<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000,
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------- --------
COMMISSION FILE NUMBER 0-23651
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FIRST CONSULTING GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3539020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 W. OCEAN BLVD. 4TH FLOOR, LONG BEACH, CA 90802
(Address of principal executive offices including zip code)
(562) 624-5200
(Registrant's telephone number, including area code)
-------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
COMMON STOCK, $.001 PAR VALUE 24,931,575 SHARES
------------------------------- ---------------------------------
(Class) (Outstanding at August 1, 2000)
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FIRST CONSULTING GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
COVER PAGE........................................................................................................1
TABLE OF CONTENTS.................................................................................................2
Part I. Financial Information...............................................................................3
Item 1. Financial Statements and Notes (Unaudited).............................................3
Consolidated Balance Sheets as of June 30, 2000 and
December 1999..........................................................................3
Consolidated Statements of Operations for the three
month periods ended June 30, 2000 and June 30, 1999 and for the six month
periods ended June 30, 2000 and June 30, 1999..........................................5
Condensed Consolidated Statements of Cash Flows for the six
month periods ended June 30, 2000 and June 30, 1999....................................6
Notes to Consolidated Financial Statements.............................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................10
Part II. Other Information......................................................................................15
Item 1. Legal Proceedings.....................................................................15
Item 2. Changes in Securities.................................................................15
Item 3. Defaults Upon Senior Securities.......................................................15
Item 4. Submission of Matters to a Vote of Security
Holders...............................................................................15
Item 5. Other Information.....................................................................16
Item 6. Exhibits and Reports on Form 8-K......................................................16
SIGNATURES.......................................................................................................17
Exhibit Index....................................................................................................18
</TABLE>
2.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES (UNAUDITED).
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
ASSETS (UNAUDITED)
Current assets
<S> <C> <C>
Cash and cash equivalents ....................................... $ 7,986 $ 29,674
Short-term investments .......................................... 11,396 3,726
Accounts receivable, less allowance of $2,474 and $2,064
as of June 30, 2000 and December 31, 1999, respectively ....... 40,308 42,315
Work in process ................................................. 23,220 15,737
Prepaid expenses and other current assets ....................... 3,257 2,562
Income taxes receivable ......................................... 2,362 --
-------- --------
Total current assets ........................................ 88,529 94,014
Notes receivable-stockholders ........................................ 1,942 1,888
Long-term investments ................................................ 11,780 17,096
Property and equipment
Furniture, equipment, and leasehold improvements ................ 8,108 7,550
Information systems equipment ................................... 27,742 24,723
-------- --------
35,850 32,273
Less accumulated depreciation and amortization ....................... 20,023 17,283
-------- --------
15,827 14,990
Other assets
Executive benefit trust ......................................... 8,221 6,832
Long term contract receivable ................................... 6,588 --
Deferred income taxes ........................................... 2,109 2,105
Goodwill, net ................................................... 11,071 6,478
Other ........................................................... 1,230 658
-------- --------
29,219 16,073
-------- --------
Total assets ................................................ $147,297 $144,061
======== ========
</TABLE>
See accompanying notes.
3.
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
Current liabilities
<S> <C> <C>
Current portion of long-term debt ..................................... $ 54 $ 54
Accounts payable ...................................................... 1,837 874
Accrued liabilities ................................................... 12,536 6,516
Accrued vacation ...................................................... 6,389 4,668
Accrued bonuses ....................................................... 1,935 4,432
Deferred revenue ...................................................... 287 722
Customer advances ..................................................... 3,103 2,592
Income taxes payable .................................................. -- 2,180
Deferred income taxes ................................................. 11 11
--------- ---------
Total current liabilities ......................................... 26,152 22,049
Non-current liabilities
Long-term debt, net of current portion ................................ 119 146
Supplemental executive retirement plan ................................ 6,880 6,959
Minority interest ..................................................... 2,240 --
--------- ---------
Total non-current liabilities ..................................... 9,239 7,105
Commitments and contingencies .............................................. -- --
Stockholders' equity
Preferred Stock, $.001 par value; 10,000,000 shares authorized, no .... -- --
shares issued and outstanding
Common Stock, $.001 par value; 50,000,000 shares authorized, 24,832,916 24 24
shares issued and outstanding at June 30, 2000 and 23,943,092 shares
issued and outstanding at December 31, 1999
Additional paid-in capital ............................................ 106,643 99,993
Retained earnings ..................................................... 31,086 36,657
Deferred compensation-stock incentive agreements ...................... (5,966) (5,495)
Notes receivable-stockholders ......................................... (19,635) (16,197)
Accumulated other comprehensive income ................................ (246) (75)
--------- ---------
Total stockholders' equity ........................................ 111,906 $ 114,907
--------- ---------
Total liabilities and stockholders' equity ........................ $ 147,297 $ 144,061
========= =========
</TABLE>
See accompanying notes.
