<PAGE>

--------------------------------------------------------------------------------
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ----------------

                                   FORM 10-K

(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT
   OF 1934

  For the fiscal year ended December 31, 1999

                                       OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE
   ACT OF 1934

                          Commission File No. 0-28830

                               ----------------

                           Navigant Consulting, Inc.
             (Exact name of Registrant as specified in its charter)

                Delaware                               36-4094854
    (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)               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)

                               ----------------

          Securities Registered Pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
             Title of Each Class                 Name of Each Exchange on Which Registered
             -------------------                 -----------------------------------------
<S>                                            <C>
  Common Stock, par value $0.001 per share                New York Stock Exchange
       Preferred Stock Purchase Rights
</TABLE>

          Securities Registered Pursuant to Section 12(g) of the Act:

                                      None

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

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

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

   As of March 6, 2000, 41.1 million shares of the Registrants common stock,
par value $.001 per share ("Common Stock"), were outstanding. The aggregate
market value of shares of Common Stock held by non-affiliates, based upon the
closing sale price of the stock on the New York Stock Exchange on March 6,
2000, was approximately $401.0 million.

   The Registrant's Proxy Statement for the Annual Meeting of Stockholders,
scheduled to be held May 30, 2000, is incorporated by reference into Part III
of this Annual Report on Form 10-K.

   Statements included in this report which are not historical in nature, are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the Private Securities Litigation Reform Act of 1995. Such
statements appear in a number of places in this report, including, without
limitation, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations." When used in this report, the words
"anticipate," "believe," "intend," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company cautions readers that
forward-looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity, and
income, are subject to certain risks and uncertainties that could cause actual
results to differ materially from those indicated in the forward looking
statements, due to several important factors herein identified, among others,
and other risks and factors identified from time to time in the Company's
reports filed with the SEC. The Company undertakes no obligation to publicly
update or revise any forward-looking statements to reflect current or future
events or circumstances.

                                       2
<PAGE>

                                     PART I

Item 1. Business

General

   Navigant Consulting, Inc., formerly The Metzler Group, Inc., ("We" or the
"Company") is a provider of consulting services to electric and gas utilities,
insurance companies and pharmaceutical companies, as well as other Fortune 100
companies. As of December 31, 1999, our services included: management
consulting, strategic consulting, financial and claims services, and economics
and policy consulting. We believe that our experience, reputation, industry
focus and broad range of services will enable us to compete effectively in the
consulting marketplace. Our growth strategy is to:

  --Continue to build a complementary spectrum of consulting services;

  --Leverage existing relationships and expand our client base in both
     domestic and international markets;

  --Continue to recruit and retain highly skilled professionals; and

  --Continue to acquire consulting companies that provide complementary
     services or geographic presence.

   Our executive office is located at 615 North Wabash Avenue, Chicago,
Illinois 60611. Our telephone number is (312) 573-5600.

Marketing and Sales

   We market our services directly to mid-level and senior executives using a
variety of business development and marketing techniques to communicate
directly with current and prospective clients, including on-site presentations,
industry seminars and industry-specific articles and other publications.

   A significant portion of new business arises from prior client engagements.
In addition, we seek to leverage the client relationships of firms we have
acquired by cross-selling existing services. Clients frequently expand the
scope of engagements during delivery to include follow-on complementary
activities. Also, our on-site presence affords us the opportunity to become
aware of, and to help define, additional project opportunities as they are
identified by the client. The client relationships arising out of many
engagements often facilitate our ability to market additional capabilities to
clients in the future.

Human Resources

   As of December 31, 1999, we had approximately 2,200 employees. Our success
depends in large part on attracting, retaining and motivating talented,
creative and experienced professionals at all levels. In connection with our
hiring efforts, we employ internal recruiters, retain executive search firms
and utilize personal and business contacts to recruit professionals with
significant utility industry or consulting experience. Our consultants are
drawn from the industries we serve and from accounting and other consulting
organizations. We seek to promote loyalty and continuity of our consultants by
offering packages of base and incentive compensation and benefits that we
believe are attractive and competitive.

   We derive our revenues almost exclusively from services performed by our
professional consultants. Our future performance will continue to depend in
large part upon our ability to attract and retain highly skilled professionals
possessing appropriate skills and senior academics with superior professional
reputations. Qualified professional consultants are in great demand and are
likely to remain a limited resource for the foreseeable future. We may not be
able to retain a substantial majority of our existing or future consultants for
the long term. In addition, many of our consultants are not subject to non-
competition or similar restrictions or are subject to such restrictions for
only a limited period of time. The loss of the services of, or the failure to
recruit, a significant number of consultants would adversely affect our ability
to secure and complete engagements and would have a material adverse effect on
our business.

                                       3
<PAGE>

   In addition to the employees discussed above, we supplement our consultants
on certain engagements with independent contractors, some of whom are former
employees. We believe that the practice of retaining independent contractors on
a per-engagement basis provides us with greater flexibility in adjusting
professional personnel levels in response to changes in demand for our
services.

Competition

   We compete in the worldwide market for consulting services, although our
principal market is North America, which accounted for over 95% of our revenues
in 1999 and 1998. The market for consulting services is intensely competitive,
highly fragmented and subject to rapid change. The market includes a large
number of participants from a variety of market segments, including general
management, information technology, and marketing consulting firms, as well as
the consulting practices of national accounting firms, and other local,
regional, national and international firms. Many of these companies are
national and international in scope and have greater personnel, financial,
technical and marketing resources than we do. We believe that our experience,
reputation, industry focus and broad range of services will enable us to
compete effectively in the consulting marketplace.

Item 2. Properties

   Our headquarters are currently located in a 15,000 square foot building in
Chicago, Illinois which we own. In addition to our headquarters, we have
approximately 100 operating leases for office facilities worldwide. Additional
space may be required as our business expands geographically, but we believe we
will be able to obtain suitable space as needed. We have principal offices in
the following cities:

<TABLE>
      <S>                       <C>                                    <C>
      Austin, TX                Westminster, CO                        Menlo Park, CA
      Baltimore, MD             Emeryville, CA                         New York City, NY
      Boston, MA                Ft. Lauderdale, FL                     Princeton, NJ
      Burlington, MA            Houston, TX                            Sacramento, CA
      Chicago, IL               London, England                        San Francisco, CA
      Cleveland, OH             Los Angeles,CA                         Washington, DC
      Dallas, TX
</TABLE>

Item 3. Legal Proceedings

   Numerous purported class action lawsuits have been filed against the Company
since November 1999 in the United States District Court for the Northern
District of Illinois. These actions name as defendants the Company and certain
former directors and former executive officers (one of whom, however, remains
an employee of the Company) of the Company and are purported to be on behalf of
persons who purchased shares of the Company's common stock during various
periods through November 1999. The complaints allege various violations of
federal securities law, including violations of Section 10(b) of the Securities
Exchange Act of 1934, and that the defendants made materially misleading
statements and/or material omissions which artificially inflated prices for the
Company's common stock. The plaintiffs seek a judgement awarding damages and
other relief. The Company believes it has meritorious defenses and intends to
vigorously defend these actions. The outcome of these lawsuits cannot be
predicted with certainty and a material adverse judgement against the Company
could have a material adverse effect on the Company.

   Navigant International, Inc., a national travel agency headquartered in
Denver, Colorado, sued the Company in July 1999 in the United States District
Court for the District of Colorado claiming that the use of "Navigant" in our
name infringes on their use of and rights in such name. The complaint seeks
declaratory relief and an injunction against our use of "Navigant," attorneys'
fees and other related relief. The Company believes it has meritorious defenses
and intends to vigorously defend this action.

   During the fourth quarter of 1999 the Company settled a previously disclosed
lawsuit initially brought by the Company against Deborah T. Kearns, Alan G.
Carnrite, the Estate of Laurel Dell Manning, and David R. Watkins, who were the
former shareholders of Sterling Consulting Group, Inc. Ms. Kearns and Mr.
Carnrite

                                       4
<PAGE>

filed a counterclaim asserting various causes of action against the Company and
two of its officers. The lawsuit was settled by payment by the Company of $1.3
million to Ms. Kearns and $0.1 million to Mr. Carnrite, no payment by Ms.
Kearns or Mr. Carnrite and no admission of liability or wrongdoing by any party
in connection with any claims or causes of action in the lawsuit.

