SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Navigant Consulting, Inc.

Delaware (State or other jurisdiction of incorporation or organization)		36-4094854 (I.R.S. Employer Identification No.)

     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 þ NO o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

     As of July 30, 2010, 50.1 million shares of the Registrant’s common stock, par value $.001 per share (“Common Stock”), were outstanding.

 

 

NAVIGANT CONSULTING, INC.

AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2010

INDEX

		Page
PART I—FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			32
PART II—OTHER INFORMATION
Item 1. Legal Proceedings			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 6. Exhibits			32
SIGNATURES			33

     “Navigant” is a service mark of Navigant International, Inc. Navigant Consulting, Inc. is not affiliated, associated, or in any way connected with Navigant International, Inc. and the use of “Navigant” is made under license from Navigant International, Inc.

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

		June 30,				December 31,
		2010				2009
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	3,000			$	49,144
Accounts receivable, net			162,227				163,608
Prepaid expenses and other current assets			19,243				16,374
Deferred income tax assets			13,130				19,052
Total current assets			197,600				248,178
Property and equipment, net			40,459				42,975
Intangible assets, net			29,851				30,352
Goodwill			521,859				485,101
Other assets			22,605				13,639
Total assets		$	812,374			$	820,245
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	9,640			$	8,203
Accrued liabilities			9,196				8,664
Accrued compensation-related costs			50,406				69,751
Term loan — current			18,397				12,375
Other current liabilities			40,363				34,441
Total current liabilities			128,002				133,434
Non-current liabilities:
Deferred income tax liabilities			40,809				37,096
Other non-current liabilities			19,461				23,923
Bank debt —non-current			24,094				—
Term loan — non-current			160,058				207,000
Total non-current liabilities			244,422				268,019
Total liabilities			372,424				401,453
Stockholders’ equity:
Common stock			60				60
Additional paid-in capital			560,282				559,368
Treasury stock			(209,936	)			(218,798	)
Retained earnings			105,461				91,186
Accumulated other comprehensive loss			(15,917	)			(13,024	)
Total stockholders’ equity			439,950				418,792
Total liabilities and stockholders’ equity		$	812,374			$	820,245

See accompanying notes to the unaudited consolidated financial statements.

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

		For the three months ended								For the six months ended
		June 30,								June 30,
		2010				2009				2010				2009
Revenues before reimbursements		$	154,617			$	157,332			$	308,487			$	324,544
Reimbursements			17,706				16,224				37,386				31,374
Total revenues			172,323				173,556				345,873				355,918
Cost of services before reimbursable expenses			102,128				101,967				204,358				212,234
Reimbursable expenses			17,706				16,224				37,386				31,374
Total costs of services			119,834				118,191				241,744				243,608
General and administrative expenses			29,089				33,513				59,549				68,406
Depreciation expense			3,553				4,320				7,354				8,960
Amortization expense			2,962				3,392				5,758				7,012
Other operating costs:
Office consolidation			—				4,612				—				5,520
Operating income			16,885				9,528				31,468				22,412
Interest expense			3,508				3,952				6,986				7,920
Interest income			(311	)			(312	)			(624	)			(608	)
Other expense (income), net			(44	)			(87	)			61				(408	)
Income before income tax expense			13,732				5,975				25,045				15,508
Income tax expense			5,904				2,590				10,770				6,690
Net income		$	7,828			$	3,385			$	14,275			$	8,818
Basic net income per share		$	0.16			$	0.07			$	0.29			$	0.18
Shares used in computing income per basic share			49,205				48,213				48,948				47,828
Diluted net income per share		$	0.16			$	0.07			$	0.28			$	0.18
Shares used in computing income per diluted share			50,264				49,756				50,180				49,604

See accompanying notes to the unaudited consolidated financial statements.

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

		For the six months ended
		June 30,
		2010				2009
Cash flows from operating activities:
Net income		$	14,275			$	8,818
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation expense			7,354				8,960
Depreciation expense — office consolidation			—				995
Amortization expense			5,758				7,012
Share-based compensation expense			2,938				4,465
Accretion of interest expense			401				499
Deferred income taxes			7,814				1,472
Allowance for doubtful accounts receivable			3,938				8,110
Changes in assets and liabilities:
Accounts receivable			(3,541	)			(21,358	)
Prepaid expenses and other assets			(9,780	)			(74	)
Accounts payable			1,561				932
Accrued liabilities			1,203				(591	)
Accrued compensation-related costs			(19,120	)			(29,523	)
Income taxes payable			(1,782	)			902
Other liabilities			(3,370	)			2,147
Net cash provided by (used in) operating activities			7,649				(7,234	)
Cash flows from investing activities:
Purchases of property and equipment			(5,479	)			(12,352	)
Acquisitions of businesses			(33,870	)			(1,875	)
Payments of acquisition liabilities			—				(2,821	)
Other, net			—				(109	)
Net cash used in investing activities			(39,349	)			(17,157	)
Cash flows from financing activities:
Issuances of common stock			1,533				2,317
Payments of notes payable			—				(355	)
Borrowings from banks, net of repayments			25,049				6,113
Payments of term loan			(40,920	)			(1,125	)
Other, net			(119	)			(814	)
Net cash (used in) provided by financing activities			(14,457	)			6,136
Effect of exchange rate changes on cash			13				253
Net decrease in cash and cash equivalents			(46,144	)			(18,002	)
Cash and cash equivalents at beginning of the period			49,144				23,134
Cash and cash equivalents at end of the period		$	3,000			$	5,132

See accompanying notes to the unaudited consolidated financial statements.

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

     We are an independent specialty consulting firm that combines deep industry knowledge with technical expertise to enable companies to create and protect value in the face of complex and critical business risks and opportunities. Professional services include dispute, investigative, financial, operational and business advisory, risk management and regulatory advisory, strategy, economic analysis and transaction advisory solutions. We provide our services to government agencies, legal counsel and large companies facing the challenges of uncertainty, risk, distress and significant change. We focus on industries undergoing substantial regulatory or structural change and on the issues driving these transformations.

     The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. The information furnished herein includes all adjustments, consisting of normal recurring adjustments except where indicated, which are, in the opinion of management, necessary for a fair presentation of the results of operations for these interim periods.

     The results of operations for the six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2010.

     These financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2009 included in the Annual Report on Form 10-K, as filed by us with the Securities and Exchange Commission on February 19, 2010. Certain amounts in prior years’ consolidated financial statements have been reclassified to conform to the current year’s presentation including the reclassification of the prior year segment information (see Note 3 — Segment Information).

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. Actual results could differ from those estimates and may affect future results of operations and cash flows. We have evaluated subsequent events through the date of this filing. We do not believe there are any material subsequent events which would require further disclosure.

Note 2. Acquisitions

     On May 14, 2010, we acquired assets of Daylight Forensic and Advisory, LLC, located in New York City, New York for approximately $40.0 million, which consisted of $29.9 million in cash paid at closing and $10.0 million, recorded in other current liabilities, to be paid in cash on the first anniversary of the closing date. As part of the purchase price allocation, we recorded $4.5 million in identifiable intangible assets and $35.2 million in goodwill. The purchase price paid in cash at closing was funded under our credit facility.

     We acquired Daylight to significantly enhance our investigative service offering and add significant revenue in our strong New York market. Daylight is a regulatory consulting and investigative firm specializing in regulatory compliance and fraud risk management, with deep capabilities in anti-money laundering and foreign corrupt practice act. This acquisition included 65 consulting professionals and has been integrated in our Dispute and Investigative Services segment.

     On January 20, 2010, we acquired the assets of Empiris, LLC, located in Washington, D.C. for $5.5 million, which consisted of $4.0 million in cash paid at closing and $1.5 million, recorded in other liabilities, to be paid in cash in two equal installments on December 31, 2010 and January 3, 2012. In addition, the purchase agreement contains a provision for contingent consideration of up to $2.0 million in cash. The contingent consideration is based on the business achieving certain performance targets during the periods from closing to December 31, 2010 and in calendar years 2011 and 2012 and will be payable in March of the year following the year such performance targets are attained. Fair value of the contingent consideration, recorded in other liabilities, was estimated to be $1.9 million and was determined based on level two observable inputs and will be recalculated each reporting period with any

resulting gains or losses being recorded in the income statement. No such gains or losses were recorded during the quarter ended June 30, 2010. As part of the purchase price allocation, we recorded $1.6 million in identifiable intangible assets and $5.8 million in goodwill. The purchase price paid in cash at closing was funded with cash from operations.