4.
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue ..................................... $ 63,667 $ 60,919 $ 127,174 $ 119,783
Cost of services ................................ 46,968 36,969 95,274 72,113
--------- --------- --------- ---------
Gross profit ............................... 16,699 23,950 31,900 47,670
General and administrative expenses ............. 19,678 17,531 38,386 35,211
Merger, restructuring and related severance costs 3,700 1,718 3,700 1,828
--------- --------- --------- ---------
Income (loss) from operations .............. (6,679) 4,701 (10,186) 10,631
Other income
Interest income, net ....................... 630 602 1,348 1,202
Other (expense) income, net ................ (84) 3,875 (140) 3,897
--------- --------- --------- ---------
Income (loss) before taxes ............ (6,133) 9,178 (8,978) 15,730
Provision for income taxes ...................... (2,269) 2,288 (3,407) 5,106
--------- --------- --------- ---------
Net income (loss) ...................... $ (3,864) $ 6,890 $ (5,571) $ 10,624
========= ========= ========= =========
Basic net income (loss) per share ............... (0.16) 0.29 (0.23) 0.46
========= ========= ========= =========
Diluted net income (loss) per share ............. (0.16) 0.29 (0.23) 0.44
========= ========= ========= =========
Shares used in computing basic net income (loss). 24,293 23,363 24,189 22,974
per share
Shares used in diluted net income (loss)
per share ..................................... 24,293 23,963 24,189 23,971
</TABLE>
See accompanying notes.
5.
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
-------- --------
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income .............................. $ (5,571) $ 10,624
Adjustments to reconcile net income ............ 5,185 3,248
Change in assets and liabilities ............... (12,854) (18,681)
-------- --------
Net cash used in operating activities ...... (13,240) (4,809)
-------- --------
Cash flows from investing activities:
Purchase of investments ........................ (2,525) 5,665
Furniture, equipment, and leasehold improvements (3,512) (5,464)
Acquisition of business, net of cash acquired .. (2,883) (2,027)
Notes receivable stockholders .................. 69 (221)
-------- --------
Net cash used in investing activities ...... (8,851) (2,047)
-------- --------
Cash flows used in financing activities:
Long-term debt ................................. (27) (78)
Proceeds from issuance of stock ................ 430 4,530
-------- --------
Net cash generated in financing activities . 403 4,452
-------- --------
Net increase (decrease) in cash and equivalents ..... (21,688) (2,404)
Cash and equivalents at beginning of period ......... 29,674 20,737
-------- --------
Cash and equivalents at end of period ............... $ 7,986 $ 18,333
======== ========
</TABLE>
See accompanying notes.
6.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated balance sheets of First Consulting Group, Inc. (the
"Company") at June 30, 2000 and consolidated statements of operations and
condensed consolidated statements of cash flows for the periods ended June 30,
2000 and 1999 are unaudited. These financial statements reflect all adjustments,
consisting of only normal recurring adjustments, which, in the opinion of
management, are necessary to fairly present the financial position of the
Company at June 30, 2000 and the results of operations for the three month and
six month periods ended June 30, 2000 and June 30, 1999. The results of
operations for the six months ended June 30, 2000 are not necessarily indicative
of the results to be expected for the year ending December 31, 2000. For more
complete financial information, these financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1999 included in the Company's Annual Report on Form 10K.
2. INVESTMENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and interest-earning deposits or securities with original maturities of
three months or less. The Company has approximately $11.4 million in short term
investments and $9.6 million in non-current investments classified as available
for sale. Such investments are currently held primarily in tax-exempt government
securities. Net unrealized gains and losses on investments were not material at
June 30, 2000.
3. NET INCOME PER SHARE
The following represents a reconciliation of basic and diluted net
income per share for the three month and six month periods ended June 30, 2000
and 1999, respectively (amounts rounded to thousands, except per share data):
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
June 30, 2000 June 30, 1999
--------------------------------- -----------------------------------
Weighted Weighted
Average Per share Average Per share
Loss Shares amount Income Shares amount
------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) available to
common stockholders........... $(3,864) 24,293 $(0.16) $6,890 23,363 $0.29
Effect of dilutive options and
warrants: .................... 600
------- ------ ------ ------ ------ -----
Diluted EPS:
Income (loss) available to
common stockholders and assumed
conversions................... $(3,864) 24,293 $(0.16) $6,890 23,963 $0.29
======= ====== ====== ====== ====== =====
</TABLE>
7.
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
June 30, 2000 June 30, 1999
----------------------------------- -------------------------------------
Weighted Weighted
Average Per share Average Per share
Loss Shares amount Income Shares amount
------- ------ ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) available to
common stockholders........... $(5,571) 24,189 $(0.23) $10,624 22,974 $0.46
Effect of dilutive options and
warrants: .................... 997
------- ------ ------ ------- ------ -----
Diluted EPS:
Income (loss) available to
common stockholders and assumed
conversions................... $(5,571) 24,189 $(0.23) $10,624 23,971 $0.44
======= ====== ====== ======= ====== =====
</TABLE>
4. DISCLOSURE OF SEGMENT INFORMATION
The Company has the following four reportable segments: North America
consulting, North America integration, Management Services, and European
Healthcare. The consulting services consist of strategic planning, operations
effectiveness, procurement and contracting, and general consulting. The
integration services include implementation of packaged vendor software, design
and development of comprehensive system architectures, infrastructures,
interfaces, databases, applications and networks to address the need for
information integration and dissemination throughout a client's organization.
Management services consist of assessment/due diligence, program management,
discrete outsourcing, and full IT outsourcing. European Healthcare primarily
represents services provided in the United Kingdom and parts of continental
Europe and includes a blend of consulting and integration services.
The Company manages segment reporting at a gross margin level.
Selling, general and administrative expenses (including corporate functions,
occupancy related costs, depreciation, professional development, recruiting, and
marketing), and fixed assets (primarily computer equipment, furniture, and
leasehold improvements) are managed at the corporate level separately from the
segments. The Company's segments are managed on an integrated basis in order to
serve clients by assembling multi-disciplinary teams, which provide
comprehensive services.
The following is a summary of certain financial information by segment
(in thousands):
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2000:
<TABLE>
<CAPTION>
NORTH AMERICA NORTH AMERICA EUROPEAN MANAGEMENT
CONSULTING INTEGRATION HEALTHCARE SERVICES TOTALS
------------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................... $10,328 $41,263 $1,246 $ 10,830 $ 63,667
Cost of services....................... 8,702 28,153 1,486 8,627 46,968
------------- ------------- ---------- ---------- --------
Gross profit........................... $ 1,626 $13,110 $ (240) $ 2,203 16,699
General & administrative............................................................................ 19,678
Merger, restructuring, and severance costs.......................................................... 3,700
----------
Loss from operations................................................................................ $ (6,679)
==========
</TABLE>
8.