   In addition, from time to time, we are party to various other lawsuits and
claims in the ordinary course of business. While the outcome of those lawsuits
or claims cannot be predicted with certainty, we do not believe that any of
those lawsuits or claims will have a material adverse effect on the Company.

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

   None.

Executive Officers of the Registrant

   At February 1, 2000, the Registrant had the following executive officers:

   Mitchell H. Saranow, 54, has served as Chairman of the Board and co-CEO of
the Company since November 1999. He has served as one of our directors since
1996. Mr. Saranow has served as Chairman of The Saranow Group L.L.C. and its
affiliated companies since October 1984. He founded Fluid Management, L.P. in
April 1987 and served as Chairman and Chief Executive Officer until January
1997. Mr. Saranow also serves on the boards of Lawson Products, Mid-Atlantic
CATV, ELF Machinery, L.L.C., and HyperLOCK Technologies.

   John J. Reed, 45, has served as Vice-Chairman and co-CEO of the Company
since November 1999. He was appointed a director of the Company on November 21,
1999. Prior to being named Vice-Chairman and co-CEO, Mr. Reed was the Executive
Managing Director of the Company's Management Consulting practice. From 1988
until 1999, Mr. Reed was President of Reed Consulting Group, which the Company
acquired in August 1997.

   Carl S. Spetzler, 58, has served as President and co-CEO of the Company
since November 1999. He was appointed a director of the Company on November 21,
1999. Prior to being named President and co-CEO, Dr. Spetzler was the Executive
Managing Director of the Company's Strategic Consulting practice. From 1986
until 1999, Dr. Spetzler was the President of Strategic Decisions Group, which
the Company acquired in February 1999.

   James F. Hillman, 42, has served as the Chief Financial Officer and
Treasurer of the Company since December 1999. From May 1999 through November
1999, he was President of Azimuth Consulting LLC. Mr. Hillman had previously
served as the Company's Chief Financial Officer and Treasurer from June 1996
through April 1999. From 1988 until he joined the Company in 1996, he was with
the Ameritech Corporation, most recently as the Chief Financial Officer of
Ameritech Monitoring Services, Inc. Mr. Hillman is a certified public
accountant.

   Philip P. Steptoe, 48, has served as the Company's Vice President, Secretary
and General Counsel since February 2000. Previously, Mr. Steptoe was a partner
with the national law firm of Sidley & Austin. During 1994-1995 he served for
four months as Acting General Counsel for Orange and Rockland Utilities, Inc.,
a New York electric and gas utility. Prior to joining Sidley & Austin in 1988,
he was an associate and later a partner in the Chicago law firm of Isham,
Lincoln & Beale.

                                       5
<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Market Information

   The shares of Common Stock of the Company are traded on the New York Stock
Exchange (the "NYSE") under the symbol "NCI."

   The following table sets forth, for the periods indicated, the high and low
sale prices per share. Sales prices for periods beginning July 27, 1999 are as
reported on the NYSE Composite Tape. Prior to July 27, 1999 the Company's
Common Stock was traded on the Nasdaq National Market under the symbol "METZ"
and prices for such periods are as as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                                   High    Low
                                                                  ------  ------
   <S>                                                            <C>     <C>
   1999
   Fourth quarter................................................ $48.50  $ 8.69
   Third quarter................................................. $54.25  $26.13
   Second quarter................................................ $36.13  $22.81
   First quarter................................................. $52.00  $28.44

   1998
   Fourth quarter................................................ $49.00  $28.88
   Third quarter................................................. $37.75  $27.25
   Second quarter................................................ $36.63  $24.25
   First quarter................................................. $33.92  $24.00
</TABLE>

Holders

   As of March 6, 2000, there were approximately 244 holders of record of
shares of common stock of the Company.

Distributions

   The Company has not paid any cash dividends since its organization and does
not anticipate that it will make any such distributions in the foreseeable
future.

Sale of Unregistered Securities

   Within the past three years, we have issued the following unregistered
securities:

<TABLE>
<CAPTION>
                  Type of    Number                                          Exemption
      Date       Securities of Shares     Purchaser      Consideration(1)     Claimed
      ----       ---------- ---------     ---------      ----------------    ---------
 <C>             <C>        <C>       <C>                <S>                 <C>
 January 1, 1997   Common      63,272 Former             All Outstanding      Section
                   Stock              Stockholders       Shares of             4(2)
                                      of L.E.Burgess     L.E.Burgess
                                      Consultants, Inc.  Consultants, Inc.

 July 31, 1997     Common   3,205,767 Former             All Outstanding      Section
                   Stock              Stockholders       Shares of Resource    4(2)
                                      of Resource        Management
                                      Management         International,
                                      International,     Inc.
                                      Inc.

 August 15, 1997   Common     777,600 Former             All Outstanding      Section
                   Stock              Stockholders       Shares of Reed        4(2)
                                      of Reed Consulting Consulting Group,
                                      Group, Inc.        Inc.
</TABLE>

                                       6
<PAGE>

<TABLE>
<CAPTION>
                    Type of    Number                                          Exemption
       Date        Securities of Shares     Purchaser      Consideration(1)     Claimed
       ----        ---------- ---------     ---------      ----------------    ---------
 <C>               <C>        <C>       <C>                <S>                 <C>
 December 1, 1997    Common     578,727 Former             All Outstanding      Section
                     Stock              Stockholders       Shares of Sterling    4(2)
                                        of Sterling        Consulting Group,
                                        Consulting         Inc.
                                        Group, Inc.

 December 1, 1997    Common      45,000 Former                                  Section
                     Stock              Stockholders       All Outstanding       4(2)
                                        of Reed-Stowe &    Shares of Reed-
                                        Co., Inc.          Stowe & Co., Inc.

 April 3, 1998       Common     137,931 Former             All Outstanding      Section
                     Stock              Stockholders       Shares of AUC         4(2)
                                        of AUC Management  Management
                                        Consultants, Inc.  Consultants, Inc.

 April 3, 1998       Common      51,562 Former             All Outstanding      Section
                     Stock              Stockholders       Shares of             4(2)
                                        of Hydrologic      Hydrologic
                                        Consultants Inc.   Consultants Inc.
                                        of California.     of California.

 June 1, 1998        Common       9,200 Former Members of  All Membership       Section
                     Stock              The VisionTrust    Interest of The       4(2)
                                        Marketing Group,   VisionTrust
                                        LLC                Marketing Group,
                                                           LLC

 August 31, 1998     Common   5,596,488 Former Members of  All Outstanding      Section
                     Stock              Peterson           Membership            4(2)
                                        Consulting         Interest of
                                        LLC                Peterson
                                                           Consulting LLC

 August 31, 1998     Common     616,737 Former                                  Section
                     Stock              Stockholders       All Outstanding       4(2)
                                        of Saraswati       Shares of
                                        Systems            Saraswati Systems
                                        Corporation        Corporation

 August 31, 1998     Common     103,900 Former             All Outstanding      Section
                     Stock              Stockholders       Shares of Applied     4(2)
                                        of Applied Health  Health Outcomes,
                                        Outcomes, Inc.     Inc.

 February 7, 1999    Common   2,437,223 Former             All Outstanding      Section
                     Stock              Stockholders       Shares of             4(2)
                                        of Strategic       Strategic
                                        Decisions Group    Decisions Group

 March 31, 1999      Common     952,227 Former                                  Section
                     Stock              Stockholders       All Outstanding       4(2)
                                        of Triad           Shares of Triad
                                        International,     International,
                                        Inc.               Inc.

 March 31, 1999      Common     670,592 Former                                  Section
                     Stock              Stockholders       All Outstanding       4(2)
                                        of GeoData         Shares of GeoData
                                        Solutions, Inc.    Solutions, Inc.

 March 31, 1999      Common     234,109 Former             All Outstanding      Section
                     Stock              Stockholders       Shares of Dowling     4(2)
                                        of Dowling         Associates, Inc.
                                        Associates, Inc.
</TABLE>
--------
(1) Does not take into account assumed debt or cash paid to dissenting
    shareholders or for fractional shares.

                                       7
<PAGE>

Item 6. Selected Financial Data.

   The following financial and operating data should be read in conjunction
with the information set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and related notes thereto appearing elsewhere in this
report.

