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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



|            |  |                                                                                                                                          |  | 
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | 
|(Mark One)x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  As of and for the year ended December 31, 2004  OR |  | 
|            |  |                                                                                                                                         
| ̈           |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                 |  | 



Commission File No.
0-28830



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Navigant Consulting, Inc.

(Exact
name of Registrant as specified in its charter)



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



615 North Wabash
Avenue, Chicago, Illinois 60611

(Address of principal executive offices, including zip code)



(312) 573-5600

(Registrants telephone number, including area code)



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Securities registered pursuant to Section 12(b) of the
Act:



|                                         |  |                                          
|---------------------------------------- |  | -----------------------------------------
|Title of each class                      |  | Name of each exchange on which registered
|Common Stock, par value $0.001 per share |  | New York Stock Exchange                  
|Preferred Stock Purchase Rights          |  | New York Stock Exchange                  



Securities
registered pursuant to Section 12(g) of the Act:



None



Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  YES  x         NO ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in a definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ̈



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  YES  x         NO ̈



As of March 10, 2005, approximately 51.2 million shares of the
Registrants common stock, par value $0.001 per share (Common Stock), were outstanding. The aggregate market value of shares of Common Stock held by non-affiliates, based upon the closing sale price of the stock on the New York
Stock Exchange on March 7, 2005, was approximately $1.4 billion. The Registrants Proxy Statement for the Annual Meeting of Stockholders, scheduled to be held on May 4, 2005, is incorporated by reference into Part III of this Annual Report on
Form 10-K.



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NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

FORM 10-K

AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2004



TABLE OF CONTENTS



|         |  |                                                                                                                |  |     
|-------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                |  | Page
|PART I   |  |                                                                                                                |  |     
|Item 1.  |  | Business                                                                                                       |  | 3   
|Item 2.  |  | Properties                                                                                                     |  | 8   
|Item 3.  |  | Legal Proceedings                                                                                              |  | 8   
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                            |  | 9   
|         |  | Executive Officers of the Registrant                                                                           |  | 9   
|         |  |                                                                                                               
|PART II  |  |                                                                                                                |  |     
|Item 5.  |  | Market for Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities    |  | 11  
|Item 6.  |  | Selected Financial Data                                                                                        |  | 13  
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 14  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |  | 24  
|Item 8.  |  | Consolidated Financial Statements and Supplemental Data                                                        |  | 25  
|Item 9.  |  | Changes In and Disagreements with the Companys Independent Accountants on Accounting and Financial Disclosure |  | 25  
|Item 9A. |  | Controls and Procedures                                                                                        |  | 25  
|Item 9B. |  | Other Information                                                                                              |  | 26  
|         |  |                                                                                                               
|PART III |  |                                                                                                                |  |     
|Item 10. |  | Directors and Executive Officers of the Registrant                                                             |  | 27  
|Item 11. |  | Executive Compensation                                                                                         |  | 27  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                 |  | 27  
|Item 13. |  | Certain Relationships and Related Transactions                                                                 |  | 27  
|Item 14. |  | Principal Independent Accountant Fees and Services                                                             |  | 27  
|         |  |                                                                                                               
|PART IV  |  |                                                                                                                |  |     
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                     |  | 28  
|         |  | Report of Independent Registered Public Accounting Firm                                                        |  | F-2 
|         |  | Consolidated Balance Sheets                                                                                    |  | F-3 
|         |  | Consolidated Statements ofIncome                                                                               |  | F-4 
|         |  | Consolidated Statements of Stockholders Equity                                                                |  | F-5 
|         |  | Consolidated Statements of Cash Flows                                                                          |  | F-6 
|         |  | Notes to Consolidated Financial Statements                                                                     |  | F-7 



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PART I



Statements included in this
report are intended to be, and are hereby identified as forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this report, including, without
limitation, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations. When used in this report, the words anticipate, believe, intend, estimate,
expect, and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. The Company cautions readers that forward-looking statements, including without limitation those
relating to the Companys future business prospects, revenues, working capital, liquidity and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the
forward-looking statements, due to several important factors herein identified, among others, and other risks and factors identified from time to time in the Companys reports filed with the SEC. The Company undertakes no obligation to publicly
update or revise any forward-looking statements to reflect current or future events or circumstances.



Item 1.Business.



General



Navigant
Consulting, Inc. (the Company or NCI) is a specialized independent consulting firm providing litigation, financial services, healthcare, energy and operational consulting services to government agencies, legal counsel, and
large companies facing the challenges of uncertainty, risk, distress and significant change. The Company focuses on industries undergoing substantial regulatory or structural change and on the issues driving these transformations.



The Company is a Delaware corporation headquartered in Chicago, Illinois. The
Companys executive office is located at 615 North Wabash Avenue, Chicago, Illinois 60611. Its telephone number is (312) 573-5600. The Companys common stock is traded on the New York Stock Exchange under the symbol NCI.



Navigant is a service mark of Navigant
International, Inc. NCI is not affiliated, associated, or in any way connected with Navigant International, Inc. and NCIs use of Navigant is made under license from Navigant International, Inc.



(a) General Development of Business



The Company had its initial public offering in 1996 and three subsequent
public offerings, one in 1997 and two in 1998. The Companys current management team was installed in 2000. From 2001 to 2004, the Company acquired twelve consulting firms that were complementary to its current businesses. The most significant
acquisitions during this period were Hunter & Associates Management Services, Inc. (Hunter), which occurred in 2002, and Tucker Alan, Inc. (Tucker), which occurred in 2004. The Company is required to furnish pro forma
financial information relating to the Hunter and Tucker acquisitions, which has been included in the notes to the Companys consolidated financial statements.



The Companys business structure consists of two business segments: Financial & Claims Consulting and Energy
Consulting. Each business segment has direct responsibility and accountability for its decisions, costs, and profits. The Companys consultants have the autonomy and authority to seek, engage and complete assignments. This business model and
the Companys experience, reputation and industry focus enable it to compete effectively in the business and professional services consulting marketplace.



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(b) Financial Information about Business Segments



Segment operating revenues and segment operating profits (together with a reconciliation to operating income) attributable
to each segment for each of the last three years are set forth in Note 4 in the notes to the Companys consolidated financial statements.



The relative percentages of operating revenue attributable to each segment were as follows:



|                              |  |      |   |  |      |   |  |      |  
|----------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                              |  | 2004 |   |  | 2003 |   |  | 2002 |  
|Financial & Claims Consulting |  | 86.8 | % |  | 77.4 | % |  | 71.2 | %
|Energy Consulting             |  | 13.2 | % |  | 22.6 | % |  | 28.8 | %



The relative
percentages of operating profits attributable to each segment were as follows:



|                              |  |      |   |  |      |   |  |      |  
|----------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                              |  | 2004 |   |  | 2003 |   |  | 2002 |  
|Financial & Claims Consulting |  | 87.9 | % |  | 87.0 | % |  | 87.5 | %
|Energy Consulting             |  | 12.1 | % |  | 13.0 | % |  | 12.5 | %



Segment operating
profits as a percentage of segment revenue were as follows:



|                               |  |      |   |  |      |   |  |      |  
|------------------------------ |  | ---- | - |  | ---- | - |  | ---- | -
|                               |  | 2004 |   |  | 2003 |   |  | 2002 |  
|Financial & Claims Consulting  |  | 19.6 | % |  | 18.7 | % |  | 14.2 | %
|Energy Consulting              |  | 17.7 | % |  | 9.5  | % |  | 5.0  | %
|Total segment operating profit |  | 19.3 | % |  | 16.6 | % |  | 11.5 | %



The information
presented above does not necessarily reflect the results of segment operations that would have occurred had the segments been stand-alone businesses. Certain operating expenses, which relate to general corporate costs, were allocated to operating
segments based on consulting fee revenues. Certain operating expenses, which primarily relate to operating segments, have been excluded for comparative purposes from the segment operating profit amounts.



(c) Narrative Description of Business



Overview



The Company markets its services directly to senior and mid-level
executives. A variety of business development and marketing channels are used to communicate directly with current and prospective clients, including on-site presentations, industry seminars, and industry-specific articles. New engagements are
sought and won by the Companys senior and mid-level consultants. Future performance will continue to depend on the consultants ability to win new engagements.



A significant portion of new business arises from prior client engagements. In addition, the Company seeks to leverage the
client relationships in one business segment to cross sell existing services provided by the other segment. Clients frequently expand the scope of engagements during delivery to include follow-on, complementary activities. In addition, on-site
presence affords the Companys consultants the opportunity to become aware of, and to help define, additional project opportunities as they are identified.



The Company derives its revenues from fees for professional services. Over the last three years, a substantial majority of the Companys revenues
has been generated under hourly 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 where the Company is paid a fixed
amount for its 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, the Company earns incremental revenues, in



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addition to hourly or fixed fee billing, which are contingent on the attainment of certain contractual milestones or objectives. Such incremental revenues
may cause variations in quarterly revenues and operating results if all other revenues and expenses during the quarters remain the same.



The Companys 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 training and recruiting the consulting staff. Consultant compensation consists of salaries and incentive compensation. The
consultants total compensation is competitive with industry standards. Incentive compensation is structured to reward consultants based on business performance.



The Companys most significant overhead expenses include administrative compensation and benefits, and office related
expenses. Administrative compensation includes payroll costs for corporate management and administrative personnel, which are used to indirectly support client projects. Office related expenses include primarily office rent for the Companys 35
locations.



Service Offerings



The Company provides wide and varied service offerings to its broad client
base. The Company considers the following to be the Companys key service offerings: litigation support and investigative services, claims management and analysis, corporate finance services, discovery services, government contracting services,
and operations advisory and management process outsourcing services.



Industry Sectors



The Company provides
services to and focuses on industries undergoing substantial regulatory or structural change. The Companys service offerings are relevant to most industries and the public sector. However, the Company has significant industry-specific
knowledge and a robust client base in the construction, energy, financial services and healthcare industries. Additionally, the Company has a strong client presence in the public sector, including federal, state and local governmental agencies. The
Company has a long history of work for defendants, insurers and reinsurers in the asbestos and other product liability fields. Many of the Companys engagements involve working in conjunction with the legal counsel of its clients.



Human Capital



As of December 31, 2004, the Company had 2,060 employees, including 1,556
consultants. Revenues are primarily generated from services performed by the Companys consultants; therefore, success depends in large part on attracting, retaining and motivating talented, creative and experienced professionals at all levels.
In connection with recruiting, the Company employs internal recruiters, retains executive search firms, and utilizes personal and business contacts to recruit professionals with significant industry-specific consulting experience. Consultants are
drawn from the industries the Company serves, accounting and other consulting organizations, and top rated colleges and universities. The Company seeks to retain its consultants by offering competitive packages of base and incentive compensation,
equity ownership, and benefits.



Independent contractors at
times supplement the Companys consultants on certain engagements. The Company has found that the practice of retaining independent contractors on a per-engagement basis provides flexibility in adjusting professional personnel levels in
response to changes in demand for the Companys professional services.



In addition to the employees and independent contractors discussed above, the Company has acquired and seeks to acquire consulting businesses to both add highly skilled professionals and enhance the services offered
by the Company. Some of the acquired businesses were direct competitors to the Company, while others had been retained as independent contractors to supplement certain engagements. The Company believes that the



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strategy of selectively acquiring consulting businesses and consulting capabilities strengthens its platform, market share, and overall operating results.



In connection with recruiting activities and business
acquisitions, the Companys policy is to obtain non-solicitation covenants from senior and mid-level consultants. Most of these covenants have restrictions that extend 12 months beyond the cessation of employment. The Company utilizes these
contractual agreements to reduce the risk of attrition and to safeguard the Companys existing clients, staff and projects.



The Company continually monitors and adjusts, if needed, the consultants total compensation, which includes salaries, annual cash incentive
compensation, and other cash and equity incentives from certain Company programs, to ensure both that the consultants compensation is competitive within the industry and that the Company has the opportunity to achieve target profitability
levels. Material changes to the Companys compensation structure are made with the requisite approval of the Compensation Committee of the Companys Board of Directors. The Companys bill rates to clients are tiered in accordance with
the experience and levels of the consulting staff. The Company monitors and adjusts those bill rates according to the supply and demand of the then-current market conditions within the various industry segments served by the Company.



In addition, the Companys compensation program requires certain senior
consulting leaders to receive payment of a portion of their compensation in restricted stock instead of cash, and the Company also establishes certain equity ownership requirements of its senior level employees.



Competition



The market for consulting services is intensely competitive, highly
fragmented and subject to rapid change. The market includes a large number of participants with a variety of skills and industry expertise, including general management and information technology consulting firms, as well as the national accounting
firms, and other local, regional, national, and international firms. Many of these companies are global in scope and have greater personnel, financial, technical, and marketing resources than the Company. The Company believes that its independence,
experience, reputation, industry focus, and broad range of professional services will enable it to compete effectively in the consulting marketplace.



(d) Other Matters



Concentration of Revenues



Revenues earned from the Companys top 20 clients amounted to 33 percent, 36 percent and 39 percent of total revenues for the years ended December
31, 2004, 2003 and 2002, respectively. The Company had one client from its Financial & Claims Consulting segment that accounted for more than 5 percent of its total revenues for the year ended December 31, 2004 and one client from the Energy
Consulting segment that accounted for more than 5 percent of its total revenues for the year ended December 31, 2002. There were no clients that accounted for more than 5 percent of the Companys total revenues for the year ended December 31,
2003. The mix of the Companys largest clients may change from year to year.



Business Risks



In
addition to other information contained in this Annual Report on Form 10-K and in the documents incorporated by reference herein, the following risk factors should be considered carefully in evaluating the Company and its business. Such factors
could have a significant impact on the Companys business, operating results, and financial condition.



The Company relies heavily on its consulting staff and management team. The Companys inability to retain highly skilled professionals, coupled with
departures of a significant number of senior employees, could have a material adverse effect on the Company.



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The Companys common stock price may fall and any investment in the Company may be materially
affected. Any long-term decline in the common stock would impair the Companys ability to use equity-based compensation to attract, retain and motivate key employees.



The Company uses equity-based compensation as a portion of senior and mid-level consultants overall compensation
packages. Equity-based compensation is used to help align the interests of its employees and stockholders, but complete alignment is difficult to achieve. Compensation and retention related issues represent a continuing challenge for the Company.



Specialized systems and processes have been developed by the
Company and provide a competitive advantage in serving current clients and obtaining new clients. This intellectual capital is the property of the Company and the unauthorized use could have a materially adverse impact on the Companys
business. Additionally, many of the Companys service offerings rely on technology that is subject to rapid change.



The Companys intellectual capital, in certain service offerings, may be rendered obsolete due to new governmental regulation. A new governmental
regulation could allow a competitor a significant advantage before the Company is able to adapt to newly updated service demands.



The Company must manage growth from both organically expanding services and the acquisition of complementary consulting firms. This growth and integration
of acquisitions may cause strain on the Companys management team and the Companys systems. Excessively rapid growth or unsuccessful integration of these businesses could have a material adverse effect on the future profitability of the
Company.



The Company may not earn an adequate return on
capital or may fail to achieve a return of its capital on certain business acquisitions. The Company also may pay a substantial premium on certain business acquisitions. The financing of these acquisitions through cash, borrowings or common stock
could impair liquidity or cause significant stock dilution.



The Companys engagements are usually relatively short-term in comparison to its office-related expenses and other infrastructure commitments. The Companys inability to continually replace a significant portion of current
engagements with new engagements would have an adverse effect on the Companys ability to meet its current and future commitments.



The Company maintains a revolving line of credit agreement to assist in funding short-term and long-term cash requirements from normal operations. This
agreement contains certain covenants requiring, among other things, a minimum level of earnings. Poor performance of the Company could cause the Company to be in default of these existing covenants. Additionally, the Company cannot be certain that
it will be able to raise capital or obtain debt financing to execute future acquisitions or to meet required working capital needs.



If the financial condition of the Companys clients were to deteriorate, resulting in an impairment of their ability to make payments, additional
allowances for uncollectability would likely be required.



The
professional reputation of the Company and its consultants is critical to the Companys ability to successfully compete for new client engagements and attract or retain professionals. Any factors that damage the Companys professional
reputation could have a material adverse effect on the Companys business.



The Company is subject to the risk of professional liability. The Companys consultants engage in complex analyses in which the exercise of professional judgment is critical. If services are not performed to the
clients satisfaction, a client may threaten or bring a lawsuit against the Company, claiming the Company performed negligently or breached its obligation to the client. In certain cases, there is potential that persons other than clients may
bring claims against the Company. A claim against the Company could exceed the limits of the Companys insurance coverage and could damage the Companys reputation.



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Legislative changes affecting the Companys clients, competitors, or staff could have an impact on
business. An example of this is The Sarbanes-Oxley Act of 2002, which limits the services that public accounting firms are permitted to provide to their audit clients. The Company is not a public accounting firm and therefore is not subject to such
restrictions. Changes to The Sarbanes-Oxley Act or rules promulgated thereunder, as well as other legislation, could have an impact on the Companys business.



International Operations



The Company has an international presence with offices in the United Kingdom, the Czech Republic, and Canada. In addition, the Company has clients based
in the United States of America that have international operations. No country, other than the United States of America, accounted for more than 5 percent of the Companys total revenues in any of the three years ended December 31, 2004.



Available Information



The Company maintains an Internet website at
http://www.navigantconsulting.com, that includes a hypertext link to a website maintained by a third-party, where the Companys Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those
reports are available without charge as soon as reasonably practicable following the time that they are filed with or furnished to the SEC.



Item 2.Properties.



The Company owns a 16,500 square foot building located in Chicago, Illinois, which is used as the Companys executive offices. In addition to the executive offices, the Company has 52 operating leases for office
facilities, principally in the United States. Additional space may be required as the business expands geographically, but the Company believes it will be able to obtain suitable space as needed. Following are the Companys 32 principal
locations in the United States with the indicated cities, alphabetized by state:



|                                                                           |  |                            |  |                            
|-------------------------------------------------------------------------- |  | -------------------------- |  | ---------------------------
|Arizona  Phoenix                                                          |  | Georgia  Atlanta          |  | New York  Westbury        
|California  Glendale                                                      |  | Illinois  Chicago         |  | Pennsylvania  Philadelphia
|California  Los Angeles                                                   |  | Maryland  Baltimore       |  | Pennsylvania  Pittsburgh  
|California  Palo Alto                                                     |  | Massachusetts  Boston     |  | Tennessee  Nashville      
|California  Sacramento                                                    |  | Massachusetts  Burlington |  | Texas  Austin             
|California  San Francisco                                                 |  | Michigan  Detroit         |  | Texas  Dallas             
|California  San Mateo                                                     |  | Minnesota  Minneapolis    |  | Texas  Houston            
|Colorado  Denver                                                          |  | New Jersey  Mt. Laurel    |  | Virginia  Richmond        
|Connecticut  Fairfield                                                    |  | New Jersey  Princeton     |  | Virginia  Vienna          
|District of Columbia  Washington                                          |  | New York  Albany          |  | Washington  Seattle       
|Florida  Tampa                                                            |  | New York  New York City   |  |                            
|                                                                          
|Following are the three principal offices located in international cities:
|Canada  Toronto                                                           |  | Czech Republic  Prague    |  | United Kingdom  London    



Item 3.Legal Proceedings.



As previously disclosed, in November 2001 the Company was informed that the SEC had initiated a private investigation, through the Chicago office of its
Division of Enforcement, as to whether there may have been violations of the securities laws at the Company during 1998 and 1999. The Company cooperated fully with the SEC. In November 2004 the Company was advised by the Division of Enforcement that
its inquiry had been terminated and that no enforcement action had been recommended to the SEC.



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From time to time the Company is party to various lawsuits and claims in the ordinary course of business.
While the outcome of those lawsuits or claims cannot be predicted with certainty, the Company does not believe that any of those lawsuits or claims will have a material adverse effect on the Company.



Item 4.Submission of Matters to a Vote of Security Holders.



Not Applicable.



Executive Officers of the Registrant



The following are the executive officers of the Company as of March 10, 2005:



|                    |  |                                                      |  |    
|------------------- |  | ---------------------------------------------------- |  | ---
|Name                |  | Office                                               |  | Age
|William M. Goodyear |  | Chairman of Board and Chief Executive Officer        |  | 56 
|Julie M. Howard     |  | Executive Vice President and Chief Operating Officer |  | 42 
|Ben W. Perks        |  | Executive Vice President and Chief Financial Officer |  | 63 
|Philip P. Steptoe   |  | Vice President, General Counsel and Secretary        |  | 53 



William M. Goodyear,
56, has served as Chairman of the Board and Chief Executive Officer of the Company since May 2000. He has served as a director since December 15, 1999. Prior to December 1999, he served as Chairman and Chief Executive Officer of Bank of America,
Illinois. From 1972 to 1999, Mr. Goodyear held a variety of assignments with Continental Bank, subsequently Bank of America, including corporate finance, corporate lending, trading, and distribution. During this 28-year period, Mr. Goodyear was
stationed in London for 5 years (1986 to 1991) to manage Continental Banks European and Asian Operations. He was Vice Chairman and a member of the Board of Directors of Continental Bank prior to the 1994 merger between Continental Bank
Corporation and BankAmerica Corporation. He was President of the Bank of Americas Global Private Bank until January 1999. Mr. Goodyear received his Masters degree in Business Administration, with Honors, from the Amos Tuck School of
Business at Dartmouth College, and his Bachelors degree in Business Administration, with Honors, from the University of Notre Dame. He holds the Certified Public Accountant designation.