     We acquired Empiris to enhance our Economic Consulting segment. Empiris provides significant exposure, expertise and growth opportunity in our Washington, D.C. market by servicing relevant government agencies. This acquisition consisted of nine economists and has been included in the Economic Consulting segment.

     On December 31, 2009, we acquired the assets of Summit Blue Consulting, LLC for $13.0 million, which consisted of $11.0 million in cash paid at closing and two deferred cash payments of $1.0 million each, recorded in other liabilities, due on the first and second anniversaries of the closing. As part of the purchase price allocation, we recorded $2.6 million in identifiable intangible assets and $10.4 million in goodwill. The purchase price paid in cash at closing was funded with cash from operations.

     The Summit Blue acquisition was made to expand and complement our energy practice. Summit Blue specializes in resource planning, energy efficiency, demand response, and renewable energy consulting services for utilities, public agencies, and other clients. Summit Blue, headquartered in Boulder, Colorado, had approximately 60 consultants at the time of acquisition and has been included in our Business Consulting Services segment.

Pro Forma Information

     The following table summarizes certain supplemental unaudited pro forma financial information which was prepared as if the 2009 and 2010 acquisitions had occurred at the beginning of the periods presented. The unaudited pro forma financial information was prepared for comparative purposes only and does not purport to be indicative of what would have occurred had the acquisitions been made at that time or of results that may occur in the future.

		For the three months ended								For the six months ended
		June 30,								June 30,
		2010				2009				2010				2009
Total revenues (in thousands)		$	175,227			$	184,662			$	358,242			$	382,619
Net income (in thousands)		$	6,978			$	1,889			$	13,136			$	7,505
Basic net income per share		$	0.14			$	0.04			$	0.27			$	0.16
Diluted net income per share		$	0.14			$	0.04			$	0.26			$	0.15

Note 3. Segment Information

     Our business is organized in four reportable segments — Dispute and Investigative Services, Business Consulting Services, International Consulting and Economic Consulting. These reportable segments are generally defined by the nature of their services and geography and may be the aggregation of multiple operating segments as indicated in the description below. During the first quarter of 2010, certain organizational changes were made which, along with other factors, resulted in the identification of two additional operating segments and the repositioning of certain service offerings between the segments. Prior year comparative segment data has been restated to be consistent with the current presentation.

     The Dispute and Investigative Services reporting segment provides a wide range of services to clients facing the challenges of disputes, litigation, forensic investigation, discovery and regulatory compliance. The clients of this segment are principally law firms, corporate general counsel and corporate boards.

The Business Consulting Services reporting segment provides strategic, operational, financial, regulatory and technical management consulting services to clients, principally “C” suite and corporate management, government entities and law firms. Beginning as of the first quarter of 2010, the reporting segment is comprised of three operating segments, Energy, Healthcare and Other Business Consulting practices. The Energy and Healthcare business units are defined as operating segments due to their size, importance and organizational reporting relationships. The Energy and Healthcare operating segments provide services to clients in those respective

markets and Other Business Consulting practices provides operations advisory, valuation and restructuring services to financial services and other markets.

     The International Consulting reporting segment provides a mix of dispute and business consulting services to clients predominately outside North America. The clients are principally “C” suite and corporate management, government entities, and law firms.

     The Economic Consulting reporting segment provides economic and financial analyses of complex legal and business issues principally for law firms, corporations and government agencies. Expertise includes areas such as antitrust, corporate finance and governance, bankruptcy, intellectual property, investment banking, labor market discrimination and compensation, corporate valuation and securities litigation.

		For the three months ended								For the six months ended
		June 30,								June 30,
(Amounts in Thousands)		2010				2009				2010				2009
Revenues before reimbursements:
Dispute and Investigative Services		$	59,737			$	70,124			$	123,075			$	142,027
Business Consulting Services			63,430				57,883				120,829				124,789
International Consulting			14,484				16,067				30,629				31,583
Economic Consulting			16,966				13,258				33,954				26,145
Total revenues before reimbursements		$	154,617			$	157,332			$	308,487			$	324,544
Total revenues:
Dispute and Investigative Services		$	63,867			$	76,758			$	131,761			$	154,254
Business Consulting Services			71,756				63,393				138,006				136,909
International Consulting			18,078				19,250				38,875				36,553
Economic Consulting			18,622				14,155				37,231				28,202
Total revenues		$	172,323			$	173,556			$	345,873			$	355,918
Segment operating profit:
Dispute and Investigative Services		$	21,585			$	28,369			$	46,993			$	56,603
Business Consulting Services			23,148				20,332				42,165				43,784
International Consulting			3,663				4,406				7,403				8,582
Economic Consulting			6,273				4,888				12,569				9,532
Total combined segment operating profit			54,669				57,995				109,130				118,501
Segment operating profit reconciliation to income before income tax expense:
Unallocated:
General and administrative expenses			29,089				33,513				59,549				68,406
Depreciation expense			3,553				4,320				7,354				8,960
Amortization expense			2,962				3,392				5,758				7,012
Long-term compensation expense related to consulting personnel (including share-based compensation)			2,180				2,630				5,001				6,191
Other operating expenses			—				4,612				—				5,520
Operating income			16,885				9,528				31,468				22,412
Other expense, net			3,153				3,553				6,423				6,904
Income before income tax expense		$	13,732			$	5,975			$	25,045			$	15,508

     The information presented does not necessarily reflect the results of segment operations that would have occurred had the segments been stand-alone businesses. Certain unallocated expense amounts, related to specific reporting segments, have been excluded from the segment operating profit to be consistent with the information used by management to evaluate segment performance. We record accounts receivable, goodwill and intangible assets on a segment basis. Other balance sheet amounts are not maintained on a segment basis.

     Total assets by segment were as follows (shown in thousands):

		June 30,				December 31,
		2010				2009
Dispute and Investigative Services		$	335,626			$	304,744
Business Consulting Services			210,817				212,975
International Consulting			77,540				86,195
Economic Consulting			89,296				75,147
Unallocated assets			99,095				141,184
Total assets		$	812,374			$	820,245

Note 4. Goodwill and Intangible Assets

     Goodwill and other intangible assets consisted of (shown in thousands):

		June 30,				December 31,
		2010				2009
Goodwill		$	527,284			$	490,526
Less—accumulated amortization			(5,425	)			(5,425	)
Goodwill, net			521,859				485,101
Intangible assets:
Customer lists and relationships			65,930				63,697
Non-compete agreements			20,385				19,701
Other			21,056				19,589
Intangible assets, at cost			107,371				102,987
Less—accumulated amortization			(77,520	)			(72,635	)
Intangible assets, net			29,851				30,352
Goodwill and intangible assets, net		$	551,710			$	515,453

     On a periodic basis, we are required to consider whether or not the fair value of each of the reporting units could have fallen below its carrying value. We consider elements and other factors including, but not limited to, changes in the business climate in which we operate, attrition of key personnel, unanticipated competition, our market capitalization in excess of our book value, our recent operating performance and our financial projections. As a result of this review we are required to determine whether such an event or condition existed that would require us to perform an interim goodwill impairment test prior to our next annual test date. We continue to monitor these factors and we may perform additional impairment tests as appropriate in future periods.

     During the second quarter of 2010, we performed our annual test of goodwill based on balances as of May 31, 2010. The impairment test was completed based on our six operating segments which are considered our reporting units. During the first quarter of 2010, certain organizational changes were made which, along with other factors, resulted in the identification of two additional operating segments and the repositioning of certain service offerings between the segments. There was no indication of impairment based on our analysis.

     As of our May 31, 2010 analysis, the excess of estimated fair value over net asset carrying value of our reporting units comprising our Business Consulting Segment (Healthcare, Energy and Other Business Consulting Services), our International Consulting reporting unit and our Disputes and Investigative reporting unit were all in excess of 30% of the estimated fair value (generally 30%

to 40%). The excess of estimated fair value over the net asset carrying value of the Economic Consulting reporting unit was approximately 15% of estimated fair value. Our new reporting units are relatively smaller in size than the prior reporting units, which may result in more volatility in future impairment tests. Further, the estimated fair value of the International Consulting and Economic Consulting reporting units may be more volatile due to the reporting units’ higher expected earnings growth rates. Also, given the International Consulting reporting unit’s involvement in emerging markets and exposure to multiple markets outside the United States, its estimated fair value may be more volatile. Additionally, the Economic Consulting reporting unit is substantially comprised of recent acquisitions and its estimated fair value is dependent on the success of such acquisitions. The key assumptions used in our May 31, 2010 analysis included profit margin improvement to be generally consistent with our longer term historical performance, revenue growth rates ahead of our peer group in the near term and discount rates determined based on comparables for our peer group. Our fair value estimates were made as of the date of our analysis and are subject to change.