<TABLE>
<CAPTION>
                                         Years Ended December 31, (1)
                               -----------------------------------------------
                                 1999      1998      1997      1996     1995
                               --------  --------  --------  -------- --------
<S>                            <C>       <C>       <C>       <C>      <C>
Statement of Operations Data:
Revenues.....................  $397,694  $287,626  $228,731  $181,375 $154,426
Cost of services.............   266,080   174,175   145,144   117,559   99,879
                               --------  --------  --------  -------- --------
Gross profit.................   131,614   113,451    83,587    63,816   54,547
General and administrative
 expenses(2).................   107,274    62,093    55,579    48,031   53,930
Amortization.................    24,300       --        --        --       --
Merger related
 costs and restructuring
 charges (benefit)...........      (206)   12,778     1,312       --       --
Stock option compensation
 expense.....................     3,850       --        --        --       --
                               --------  --------  --------  -------- --------
Operating income (loss)......    (3,604)   38,580    26,696    15,785      617
Other expense (income),
 net(2)......................     2,191    (2,638)   (1,205)      332   (5,270)
                               --------  --------  --------  -------- --------
Income (loss) before income
 tax expense.................    (5,795)   41,218    27,901    15,453    5,887
Income tax expense(3)........     8,827    25,637     9,237        97      480
                               --------  --------  --------  -------- --------
Net income(loss).............  $(14,622) $ 15,581  $ 18,664  $ 15,356 $  5,407
                               ========  ========  ========  ======== ========
Net income (loss) per basic
 share.......................  $   (.35) $   0.43  $   0.56  $   0.47 $   0.17
                               ========  ========  ========  ======== ========
Net income (loss) per diluted
 share.......................  $   (.35) $   0.41  $   0.55  $   0.47 $   0.17
                               ========  ========  ========  ======== ========
<CAPTION>
                                          As of December 31, (1)
                               -----------------------------------------------
                                 1999      1998      1997      1996     1995
                               --------  --------  --------  -------- --------
<S>                            <C>       <C>       <C>       <C>      <C>
Balance Sheet Data:
Cash and cash equivalents....  $ 42,345  $119,704  $ 45,972  $ 33,859 $  1,999
Working capital..............    67,598   146,509    58,708    45,551   11,112
Total assets.................   414,676   230,517   125,827    94,542   52,280
Long-term debt, less current
 portion.....................       --        --        319     1,561    1,202
Total stockholders' equity...  $300,669  $164,904  $ 69,215  $ 50,686 $ 12,558
</TABLE>
--------
(1) The amounts above have been restated and reclassified as described in Note 3
    of Notes to Consolidated Financial Statements. Certain billable expenses
    which had previously been presented net of related revenues have been
    reclassified. As a result, both revenue and cost of sales for the years
    1998, 1997, 1996 and 1995 have increased by $13.9 million, $12.9 million,
    $12.7 million and $13.9 million, respectively.
(2) For the year ended December 31, 1995, general and administrative expenses
    include $4.3 million reported by Peterson Consulting LLC for a restructuring
    charge related to the settlement of obligations under non-cancelable
    operating leases and other moving and transition costs. Other income for the
    year ended December 31, 1995 includes an extraordinary gain of $5.7 million
    recorded by Peterson in connection with the extinguishment of certain other
    debt obligations.
(3) During the periods presented, certain of our operating subsidiaries were
    entities not subject to federal income taxation. The provision for income
    taxes for the year ended December 31, 1998 reflects a one-time, non-cash
    charge of $7.2 million resulting from the conversion of Peterson from the
    modified cash basis to the accrual basis for tax purposes.

                                       8
<PAGE>

                                    PART II

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

   This Management's Discussion and Analysis of Financial Condition and Results
of Operations relates to the Consolidated Financial Statements included in this
annual report on Form 10-K.

Overview

   We are a nationwide provider of consulting services to electric and gas
utilities, insurance companies and pharmaceutical companies, as well as other
Fortune 100 companies. We derive substantially all of our revenues from fees
for professional services. Over the last three years, the substantial majority
of our revenues have been generated under standard hourly or daily rates billed
on a time-and-expenses basis. Our clients are typically invoiced on a monthly
basis with revenue recognized as the services are provided.

   Our most significant expenses are project personnel costs, which consist of
consultant salaries and benefits, and travel-related direct project expenses.
We typically employ our project personnel on a full-time basis, although we
supplement our project personnel through the use of independent contractors. We
retain contractors for specific client engagements on a task-specific, per diem
basis during the period their expertise or skills are required. We believe that
retaining contractors on a per-engagement basis provides us with greater
flexibility in adjusting project personnel levels in response to changes in
demand for our services.

Acquisitions

   As part of our growth strategy, we expect to continue to pursue
complementary acquisitions to expand our geographic reach, expand the breadth
and depth of our service offerings and enhance our consultant base. In
furtherance of this growth strategy, we acquired twenty-four consulting firms
since our initial public offering in October 1996.

   During 1997, we acquired five companies: Resource Management International,
Inc. (RMI), Reed Consulting Group, Inc. (Reed), Sterling Consulting Group, Inc.
(Sterling), Reed-Stowe & Co., Inc. (RSC), and L.E. Burgess Consultants, Inc.
(Burgess). These transactions were accounted for as poolings of interests. The
Company's consolidated financial statements have been restated as if RMI, Reed,
Sterling and RSC had been combined for all periods presented. The stockholders'
equity and the operations of Burgess were not significant in relation to those
of the Company. As such, the Company recorded the Burgess transaction by
restating stockholders' equity as of the date of the acquisition without
restating prior period financial statements.

   RMI. As of July 31, 1997, we acquired substantially all of the common stock
of RMI in exchange for 3.2 million shares of our common stock (valued at the
time of closing at approximately $75.3 million) and acquired the remaining
minority interest in exchange for cash. RMI, based in Sacramento, California,
is a provider of consulting services to gas, water, and electric utilities,
with operations in the western and eastern United States and international
marketplace. RMI's broad range of engineering, technical and economic
regulatory services complemented our management consulting and information
technology services.

   Reed. As of August 15, 1997, we acquired substantially all of the common
stock of Reed in exchange for 0.8 million shares of our common stock (valued at
the time of closing at approximately $17.6 million) and acquired the remaining
minority interest in exchange for cash. Reed, based in the Boston,
Massachusetts area, provides strategic planning, operations management and
economic and regulatory services to electric and natural gas utilities. Reed's
operations expanded our services and client base in the northeast United States
and internationally.

   Other 1997 Acquisitions. We acquired all of the common stock of Burgess as
of January 1, 1997, and all of the common stock of Sterling and of RSC as of
December 31, 1997. In the aggregate for these three transactions, we issued 0.7
million shares of our common stock (valued at the time of closing at
approximately $18.5 million). The consulting operations of these three
companies were complementary to our existing businesses and have been
integrated within the operations of other existing or acquired companies.

                                       9
<PAGE>

   During 1998, we acquired eight companies: LECG, Inc. (LECG), Peterson
Consulting, LLC (Peterson), Saraswati Systems Corporation (SSC), Applied Health
Outcomes, Inc. (AHO), AUC Management Consultants, Inc. (AUC), Hydrologic
Consultants, Inc. of California (HCI), American Corporate Resources, Inc.
(ACR), and The Vision Trust Marketing Group, LLC (VTM). These transactions were
accounted for as poolings of interests. The Company's consolidated financial
statements have been restated as if LECG, Peterson, SSC, AHO, AUC, and HCI had
been combined for all periods presented. The stockholders' equity and the
operations of ACR and VTM were not significant in relation to those of the
Company. As such, the Company recorded the ACR and VTM transactions by restating
stockholders' equity as of the dates of the acquisition without restating prior
period financial statements.

   LECG. As of August 19, 1998, we acquired substantially all of the common
stock of LECG in exchange for 7.3 million shares of our common stock (valued at
the time of closing at approximately $228.9 million) and acquired the remaining
minority interest in exchange for cash. LECG, based in the San Francisco,
California area, is a provider of economic consulting and litigation support
services. LECG's operations further increased our economic and regulatory
expertise and expanded our presence in the telecommunications industry.

   Peterson. As of August 31, 1998, we acquired substantially all of the common
stock of Peterson in exchange for 5.6 million shares of our common stock
(valued at the time of closing at approximately $156.7 million) and acquired
the remaining minority interest in exchange for cash. Peterson, based in the
Chicago area, is a provider of information management services. Peterson's
operations expanded our service offerings in claims management, litigation
support, and information management.