<PAGE>
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1999:
<TABLE>
<CAPTION>
NORTH AMERICA NORTH AMERICA EUROPEAN MANAGEMENT
CONSULTING INTEGRATION HEALTHCARE SERVICES TOTALS
------------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................... $12,518 $44,951 $2,134 $ 1,316 $ 60,919
Cost of services....................... 8,490 25,429 2,165 885 36,929
------------- ------------- ---------- ---------- --------
Gross profit........................... $ 4,028 $19,522 $ (31) $ 431 23,950
General & administrative............................................................................ 17,531
Merger, restructuring, and severance costs.......................................................... 1,718
---------
Income from operations.............................................................................. $ 4,701
=========
</TABLE>
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000:
<TABLE>
<CAPTION>
NORTH AMERICA NORTH AMERICA EUROPEAN MANAGEMENT
CONSULTING INTEGRATION HEALTHCARE SERVICES TOTALS
------------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................... $22,405 $81,067 $2,836 $ 20,866 $ 127,174
Cost of services....................... 17,989 57,075 2,998 17,212 95,274
------------- ------------- ---------- ---------- --------
Gross profit........................... $ 4,416 $23,992 $ (162) $ 3,654 31,900
General & administrative............................................................................ 38,386
Merger, restructuring, and severance costs.......................................................... 3,700
-----------
Loss from operations................................................................................ $ (10,186)
===========
</TABLE>
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999:
<TABLE>
<CAPTION>
NORTH AMERICA NORTH AMERICA EUROPEAN MANAGEMENT
CONSULTING INTEGRATION HEALTHCARE SERVICES TOTALS
------------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................... $24,964 $88,402 $4,170 $ 2,247 $ 119,783
Cost of services....................... 16,770 49,693 4,133 1,517 72,113
------------- ------------- ---------- ---------- --------
Gross profit........................... $ 8,194 $38,709 $ 37 $ 730 47,670
General & administrative............................................................................ 35,211
Merger, restructuring, and severance costs.......................................................... 1,828
----------
Income from operations.............................................................................. $ 10,631
==========
</TABLE>
9.
<PAGE>
5. COMPREHENSIVE INCOME
For the quarter and six months ended June 30, 2000, comprehensive
income is as follows (for the quarter and six months ended June 30, 1999, other
comprehensive income items are not shown because they were not material):
For the three month period ended June 30, 2000:
<TABLE>
<CAPTION>
Net Income (Loss) Currency Translation Loss Unrealized Gain On Investments Comprehensive Income
----------------- ------------------------- ------------------------------ --------------------
<S> <C> <C> <C>
($3,864,000) ($530,000) $148,000 ($4,246,000)
</TABLE>
For the 6 month period ended June 30,2000:
<TABLE>
<CAPTION>
Net Income (Loss) Currency Translation Loss Unrealized Gain On Investments Comprehensive Income
----------------- ------------------------- ------------------------------ --------------------
<S> <C> <C> <C>
($5,571,000) ($365,000) $194,000 ($5,742,000)
</TABLE>
6. ACQUISITION
On May 24, 2000, the company created a new e-services company
composed of the newly acquired web development & design business of Doghouse
Productions, LLC and existing web expertise from FCG. Under terms of the
agreement, FCG acquired certain assets of Doghouse Productions, LLC for
approximately $6.9 million including a minority equity stake in the new
e-service company. The acquisition was accounted for using the purchase method
of accounting and the allocation of the purchase price is set forth below:
Consideration Paid $6,941,000
Fair Value of Tangible Assets 181,000
Fair Value of Liabilities assumed 83,000
Goodwill. 6,759,000
The estimated fair market values reflected above are based on
preliminary estimates and assumptions and are subject to revision. In
management's opinion, the preliminary allocations are not expected to be
materially different from the final allocations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THOSE SET
FORTH HEREIN AND UNDER THE CAPTION "RISKS RELATING TO THE BUSINESS OF FCG" IN
THE COMPANY'S ANNUAL REPORT ON
10.