Julie M. Howard, 42, has served as Executive Vice President and Chief
Operating Officer since 2003. Prior to this current role, Ms. Howard was Vice President and Human Capital Officer. Since 1986, Ms. Howard has held a variety of consulting and operational positions within the Company and formerly Peterson Consulting,
which was acquired by the Company in 1998. Ms. Howard is a graduate of the University of Wisconsin, with a Bachelor of Science degree in Finance. She has also completed several post-graduate courses within the Harvard Business School Executive
Education program, focusing in Finance and Management.



Ben W.
Perks, 63, has served as Executive Vice President and Chief Financial Officer since May 2000. Prior to joining the Company, Mr. Perks was a senior Chicago partner in the Financial Advisory Services Group with PricewaterhouseCoopers LLP. With
PricewaterhouseCoopers and Price Waterhouse LLP, he had more than 32 years of professional services experience, including 22 years as an audit and consulting partner, providing financial reporting, accounting, auditing, tax, economic, and litigation
consulting services to clients. Mr. Perks received his Professional Accounting Program degree from Northwestern Universitys J.L. Kellogg Graduate School of Management, his Juris Doctor (law) degree and Masters degree in Business
Administration from the University of Cincinnati, and his Bachelors degree from Denison University. He is a Certified Public Accountant, licensed in the states of Illinois, California and Arizona, a Certified Fraud Examiner, and a member of
the American Institute of Certified Public Accountants and the American Bar Association.



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Philip P. Steptoe, 53, has served as Vice President, General Counsel and Secretary since February 2000.
Previously, Mr. Steptoe was a partner with the national law firm of Sidley & Austin (now Sidley, Austin, Brown & Wood). Prior to joining Sidley in 1988, he was a partner in the Chicago law firm of Isham, Lincoln & Beale. During 1994 to
1995, he served for four months as Acting General Counsel for Orange and Rockland Utilities, Inc., a New York electric and gas utility. Mr. Steptoe earned his A.B. degree in Physics from Princeton University and his Juris Doctor (law) degree from
the University of Virginia.



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PART II



Item 5.Market for Registrants Common, Stock Related Stockholder Matters and Issuer Purchases of Equity Securities.



Market Information



The shares of common stock of the Company are traded on the New York Stock Exchange under the symbol NCI. The
following table sets forth, for the periods indicated, the high and low closing sale prices per share.



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|               |  | High |       | Low
|2004           |  |      |       |     |   |      
|Fourth quarter |  | $    | 26.99 |     | $ | 22.91
|Third quarter  |  | $    | 22.45 |     | $ | 18.48
|Second quarter |  | $    | 23.29 |     | $ | 17.49
|First quarter  |  | $    | 21.39 |     | $ | 17.45
|               |  |     
|2003           |  |      |       |     |   |      
|Fourth quarter |  | $    | 19.29 |     | $ | 12.50
|Third quarter  |  | $    | 15.89 |     | $ | 11.32
|Second quarter |  | $    | 11.85 |     | $ | 5.49 
|First quarter  |  | $    | 6.20  |     | $ | 4.80 



Holders



As of March 10, 2005, there were approximately 450 holders of record of
shares of common stock of the Company.



Distributions



The Company has not paid any cash dividends since its organization. The
Company does not currently anticipate that it will make any such distributions and reviews this policy on a periodic basis.



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Issuance of Unregistered Securities



During the year ended December 31, 2004, the Company has issued the following unregistered securities:



|                  |  |                    |  |                                    |  |                  |  |                                               |  |                
|----------------- |  | ------------------ |  | ---------------------------------- |  | ---------------- |  | --------------------------------------------- |  | ---------------
|Date              |  | Type of Securities |  | Number ofShares inConsideration(a) |  | ExemptionClaimed |  | Purchaser or Recipient                      |  | AssetsPurchased
|January 31, 2004  |  | Common Stock       |  | 301,104                            |  | Section 4(2)     |  | Tucker Alan, Inc.                             |  | (b)            
|                  |  |                    |  |                                    | 
|April 1, 2004     |  | Common Stock       |  | 80,036                             |  | Section 4(2)     |  | Keevan Consulting Group, LLC                  |  | (c)            
|                  |  |                    |  |                                    | 
|April 1, 2004     |  | Common Stock       |  | 37,548                             |  | Section 4(2)     |  | Barrington Energy Partners, LLC               |  | (c)            
|                  |  |                    |  |                                    | 
|April 1, 2004     |  | Common Stock       |  | 13,820                             |  | Section 4(2)     |  | GCR, LLC                                      |  | (c)            
|                  |  |                    |  |                                    | 
|April 1, 2004     |  | Common Stock       |  | 653                                |  | Section 4(2)     |  | T.A. Carlson & Company, Inc.                  |  | (c)            
|                  |  |                    |  |                                    | 
|June 4, 2004      |  | Common Stock       |  | 76,492                             |  | Section 4(2)     |  | Capital Advisory Services, LLC                |  | (b)            
|                  |  |                    |  |                                    | 
|August 31, 2004   |  | Common Stock       |  | 38,973                             |  | Section 4(2)     |  | Invalesco Group, Inc.                         |  | (b)            
|                  |  |                    |  |                                    | 
|September 1, 2004 |  | Common Stock       |  | 57,420                             |  | Section 4(2)     |  | Hunter & Associates Management Services, Inc. |  | (d)            
|                  |  |                    |  |                                    | 
|November 1, 2004  |  | Common Stock       |  | 6,247                              |  | Section 4(2)     |  | Shields, Smith & Weber, LLC                   |  | (b)            

---

|(a) | Does not take into account additional cash or other consideration paid or payable as a part of the transactions.
|--- | ----------------------------------------------------------------------------------------------------------------

|(b) | Assets purchased were substantially all of the assets of the recipient.
|--- | -----------------------------------------------------------------------

|(c) | Amounts are related to provisions for additional purchase price payments associated with the attainment of certain performance targets.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(d) | Amounts are deferred payment consideration of the purchase agreement to purchase substantially all of the assets of the recipient.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Item 6.Selected Financial Data.



The following financial and operating data should be read in conjunction with the information set forth under Managements Discussion and
Analysis of Financial Condition and Results of Operations and the consolidated financial statements of the Company and related notes thereto appearing elsewhere in this report. The amounts are shown in thousands, except for per share data.



|                                                                     |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|-------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------- |  | - | ------- | - |  | ---- | ------- | - |  | - | -------- | -
|                                                                     |  | For the years ended December 31, |        
|                                                                     |  | 2004                             |         |   | 2003 |   | 2002    |  |   | 2001    |   |  | 2000 |        
|Revenues before reimbursements                                       |  | $                                | 426,867 |   |      | $ | 276,130 |  | $ | 225,305 |   |  | $    | 210,532 |   |  | $ | 211,327  |  
|Reimbursements                                                       |  |                                  | 55,252  |   |      |   | 41,652  |  |   | 32,715  |   |  |      | 25,048  |   |  |   | 33,302   |  
|                                                                     |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Total revenues                                                       |  |                                  | 482,119 |   |      |   | 317,782 |  |   | 258,020 |   |  |      | 235,580 |   |  |   | 244,629  |  
|Cost of services before reimbursable expenses                        |  |                                  | 248,954 |   |      |   | 160,080 |  |   | 136,121 |   |  |      | 126,959 |   |  |   | 125,418  |  
|Reimbursable expenses                                                |  |                                  | 55,252  |   |      |   | 41,652  |  |   | 32,715  |   |  |      | 25,048  |   |  |   | 33,302   |  
|                                                                     |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Total costs of services                                              |  |                                  | 304,206 |   |      |   | 201,732 |  |   | 168,836 |   |  |      | 152,007 |   |  |   | 158,720  |  
|Stock-based compensation expense                                     |  |                                  | 9,589   |   |      |   | 11,107  |  |   | 3,401   |   |  |      | 3,812   |   |  |   | 492      |  
|General and administrative expenses                                  |  |                                  | 84,673  |   |      |   | 63,292  |  |   | 60,721  |   |  |      | 55,413  |   |  |   | 59,846   |  
|Depreciation expense                                                 |  |                                  | 8,312   |   |      |   | 7,488   |  |   | 7,651   |   |  |      | 7,118   |   |  |   | 6,797    |  
|Amortization expense                                                 |  |                                  | 3,562   |   |      |   | 1,880   |  |   | 2,373   |   |  |      | 5,700   |   |  |   | 4,573    |  
|Restructuring costs (credits)                                        |  |                                  | 1,091   |   |      |   |        |  |   | (500    | ) |  |      | 1,900   |   |  |   | 10,229   |  
|Litigation and settlement provisions                                 |  |                                  | 385     |   |      |   | 440     |  |   | 750     |   |  |      | 5,700   |   |  |   | 16,500   |  
|VSRP cash compensation expense                                       |  |                                  |        |   |      |   |        |  |   |        |   |  |      | 12,399  |   |  |   | 6,357    |  
|                                                                     |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Operating income (loss) from continuing operations                   |  |                                  | 70,301  |   |      |   | 31,843  |  |   | 14,788  |   |  |      | (8,469  | ) |  |   | (18,885  | )
|Other income (expense), net                                          |  |                                  | (1,864  | ) |      |   | 264     |  |   | (19     | ) |  |      | 874     |   |  |   | (1,666   | )
|                                                                     |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Income (loss) from continuing operations before income taxes         |  |                                  | 68,437  |   |      |   | 32,107  |  |   | 14,769  |   |  |      | (7,595  | ) |  |   | (20,551  | )
|Income tax expense (benefit)                                         |  |                                  | 28,062  |   |      |   | 13,399  |  |   | 5,908   |   |  |      | (2,284  | ) |  |   | (6,194   | )
|                                                                     |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Income (loss) from continuing operations                             |  |                                  | 40,375  |   |      |   | 18,708  |  |   | 8,861   |   |  |      | (5,311  | ) |  |   | (14,357  | )
|Income (loss) from discontinued operations, net of income taxes      |  |                                  |        |   |      |   |        |  |   |        |   |  |      |        |   |  |   | (10,193  | )
|Loss on dispositions of discontinued operations, net of income taxes |  |                                  |        |   |      |   |        |  |   |        |   |  |      |        |   |  |   | (155,003 | )
|                                                                     |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Net income (loss)                                                    |  | $                                | 40,375  |   |      | $ | 18,708  |  | $ | 8,861   |   |  | $    | (5,311  | ) |  | $ | (179,553 | )
|                                                                     |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Basic income (loss) per share:                                       |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Income (loss) from continuing operations                             |  | $                                | 0.86    |   |      | $ | 0.43    |  | $ | 0.22    |   |  | $    | (0.14   | ) |  | $ | (0.35    | )
|Loss from discontinued operations                                    |  | $                                |        |   |      | $ |        |  | $ |        |   |  | $    |        |   |  | $ | (0.25    | )
|Loss on dispositions of discontinued operations                      |  | $                                |        |   |      | $ |        |  | $ |        |   |  | $    |        |   |  | $ | (3.79    | )
|Net income (loss)                                                    |  | $                                | 0.86    |   |      | $ | 0.43    |  | $ | 0.22    |   |  | $    | (0.14   | ) |  | $ | (4.39    | )
|Shares used in computing income (loss) per basic share               |  |                                  | 47,187  |   |      |   | 43,236  |  |   | 40,350  |   |  |      | 38,439  |   |  |   | 40,895   |  
|Diluted income (loss) per share:                                     |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Income (loss) from continuing operations                             |  | $                                | 0.80    |   |      | $ | 0.40    |  | $ | 0.21    |   |  | $    | (0.14   | ) |  | $ | (0.35    | )
|Income (loss) from discontinued operations                           |  | $                                |        |   |      | $ |        |  | $ |        |   |  | $    |        |   |  | $ | (0.25    | )
|Loss on dispositions of discontinued operations                      |  | $                                |        |   |      | $ |        |  | $ |        |   |  | $    |        |   |  | $ | (3.79    | )
|Net income (loss)                                                    |  | $                                | 0.80    |   |      | $ | 0.40    |  | $ | 0.21    |   |  | $    | (0.14   | ) |  | $ | (4.39    | )
|Shares used in computing income (loss) per diluted share             |  |                                  | 50,247  |   |      |   | 47,029  |  |   | 42,670  |   |  |      | 38,439  |   |  |   | 40,895   |  
|                                                                     | 
|                                                                     |  | As of December 31,               |        
|                                                                     |  | 2004                             |         |   | 2003 |   | 2002    |  |   | 2001    |   |  | 2000 |        
|Balance Sheet Data:                                                  |  |                                  |         |   |      |   |         |  |   |         |   |  |      |         |   |  |   |          |  
|Cash and cash equivalents                                            |  | $                                | 36,897  |   |      | $ | 38,402  |  | $ | 8,109   |   |  | $    | 35,950  |   |  | $ | 48,798   |  
|Working capital                                                      |  | $                                | 48,473  |   |      | $ | 51,866  |  | $ | 25,910  |   |  | $    | 53,556  |   |  | $ | 63,656   |  
|Total assets                                                         |  | $                                | 418,807 |   |      | $ | 255,316 |  | $ | 201,204 |   |  | $    | 158,826 |   |  | $ | 163,482  |  
|Long-term debt, less current portion                                 |  | $                                | 12,248  |   |      | $ | 1,761   |  | $ | 4,418   |   |  | $    | 1,500   |   |  | $ |         |  
|Total stockholders equity                                           |  | $                                | 288,674 |   |      | $ | 188,758 |  | $ | 144,295 |   |  | $    | 112,105 |   |  | $ | 115,725  |  



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Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations.



Managements Discussion and Analysis of Financial Condition and Results of Operations relates to the Consolidated
Financial Statements included in this Annual Report on Form 10-K.



Overview



The Company is a specialized, independent consulting firm
providing litigation, financial services, healthcare, energy and operational consulting services to government agencies, legal counsel, and large companies facing the challenges of uncertainty, risk, distress, and significant change. The Company
focuses on industries undergoing substantial regulatory or structural change and on the issues driving these transformations.



The Company derives its revenues from fees for professional services. Over the last three years, a substantial majority of the Companys revenues has
been 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 where the Company is paid a
fixed amount for its 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, the Company earns 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 variations in quarterly revenues and operating results if all other revenues and
expenses during the quarters remain the same.



The
Companys 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 and incentive compensation. The consultants total compensation is competitive with industry standards. Incentive compensation is
structured to reward consultants based on business performance.



The Companys most significant overhead expenses include administrative compensation and benefits, and office related expenses. Administrative compensation includes payroll costs for corporate management and administrative personnel,
which are used to indirectly support client projects. Office related expenses include primarily office rent for the Companys 35 locations.



Critical Accounting Estimates and Assumptions



The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect amounts reported therein. The
Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments with respect to the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant
judgments and estimates used in the preparation of its consolidated financial statements:



Revenue Recognition Policies



The Company recognizes revenues as the related professional services are provided. In connection with recording revenues, estimates and assumptions are required in determining the expected conversion of the revenues to cash. There are also
client engagements where the Company is paid a fixed amount for its services. This may be one single amount covering the whole engagement or several amounts for various phases or functions. The recording of these fixed revenue amounts requires the
Company to make an estimate of the total



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amount of work to be performed and revenues are then recognized on a percentage of completion basis. From time to time, the Company also earns incremental
revenues. These incremental revenue amounts are generally contingent on a specific event and the incremental revenues are recognized when the contingencies are resolved.



Determinations of Accounts Receivable Realization



The Company maintains allowances for doubtful accounts for estimated reduction, if any, in amounts to be received, based on
the Companys review and assessment of its clients ability to make required payments, and the estimated realization, in cash, by the Company of amounts due from its clients. If the financial condition of a client were to deteriorate
resulting in an impairment of the clients ability to make payments, additional allowances might be required.



Goodwill and Identifiable Intangible Assets



Intangible assets consist of identifiable intangibles and goodwill. Identifiable intangible assets other than goodwill include customer lists, employee
non-compete agreements, employee training methodology and materials, backlog revenue, and trade names. Intangible assets, other than goodwill, are amortized on the straight-line method based on the estimated useful lives, ranging up to seven years.



Goodwill represents the difference between the purchase price
of an acquired company and the related fair value of the net assets acquired, which is accounted for by the purchase method of accounting. In 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Intangible Assets. This Statement eliminated the amortization of goodwill and intangibles with indefinite lives and instead requires that they be tested annually, for impairment. This annual test is performed in the second quarter of each year
by reviewing the book value compared to the fair value at the reporting unit level. The Company also reviews long-lived assets, including identifiable intangibles and goodwill, for impairment when events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An asset is deemed impaired and written down to its fair value if estimated related future cash flows are less than its carrying amount.



Considerable management judgment is required to estimate future cash flows.
Assumptions used in the Companys impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. The Company did not recognize any impairment charges for goodwill,
indefinite-lived intangible assets or identifiable intangible assets subject to amortization during the years presented.



Acquisitions and Divestiture



2004 Acquisitions



On January 30, 2004, the Company acquired substantially all of the assets of Tucker Alan, Inc. (Tucker) for $89.5 million, which consisted of
payments at closing of $45.6 million cash and 0.3 million shares of its common stock, valued at $6.0 million at closing, and $37.9 million payable in two installments of cash and the Companys common stock within the first two years following
the closing date of the transaction. In connection with the Tucker acquisition, the Company acquired tangible assets of $1.3 million. The Tucker acquisition included 230 consulting professionals active primarily in the litigation, construction, and
healthcare practices. The Company acquired Tucker to strengthen its national platform in these practices. Tucker has a significant presence in the western region of the United States that complements the Companys other geographic regions.
Tuckers service offerings and industry expertise are also complementary to those of the Company.



On June 4, 2004, the Company acquired substantially all of the assets of Capital Advisory Services, LLC (CapAdvisory) for $10.5 million, which
consisted of payments at closing of $6.5 million cash and 0.1 million shares of its common stock, valued at $1.5 million at closing, and $2.5 million payable in two installments of cash and the Companys common stock in the first two years
following the closing date of the transaction. The



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CapAdvisory acquisition included 49 consulting professionals who complement the Companys financial services practice and primarily provide financial
and accounting consulting services. The Company acquired CapAdvisory to expand the Companys service offerings within the financial services industry.



On August 31, 2004, the Company acquired substantially all of the assets of Invalesco Group, Inc. (Invalesco) for $2.5 million, which
consisted of payments at closing of $1.2 million cash and 0.04 million shares of its common stock, valued at $0.8 million at closing, and $0.5 million payable in cash on the first anniversary of the closing date of the transaction. The Invalesco
acquisition included 14 consulting professionals who complement the Companys healthcare practice and primarily provide services to hospitals and healthcare providers. The Company acquired Invalesco to expand the Companys service
offerings within the healthcare industry.



2003 Acquisition



On December 15, 2003, the Company acquired substantially
all of the assets of Front Line Strategic Consulting, Inc. (Front Line) for $4.8 million, which included $2.5 million cash at closing and 0.1 million shares of its common stock valued at $1.3 million at closing, and $1.0 million payable
in two equal installments on the first and second anniversary of the closing date. The Front Line acquisition consisted of 27 consulting professionals. Front Line was acquired primarily to augment the Companys healthcare practice.



2002 Acquisitions



On April 5, 2002, the Company acquired portions of Arthur D. Little,
Inc.s assets for $6.1 million cash at closing. The acquisition consisted of two consulting units, with approximately 30 consulting professionals who primarily serve the energy and public sector industries.



On May 24, 2002, the Company acquired substantially all of the assets of
Financial Analytics Consulting Group, LLC (FACG) for $6.3 million, which consisted of $4.5 million cash at closing and 0.3 million shares of its common stock valued at $1.8 million at closing. In addition to the initial consideration,
the purchase agreements provided for additional payments in cash over the two full calendar years after closing that are contingent on revenues generated and the attainment of certain gross margin thresholds. The additional payments related to this
contingency were accounted for as goodwill. FACG was formed in conjunction with a management buyout from Arthur Andersen, LLP, and consisted of approximately 90 consulting professionals from five different Arthur Andersen practices. FACG was
acquired primarily to augment the Companys litigation support and investigation services offerings.



On June 19, 2002, the Company acquired substantially all of the assets of Keevan Consulting, LLC (Keevan) for $7.2 million, which consisted of
$4.0 million cash at closing, 0.4 million shares of its common stock valued at $2.7 million at closing, and $0.5 million cash payable in April 2003. In addition to the initial consideration, the purchase agreement provided for additional payments in
cash and the Companys common stock over the two and one-half years from closing that are contingent on revenues generated and the attainment of certain gross margin thresholds. The additional payments related to this contingency were accounted
for as goodwill. Keevan was formed in conjunction with a management buyout from Arthur Andersen, LLP, and consisted of approximately 38 consulting professionals. Keevan was acquired to augment the Companys government contracts consulting
services practice.



On July 15, 2002, the Company acquired
substantially all of the assets of Barrington Energy Partners, LLC (Barrington Energy) for $11.1 million, which consisted of $4.8 million cash at closing, 0.7 million shares of its common stock valued at $4.8 million at closing, and $1.5
million cash payable on the first anniversary of the closing date. In addition to the initial consideration, the purchase agreement provided for additional payments in cash and the Companys common stock over the two and one-half years from
closing that are contingent on the attainment of certain performance thresholds. The additional payments related to this contingency were



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accounted for as goodwill. Barrington Energy consisted of eight senior-level professionals and six other staff who complement the Companys energy
industry sector and primarily provide financial and transaction advisory service offerings.