   Other 1998 Acquisitions. We acquired all of the common stock of AUC, HCI,
ACR as of April 3, 1998 and all of the common stock of VTM as of June 1, 1998.
We acquired all of the common stock of SSC and AHO as of September 1, 1998. In
the aggregate for these six transactions, we issued 1.2 million shares of our
common stock (valued at the time of closing at approximately $35.3 million).
The consulting operations of all six companies were complementary to our
existing businesses and have been integrated within the operations of other
existing or acquired companies.

   1999 Acquisitions. During 1999, the Company completed eleven acquisitions
(collectively, the "1999 Acquisitions"). The 1999 Acquisitions were accounted
for by the purchase method of accounting and, accordingly, the results of
operations have been included in the consolidated financial statements from the
respective dates of acquisition. On February 7, 1999, the Company issued 2.4
million shares of common stock (valued at the time of closing at approximately
$123.7 million) for substantially all of the outstanding common stock of
Strategic Decisions Group and acquired the remaining minority interest in
exchange for cash. On March 31, 1999, the Company completed the acquisitions of
all of the outstanding stock of Triad International, Inc., GeoData Solutions,
Inc., and Dowling Associates, Inc. in exchange for 1.8 million shares of the
Company's common stock (valued at the time of closing at approximately $57.3
million). On September 30, 1999, the Company completed its acquisition of the
business operations and certain assets of Penta Advisory Services LLC (Penta)
and the stock of Scope International, Inc. (Scope) for a total cash purchase
price of $15.1 million. The purchase agreements for Penta and Scope also
provide for additional payments, payable in cash or Company common stock, over
the next two to five years contingent on future revenue growth and gross margin
targets. The additional payments, if any, will be accounted for as additional
goodwill. On October 1, 1999, the Company completed the acquisition of the
stock of Brooks International AB, Brooks International Consulting OY, and
Brooks International SPRL for an aggregate cash purchase price of $3.3 million.
On November 1, 1999, the Company completed the acquisition of the stock of The
Barrington Consulting Group, Inc. (Barrington) in exchange for $14.4 million in
cash paid at closing and total deferred cash payments of $7.8 million, payable
in two equal annual installments. The purchase agreement for Barrington also
provides for additional cash payments of up to $7.8 million in the aggregate,
which are contingent on continued employment with the Company of certain
Barrington shareholders and are payable in cash in two annual installments. On
December 1, 1999, the Company completed the acquisition of all of the assets of
Glaze Creek Partners, LLC in exchange for $0.8 million in cash. There were no
pre-acquisition intercompany transactions between the Company and the 1999
Acquisitions.

                                       10
<PAGE>

   An inability to effectively integrate the acquisitions or any companies
acquired in the future may adversely affect our ability to bid successfully on
engagements and to grow our business. Performance problems or dissatisfied
clients at one company could have an adverse effect on our reputation as a
whole. If our reputation were damaged, for those or other reasons, this could
make it more difficult to market our services or to acquire additional
companies in the future. In addition, acquired companies may not operate
profitably.

   Acquisitions also involve a number of additional risks, including, among
others, the following:

     --Diversion of management's attention;

     --Potential loss of key clients or personnel;

     --Risks associated with unanticipated assumed liabilities and problems;
  and

     --Risks of managing businesses or entering markets in which we have
  limited or no direct expertise.

   We expect to continue to acquire companies as an element of our growth
strategy. Acquisitions involve certain risks that could cause our actual
growth to differ from our expectations. For example

    --We may not be able to continue to identify suitable acquisition
     candidates or to acquire additional consulting firms on favorable
     terms.

    --We compete with other companies to acquire consulting firms. We cannot
     predict whether this competition will increase. If competition does
     increase, there may be fewer suitable consulting firms available to be
     acquired and the price for suitable acquisitions may increase.

    --We may not be able to integrate the operations (accounting and billing
     functions, for example) of businesses we acquire to realize the
     economic, operational and other benefits we anticipate.

    --We may not be able to successfully integrate acquired businesses in a
     timely manner or we may incur substantial costs, delays or other
     operational or financial problems during the integration process.

    --It may be difficult to integrate a business with personnel who have
     different business backgrounds and corporate cultures.

 Results of Operations

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

<TABLE>
<CAPTION>
                                                              Years Ended
                                                             December 31,
                                                           --------------------
                                                           1999    1998   1997
                                                           -----   -----  -----
<S>                                                        <C>     <C>    <C>
Revenues.................................................. 100.0%  100.0% 100.0%
  Cost of services........................................  66.9    60.6   63.5
                                                           -----   -----  -----
Gross profit..............................................  33.1    39.4   36.5
  General and administrative expenses.....................  26.9    21.6   24.3
  Amortization expense....................................   6.1     --     --
  Merger-related costs....................................  (0.3)    4.4    0.5
  Restructuring and other charges.........................   0.3     --     --
  Stock option compensation expense.......................   1.0     --     --
                                                           -----   -----  -----
Operating income..........................................  (0.9)   13.4   11.7
  Other expense (income), net.............................   0.6    (0.9)  (0.5)
                                                           -----   -----  -----
Income before income tax expense..........................  (1.5)   14.3   12.2
  Income tax expense......................................   2.2     8.9    4.0
                                                           -----   -----  -----
Net income (loss).........................................  (3.7)%   5.4%   8.2%
                                                           =====   =====  =====
</TABLE>

                                      11
<PAGE>

1999 Compared to 1998

   Revenues. Revenues increased $110.1 million, or 38%, to $397.7 million in
the year ended December 31, 1999 from $287.6 million in 1998. The growth in
revenue was primarily due to acquisitions, expansion of services provided to
existing clients, engagements with new clients, and increased selling and
business development efforts. During 1999, the Company made acquisitions
consistent with its strategy of acquiring consulting companies that provide
complementary services or broaden the Company's geographic presence. The 1999
Acquisitions had pre-acquisition revenues for 1999 and 1998 of $39.4 million
and $115.0 million, respectively, which were not included in the Company's
consolidated results of operations. Pro forma revenues, adjusted for the effect
of the 1999 acquisitions, increased $34.4 million, or 9%, to $437.1 million in
the year ended December 31, 1999 from $402.7 million in 1998.

   The Company's consolidated 1998 revenues included certain operations which
were not reflected in 1999. The 1998 reported and pro forma revenues include
revenues of $5.3 million related to certain principals who departed from
Peterson in July 1998 and $3.4 million of revenues related to Insurance Data
Resources, Inc., a subsidiary of Peterson, which was disposed of on September
1, 1998. Excluding the effects of the departed principals and the disposed
operations, the revenue increase in 1999 would have been $43.1 million, or 11%,
to $437.1 million from $394.0 million in the prior year. Consulting engagements
with new clients and an increase in the average size of client consulting
engagements contributed $34.6 million and $8.5 million, respectively, of the
$43.1 million of organic revenue growth in 1999.

   Gross Profit. Gross profit consists of revenues less cost of services, which
includes consultant compensation and benefits and direct project-related
expenses. Gross profit increased $18.1 million, or 16%, to $131.6 million in
1999 from $113.5 million in 1998. Higher 1999 revenues would have resulted in a
$43.4 million increase in gross profit had 1999 gross profit margins as a
percentage of revenue been consistent with those in 1998. However, the gross
margin in 1999 declined to 33.1% of revenue from 39.4% in 1998. The decline in
gross margin in 1999 was primarily due to higher consultant compensation of
$23.1 million.

   General and Administrative Expenses. General and administrative expenses
include facilities costs, salaries and benefits of management and support
personnel, allowances for uncollectible accounts receivable, depreciation
expense, outside professional fees, and all other corporate support costs.
General and administrative expenses for 1999 increased $45.2 million to $107.3
million from $62.1 million in 1998. The $45.2 million increase in general and
administrative expenses in 1999 is comprised of: $10.6 million in facilities
costs, $2.3 million in personnel related expenses, $12.8 million in allowances
for uncollectible accounts receivable, $8.8 million in depreciation expense,
$7.1 million in professional fees, and $3.6 million in other corporate support
costs. In total, general and administrative expenses as a percentage of revenue
increased to 27.0% in 1999 from 21.6% in 1998. This higher level of expenses as
a percentage of revenue in 1999 represents approximately $21.4 million of
growth in expenses in excess of the rate of growth in revenues. The incremental
$21.4 million of general and administrative expenses is the result of $0.9
million in higher facilities costs, $11.8 million in higher allowances for
uncollectible accounts receivable established in the fourth quarter of 1999,
$6.3 million in higher depreciation expense principally from impairments of
certain fixed assets, $5.7 million in higher professional fees primarily
related to litigation, partially offset by $3.3 million in lower personnel
related expenses.