     We review our intangible asset values on a periodic basis. We had $29.9 million in intangible assets, net of accumulated amortization, as of June 30, 2010. Of the $29.9 million balance, $21.9 million related to customer lists and relationships, $3.3 million related to non-compete agreements and $4.7 million related to other intangible assets. As of June 30, 2010, the weighted average remaining life for customer lists and relationships, non-compete agreements and other intangible assets was 4.1 years, 2.6 years and 2.7 years, respectively. We have reviewed the estimated period of consumption for our intangible assets. As of June 30, 2010, there was no indication of impairment related to our intangible assets. Our intangible assets have estimated useful lives which range up to seven years. We will amortize the remaining net book values of intangible assets over their remaining useful lives.

     As we review our portfolio of services in the future, we may exit certain markets or reposition certain service offerings within our business. Consistent with past evaluations, this evaluation may result in our redefining our operating segments and may impact a significant portion of one or more of our reporting units. As noted above, if such actions occur, they may be considered triggering events that would result in our performing an interim impairment test of our goodwill and an impairment test of our intangible assets.

     We use various methods to determine fair value, including market, income and cost approaches. With these approaches, we adopt certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk or the risks inherent in the inputs to the valuation. Inputs to valuation can be readily observable, market-corroborated, or unobservable. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

     The fair value measurements used for our goodwill impairment testing use significant unobservable inputs which reflect our own assumptions about the inputs that market participants would use in measuring fair value including risk considerations.

     The changes in carrying values of goodwill and intangible assets (shown in thousands) are as follows:

		For the six months ended
		June 30,
		2010				2009
Beginning of period—Goodwill, net		$	485,101			$	463,058
Goodwill acquired			40,958				1,842
Adjustments to goodwill			(88	)			—
Foreign currency translation—goodwill			(4,112	)			10,877
End of period — Goodwill, net		$	521,859			$	475,777
Beginning of period—Intangible assets, net		$	30,352			$	38,108
Intangible assets acquired			6,082				261
Adjustments to intangible assets			—				(270	)
Foreign currency translation—intangible assets, net			(825	)			2,869
Less—amortization expense			(5,758	)			(7,012	)
End of period—Intangible assets, net		$	29,851			$	33,956

     As of June 30, 2010, goodwill and intangible assets, net of amortization, was $265.5 million for Dispute and Investigative Services, $161.3 million for Business Consulting Services, $59.9 million for International Consulting and $65.0 million for Economic Consulting.

     Total amortization expense for the six months ended June 30, 2010 and 2009 was $5.8 million and $7.0 million, respectively. Below is the estimated aggregate amortization expense to be recorded for the remainder of 2010 and for each of the four years following related to intangible assets at June 30, 2010 (shown in thousands):

For the period ending December 31,		Amount
2010		$	6,346
2011			8,668
2012			5,437
2013			4,748
2014			3,288
Thereafter			1,364
Total		$	29,851

Note 5. Net Income per Share (EPS)

     Basic net income per share (EPS) is computed by dividing net income by the number of basic shares. Basic shares are the total of the common stock outstanding and the equivalent shares from obligations presumed payable in common stock, both weighted for the average days outstanding for the period. Basic shares exclude the dilutive effect of common stock that could potentially be issued due to the exercise of stock options, vesting of restricted shares, or satisfaction of necessary conditions for contingently issuable shares. Diluted EPS is computed by dividing net income by the number of diluted shares, which are the total of the basic shares outstanding and all potentially issuable shares, based on the weighted average days outstanding for the period.

     The components of basic and diluted shares (shown in thousands and based on the weighted average days outstanding for the periods) are as follows:

		For the three months ended								For the six months ended
		June 30,								June 30,
		2010				2009				2010				2009
Common shares outstanding			49,205				48,202				48,948				47,806
Business combination obligations payable in a fixed number of shares			—				11				—				22
Basic shares			49,205				48,213				48,948				47,828
Employee stock options			292				349				311				350
Restricted shares and stock units			116				100				147				180
Business combination obligations payable in a fixed dollar amount of shares			628				1,056				759				1,201
Contingently issuable shares			23				38				15				45
Diluted shares			50,264				49,756				50,180				49,604

     For the three months ended June 30, 2010 and 2009, we had outstanding stock options for approximately 473,000 and 350,000 shares, respectively, which were excluded from the computation of diluted shares. For the six months ended June 30, 2010 and 2009, we had outstanding stock options for approximately 396,000 and 356,000 shares, respectively, which were excluded from the computation of diluted shares. Because these shares had exercise prices greater than the average market price, the impact of including these options in the diluted share calculation would have been antidilutive.

     In connection with certain business acquisitions, we are obligated to issue a certain number of shares of our common stock. Obligations to issue a fixed number of shares are included in the basic earnings per share calculation. Obligations to issue a fixed dollar amount of shares where the number of shares is based on the trading price of our shares at the time of issuance are included in the diluted earnings per share calculation. As part of the Chicago Partners acquisition, we issued 453,000 shares of our common stock on April 30, 2010 with a value of $5.8 million and are obligated to issue shares based on a fixed dollar amount of a final $5.8 million on May 1, 2011. For the three and six months ended June 30, 2010, the diluted share computation included 0.6 million and 0.8 million shares related to the Chicago Partners deferred purchase price obligations, respectively.

     We use the treasury stock method to calculate the dilutive effect of our common stock equivalents should they vest. The exercise of stock options or vesting of restricted shares and restricted stock unit shares triggers excess tax benefits or tax deficiencies that reduce or increase the dilutive effect of such shares being issued. The excess tax benefits or deficiencies are based on the difference between the market price of our common stock on the date the equity award is exercised or vested and the cumulative compensation

cost of the stock options, restricted shares and restricted stock units. These excess tax benefits are recorded as a component of additional paid-in capital in the accompanying consolidated balance sheets and as a component of financing cash flows in the accompanying consolidated statements of cash flows. The excess tax deficiencies are recorded as a component of additional paid-in capital in the accompanying consolidated balance sheets and as a component of operating cash flows in the accompanying consolidated statements of cash flows.

Note 6. Stockholders’ Equity

     The following summarizes the activity of stockholders’ equity during the six months ended June 30, 2010 (shown in thousands):

		Dollars				Shares
Stockholders’ equity at January 1, 2010		$	418,792				48,651
Comprehensive income			11,382				—
Acquisition-related stock issuance			5,750				453
Other issuances of common stock			1,533				231
Net settlement of employee taxes on taxable compensation related to the vesting of restricted stock			(522	)			(42	)
Tax benefits on stock options exercised and restricted stock vested			77				—
Issuances of restricted stock, net of forfeitures			—				188
Share-based compensation expense			2,938				—
Stockholders’ equity at June 30, 2010		$	439,950				49,481

Note 7. Share-Based Compensation Expense

Share-based Compensation Expense

     Total share-based compensation expense consisted of the following (shown in thousands):

		Three months ended								Six months ended
		June 30,								June 30,
		2010				2009				2010				2009
Amortization of restricted stock awards		$	1,682			$	1,699			$	2,416			$	3,873
Amortization of stock option awards			253				211				462				323
Fair value adjustment for variable stock option accounting awards			(11	)			(5	)			(44	)			(45	)
Discount given on employee stock purchase transactions through our Employee Stock Purchase Plan			39				54				104				314
Total share-based compensation expense		$	1,963			$	1,959			$	2,938			$	4,465

     During the three and six months ended June 30, 2010 and 2009, share-based compensation expense attributable to consultants was included in Cost of services before reimbursable expenses and share-based compensation expense attributable to corporate management and support personnel was included in General and administrative expenses. The following table shows the amounts attributable to each category (shown in thousands):

		Three months ended								Six months ended
		June 30,								June 30,
		2010				2009				2010				2009
Cost of services		$	1,040			$	1,333			$	1,841			$	3,259
General and administrative expenses			923				626				1,097				1,206
Total share-based compensation expense		$	1,963			$	1,959			$	2,938			$	4,465

Restricted Stock Outstanding

     As of June 30, 2010, 1.4 million restricted stock awards and equivalent units were outstanding at a weighted average measurement price of $16.28 per share. The measurement price is the market price of our common stock at the date of grant of the restricted stock awards and equivalent units. The restricted stock and equivalent units were granted out of our long-term incentive plan.