Effective September 17, 2002, the Company acquired substantially all of the assets of Hunter & Associates Management Services, Inc. (Hunter) for $25.4 million, which consisted of $10.2 million cash at
closing, 1.5 million shares of the Companys common stock valued at $8.2 million at closing, $0.5 million cash payable on April 1, 2003, and $6.5 million in the Companys common stock payable in two equal installments on the first and
second anniversary of the closing. In addition to the initial consideration, the purchase agreement provided for additional payments in cash and the Companys common stock over the three years following closing that are contingent on the
attainment of certain performance targets. The additional payments related to this contingency were accounted for as goodwill. Hunter consisted of 20 senior-level professionals and 40 additional staff that provide a comprehensive range of
performance improvement services to hospitals and healthcare systems, including physician practices and provider owner-managed care organizations. Hunter also provided interim executive-level management services as well as consulting services
related to hospital restructurings. Hunter was acquired to significantly expand the Companys service offerings within the healthcare industry.



Accounting for Acquisitions



All of the Companys acquisitions described above have been accounted for by the purchase method of accounting for business combinations and,
accordingly, the results of operations have been included in the consolidated financial statements since the dates of acquisition.



2003 Divestiture



In September 2003, the Company sold for a nominal sales price its water consulting practice, BookmanEdmonston, Inc., which was previously part of
the Energy Consulting business segment. BookmanEdmonston accounted for 3 percent or less of the Companys total revenues for the years ended December 31, 2003 and 2002, and operated at a loss.



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##### Table of Contents

Results of Operations



The following table sets forth, for the periods indicated, selected statement of operations data as a percentage of revenues before reimbursements:



|                                              |  |                          |   |  |       |   |  |       |  
|--------------------------------------------- |  | ------------------------ | - |  | ----- | - |  | ----- | -
|                                              |  | Years ended December 31, |  
|                                              |  | 2004                     |   |  | 2003  |   |  | 2002  |  
|Revenues before reimbursements                |  | 100.0                    | % |  | 100.0 | % |  | 100.0 | %
|Reimbursements                                |  | 12.9                     |   |  | 15.1  |   |  | 14.5  |  
|                                              |  |                          |   |  |       |   |  |       |  
|Total revenues                                |  | 112.9                    | % |  | 115.1 | % |  | 114.5 | %
|Cost of services before reimbursable expenses |  | 58.3                     |   |  | 58.0  |   |  | 60.4  |  
|Reimbursable expenses                         |  | 12.9                     |   |  | 15.1  |   |  | 14.5  |  
|                                              |  |                          |   |  |       |   |  |       |  
|Total costs of services                       |  | 71.2                     | % |  | 73.1  | % |  | 74.9  | %
|Stock-based compensation expense              |  | 2.3                      |   |  | 4.0   |   |  | 1.5   |  
|General and administrative expenses           |  | 19.8                     |   |  | 22.9  |   |  | 27.0  |  
|Depreciation expense                          |  | 1.9                      |   |  | 2.7   |   |  | 3.4   |  
|Amortization expense                          |  | 0.8                      |   |  | 0.7   |   |  | 1.1   |  
|Restructuring cost (credits)                  |  | 0.3                      |   |  |      |   |  | (0.2  | )
|Litigation and settlement provisions          |  | 0.1                      |   |  | 0.2   |   |  | 0.3   |  
|                                              |  |                          |   |  |       |   |  |       |  
|Operating income                              |  | 16.5                     |   |  | 11.5  |   |  | 6.5   |  
|Other expense (income), net                   |  | 0.5                      |   |  | (0.1  | ) |  |      |  
|                                              |  |                          |   |  |       |   |  |       |  
|Income before income taxes                    |  | 16.0                     |   |  | 11.6  |   |  | 6.5   |  
|Income tax expense                            |  | 6.5                      |   |  | 4.9   |   |  | 2.6   |  
|                                              |  |                          |   |  |       |   |  |       |  
|Net income                                    |  | 9.5                      | % |  | 6.7   | % |  | 3.9   | %
|                                              |  |                          |   |  |       |   |  |       |  



Results of OperationsAnnual
Comparisons for the Years ended December 31, 2004, 2003 and 2002



Revenues before Reimbursements. Most revenues before reimbursements are earned from consultants fee revenues that are primarily a function of billable hours, bill rates, and consultant headcount. Revenues before reimbursements
were $426.9 million and $276.1 million for the years ended December 31, 2004 and 2003, respectively, which represent increases in revenues before reimbursements of 55 percent and 23 percent, respectively, when compared to each preceding year.



Revenues before reimbursements in 2004 grew through an
increase in consulting headcount and improved pricing mix. The Company had 1,556 billable consultants as of December 31, 2004, compared to 959 as of December 31, 2003, which represented a net increase of 62 percent, or 597 consultants, for the year.
Approximately 290 consulting professionals joined the Company through business acquisitions made during year, which represented nearly half of the increase in billable headcount. The remaining increase in consulting professionals, net of attrition,
was attributable to the Companys recruiting efforts. The increased staffing levels, along with the commensurate client engagements required to support this increased headcount, had the most significant impact on operating results. Given that
the Companys bill rates are tiered in accordance with experience and levels, increasing the number of senior level consultants in 2004 improved the Companys pricing mix and was an additional factor in the revenue increase. Consultant
utilization was 72 percent for the years 2004 and 2003, compared to 66 percent for 2002. The improvements in utilization in 2003, along with improved pricing mix, were the primary factors in the increase from 2002 to 2003.



Cost of Services before Reimbursable Expenses. Cost of services before
reimbursable expenses increased $88.9 million, or 56 percent, to $249.0 million for the year ended December 31, 2004, and increased $24.0 million, or 18 percent, to $160.1 million for the year ended December 31, 2003, when compared to each preceding
year.



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Cost of services before reimbursable expenses increased primarily because of consultant compensation and
benefits. The increased employee headcount was the primary cause of the increase in consultant compensation and benefits. Additionally, the Companys business model rewards employees with incentive compensation, which is primarily derived as a
percentage of profitability. The increase in the Companys profits and the associated incentive compensation to employees is an additional reason for the increase in cost of services before reimbursable expenses for 2004 and 2003, when compared
to each preceding year. Increasing amounts of recruiting expenses were an additional factor in the expense increases.



Stock-based Compensation Expense. Stock-based compensation expense includes compensation expense related to restricted shares, restricted stock
units, stock appreciation rights, and certain stock options awarded to the Companys employees. Stock-based compensation expense is recorded for restricted stock awards on a straight-line basis over their vesting term based on the valuation
amount at grant date. The Company expects to continue to grant restricted stock as part of the costs to recruit and retain consulting personnel. Certain stock options and stock appreciation rights (variable accounting awards) are subject
to variable accounting treatment. Compensation expense (or credit) for the variable accounting awards is recorded quarterly for the increase (or decrease) in the market price of the Companys common stock above the grant prices.



Stock-based compensation expense was $9.6 million and $11.1 million for the
years ended December 31, 2004 and 2003, respectively, which represents a decrease of $1.5 million and an increase of $7.7 million, respectively, when compared to each preceding year. Stock-based compensation expense related to restricted stock
awards was $7.7 million and $6.3 million for the years ended December 31, 2004 and 2003, respectively, which represents increases of $1.4 million and $3.6 million, respectively, when compared to each preceding year. The Company has implemented
several incentive programs, using restricted stock, to recruit, retain and reward its employees, which is the primary reason for the increase in stock-based compensation expense. At December 31, 2004, the Companys common stock price was
$26.60, compared to $18.86 and $5.90 at December 31, 2003 and 2002, respectively, which represents increases of $7.74 and $12.96, respectively, over the price at each preceding year-end. Accordingly, the Company recorded stock-based compensation
expense of $1.9 million related to variable accounting awards for the year ended December 31, 2004, to reflect the increase in market valuation of its common stock. Stock-based compensation expense for variable accounting awards was $4.8 million and
$0.7 million for the comparable years of 2003 and 2002.



The
number of awards, as of December 31, 2004 subject to variable accounting, was 0.1 million and approximately two-thirds of these awards are stock appreciation rights that expire in the second quarter of 2005. The agreements for certain restricted
stock awards outstanding at December 31, 2004 contain provisions that allow for an acceleration of vesting, if the Company achieves a certain level of financial performance. Accordingly, the Company may be required to accelerate the unamortized
compensation expense related to those awards and, therefore, the Company may experience variations in stock-based compensation expense from period to period.



General and Administrative Expenses. General and administrative expenses include facility-related costs, salaries and benefits of management and
support personnel, uncollectible billed accounts receivable amounts, professional and administrative services, and all other support costs.



General and administrative expenses increased $21.4 million, or 34 percent, to $84.7 million in the year ended December 31, 2004, and increased $2.6
million, or 4 percent, to $63.3 million in 2003. The increases in expenses are due to several factors including business acquisitions, as well as the hiring of additional consulting personnel. Increases in administrative headcount to support the
additional consulting personnel contributed to an increase in total administrative payroll and benefit costs. The balance of the increase is attributed to expansion of existing facilities, facilities acquired through business acquisitions, other
general and administrative costs associated with the support infrastructure of the Companys increased size, and other costs incurred to facilitate the integration of the acquired businesses.



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##### Table of Contents

General and administrative expenses as a percentage of revenues before reimbursements were 20 percent, 23
percent, and 27 percent for the years ended December 31, 2004, 2003 and 2002, respectively.



Amortization Expense. Amortization expense includes primarily the straight-line amortization of intangible assets derived from the purchase price allocation of certain business acquisitions. Intangible assets
include customer lists, covenants not-to-compete and trade names. In accordance with Statement of Financial Accounting Standards No. 142, which the Company adopted in 2002, goodwill is no longer subject to amortization beginning in 2002, but is
subject to annual impairment testing.



Amortization expense was
$3.6 million and $1.9 million for the years ended December 31, 2004 and 2003, respectively. The increase of $1.7 million in amortization expense for 2004 compared to 2003 represents the amortization of intangible assets, which were acquired as part
of the business acquisitions made during the year. Amortization expense decreased by $0.5 million for the year ended December 31, 2003 when compared to 2002, which was primarily related certain intangible assets acquired prior to 2003 being fully
amortized in 2002 or during 2003.



Restructuring costs.
During the year ended December 31, 2004, the Company recorded a restructuring charge of $1.1 million, primarily for changes in the Companys plans regarding utilization of a facility for which a restructuring accrual had been recorded in a
prior year.



Litigation and Settlements Provisions.
Litigation and settlement provisions included amounts accrued, based on then current information, for costs estimated to resolve certain litigation matters. The Company recorded $0.4 million each for the year ended December 31, 2004 and 2003, and
$0.8 million for the year ended December 31, 2002. The matters for which the Company had established the provisions have been resolved and paid as of December 31, 2004.



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##### Table of Contents

Unaudited Quarterly Results



The following table sets forth certain unaudited quarterly financial information. The unaudited quarterly financial data has
been prepared on the same basis as the audited consolidated financial statements contained elsewhere in this Form 10-K. The data includes all normal recurring adjustments necessary for the fair presentation of the information for the periods
presented, when read in conjunction with the Companys consolidated financial statements and related notes thereto. Results for any quarter are not necessarily indicative of results for the full year or for any future quarter.



The amounts in the following table are in thousands, except for per share
data:



|                                              |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|--------------------------------------------- |  | -------------- | ------- | - | -------------- | - | ------- | ------------- |  | - | ------------- | - |  | ------------- | ------- | -------------- |  | ------------- | ------ |  | ------------- | ------ |  | - | ------ | - |  | - | ------
|                                              |  | Quarters ended
|                                              |  | Dec. 31, 2004  |         |   | Sept. 30, 2004 |   |         | Jun. 30, 2004 |  |   | Mar. 31, 2004 |   |  | Dec. 31, 2003 |         | Sept. 30, 2003 |  | Jun. 30, 2003 |        |  | Mar. 31, 2003
|Revenues:                                     |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|Revenues before reimbursements                |  | $              | 114,760 |   |                | $ | 111,183 |               |  | $ | 108,488       |   |  | $             | 92,436  |                |  | $             | 71,417 |  | $             | 70,807 |  | $ | 69,882 |   |  | $ | 64,024
|Reimbursements                                |  |                | 14,546  |   |                |   | 15,106  |               |  |   | 15,275        |   |  |               | 10,325  |                |  |               | 9,776  |  |               | 10,569 |  |   | 11,567 |   |  |   | 9,740 
|                                              |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|Total revenues                                |  |                | 129,306 |   |                |   | 126,289 |               |  |   | 123,763       |   |  |               | 102,761 |                |  |               | 81,193 |  |               | 81,376 |  |   | 81,449 |   |  |   | 73,764
|Cost of services:                             |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|Cost of services before reimbursable expenses |  |                | 67,955  |   |                |   | 64,892  |               |  |   | 63,395        |   |  |               | 52,712  |                |  |               | 42,242 |  |               | 40,326 |  |   | 39,078 |   |  |   | 38,434
|Reimbursable expenses                         |  |                | 14,546  |   |                |   | 15,106  |               |  |   | 15,275        |   |  |               | 10,325  |                |  |               | 9,776  |  |               | 10,569 |  |   | 11,567 |   |  |   | 9,740 
|                                              |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|Total costs of services                       |  |                | 82,501  |   |                |   | 79,998  |               |  |   | 78,670        |   |  |               | 63,037  |                |  |               | 52,018 |  |               | 50,895 |  |   | 50,645 |   |  |   | 48,174
|Stock-based compensation expense              |  |                | 2,703   |   |                |   | 2,285   |               |  |   | 1,996         |   |  |               | 2,604   |                |  |               | 3,008  |  |               | 1,860  |  |   | 4,527  |   |  |   | 1,712 
|General and administrative expenses           |  |                | 21,272  |   |                |   | 21,508  |               |  |   | 21,741        |   |  |               | 20,152  |                |  |               | 14,739 |  |               | 15,890 |  |   | 16,737 |   |  |   | 15,926
|Depreciation expense                          |  |                | 2,114   |   |                |   | 2,149   |               |  |   | 2,135         |   |  |               | 1,914   |                |  |               | 1,854  |  |               | 1,642  |  |   | 2,291  |   |  |   | 1,701 
|Amortization expense                          |  |                | 1,191   |   |                |   | 1,118   |               |  |   | 597           |   |  |               | 657     |                |  |               | 395    |  |               | 495    |  |   | 495    |   |  |   | 495   
|Restructuring costs                           |  |                |        |   |                |   | 200     |               |  |   |              |   |  |               | 891     |                |  |               |       |  |               |       |  |   |       |   |  |   |      
|Litigation and settlement provisions          |  |                |        |   |                |   |        |               |  |   | 385           |   |  |               |        |                |  |               | 440    |  |               |       |  |   |       |   |  |   |      
|                                              |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|Operating income                              |  |                | 19,525  |   |                |   | 19,031  |               |  |   | 18,239        |   |  |               | 13,506  |                |  |               | 8,739  |  |               | 10,594 |  |   | 6,754  |   |  |   | 5,756 
|Other income (expense), net                   |  |                | (509    | ) |                |   | (451    | )             |  |   | (581          | ) |  |               | (323    | )              |  |               | 75     |  |               | 87     |  |   | (70    | ) |  |   | 172   
|                                              |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|Income before income tax expense              |  |                | 19,016  |   |                |   | 18,580  |               |  |   | 17,658        |   |  |               | 13,183  |                |  |               | 8,814  |  |               | 10,681 |  |   | 6,684  |   |  |   | 5,928 
|Income tax expense                            |  |                | 7,867   |   |                |   | 7,628   |               |  |   | 7,162         |   |  |               | 5,405   |                |  |               | 3,738  |  |               | 4,559  |  |   | 2,680  |   |  |   | 2,422 
|                                              |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|Net income                                    |  | $              | 11,149  |   |                | $ | 10,952  |               |  | $ | 10,496        |   |  | $             | 7,778   |                |  | $             | 5,076  |  | $             | 6,122  |  | $ | 4,004  |   |  | $ | 3,506 
|                                              |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|Net income per diluted share                  |  | $              | 0.22    |   |                | $ | 0.22    |               |  | $ | 0.21          |   |  | $             | 0.16    |                |  | $             | 0.11   |  | $             | 0.13   |  | $ | 0.09   |   |  | $ | 0.08  
|                                              |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       
|Diluted shares                                |  |                | 50,918  |   |                |   | 50,656  |               |  |   | 50,130        |   |  |               | 49,285  |                |  |               | 47,986 |  |               | 47,330 |  |   | 46,550 |   |  |   | 46,250
|                                              |  |                |         |   |                |   |         |               |  |   |               |   |  |               |         |                |  |               |        |  |               |        |  |   |        |   |  |   |       

---

|(1) | The sum of quarterly net income per diluted share does not equal annual amounts in 2003 and 2004 because of rounding and changes in the weighted average number of shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating results fluctuate from quarter to
quarter as a result of a number of factors, including the significance of client engagements commenced and completed during a quarter, the number of business days in a quarter, employee hiring, and utilization rates. The timing of revenues varies
from quarter to quarter due to various factors, such as the ability of clients to terminate engagements without penalty, the size and scope of assignments, and general economic conditions. Because a significant percentage of the Companys
expenses are relatively fixed, a variation in the number of client assignments, or the timing of the initiation or the completion of client assignments, can cause significant variations in operating results from quarter to quarter. Furthermore, the
Companys stock price volatility may cause fluctuations in expenses and operating results as the Company measures the valuation of stock-based compensation for options subject to variable accounting treatment from quarter to quarter.



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Human Capital Resources



The Company had 1,556 billable consultants as of December 31, 2004, compared to 959 as of December 31, 2003, which represented a net increase of 62
percent, or 597 consultants, for the year. Approximately 290 consulting professionals were hired as a part of business acquisitions made during the year, which represented nearly half of the increase in billable headcount. The remaining increase in
consulting professionals, net of attrition, was attributable to the Companys recruiting efforts. The Full Time Equivalent (FTE) consultant headcounts at December 31, 2004, 2003 and 2002 were 1,523, 932 and 1,002, respectively. The
average numbers of FTE consultants during the years were 1,319, 937 and 999, respectively. The average number of FTE consultants is adjusted for part-time status and takes into consideration hiring and attrition which occur during the year.



In connection with certain recruiting activities and business
acquisitions, the Companys policy is to obtain non-solicitation covenants from senior and mid-level consultants. Most of these covenants have restrictions that extend twelve months beyond the cessation of employment. The Company employs these
contractual agreements, and other agreements, to reduce the risk of attrition and to safeguard the Companys existing clients, staff, and projects from departing employees.



The Company continually monitors and adjusts, if needed, the consultants total compensation, which includes salaries,
annual cash incentive compensation, and other cash and equity incentives from certain Company programs, to ensure both that the consultants compensation is competitive within the industry and that the Company has the opportunity to achieve
target profitability levels. Material changes to the Companys compensation structure are done with the requisite approval from the Compensation Committee of the Companys Board of Directors. The Companys bill rates to clients are
tiered in accordance with the experience and levels of the consulting staff. The Company monitors and adjusts those bill rates according to the supply and demand of the then-current market conditions within the various industry segments served by
the Company.



Liquidity and Capital Resources



Summary



The Company had $36.9 million in cash and cash equivalents at December 31,
2004, compared to $38.4 million at December 31, 2003. The Companys cash equivalents were primarily limited to commercial paper or securities (rated A or better), with maturity dates of 90 days or less.



Working capital, the excess of current assets over current liabilities, was
$48.5 million at December 31, 2004 compared to $51.9 million at December 31, 2003.



The Company calculates accounts receivable days sales outstanding (DSO) by dividing the accounts receivable balance, net of deferred revenue credits, at the end of the quarter by daily net revenues. Daily
net revenues are calculated by taking quarterly net revenues divided by 90 days, approximately equal to the number of days in a quarter. Calculated as such, DSO was 71 days at December 31, 2004 compared to 72 days at December 31, 2003. Revenues for
the fourth quarter 2004 increased by 59 percent compared with 2003 fourth quarter revenues, while accounts receivable, net of deferred revenue credits, increased 56 percent to $100.4 million at December 31, 2004, from $64.5 million at December 31,
2003. The Company has a limited number of engagements that are billed and collected in advance of services. The collection of these billings, and managements continued focus on collection efforts and on more timely billings, was a factor in
reducing the DSO at the 2004 year-end. Another reason for the decrease in DSO at December 31, 2004 was the factoring of certain client receivables in conjunction with its sale, in January 2005, of certain assets. The Company made an adjustment in
the calculation at December 31, 2004 to remove the daily revenues and related client receivables of the aforementioned factored assets. As of December 31, 2004, the Company recorded assets held for sale of $5.8 million, which consisted of $5.0
million of billed and unbilled receivables and $0.8 million of fixed assets. The assets held for sale were sold on January 3, 2005. At December 31, 2004, the Company recorded a write down of $0.6 million to state the assets held for sale at net
realizable value.



