Fortune 100 companies. The Company's services
include: management consulting, strategic consulting, financial and claims
services, and economics and policy consulting. The Company is headquartered in
Chicago, Illinois and has regional offices in various cities within the United
States, and several international offices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents are comprised of highly liquid instruments with original
maturities of 90 days or less. The carrying amount of these financial
instruments approximates fair value because of the short maturities.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, ranging from three
to forty years, of the various classes of property and equipment. Amortization
of leasehold improvements is computed over the shorter of the lease term or the
estimated useful life of the asset.
Intangible Assets
Intangible assets consist of identifiable intangibles and goodwill.
Identifiable intangibles include customer lists, workforce in place, knowledge
capital, and non-compete agreements. Intangible assets, including goodwill, are
being amortized on the straight-line method over 7 years.
F-10
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The Company considers the recorded value of its financial assets and
liabilities, which consist primarily of cash and cash equivalents, accounts
receivable and accounts payable, to approximate the fair value of the respective
assets and liabilities at December 31, 1999 and 1998.
Revenue Recognition
The Company recognizes revenues as the related services are provided.
Certain contracts are accounted for on the percentage of completion method
whereby revenues are recognized based upon costs incurred in relation to total
estimated costs at completion. Provision is made for the entire amount of
estimated losses, if any, at the time when they are known.
Stock Based Compensation
The Company utilizes the intrinsic value-based method of accounting for its
stock-based compensation arrangements with employees. The Company utilizes the
fair value method of accounting for its stock-based compensation arrangements
with non-employee consultants, advisors, and independent contractors.
Income Taxes
Income taxes are accounted for in accordance with the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to December 18, 1997, one of the Company's subsidiaries, LECG, Inc.
(LECG), had elected to be taxed under Subchapter S of the Internal Revenue Code
for income tax purposes. During such period, federal income taxes were the
responsibility of LECG's stockholders as were certain state income taxes.
Therefore, the financial statements do not include a provision for federal (and
some state) income taxes prior to LECG's initial public offering on December 18,
1997. LECG's S-corporation status terminated on December 18, 1997, thereby
subjecting LECG's income to federal and certain other state income taxes at the
corporate level. Accordingly, LECG applied the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
for the period ended December 31, 1997. In addition, LECG converted from a cash
basis to accrual basis for tax purposes in conjunction with its conversion to a
C-corporation. Due to temporary differences in recognition of revenue and
expenses, income for financial reporting purposes exceeded income for income tax
purposes. The conversion to accrual basis along with these temporary differences
resulted in the recognition of a net deferred tax liability (and a corresponding
one-time charge to expense) of $2.7 million as of December 31, 1997.
Prior to August 14, 1998, another of the Company's subsidiaries, Peterson
Consulting, L.L.C. d/b/a Peterson Worldwide LLC (Peterson) was a limited
liability company, which, for income tax purposes, was treated as a partnership.
Accordingly, the income of Peterson was reported on the individual income tax
returns of its members and federal income taxes, as well as certain state income
taxes, were the responsibility of its members. Subsequent to August 14, 1998,
and based on events unrelated to its acquisition by the Company, Peterson
elected C-corporation status, thereby subjecting its income to federal and
certain state income taxes at the corporate level. As a result of its
acquisition of Peterson, the Company has applied the provisions of SFAS No. 109,
and has converted Peterson from the modified cash basis to the accrual basis for
tax purposes. Due to temporary differences in recognition of revenue and
expense, income for financial reporting purposes has exceeded income for tax
reporting purposes. The conversion to accrual basis, along with these temporary
differences, resulted in the recognition of a one-time, non-cash charge of $7.2
million to be recorded during the period in which the merger occurred.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings Per Share
The following table set forth the components of basic and diluted earnings
per share:
Year ended December 31,
1999 1998 1997
----------- --------- -------
(amounts in thousands)
Numerator:
Net income (loss)........................ $(14,622) $15,581 $18,664
======== ======= =======
Denominator:
Weighted average shares outstanding...... 41,601 36,476 33,289
Effect of dilutive securities:
Employee stock options................... -- 1,231 509
-------- ------- ------
Denominator for diluted earnings per share.... 41,601 37,707 33,798
For the year ended December 31, 1999, the weighted-average effect of
employee stock options was 1.68 million shares. However, the Company incurred a
loss for the period and the effect of these options was anti-dilutive.
Foreign Currency Translation
The balance sheets of the Company's foreign subsidiaries are translated
into U.S. dollars using the year-end exchange rate, and sales and expenses are
translated using the average exchange rate for the year. The resulting
translation gains or losses are recorded as a separate component of
stockholders' equity as other comprehensive income.
3. RECONCILIATION TO PREVIOUSLY REPORTED AMOUNTS
The following table sets forth select operating information as previously
reported and as amended. The amended amounts have been restated to retroactively
reflect the results of operations for certain business combinations completed in
1998 and 1997 which were accounted for as poolings of interests. At the
respective dates of acquisition, the Company had determined that the
stockholders' equity and the results of operations of these businesses were not
material, individually or in the aggregate, in relation to those of the Company.
As such, the Company had recorded these combinations by restating stockholders'
equity as of the effective date of each acquisition without restating prior
period financial statements. The Company has restated the financial statements
for 1998 and 1997 to reflect the results of operations of Sterling Consulting
Group, Inc., Reed-Stowe & Co., Inc., AUC Management Consultants, Inc.,
Hydrologic Consultants, Inc. of California, Saraswati Systems Corporation and
Applied Health Outcomes, Inc.