     The following table summarizes restricted stock activity for the six months ended June 30, 2010 and 2009:

		2010								2009
						Weighted								Weighted
		Number				average				Number				average
		of shares				measurement				of shares				measurement
		(000s)				date price				(000s)				date price
Restricted stock and equivalents outstanding at beginning of the period			1,356			$	17.25				1,678			$	19.00
Granted			277				12.22				308				12.63
Vested			(188	)			16.74				(382	)			20.72
Forfeited			(38	)			18.74				(39	)			19.81
Restricted stock and equivalents outstanding at end of the period			1,407			$	16.28				1,565			$	17.50

     As of June 30, 2010, we had $16.2 million of total compensation costs related to the outstanding or unvested restricted stock that have not been recognized as share-based compensation expense. The compensation costs will be recognized as expense over the remaining vesting periods. The weighted-average remaining vesting period is approximately 2 years.

     During March 2010, we modified the vesting terms of the restricted stock awards granted on March 13, 2007 and April 30, 2007 to provide for 25% vest annually starting March 2011 and April 2011, respectively. The original vesting term was seven years from the grant date, with the opportunity for accelerated vesting over five years based upon the achievement of certain targets related to our consolidated operating performance. We modified the vesting terms of the restricted stock awards in order to improve the visibility of the value the awards provide for certain key senior consultants and senior management. This modification resulted in a one-time cumulative credit of $0.4 million in the first quarter of 2010 to share-based compensation expense to align the expense recognition with the amended vesting terms. As of June 30, 2010, approximately 0.6 million of these restricted stock awards remain outstanding and 0.2 million have vested since the grant date.

     During March 2010, the board of directors granted $3.0 million of restricted stock and stock option awards to selected senior management. As part of this award, 163,000 restricted shares were issued, which had a fair value of $2.0 million at grant date and 166,000 stock options were issued which had a fair value of $1.0 million at grant date. The restricted stock and stock option awards vest 33% annually.

Note 8. Supplemental Consolidated Balance Sheet Information

Accounts Receivable, net:

     The components of accounts receivable were as follows (shown in thousands):

		June 30,				December 31,
		2010				2009
Billed amounts		$	125,881			$	138,114
Engagements in process			54,974				45,291
Allowance for doubtful accounts			(18,628	)			(19,797	)
Accounts receivable, net		$	162,227			$	163,608

     Receivables attributable to engagements in process represent balances for services that have been performed and earned but have not been billed to the client. Billings are generally done on a monthly basis for the prior month’s services. Our allowance for doubtful accounts receivable is based on historical experience and management judgment and may change based on market conditions or specific client circumstances.

Prepaid expenses and other current assets:

     The components of prepaid expenses and other current assets were as follows (shown in thousands):

		June 30,				December 31,
		2010				2009
Notes receivable — current		$	6,442			$	4,845
Prepaid income taxes			1,072				3,174
Other prepaid expenses and other current assets			11,729				8,355
Prepaid expenses and other current assets		$	19,243			$	16,374

Other assets:

     The components of other assets were as follows (shown in thousands):

		June 30,				December 31,
		2010				2009
Notes receivable — non-current		$	13,272			$	10,131
Prepaid expenses and other non-current assets			9,333				3,508
Other assets		$	22,605			$	13,639

     Notes receivable represent unsecured forgivable loans with terms of three to five years. The loans were issued to recruit and retain highly-skilled professionals. During the six months ended June 30, 2010, we issued $7.3 million in forgivable loans. The principal amount and accrued interest is expected to be forgiven by us over the term of the loans, so long as the professionals continue employment and comply with certain contractual requirements. The expense associated with the forgiveness of the principal amount of the loan is recorded as compensation expense over the service period, which is consistent with the term of the loans. The accrued interest is calculated based on the loan’s effective interest rate (approximately 5.0% per year) and is recorded as interest income. The forgiveness of such accrued interest is recorded as compensation expense, which aggregated to $0.3 million for the three months ended June 30, 2010 and 2009, respectively and $0.6 million for the six months ended June 30, 2010 and 2009, respectively.

     Prepaid expenses and other assets include signing and retention bonuses that are generally recoverable from employees if such employees should terminate their employment prior to fulfilling their obligations to us. Such amounts are amortized over the period in which they are recoverable from the employee in periods up to five years. During the six months ended June 30, 2010, we issued $10.9 million in signing and retention bonuses.

Property and Equipment:

     Property and equipment were comprised of the following (shown in thousands):

		June 30,				December 31,
		2010				2009
Furniture, fixtures and equipment		$	54,072			$	54,169
Software			29,962				27,308
Leasehold improvements			39,826				39,587
Property and equipment, at cost			123,860				121,064
Less: accumulated depreciation and amortization			(83,401	)			(78,089	)
Property and equipment, net		$	40,459			$	42,975

Other Current Liabilities:

     The components of other current liabilities were as follows (shown in thousands):

		June 30,				December 31,
		2010				2009
Deferred business acquisition obligations		$	18,371			$	7,588
Deferred revenue			11,857				13,039
Deferred rent			2,205				1,401
Commitments on abandoned real estate (see Note 13)			3,563				4,141
Interest rate swap liability (see Note 10)			—				4,116
Other liabilities			4,367				4,156
Total other current liabilities		$	40,363			$	34,441

     The deferred business acquisition obligations of $18.4 million at June 30, 2010 consisted of cash obligations and fixed monetary obligations payable in shares of our common stock. The number of shares to be issued for obligations payable in shares is based on the trading price of our common stock for a period of time prior to the issuance dates. During the three months ended June 30, 2010 we recorded $10.0 million of cash obligations, discounted to $9.7 million present value, in connection with the Daylight acquisition.

     The current portion of deferred rent relates to rent allowances and incentives on lease arrangements for our office facilities that expire at various dates through 2020.

     Deferred revenue represents advance billings to our clients, for services that have not been performed and earned.

     During the three months ended June 30, 2010 our $165.0 million notional value interest rate swap matured.

Other Non-Current Liabilities:

     The components of other non-current liabilities were as follows (shown in thousands):

		June 30,				December 31,
		2010				2009
Deferred business acquisition obligations		$	3,179			$	6,311
Deferred rent — long-term			9,250				9,740
Commitments on abandoned real estate see Note 13)			3,084				4,660
Interest rate swap liability (asset) (see Note 10)			1,329				(168	)
Other non-current liabilities			2,619				3,380
Total other liabilities		$	19,461			$	23,923

     The deferred business acquisition obligations of $3.2 million at June 30, 2010 consisted of cash obligations. The liability for deferred business acquisition obligations has been discounted to net present value.

     The long-term portion of deferred rent is comprised primarily of rent allowances and incentives related to leasehold improvements on lease arrangements for our office facilities that expire at various dates through 2020.

Note 9. Supplemental Consolidated Cash Flow Information

     Total interest paid during the six months ended June 30, 2010 and 2009 was $6.4 million and $7.3 million, respectively. We received $0.3 million in income tax refunds during the six months ended June 30, 2010 and paid $4.3 million in income taxes during the six months ended June 30, 2009.

Note 10. Comprehensive Income

     Comprehensive income, which consists of net income, foreign currency translation adjustments and unrealized gain or loss on our interest rate swap agreement, was as follows (shown in thousands):

		For the three months ended								For the six months ended
		June 30,								June 30,
		2010				2009				2010				2009
Net income		$	7,828			$	3,385			$	14,275			$	8,818
Foreign currency translation adjustment			(980	)			15,296				(4,456	)			13,173
Unrealized income on interest rate derivative, net of income tax benefits			769				623				1,563				1,106
Comprehensive income		$	7,617			$	19,304			$	11,382			$	23,097

     In December 2009, we entered into four interest rate swap agreements of equal amounts with four different banks for an aggregate notional value of $60.0 million. These agreements effectively fixed $60.0 million of our LIBOR base rate indebtedness at an average rate of 1.83% beginning July 1, 2010 through May 31, 2012. In March 2010, we entered into two interest rate swap agreements of equal amounts with two different banks for an aggregate notional value of $30.0 million. These agreements effectively fixed $30.0 million of our LIBOR base rate indebtedness at an average rate of 1.45% beginning July 1, 2010 through May 31, 2012.