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Cash Flow



For the year ended December 31, 2004, net cash provided by operating activities was $72.2 million, compared to $57.0 million
and $8.9 million for the years ended December 31, 2003 and 2002, respectively. For the year ended December 31, 2004, the Companys net income was $40.4 million, which included $11.9 million of depreciation and amortization expense, $9.6 million
of stock-based compensation expense and other expense amortization of $3.1 million. The Companys liability for accrued compensation-related costs increased by $31.4 million and is primarily related to an increase in the annual employee
incentive compensation liability, which will not be paid until the first quarter 2005. The Company realized tax benefits of $13.1 million related to the vesting of restricted stock and stock option exercises for the difference between the
Companys then-current common stock market price and the strike price of the equity awards. These amounts were offset by an increase in accounts receivable of $54.4 million, resulting primarily from the recent revenue increases. The timing of
cash collections from clients and other normal operating disbursements, some of which are cyclical, may cause variations in the cash operating activities from period to period.



Net cash used by investing activities for the year ended December 31, 2004 was $81.6 million. The Company paid $53.7 million
for acquisition-related transactions, of which $45.6 million, $6.5 million and $1.2 million were paid at closing for the acquisitions of Tucker, CapAdvisory and Invalesco, respectively, and were related to portions of the purchase price agreements.
The Company also paid $13.5 million related to businesses acquired prior to 2004. In addition, the Company expended $14.7 million for capital spending, which was predominately related to computer purchases, furnishing its facilities and leasehold
improvements in certain offices.



Net cash provided by
financing activities was $7.8 million in 2004, which was related to employee purchases of shares under stock option and stock purchase plans.



Debt, Commitments and Capital



As of December 31, 2004, the Company maintained an unsecured revolving line of credit agreement for $150.0 million. The revolving line of credit agreement
expires on October 31, 2005 and the Company has the option to extend the agreement for an additional two years from the expiration date. Borrowings under the revolving line of credit agreement bear interest based, at the Companys option, on
either (1) the higher of the prime rate or the Federal fund rates plus 0.5 percent, or (2) London Interbank Offered Rate (LIBOR) plus 1.25 percent. The line of credit agreement requires the Company to maintain a minimum level of earnings before
interest, taxes, depreciation and amortization, among other things. The Company complied with the terms of its line of credit agreement as of December 31, 2004 and 2003. The Company did not have a balance outstanding under its line of credit
agreement as of December 31, 2004 and December 31, 2003.



As of
December 31, 2004, the Company had commitments of $164.7 million, which consisted of $40.9 million in deferred business acquisition obligations and $16.3 million in acquisition earnout obligations, both payable in cash and its common stock, $1.1
million cash obligation related to the Management Stock Purchase Plan (MSPP) agreements, and $106.4 million in lease commitments. The deferred business acquisition obligations are primarily related to acquisitions made in 2004. The
acquisition earnout obligations are related to acquisitions made prior to 2004 and were contingent upon the attainment of certain performance criteria before being payable at December 31, 2004. During the year ended December 31, 2004, the Company
assumed a number of operating leases for office space from Tucker and secured other office space by signing long-term leases. As of December 31, 2004, the Company had no significant commitments for capital expenditures.



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The following table shows the components of significant commitments as of December 31, 2004 and the
scheduled years of payments (shown in thousands):



|                                       |  |      |        |             |   |            |  |       |        |  |   |        
|-------------------------------------- |  | ---- | ------ | ----------- | - | ---------- |  | ----- | ------ |  | - | -------
|                                       |  | 2005 |        | 2006 to2008 |   | Thereafter |  | Total
|Deferred purchase price obligations    |  | $    | 21,429 |             | $ | 19,494     |  | $     |       |  | $ | 40,923 
|Acquisition earnout obligations        |  |      | 16,304 |             |   |           |  |       |       |  |   | 16,304 
|Cash obligations under MSPP agreements |  |      | 1,095  |             |   |           |  |       |       |  |   | 1,095  
|Lease commitments                      |  |      | 16,932 |             |   | 45,233     |  |       | 44,196 |  |   | 106,361
|                                       |  |      |        |             |   |            |  |       |        |  |   |        
|                                       |  | $    | 55,760 |             | $ | 64,727     |  | $     | 44,196 |  | $ | 164,683
|                                       |  |      |        |             |   |            |  |       |        |  |   |        



The Company believes
that its current cash and cash equivalents, the future cash flows from operations and the line of credit facility will provide adequate cash to fund anticipated short-term and long-term cash needs from normal operations. In the event the Company was
to make significant cash expenditures in the future for major acquisitions or other non-operating activities, the Company might need additional debt or equity financing, as appropriate.



Other Events



On February 8, 2005, the Company acquired substantially all of the assets of Casas, Benjamin & White (CBW) for $47.5 million, which
included $38.0 million cash at closing and an aggregate of $9.5 million of its common stock to be issued in February 2006, 2007 and 2008. The CBW acquisition included 23 consulting professionals specializing in corporate restructuring and
transaction advisory services. The Company acquired CBW to strengthen its corporate finance practice. The Company filed a Current Report on Form 8-K dated February 8, 2005, relating to this acquisition.



In December 2004, the FASB issued SFAS No. 123(R), Share-Based
Payment, which replaces SFAS No. 123 and supersedes APB No. 25. The Statement requires that the cost resulting from all share-based compensation arrangements, such as the Companys stock option and restricted stock plans, be recognized in
the financial statements based on their fair value. The provisions of SFAS No. 123(R) are required to be applied as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Accordingly, the Company will adopt
the provisions of SFAS No. 123(R) at the beginning of the third quarter of fiscal year 2005. SFAS No. 123(R) requires companies to adopt its provisions prospectively by recognizing compensation expense for the unvested portion of previously granted
awards and all new awards granted after the adoption date over the respective vesting periods. SFAS No. 123(R) also allows companies to restate previously issued financial statements, either for all years beginning after December 15, 1994, or only
for the interim periods in the year of adoption.



The adoption
of SFAS No. 123(R) will not affect the Companys net cash flows, but it will reduce net earnings and basic and diluted net earnings per share. While the Company currently discloses the pro forma net earnings effects of its stock-based awards
(see Note 2). The Company is in the process of evaluating the alternative methods of adoption and the impact that the implementation guidance and revisions included in SFAS No. 123(R) will have on its consolidated financial statements.



Item 7A.Quantitative and Qualitative Disclosures About Market Risk.



The Companys primary exposure to market risks relates to changes in interest rates associated with its borrowings under the line of credit, and its
investment portfolio, classified as cash equivalents. The Companys general investment policy is to limit the risk of principal loss by limiting market and credit risks.



As of December 31, 2004, the Companys investments were primarily limited to A rated securities, with
maturity dates of 90 days or less. These financial instruments are subject to interest rate risk and will decline in value if interest rates rise. Because of the short periods to maturity of these instruments, an increase in interest rates would not
have a material effect on the Companys financial position or operating results.



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##### Table of Contents

The Companys market risk associated with its line of credit relates to changes in interest rates.
Borrowings under the amended line of credit agreement bear interest based, at the Companys option, on either (1) the higher of the prime rate or the Federal fund rates plus 0.5 percent, or (2) London Interbank Offered Rate (LIBOR) plus 1.25
percent. Because at December 31, 2004, no amounts were outstanding under the line of credit, a change in interest rates would not affect the Companys financial position or operating results.



Other than the certain deferred purchase price obligations and contingent
earnout obligations discussed above, the Company did not have, at December 31, 2004, any short-term debt, long-term debt, interest rate derivatives, forward exchange agreements, firmly committed foreign currency sales transactions, or derivative
commodity instruments.



The Company operates in foreign
countries which expose it to market risk associated with foreign currency exchange rate fluctuations; however, such risk is immaterial in relation to the Companys consolidated financial statements.



Item 8.Consolidated Financial Statements and Supplementary Data.



The Consolidated Financial Statements of the Company are in this report as pages F-1 through F-27. An index to such information appears on page F-1.



Item 9.Changes In and Disagreements with the Companys Independent Accountants on Accounting and Financial Disclosure.



None.



Item 9A.Controls and Procedures.



Evaluation of Disclosure Controls and Procedures.



Under the direction of our principal executive officer and principal financial officer, the Company has evaluated the effectiveness of its disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of December 31, 2004. Based on that evaluation, the Company has concluded that its disclosure controls and procedures were effective in providing reasonable assurance that
material information required to be disclosed is included on a timely basis in the reports its files with the Securities and Exchange Commission.



Managements Annual Report on Internal Control Over Financial Reporting



The Companys management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Companys management, including the Companys principal executive officer and principal financial officer, the
Company conducted an evaluation of the effectiveness of the Companys internal control over financial reporting based on the framework in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on the Companys evaluation under the framework in Internal Control  Integrated Framework, the Companys management concluded that its internal control over financial reporting was effective as
of December 31, 2004.



The Companys management assessment
of the effectiveness of the Companys internal control over financial reporting as of December 31, 2004 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.



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##### Table of Contents

Item 9B.Other Information.



None



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders

Navigant Consulting, Inc.:



We have audited managements assessment, presented in Managements Annual Report on Internal Control Over
Financial Reporting,that Navigant Consulting, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Navigant Consulting, Inc.s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our
audit.



We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



In our
opinion, managements assessment that Navigant Consulting, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria.Also, in our
opinion, Navigant Consulting, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Navigant Consulting, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders equity, and cash flows for each of the years in the three-year period
ended December 31, 2004, and our report dated March 7, 2005 expressed an unqualified opinion thereon.



/s/    KPMG LLP



Chicago,
Illinois

March 7, 2005



26



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##### Table of Contents

PART III



Item 10.Directors and Executive Officers of the Registrant.



Information required in response to this Item is incorporated herein by reference from the Companys definitive proxy statement for the
Companys Annual Meeting of Stockholders scheduled to be held on May 4, 2005, which proxy statement will be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the Companys year ended December 31,
2004.



Item 11.Executive Compensation.



Information required in response to this Item is incorporated herein by reference from the Companys definitive proxy statement for the
Companys Annual Meeting of Stockholders scheduled to be held on May 4, 2005, which proxy statement will be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the Companys year ended December 31,
2004.



Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.



Information required in response to this Item is incorporated herein by reference from the Companys definitive proxy
statement for the Companys Annual Meeting of Stockholders scheduled to be held on May 4, 2005, which proxy statement will be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the Companys year
ended December 31, 2004.



Information required with respect to
the securities authorized for issuance under the Companys equity compensation plans, including plans that have previously been approved by the Companys stockholders and plans that have not previously been approved by the Companys
stockholders, will be set forth in the Proxy Statement, and such information is incorporated herein by reference.



Item 13.Certain Relationships and Related Transactions.



Information required in response to this Item is herein incorporated by reference from the Companys definitive proxy statement for the
Companys Annual Meeting of Stockholders scheduled to be held on May 4, 2005, which proxy statement will be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the Companys year ended December 31,
2004.



Item 14.Principal Independent Accountant Fees and Services.



Information required in response to this Item is incorporated herein by reference from the Companys definitive proxy statement for the
Companys Annual Meeting of Stockholders scheduled to be held on May 4, 2005, which proxy statement will be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the Companys year ended December 31,
2004.



27



---

##### Table of Contents

PART IV



Item 15.Exhibits and Financial Statement Schedules.



(a) The consolidated financial statements and financial statement schedule filed as part of this report are listed in the accompanying Index to
Consolidated Financial Statements. The Financial Statement Schedule filed as part of this report is listed below.



(c) The exhibits filed as part of this report are listed below:



a.    Exhibits:



|           |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                                                                                                                                                                                            
|2.1        |  | Asset Purchase Agreement dated as of September 1, 2002 among the Company, Hunter & Associates Management Services, Inc. and THG Investors, Inc. (13)                                                                                                                                                                                                                                                   
|2.2        |  | Asset Purchase Agreement dated as of January 30, 2004 among the Company, Tucker Alan Inc., and the shareholders of Tucker Alan Inc. (14)                                                                                                                                                                                                                                                               
|2.3        |  | Asset Purchase Agreement dated as of February 8, 2005 among the Company, Casas, Benjamin & White, LLC and certain other parties thereto (15)                                                                                                                                                                                                                                                           
|3.1        |  | Amended and Restated Certificate of Incorporation of the Company (1)                                                                                                                                                                                                                                                                                                                                   
|3.2        |  | Amendment No. 1 to Amended and Restated Certificate of Incorporation of the Company (2)                                                                                                                                                                                                                                                                                                                
|3.3        |  | Amendment No. 2 to Amended and Restated Certificate of Incorporation of the Company (3)                                                                                                                                                                                                                                                                                                                
|3.4        |  | Amended and Restated By-Laws of the Company (4)                                                                                                                                                                                                                                                                                                                                                        
|4.1        |  | Rights Agreement dated as of December 15, 1999 between the Company and American Stock Transfer & Trust Company, as Rights Agent, (which includes the form of Certificate of Designations
setting forth the terms of the Series A Junior Participating Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C) (5)
|4.2        |  | Substitution of Successor Rights Agent and Amendment No. 1 to Rights Agreement dated as ofJune 01, 2004 between the Company and LaSalle Bank, as Successor Rights Agent                                                                                                                                                                                                                                
|10.1+      |  | Long-Term Incentive Plan of the Company (6)                                                                                                                                                                                                                                                                                                                                                            
|10.2+      |  | 2001 Supplemental Equity Incentive Plan of the Company (7)                                                                                                                                                                                                                                                                                                                                             
|10.3+      |  | Employee Stock Purchase Plan of the Company (8)                                                                                                                                                                                                                                                                                                                                                        
|10.4+      |  | Amendment No. 1 Employee Stock Purchase Plan of the Company (9)                                                                                                                                                                                                                                                                                                                                        
|10.5+      |  | Amendment No. 2 Employee Stock Purchase Plan of the Company (9)                                                                                                                                                                                                                                                                                                                                        
|10.6+      |  | Amendment No. 3 Employee Stock Purchase Plan of the Company (10)                                                                                                                                                                                                                                                                                                                                       
|10.7+      |  | Amendment No. 4 Employee Stock Purchase Plan of the Company (10)                                                                                                                                                                                                                                                                                                                                       
|10.8+      |  | Amendment No. 5 Employee Stock Purchase Plan of the Company (6)                                                                                                                                                                                                                                                                                                                                        
|10.10+     |  | Employment Agreement dated January 1, 2003 between the Company and William M. Goodyear (11)                                                                                                                                                                                                                                                                                                            
|10.11*+    |  | Employment Agreement dated May 19, 2000 and Amendment dated December 23, 2003 between the Company and Ben W. Perks (6)                                                                                                                                                                                                                                                                                 
|10.12+     |  | Employment Agreement dated July 24, 2003 between the Company and Philip P. Steptoe (12)                                                                                                                                                                                                                                                                                                                
|10.13*+    |  | Employment Agreement dated November 3, 2003 between the Company and Julie M. Howard                                                                                                                                                                                                                                                                                                                    
|21.1*      |  | Significant Subsidiaries of the Company                                                                                                                                                                                                                                                                                                                                                                
|23.1*      |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                               
|31.1*      |  | Certification of Chairman and Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                               
|31.2*      |  | Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                               
|32.1*      |  | Certification of Chairman and Chief Executive Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.                                                                                                                                                                                                                                                                    
|32.2*      |  | Certification of Executive Vice President and Chief Financial Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.                                                                                                                                                                                                                                                    

---

|(1) | Incorporated by reference from the Companys Registration Statement on Form S-1 (Registration No. 333-9019) filed with the SEC on July 26, 1996.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



28



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##### Table of Contents

|(2) | Incorporated by reference from the Companys Registration Statement on Form S-3 (Registration No. 333-40489) filed with the SEC on November 18, 1997.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference from the Companys Form 8-A12B filed with the SEC on July 20, 1999.
|--- | ---------------------------------------------------------------------------------------------



|(4) | Incorporated by reference from the Companys Amendment No. 1 to Registration Statement on Form S-3 (Registration No. 333-40489) filed with the SEC on February 12, 1998.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Incorporated by reference from the Companys Current Report on Form 8-K dated December 15, 1999.
|--- | ------------------------------------------------------------------------------------------------



|(6) | Incorporated by reference from the Companys Annual Report on Form 10-K for the year ended December 31, 2000.
|--- | -------------------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference from the Companys Registration Statement on Form S-8 (Registration No. 333-81680) filed with the SEC on January 30, 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Incorporated by reference from the Companys Registration Statement on Form S-8 (Registration No. 333-53506) filed with the SEC on January 10, 2001.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Incorporated by reference from the Companys Annual Report on Form 10-K for the year ended December 31, 1998.
|--- | -------------------------------------------------------------------------------------------------------------



|(10) | Incorporated by reference from the Companys Annual Report on Form 10-K for the year ended December 31, 1999.
|---- | -------------------------------------------------------------------------------------------------------------



|(11) | Incorporated by reference from the Companys Annual Report on Form 10-K for the year ended December 31, 2002.
|---- | -------------------------------------------------------------------------------------------------------------



|(12) | Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003.
|---- | -----------------------------------------------------------------------------------------------------------------------------



|(13) | Incorporated by reference from the Companys Current Report on Form 8-K dated September 23, 2002.
|---- | -------------------------------------------------------------------------------------------------



|(14) | Incorporated by reference from the Companys Current Report on Form 8-K dated February 12, 2004.
|---- | ------------------------------------------------------------------------------------------------



|(15) | Incorporated by reference from the Companys Current Report on Form 8-K dated February 9, 2005.
|---- | -----------------------------------------------------------------------------------------------



|* | Indicates filed herewith.
|- | -------------------------



|+ | Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.
|- | -------------------------------------------------------------------------------------------------------------------------



29



---

##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



|                     |  |  |  |                           |  |                            |  |                                                         
|-------------------- |  |  |  | ------------------------- |  | -------------------------- |  | --------------------------------------------------------
|                     |  |  |  | Navigant Consulting, Inc.
|                     |  |  | 
|Date: March 10, 2005 |  |  |  | By:                       |  | /s/    WILLIAM M.
GOODYEAR
|                     |  |  |  |                           |  |                            |  | William M. Goodyear Chairman and Chief Executive Officer



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.



|                                                            |  |                                                                                                  |  |               
|----------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | --------------
|Signature                                                   |  | Title                                                                                            |  | Date          
|                                                            |  |                                                                                                 
|/s/    WILLIAM M.
GOODYEARWilliam M.
Goodyear               |  | Chairman and Chief Executive Officer and Director (Principal Executive Officer)                  |  | March 10, 2005
|                                                            |  |                                                                                                 
|/s/    BEN W. PERKSBen W. Perks                             |  | Executive Vice President andChief Financial Officer (Principal Financial and Accounting Officer) |  | March 10, 2005
|                                                            |  |                                                                                                 
|/s/    THOMAS A.
GILDEHAUSThomas A.
Gildehaus               |  | Director                                                                                         |  | March 10, 2005
|                                                            |  |                                                                                                 
|/s/    VALERIE B.
JARRETTValerie B.
Jarrett                 |  | Director                                                                                         |  | March 10, 2005
|                                                            |  |                                                                                                 
|/s/    PETER B. PONDPeter B. Pond                           |  | Director                                                                                         |  | March 10, 2005
|                                                            |  |                                                                                                 
|/s/    SAMUEL K.
SKINNERSamuel K. Skinner                   |  | Director                                                                                         |  | March 10, 2005
|                                                            |  |                                                                                                 
|/s/    GOVERNOR JAMES R.
THOMPSONGovernor James R.
Thompson |  | Director                                                                                         |  | March 10, 2005



30



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##### Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES



INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                                |  |     
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                |  | Page
|Report of Independent Registered Public Accounting Firm                                                                                         |  | F-2 
|                                                                                                                                               
|Consolidated Financial Statements as of December 31, 2004 and 2003, and for each of the years in the three year period ended
December 31, 2004:
|Consolidated Balance Sheets                                                                                                                     |  | F-3 
|Consolidated Statements of Income                                                                                                               |  | F-4 
|Consolidated Statements of Stockholders Equity                                                                                                 |  | F-5 
|Consolidated Statements of Cash Flows                                                                                                           |  | F-6 
|Notes to Consolidated Financial Statements                                                                                                      |  | F-7 
|1.    Description of Business                                                                                                                   |  | F-7 
|2.    Summary of Significant Accounting Policies                                                                                                |  | F-7 
|3.    Acquisitions and Divestiture                                                                                                              |  | F-10
|4.    Segment Information                                                                                                                       |  | F-13
|5.    Goodwill and Intangible Assets, Net                                                                                                       |  | F-14
|6.    Earnings per Share                                                                                                                        |  | F-15
|7.    Stockholders Equity                                                                                                                      |  | F-16
|8.    Stock-based Compensation Expense                                                                                                          |  | F-17
|9.    Long-Term Incentive Plan and Supplemental Equity Incentive Plan                                                                           |  | F-17
|10.    Supplemental Consolidated Balance Sheet Information                                                                                      |  | F-20
|11.    Supplemental Consolidated Cash Flow Information                                                                                          |  | F-22
|12.    Lease Commitments                                                                                                                        |  | F-23
|13.    Bank Borrowings                                                                                                                          |  | F-23
|14.    Income Taxes                                                                                                                             |  | F-24
|15.    Restructuring Costs (Credits)                                                                                                            |  | F-25
|16.    Employee Benefits Plan                                                                                                                   |  | F-26
|17.    Related Party Transactions                                                                                                               |  | F-26
|18.    Subsequent Events                                                                                                                        |  | F-26
|19.    Litigation and Settlements                                                                                                               |  | F-27
|                                                                                                                                                | 
|Financial Statement Schedule                                                                                                                   |  |     
|Schedule I  Valuation and Qualifying Accounts                                                                                                  |  | S-1 



F-1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders

Navigant Consulting, Inc.