The amended amounts also incorporate certain reclassifications to conform
the presentation of revenue and cost of sales for 1998 and 1997 to the 1999
presentation. Certain billable expenses which had previously been presented net
of related revenues have been reclassified.
<PAGE>
<TABLE>
<CAPTION>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended
December 31,
1998 1997
(amounts in thousands,
except per share amounts)
<S> <C> <C>
Total revenue, as previously reported............... $266,877 $196,780
Retroactive effect of pooling accounting............ 6,844 19,079
Reclassifications................................... 13,905 12,872
------ ------
Total revenue, as amended........................... $287,626 $228,731
======== ========
Gross profit, as previously reported................ $112,555 $81,658
Retroactive effect of pooling accounting............ 896 1,929
Reclassifications................................... -- --
-------- --------
Gross profit, as amended............................ $113,451 $83,587
======== =======
Operating income, as previously reported............ $ 38,884 $26,195
Retroactive effect of pooling accounting............ (304) 501
---- ---
Operating income, as amended........................ $ 38,580 $26,696
======== =======
Net income, as previously reported.................. $ 16,123 $18,419
Retroactive effect of pooling accounting............ (542) 245
---- ---
Net income, as amended.............................. $ 15,581 $18,664
======== =======
Earnings per diluted share as previously reported... $ 0.43 $ 0.57
Retroactive effect of pooling accounting............ (0.02) (0.02)
----- -----
Earnings per diluted share, as amended.............. $ 0.41 $ 0.55
======= ======
Dilutive shares as previously reported.............. 37,179 32,288
Retroactive effect of pooling accounting............ 528 1,510
--- -----
Dilutive shares, as amended......................... 37,707 33,798
====== ======
</TABLE>
4. BUSINESS COMBINATIONS
On July 31, 1997, the Company issued 3.2 million shares of common stock for
substantially all the outstanding common stock of Resource Management
International, Inc. (RMI). In connection with the acquisition of RMI, the
Company acquired assets and assumed liabilities with book values of $13.9
million and $11.1 million, respectively. On August 15, 1997, the Company issued
0.8 million shares of common stock for substantially all of the outstanding
common stock of Reed Consulting Group, Inc. (Reed). In connection with the
acquisition of Reed, the Company acquired assets and assumed liabilities with
book values of $2.5 million and $2.5 million, respectively. Additionally, the
Company completed the acquisition of all of the common stock of L.E. Burgess
Consultants, Inc. (Burgess) as of January 1, 1997 and Sterling Consulting Group,
Inc. (Sterling) and Reed-Stowe & Co., Inc. (RSC), as of December 1, 1997. In the
aggregate for the Burgess, Sterling and RSC transactions, the Company issued 0.7
million shares of common stock. In connection with the acquisitions of Burgess,
Sterling and RSC, the Company acquired assets and assumed liabilities with book
values of $0.6 million and $0.9 million, respectively. All of the 1997
transactions were accounted for as poolings of interests. There were no
pre-acquisition intercompany transactions or investments among the Company, RMI,
Reed, Burgess, Sterling, and RSC. The Company's consolidated financial
statements have been restated as if RMI, Reed, Sterling and RSC had been
combined for all periods presented. The Company's consolidated statement of
operations for the year ended December 31, 1997 includes revenues and net income
from RMI, Reed, Sterling and RSC totaling $35.3 million and $1.5 million,
respectively, through the dates of acquisition. The stockholders' equity and the
operations of Burgess were not significant in relation to those of the Company.
As such, the Company recorded the Burgess transaction by restating stockholders'
equity as of the date of the acquisition without restating prior period
financial statements.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On August 19, 1998, the Company issued 7.3 million shares of common stock
for substantially all the outstanding common stock of LECG. In connection with
the acquisition of LECG, the Company acquired assets and assumed liabilities
with book values of $49.8 million and $17.4 million, respectively. On August 31,
1998, the Company issued 5.6 million shares of common stock for substantially
all of the outstanding common stock of Peterson. In connection with the
acquisition of Peterson, the Company acquired assets and assumed liabilities
with book values of $34.8 million and $24.7 million, respectively. Additionally,
the Company completed the acquisitions all of the common stock of American
Corporate Resources, Inc. (ACR), AUC Management Consultants, Inc. (AUC), and
Hydrologic Consultants, Inc. of California (HCI) as of April 3, 1998; The Vision
Trust Marketing Group, LLC (VTM) as of June 1, 1998; and Saraswati Systems
Corporation (SSC) and Applied Health Outcomes, Inc. (AHO) as of September 1,
1998. In the aggregate for the ACR, AUC, HCI, VTM, SSC, and AHO transactions,
the Company issued 1.2 million shares of common stock. In connection with the
acquisitions of ACR, AUC, HCI, VTM, SSC, and AHO, the Company acquired assets
and assumed liabilities with book values of $1.9 million and $1.4 million,
respectively. All of the 1998 transactions were accounted for as poolings of
interests. The Company's consolidated financial statements have been restated as
if LECG, Peterson, AUC, HCI, SSC, and AHO had been combined for all periods
presented. The Company's consolidated statement of operations for the year ended
December 31, 1998 and 1997 includes revenues totaling $104.8 million and $125.7
million, respectively, and net income totaling $5.5 million and $9.0 million,
respectively, from LECG, Peterson, AUC, HCI, SSC, and AHO, through the dates of
acquisition. The stockholders' equity and the operations of ACR and VTM were not
significant in relation to those of the Company. As such, the Company recorded
the ACR and VTM transactions by restating stockholders' equity as of the date of
the acquisition without restating prior period financial statements.