     We expect the interest rate derivatives to be highly effective against changes in cash flows related to changes in interest rates and have recorded the derivative as a hedge. As a result, gains or losses related to fluctuations in fair value of the interest rate derivative are recorded as a component of accumulated other comprehensive income and reclassified into interest expense as the variable interest expense on our indebtedness is recorded. There was no ineffectiveness related to our hedges for the six months ended June 30, 2010 and 2009. During the six months ended June 30, 2010 and 2009 we recorded $4.2 million and $3.3 million in interest expense, respectively, associated with differentials to be received or paid under the instruments.

     As of June 30, 2010, we have a $1.3 million net liability related to the interest rate derivatives. During the six months ended June 30, 2010, we recorded $1.6 million of unrealized gains related to our derivatives, which is net of income taxes of $1.1 million, to accumulated other comprehensive income. As of June 30, 2010, accumulated other comprehensive income is comprised of foreign currency translation loss of $15.1 million and unrealized net loss on interest rate derivatives of $0.8 million.

Note 11. Fair Value

     Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:

Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2		Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
Level 3		Unobservable inputs for the asset or liability

     We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our interest rate swaps (see Note 10 — Comprehensive Income) are valued using counterparty quotations in over-the-counter markets. In addition, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk. The credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. However, as of June 30, 2010, we have assessed the

significance of the impact on the overall valuation and believe that these adjustments are not significant. As such, our derivative instruments are classified within Level 2.

     Additionally, the value of our bank borrowing credit agreement (see Note 12 — Bank Borrowings) was estimated to be 3% below its carrying value based on unobservable Level 3 inputs such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. We consider the recorded value of our other 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 June 30, 2010 based upon the short-term nature of the assets and liabilities.

     The following table summarizes the liability measured at fair value on a recurring basis at June 30, 2010 and December 31, 2009 (shown in thousands):

		Quoted Prices in
		Active Markets for				Significant Other				Significant
		Identical Assets				Observable Inputs				Unobservable Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
June 30, 2010
Interest rate swaps (recorded in other liabilities)			—			$	1,329				—			$	1,329
December 31, 2009
Interest rate swap (recorded in other liabilities)			—			$	3,948				—			$	3,948

Note 12. Bank Borrowings

     As of June 30, 2010, we maintained a multi-bank borrowing credit agreement consisting of a $275.0 million revolving credit facility which, subject to certain bank approvals, includes an option to increase to $375.0 million and a $225.0 million unsecured term loan facility. Borrowings under the revolving credit facility are payable in May 2012. Our credit agreement provides for borrowings in multiple currencies including US Dollars, Canadian Dollars, UK Pound Sterling and Euro. As of June 30, 2010, we had aggregate borrowings of $202.5 million, compared to $219.4 million as of December 31, 2009. Based on our financial covenant restrictions under our credit facility as of June 30, 2010, a maximum of approximately $100.0 million would be available in additional borrowings under our credit facility. In January 2010, we used a portion of our cash to prepay $40.0 million of our term loan facility under our credit facility which reduced future required quarterly payments on a pro rata basis. At our option, borrowings under the revolving credit facility and the term loan facility bear interest, in general, based on a variable rate equal to an applicable base rate or LIBOR, in each case plus an applicable margin. For LIBOR loans, the applicable margin will vary depending upon our consolidated leverage ratio (the ratio of total funded debt to adjusted EBITDA) and whether the loan is made under the term loan facility or revolving credit facility. As of June 30, 2010, the applicable margins on LIBOR loans under the term loan facility and revolving credit facility were 1.25% and 1.0%, respectively. As of June 30, 2010, the applicable margins for base rate loans under the term loan facility and revolving credit facility were 0.25% and zero, respectively. For LIBOR loans, the applicable margin will vary between 0.50% to 1.75% depending upon our performance and financial condition. Our average borrowing rate under our credit agreement (including the impact of our interest rate swap agreements) was 6.2% and 6.1% for the three and six months ended June 30, 2010, respectively, compared to 5.3% and 5.5% for the corresponding periods in 2009.

     Our credit agreement also includes certain financial covenants, including covenants that require that we maintain a consolidated leverage ratio of not greater than 3.25:1 and a consolidated fixed charge coverage ratio (the ratio of the sum of adjusted EBITDA and rental expense to the sum of cash interest expense and rental expense) of not less than 2.0:1. At June 30, 2010, under the definitions in the credit agreement, our consolidated leverage ratio was 2.27 and our consolidated fixed charge coverage ratio was 3.53. In addition to the financial covenants, our credit agreement contains customary affirmative and negative covenants and is subject to customary exceptions. These covenants limit our ability to incur liens or other encumbrances or make investments, incur indebtedness, enter into mergers, consolidations and asset sales, pay dividends or other distributions, change the nature of our business and engage in transactions with affiliates. We were in compliance with the terms of our credit agreement as of June 30, 2010 and December 31, 2009; however there can be no assurances that we will remain in compliance in the future.

Note 13. Other Operating Costs

     Other operating costs consisted of the following (shown in thousands):

		For the three months ended								For the six months ended
		June 30,								June 30,
		2010				2009				2010				2009
Adjustments to office closures obligations, discounted and net of expected sublease income			—			$	4,225				—			$	4,525
Accelerated depreciation on leasehold improvements and furniture due to expected office closures			—				387				—				995
Total other operating costs		$	—			$	4,612			$	—			$	5,520

     During the three and six months ended June 30, 2009, we recorded $4.6 million and $5.5 million for office closure related costs. During the three months ended June 30, 2009, we vacated and relocated one of our New York offices, which resulted in a $3.6 million charge, and we reduced office space in other locations. The costs consisted of adjustments to office closure obligations and accelerated depreciation on leasehold improvements in offices to be abandoned. In determining our reserves for office consolidation expenses at June 30, 2010, we estimated future sublease proceeds based on market conditions of $4.1 million on three properties for which we do not have a contracted subtenant.

     We continue to monitor our estimates for office closure obligations and related expected sublease income. Such estimates are subject to market conditions and have been adjusted and may be adjusted in future periods as necessary. During the six months ended June 30, 2010, we paid $2.2 million of our office obligation costs resulting in a balance in current and non-current liabilities of $6.6 million as of June 30, 2010. Of the $6.6 million liability recorded at June 30, 2010, we expect to pay $3.6 million in cash relating to these obligations during the next twelve months. The office closure obligations have been discounted to net present value and are not allocated to our business segments.

Item 2.

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere 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 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used in this report, the words “anticipate,” “believe,” “intend,” “estimate,” “expect,” and similar expressions are intended to identify such forward-looking statements. We caution readers that there may be events in the future that we are not able to accurately predict or control and the information contained in the forward-looking statements is inherently uncertain and subject to a number of risks that could cause actual results to differ materially from those indicated in the forward-looking statements including, without limitation: the success and timing of our strategy implementation of our strategic business assessment; the success of our organizational changes and cost reduction actions; risks inherent in international operation, including foreign currency fluctuations; ability to make acquisitions; pace, timing and integration of acquisitions; impairment charges; management of professional staff, including dependence on key personnel, recruiting, attrition and the ability to successfully integrate new consultants into our practices; utilization rates; conflicts of interest; potential loss of clients; our clients’ financial condition and their ability to make payments to us; risks inherent with litigation; higher risk client assignments; professional liability; potential legislative and regulatory changes; continued access to capital; and general economic conditions. Further information on these and other potential factors that could affect our financial results is included in our Annual Report on Form 10-K and prior filings with the SEC under the “Risk Factors” sections and elsewhere in those filings. We cannot guarantee any future results, levels of activity, performance or achievement and we undertake no obligation to update any of our forward-looking statements.

Overview

     We are an independent specialty consulting firm that combines deep industry knowledge with technical expertise to enable companies to create and protect value in the face of complex and critical business risks and opportunities. Professional services include dispute, investigative, financial, operational and business advisory, risk management and regulatory advisory, strategy, economic analysis and transaction advisory solutions. We provide our services to government agencies, legal counsel and large companies facing the challenges of uncertainty, risk, distress and significant change. We focus on industries undergoing substantial regulatory or structural change and on the issues driving these transformations.

     Our revenues, margins and profits may continue to be impacted by a significant decline in the United States and world economies. Examples of other impacting events that may affect us both favorably and unfavorably are natural disasters, legislative and regulatory changes, capital market disruptions, reductions in discretionary consulting spending, crises in the energy, healthcare, financial services, insurance and other industries, and significant client specific events.