   Amortization Expense. The excess of cost over the net assets acquired for
the 1999 Acquisitions of approximately $226.4 million has been recorded as
intangible assets, including goodwill, and is being amortized on a straight-
line basis over 7 years, subject to completion of independent appraisals. The
$24.3 million non-cash expense recorded in 1999 represents the pro rata
amortization from the respective acquisition dates through December 31, 1999.
Amortization would have been approximately $32.4 million had the 1999
Acquisitions occurred as of January 1, 1999.

   Merger Related Cost and Restructuring Charges (Benefit). In the third quarter
of 1998, the Company incurred merger-related costs of $12.8 million related to
the acquisitions of LECG and Peterson, which were accounted for as poolings of

                                       12
<PAGE>

interests. These costs included legal, accounting and other transaction related
fees and expenses, as well as accruals to consolidate certain facilities. The
Company has reviewed the merger-related accruals and determined that certain
amounts previously accrued are no longer necessary given subsequent acquisition
activity and changes in the Company's organizational structure. The results of
operations for the year ended December 31, 1999 reflect a benefit of $1.4
million for the reversal of the previously accrued amounts. The Company
recognized $1.2 million of expense in 1999 for employee separations associated
with consolidation of certain accounting and human resources functions. In July
1999, the Company announced a restructuring initiative and offered involuntary
severance packages to 73 employees in the administrative, accounting and human
resources functions.

   Stock Option Compensation Expense. The Company recorded $3.5 million for
stock option compensation expense in 1999 attributable to 0.3 million option
grants to a total of sixteen individuals which were issued at prices below fair
market value. The amount charged to expense was calculated using the instrinsic
value method for employees and the Black-Scholes option pricing model for non-
employees and approximates the aggregate dollar amount by which the grant prices
of the options differ from the market prices as of the dates for which the
Company has independent evidence to support the issuance of the options. The
Company recorded an additional $0.4 million of stock option compensation expense
to amortize the value of certain options retained by a former employee upon
separation from the Company.

   Other Income (Expense), Net. Other income (expense), net includes interest
expense, interest income and other non-operating income and expenses. For 1999,
the Company incurred a net non-operating expense of $2.2 million, which
represented $4.8 million of net incremental expense from the $2.6 million other
income realized in 1998. The incremental expense was principally the result of
a $5.3 million charge to earnings in 1999 to reflect the likely impairment in
the value of certain loans receivable from shareholders. This incremental
expense was partially offset by higher interest income in 1999.

   Income Tax Expense. Income tax expense decreased $16.8 million to $8.8
million for 1999 from $25.6 million in 1998. The Company's results of
operations in 1999 included $24.3 million of non-cash, non-deductible
amortization expenses resulting from the 1999 acquisitions and $3.9 million of
non-cash, non-deductible stock options compensation expense. Excluding the
effect of these non-deductible items, the effective tax rate for 1999 would have
been 39.5%. The Company's effective income tax rate for 1998 would have been
39.8% excluding the effect of the one-time, non-cash charge to income tax
expense of $7.2 million related to the conversion of Peterson from the modified
cash basis to the accrual basis of accounting for tax purposes and the effect of
certain merger-related costs resulting from the mergers completed during the
third quarter of 1998 that are not tax deductible.

   Net Income (Loss). The Company's 1999 net loss of $14.6 million represents a
$30.2 million decline from the 1998 net income of $15.6 million. Higher 1999
revenues resulted in a $18.1 million increase in gross profits over the prior
year, which was more than offset by increases of $45.2 million in general and
administrative expense, $24.3 million in amortization expenses, $3.9 million in
stock option compensation expense and $4.8 million of other non-operating
expenses. These expense increases were partially offset by $16.8 million in
lower income tax expenses and $13.0 million in lower merger-related costs.

1998 Compared to 1997

   Revenues. Revenues increased $58.9 million, or 26%, to $287.6 million in
1998 from $228.7 million in 1997 due to continued strong demand for management
consulting services, and increased selling and business development efforts.
Selling and business development efforts in support of the Company's strategy to
expand the client base and leverage existing client relationships resulted in
$57.2 million of the incremental $58.9 million 1998 revenues. Engagements with
new clients and an increase in the average size of client engagements
contributed $40.4 million and $16.8 million of that total, respectively.

                                       13
<PAGE>

   Gross Profit. Gross profit increased $29.9 million, or 36%, to $113.5
million in 1998 from $83.6 million in 1997. Higher 1998 revenues contributed
$21.5 million of the increase in gross profit. The remaining $8.4 million of
the increase in gross profit reflects an increase in gross profit as a
percentage of revenues to 39.4% in 1998 from 36.5% in 1997. The increase in the
1998 gross profit margin was the result of increased utilization of the
Company's professional consultants coupled with higher average billing rates
and a lower proportion of non-margin billable expenses to fee revenues.

   General and Administrative Expenses. General and administrative expenses for
the year ended December 31, 1998 increased $6.5 million, or 12%, to $62.1
million, which represented 21.6% of revenues, compared to $55.6 million, or
24.3% of revenues, in the comparable 1997 period. The increase in general and
administrative costs was primarily due to a $3.3 million increase in facilities
expenses, a $1.8 million increase in administrative salaries, and a $1.3
million increase in incentive compensation. However, these expenses increased
at a slower rate than the Company's revenues and overall volume of business,
resulting in a 2.7% decrease in general and administrative expenses as a
percent of revenue. This improvement is attributable to increased efficiencies
in certain support functions (i.e., human resources, benefits administration
and accounting), improved economies of scale and the closing of certain
duplicate facilities at the beginning of 1998.

   Merger-Related Cost and Restructuring Charges. Merger-related costs increased
$11.5 million to $12.8 million in 1998 from $1.3 million in 1997. During 1998,
the Company incurred merger-related costs of $12.8 million related to the
acquisitions of LECG and Peterson, which were accounted for as poolings of
interests. These costs include legal, accounting and other merger-related fees
and expenses, as well as accruals to consolidate certain facilities. In the
prior year period, the Company incurred legal, accounting and other merger-
related fees and expenses of $1.3 million related to the acquisitions of RMI and
Reed, which were accounted for as poolings of interests. The increased direct
merger-related costs in 1998 were the result of the greater size and complexity
of the 1998 transactions.

   Other Income, Net. For the fiscal year ended December 31, 1998, other
income, net increased $1.4 million to $2.6 million from $1.2 million for 1997.
This increase was largely the result of higher interest income due to larger
average cash balances outstanding during the period. The larger average cash
balance in 1998 was largely the result of $86.4 million in net proceeds from
two offerings of the Company's common stock supplemented by $21.2 million of
operating cash flows and $10.6 million of cash inflow primarily from employee
stock option exercises. These sources of cash were partially offset by $13.6
million of capital spending, $18.9 million of cash used to acquire certain
minority interests in business combinations, $8.2 million of payments to retire
pre-existing short-term debt of acquired companies, and $6.1 million in
payments of pre-acquisition undistributed earnings of purchased companies.

   Income Tax Expense. Income tax expense increased $16.4 million to $25.6
million in 1998 from $9.2 million in 1997. The Company's effective income tax
rate was 62.2% for the year ended December 31, 1998. The effective rate for
this period would have been 39.8%, excluding the effect of the one-time, non-
cash charge to income tax expense of $7.2 million related to the conversion of
Peterson from the modified cash basis to the accrual basis of accounting for
tax purposes and the effect of certain merger-related expenses resulting from
the acquisitions of LECG and Peterson that are not tax deductible. The
Company's effective income tax rate was 33.1% for the year ended December 31,
1997. The effective rate would have been 38.2%, including federal and certain
state income taxes that would have been required had all the Company's
subsidiaries been taxable entities during this period.

   Net Income. Net Income decreased approximately $3.1 million to $15.6 million
in 1998 from $18.7 million in 1997. Higher 1998 revenues resulted in a $29.9
million increase in gross profits over the prior year. However, the higher
level of 1998 gross profits was offset by a $6.5 million increase in general
and administrative expenses, a $11.5 million increase in merger-related costs,
and a $16.4 million increase in income tax expense. An increase in other income
in 1998 of $1.4 million accounted for the remainder of the change in net income
between the periods.