The Company incurred significant costs and expenses in connection with
these acquisitions, including legal and accounting, and other various expenses.
These costs and expenses were recorded in the consolidated statements of
operations during the third quarter in each of the years 1998 and 1997.
During 1999, the Company completed eleven acquisitions (collectively, the "1999
Acquisitions") in exchange for Company stock and cash having an aggregate value
of $235.7 million. On February 7, 1999, the Company issued 2.4 million shares of
common stock (valued at the time of closing at approximately $123.7 million) for
substantially all of the outstanding common stock of Strategic Decisions Group,
Inc. and acquired the remaining minority interest in exchange for $13.3 million
in cash. On March 31, 1999, the Company completed the acquisitions of all of the
outstanding stock of Triad International, Inc., GeoData Solutions, Inc., and
Dowling Associates, Inc. in exchange for 1.8 million shares of the Company's
common stock (valued at the time of closing at approximately $57.3 million). On
September 30, 1999, the Company completed its acquisition of the business
operations and certain assets of Penta Advisory Services LLC (Penta) and the
stock of Scope International, Inc. (Scope) for a total cash purchase price of
$15.1 million. The purchase agreements for Penta and Scope also provide for
additional payments, payable in cash or Company common stock, over the next two
to five years contingent on future revenue growth and gross margin targets. The
additional payments, if any, will be accounted for as additional goodwill. On
October 1, 1999, the Company completed the acquisition of the stock of Brooks
International AB, Brooks International Consulting OY, and Brooks International
SPRL for an aggregate cash purchase price of $3.3 million. On November 1, 1999,
the Company completed the acquisition of the stock of The Barrington Consulting
Group, Inc. (Barrington) in exchange for $14.4 million in cash paid at closing
and total deferred cash payments of $7.8 million, payable in two equal annual
installments. The liability related to the deferred cash payments is reflected
in the consolidated balance sheet as of December 31, 1999 as $3.9 million of
other current liabilities and $3.9 million of other non-current liabilities. The
purchase agreement for Barrington also provides for additional cash payments of
up to $7.7 million in the aggregate, which are contingent on continued
employment by the Company of certain Barrington shareholders and are payable in
cash in two annual installments. The contingent payments will be charged to
expense ratably over the period of employment. On December 1, 1999, the Company
completed the acquisition of all of the assets of Glaze Creek Partners, LLC in
exchange for $0.8 million in cash. There were no pre-acquisition intercompany
transactions between the Company and the 1999 Acquisitions.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The 1999 Acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the results of operations have been included in the
accompanying consolidated financial statements from the date of acquisition.
Certain assets acquired of $46.2 million and liabilities assumed of $36.9
million have been recorded at their estimated fair values. The excess of cost
over the net assets acquired of approximately $226.4 million has been recorded
as intangible assets, including goodwill. The allocation of the excess cost over
the net assets acquired to identifiable intangible assets and goodwill was based
upon independent appraisals, as were the estimated useful lives. The estimated
lives range from between one and 20 years, and approximate, on a straight-line
basis, an average life of 7 years.
The following unaudited pro forma financial information presents the
combined results of operations as if the 1999 Acquisitions had occurred as of
January 1, 1998, after giving effect to certain adjustments. The adjustments
include the amortization of goodwill and other intangibles, a reduction in
interest income and related income tax effects, and an increase in the weighted
average common shares outstanding. The pro forma information is for
informational purposes only. The information presented does not necessarily
reflect the results of operations that would have occurred had the acquisitions
been completed as of January 1, 1998, nor are they indicative of future results.
1999 1998
Revenue, in thousands........ $437,095 $402,664
Net loss, in thousands....... (23,600) (17,995)
Net loss per diluted share... $ (0.52) $ (0.44)
5. STOCKHOLDERS' EQUITY
Initial Public Offering
On December 18, 1997, LECG completed an initial public offering, resulting
in net proceeds of approximately $24.4 million, net of issuance costs.
Secondary Public Offering
On March 2, 1998, the Company completed a secondary offering of its common
stock in which an additional 1.5 million shares were sold by the Company,
resulting in net proceeds of approximately $36 million. On November 19, 1998,
the Company completed a secondary offering of its common stock in which an
additional 1.5 million shares were sold by the Company, resulting in net
proceeds of approximately $51 million.
Employee Stock Purchase Plan
During 1996, the Company implemented a plan which permits employees to
purchase shares of the Company's common stock each quarter at 85% of the market
value. The market value for this purpose is determined to be the lower of the
closing market price on the first and last day of each calendar quarter. There
are 450,000 shares authorized for issuance under the plan. The Company had
issued 159,000 shares under the plan through December 31, 1999. As of December
31, 1999, the Company held $0.8 million of withholdings from employees which
were used to purchase approximately 84,000 additional shares under the plan in
January 2000.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Treasury Stock Repurchases
On August 9, 1999, the Company announced that the Board of Directors had
authorized the repurchase of up to 3.0 million shares of the Company's common
stock in open market or in privately negotiated transactions. In August and
September of 1999, the Company repurchased a total of 0.5 million shares for
$18.9 million in privately negotiated transactions. In November 1999, the
Company repurchased 1.0 million shares for $20.8 million in open market
transactions. Also in November 1999, the Company accepted 0.6 million shares
with a then market value of $12.9 million as payment for the principal amount of
certain notes plus accrued interest related to borrowings by Mr. Maher, the
Company's Chairman and Chief Executive Officer at that time. See also Note 17,
"Related Party Transactions".