     We derive our revenues from fees and reimbursable expenses for professional services. A majority of our revenues are generated under hourly or daily rates billed on a time and expense basis. Clients are typically invoiced on a monthly basis, with revenue recognized as the services are provided. There are also client engagements in which we are paid a fixed amount for our services, often referred to as fixed fee billings. This may be one single amount covering the whole engagement or several amounts for various phases or functions. From time to time, we earn incremental revenues, in addition to hourly or fixed fee billings, which are contingent on the attainment of certain contractual milestones or objectives. Such incremental revenues may cause unusual variations in quarterly revenues and operating results.

     Our most significant expense is cost of services before reimbursable expenses, which generally relates to costs associated with generating revenues, and includes consultant compensation and benefits, sales and marketing expenses and the direct costs of recruiting and training the consulting staff. Consultant compensation consists of salaries, incentive compensation, stock compensation and benefits. Our most significant overhead expenses are administrative compensation and benefits and office-related expenses. Administrative compensation includes payroll costs, incentive compensation, stock compensation and benefits for corporate management and administrative personnel, which are used to indirectly support client projects. Office-related expenses

primarily consist of rent for our offices. Other administrative costs include marketing, technology, finance and human capital management.

Human Capital Resources

     Our human capital resources include consulting professionals and administrative and management personnel. As a result of both recruiting activities and business acquisitions, we have a diverse pool of consultants and administrative support staff with various skills and experience.

     The average number of FTE consultants is adjusted for part-time status and takes into consideration hiring and attrition which occurred during the reporting period.

     In addition to our consultants and administrative personnel, we hire project employees on a short-term basis or seasonal basis. We believe the practice of hiring these employees provides greater flexibility in adjusting consulting and administrative personnel levels in response to changes in demand for our professional services. The short-term or seasonal hires supplement services on certain engagements or provide additional administrative support to our consultants.

     In connection with recruiting activities and business acquisitions, our policy is to obtain non-solicitation covenants from senior and some mid-level consultants. Most of these covenants have restrictions that extend 12 months beyond termination of employment. We utilize these contractual agreements and other agreements to reduce the risk of attrition and to safeguard our existing clients, staff and projects.

     The following table summarizes for comparative purposes certain financial and statistical data for our consolidated results.

Results of Operations
2010 compared to 2009 — For the three and six months ended June 30

										2010 over												2010 over
										2009												2009
		For the three months ended								Increase				For the six months ended								Increase
(Amounts in thousands, except		June 30,								(Decrease)				June 30,								(Decrease)
per share data and metrics)		2010				2009				Percentage				2010				2009				Percentage
Revenues before reimbursements		$	154,617			$	157,332				(1.7	)		$	308,487			$	324,544				(4.9	)
Reimbursements			17,706				16,224				9.1				37,386				31,374				19.2
Total revenues			172,323				173,556				(0.7	)			345,873				355,918				(2.8	)
Cost of services before reimbursable expenses			102,128				101,967				0.2				204,358				212,234				(3.7	)
Reimbursable expenses			17,706				16,224				9.1				37,386				31,374				19.2
Total cost of services			119,834				118,191				1.4				241,744				243,608				(0.8	)
General and administrative expenses			29,089				33,513				(13.2	)			59,549				68,406				(12.9	)
Depreciation expense			3,553				4,320				(17.8	)			7,354				8,960				(17.9	)
Amortization expense			2,962				3,392				(12.7	)			5,758				7,012				(17.9	)
Other operating costs:
Office consolidation			—				4,612				(100.0	)			—				5,520				(100.0	)
Operating income			16,885				9,528				77.2				31,468				22,412				40.4
Interest expense			3,508				3,952				(11.2	)			6,986				7,920				(11.8	)
Interest income			(311	)			(312	)			(0.3	)			(624	)			(608	)			2.6
Other expense (income), net			(44	)			(87	)			(49.4	)			61				(408	)			(115.0	)
Income before income tax expense			13,732				5,975				129.8				25,045				15,508				61.5
Income tax expense			5,904				2,590				128.0				10,770				6,690				61.0
Net income		$	7,828			$	3,385				131.3			$	14,275			$	8,818				61.9
Basic net income per share		$	0.16			$	0.07				128.6			$	0.29			$	0.18				61.1
Diluted net income per share		$	0.16			$	0.07				128.6			$	0.28			$	0.18				55.6
Key operating metrics:
Average FTE
—Billable			1,660				1,832				(9.4	)			1,669				1,886				(11.5	)
—Non-billable			519				541				(4.1	)			518				561				(7.7	)
Period End FTE
—Billable			1,668				1,778				(6.2	)			1,668				1,778				(6.2	)
—Non-billable			522				535				(2.4	)			522				535				(2.4	)
Bill Rate		$	266			$	250				6.4			$	264			$	251				5.2
Utilization			73	%			73	%			—				75	%			74	%			1.4

     Earnings Summary. Net income for the three months ended June 30, 2010 increased 131.3% compared to the corresponding period in 2009. Net income was higher in 2010 mainly due to lower office consolidation costs and general and administrative costs. These costs were lower in 2010 as a result of our cost reduction efforts and efficiencies achieved through office consolidation. In addition, we recorded lower bad debt expense in the three months ended June 30, 2010 compared to the corresponding period in 2009, which was adversely impacted by the 2009 financial crisis. Revenues before reimbursements decreased 1.7% for the three months ended June 30, 2010 compared to the corresponding period in 2009. Revenues decreased mainly due to the reduced number of consultants for the three months ended June 30, 2010 compared to the corresponding period in 2009 as we responded to lower demand in certain markets and repositioned several service lines. The decrease was partially offset by an increase of $3.0 million for the three months ended June 30, 2010 compared to the corresponding period in 2009, in revenues relating to projects contingent on the attainment of performance objectives and from the impact of our recent acquisitions. Reimbursement revenue was up 9.1% due to the increased use of specialized independent contractors for the three months ended June 30, 2010 compared to the corresponding period in 2009.

     Net income for the six months ended June 30, 2010 increased 61.9% compared to the corresponding period in 2009. Net income increased due to the lower office consolidation and general administrative costs discussed above. In addition, severance costs were $1.8 million and $4.3 million for the six months ended June 30, 2010 and 2009, respectively. The higher costs in 2009 reflected our efforts to realign our cost structure to match the anticipated decline in revenue resulting from the impact of unprecedented economic conditions which began in 2008. Revenues before reimbursements decreased 4.9% for the six months ended June 30, 2010 compared to the corresponding period in 2009, mainly due to the reduced number of consultants as we responded to lower demand in certain markets and repositioned several service lines. The decrease was partially offset by the positive impact of our recent acquisitions. Reimbursement revenue was up 19.2% due to the increased use of specialized independent contractors for the six months ended June 30, 2010 compared to the corresponding period in 2009.

     Overall utilization was flat for the three months ended June 30, 2010 compared to the corresponding period in 2009 and increased slightly for the six months ended June 30, 2010 compared to the corresponding period in 2009. Average bill rate increased 6.4% and 5.2% over the same periods. Excluding recent acquisitions, average full time equivalent consultants decreased 15.0% for the three months ended June 30, 2010 from the corresponding period in 2009 to 1,660 and decreased 16.0% for the six months ended June 30, 2010 from the corresponding period in 2009 to 1,669. The decrease in average full-time equivalent consultants was a result of staffing reductions made during 2009, certain late 2009 and early 2010 departures, and the redeployment of certain service areas. The increase in bill rate reflected an improved business climate, a higher mix of more senior consultant utilization and overall efforts to increase rates in 2010.

     For the three and six months ended June 30, 2010, both cost of services before reimbursable expenses and general and administrative expenses were lower than in the corresponding periods in 2009, reflecting the impact of the cost reduction initiatives implemented throughout 2009 and lower severance costs. Cost of services decreases were partially offset by the impact of recent acquisitions. Depreciation, amortization and interest expense were also significantly lower for the three and six months ended June 30, 2010 compared to the corresponding period in 2009.

     Revenues before Reimbursements. For the three months ended June 30, 2010, revenues before reimbursements decreased 1.7% compared to the corresponding period in 2009. Excluding the impact of recent acquisitions, average full time equivalent consultants decreased 15.0% compared to the corresponding period in 2009 due to the repositioning of several service lines and other late 2009 and early 2010 departures. Our utilization rate was flat over the same periods. The decrease in average full-time equivalent consultants was partially offset by a 6.4% increase in bill rate. Incremental revenue from acquisitions and performance fees partially offset the decrease in revenues before reimbursements. Projects contingent on the attainment of performance objectives were $6.0 million and $3.1 million for the three months ended June 30, 2010 and 2009, respectively. On a pro forma basis to include the impact of our recent acquisitions, our revenues before reimbursement would have decreased 6.1%.