<PAGE>
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, AND SUBSEQUENT REPORTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. FCG'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
FCG provides services to payors, providers, government agencies, pharmaceutical,
biogenetic, and life science companies, and other healthcare organizations in
North America and Europe. FCG generates substantially all of its revenue from
fees for professional services. FCG typically bills for its services on an
hourly, fixed-fee or monthly fixed-fee basis as specified by the agreement with
a particular client. FCG establishes either standard or target hourly rates for
each level of consultant based on several factors including industry and
assignment-related experience, technical expertise, skills and knowledge. For
services billed on an hourly basis, fees are determined by multiplying the
amount of time expended on each assignment by the hourly rate for the
consultant(s) assigned to the engagement. Fixed fees are established on a
per-assignment or monthly basis and are based on several factors such as the
size, scope, complexity and duration of an assignment and the number of
consultants required to complete the assignment. Actual hourly or fixed fees for
an assignment may vary from the standard, target, or historical rates charged by
FCG. For services billed on an hourly basis, FCG recognizes revenue as services
are performed. For services billed on a fixed fee basis, FCG recognizes revenue
using the percentage of completion method based either on 1) the amount of time
completed on each assignment versus the projected number of hours required to
complete such assignment, or 2) the amount of cost incurred on the assignment
versus the total projected cost to complete the assignment. Revenue is recorded
as incurred at assignment rates net of unplanned adjustments for specific
engagements. Unplanned adjustments to revenue are booked at the time they are
known. Out-of-pocket expenses are billed to and reimbursed by clients and offset
against expenses incurred and are not included in recognized revenues.
Provisions are made for estimated uncollectible amounts based on the Company's
experience. FCG may obtain payment in advance of providing services. These
advances are recorded as deferred revenue and reflected as a liability on FCG's
balance sheet.
Cost of services primarily consists of the salaries, bonuses and related
benefits of client-serving consultants and subcontractor expenses. General and
administrative expenses primarily consist of the costs attributable to the
development of the business and the support of the client-serving professionals,
such as: non-billable travel; office space occupancy; investments in FCG's
information systems, research and practice support and quality initiatives;
salaries and expenses for executive management, financial, accounting and
administrative personnel; expenses for firm and business unit governance
meetings; recruiting fees and professional development and training; and
marketing, legal and other professional services. As associate related costs are
relatively fixed, variations in FCG's revenues and operating results can occur
as a result of variations in billing margins and utilization rates of its
billable associates. The Company routinely reviews its fees for services,
professional compensation and overhead costs to ensure that its services and
compensation are competitive within the industry. In addition, FCG routinely
monitors the progress of client projects with its clients' senior management.
Quality of Service Questionnaires are sent to the client after each engagement
with the results compiled and reported to FCG executive management.
FCG's most significant expenses are its human resource and related salary and
benefit expenses. As of June 30, 2000, approximately 61% or 1,231 of FCG's 2,020
employees are consultants. Another 383 employees form the firm's outsourcing
business. FCG's cost of services as a percentage of revenue is directly related
to its consultant utilization, which is the ratio of total billable hours to
available hours in a given period, and the amount of cost recognized under
percentage of completion accounting. FCG
11.
<PAGE>
manages consultant utilization by monitoring assignment requirements and
timetables, available and required skills, and available consultant hours per
week and per month. Differences in personnel utilization rates can result from
variations in the amount of non-billed time, which has historically consisted of
training time, vacation and holiday time, time lost to illness and inclement
weather and unassigned time. Non-billed time also includes time devoted to other
necessary and productive activities such as sales support and interviewing
prospective employees. Unassigned time results from differences in the timing of
the completion of an existing assignment and the beginning of a new assignment.
In order to reduce and limit unassigned time, FCG actively manages personnel
utilization by monitoring and projecting estimated engagement start and
completion dates and matching consultant availability with current and projected
client requirements. The number of consultants staffed on an assignment will
vary according to the size, complexity, duration and demands of the assignment.
Assignment terminations, completions, inclement weather and scheduling delays
may result in periods in which consultants are not optimally utilized. An
unanticipated termination of a significant assignment or an overall lengthening
of the sales cycle could result in a higher than expected number of unassigned
consultants and could cause FCG to experience lower margins. In addition, the
opening of new offices, expansion into new markets, and the hiring of
consultants in advance of client assignments have resulted and may continue to
result in periods of lower consultant utilization.