We have audited the accompanying consolidated balance sheets of Navigant Consulting, Inc. and subsidiaries as of December
31, 2004 and 2003, and the related consolidated statements of income, stockholders equity and cash flows for each of the years in the three-year period ended December 31, 2004. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Navigant Consulting, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the
Companys internal control over financial reporting as of December 31, 2004, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
our report dated March 7, 2005 expressed an unqualified opinion on managements assessment of, and the effective operation of, internal control over financial reporting.



/s/    KPMG LLP



Chicago, Illinois,

March 7, 2005



F-2



---

##### Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                 |  | December 31,2004 |          |   | December 31,2003 |  
|ASSETS                                                                                                                                           |  |                  |          |   |                  |   |          |  
|Current assets:                                                                                                                                  |  |                  |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                        |  | $                | 36,897   |   |                  | $ | 38,402   |  
|Accounts receivable, net                                                                                                                         |  |                  | 111,157  |   |                  |   | 68,715   |  
|Assets held for sale                                                                                                                             |  |                  | 5,816    |   |                  |   |         |  
|Prepaid expenses and other current assets                                                                                                        |  |                  | 5,633    |   |                  |   | 5,741    |  
|Income taxes receivable                                                                                                                          |  |                  | 1,713    |   |                  |   |         |  
|Deferred income tax assets                                                                                                                       |  |                  | 5,142    |   |                  |   | 3,805    |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|Total current assets                                                                                                                             |  |                  | 166,358  |   |                  |   | 116,663  |  
|Property and equipment, net                                                                                                                      |  |                  | 27,381   |   |                  |   | 19,958   |  
|Goodwill and intangible assets, net                                                                                                              |  |                  | 224,845  |   |                  |   | 112,075  |  
|Deferred income tax assets                                                                                                                       |  |                  |         |   |                  |   | 4,326    |  
|Other assets                                                                                                                                     |  |                  | 223      |   |                  |   | 2,294    |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|Total assets                                                                                                                                     |  | $                | 418,807  |   |                  | $ | 255,316  |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                             |  |                  |          |   |                  |   |          |  
|Current liabilities:                                                                                                                             |  |                  |          |   |                  |   |          |  
|Accounts payable and accrued liabilities                                                                                                         |  | $                | 14,117   |   |                  | $ | 7,015    |  
|Accrued compensation-related costs                                                                                                               |  |                  | 62,580   |   |                  |   | 35,552   |  
|Income taxes payable                                                                                                                             |  |                  |         |   |                  |   | 2,539    |  
|Other current liabilities                                                                                                                        |  |                  | 41,188   |   |                  |   | 19,691   |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|Current liabilities                                                                                                                              |  |                  | 117,885  |   |                  |   | 64,797   |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|Non-current liabilities                                                                                                                          |  |                  |          |   |                  |   |          |  
|Deferred income tax liabilities                                                                                                                  |  |                  | 1,618    |   |                  |   |         |  
|Other non-current liabilities                                                                                                                    |  |                  | 10,630   |   |                  |   | 1,761    |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|Non-current liabilities                                                                                                                          |  |                  | 12,248   |   |                  |   | 1,761    |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|Total liabilities                                                                                                                                |  |                  | 130,133  |   |                  |   | 66,558   |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|Stockholders equity:                                                                                                                            |  |                  |          |   |                  |   |          |  
|Preferred stock, $.001 par value per share; 3,000 shares authorized; no shares issued or outstanding                                             |  |                  |         |   |                  |   |         |  
|Common stock, $.001 par value per share; 75,000 shares authorized; 47,868 and 44,922 shares issued and outstanding at December 31, 2004 and
2003 |  |                  | 53       |   |                  |   | 51       |  
|Additional paid-in capital                                                                                                                       |  |                  | 444,827  |   |                  |   | 398,699  |  
|Deferred stock issuance, net                                                                                                                     |  |                  | 19,612   |   |                  |   | 4,375    |  
|Deferred compensationrestricted stock, net                                                                                                      |  |                  | (11,020  | ) |                  |   | (4,917   | )
|Treasury stock                                                                                                                                   |  |                  | (63,853  | ) |                  |   | (68,100  | )
|Accumulated deficit                                                                                                                              |  |                  | (101,270 | ) |                  |   | (141,645 | )
|Accumulated other comprehensive income                                                                                                           |  |                  | 325      |   |                  |   | 295      |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|Total stockholders equity                                                                                                                       |  |                  | 288,674  |   |                  |   | 188,758  |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                                                       |  | $                | 418,807  |   |                  | $ | 255,316  |  
|                                                                                                                                                 |  |                  |          |   |                  |   |          |  



See accompanying notes
to the consolidated financial statements.



F-3



---

##### Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)



|                                                  |  |                                  |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                  |  | For the years ended December 31, |        
|                                                  |  | 2004                             |         |   | 2003 |   |         | 2002 | 
|Revenues before reimbursements                    |  | $                                | 426,867 |   |      | $ | 276,130 |      |  | $ | 225,305 |  
|Reimbursements                                    |  |                                  | 55,252  |   |      |   | 41,652  |      |  |   | 32,715  |  
|                                                  |  |                                  |         |   |      |   |         |      |  |   |         |  
|Total revenues                                    |  |                                  | 482,119 |   |      |   | 317,782 |      |  |   | 258,020 |  
|Cost of services before reimbursable expenses     |  |                                  | 248,954 |   |      |   | 160,080 |      |  |   | 136,121 |  
|Reimbursable expenses                             |  |                                  | 55,252  |   |      |   | 41,652  |      |  |   | 32,715  |  
|                                                  |  |                                  |         |   |      |   |         |      |  |   |         |  
|Total costs of services                           |  |                                  | 304,206 |   |      |   | 201,732 |      |  |   | 168,836 |  
|Stock-based compensation expense                  |  |                                  | 9,589   |   |      |   | 11,107  |      |  |   | 3,401   |  
|General and administrative expenses               |  |                                  | 84,673  |   |      |   | 63,292  |      |  |   | 60,721  |  
|Depreciation expense                              |  |                                  | 8,312   |   |      |   | 7,488   |      |  |   | 7,651   |  
|Amortization expense                              |  |                                  | 3,562   |   |      |   | 1,880   |      |  |   | 2,373   |  
|Restructuring costs (credits)                     |  |                                  | 1,091   |   |      |   |        |      |  |   | (500    | )
|Litigation and settlement provisions              |  |                                  | 385     |   |      |   | 440     |      |  |   | 750     |  
|                                                  |  |                                  |         |   |      |   |         |      |  |   |         |  
|Operating income                                  |  |                                  | 70,301  |   |      |   | 31,843  |      |  |   | 14,788  |  
|Interest expense                                  |  |                                  | 2,481   |   |      |   | 482     |      |  |   | 490     |  
|Interest income                                   |  |                                  | (330    | ) |      |   | (246    | )    |  |   | (381    | )
|Other income, net                                 |  |                                  | (287    | ) |      |   | (500    | )    |  |   | (90     | )
|                                                  |  |                                  |         |   |      |   |         |      |  |   |         |  
|Income before income taxes                        |  |                                  | 68,437  |   |      |   | 32,107  |      |  |   | 14,769  |  
|Income tax expense                                |  |                                  | 28,062  |   |      |   | 13,399  |      |  |   | 5,908   |  
|                                                  |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net income                                        |  | $                                | 40,375  |   |      | $ | 18,708  |      |  | $ | 8,861   |  
|                                                  |  |                                  |         |   |      |   |         |      |  |   |         |  
|Basic income per share                            |  | $                                | 0.86    |   |      | $ | 0.43    |      |  | $ | 0.22    |  
|Shares used in computing income per basic share   |  |                                  | 47,187  |   |      |   | 43,236  |      |  |   | 40,350  |  
|Diluted income per share                          |  | $                                | 0.80    |   |      | $ | 0.40    |      |  | $ | 0.21    |  
|Shares used in computing income per diluted share |  |                                  | 50,247  |   |      |   | 47,029  |      |  |   | 42,670  |  





See accompanying notes to the consolidated financial statements.





F-4



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##### Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands)



|                                                                   |  |                       |  |                   |   |  |                     |   |  |                     |    |                           |   |                       |  |   |                                  |   |  |                                       |        |   |                   |   |         |                                             |  |   |                                       |   |  |                           |      |   |  |   |          |   |  |   |         |  
|------------------------------------------------------------------ |  | --------------------- |  | ----------------- | - |  | ------------------- | - |  | ------------------- | -- | ------------------------- | - | --------------------- |  | - | -------------------------------- | - |  | ------------------------------------- | ------ | - | ----------------- | - | ------- | ------------------------------------------- |  | - | ------------------------------------- | - |  | ------------------------- | ---- | - |  | - | -------- | - |  | - | ------- | -
|                                                                   |  | Pre-ferredStockShares |  | CommonStockShares |   |  | TreasuryStockShares |   |  | CommonStockParValue |    | Addi-tionalPaid-InCapital |   | DeferredStockIssuance |  |   | RestrictedStock UnitsOutstanding |   |  | DeferredCompen-sationRestrictedStock |        |   | TreasuryStockCost |   |         | Accumu-latedOtherCompre-hensiveIncome(loss) |  |   | RetainedEarnings(Accumu-latedDeficit) |   |  | TotalStock-holdersEquity |     
|Balance at December 31, 2001                                       |  |                      |  | 44,458            |   |  | (5,758              | ) |  | $                   | 44 |                           | $ | 353,234               |  | $ |                                 |   |  | $                                     |       |   |                   | $ | (4,504  | )                                           |  | $ | (67,394                               | ) |  | $                         | (61  | ) |  | $ | (169,214 | ) |  | $ | 112,105 |  
|Comprehensive income (loss)                                        |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   |                      |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           | (43  | ) |  |   | 8,861    |   |  |   | 8,818   |  
|Issuance of common stock related to business combinations          |  |                      |  | 1,556             |   |  | 1,404               |   |  |                     | 2  |                           |   | 11,465                |  |   | 3,077                            |   |  |                                       |       |   |                   |   |        |                                             |  |   | 6,630                                 |   |  |                           |     |   |  |   |         |   |  |   | 21,174  |  
|Other issuances of common stock                                    |  |                      |  | 827               |   |  | 39                  |   |  |                     | 1  |                           |   | 3,650                 |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   | 140                                   |   |  |                           |     |   |  |   |         |   |  |   | 3,791   |  
|Tax benefit on stock options exercised and restricted stock vested |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   | 416                   |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 416     |  
|Issuance of restricted stock, net of forfeitures                   |  |                      |  | 479               |   |  |                    |   |  |                     |   |                           |   | 2,745                 |  |   |                                 |   |  |                                       |       |   |                   |   | (2,745  | )                                           |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   |        |  
|Grants of restricted stock awards                                  |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   |                      |  |   |                                 |   |  |                                       | 4,439  |   |                   |   | (4,439  | )                                           |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   |        |  
|Purchases of treasury stock                                        |  |                      |  |                  |   |  | (922                | ) |  |                     |   |                           |   |                      |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   | (5,179                                | ) |  |                           |     |   |  |   |         |   |  |   | (5,179  | )
|Stock-based compensation expensevariable accounting stock options |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   | 502                   |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 502     |  
|Stock-based compensation expenserestricted stock and units        |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   |                      |  |   | 132                              |   |  |                                       |       |   |                   |   | 2,536   |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 2,668   |  
|                                                                   |  |                       |  |                   |   |  |                     |   |  |                     |    |                           |   |                       |  |   |                                  |   |  |                                       |        |   |                   |   |         |                                             |  |   |                                       |   |  |                           |      |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2002                                       |  |                      |  | 47,320            |   |  | (5,237              | ) |  | $                   | 47 |                           | $ | 372,012               |  | $ | 3,209                            |   |  | $                                     | 4,439  |   |                   | $ | (9,152  | )                                           |  | $ | (65,803                               | ) |  | $                         | (104 | ) |  | $ | (160,353 | ) |  | $ | 144,295 |  
|Comprehensive income                                               |  |                       |  |                  |   |  |                    |   |  |                     |   |                           |   |                      |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           | 399  |   |  |   | 18,708   |   |  |   | 19,107  |  
|Issuance of common stock related to business combinations          |  |                      |  | 74                |   |  | 325                 |   |  |                     | 1  |                           |   | 1,701                 |  |   | (2,004                           | ) |  |                                       |       |   |                   |   |        |                                             |  |   | 1,967                                 |   |  |                           |     |   |  |   |         |   |  |   | 1,665   |  
|Deferred purchase price commitment to issue stock                  |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   |                      |  |   | 3,097                            |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 3,097   |  
|Other issuances of common stock                                    |  |                      |  | 1,295             |   |  | 279                 |   |  |                     | 2  |                           |   | 5,293                 |  |   |                                 |   |  |                                       | 330    |   |                   |   | 385     |                                             |  |   | 1,817                                 |   |  |                           |     |   |  |   |         |   |  |   | 7,827   |  
|Tax benefit on stock options exercised and restricted stock vested |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   | 10,333                |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 10,333  |  
|Issuance of restricted stock, net of forfeitures                   |  |                      |  | 1,842             |   |  |                    |   |  |                     | 1  |                           |   | 4,529                 |  |   | 73                               |   |  |                                       | (3,310 | ) |                   |   | (1,293  | )                                           |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   |        |  
|Grants of restricted stock units                                   |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   | 2,613                 |  |   |                                 |   |  |                                       |       |   |                   |   | (2,613  | )                                           |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   |        |  
|Purchases of treasury stock                                        |  |                      |  |                  |   |  | (976                | ) |  |                     |   |                           |   |                       |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   | (6,081                                | ) |  |                           |     |   |  |   |         |   |  |   | (6,081  | )
|Stock-based compensation expensevariable accounting stock options |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   | 2,218                 |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 2,218   |  
|Stock-based compensation expenserestricted stock and units        |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   |                      |  |   |                                 |   |  |                                       |       |   |                   |   | 6,297   |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 6,297   |  
|                                                                   |  |                       |  |                   |   |  |                     |   |  |                     |    |                           |   |                       |  |   |                                  |   |  |                                       |        |   |                   |   |         |                                             |  |   |                                       |   |  |                           |      |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2003                                       |  |                      |  | 50,531            |   |  | (5,609              | ) |  | $                   | 51 |                           | $ | 398,699               |  | $ | 4,375                            |   |  | $                                     | 1,459  |   |                   | $ | (6,376  | )                                           |  | $ | (68,100                               | ) |  | $                         | 295  |   |  | $ | (141,645 | ) |  | $ | 188,758 |  
|Comprehensive income                                               |  |                       |  |                  |   |  |                    |   |  |                     |   |                           |   |                      |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           | 30   |   |  |   | 40,375   |   |  |   | 40,405  |  
|Issuance of common stock related to business combinations          |  |                      |  | (74               | ) |  | 687                 |   |  |                     | 1  |                           |   | 7,727                 |  |   | (4,170                           | ) |  |                                       |       |   |                   |   |        |                                             |  |   | 4,124                                 |   |  |                           |     |   |  |   |         |   |  |   | 7,682   |  
|Deferred purchase price commitment to issue stock                  |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   |                      |  |   | 19,324                           |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 19,324  |  
|Other issuances of common stock                                    |  |                      |  | 1,312             |   |  | 16                  |   |  |                     |   |                           |   | 6,993                 |  |   |                                 |   |  |                                       | 740    |   |                   |   |        |                                             |  |   | 123                                   |   |  |                           |     |   |  |   |         |   |  |   | 7,856   |  
|Tax benefit on stock options exercised and restricted stock vested |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   | 13,124                |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 13,124  |  
|Issuance of restricted stock, net of forfeitures                   |  |                      |  | 1,005             |   |  |                    |   |  |                     | 1  |                           |   | 2,868                 |  |   | 83                               |   |  |                                       | (2,158 | ) |                   |   | (815    | )                                           |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | (21     | )
|Grants of restricted stock awards                                  |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   | 13,706                |  |   |                                 |   |  |                                       |       |   |                   |   | (10,672 | )                                           |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 3,034   |  
|Stock-based compensation expensevariable accounting stock options |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   | 834                   |  |   |                                 |   |  |                                       |       |   |                   |   |        |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 834     |  
|Stock-based compensation expenserestricted stock and units        |  |                      |  |                  |   |  |                    |   |  |                     |   |                           |   | 876                   |  |   |                                 |   |  |                                       |       |   |                   |   | 6,802   |                                             |  |   |                                      |   |  |                           |     |   |  |   |         |   |  |   | 7,678   |  
|                                                                   |  |                       |  |                   |   |  |                     |   |  |                     |    |                           |   |                       |  |   |                                  |   |  |                                       |        |   |                   |   |         |                                             |  |   |                                       |   |  |                           |      |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2004                                       |  |                      |  | 52,774            |   |  | (4,906              | ) |  | $                   | 53 |                           | $ | 444,827               |  | $ | 19,612                           |   |  | $                                     | 41     |   |                   | $ | (11,061 | )                                           |  | $ | (63,853                               | ) |  | $                         | 325  |   |  | $ | (101,270 | ) |  | $ | 288,674 |  
|                                                                   |  |                       |  |                   |   |  |                     |   |  |                     |    |                           |   |                       |  |   |                                  |   |  |                                       |        |   |                   |   |         |                                             |  |   |                                       |   |  |                           |      |   |  |   |          |   |  |   |         |  



See accompanying notes
to the consolidated financial statements.





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##### Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                       |  | Years ended December 31, |        
|                                                                                                       |  | 2004                     |         |   | 2003 |   |         | 2002 | 
|Cash flows from operating activities:                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                             |  | $                        | 40,375  |   |      | $ | 18,708  |      |  | $ | 8,861   |  
|Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions: |  |                          |         |   |      |   |         |      |  |   |         |  
|Depreciation expense                                                                                   |  |                          | 8,312   |   |      |   | 7,488   |      |  |   | 7,651   |  
|Amortization expense                                                                                   |  |                          | 3,562   |   |      |   | 1,880   |      |  |   | 2,373   |  
|Stock-based compensation expense                                                                       |  |                          | 9,589   |   |      |   | 11,107  |      |  |   | 3,250   |  
|Payments related to stock appreciation rights obligations                                              |  |                          | (2,407  | ) |      |   |        |      |  |   |        |  
|Tax benefit of issuances of common stock                                                               |  |                          | 13,124  |   |      |   | 10,333  |      |  |   | 416     |  
|Amortization of consultants non-solicitation agreements                                               |  |                          | 1,796   |   |      |   | 1,816   |      |  |   | 279     |  
|Payments related to consultants non-solicitation agreements                                           |  |                          | (1,064  | ) |      |   | (1,290  | )    |  |   | (1,363  | )
|Accretion of interest expense                                                                          |  |                          | 1,262   |   |      |   |        |      |  |   |        |  
|Provision for bad debts                                                                                |  |                          | 6,352   |   |      |   | 4,894   |      |  |   | 4,643   |  
|Deferred income taxes                                                                                  |  |                          | 4,607   |   |      |   | 1,290   |      |  |   | (191    | )
|Other, net                                                                                             |  |                          | 563     |   |      |   |        |      |  |   | 212     |  
|Changes in assets and liabilities:                                                                     |  |                          |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                                    |  |                          | (54,407 | ) |      |   | (12,141 | )    |  |   | (10,484 | )
|Prepaid expenses and other current assets                                                              |  |                          | (19     | ) |      |   | (1,365  | )    |  |   | 2,266   |  
|Accounts payable and accrued liabilities                                                               |  |                          | 6,196   |   |      |   | (3,606  | )    |  |   | (2,854  | )
|Accrued compensation-related costs                                                                     |  |                          | 31,378  |   |      |   | 20,965  |      |  |   | (2,982  | )
|Income taxes payable                                                                                   |  |                          | (4,207  | ) |      |   | (5,340  | )    |  |   | (1,485  | )
|Other current liabilities                                                                              |  |                          | 7,228   |   |      |   | 2,306   |      |  |   | (1,716  | )
|                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                                              |  |                          | 72,240  |   |      |   | 57,045  |      |  |   | 8,876   |  
|                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Purchases of property and equipment                                                                    |  |                          | (14,726 | ) |      |   | (9,254  | )    |  |   | (5,242  | )
|Acquisitions of businesses, net of cash acquired                                                       |  |                          | (53,735 | ) |      |   | (2,780  | )    |  |   | (32,740 | )
|Payment of acquisition liabilities                                                                     |  |                          | (13,450 | ) |      |   | (10,316 | )    |  |   | (3,646  | )
|Other, net                                                                                             |  |                          | 330     |   |      |   | 352     |      |  |   | (201    | )
|                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                                  |  |                          | (81,581 | ) |      |   | (21,998 | )    |  |   | (41,829 | )
|                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Issuance of common stock                                                                               |  |                          | 7,836   |   |      |   | 7,827   |      |  |   | 3,791   |  
|Stock repurchases                                                                                      |  |                          |        |   |      |   | (6,081  | )    |  |   | (5,179  | )
|Borrowings from (repayments to) bank, net                                                              |  |                          |        |   |      |   | (6,500  | )    |  |   | 6,500   |  
|                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) financing activities                                                    |  |                          | 7,836   |   |      |   | (4,754  | )    |  |   | 5,112   |  
|                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                   |  |                          | (1,505  | ) |      |   | 30,293  |      |  |   | (27,841 | )
|Cash and cash equivalents at beginning of the year                                                     |  |                          | 38,402  |   |      |   | 8,109   |      |  |   | 35,950  |  
|                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of the year                                                           |  | $                        | 36,897  |   |      | $ | 38,402  |      |  | $ | 8,109   |  
|                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  



See accompanying notes
to the consolidated financial statements.