     For the six months ended June 30, 2010, revenues before reimbursements decreased 4.9% compared to the corresponding period in 2009. Excluding the impact of recent acquisitions, average full time equivalent consultants decreased 16.0% as a result of above mentioned reductions. The decrease was partially offset by improvements in our utilization and bill rate and the impact of our recent acquisitions. The overall consultant utilization rate was 75% and 74% for the six months ended June 30, 2010 and 2009, respectively. Bill rate increased 5.2% for the six months ended June 30, 2010 compared to the corresponding period in 2009, which partially offset the decrease due to headcount. On a pro forma basis to include the impact of our recent acquisitions, our revenues before reimbursement would have decreased 8.3%.

     Cost of Services before Reimbursable Expenses. Cost of services before reimbursable expenses was relatively flat for the three months ended June 30, 2010 compared to the corresponding period in 2009. The decrease as a result of our staffing reductions due to lower demand in certain markets and the repositioning of several service lines and other cost-saving initiatives was offset primarily by higher incentive compensation expense and costs associated with new hires and acquisitions. The staffing reductions reduced consultant compensation expense, mainly due to wage savings.

     Cost of services before reimbursable expenses decreased 3.7% for the six months ended June 30, 2010 compared to the corresponding period in 2009. The decrease was a result of redeployment of certain service areas and our cost-saving initiatives which included staffing reductions, managing salary adjustments and reducing discretionary costs primarily in response to lower demand. The staffing reductions reduced consultant compensation expense, mainly due to wage savings. Severance costs relating to

cost of services for the six months ended June 30, 2010 and 2009 were $1.5 million and $3.9 million, respectively. These savings were partially offset by higher incentive compensation expense as a result of improved operating performance and the impact of recent acquisitions.

     General and Administrative Expenses. General and administrative expenses decreased 13.2% to $29.1 million for the three months ended June 30, 2010 compared to the corresponding period in 2009 and decreased 12.9% to $59.5 million for the six months ended June 30, 2010 compared to the corresponding period in 2009. The decrease in general and administrative expenses was the result of reduced bad debt expense and cost-saving initiatives which included lower discretionary spending, lower facility expenses as a result of our office consolidations and the benefit of headcount reductions enacted after the first quarter of 2009. Average full-time equivalent employees for the three months ended June 30, 2010 and 2009 were 519 and 541, respectively and were 518 and 561 for the six months ended June 30, 2010 and 2009, respectively. General and administrative expenses were approximately 19% and 21% of revenues before reimbursements for the three months ended June 30, 2010 and 2009, respectively and approximately 19% and 21% of revenues before reimbursements for the six months ended June 30, 2010 and 2009, respectively, reflecting the cost-saving initiatives discussed above. Bad debt expense decreased by $2.0 million for the three months ended June 30, 2010 compared to the corresponding period in 2009 and represented approximately 1.5% and 2.8% of revenues before reimbursement for those periods, respectively. Similarly, bad debt expense decreased by $4.2 million for the six months ended June 30, 2010 compared to the corresponding period in 2009 and represented approximately 1.3% and 2.5% of revenues before reimbursement for those periods, respectively. These reductions reflected improved aging of our accounts receivable and the negative impact of the financial crisis on our receivables in the first half of 2009. Our allowance for doubtful accounts receivable is based on historical experience and management judgment and may change based on market conditions or specific client circumstances.

     Other Operating Costs — Office Consolidation. We did not record any office consolidation costs during the three and six months ended June 30, 2010. During the corresponding periods in 2009, we recorded $4.6 million and $5.5 million of office closure-related costs which consisted of adjustments to office closure obligations, the write down of leasehold improvements and accelerated depreciation on leasehold improvements in offices to be abandoned in future periods. During the three months ended June 30, 2009, we vacated and relocated one of our New York offices, which resulted in a $3.6 million charge, and we reduced office space in other locations. We have an ongoing program to eliminate duplicate facilities and to consolidate and close certain offices which could result in future charges.

     We continue to monitor our estimates for office closure obligations and related expected sublease income. Such estimates are subject to market conditions and may be adjusted in the future periods as necessary. The office closure obligations have been discounted to net present value. In the next twelve months, we expect our cash expenditures to be $3.6 million relating to these obligations. In determining our reserves for office consolidation expenses at June 30, 2010, we estimated future sublease proceeds based on market conditions of $4.1 million on three properties for which we do not have a contracted subtenant.

     Depreciation Expense. Depreciation expense decreased 17.8% and 17.9% for the three and six months ended June 30, 2010, respectively, compared to the corresponding periods in 2009, due primarily to reduced depreciation expense on leasehold improvements resulting, in part, from office consolidation efforts.

     Amortization Expense. Amortization expense decreased 12.7% and 17.9% for the three and six months ended June 30, 2010, respectively, compared to the corresponding periods in 2009, due primarily to the passage of time for certain intangible assets, partially offset by amortization relating to our 2009 and 2010 acquisitions.

     Interest Expense. Interest expense decreased 11.2% and 11.8% for the three and six months ended June 30, 2010, respectively, compared to the corresponding periods in 2009. The decreases primarily related to lower average borrowing balances under our credit agreement and our term loan. During the quarter ended March 31, 2010, using our excess cash, we made an unscheduled repayment on our term loan of $40.0 million. Our average borrowing rate under our credit agreement (including the impact of our interest rate swap agreements) was 6.1% and 5.5% for the six months ended June 30, 2010 and 2009, respectively, and 6.2% and 5.3% for the three months ended June 30, 2010 and 2009, respectively.

     Income Tax Expense. The effective income tax rate for the each of three and six month periods ended June 30, 2010 and 2009 was 43.0%. Our effective income tax rate is attributable to the mix of income earned in various tax jurisdictions, including state and foreign jurisdictions, which have different income tax rates.

Segment Results

     Our business is organized in four reportable segments — Dispute and Investigative Services, Business Consulting Services, International Consulting and Economic Consulting. These reportable segments are generally defined by the nature of their services and geography and may be the aggregation of multiple operating segments as indicated in the description below. During the first quarter of 2010, certain organizational changes were made which, along with other factors, resulted in the identification of two additional operating segments and the repositioning of certain service offerings between the segments. Prior year comparative segment data has been restated to be consistent with the current presentation.

     The Dispute and Investigative Services reporting segment provides a wide range of services to clients facing the challenges of disputes, litigation, forensic investigation, discovery and regulatory compliance. The clients of this segment are principally law firms, corporate general counsel and corporate boards.

     The Business Consulting Services reporting segment provides strategic, operational, financial, regulatory and technical management consulting services to clients, principally “C” suite and corporate management, government entities and law firms. Beginning as of the first quarter of 2010, the reporting segment is comprised of three operating segments, Energy, Healthcare and Other Business Consulting practices. The Energy and Healthcare business units are defined as operating segments due to their size, importance and organizational reporting relationships. The Energy and Healthcare operating segments provide services to clients in those respective markets and Other Business Consulting practices provides operations advisory, valuation and restructuring services to financial services and other markets.

     The International Consulting reporting segment provides a mix of dispute and business consulting services to clients predominately outside North America. The clients are principally “C” suite and corporate management, government entities, and law firms.

     The Economic Consulting reporting segment provides economic and financial analyses of complex legal and business issues principally for law firms, corporations and government agencies. Expertise includes areas such as antitrust, corporate finance and governance, bankruptcy, intellectual property, investment banking, labor market discrimination and compensation, corporate valuation and securities litigation.

     The following information includes segment revenues before reimbursement, segment total revenues and segment operating profit. Certain unallocated expense amounts related to specific reporting segments have been excluded from the segment operating profit to be consistent with the information used by management to evaluate segment performance (see Note 3 — Segment Information in the notes to the Consolidated Financial Statements). Segment operating profit represents total revenue less cost of services excluding long-term compensation expense related to consulting personnel. The information presented does not necessarily reflect the results of segment operations that would have occurred had the segments been stand-alone businesses.