Shareholder Notes Receivable
At December 31, 1999, the Company held notes receivable from three former
Company officers with an aggregate principal balance of $7.9 million. See also
Note 17, "Related Party Transactions". The notes receivable arose from
transactions whereby these individuals borrowed money from the Company to
purchase a total of 200,000 shares of the Company's common stock from third
parties and 37,500 shares of common stock from the Company. The notes receivable
are shown on the balance sheet as a reduction in stockholders' equity. The notes
receivable were accompanied by pledge agreements which pledge the shares as
collateral security for repayment of the notes, which shares are currently held
by the Company. At the closing market price for the Company's common stock on
December 31, 1999 of $107/8 per share, the value of the shares held as
collateral for the notes receivable was approximately $2.6 million. Although the
notes receivable are full recourse, are not due until the year 2002 and there
has been no event of default, the Company is not certain that it will be able to
collect the full amount due. In March 2000, the borrowers have either challenged
the enforceability or declined to confirm their intention to comply with the
terms of the notes and each have refused to provide the Company with personal
financial information that would support their ability to pay the full amounts
due. The Company has accrued a loss contingency at December 31, 1999 in the
amount of $5.3 million, representing the difference between the principal amount
of the notes receivable and the value of the shares held by the Company as
collateral. The $5.3 million was included as a non-operating charge within other
expense in the consolidated statement of operations. The Company intends to take
all appropriate steps to enforce the notes in accordance with their terms.
Shareholder Rights Plan
On December 15, 1999, the Company's Board of Directors adopted a
Shareholders Rights Plan (the "Rights Plan") and declared a dividend
distribution of one Right (a "Right") for each outstanding share of common
stock, to stockholders of record at the close of business on December 27, 1999.
Each Right will entitle its holder, under certain circumstances described in the
Rights Agreement, to purchase from the Company one one-thousandth of a share of
its Series A Junior Participating Preferred Stock, $.001 par value (the "Series
A Preferred Stock"), at an exercise price of $75 per Right, subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and American Stock
Transfer & Trust Company, as Rights Agent.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Until the Distribution Date under the Rights Agreement, the surrender for
transfer of any shares of common stock outstanding will also constitute the
transfer of the Rights associated with such shares. The Rights are not
exercisable until the Distribution Date and will expire at the close of business
on December 15, 2009, unless earlier redeemed or exchanged by the Company. The
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right (subject to adjustment and payable in cash, common stock or other
consideration deemed appropriate by the Company's Board of Directors) at any
time until ten days following the Stock Acquisition Date under the Rights
Agreement. Immediately upon the action of the Company's Board of Directors
authorizing any redemption, the Rights will terminate and the only right of the
holders of Rights will be to receive the redemption price. Until a Right is
exercised, its holder, as such, will have no rights as a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends.
6. ACCOUNTS RECEIVABLE
The components of accounts receivable as of December 31 were as follows:
1999 1998
(in thousands)
Billed amounts ......................... $86,849 $60,730
Engagements in process.................. 45,581 27,559
Allowance for uncollectible accounts.... (16,330) (8,126)
------- ------
$116,100 $80,163
======== =======
Engagements in process represent balances accrued by the Company for
services that have been performed but have not been billed to the customer.
Billings are generally done on a monthly basis for the prior month's services.
7. PROPERTY AND EQUIPMENT
Property and equipment, at cost, as of December 31 consisted of:
<TABLE>
<CAPTION>
1998
1999
(in thousands)
<S> <C> <C>
Land and buildings.................................. $3,421 $2,878
Furniture, fixtures and equipment................... 40,444 27,877
Software............................................ 10,241 5,338
Leasehold improvements.............................. 5,714 4,736
----- -----
59,820 40,829
Less: accumulated depreciation and amortization.....
(26,057) (18,632)
------- -------
$ 33,763 $ 22,197
======== ========
</TABLE>
In December 1999, the Company made a decision to dispose of its corporate
headquarters land and building and is actively seeking a buyer. At such time,
the Company re-evaluated the carrying amount of the asset and estimated the net
realizable value through an independent appraisal. The Company has recorded
additional depreciation expense of $1.1 million to reflect the impairment in
value.
Based upon a comprehensive review of the Company's long-lived assets, the
Company recorded a non-cash charge to depreciation expense of $3.8 million in
1999. This charge reflects the write-down of a portion of the recorded asset
values of certain computer equipment and software. No additional assets were
deemed to be impaired.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. INTANGIBLE ASSETS
The excess of the cost of the 1999 Acquisitions over the net assets
acquired of approximately $226.4 million has been recorded as intangible assets,
including goodwill, and is being amortized over the estimated useful lives. The
allocation of the excess of the cost over the net assets acquired to
identifiable intangible assets and goodwill was based upon independent
appraisals, as were the related estimated useful lives. Goodwill and other
intangible assets consisted of the following as of December 31, 1999: (in
thousands)
Goodwill................................... $96,906
Less--accumulated amortization.............. (10,401)
--------
Goodwill, net......................... 86,505
-------
Customer lists............................. 49,565
Employee workforce......................... 33,455
Non-compete agreements..................... 25,570
Other 20,900
------
Intangible assets..................... 129,490
Less: accumulated amortization............. (13,899)
--------
Intangible assets, net................ 115,591
-------
Goodwill and intangible assets, net... $202,096
========
The Company periodically examines the carrying value of its goodwill and
other intangible assets to determine whether there are any impairment losses. If
indicators of impairment were present, and future cash flows were not expected
to be sufficient to recover the assets' carrying amount, an impairment loss
would be charged to expense in the period identified. No event has been
identified that would indicate an impairment of the value of the goodwill and
other intangible assets as of December 31, 1999.