F-6



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##### Table of Contents

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.    DESCRIPTION OF BUSINESS



Navigant Consulting, Inc. (the Company) is a specialized independent consulting firm providing litigation, financial, healthcare, energy and operational consulting services to government agencies, legal
counsel and large companies facing the challenges of uncertainty, risk, distress and significant change. The Company focuses on industries undergoing substantial regulatory or structural change and on the issues driving these transformations.



The Company is headquartered in Chicago, Illinois and has
offices in various cities primarily within the United States, as well as offices in Canada, the Czech Republic, and the United Kingdom.



2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Principles of Consolidation



The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.



Use of Estimates



The preparation of financial statements in conformity
with 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.



Reclassifications



Certain amounts in prior years consolidated financial statements have been reclassified to conform to the current years presentation.



Cash and Cash Equivalents



Cash equivalents are comprised of liquid instruments with original maturity dates of 90 days or less.



Fair Value of Financial Instruments



The Company considers the recorded value of its financial assets and
liabilities, which consist primarily of cash and cash equivalents, accounts receivable, bank borrowings, and accounts payable, to approximate the fair value of the respective assets and liabilities at December 31, 2004 and 2003.



Determination of Accounts Receivable Realization



The Company maintains allowances for doubtful accounts for estimated loss
resulting from the Companys review and assessment of its clients ability to make required payments, and the estimated realization, in cash, by the Company of amounts due from its clients. If the financial condition of the Companys
clients were to deteriorate, resulting in an impairment of their ability to make payment, additional allowances might be required.



F-7



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##### Table of Contents

Property and Equipment



Property and equipment are recorded at cost. Depreciation is computed using the straight-line method based on the estimated
useful lives of three to seven years for furniture, fixtures and equipment, three years for software, and forty years for buildings. Amortization of leasehold improvements is computed over the shorter of the remaining lease term or the estimated
useful life of the asset.



Goodwill and Identifiable
Intangible Assets



Intangible assets consist of
identifiable intangibles and goodwill. Identifiable intangible assets other than goodwill include customer lists, employee non-compete agreements, employee training methodology and materials, backlog revenue, and trade names. Intangible assets,
other than goodwill, are amortized on the straight-line method based on the estimated useful lives, ranging up to seven years.



Goodwill represents the difference between the purchase price of acquired companies and the related fair value of the net assets acquired, which is
accounted for by the purchase method of accounting. In 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Intangible Assets. This Statement eliminated the amortization of goodwill and
intangibles with indefinite lives and instead requires that they be tested annually, for impairment. This annual test is performed in the second quarter of each year by reviewing the book value compared to the fair value at the reporting unit level.
The Company also reviews long-lived assets, including identifiable intangibles and goodwill, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is deemed impaired and
written down to its fair value if estimated related future cash flows are less than its carrying amount.



Considerable management judgment is required to estimate future cash flows. Assumptions used in the Companys impairment evaluations, such as
forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. The Company did not recognize any impairment charges for goodwill, indefinite-lived intangible assets or identifiable intangible assets
subject to amortization during the years presented.



Revenue
Recognition



The Company recognizes revenues as the
related professional services are provided, generally on a time and expense basis. Certain contracts are accounted for on the percentage of completion method, whereby revenues are recognized based upon work incurred in relation to total percentages
of completion. A provision is made for the entire amount of estimated losses, if any, at the time when they are known. The Company also earns incremental revenues. These incremental revenue amounts are contingent on a specific event or events and
the incremental revenues are recognized when the contingencies are resolved.



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##### Table of Contents

Stock-Based Compensation



Other than equity awards subject to variable accounting, the Company accounts for stock-based compensation using the
intrinsic value-based method as prescribed in APB Opinion No. 25 Accounting for Stock Issued to Employees, and related interpretations, for its stock-based compensation plans. Accordingly, no stock-based compensation costs have been
recognized for those option grants where the exercise price was equal to the fair market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of Statement of Financial Accounting Standard (SFAS No. 123), Accounting for Stock-Based Compensation, to its stock-based compensation plans (shown in thousands, except per share
amounts):



|                                                                                                                                             |  |      |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                             |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Net income, as reported                                                                                                                      |  | $    | 40,375 |   |      | $ | 18,708 |      |  | $ | 8,861  |  
|Add:        Stock-based compensation expense included in reported net income, net of related tax
effects                                     |  |      | 5,658  |   |      |   | 6,664  |      |  |   | 2,041  |  
|Deduct:  Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |      | (6,441 | ) |      |   | (7,766 | )    |  |   | (4,400 | )
|                                                                                                                                             |  |      |        |   |      |   |        |      |  |   |        |  
|Pro forma net income                                                                                                                         |  | $    | 39,592 |   |      | $ | 17,606 |      |  | $ | 6,502  |  
|                                                                                                                                             |  |      |        |   |      |   |        |      |  |   |        |  
|Earnings per share:                                                                                                                          |  |      |        |   |      |   |        |      |  |   |        |  
|Basic, as reported                                                                                                                           |  | $    | 0.86   |   |      | $ | 0.43   |      |  | $ | 0.22   |  
|Basic, pro forma                                                                                                                             |  | $    | 0.84   |   |      | $ | 0.41   |      |  | $ | 0.16   |  
|Diluted, as reported                                                                                                                         |  | $    | 0.80   |   |      | $ | 0.40   |      |  | $ | 0.21   |  
|Diluted, pro forma                                                                                                                           |  | $    | 0.79   |   |      | $ | 0.37   |      |  | $ | 0.15   |  



For purposes of
calculating compensation cost under SFAS No. 123, the fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model. The weighted average fair value of options granted and the assumptions were used
in the Black-Scholes option pricing model were are follows:



|                                      |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                      |  | 2004 |      |   | 2003 |   |      | 2002 | 
|Fair value of options granted         |  | $    | 8.22 |   |      | $ | 4.23 |      |  | $ | 2.95 |  
|Expected volatility                   |  |      | 59   | % |      |   | 65   | %    |  |   | 62   | %
|Risk free interest rate               |  |      | 3.6  | % |      |   | 3.8  | %    |  |   | 4.5  | %
|Dividend yield                        |  |      | 0    | % |      |   | 0    | %    |  |   | 0    | %
|Contractual or expected lives (years) |  |      | 4.8  |   |      |   | 7.2  |      |  |   | 7.2  |  



Income Taxes



Income taxes are accounted for in accordance with the
asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.



Foreign Currency Translation



The balance sheets of the Companys foreign subsidiaries are translated into U.S. dollars using the period-end exchange rates, and revenue and
expenses are translated using the average exchange rates for each period. The resulting translation gains or losses are recorded in stockholders equity as a component of accumulated other comprehensive income.



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Comprehensive Income



Comprehensive income consists of net income and foreign currency translation adjustments. It is presented in the
consolidated statements of stockholders equity.



3.    ACQUISITIONS AND DIVESTITURE



2004 Acquisition:



On
January 30, 2004, the Company acquired substantially all of the assets of Tucker Alan, Inc. (Tucker) for $89.5 million, which consisted of payments at closing of $45.6 million cash and 0.3 million shares of its common stock, valued at
$6.0 million at closing, and $37.9 million payable in two installments of cash and the Companys common stock within the first two years following the closing date of the transaction. In connection with the Tucker acquisition, the Company
acquired tangible assets of $1.3 million. The Tucker acquisition included 230 consulting professionals active primarily in the litigation, construction and healthcare practices. The Company acquired Tucker to strengthen its national platform in
these practices. Tucker has a significant presence in the western region of the United States that complements the Companys other geographic regions. Tuckers service offerings and industry expertise are also complementary to those of the
Company.



On June 4, 2004, the Company acquired substantially
all of the assets of Capital Advisory Services, LLC (CapAdvisory) for $10.5 million, which consisted of payments at closing of $6.5 million cash and 0.1 million shares of its common stock, valued at $1.5 million at closing, and $2.5
million payable in two installments of cash and the Companys common stock in the first two years following the closing date of the transaction. The CapAdvisory acquisition included 49 consulting professionals who complement the Companys
financial services practice and primarily provide financial and accounting consulting services. The Company acquired CapAdvisory to expand the Companys service offerings within the financial services industry.



On August 31, 2004, the Company acquired substantially all of the assets of
Invalesco Group, Inc. (Invalesco) for $2.5 million, which consisted of payments at closing of $1.2 million cash and 0.04 million shares of its common stock, valued at $0.8 million at closing, and $0.5 million payable in cash on the first
anniversary of the closing date of the transaction. The Invalesco acquisition included 14 consulting professionals who complement the Companys healthcare practice and primarily provides services to hospitals and healthcare providers. The
Company acquired Invalesco to expand the Companys service offerings within the healthcare industry.



2003 Acquisition:



On December 15, 2003, the Company acquired substantially all of the assets of Front Line Strategic Consulting, Inc. (Front Line) for $4.8
million, which included $2.5 million cash at closing and 0.1 million shares of its common stock valued at $1.3 million at closing, and $1.0 million payable in two equal installments on the first and second anniversary of the closing date. The Front
Line acquisition consisted of 27 consulting professionals. Front Line was acquired primarily to augment the Companys healthcare practice.



2002 Acquisitions:



On April 5, 2002, the Company acquired portions of Arthur D. Little, Inc.s assets for $6.1 million cash at closing. The acquisition consisted of two
consulting units, with approximately 30 consulting professionals who primarily serve the energy and public sector industries.



On May 24, 2002, the Company acquired substantially all of the assets of Financial Analytics Consulting Group, LLC (FACG) for $6.3 million,
which consisted of $4.5 million cash at closing and 0.3 million shares of its common stock valued at $1.8 million at closing. In addition to the initial consideration, the purchase agreements provided for additional payments in cash over the two
full calendar years after closing that are



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contingent on revenues generated and the attainment of certain gross margin thresholds. The additional payments related to this contingency were accounted
for as goodwill. FACG was formed in conjunction with a management buyout from Arthur Andersen, LLP and consisted of approximately 90 consulting professionals from five different Arthur Andersen practices. FACG was acquired primarily to augment the
Companys litigation support and investigation services offerings.



On June 19, 2002, the Company acquired substantially all of the assets of Keevan Consulting, LLC (Keevan) for $7.2 million, which consisted of $4.0 million cash at closing, 0.4 million shares of its common stock valued at $2.7
million at closing, and $0.5 million cash payable in April 2003. In addition to the initial consideration, the purchase agreement provided for additional payments in cash and the Companys common stock over the two and one-half years from
closing that are contingent on revenues generated and the attainment of certain gross margin thresholds. The additional payments related to this contingency were accounted for as goodwill. Keevan was formed in conjunction with a management buyout
from Arthur Andersen, LLP and consisted of approximately 38 consulting professionals. Keevan was acquired to augment the Companys government contracts consulting services practice.



On July 15, 2002, the Company acquired substantially all of the assets of Barrington Energy Partners, LLC (Barrington
Energy) for $11.1 million, which consisted of $4.8 million cash at closing, 0.7 million shares of its common stock valued at $4.8 million at closing, and $1.5 million cash payable on the first anniversary of the closing date. In addition to
the initial consideration, the purchase agreement provided for additional payments in cash and the Companys common stock over the two and one-half years from closing that are contingent on the attainment of certain performance thresholds. The
additional payments related to this contingency were accounted for as goodwill. Barrington Energy consisted of eight senior-level professionals and six other staff who complement the Companys energy industry sector and primarily provide
financial and transaction advisory service offerings. Barrington Energy Partners, LLC is not associated with the Companys 1999 acquisition of the Barrington Consulting Group, Inc.



Effective September 17, 2002, the Company acquired substantially all of the assets of Hunter & Associates Management
Services, Inc. (Hunter) for $25.4 million, which consisted of $10.2 million cash at closing, 1.5 million shares of the Companys common stock valued at $8.2 million at closing, $0.5 million cash payable on April 1, 2003, and $6.5
million in the Companys common stock payable in two equal installments on the first and second anniversary of the closing. In addition to the initial consideration, the purchase agreement provided for additional payments in cash and the
Companys common stock over the three years following closing that are contingent on the attainment of certain performance targets. The additional payments related to this contingency were accounted for as goodwill. Hunter consisted of 20
senior-level professionals and 40 additional staff that provide a comprehensive range of performance improvement services to hospitals and healthcare systems, including physician practices and provider owner-managed care organizations. Hunter also
provided interim executive-level management services as well as consulting services related to hospital restructurings. Hunter was acquired to significantly expand the Companys service offerings within the healthcare industry.



Accounting for Acquisitions



The aforementioned acquisitions have been accounted for by the purchase
method of accounting for business combinations and, accordingly, the results of operations have been included in the consolidated financial statements since the dates of acquisition. The goodwill associated with these acquisitions will be expensed
over a 15 year period for income tax purposes.



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Pro Forma Information



The following unaudited pro forma financial information presents combined financial information as if the acquisitions of
Hunter and Tucker had been effective as of January 1, 2002. The pro forma financial information (shown in thousands) includes adjustments to record the amortization of intangible assets and to record income tax effects as if Hunter and Tucker had
been included in the Companys results of operations:



|                                |  |      |         |      |   |         |  |   |        
|------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                |  | 2004 |         | 2003 |   | 2002   
|Revenues:                       |  |      |         |      |   |         |  |   |        
|Financial & Claims Consulting   |  | $    | 424,031 |      | $ | 304,282 |  | $ | 265,738
|Energy Consulting               |  |      | 63,475  |      |   | 71,964  |  |   | 74,373 
|                                |  |      |         |      |   |         |  |   |        
|Total combined segment revenues |  | $    | 487,506 |      | $ | 376,246 |  | $ | 340,111
|                                |  |      |         |      |   |         |  |   |        
|Net income                      |  | $    | 40,865  |      | $ | 24,146  |  | $ | 15,908 
|Basic income per share          |  | $    | 0.86    |      | $ | 0.55    |  | $ | 0.37   
|Diluted income per share        |  | $    | 0.80    |      | $ | 0.50    |  | $ | 0.37   



2003 Divestiture:



In September 2003, the Company sold for a nominal sales
price its water consulting practice, BookmanEdmonston, Inc., which was previously part of the Energy consulting business segment. BookmanEdmonston accounted for 3 percent or less of the Companys total revenues for the years ended
December 31, 2003, 2002 and 2001. For the years ended December 31, 2003 and 2002, the water consulting practice operated at a loss and the operating results had deteriorating financial performance trends.



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4.    SEGMENT INFORMATION



The Company is comprised of two business segments: Financial & Claims Consulting and Energy Consulting. The Financial & Claims Consulting business segment provides consulting and advisory services to clients
facing the challenges of dispute, litigation, bankruptcy, regulation and change. Its services include analyzing complex accounting, finance, economic, operations and information management issues. The Energy Consulting business segment provides a
wide range of management consulting services to companies facing the challenges of the deregulating energy industry. Its services include strategy development, financial transaction support, operations support, regulatory advisement, and technical
analysis.



The Company evaluates segment performance and
allocates resources based upon revenues and operating results. The bases of measurement of segment operating results are consistent among the periods. Transactions between segments have been eliminated. Information on the segment operations for the
years ended December 31, 2004, 2003, and 2002 have been summarized as follows (shown in thousands):



|                                                         |  |      |         |      |   |         |      |  |   |         |  
|-------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | ---- |  | - | ------- | -
|                                                         |  | 2004 |         | 2003 |   |         | 2002 | 
|Total Revenues:                                          |  |      |         |      |   |         |      |  |   |         |  
|Financial & Claims Consulting                            |  | $    | 418,644 |      | $ | 245,818 |      |  | $ | 183,647 |  
|Energy Consulting                                        |  |      | 63,475  |      |   | 71,964  |      |  |   | 74,373  |  
|                                                         |  |      |         |      |   |         |      |  |   |         |  
|Total combined segment revenues                          |  | $    | 482,119 |      | $ | 317,782 |      |  | $ | 258,020 |  
|                                                         |  |      |         |      |   |         |      |  |   |         |  
|Operating Profit:                                        |  |      |         |      |   |         |      |  |   |         |  
|Financial & Claims Consulting                            |  | $    | 81,986  |      | $ | 45,921  |      |  | $ | 26,068  |  
|Energy Consulting                                        |  |      | 11,254  |      |   | 6,837   |      |  |   | 3,712   |  
|                                                         |  |      |         |      |   |         |      |  |   |         |  
|Total combined segment operating profit                  |  | $    | 93,240  |      | $ | 52,758  |      |  | $ | 29,780  |  
|                                                         |  |      |         |      |   |         |      |  |   |         |  
|Operating Profit and Statement of Income reconciliation: |  |      |         |      |   |         |      |  |   |         |  
|Unallocated:                                             |  |      |         |      |   |         |      |  |   |         |  
|Depreciation expense                                     |  | $    | 8,312   |      | $ | 7,488   |      |  | $ | 7,651   |  
|Amortization expense                                     |  |      | 3,562   |      |   | 1,880   |      |  |   | 2,373   |  
|Stock-based compensation expense                         |  |      | 9,589   |      |   | 11,107  |      |  |   | 3,401   |  
|Restructuring costs (credits)                            |  |      | 1,091   |      |   |        |      |  |   | (500    | )
|Litigation and settlement provisions                     |  |      | 385     |      |   | 440     |      |  |   | 750     |  
|Acquisition/integration costs                            |  |      |        |      |   |        |      |  |   | 1,317   |  
|Other expense (income)                                   |  |      | 1,864   |      |   | (264    | )    |  |   | 19      |  
|                                                         |  |      |         |      |   |         |      |  |   |         |  
|Total unallocated expenses, net                          |  |      | 24,803  |      |   | 20,651  |      |  |   | 15,011  |  
|                                                         |  |      |         |      |   |         |      |  |   |         |  
|Income before income tax expense                         |  | $    | 68,437  |      | $ | 32,107  |      |  | $ | 14,769  |  
|                                                         |  |      |         |      |   |         |      |  |   |         |  



The information
presented does not necessarily reflect the results of segment operations that would have occurred had the segments been stand-alone businesses.



Certain general and administrative expenses, which relate to general corporate costs, were allocated to operating segments on the basis of consulting fee
revenue. Certain cost of services and general and administrative expenses, which primarily relate to operating segments, have been excluded from the segment operating profit amounts, and included in the costs not allocated to segments, for
comparative purposes.



For the year ended December 31, 2002,
the Company incurred $1.3 million of costs related to the strategic review and integration of certain business acquisitions, which were not allocated to either operating segment.



In September 2003, the Company sold, for a nominal sales price, its water consulting practice, BookmanEdmonston, Inc.,
which had been included in the Energy segment. BookmanEdmonston accounted for 3 percent or less of the Companys total revenues for the years ended December 31, 2003 and 2002, and operated at a loss.



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The Company records accounts receivable, net (see Note 10) and goodwill and intangible assets (see Note
5) on a segment basis. Other balance sheet amounts are not maintained on a segment basis.



5.    GOODWILL AND INTANGIBLE ASSETS, NET



As of December 31, goodwill and other intangible assets consisted of (shown in thousands):



|                                    |  |      |         |   |      |   |         |  
|----------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                    |  | 2004 |         |   | 2003 |  
|Goodwill                            |  | $    | 219,202 |   |      | $ | 116,176 |  
|Lessaccumulated amortization       |  |      | (5,425  | ) |      |   | (5,425  | )
|                                    |  |      |         |   |      |   |         |  
|Goodwill, net                       |  |      | 213,777 |   |      |   | 110,751 |  
|Intangible assets:                  |  |      |         |   |      |   |         |  
|Customer lists                      |  |      | 12,191  |   |      |   | 4,470   |  
|Non-compete agreements              |  |      | 6,100   |   |      |   | 5,200   |  
|Trade name                          |  |      | 1,000   |   |      |   |        |  
|Other                               |  |      | 4,740   |   |      |   | 1,055   |  
|                                    |  |      |         |   |      |   |         |  
|Intangible assets, at cost          |  |      | 24,031  |   |      |   | 10,725  |  
|Less: accumulated amortization      |  |      | (12,963 | ) |      |   | (9,401  | )
|                                    |  |      |         |   |      |   |         |  
|Intangible assets, net              |  |      | 11,068  |   |      |   | 1,324   |  
|                                    |  |      |         |   |      |   |         |  
|Goodwill and intangible assets, net |  | $    | 224,845 |   |      | $ | 112,075 |  
|                                    |  |      |         |   |      |   |         |  



In accordance with
SFAS No. 142, the Company is required to perform an annual goodwill impairment test. The Company completed the annual impairment test based on May 31, 2004 balances and there was no impairment recognized as of that date. The Company reviewed the
intangible assets net book values and estimated useful lives by class. As of December 31, 2004, there was no indication of impairment related to the intangible assets. The Company amortizes intangible assets over their remaining useful lives,
which range from nine months to five years.