                                       14
<PAGE>

Unaudited Quarterly Results

   The following table sets forth certain unaudited quarterly operating
information. These data have been prepared on the same basis as the audited
financial statements contained elsewhere in this Form 10-K and include all
normal recurring adjustments necessary for the fair presentation of the
information for the periods presented, when read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto. Results
for any previous fiscal quarter are not necessarily indicative of results for
the full year or for any future quarter.

<TABLE>
<CAPTION>
                                                      Quarters Ended
                         ------------------------------------------------------------------------------
                         Mar. 31,  June 30,  Sept. 30, Dec. 31,  Mar. 31,  June 30,   Sept.    Dec. 31,
                           1998      1998      1998      1998      1999      1999    30, 1999    1999
                         --------  --------  --------- --------  --------  --------  --------  --------
                                         (In thousands, except per share amounts)
<S>                      <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Revenues................ $66,134   $70,231    $73,967  $77,294   $84,388   $104,732  $107,452  $101,123
Cost of services........  41,254    42,254     44,302   46,364    50,418     59,118    61,735    94,809
                         -------   -------    -------  -------   -------   --------  --------  --------
Gross profit............  24,880    27,977     29,665   30,930    33,970     45,614    45,717     6,314
General and
 administrative
 expenses...............  16,355    18,232     13,552   13,955    15,343     20,964    21,077    49,890
Amortization expense....     --        --         --       --      2,800      6,830     6,830     7,840
Merger-related costs and
 restructuring charges..     --        --      12,778      --        --         --       (206)      --
Stock option
 compensation expense...     --        --         --       --      1,698        532     1,063       557
                         -------   -------    -------  -------   -------   --------  --------  --------
Operating income
 (loss).................   8,525     9,745      3,335   16,975    14,129     17,288    16,953   (51,973)
Other (income) Expense,
 net....................    (550)     (791)      (523)    (773)   (1,115)    (1,037)   (1,218)    5,561
                         -------   -------    -------  -------   -------   --------  --------  --------
Income (loss) before
 income tax expense.....   9,075    10,536      3,858   17,748    15,244     18,325    18,171   (57,534)
Income tax expense
 (benefit)..............   3,773     4,215     10,680    6,968     8,020     10,186    10,310   (19,689)
                         -------   -------    -------  -------   -------   --------  --------  --------
Net income (loss)....... $ 5,302   $ 6,321    $(6,822) $10,780   $ 7,224   $  8,139  $  7,861  $(37,845)
                         =======   =======    =======  =======   =======   ========  ========  ========
Net income (loss), per
 diluted share.......... $  0.15   $  0.17    $ (0.19) $  0.28   $  0.17   $   0.19  $   0.17  $  (0.91)
                         =======   =======    =======  =======   =======   ========  ========  ========
Diluted shares..........  36,477    37,752     36,610   39,093    41,786     43,508    45,357    41,798
                         =======   =======    =======  =======   =======   ========  ========  ========
</TABLE>

   Revenues and operating results fluctuate from quarter to quarter as a result
of a number of factors, including the significance of client engagements
commenced and completed during a quarter, the number of business days in a
quarter and employee hiring and utilization rates. The timing of revenues
varies from quarter to quarter due to factors such as the Company's sales
cycle, the ability of clients to terminate engagements without penalty, the
size and scope of assignments and general economic conditions. Because a
significant percentage of the Company's expenses are relatively fixed, a
variation in the number of client assignments or the timing of the initiation
or the completion of client assignments can cause significant variations in
operating results from quarter to quarter. Furthermore, the Company has on
occasion experienced a seasonal pattern in its operating results, with a
smaller proportion of the Company's revenues and lower operating income
occurring in the fourth quarter of the year or a smaller sequential growth rate
than in other quarters.

   During the quarter ended December 31, 1999, the Company incurred certain
pre-tax expenses which varied significantly from expense levels recorded in
prior interim periods during the year. The aggregate of these expenses amounted
to $62.6 million and consisted of the following: $28.5 million of additional
costs of sales, $28.2 million of incremental general and administrative
expenses, and $5.9 million of other incremental non-operating expenses. The
higher fourth quarter cost of sales was principally due to $26.3 million of
incremental compensation expense accruals to provide for competitive levels of
incentive compensation and promote employee retention. Fourth quarter general
and administrative expenses included the following significant incremental
expenses: $12.8 million of allowances for uncollectible accounts receivable;
$5.5 million of write-downs of certain fixed assets, $5.5 million of
professional fees and other costs related to settlement of certain then
outstanding litigation; $1.2 million of

                                       15
<PAGE>

compensation expense to provide for competitive levels of incentive
compensation and promote employee retention; and $0.5 million of stock option
compensation expense. The increase in non-operating expenses for the fourth
quarter was primarily the result of a loss contingency accrued at December 31,
1999 in the amount of $5.3 million, related to the impairment of notes
receivable from certain former company officers.

   The following table sets forth select unaudited quarterly information as
previously reported and as amended. The amended amounts have been restated to
retroactively reflect the results of operations for certain business
combinations completed in 1998 which were accounted for as poolings of
interests. At the respective dates of acquisition, the Company had determined
that the stockholders' equity and the results of operations of these businesses
were not material, individually or in the aggregate, in relation to those of
the Company. As such, the Company had recorded these combinations by restating
stockholders' equity as of the effective date of each acquisition without
restating prior period financial statements. However, based in part on comments
received from the Securities and Exchange Commission, the Company has restated
the financial statements for 1998 to reflect the results of operations of AUC,
HCI, SSC, and AHO.

   The amended amounts also incorporate certain reclassifications to conform
the presentation of revenue and cost of sales for 1998 and previously issued
interim 1999 periods to the 1999 presentation. Certain billable expenses which
had previously been presented net of related revenues have been reclassified.
The amended amounts for the first three quarters of 1999 also reflect
adjustments to correct the application of certain accounting principles related
to stock option compensation expense. See also Note 13, "Long-Term Incentive
Plan".

<TABLE>
<CAPTION>
                                              Quarters Ended
                         --------------------------------------------------------------
                          Mar.     June     Sept.    Dec.    Mar.
                           31,      30,      30,      31,     31,    June 30,   Sept.
                          1998     1998     1998     1998    1999      1999    30, 1999
                         -------  -------  -------  ------- -------  --------  --------
                                 (In thousands, except per share amounts)
<S>                      <C>      <C>      <C>      <C>     <C>      <C>       <C>
Total revenue as
 previously reported.... $60,809  $64,863  $68,311  $72,894 $82,151  $103,623  $106,185
Retroactive effect of
 pooling accounting.....   2,854    2,269    1,721      --      --        --        --
Reclassifications.......   2,471    3,099    3,935    4,400   2,237     1,109     1,267
                         -------  -------  -------  ------- -------  --------  --------
Revenues, as amended.... $66,134  $70,231  $73,967  $77,294 $84,388  $104,732  $107,452
                         =======  =======  =======  ======= =======  ========  ========
Gross profit, as
 previously reported.... $24,786  $27,848  $28,991  $30,930
Retroactive effect of
 pooling accounting.....      94      129      673      --
                         -------  -------  -------  -------
Gross profit, as
 amended................ $24,880  $27,977  $29,664  $30,930
                         =======  =======  =======  =======
Operating income, as
 previously reported.... $ 8,899  $10,101  $ 2,909  $16,975 $15,827  $ 17,820  $ 18,016
Retroactive effect of
 pooling accounting.....    (374)    (356)     426      --      --        --        --
Stock option
 Compensation expense...     --       --       --       --   (1,698)     (532)   (1,063)
                         -------  -------  -------  ------- -------  --------  --------
Operating income(loss),
 as amended............. $ 8,525  $ 9,745  $ 3,335  $16,975 $14,129  $ 17,288  $ 16,953
                         =======  =======  =======  ======= =======  ========  ========
Net income (loss)as
 previously reported.... $ 5,658  $ 6,658   (6,973) $10,780 $ 8,922  $  8,671  $  8,924
Retroactive effect of
 pooling accounting.....    (356)    (337)     151      --      --        --        --
Stock option
 Compensation expense...     --       --       --       --   (1,698)     (532)   (1,063)
                         -------  -------  -------  ------- -------  --------  --------
Net income (loss), as
 amended................ $ 5,302  $ 6,321  $(6,822) $10,780 $ 7,224  $  8,139  $  7,861
                         =======  =======  =======  ======= =======  ========  ========
Net income (loss) per
 share as previously
 reported............... $  0.16  $  0.18  $ (0.19) $  0.28 $  0.21  $   0.20  $   0.20
Retroactive effect of
 pooling accounting.....   (0.01)   (0.01)     --       --      --        --        --
Stock option
 Compensation expense...     --       --       --       --    (0.04)    (0.01)    (0.03)
                         -------  -------  -------  ------- -------  --------  --------
Net income (loss) per
 diluted share, as
 amended................ $  0.15  $  0.17  $ (0.19) $  0.28 $  0.17  $   0.19  $   0.17
                         =======  =======  =======  ======= =======  ========  ========
Diluted shares, as
 previously reported....  35,566   37,031   36,129
Retroactive effect of
 pooling accounting.....     911      721      481
                         -------  -------  -------
Diluted shares, as
 amended................  36,477   37,752   36,610
                         =======  =======  =======
</TABLE>