FCG's effective tax rate has varied from period to period due to non-deductible
losses from FCG's foreign operations and differences between book and tax
deductions associated with certain non-deductible operating expenses, including
certain compensation expenses related to the ASOP, merger related activities and
certain nontaxable insurance proceeds.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
NET REVENUE. The Company's net revenue increased 4.5% to $63.7 million
for the quarter ended June 30, 2000 from $60.9 million for the quarter ended
June 30, 1999. This increase was primarily attributable to an increase in
revenue from FCG's outsourcing business as well as increases in its
pharmaceutical and health plan businesses, partly offset by a decline in FCG's
health delivery sector.
COST OF SERVICES. Cost of services increased 27.0% to $47.0 million for
the quarter ended June 30, 2000 from $37.0 million for the quarter ended June
30, 1999. The increase was primarily attributable to an increase in outsourcing
staff. Cost of services as a percentage of revenue increased to 73.8% for the
quarter ended June 30, 2000 from 60.7% for the quarter ended June 30, 1999. This
increase was due to lower utilization and lower pricing in the health delivery
sector and to some degree in the health plan sector, and the lower margins
received in the outsourcing sector, where FCG experienced high revenue growth.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 12.2% to $19.7 million for the quarter ended June 30, 2000
from $17.5 million for the quarter ended June 30, 1999 due to costs associated
with FCG's increased outsourcing business and the formation of FCG Doghouse,
FCG's new e-services business. General and administrative expenses as a
percentage of revenue increased from 28.8% for the quarter ended June 30, 1999
to 30.9% for the quarter ended June 30, 2000.
MERGER, RESTRUCTURING, AND SEVERANCE COSTS. Merger, restructuring, and
severance costs were $3.7 million for the quarter ended June 30, 2000 compared
to $1.7 million for the quarter ended June 30, 1999. Merger, restructuring, and
severance costs for the quarter ended June 30, 2000 consisted primarily of
severance costs related to a reduction in the U.S. workforce, and a $1.5 million
impairment of
12.
<PAGE>
goodwill associated with FCG's announced plan to dispose of its European
healthcare consulting practice. Merger, restructuring, and severance costs for
the quarter ended June 30, 1999 consisted primarily of costs related to the
integration of acquired companies.
INTEREST INCOME, NET. Interest income, net of interest expense,
remained constant at approximately $0.6 million for the quarter ended
June 30, 2000 compared to the quarter ended June 30, 1999. Interest income net
of interest expense as a percentage of revenue remained consistent at 1.0% for
both quarters.
OTHER INCOME (EXPENSE). Other expense of $0.1 million for the quarter
ended June 30, 2000 compared to other income of $3.9 million for the quarter
ended June 30, 1999. The other income in the prior year consisted primarily of
the net proceeds from a life insurance policy for former Chairman James Reep,
who passed away in April 1999.
INCOME TAXES. The benefit for income taxes of 37.0% in the quarter
ended June 30, 2000 compared to the provision of 24.9% reported for the quarter
ended June 30, 1999. The provision in the prior year was unusually low because
of the nontaxable life insurance proceeds discussed in Other Income (Expense).
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
NET REVENUE. The Company's net revenue increased 6.2% to $127.2 million
for the six months ended June 30, 2000 from $119.8 million for the six months
ended June 30, 1999. This increase was primarily attributable to an increase in
revenue from FCG's outsourcing business, partly offset by a decline in the
health delivery sector.
COST OF SERVICES. Cost of services increased 32.1% to $95.3 million for
the six months ended June 30, 2000 from $72.1 million for the six months ended
June 30, 1999. The increase was primarily attributable to an increase in the
outsourcing staff. Cost of services as a percentage of revenue increased to
74.9% for the six months ended June 30, 2000 from 60.2% for the six months ended
June 30, 1999. This increase was due to lower utilization and lower pricing in
the health delivery sector and to some degree in the health plan sector, and the
lower margins received in the outsourcing sector where FCG experienced high
revenue growth .