The changes in
carrying balances of goodwill and intangible assets by reporting segment during the year ended December 31, 2004 are as follows (shown in thousands):



|                                                |  |                             |         |   |                  |   |        |       |  |   |         |  
|----------------------------------------------- |  | --------------------------- | ------- | - | ---------------- | - | ------ | ----- |  | - | ------- | -
|                                                |  | Financial& ClaimsConsulting |         |   | EnergyConsulting |   |        | Total | 
|Balance as of January 1, 2004Goodwill          |  | $                           | 92,496  |   |                  | $ | 18,255 |       |  | $ | 110,751 |  
|Balance as of January 1, 2004Intangible assets |  |                             | 1,199   |   |                  |   | 125    |       |  |   | 1,324   |  
|                                                |  |                             |         |   |                  |   |        |       |  |   |         |  
|Balance as of January 1, 2004Total             |  |                             | 93,695  |   |                  |   | 18,380 |       |  |   | 112,075 |  
|Goodwill recorded during year                   |  |                             | 100,916 |   |                  |   | 2,110  |       |  |   | 103,026 |  
|Intangible assets acquired during year          |  |                             | 13,306  |   |                  |   |       |       |  |   | 13,306  |  
|Lessamortization expense                       |  |                             | (3,534  | ) |                  |   | (28    | )     |  |   | (3,562  | )
|                                                |  |                             |         |   |                  |   |        |       |  |   |         |  
|Balance as of December 31, 2004Total           |  | $                           | 204,383 |   |                  | $ | 20,462 |       |  | $ | 224,845 |  
|                                                |  |                             |         |   |                  |   |        |       |  |   |         |  
|Goodwill and intangible assets:                 |  |                             |         |   |                  |   |        |       |  |   |         |  
|Goodwill, net                                   |  | $                           | 193,412 |   |                  | $ | 20,365 |       |  | $ | 213,777 |  
|Intangible assets, net                          |  |                             | 10,971  |   |                  |   | 97     |       |  |   | 11,068  |  
|                                                |  |                             |         |   |                  |   |        |       |  |   |         |  
|Balance as of December 31, 2004Total           |  | $                           | 204,383 |   |                  | $ | 20,462 |       |  | $ | 224,845 |  
|                                                |  |                             |         |   |                  |   |        |       |  |   |         |  



For the businesses
acquired during the year ended December 31, 2004, the Company completed the purchase price allocations, including amounts assigned to goodwill and intangible assets and estimates of their related useful lives. The Tucker acquisition, which occurred
on January 30, 2004, included $77.7 million in goodwill and $8.9 million in intangible assets as a part of the purchase price allocation. The $8.9 million in



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intangible assets included customer lists, employee training methodology and materials, revenue backlog, and the trade name. The Company recorded $6.3
million in goodwill and $4.0 million in intangible assets, which included customer lists and revenue backlog, as part of the purchase price allocation for the CapAdvisory acquisition, which occurred on June 4, 2004. The Company recorded $2.2 million
in goodwill and $0.2 million in intangible assets, which includes customer lists and revenue backlog, as part of the purchase price allocation for the Invalesco acquisition, which occurred on August 31, 2004.



During the year ended December 31, 2004, the Company recorded $15.7 million
of additional goodwill related to certain previously acquired businesses that achieved earnout provisions specified in their purchase agreements.



Total amortization expense for 2004 was $3.6 million, compared with $1.9 million and $2.4 million for 2003 and 2002, respectively. Below is the estimated
annual aggregate amortization expense to be recorded in future years related to intangible assets at December 31, 2004 (shown in thousands):



|                         |  |        |       
|------------------------ |  | ------ | ------
|Year ending December 31, |  | Amount
|2005                     |  | $      | 3,595 
|2006                     |  |        | 2,902 
|2007                     |  |        | 2,314 
|2008                     |  |        | 1,873 
|2009                     |  |        | 384   
|                         |  |        |       
|Total                    |  | $      | 11,068
|                         |  |        |       



6.    EARNINGS PER SHARE (EPS)



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



For the years ended December 31, the components of basic and diluted shares
(weighted for the average days outstanding for the periods) are as follows (shown in thousands):



|                                                   |  |        |  |        |  |       
|-------------------------------------------------- |  | ------ |  | ------ |  | ------
|                                                   |  | 2004   |  | 2003   |  | 2002  
|Common shares outstanding                          |  | 46,447 |  | 43,026 |  | 40,247
|Business combination obligations payable in shares |  | 740    |  | 210    |  | 103   
|                                                   |  |        |  |        |  |       
|Basic shares                                       |  | 47,187 |  | 43,236 |  | 40,350
|Employee stock options                             |  | 1,783  |  | 2,458  |  | 2,022 
|Restricted shares and stock units                  |  | 1,146  |  | 1,243  |  | 271   
|Contingently issuable shares                       |  | 131    |  | 92     |  | 27    
|                                                   |  |        |  |        |  |       
|Diluted shares                                     |  | 50,247 |  | 47,029 |  | 42,670
|                                                   |  |        |  |        |  |       



In connection with
certain business acquisitions, the Company is obligated to issue a certain number of shares of its common stock based on the trading price share value at the time of issuance. The weighted average of these shares is included in the basic earnings
per share calculation.



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In accordance with SFAS No. 128, the Company uses the treasury stock method to calculate the dilutive
effect of its common stock equivalents should they vest. The exercise of stock options or vesting of restricted shares and restricted stock unit shares triggers taxable benefit proceeds that reduce the dilutive effect of such shares being issued.
The taxable benefit proceeds are obtained from the spread of the Companys market price of its common stock over the measurement prices of the stock options, restricted shares and restricted stock units on the date the shares vest.



7.    STOCKHOLDERS EQUITY



The following summarizes the activity of stockholders equity during the year ended December 31, 2004 (shown in thousands):



|                                                                   |  |         |         |        |       
|------------------------------------------------------------------ |  | ------- | ------- | ------ | ------
|                                                                   |  | Dollars |         | Shares
|Stockholders equity at January 1, 2004                            |  | $       | 188,758 |        | 44,922
|Comprehensive income                                               |  |         | 40,405  |        |      
|Stock issued in acquisition-related transactions                   |  |         | 27,006  |        | 613   
|Stock compensation and stock purchase plans:                       |  |         |         |        |       
|Stock option exercises and stock purchases                         |  |         | 10,869  |        | 1,328 
|Tax benefit on stock options exercised and restricted stock vested |  |         | 13,124  |        |      
|Amortization of restricted stock/units compensation                |  |         | 7,678   |        |      
|Variable accounting stock-based compensation expense               |  |         | 834     |        |      
|Vesting of restricted stock to common stock                        |  |         |        |        | 1,005 
|                                                                   |  |         |         |        |       
|Stockholders equity at December 31, 2004                          |  | $       | 288,674 |        | 47,868
|                                                                   |  |         |         |        |       



Stock Issued in
Acquisition-related Transactions



In connection with the
Tucker acquisition, the Company issued 0.3 million shares of its common stock with a value of $6.0 million at closing and has an obligation to issue 0.4 million shares of its common stock on January 15, 2005 and another obligation to issue $7.5
million in shares of the Companys common stock on January 15, 2006. In connection with the Capital Advisory acquisition, the Company issued 0.1 million shares of its common stock with a value of $1.5 million at closing and has an obligation to
issue $1.0 million in shares of its common stock, in two equal installments, on July 1, 2005 and July 1, 2006. In connection with the Invalesco acquisition, the Company issued 0.04 million shares of its common stock with a value of $0.8 million at
closing.



Employee Stock Purchase Plan



During 1996, the Company implemented a plan that permits employees to
purchase shares of the Companys common stock each quarter at 85 percent of the market value. The market value of shares purchased for this purpose is determined to be the lower of the closing market price on the first and last day of each
calendar quarter. As of December 31, 2004, the Company was authorized to sell 1.7 million shares. During 2004, 2003, and 2002, the Company sold 107,000, 138,000, and 124,000 shares, respectively, under the plan. The Company had sold 526,000 shares
under the plan, prior to 2002.



Stock Appreciation Rights



During 2000, the Company granted 200,000 shares of stock
appreciation rights. During 2004, two-thirds of the 200,000 shares were exercised and $2.4 million in cash was paid for the accumulated appreciation in stock value since grant date. One-third of the 200,000 shares remained outstanding as of December
31, 2004, and expires by May 19, 2005 unless exercised prior thereto.



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##### Table of Contents

Stockholder Rights Plan



On December 15, 1999 (Distribution Date), the Companys Board of Directors adopted a Stockholders Rights
Plan (the Rights Plan) and declared a dividend distribution of one Right (a Right) for each outstanding share of common stock, to stockholders of record at the close of business on December 27, 1999. Each Right will entitle
its holder, under certain circumstances described in the Rights Agreement, to purchase from the Company one one-thousandth of a share of its Series A Junior Participating Preferred Stock, $.001 par value, (the Series A Preferred Stock),
at an exercise price of $75 per Right, subject to adjustment. The Rights are not exercisable until the Distribution Date and will expire at the close of business on December 15, 2009, unless earlier redeemed or exchanged by the Company. The
description and terms of the Rights are set forth in a Rights Agreement (the Rights Agreement) between the Company and LaSalle Bank, as successor Rights Agent.



Treasury Stock Authority



In October 2000, the Board of Directors granted the Companys stock repurchase authorization up to 5.0 million shares of the Companys common
stock. During 2004, the Company did not repurchase shares of common stock. From December 1, 2000 to December 31, 2004, the Company repurchased 2.8 million shares for an aggregate total of $12.7 million. As of December 31, 2004, the Company had
authorization to purchase 2.2 million shares.



8.    STOCK-BASED COMPENSATION EXPENSE



Stock-based compensation expense is recorded for restricted stock awards on a straight-line basis over the vesting term for the valuation amount at grant date. In addition, stock-based compensation expense is recorded
for certain stock options and stock appreciation rights (variable accounting awards) that have been awarded to the Companys employees and are subject to variable accounting treatment. As of December 31, 2004, 0.1 million shares
were subject to variable accounting treatment. Compensation expense (or credit) for these variable accounting awards is recorded, on a cumulative basis, for the increase (or decrease) in the Companys stock price above the grant prices.



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



|                                                     |  |      |       |      |   |        |  |   |      
|---------------------------------------------------- |  | ---- | ----- | ---- | - | ------ |  | - | -----
|                                                     |  | 2004 |       | 2003 |   | 2002  
|Amortization of restricted stock awards              |  | $    | 7,678 |      | $ | 6,297  |  | $ | 2,668
|Fair value adjustment for variable accounting awards |  |      | 1,911 |      |   | 4,810  |  |   | 733  
|                                                     |  |      |       |      |   |        |  |   |      
|Total stock-based compensation expense               |  | $    | 9,589 |      | $ | 11,107 |  | $ | 3,401
|                                                     |  |      |       |      |   |        |  |   |      



Amounts attributable
to employee consultants were $6.7 million, $7.7 million and $2.8 million for the years ended December 31, 2004, 2003 and 2002, respectively.



9.    LONG-TERM INCENTIVE PLAN AND SUPPLEMENTAL EQUITY INCENTIVE PLAN



Summary



On June 30, 1996, the Company adopted a Long-Term Incentive Plan (LTIP) that provides for common stock, common stock-based and other
performance incentives to employees, consultants, directors, advisors and independent contractors of the Company. The Long-Term Incentive Plan, as amended, provides for a total available option pool equivalent to 25 percent of the issued and
outstanding common stock. In November 2001, the Company adopted a Supplemental Equity Incentive Plan (SEIP) to retain and recruit certain middle and senior-level employees and to optimize shareholder value. The SEIP only allows
nonqualified stock options. The SEIP did not require shareholder approval; therefore, it was not voted on or approved by the Companys



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##### Table of Contents

stockholders. Stock options and other forms of equity compensation are an important component of the compensation offered by the Company and promote
long-term retention of its key employees, motivate high levels of performance and recognize contributions to the success of the Company.



Restricted Stock Outstanding



As of December 31, 2004, the Company had 1.7 million restricted stock and equivalent units outstanding at a weighted average measurement price of $10.38
per share. The measurement date is the date of grant of the restricted stock and equivalent units. The restricted stock and equivalent units were granted out of the LTIP.



The following table summarizes restricted stock activity for the years ended December 31, 2004, 2003 and 2002:



|                                                                  |  |                       |   |      |                                       |       |                       |        |   |                                       |   |                       |  |       |                                       |  |   |     
|----------------------------------------------------------------- |  | --------------------- | - | ---- | ------------------------------------- | ----- | --------------------- | ------ | - | ------------------------------------- | - | --------------------- |  | ----- | ------------------------------------- |  | - | ----
|                                                                  |  | 2004                  |   | 2003 |                                       | 2002 
|                                                                  |  | Numberof shares(000s) |   |      | Weighted averagemeasurementdate price |       | Numberof shares(000s) |        |   | Weighted averagemeasurementdate price |   | Numberof shares(000s) |  |       | Weighted averagemeasurementdate price
|Restricted stock and equivalents outstanding at beginning of year |  | 1,973                 |   |      | $                                     | 5.72  |                       | 3,818  |   |                                       | $ | 5.03                  |  | 1,201 |                                       |  | $ | 3.88
|Granted                                                           |  | 732                   |   |      |                                       | 20.28 |                       | 100    |   |                                       |   | 15.39                 |  | 3,357 |                                       |  |   | 5.19
|Exercised (vested)                                                |  | (989                  | ) |      |                                       | 8.13  |                       | (1,857 | ) |                                       |   | 4.85                  |  | (479  | )                                     |  |   | 3.88
|Forfeited                                                         |  | (25                   | ) |      |                                       | 16.46 |                       | (88    | ) |                                       |   | 5.14                  |  | (261  | )                                     |  |   | 3.88
|                                                                  |  |                       |   |      |                                       |       |                       |        |   |                                       |   |                       |  |       |                                       |  |   |     
|Restricted stock and equivalents outstanding at end of year       |  | 1,691                 |   |      | $                                     | 10.38 |                       | 1,973  |   |                                       | $ | 5.72                  |  | 3,818 |                                       |  | $ | 5.03
|                                                                  |  |                       |   |      |                                       |       |                       |        |   |                                       |   |                       |  |       |                                       |  |   |     



The following table
summarizes information regarding restricted stock outstanding at December 31, 2004:



|                                 |  |                          |  |                                       |      
|-------------------------------- |  | ------------------------ |  | ------------------------------------- | -----
|Range of measurement date prices |  | Outstandingshares (000s) |  | Weighted averagemeasurementdate price
|$0.00 - $4.99                    |  | 348                      |  |                                       | $4.97
|$5.00 - $9.99                    |  | 757                      |  |                                       | $5.39
|$10.00 - $19.99                  |  | 339                      |  | $                                     | 18.14
|$20.00 and above.                |  | 247                      |  | $                                     | 22.65
|                                 |  |                          |  |                                       |      
|Total                            |  | 1,691                    |  | $                                     | 10.38
|                                 |  |                          |  |                                       |      



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##### Table of Contents

Stock Options Outstanding



As of December 31, 2004, the Company had 3.1 million stock options outstanding at a weighted average exercise price of $7.31
per share. As of December 31, 2004, 2.3 million options were exercisable at a weighted average exercise price of $6.54 per share.



The following table summarizes stock option activity for the years ended December 31, 2004, 2003 and 2002:



|                                         |  |                       |   |      |                              |       |                       |        |   |                              |   |                       |  |        |                              |  |   |     
|---------------------------------------- |  | --------------------- | - | ---- | ---------------------------- | ----- | --------------------- | ------ | - | ---------------------------- | - | --------------------- |  | ------ | ---------------------------- |  | - | ----
|                                         |  | 2004                  |   | 2003 |                              | 2002 
|                                         |  | Numberof shares(000s) |   |      | Weightedaverageexerciseprice |       | Numberof shares(000s) |        |   | Weightedaverageexerciseprice |   | Numberof shares(000s) |  |        | Weightedaverageexerciseprice
|Options outstanding at beginning of year |  | 4,305                 |   |      | $                            | 5.96  |                       | 5,860  |   |                              | $ | 5.42                  |  | 8,550  |                              |  | $ | 5.90
|Granted                                  |  | 157                   |   |      |                              | 21.14 |                       | 232    |   |                              |   | 9.45                  |  | 660    |                              |  |   | 6.14
|Exercised                                |  | (1,347                | ) |      |                              | 4.52  |                       | (1,435 | ) |                              |   | 4.44                  |  | (742   | )                            |  |   | 4.36
|Forfeited or exchanged                   |  | (50                   | ) |      |                              | 8.55  |                       | (352   | ) |                              |   | 5.60                  |  | (2,608 | )                            |  |   | 7.46
|                                         |  |                       |   |      |                              |       |                       |        |   |                              |   |                       |  |        |                              |  |   |     
|Options outstanding at end of year       |  | 3,065                 |   |      | $                            | 7.31  |                       | 4,305  |   |                              | $ | 5.95                  |  | 5,860  |                              |  | $ | 5.42
|                                         |  |                       |   |      |                              |       |                       |        |   |                              |   |                       |  |        |                              |  |   |     
|Options exercisable at year end          |  | 2,322                 |   |      | $                            | 6.54  |                       | 2,919  |   |                              | $ | 6.11                  |  | 3,352  |                              |  | $ | 5.69
|                                         |  |                       |   |      |                              |       |                       |        |   |                              |   |                       |  |        |                              |  |   |     



The following table
summarizes information regarding stock options outstanding at December 31, 2004 and 2003:



|                         |  |                         |  |                              |       |                                |     |                         |       |                              |   |                                |  |    
|------------------------ |  | ----------------------- |  | ---------------------------- | ----- | ------------------------------ | --- | ----------------------- | ----- | ---------------------------- | - | ------------------------------ |  | ---
|                         |  | 2004                    |  | 2003                        
|Range of exercise prices |  | Outstandingshares(000s) |  | Weightedaverageexerciseprice |       | Remainingexerciseperiod(years) |     | Outstandingshares(000s) |       | Weightedaverageexerciseprice |   | Remainingexerciseperiod(years)
|$0.00 to $3.74           |  | 337                     |  | $                            | 3.70  |                                | 6.7 |                         | 664   |                              | $ | 3.70                           |  | 7.8
|$3.75 to $4.99           |  | 1,396                   |  |                              | 3.96  |                                | 5.6 |                         | 1,998 |                              |   | 3.98                           |  | 6.8
|$5.00 to $7.49           |  | 723                     |  |                              | 6.03  |                                | 6.8 |                         | 1,127 |                              |   | 5.81                           |  | 6.9
|$7.50 to $9.99           |  | 186                     |  |                              | 8.78  |                                | 6.2 |                         | 218   |                              |   | 8.67                           |  | 7.2
|$10.00 and above         |  | 423                     |  |                              | 22.83 |                                | 5.8 |                         | 298   |                              |   | 22.73                          |  | 5.7
|                         |  |                         |  |                              |       |                                |     |                         |       |                              |   |                                |  |    
|Total                    |  | 3,065                   |  | $                            | 7.31  |                                | 6.1 |                         | 4,305 |                              | $ | 5.95                           |  | 6.9
|                         |  |                         |  |                              |       |                                |     |                         |       |                              |   |                                |  |    



The following table
summarizes information regarding stock options exercisable at December 31, 2004:



|                         |  |                         |  |                              |      
|------------------------ |  | ----------------------- |  | ---------------------------- | -----
|Range of exercise prices |  | Outstandingshares(000s) |  | Weightedaverageexerciseprice
|$0.00 to $3.74           |  | 331                     |  | $                            | 3.70 
|$3.75 to $4.99           |  | 1,243                   |  |                              | 3.95 
|$5.00 to $7.49           |  | 406                     |  |                              | 5.93 
|$7.50 to $9.99           |  | 118                     |  |                              | 8.82 
|$10.00 and above         |  | 224                     |  |                              | 22.99
|                         |  |                         |  |                              |      
|Total                    |  | 2,322                   |  | $                            | 6.54 
|                         |  |                         |  |                              |      



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##### Table of Contents

The following table summarizes the information regarding stock options outstanding by each plan the
Company had as of December 31, 2004:



|              |  |                         |  |                              |       |                                                     |      
|------------- |  | ----------------------- |  | ---------------------------- | ----- | --------------------------------------------------- | -----
|Plan category |  | Outstandingshares(000s) |  | Weightedaverageexerciseprice |       | Sharesremaining availablefor future issuances(000s)
|LTIP          |  | 2,692                   |  | $                            | 6.97  |                                                     | 3,661
|SEIP          |  | 373                     |  | $                            | 12.50 |                                                     | 88   
|              |  |                         |  |                              |       |                                                     |      
|Total         |  | 3,065                   |  | $                            | 7.31  |                                                     | 3,749
|              |  |                         |  |                              |       |                                                     |      



10.    SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION



Accounts Receivable:



The components of accounts receivable as of December 31 were as follows (shown in thousands):



|                                     |  |      |         |   |      |   |         |  
|------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                                     |  | 2004 |         |   | 2003 |  
|Billed amounts                       |  | $    | 78,764  |   |      | $ | 53,232  |  
|Engagements in process               |  |      | 45,406  |   |      |   | 26,647  |  
|Allowance for uncollectible accounts |  |      | (13,013 | ) |      |   | (11,164 | )
|                                     |  |      |         |   |      |   |         |  
|                                     |  | $    | 111,157 |   |      | $ | 68,715  |  
|                                     |  |      |         |   |      |   |         |  



Receivables
attributable to engagements in process represent balances accrued by the Company 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.