9. SHORT-TERM AND LONG-TERM DEBT
The Company maintains a line of credit agreement in the amount of $50.0
million which expires May 31, 2001. Under the agreement, the Company may borrow
a maximum amount of up to 80% of eligible accounts receivable. The agreement
contains certain covenants, the most restrictive of which require the Company to
maintain a minimum level of earnings before interest, taxes, depreciation and
amortization. The balance outstanding under the line of credit was $10 million
at December 31, 1999. At December 31, 1999, the Company had letters of credit of
$2.2 million outstanding. The letters of credit expire at various dates through
July 2003.
At December 31, 1998, the Company had no outstanding short-term debt. The
Company had no long-term debt outstanding as of December 31, 1999 or 1998.
10. MERGER-RELATED COSTS AND RESTRUCTURING CHARGES
The Company recognized $1.2 million of expense in 1999 for employee separations
associated with consolidation of certain accounting and human resources
functions. In July 1999, the Company announced a restructuring initiative and
offered involuntary severance packages to 73 employees in the administrative,
accounting and human resources functions. In 1998, the Company incurred
restructuring charges and merger-related costs of $12.8 million related to the
acquisitions of LECG and Peterson, which were accounted for as poolings of
interests. These costs included legal, accounting and other transaction related
fees and expenses, as well as accruals to consolidate certain facilities. At
December 31, 1999, the Company reviewed the merger-related accruals and
determined that certain amounts previously accrued were no longer necessary
given subsequent acquisition activity and changes in the Company's
organizational structure. The results of operations for 1999 reflect a benefit
of $1.4 million for the reversal of the previously accrued amounts. In 1997, the
Company incurred legal, accounting and other transaction related fees and
expenses of $1.3 million related to the acquisitions of RMI and Reed, which were
accounted for as poolings of interests. During 1999, the Company increased the
accrual for restructuring charges and merger-related costs by $3.0 million
related to the 1999 Acquisitions, which were accounted for under the purchase
method of accounting. These costs were reflected as purchase price adjustments
and, as such, increased the amount of goodwill.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The restructuring charges and merger-related costs were determined based on
formal plans approved by the Company's management using the best information
available at the time. The amounts the Company may ultimately incur may change
as the balance of the Company's initiative to integrate acquired companies is
executed. The activity affecting the accrual for restructuring charges and
merger-related costs during 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Direct
Transaction Facilities Workforce Other
Costs Closings Reductions Costs Total
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
37,752Year ended December 31, 1997
Charges to operations......... $ 706 $ -- $ 330 $276 $1,312
Utilized...................... (706) -- (330) (276) (1,312)
Year ended December 31, 1998 7,638 3,600 -- 1,540 12,778
Charges to operations.........
Utilized...................... (239) --
(4,434) (1,655) (6,328)
Year ended December 31, 1999 -- -- 1,160 -- 1,160
Charges to operations.........
Purchase price adjustments.... 2,425 350 255 -- 3,030
Utilized...................... (4,803) (232) (879) -- (5,914)
Changes in estimates.......... (826) (655) -- 115 (1,366)
------- ----- ----- ---- ------
Balance at December 31, 1999....... $ -- $ 2,824 $ 536 $-- $3,360
======- ======= ===== ==== ======
</TABLE>
11. LEASE COMMITMENTS
The Company leases its office facilities and certain equipment under
operating lease arrangements which expire at various dates through 2012. The
Company leases office facilities under noncancelable operating leases which
include fixed or minimum payments plus, in some cases, scheduled base rent
increases over the term of the lease and additional rents based on the Consumer
Price Index. Certain leases provide for monthly payments of real estate taxes,
insurance and other operating expenses applicable to the property. In addition,
the Company leases equipment under noncancelable operating leases.
Future minimum annual lease payments, for the years subsequent to 1999 and
in the aggregate, are as follows:
Year Ending December 31, Amount
(in thousands)
2000.................. $ 15,241
2001.................. 16,312
2002.................. 13,965
2003.................. 11,539
2004.................. 8,710
Thereafter............ 39,439
------
$105,206
========
Rent expense for operating leases entered into by the Company and charged
to operations amounted to $15.8 million for 1999, $10.0 million for 1998, and
$9.8 million for 1997.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. INCOME TAX EXPENSE
Income tax expense consists of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
(in thousands)
Federal:
<S> <C> <C> <C>
Current $14,186 $20,180 $5,264
Deferred.......................................... (7,391) 1,600 2,648
-------- ------- ------
Total........................................ 6,795 21,780 7,912
-------- ------- ------
State:
Current........................................... 3,272 3,461 1,392
Deferred.......................................... (1,716) 396 (67)
--------- ------- ------
Total........................................ 1,556 3,857 1,325
--------- ------- ------
Foreign 476 -- --
--------- ------- ------
Total federal, state and foreign income tax
expense.................................... $8,827 $25,637 $9,237
======= ======= ======
</TABLE>
Income tax expense differs from the amounts estimated by applying the
statutory income tax rates to income before income tax expense as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
----------- ------ ----
<S> <C> <C> <C>
Federal tax at statutory rate........................... 35.0% 35.0% 35.0%
State tax at statutory rate, net of federal tax benefits (17.8) 7.3 4.6
Foreign taxes........................................... (8.2) -- --
Effect of nontaxable interest and dividends............. 12.5 (1.7) (0.9)
Effect of nontaxable entity status...................... -- -- (5.2)
Effect of non-deductible merger-related costs........... (1.0) 4.0 --
Effect of non-deductible amortization................... (139.2) -- --
Effect of non-deductible stock compensation expense..... (23.3) -- --
Effect of conversion from cash to accrual method of
accounting for acquired company...................... -- 14.7 --
Effect of other non-deductible expenses................. (10.4) 2.9 (0.4)
----- --- ----
(152.4)% 62.2% 33.1%
====== ==== ====
</TABLE>
The tax benefits associated with nonqualified stock options and
disqualifying dispositions of incentive stock options reduced taxes payable by
$4.9 million in 1999 and $3.3 million in 1998. Such benefits were recorded as an
increase to additional paid-in capital in each year.