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 9.0% to $38.4 million for the six months ended June 30, 2000
from $35.2 million for the six months ended June 30, 1999. General and
administrative expenses as a percentage of revenue increased from 29.4% for the
six months ended June 30, 1999 to 30.2% for the six months ended June 30, 2000
primarily due to costs associated with FCG's increased outsourcing business.
MERGER, RESTRUCTURING, AND SEVERANCE COSTS. Merger, restructuring,
and severance costs were $3.7 million for the six months ended June 30, 2000
compared to $1.8 million for the six months ended June 30, 1999. Merger,
restructuring, and severance costs for the six months ended June 30, 2000
consisted primarily of severance costs related to a reduction in the U.S.
workforce, and a $1.5 million impairment of goodwill associated with FCG's
announced plan to dispose of its European healthcare consulting practice.
Merger, restructuring, and severance costs for the six months ended June 30,
1999 consisted primarily of costs related to the integration of acquired
companies.
INTEREST INCOME, NET. Interest income, net of interest expense,
increased to $1.3 million for the
13.
<PAGE>
six months ended June 30, 2000 from $1.2 million for the six months ended June
30, 1999. Interest income net of interest expense as a percentage of revenue
increased slightly from 1.0% of revenue to 1.1% of revenue.
OTHER INCOME (EXPENSE). Other expense of $0.1 million for the six
months ended June 30, 2000 compared to other income of $3.9 million for the six
months ended June 30, 1999. The other income in the prior year consisted
primarily of the net proceeds from a life insurance policy for former Chairman
James Reep, who passed away in April 1999.
INCOME TAXES. The benefit for income taxes of 38.0% in the six months
ended June 30, 2000 compared to the provision of 32.5% reported for the six
months ended June 30, 1999. The provision in the prior year was unusually low
because of the nontaxable life insurance proceeds discussed in Other Income
(Expense).
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended June 30, 2000, the Company used cash
flow from operations of $13.2 million, principally to fund operating losses, a
long-term contract receivable on a major outsourcing contract, and an increase
in accounts receivable work in process. During the six month period ended June
30, 2000, the Company used cash flow of approximately $3.5 million to purchase
property and equipment, including computer and related equipment and office.
Depreciation and amortization expense for the six-month period ended June 30,
2000 was approximately $3.4 million. At June 30, 2000, the Company had working
capital of $62.4 million. At December 31, 1999, the Company had working capital
of $72.0 million. Working capital decreased primarily due to a decline in cash
resulting from funding the company's operating loss, FCG's asset acquisition and
investment transaction with Doghouse Productions, LLC and the long-term contract
receivable on a major outsourcing contract.
The Company's revolving line of credit, which allowed the Company to
borrow up to $9.0 million at an interest rate of the prevailing prime rate,
expired on May 1, 2000. There was no outstanding balance under the line of
credit at that time. The Company is in the process of negotiating a new line of
credit.
Management believes that existing cash and investments together with
funds generated from operations will be sufficient to meet operating
requirements for the next 12 months. FCG's cash and investments are available
for strategic investments, mergers and acquisitions, and other potential
large-scale cash needs that may arise. At June 30, 2000, part of the Company's
proceeds from its initial public offering in February 1998 had been used to fund
operations and receivables, while the remaining proceeds were retained as cash
or investments.
14.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
Under the Company's 1994 Restricted Stock Plan, (the "1994 Plan") the
Company has entered into Restricted Stock Agreements ("RSAs") with each of its
vice presidents. The 1994 Plan and RSAs provide that each person, upon becoming
a vice president of the Company, must purchase and hold a minimum number of
shares of common stock of the Company ("Common Stock").