Dispute and Investigative Services

										2010 over												2010 over
										2009												2009
		For the three months ended								Increase				For the six months ended								Increase
		June 30,								(Decrease)				June 30,								(Decrease)
		2010				2009				Percentage				2010				2009				Percentage
Revenues before reimbursements (in 000’s)		$	59,737			$	70,124				(14.8	)		$	123,075			$	142,027				(13.3	)
Total revenues (in 000’s)			63,867				76,758				(16.8	)			131,761				154,254				(14.6	)
Segment operating profit (in 000’s)			21,585				28,369				(23.9	)			46,993				56,603				(17.0	)
Segment operating profit margin			36.1	%			40.5	%			(10.9	)			38.2	%			39.9	%			(4.3	)
Average FTE consultants			642				764				(16.0	)			644				787				(18.2	)
Average utilization rates based on 1,850 hours			69	%			72	%			(4.2	)			72	%			73	%			(1.4	)
Bill rate		$	300			$	276				8.7			$	295			$	276				6.9

     Revenues before reimbursements for this segment decreased 14.8% during the three months ended June 30, 2010 compared to the corresponding period in 2009. The decrease reflected the 16.0% decrease in average full-time equivalent consultants, as a result of our response to the continued lower demand throughout 2009 as well as higher than normal voluntary attrition, particularly in our West region. Utilization decreased 4.2% mainly due to lower demand in our construction market. Bill rates increased 8.7% for the three months ended June 30, 2010 compared to the corresponding period in 2009. The increase was mainly a result of efforts to increase rates over prior year as well as change in consultant mix with higher billable rates. The decrease in revenue was partially offset by the acquisition during 2010 of Daylight. Segment operating profit decreased $6.8 million and segment operating profit margin decreased 4.4 percentage points, primarily as result of lower utilization.

     Revenues before reimbursements for this segment decreased 13.3% during the six months ended June 30, 2010 compared to the corresponding period in 2009. The decrease reflects the 18.2% decrease in average full-time equivalent consultants, as discussed above. Utilization decreased 1.4% mainly due to lower demand in our construction market. Bill rates increased 6.9% for the six months ended June 30, 2010 compared to the corresponding period in 2009. The increase was mainly a result of efforts to increase rates over the prior year as well as change in consultant mix with higher billable rates. Segment operating profit decreased $9.6 million and segment operating profit margin decreased 1.7 percentage points, primarily as result of lower utilization.

Business Consulting Services

										2010 over												2010 over
										2009												2009
		For the three months ended								Increase				For the six months ended								Increase
		June 30,								(Decrease)				June 30,								(Decrease)
		2010				2009				Percentage				2010				2009				Percentage
Revenues before reimbursements (in 000’s)		$	63,430			$	57,883				9.6			$	120,829			$	124,789				(3.2	)
Total revenues (in 000’s)			71,756				63,393				13.2				138,006				136,909				(0.8	)
Segment operating profit (in 000’s)			23,148				20,332				13.9				42,165				43,784				(3.7	)
Segment operating profit margin			36.5	%			35.1	%			4.0				34.9	%			35.1	%			(0.6	)
Average FTE consultants			699				735				(4.9	)			702				769				(8.7	)
Average utilization rates based on 1,850 hours			81	%			75	%			8.0				81	%			76	%			6.6
Bill rate		$	217			$	210				3.3			$	217			$	214				1.4

     Revenues before reimbursements for this segment increased 9.6% during the three months ended June 30, 2010 compared to the corresponding period in 2009. Utilization increased 8.0%, reflecting the increase in demand in our healthcare and our other business consulting services. Average full-time equivalent consultants decreased 4.9%, reflecting our response to the continued lower demand throughout 2009 and the redeployment of some of our consulting resources. The decrease in average full-time equivalent consultants was partially offset by the acquisition of Summit Blue on December 31, 2009 which added approximately 60 consultants. Including Summit Blue on a pro forma basis, revenue before reimbursements would have increased 3.9%. In addition, projects which are contingent on the attainment of performance objectives contributed to the increase. Bill rates increased 3.3% mainly due to the increased demand and modest bill rate increases in our healthcare practice which was partially offset by an increase in projects with lower rates and higher utilization at lower rates in our energy practice. Segment operating profit increased $2.8 million and segment operating profit margin increased 1.4 percentage points for the three months ended June 30, 2010 compared to the corresponding period in 2009. Segment operating profit margin increased due to higher performance fees mentioned above partially offset by higher cost of services, including higher incentive compensation expense as a result of improved operating performance.

     Revenues before reimbursements for this segment decreased 3.2% during the six months ended June 30, 2010 compared to the corresponding period in 2009. The decline reflected the decrease in average full-time equivalent consultants of 8.7%, including the impact of recent acquisitions. Utilization increased 6.6%, reflecting the increase in demand mentioned above offset by the redeployment of some of our consulting resources at the end of 2009. The decrease was partially offset by the Summit Blue acquisition and increased bill rates. Including Summit Blue on a pro forma basis, revenue before reimbursements would have decreased 7.9%. Segment operating profit decreased $1.6 million and segment operating profit margin decreased slightly by 0.2 percentage points for the six months ended June 30, 2010 compared to the corresponding period in 2009. Segment operating profit margin decreased due to lower revenues discussed above partially offset by lower cost of services, which included $0.3 million and $1.7 million in severance costs for the six months ended June 30, 2010 and 2009, respectively.

International Consulting

										2010 over												2010 over
										2009												2009
		For the three months ended								Increase				For the six months ended								Increase
		June 30,								(Decrease)				June 30,								(Decrease)
		2010				2009				Percentage				2010				2009				Percentage
Revenues before reimbursements (in 000’s)		$	14,484			$	16,067				(9.9	)		$	30,629			$	31,583				(3.0	)
Total revenues (in 000’s)			18,078				19,250				(6.1	)			38,875				36,553				6.4
Segment operating profit (in 000’s)			3,663				4,406				(16.9	)			7,403				8,582				(13.7	)
Segment operating profit margin			25.3	%			27.4	%			(7.7	)			24.2	%			27.2	%			(11.0	)
Average FTE consultants			200				233				(14.2	)			206				229				(10.0	)
Average utilization rates based on 1,850 hours			60	%			61	%			(1.6	)			62	%			64	%			(3.1	)
Bill rate		$	259			$	239				8.4			$	261			$	236				10.6

     Revenues before reimbursements for this segment decreased 9.9% during the three months ended June 30, 2010 compared to the corresponding period in 2009. The decrease was mainly due to lower average full-time equivalent consultants which decreased 14.2% for the three months ended June 30, 2010 compared to the corresponding period in 2009. The decrease in average full-time equivalent consultants was due in part to voluntary attrition as well as planned reductions in response to lower demand as the segment reacted to the settlement of a large construction dispute engagement. Additionally, reductions to public spending in the UK as a result of a change in government negatively impacted demand in the segment for the three months ended June 30, 2010. Utilization decreased 1.6% for the three months ended June 30, 2010 compared to the corresponding period in 2009 while bill rates increased 8.4% for the same period due to a change in consultant mix and an effort to increase bill rates in 2010. Segment operating profit decreased $0.7 million and segment operating profit margin declined 2.1 percentage points for the three months ended June 30, 2010 compared to the corresponding period in 2009 primarily related to the decreased construction dispute revenue.

     Revenues before reimbursements for this segment decreased 3.0% during the six months ended June 30, 2010 compared to the corresponding period in 2009. As previously discussed, the decrease was mainly due to lower average full-time equivalent consultants which decreased 10.0% for the six months ended June 30, 2010 compared to the corresponding period in 2009. Utilization decreased 3.1% for the six months ended June 30, 2010 compared to the corresponding period in 2009 while bill rates increased 10.6%. Segment operating profit decreased $1.2 million and segment operating profit margin declined 3.0 percentage points for the six months ended June 30, 2010 compared to the corresponding period in 2009 primarily related to lower utilization as a result of the decreased construction dispute revenue.

Economic Consulting

										2010 over												2010 over
										2009												2009
		For the three months ended								Increase				For the six months ended								Increase
		June 30,								(Decrease)				June 30,								(Decrease)
		2010				2009				Percentage				2010				2009				Percentage
Revenues before reimbursements (in 000’s)		$	16,966			$	13,258				28.0			$	33,954			$	26,145				29.9
Total revenues (in 000’s)			18,622				14,155				31.6				37,231				28,202				32.0
Segment operating profit (in 000’s)			6,273				4,888				28.3				12,569				9,532				31.9
Segment operating profit margin			37.0	%			36.9	%			0.3				37.0	%			36.5	%			1.4
Average FTE consultants			119				100				19.0				117				100				17.0
Average utilization rates based on 1,850 hours			76	%			87	%			(12.6	)			82	%			86	%			(4.7	)
Bill rate		$	385			$	344				11.9			$	376			$	344				9.3