                                       16
<PAGE>

Liquidity and Capital Resources

   Net cash provided by operating activities was $17.4 million for the year
ended December 31, 1999. During the year, the primary sources of cash provided
by operating activities was net income adjusted for non-cash charges of
depreciation, amortization, stockholder notes impairment provision and stock
compensation expense. Net income adjusted for these non-cash charges was $32.5
million. Operating cash flow was also positively affected by increases in
accrued compensation and project costs of $10.6 million and other current
liabilities of $3.4 million. Operating cash flow was negatively affected by the
increase in accounts receivable of $19.5 million, the decrease in income taxes
payable of $13.0 million and the non-cash charge relating to deferred income
taxes of $11.0 million.

   The Company used $18.6 million for capital spending to support growth in
personnel and services. These investments included leasehold improvements,
furniture and equipment for new leased facilities, additional computer and
related equipment for information management consulting services and the
purchase and implementation of enterprise financial and project software
system. The Company used $42.1 million in cash during 1999 in conjunction with
the 1999 Acquisitions.

   Net cash used in financing activities was $32.5 million in 1999. During the
year, the Company received net cash and related tax benefits of $17.4 million
from transactions related to stock option exercises and employee stock
purchases. In addition, the Company received proceeds of $10.0 million from
borrowings on the line of credit facility. The Company used $40.0 million to
purchase treasury shares in 1999. Borrowing by stockholders used approximately
$17.0 million of funds during the year.

   As of December 31, 1999, the Company had no significant commitments for
capital expenditures, except for those related to rental expense under
operating leases and related leasehold improvements. The total amount of
operating lease payments in 2000 is expected to be approximately $15.2 million.
The total amount of capital spending in the year 2000 related to leasehold
improvements is expected to be approximately $6.9 million.

   The Company had approximately $42.3 million in cash and cash equivalents at
December 31, 1999, resulting principally from cash flows from operations and
the various public stock offerings during the previous three years. The company
believes that the current cash and cash equivalents, the future cash flows from
operations and the $50 million line of credit facility will provide adequate
cash to fund anticipated short-term and long-term cash needs from normal
operations. In the event the Company were to make significant cash expenditures
in the future for major acquisitions or other non-operating activities, the
Company would seek additional debt or equity financing, as appropriate. The
Company had no plans or intentions for such expenditures as of December 31,
1999.

Recently Issued Financial Accounting Standards

   The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities in June 1998. This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities, It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for fiscal years
beginning after June 15, 1999. The Company does not currently have any
derivative instruments or complete any hedging activities. The adoption of this
standard is not expected to be significant.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

   The Company's primary exposure to market risks relates to changes in
interest rates associated with its investment portfolio and its borrowings
under the line of credit. The Company's general investment policy is to limit
the risk of principal loss by limiting market and credit risks. As of December
31, 1999, the Company's investments were primarily limited to fully
collateralized, Double-A or Triple-A rated securities with maturity dates of 90
days or less. If interest rates average 25 basis points less in fiscal year
2000, than they did in 1999, the Company's interest income would be decreased
by $0.1 million. This amount is determined by considering

                                       17
<PAGE>

the impact of this hypothetical interest rate on the Company's investment
portfolio at December 31, 1999. The Company does not expect any loss with
respect to its investment portfolio. The Company's market risk associated with
its line of credit relates to changes in interest rates. Borrowings under the
line of credit bear interest, at the Company's option, based on either the
London Interbank Offered Rate (LIBOR) or the prime rate. If interest rates
average 25 basis points higher in 2000, than they did in 1999, the Company's
interest expense would increase by less than $.1 million. This amount is
determined based on the amount of short-term debt at December 31, 1999. The
Company does not currently have any long-term debt, interest rate derivatives,
forward exchange agreements, firmly committed foreign currency sales
transactions, or derivative commodity instruments.

   The Company operates in foreign countries which exposes it to market risk
associated with foreign currency exchange rate fluctuations; however, such risk
is immaterial at this time to the Company's consolidated financial statements.

Item 8. Consolidated Financial Statements and Supplemental Data

   The Consolidated Financial Statements of the Company are annexed to the
report as pages F-1 through F-22. An index to such materials appears on page F-
1.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

   None.

                                       18
<PAGE>

                                    Part III

Item 10. Directors and Executive Officers of the Registrant.

   Information required in response to this Item is incorporated by reference
to the Company's definitive proxy statement for the Company's annual meeting of
stockholders scheduled to be held on May 30, 2000, 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 fiscal year ended December 31, 1999.

Item 11. Executive Compensation.

   Information required in response to this Item is incorporated by reference
to the Company's definitive proxy statement for the Company's annual meeting of
stockholders scheduled to be held on May 30, 2000, 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 fiscal year ended December 31, 1999.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

   Information required in response to this Item is incorporated by reference
to the Company's definitive proxy statement for the Company's annual meeting of
stockholders scheduled to be held on May 30, 2000, 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 fiscal year ended December 31, 1999.

Item 13. Certain Relationships and Related Transactions.

   Information required in response to this Item is incorporated by reference
to the Company's definitive proxy statement for the Company's annual meeting of
stockholders scheduled to be held on May 30, 2000, 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 fiscal year ended December 31, 1999.

                                       19
<PAGE>

                                    Part IV

Item 14 Exhibits, Financial Statements and Reports on Form 8-K

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

   (b) The Registrant filed the following Current Reports on Form 8-K during
the quarter ended December 31, 1999:

     (1) A Form 8-K dated November 22, 1999 reporting under Item 5 of Form 8-
  K certain changes to the Board of Directors and management of the
  Registrant.

     (2) A Form 8-K dated December 15, 1999 reporting under Item 5 of Form 8-
  K the adoption of a Stockholder Rights Plan and the addition of two
  directors to the Board of Directors of the Registrant.

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

 a. Exhibits:

<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------
 <C>         <S>
  2.1*       Plan and Agreement of Merger, dated as of February 7, 1999, by and
             among the Metzler Group, Inc., MGI Acquistion III, Inc., Strategic
             Decisions Group (SDG), and certain SDG Executives
  3.1        Amended and Restated Certificate of Incorporation of the
             Registrant (1)
  3.2        Amendment No. 1 to Amended and Restated Certificate of
             Incorporation of the Registrant (2)
  3.3        Amendment No. 2 to Amended and Restated Certificate of
             Incorporation of the Registrant (3)
  3.4        Amended and Restated By-Laws of the Registrant (4)
  4.2        Form of Registration Agreement (6)
  4.3        Rights Agreement dated as of December 15, 1999 between the
             Registrant and American Stock Transfer & Trust Company, as Rights
             Agent, (which includes the form of Certificate of Designations
             setting forth the terms of the Series A Junior Participating
             Preferred Stock as Exhibit A, the form of Rights Certificate as
             Exhibit B and the Summary of Rights to Purchase Preferred Stock as
             Exhibit C)(7)
 10.1+       Form of Indemnification Agreement (5)
 10.2*+      The Metzler Group, Inc. Long-Term Incentive Plan
 10.3+       The Metzler Group, Inc. Employee Stock Purchase Plan (8)
 10.4+       Amendment No. 1 to The Metzler Group, Inc. Employee Stock Purchase
             Plan (6)
 10.5+       Amendment No. 2 to The Metzler Group, Inc. Employee Stock Purchase
             Plan (6)
 10.6*+      Amendment No. 3 to The Metzler Group, Inc. Employee Stock Purchase
             Plan
 10.7*+      Amendment No. 4 to The Metzler Group, Inc. Employee Stock Purchase
             Plan
 10.8*+      Employment Agreement dated as of November 12, 1999 between the
             Registrant and Mitchell H. Saranow
 10.9*+      Employment Agreement dated as of November 12, 1999 between the
             Registrant and John J. Reed
 10.10*+     Employment Agreement dated as of November 12, 1999 between the
             Registrant and Carl S. Spetzler
 10.11*+     Letter agreement dated February 1, 2000 between the Registrant and
             Philip P. Steptoe
</TABLE>