Deferred income taxes result from temporary differences between years in
the recognition of certain expense items for income tax and financial reporting
purposes. The source and income tax effect of these differences are as follows:
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
1999 1998
(in thousands)
Deferred tax assets:
<S> <C> <C>
State income taxes................................................. $(121) $ 479
Allowance for uncollectible receivables............................ 4,379 194
Merger-related costs............................................... -- 1,427
Stockholders' notes................................................ 2,239 --
Insurance related costs............................................ 865 --
Other.............................................................. 202 315
--- ---
Total deferred tax assets..................................... 7,564 2,415
Deferred tax liabilities:
Adjustment resulting from changes in the method of accounting
used for tax purposes........................................... 6,435 9,136
Other (531) 726
---- ---
Deferred tax liabilities................................................ 5,904 9,862
----- -----
Net deferred tax assets (liabilities)................................... $1,660 $(7,447)
====== =======
</TABLE>
The Company has not recorded a valuation allowance as it believes it is
more likely than not that the net deferred tax asset is recoverable.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Total interest paid during the years ended December 31, 1999, 1998 and 1997
were $0.4 million, $0.7 million, and $0.3 million, respectively. Total income
taxes paid during the years ended December 31, 1999, 1998 and 1997 were $27.6
million, $17.7 million, and $3.5 million, respectively.
During the first quarter of 1999, the Company issued 4.2 million shares of
common stock (valued at the time at approximately $181.0 million) for
substantially all of the outstanding common stock of four companies acquired in
transactions accounted for by the purchase method of accounting. In addition to
the $42.1 million of cash used to acquire certain businesses during 1999, the
Company entered into commitments for deferred cash payments of $7.8 million,
payable in two equal annual installments. See also Note 4, "Business
Combinations".
In April 1999, certain of the Company's then officers borrowed $3.5 million
from the Company to exercise certain then-vested options. In November 1999, the
Company received 605,684 shares of the Company's common stock, with a then
market value of $12.9 million, in lieu of cash as payment for the principal
amount of certain loans plus accrued interest. See also Note 17, "Related Party
Transactions".
14. LONG-TERM INCENTIVE PLAN
On June 30, 1996, the Company adopted a Long-Term Incentive Plan which
provides for common stock, common stock-based, and other performance incentives
to employees, consultants, directors, advisors, and independent contractors of
the Company. The Long-Term Incentive Plan, as amended, was re-approved by a vote
of the Company's shareholders in July 1999. As of December 31, 1999, the Company
had 8.2 million options outstanding at a weighted average exercise price of
$29.15 per share. As of December 31, 1999, 0.7 million options were exercisable.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In general, options issued under the Long Term Incentive Plan were issued
at the fair market value at the dates of grant, have a ten-year term and become
vested and thus exercisable in annual installments over a four year period
following the date of grant. However, the plan permits the Compensation
Committee, or the chief executive officer as its delegate, to vary such terms
and conditions, including granting nonqualified options at prices below fair
market value at the date of grant. The Company has determined, based in part on
the absence of contemporaneous documentation, that 0.3 million nonqualified
options issued to a total of sixteen individuals were issued at prices below
fair market value. Accordingly, the Company has recorded an expense in 1999 of
$3.5 million for stock option compensation expense attributable to such options.
The amount charged to expense represents the aggregate dollar amount by which
the grant prices of the options differ from the market prices as of the dates
for which the Company has independent evidence to support the issuance of the
options. The amount charged to expense has been amortized over the relevant
vesting periods. See also Note 17, "Related Party Transactions."
The Company applies APB Opinion 25, Accounting for Stock Issued to
employees, and related Interpretations in accounting for its plan. Accordingly,
no compensation cost has been recognized for those option grants where the
exercise price is equal to the fair market value at the date of grant. Had
compensation cost for the plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's compensation
expense for the years ended December 31, 1999, 1998 and 1997 would have been
increased by $18.3 million, $4.6 million, and $1.1 million, respectively, net of
related income taxes. As a result, the Company's pro forma net earnings
available to common stockholders and earnings per common and common equivalent
shares would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands, except per
share amounts)
<S> <C> <C> <C>
Earnings, as reported:
Net income (loss) ................................. $(14,622) $15,581 $18,664
Net income (loss) per basic share.................. $ (0.35) $ 0.43 $ 0.56
Net income (loss) per dilutive share............... $ (0.35) $ 0.41 $ 0.55
Earnings, fair value method:
Net income (loss), with compensation expense
from fair value options......................... $(32,941) $10,990 $17,526
Fair value method net income (loss) per basic
share........................................... $ (0.79) $ 0.30 $ 0.53
Fair value method net income (loss) per dilutive
share........................................... $ (0.79) $ 0.29 $ 0.52
</TABLE>
The weighted average fair value of options granted in 1999, 1998 and 1997
was $12.04, $5.68, and $4.46, respectively. For purposes of calculating
compensation cost under SFAS No. 123, the fair value of each option grant is
estimated as of the date of grant using the Black-Scholes option pricing model.