Accounts receivable, net of the allowance for
uncollectible accounts, were $96.9 million for the Financial & Claims Consulting business segment and $14.3 million for the Energy Consulting business segment as of December 31, 2004, compared with $56.1 million for the Financial & Claims
Consulting business segment and $12.6 million for the Energy Consulting business segment as of December 31, 2003.



Assets Held for Sale:



On January 3, 2005, the Company sold, at a discount from book values, certain receivables and fixed assets of the Financial & Claims segment to a
group of senior consultants, who departed from the Company. As part of the agreement, the Company transferred certain client engagements to the former senior consultants.



As of December 31, 2004, the Company recorded assets held for sale of $5.8 million, which consisted of $5.0 million of
billed and unbilled receivables and $0.8 million of fixed assets. At December 31, 2004, the Company recorded write-downs of receivables and fixed assets of $0.5 million and $0.1 million, respectively, to state the assets held for sale at net
realizable value.



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##### Table of Contents

Property and Equipment:



Property and equipment as of December 31 consisted of (shown in thousands):



|                                                |  |      |         |   |      |   |         |  
|----------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                |  | 2004 |         |   | 2003 |  
|Land and buildings                              |  | $    | 3,563   |   |      | $ | 3,548   |  
|Furniture, fixtures and equipment               |  |      | 35,748  |   |      |   | 30,318  |  
|Software                                        |  |      | 12,514  |   |      |   | 8,622   |  
|Leasehold improvements                          |  |      | 12,248  |   |      |   | 10,054  |  
|                                                |  |      |         |   |      |   |         |  
|                                                |  |      | 64,073  |   |      |   | 52,542  |  
|Less: accumulated depreciation and amortization |  |      | (36,692 | ) |      |   | (32,584 | )
|                                                |  |      |         |   |      |   |         |  
|Property and equipment, net                     |  | $    | 27,381  |   |      | $ | 19,958  |  
|                                                |  |      |         |   |      |   |         |  



The Company acquired
property and equipment with a fair value of $0.9 million as part of the Tucker acquisition.



Other Current Liabilities:



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



|                                          |  |                   |        |                   |   |       
|----------------------------------------- |  | ----------------- | ------ | ----------------- | - | ------
|                                          |  | December 31, 2004 |        | December 31, 2003
|Acquisition earnout obligations           |  | $                 | 11,176 |                   | $ | 9,109 
|Deferred business acquisition obligations |  |                   | 14,689 |                   |   | 2,678 
|Deferred revenue credits                  |  |                   | 10,780 |                   |   | 4,204 
|Deferred rent                             |  |                   | 2,386  |                   |   | 2,094 
|Other liabilities                         |  |                   | 2,157  |                   |   | 1,606 
|                                          |  |                   |        |                   |   |       
|                                          |  | $                 | 41,188 |                   | $ | 19,691
|                                          |  |                   |        |                   |   |       



Acquisition earnout
obligations relate to payments due under certain purchase agreements. These amounts become payable upon the achievement of specified financial objectives by acquired businesses. On April 1, 2004, the Company paid the earnout obligations that existed
at December 31, 2003. As of December 31, 2004, the Company had an $11.2 million liability for acquisition earnout obligations, which are to be paid during the first four months of 2005.



The deferred business acquisition obligations of $14.7 million at December 31, 2004 consist of $13.0 million for the Tucker
acquisition, which was paid in January 2005, $0.7 million for the CapAdvisory acquisition, payable in July 2005, $0.5 million for the Invalesco acquisition, payable in August 2005, and $0.5 million for the Front Line acquisition, payable in December
2005. Deferred business acquisition obligations are recorded on a discounted basis to give effect to their present value.



Other Non-Current Liabilities:



The components of other non-current liabilities as of December 31 were as follows (shown in thousands):



|                                          |  |      |        |      |   |      
|----------------------------------------- |  | ---- | ------ | ---- | - | -----
|                                          |  | 2004 |        | 2003
|Deferred business acquisition obligations |  | $    | 10,213 |      | $ | 500  
|Other non-current liabilities             |  |      | 417    |      |   | 1,261
|                                          |  |      |        |      |   |      
|                                          |  | $    | 10,630 |      | $ | 1,761
|                                          |  |      |        |      |   |      



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##### Table of Contents

The deferred business acquisition obligation of $10.2 million at December 31, 2004 consists of $9.5
million for the Tucker acquisition, payable in January 2006 and $0.7 million for the CapAdvisory acquisition, payable in July 2006. These amounts have been discounted to net present value.



11.    SUPPLEMENTAL CASH FLOW INFORMATION



2004 Non-Cash Transactions



During the year ended December 31, 2004, as part of the purchase price agreements for acquired businesses, the Company entered into a $25.0 million deferred cash payment commitment and $16.0 million deferred stock issuance. In addition, the
Company issued 0.5 million shares of its common stock with a value of $8.4 million at closing.



During the year ended December 31, 2004, the Company recorded goodwill and acquisition earnout obligations of $15.7 million related to purchase agreement provisions of certain businesses acquired in prior years.



During the year ended December 31, 2004, the Company recorded
assets and liabilities of $0.8 million related to computer software. The liability is payable in two equal installments, in May 2005 and May 2006.



2003 Non-Cash Transactions



The Company entered into a $1.0 million deferred cash payment commitment and issued 0.1 million shares of its common stock with a value of $1.3 million at
closing as part of the purchase price for the Front Line acquisition. (See Note 3, Acquisitions and Divestiture).



During the year ended December 31, 2003, the Company recorded, in aggregate, $12.2 million of goodwill relating to contingent earnout liabilities and
stock obligations for earnout provisions met under provisions of certain purchase agreements. For the year ended December 31, 2003, the Company recorded $6.3 million for deferred compensation related to restricted shares and restricted stock units.



2002 Non-Cash Transactions



The Company entered into deferred cash payment commitments as part of the
purchase price for certain acquisitions. These deferred cash payments consist of $1.5 million for the Barrington Energy acquisition, $0.5 million for the Keevan acquisition, and $0.5 million for the Hunter acquisition. In addition, as part of the
purchase price for the Hunter acquisition, the Company entered into a $6.5 million deferred payment obligation payable in the Companys common stock, or cash up to 67 percent of the obligation. Accordingly, the Company accounted for this
deferred payment as 67 percent liabilities and 33 percent deferred stock issuance. The Company issued a total of 2.9 million shares of its common stock, valued at $17.5 million, in conjunction with the purchases of Keevan, FACG, Barrington Energy
and Hunter. (See Note 3, Acquisitions and Divestiture).



During the year ended December 31, 2002, the Company recorded, in aggregate, $4.3 million of goodwill relating to contingent earnout liabilities and stock obligations for earnout provisions met under provisions of certain purchase
agreements. The Company also incurred $0.4 million of future payment obligations for the purchase of computer software.



Other Information



Total interest paid during the years ended December 31, 2004, 2003, and 2002 was $1.1 million, $0.7 million and $0.8 million, respectively. Total income
taxes paid during the years ended December 31, 2004, 2003 and 2002 were $15.1 million, $7.9 million and $7.8 million, respectively.



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##### Table of Contents

12.    LEASE COMMITMENTS



The Company leases its office facilities and certain equipment under operating lease arrangements that expire at various dates through 2017. The Company leases office facilities under non-cancelable operating leases
that include fixed or minimum payments plus, in some cases, scheduled base rent increases over the terms of the leases and additional rents based on the Consumer Price Index. Certain leases provide for monthly payments of real estate taxes,
insurance and other operating expenses applicable to the property. In addition, the Company leases equipment under non-cancelable operating leases.



Future minimum annual lease payments for the years subsequent to 2004 and in the aggregate are as follows (shown in thousands):



|                         |  |        |        
|------------------------ |  | ------ | -------
|Year ending December 31, |  | Amount
|2005                     |  | $      | 16,932 
|2006                     |  |        | 16,615 
|2007                     |  |        | 14,410 
|2008                     |  |        | 14,208 
|2009                     |  |        | 13,103 
|Thereafter               |  |        | 31,093 
|                         |  |        |        
|                         |  | $      | 106,361
|                         |  |        |        



In addition, the
Company has other lease commitments for the years subsequent to 2004, totaling $2.2 million for offices that were abandoned as a part of a restructuring plan established in 2000. The Company decided in 2000 to terminate or sublease such leases and
has reserved for the associated net costs within the facilities closings reserve. (See Note 15 Restructuring Costs (Credits).)



Rent expense for operating leases was $18.6 million, $14.3 million, and $14.5 million for the years ended December 31, 2004, 2003 and 2002, respectively.



13.    BANK BORROWINGS



As of December 31, 2004, the Company maintained an unsecured revolving line of credit agreement for $150.0 million. The revolving line of credit agreement expires on October 31, 2005, and the Company has the option to
extend the agreement for an additional two years from the expiration date. Borrowings under the revolving line of credit agreement bear interest based, at the Companys option, on either (1) the higher of the prime rate or the federal fund
rates plus 0.5 percent, or (2) London Interbank Offered Rate (LIBOR) plus 1.25 percent. The line of credit agreement requires the Company to maintain a minimum level of earnings before interest, taxes, depreciation and amortization, among other
things.



The Company complied with the terms of its credit
agreement as of December 31, 2004 and 2003. The Company did not have a balance outstanding under the line of credit agreement as of December 31, 2004 and 2003.



At December 31, 2004 and 2003, the Company had outstanding letters of credit of $4.3 million and $3.7 million, respectively. The letters of credit
outstanding are to secure various leased office space the Company occupies. The letters of credit expire at various dates through 2014.



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##### Table of Contents

14.    INCOME TAXES



Income tax expense (benefit), shown in thousands, consists of the following:



|                                                              |  |                                 |        |      |   |        |      |  |   |       |  
|------------------------------------------------------------- |  | ------------------------------- | ------ | ---- | - | ------ | ---- |  | - | ----- | -
|                                                              |  | For the year ended December 31, |       
|                                                              |  | 2004                            |        | 2003 |   |        | 2002 | 
|Federal:                                                      |  |                                 |        |      |   |        |      |  |   |       |  
|Current                                                       |  | $                               | 20,165 |      | $ | 10,137 |      |  | $ | 4,295 |  
|Deferred                                                      |  |                                 | 2,463  |      |   | 239    |      |  |   | (155  | )
|                                                              |  |                                 |        |      |   |        |      |  |   |       |  
|Total                                                         |  |                                 | 22,628 |      |   | 10,376 |      |  |   | 4,140 |  
|                                                              |  |                                 |        |      |   |        |      |  |   |       |  
|State:                                                        |  |                                 |        |      |   |        |      |  |   |       |  
|Current                                                       |  |                                 | 4,646  |      |   | 2,547  |      |  |   | 927   |  
|Deferred                                                      |  |                                 | 571    |      |   | (123   | )    |  |   | (36   | )
|                                                              |  |                                 |        |      |   |        |      |  |   |       |  
|Total                                                         |  |                                 | 5,217  |      |   | 2,424  |      |  |   | 891   |  
|                                                              |  |                                 |        |      |   |        |      |  |   |       |  
|Foreign                                                       |  |                                 | 217    |      |   | 599    |      |  |   | 877   |  
|                                                              |  |                                 |        |      |   |        |      |  |   |       |  
|Total federal, state and foreign income tax expense (benefit) |  | $                               | 28,062 |      | $ | 13,399 |      |  | $ | 5,908 |  
|                                                              |  |                                 |        |      |   |        |      |  |   |       |  



Income tax expense
differs from the amounts estimated by applying the statutory income tax rates to income before income taxes as follows:



|                                                                 |  |                                 |   |  |      |   |  |      |  
|---------------------------------------------------------------- |  | ------------------------------- | - |  | ---- | - |  | ---- | -
|                                                                 |  | For the year ended December 31, |  
|                                                                 |  | 2004                            |   |  | 2003 |   |  | 2002 |  
|Federal tax expense at statutory rate                            |  | 35.0                            | % |  | 35.0 | % |  | 35.0 | %
|State tax expense at statutory rate, net of federal tax benefits |  | 5.0                             |   |  | 4.6  |   |  | 4.2  |  
|Foreign taxes                                                    |  | 0.2                             |   |  | 0.1  |   |  | (0.2 | )
|Effect of nontaxable interest and dividends                      |  |                                |   |  |     |   |  | (0.7 | )
|Effect of non-deductible amortization                            |  |                                |   |  | 1.3  |   |  | 2.7  |  
|Effect of non-deductible stock compensation expense              |  |                                |   |  |     |   |  | (1.9 | )
|Effect of employee stock purchase plan disqualifying disposition |  |                                |   |  |     |   |  | (0.1 | )
|Effect of non-deductible meals and entertainment expense         |  | 0.6                             |   |  | 0.7  |   |  | 1.0  |  
|Effect of other transactions, net                                |  | 0.2                             |   |  |     |   |  |     |  
|                                                                 |  |                                 |   |  |      |   |  |      |  
|                                                                 |  | 41.0                            | % |  | 41.7 | % |  | 40.0 | %
|                                                                 |  |                                 |   |  |      |   |  |      |  



The tax benefits
associated with restricted stock, nonqualified stock options, and disqualifying dispositions of incentive stock options reduced taxes payable by $13.1 million, $10.3 million, and $0.4 million in 2004, 2003, and 2002, respectively. Such benefits were
recorded as an increase to additional paid-in capital in each year.



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##### Table of Contents

Deferred income taxes result from temporary differences between years in the recognition of certain
expense items for income tax and financial reporting purposes. The source and income tax effects of these differences (shown in thousands) are as follows:



|                                                  |  |              |        |   |      |   |        |  
|------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                  |  | December 31, |       
|                                                  |  | 2004         |        |   | 2003 |  
|Deferred tax assets attributable to:              |  |              |        |   |      |   |        |  
|Allowance for uncollectible receivables           |  | $            | 3,621  |   |      | $ | 3,377  |  
|Restructuring costs                               |  |              | (95    | ) |      |   | (80    | )
|Former officers notes                            |  |              |       |   |      |   | 1,142  |  
|Insurance related costs                           |  |              | 15     |   |      |   | 15     |  
|Depreciation and amortization                     |  |              | (586   | ) |      |   | 179    |  
|Stock options                                     |  |              | 476    |   |      |   | 1,672  |  
|Deferred revenue                                  |  |              | 2,823  |   |      |   | 1,834  |  
|Litigation settlement                             |  |              | 1,424  |   |      |   | 1,424  |  
|Acquisition costs                                 |  |              | (5,285 | ) |      |   | (1,365 | )
|Compensation program                              |  |              | 704    |   |      |   |       |  
|Tax credits and capital loss carry forward        |  |              | 974    |   |      |   | 1,089  |  
|State income taxes offset for deferred tax assets |  |              | (249   | ) |      |   | (553   | )
|                                                  |  |              |        |   |      |   |        |  
|Total deferred tax assets                         |  |              | 3,822  |   |      |   | 8,734  |  
|                                                  |  |              |        |   |      |   |        |  
|Deferred tax liabilities attributable to:         |  |              |        |   |      |   |        |  
|Compensation program                              |  |              |       |   |      |   | 305    |  
|Investments                                       |  |              | 298    |   |      |   | 298    |  
|                                                  |  |              |        |   |      |   |        |  
|Deferred tax liabilities (assets)                 |  |              | 298    |   |      |   | 603    |  
|                                                  |  |              |        |   |      |   |        |  
|Net deferred tax assets                           |  | $            | 3,524  |   |      | $ | 8,131  |  
|                                                  |  |              |        |   |      |   |        |  



The Company has not
recorded a valuation allowance against its net deferred tax assets, as it believes it is more likely than not that the net deferred tax assets are recoverable from future results of operations.



In the past, the Company has taken the position that undistributed earnings
of foreign subsidiaries were reinvested, and that no federal income tax needed to be provided under this plan of reinvestment. The American Jobs Creation Act of 2004 (the Act) introduced a special one-time dividend received deduction
under certain circumstances on the repatriation of certain foreign earnings to a federal tax payer. The Company has not yet determined whether or to what extent, it might repatriate foreign earnings and as such, cannot reasonably estimate the income
tax effect of such repatriation.



15.    RESTRUCTURING COSTS (CREDITS)



In May 2000, the Company implemented a plan to restructure its operations and recorded restructuring costs of $10.2 million for the year ended December 31, 2000. Most of the plan has been completed. During the year
ended December 31, 2001, the Company recorded a $1.9 million charge for additional costs to be incurred, as the Company had not been able to sublease its remaining lease obligations of office subject to closing or size reduction. The Company
recorded a $0.5 million restructuring credit to its operating results for the year ended December 31, 2002. Certain offices subject to closing or size reduction were put back into operations as additional space was needed to support acquisitions and
headcount growth.



During the year ended December 31, 2004, the
Company recorded a restructuring charge of $1.1 million, primarily for changes in the Companys plans regarding utilization of a facility for which a restructuring accrual had been recorded in a prior year.



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##### Table of Contents

The activity affecting the accrual for restructuring charges during 2002, 2003, and 2004 is as follows
(shown in thousands):



|                              |  |   |        |  
|----------------------------- |  | - | ------ | -
|Balance at December 31, 2001  |  | $ | 3,883  |  
|Year ended December 31, 2002: |  |   |        |  
|Credits to operations         |  |   | (500   | )
|Utilized                      |  |   | (1,255 | )
|                              |  |   |        |  
|Balance at December 31, 2002  |  | $ | 2,128  |  
|Year ended December 31, 2003: |  |   |        |  
|Utilized                      |  |   | (1,102 | )
|                              |  |   |        |  
|Balance at December 31, 2003  |  | $ | 1,026  |  
|Year ended December 31, 2004: |  |   |        |  
|Charged to operations         |  |   | 1,091  |  
|Utilized                      |  |   | (1,123 | )
|                              |  |   |        |  
|Balance at December 31, 2004  |  | $ | 994    |  
|                              |  |   |        |  



The $1.0 million
balance as of December 31, 2004 represents the excess of rental payment obligations less expected sublease receipts, if any, and the expected lease termination costs of certain office space which the Company decided to abandon and sublease. Most of
the balance at December 31, 2004 will be settled during 2005.



16.    EMPLOYEE BENEFIT PLANS



The Company maintains profit sharing and savings plans and provides employer-matching contributions for all participants. The Company matches in an amount equal to 100 percent of the employees current
contributions, up to a maximum of 3 percent of the employees total eligible compensation and limited to $5,100 per participant.



The Company, as sponsor of the plans, uses independent third parties to provide administrative services to the plans. The Company has the right to
terminate the plans at any time. The Companys contributions to the various plans were $4.0 million, $2.7 million, and $2.6 million in the years ended December 31, 2004, 2003, and 2002, respectively.



17.    RELATED PARTY TRANSACTIONS



Governor Thompson, one of the Companys Directors, is Chairman of the law firm of Winston & Strawn. Winston & Strawn has provided legal representation for the Company in the past and may provide services
to the Company in the future. Total payments related to services rendered in 2004, 2003 and 2002 were $0.3 million for each of the years.



18.    SUBSEQUENT EVENT



On February 8, 2005, the Company acquired substantially all of the assets of Casas, Benjamin & White, LLC (CBW) for $47.5 million, which included $38.0 million cash at closing and an aggregate of $9.5
million of its common stock to be issued in February 2006, 2007 and 2008. The CBW acquisition included 23 consulting professionals specializing in corporate restructuring and transaction advisory services. The Company acquired CBW to strengthen its
corporate finance practice.



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##### Table of Contents

19.    LITIGATION AND SETTLEMENTS



As previously disclosed, in November 2001 the Company was informed that the SEC had initiated a private investigation, through the Chicago office of its Division of Enforcement, as to whether there may have been
violations of the securities laws at the Company during 1998 and 1999. The Company cooperated fully with the SEC. In November 2004 the Company was advised by the Division of Enforcement that its inquiry had been terminated and that no enforcement
action had been recommended to the SEC.



From time to time the
Company is party to various lawsuits and claims in the ordinary course of business. While the outcome of those lawsuits or claims cannot be predicted with certainty, the Company does not believe that any of those lawsuits or claims will have a
material adverse effect on the financial condition and results of operation of the Company.



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##### Table of Contents

SCHEDULE I



NAVIGANT
CONSULTING, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS



Years ended December 31, 2004, 2003 and 2002

(amounts in thousands)



|                                |  |                            |        |                   |   |               |  |   |                      |   |  |   |       
|------------------------------- |  | -------------------------- | ------ | ----------------- | - | ------------- |  | - | -------------------- | - |  | - | ------
|Description                     |  | Balance atbeginningof year |        | Chargedtoexpenses |   | Deductions(1) |  |   | Balanceat endof year
|Year ended December 31, 2004    |  |                            |        |                   |   |               |  |   |                      |   |  |   |       
|Allowance for doubtful accounts |  | $                          | 11,164 |                   | $ | 6,352         |  | $ | (4,503               | ) |  | $ | 13,013
|Year ended December 31, 2003    |  |                            |        |                   |   |               |  |   |                      |   |  |   |       
|Allowance for doubtful accounts |  | $                          | 9,190  |                   | $ | 4,894         |  | $ | (2,920               | ) |  | $ | 11,164
|Year ended December 31, 2002    |  |                            |        |                   |   |               |  |   |                      |   |  |   |       
|Allowance for doubtful accounts |  | $                          | 9,948  |                   | $ | 4,643         |  | $ | (5,401               | ) |  | $ | 9,190 

---

|(1) | Represents write-offs of bad debts.
|--- | -----------------------------------



S-1