During the quarter ended June 30, 2000, the Company issued an aggregate
of 360,715 shares (the "Shares") of Common Stock to certain of its vice
presidents (the "Purchasing Vice Presidents") pursuant to the 1994 Plan. The
Purchasing Vice Presidents paid an aggregate of $2,467,000 in consideration of
the Shares. The Shares were issued in reliance on Section 4(2) of the Securities
Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
FCG held its 2000 Annual Meeting of Stockholders on June 19, 2000. The
stockholders elected the Board's nominees as directors to serve three-year terms
expiring at the 2003 Annual Meeting of Stockholders by the votes indicated:
<TABLE>
<CAPTION>
Nominee Votes in Favor Votes Against Abstentions
------- -------------- ------------- -----------
<S> <C> <C> <C>
Donald R. Caldwell 16,729,961 916,299 0
Stanley R. Nelson 16,716,339 929,921 0
Luther Nussbaum 16,421,282 1,224,979 0
Jack O. Vance 16,727,201 919,060 0
</TABLE>
The Stockholders approved FCG's 2000 Associate Stock Purchase Plan and the
issuance of up to 500,000 shares of FCG common stock under such plan with
15,398,604 votes cast in favor, 729,686 votes cast against and 41,309 votes
abstaining from the proposal.
The Stockholders approved amendment of FCG's 1997 Equity Incentive Plan to
increase the number of shares of FCG common stock reserved for issuance under
that plan by 1,000,000 shares, from 3,500,000 shares to 4,500,000 shares, with
11,121,737 votes cast in favor, 5,001,737 votes cast against and 46,124 votes
abstaining from the proposal.
The Stockholders also ratified FCG's selection of Grant Thornton LLP as FCG's
independent auditors for the year ending December 31, 2000, with 17,594,789
votes cast in favor, 31,788 votes cast against and 19,681 votes abstaining from
the proposal.
15.
<PAGE>
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
<TABLE>
<CAPTION>
ITEM DESCRIPTION
------------- ---------------------------------------------------------------------------
<S> <C>
3.1 (1) Certificate of Incorporation of the Company.
3.2 (2) Certificate of Designation of Series A Junior Participating Preferred Stock
3.3 (3) Bylaws of the Company.
4.1 (4) Specimen Common Stock Certificate.
11.1 (5) Statement of computation of per share earnings.
27.1 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to Exhibit 3.1 to FCG's Form S-1
Registration Statement (No. 333-41121) originally filed on
November 26, 1997 (the "Form S-1").
(2) Incorporated by reference to Exhibit 99.1 to FCG's Current
Report on Form 8-K dated December 9, 1999.
(3) Incorporated by reference to Exhibit 3.3 to FCG's Form S-1.
(4) Incorporated by reference to Exhibit 4.1 to FCG's Form S-1.
(5) See Note 3 to Consolidated Financial Statements, "Net Income
Per Share."
(B) REPORTS ON FORM 8-K
None.
16.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed in its behalf by
the undersigned thereunto duly authorized.
FIRST CONSULTING GROUP, INC.
Date: August 11, 2000 /s/ LUTHER J. NUSSBAUM
---------------------------------------------
Luther J. Nussbaum
Chairman and Chief Executive Officer
Date: August 11, 2000 /s/ WALTER J. MCBRIDE
---------------------------------------------
Walter J. McBride
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
17.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM DESCRIPTION
------------- ---------------------------------------------------------------------------
<S> <C>
3.1 (1) Certificate of Incorporation of the Company.
3.2 (2) Certificate of Designation of Series A Junior Participating Preferred Stock
3.3 (3) Bylaws of the Company.
4.1 (4) Specimen Common Stock Certificate.
11.1 (5) Statement of computation of per share earnings.
27.1 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to Exhibit 3.1 to FCG's Form S-1
Registration Statement (No. 333-41121) originally filed on
November 26, 1997 (the "Form S-1").
(2) Incorporated by reference to Exhibit 99.1 to FCG's Current
Report on Form 8-K dated December 9, 1999.
(3) Incorporated by reference to Exhibit 3.3 to FCG's Form S-1.
(4) Incorporated by reference to Exhibit 4.1 to FCG's Form S-1.
(5) See Note 3 to Consolidated Financial Statements, "Net Income
Per Share."
18.