The following weighted average assumptions were used in the model for grants
made in 1999, 1998 and 1997:
1999 1998 1997
------ ------ ----
Expected volatility..................... 75% 45% 45%
Risk free interest rate................. 5.5% 5.0% 5.7%
Dividend yield.......................... 0% 0% 0%
Contractual or Expected lives (years)... 8.5 2.8 2.5
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional information on the shares subject to options is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ----
Number Weighted Number Weighted Number Weighted
of Average of Average of Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
year................................ 5,510 $24.19 2,623 $16.53 689 $10.37
Granted................................ 4,481 32.68 3,849 28.47 2,173 18.35
Exercised.............................. (696) 17.98 (361) 13.07 (3) 8.00
Forfeited.............................. (1,082) 25.24 (601) 24.90 (236) 16.35
------ ----- ---- ----- ---- -----
Options outstanding at end of year..... 8,213 $29.15 5,510 $24.19 2,623 $16.53
===== ====== ===== ====== ===== ======
Options exercisable at year end........ 676 $19.31 138 $14.41 14 $18.45
=== ====== === ====== == ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------ ----
Weighted-Average Weighted-Average
-------------------------------------------
Shares Exercise Remaining Shares Exercise Remaining
Range of Exercise Price (000's) Price Life (000's) Price Life
----------------------- ------- ----- ---- ------- ----- ----
<S> <C> <C> <C> <C> <C> <C>
$ 0 to $15.......... 790 $12.17 4.6 1,025 $12.46 0.7 years
$16 to $25.......... 737 21.23 6.0 1,277 20.99 2.5 years
$26 to $35.......... 5,656 29.03 8.8 3,174 29.06 3.6 years
$36 to $45.......... 307 43.71 9.5 34 39.30 3.8 years
$46 to $55.......... 723 50.53 9.1 -- -- --
--- ----
8,213 $29.15 8.2 5,510 $24.19 2.8 years
===== ======
</TABLE>
15. EMPLOYEE BENEFIT PLANS
The Company maintained profit sharing and savings plans for several
operating subsidiaries through December 31, 1999. Eligible employees may
contribute a portion of their compensation to their respective operating
subsidiary's plan. The Company matches a percentage of employees' current
contributions on some operating subsidiaries' plans and has discretion to match
contributions on other plans. The Company may also make an annual profit sharing
contribution at its discretion. The Company, as sponsor of the plans, uses
independent third parties to provide administrative services to the plans. The
Company has the right to terminate the plans at any time. The Company
contributions to the various plans which were charged to operations were $1.9
million, $1.0 million, and $1.0 million in the years ended December 31, 1999,
1998, and 1997, respectively.
Effective February 2000, the Company amended the profit sharing and savings
plans of all operating subsidiaries to provide an employer matching contribution
for all participants in an amount equal to 100% of the employees' current
contributions, up to a maximum of 3% of the employees' total eligible
compensation.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. SEGMENT INFORMATION
The Company has applied the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. This statement establishes
standards for reporting information regarding operating segments, products and
services, geographic areas and major customers. The Company's operations
represent a single reportable segment under the provisions of SFAS No. 131. The
Company's operations have a high degree of similarity in their economic and
operational characteristics, including the nature of the services provided, the
type or class of customers for those services, and the methods used for
delivering such services. While the Company has retained certain brand
identities associated with its principal operating subsidiaries, these
distinctions have not been a critical factor for management in making operating
decisions or in assessing performance. In addition, the structure of the
Company's internal organization has changed from time to time as a result of
acquisition activity and in response to customer, project, personnel or
geographic requirements and, as such, discrete financial information is not
available on a consistent basis at the operating subsidiary level.
The Company derives substantially all of its revenues from operations in
the United States. In each of the three years ended December 31, 1999, more than
95% of the Company's consolidated revenues and operating income were derived
from domestic operations. Substantially all of the Company's identifiable assets
are located in the United States.
17. RELATED PARTY TRANSACTIONS
In April 1999, Mr. Maher, the Company's Chairman and Chief Executive
Officer at that time, borrowed $2.7 million from the Company so that he could
exercise his then-vested options. Mr. Maher exercised all 112,500 of his
then-vested options at an exercise price of $24.00 per share. In August 1999,
Mr. Maher borrowed an additional $10 million from the Company. The applicable
interest rate for this loan was 5.75%, payable annually. In November 1999, the
Company received from Mr. Maher 605,684 shares of the Company's common stock
with a then market value of $12.9 million as payment for the principal amount of
the loans plus accrued interest.
Five non-employees related by blood or marriage to Mr. Maher received stock
option grants. Mr. Maher has informed the Company that each of these persons
provided services to the Company from time to time and received no other
compensation for those services. In addition, one other individual not employed
by the Company, but who was an employee of an unrelated company owned or
controlled by Mr. Maher, received stock option grants. Mr. Maher has informed
the Company that this individual provided certain services to the Company from
time to time. These persons are among sixteen as to whom the Company has
determined that their options were issued at prices below fair market value. See
also Note 14, "Long Term Incentive Plan". The Company has recorded an expense in
1999 of $3.5 million for stock option compensation expense attributable to such
options issued to the sixteen individuals. Of the total stock option
compensation expense of $3.5 million, $0.6 million is attributable to the six
persons described above.
In April 1999, Mr. Cain and Mr. Demirjian, respectively the Company's Chief
Administrative Officer and the Company's General Counsel at that time, each
borrowed $425,063 from the Company to exercise all 18,750 of their then-vested
options at an exercise price of $22.67 per share. The notes which evidence these
borrowings are full recourse, are due on or before the third anniversary date
and bear interest at a rate equal to 5.75%, payable annually. The notes were
accompanied by pledge agreements which pledge the exercised option shares as
collateral security for repayment of the notes, which shares are currently held
by the Company.
In late August, Mr. Cain, Mr. Demirjian and Mr. Kingsbury (the Company's
Chief Financial Officer at that time) borrowed $2.625 million, $2.625 million
and $1.75 million, respectively, from the Company, related to their purchases of
75,000, 75,000 and 50,000 shares, respectively, of the Company's common stock
from third parties at $35 per share. The notes which evidence these borrowings
are full recourse, are due on or before the third anniversary date and bear
interest at a rate equal to 5.75%, payable annually. These notes were
accompanied by pledge agreements which pledge the shares as collateral security
for repayment of the notes, which shares are currently held by the Company.
<PAGE>
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As a result of recent developments, the Company has accrued a loss
contingency at December 31, 1999 in the amount of $5.3 million, related to the
notes receivable from Mssrs. Cain, Demirjian and Kingsbury. See also Note 5,
"Stockholders Equity". The Company has discontinued the accrual of interest on
these notes.
In November 1999, the Company entered into an agreement with Mr. Maher,
pursuant to which, among other things, Mr. Maher agreed to provide certain
consulting services to the Company over a two year period, including providing
information about past transactions or other matters as to which he may be
familiar, and the Company agreed to pay Mr. Maher twenty-four monthly payments
of $25,000.
18. LITIGATION
Numerous purported class action lawsuits have been filed against the
Company since November 1999 in the United States District Court for the Northern
District of Illinois. These actions name as defendants the Company and certain
former directors and former executive officers (one of whom, however, remains an
employee of the Company) of the Company and are purported to be on behalf of
persons who purchased shares of the Company's common stock during various
periods through November 1999. The complaints allege various violations of
federal securities law, including violations of Section 10(b) of the Securities
Exchange Act of 1934, and that the defendants made materially misleading
statements and/or material omissions which artificially inflated prices for the
Company's common stock. The plaintiffs seek a judgement awarding damages and
other relief. The Company believes it has meritorious defenses and intends to
vigorously defend these actions. The outcome of these lawsuits cannot be
predicted with certainty and a material adverse judgment against the Company
could have a material adverse effect on the Company.
Navigant International, Inc., a national travel agency headquartered in
Denver, Colorado, sued the Company in July 1999 in the United States District
Court for the District of Colorado claiming that the use of "Navigant" in our
name infringes on their use of and rights in such name. The complaint seeks
declaratory relief and an injunction against our use of "Navigant," attorneys'
fees and other related relief. The Company believes it has meritorious defenses
and intends to vigorously defend this action.
In addition, from time to time, we are party to various other lawsuits and
claims in the ordinary course of business. While the outcome of those lawsuits
or claims cannot be predicted with certainty, we do not believe that any of
those lawsuits or claims will have a material adverse effect on the Company.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Navigant Consulting, Inc.:
Under date of March 28, 2000 we reported on the consolidated balance sheets of
Navigant Consulting, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999,
which report was based in part on reliance of other auditors, as contained in
the annual report on Form 10-K for the year 1999. The 1998 and 1997 financial
statements have been restated as discussed in notes 3 and 4 to the consolidated
financial statements. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule of valuation and qualifying accounts. The
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits.
In our opinion, the consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Chicago, Illinois
March 28, 2000
S-1
<PAGE>
<TABLE>
<CAPTION>
Schedule II
Navigant Consulting, Inc.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
(amounts in thousands)
Balance at Charged Balance
Beginning to at End
Description of Year Expenses Deductions (1) of Year
<S> <C> <C> <C> <C>
Year Ended December 31, 1999 8,126 14,900 (6,696) 16,330
Allowance for doubtful accounts
Year Ended December 31, 1998 7,592 2,058 (1,524) 8,126
Allowance for doubtful accounts
Year Ended December 31, 1997 10,569 1,975 (4,952) 7,592
Allowance for doubtful accounts
(1) Represent write-offs of bad debt
</TABLE>
S-2
<PAGE>
Exhibit 23.1
Consent of KPMG LLP
The Board of Directors Navigant Consulting, Inc.
We consent to incorporation by reference in the registration statement (No.
333-30267) on Form S-8 of Navigant Consulting, Inc. of our reports dated March
20, 2000, relating to the consolidated balance sheets of Navigant Consulting,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1999, and the
related schedule, which reports appear in the December 31, 1999 annual report on
Form 10-K of Navigant Consulting, Inc.
/s/ KPMG LLP
Chicago, Illinois
March 28, 2000
<PAGE>
Exhibit 23.2
ARTHUR ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed Form S-8
Registration Statement No. 333-30267.
/s/ Arthur Andersen LLP
San Francisco, California
March 23, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to incorporation by reference in the registration statement No.
333-30267 on Form S-8 of Navigant Consulting, Inc. of our report dated March 17,
1998 relating to the consolidated statements of operations, members' equity, and
cash flows for the year ended December 31, 1997 of Peterson Consulting L.L.C.
which report appears in the December 31, 1999 annual report on Form 10-K of
Navigant Consulting, Inc.
/s/ Crowe, Chizek and Company LLP
Oak Brook, Illinois
March 27, 2000
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-30267) of Navigant Consulting, Inc. of our report
dated February 11, 1998, relating to the consolidated financial statements of
Resource Management International, Inc. and Subsidiaries as of December 31,
1997, which appears in this December 31, 1999 Form 10-K.
/s/ PricewaterhouseCoopers LLP
Sacramento, California
March 28, 2000