                                       20
<PAGE>

<TABLE>
<CAPTION>
 Exhibit No.                            Description
 -----------                            -----------
 <C>         <S>
 10.12*+     Consulting Agreement and General Release dated as of November 21,
             1999 between the Registrant and Robert P. Maher
 10.13*+     Letter agreement dated February 27, 2000 between the Registrant
             and Barry S. Cain
 21.1*       Significant Subsidiaries of the Registrant.
 23.1*       Consent of KPMG LLP
 23.2        Consent of Arthur Andersen LLP and Report of Independent
             Accountants
 23.3        Consent of PricewaterhouseCoopers LLP and Report of Independent
             Accountants
 23.4        Consent of Crowe, Chizek and Company LLP and Report of Independent
             Accountants
 27.1*       Financial Data Schedule--for the period ended December 31, 1999
</TABLE>
--------
(1) Incorporated by reference from the Registrant's Registration Statement on
    Form S-1 (Registration No. 333-9019) filed with the SEC on July 26, 1996
(2)  Incorporated by reference from the Registrant's Registration Statement on
     Form S-3 (Registration No. 333-40489) filed with the SEC on November 18,
     1997.
(3)  Incorporated by reference from the Registrant's Form 8-A12B filed with the
     SEC on July 20, 1999.
(4)  Incorporated by reference from the Registrant's Amendment No. 1 to
     Registration Statement on Form S-3 (Registration No. 333-40489) filed with
     the SEC on February 12, 1998
(5)  Incorporated by reference from the Registrant's Amendment No. 2 to
     Registration Statement on Form S-1 (Registration No. 333-9019) filed with
     the SEC on September 20, 1996.
(6)  Incorporated by reference from the Registrant's Annual Report on Form 10-K
     for the year ended December 31, 1998.
(7)  Incorporated by reference from the Registrant's Current Report on Form 8-K
     dated December 15, 1999.
(8)  Incorporated by reference from the Registrant's Registration Statement on
     Form S-8 (Registration No. 333-30265) filed with the SEC on June 27, 1997.
 *  Indicates filed herewith.
 +  Indicates a management contract or compensatory plan or arrangement
    required to be filed as an exhibit to this Form 10-K.

 b. Financial Statement Schedule:

   Report of Independent Auditors
   Schedule II: Valuation and Qualifying Accounts

                                      21
<PAGE>

                                   SIGNATURES

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

                                          Navigant Consulting, Inc.

Date: March 28, 2000


                                          By: _________________________________
                                                    Mitchell H. Saranow
                                              Chairman and Co-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.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
                                       Chairman, and Co-Chief       March 28, 2000
______________________________________  Executive Officer and
         Mitchell H. Saranow            Director (Principal
                                        Executive Officer)

                                       Vice Chairman and Co-Chief   March 28, 2000
______________________________________  Executive Officer and
             John J. Reed               Director (Principal
                                        Executive Officer)

                                       Vice Chairman and            March 28, 2000
______________________________________  President and Director
           Carl S. Spetzler             (Principal Executive
                                        Officer)

                                       Chief Financial Officer      March 28, 2000
______________________________________  (Principal Financial and
           James F. Hillman             Accounting Officer)

                                       Director                     March 28, 2000
______________________________________
         William M. Goodyear

                                       Director                     March 28, 2000
______________________________________
            Peter B. Pond

                                       Director                     March 28, 2000
______________________________________
          Samuel K. Skinner

                                       Director                     March 28, 2000
______________________________________
          James R. Thompson
</TABLE>

                                      22
<PAGE>

                       INDEX TO THE FINANCIAL STATEMENTS

                   NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

   Audited Consolidated Financial Statements as of December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999

<TABLE>
<S>                                                                          <C>
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>

                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders

Navigant Consulting, Inc.:

   We have audited the accompanying consolidated balance sheets of Navigant
Consulting, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

   We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits 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, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

   The 1998 and 1997 consolidated financial statements have been restated as
discussed in Notes 3 and 4 to the consolidated financial statements. We
previously audited and reported on the consolidated statements of operations,
stockholders' equity and cash flows of Navigant Consulting, Inc. and
subsidiaries for the year ended December 31, 1997, prior to their restatement
for the 1998 poolings of interests, which report was based in part on reliance
of other auditors. The contribution of the Company to combined restated revenues
represented 37 percent; and to combined restated net income represented 52
percent for the year ended December 31, 1997. Separate financial statements of
the other companies included in the 1997 consolidated statements of operations,
stockholders' equity and cash flows were audited and reported on separately by
other auditors. We also audited the combination of the consolidated statements
of operations, stockholders' equity and cash flows for the year ended December
31, 1997, after restatement for the 1998 poolings of interests; in our opinion,
such consolidated statements have been properly combined on the basis described
in Notes 3 and 4 to the consolidated financial statements.

                                         /s/ KPMG LLP

Chicago, Illinois
March 28, 2000

                                      F-2
<PAGE>

                   NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                            December 31,
                                                          ------------------
                                                            1999      1998
                                                          --------  --------
<S>                                                       <C>       <C>
                         ASSETS
                         ------

Current assets:
  Cash and cash equivalents.............................. $ 42,345  $119,704
  Accounts receivable, net...............................  116,100    80,163
  Prepaid and other current assets.......................    7,364     6,979
  Income tax receivable..................................    8,211       --
  Deferred income taxes..................................    2,385       --
                                                          --------  --------
    Total current assets.................................  176,405   206,846
Property and equipment, net..............................   33,763    22,197
Intangible assets, net...................................  202,096       --
Other assets.............................................    2,412     1,474
                                                          --------  --------
    Total assets......................................... $414,676  $230,517
                                                          ========  ========

          LIABILITIES AND STOCKHOLDERS' EQUITY
          ------------------------------------

Current liabilities:
  Short-term debt........................................ $ 10,000  $    --
  Accounts payable and accrued liabilities...............   20,709    17,955
  Accrued compensation and project costs.................   58,425    28,142
  Income taxes payable...................................      --      2,942
  Deferred income taxes..................................      --      2,171
  Other current liabilities..............................   19,673     9,127
                                                          --------  --------
    Total current liabilities............................  108,807    60,337
Deferred income taxes....................................      725     5,276
Other non-current liabilities............................    4,475       --
                                                          --------  --------
    Total liabilities....................................  114,007    65,613
                                                          --------  --------

Stockholders' equity:
  Preferred stock, $.001 par value; 3,000 shares
   authorized; no shares issued or outstanding...........      --        --
  Common stock, $.001 par value; 75,000 shares
   authorized; 43,129 and 38,004 shares issued and
   outstanding in 1999 and 1998, respectively............       43        38
  Additional paid-in capital.............................  340,528   134,624
  Treasury stock 2,086 shares at December 31, 1999.......  (52,811)      --
  Notes receivable from stockholders.....................   (2,583)      --
  Accumulated other comprehensive income.................     (158)      (30)
  Retained earnings......................................   15,650    30,272
                                                          --------  --------
    Total stockholders' equity...........................  300,669   164,904
                                                          --------  --------
    Total liabilities and stockholders' equity........... $414,676  $230,517
                                                          ========  ========
</TABLE>

        See accompanying Notes to the Consolidated Financial Statements.

                                      F-3
<PAGE>

                   NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                      For the Years Ended
                                                          December 31,
                                                   ----------------------------
                                                     1999      1998      1997
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Revenues.......................................... $397,694  $287,626  $228,731
Cost of services..................................  266,080   174,175   145,144
                                                   --------  --------  --------
  Gross profit....................................  131,614   113,451    83,587
General and administrative expenses...............  107,274    62,093    55,579
Amortization......................................   24,300       --        --
Merger related cost and restructuring
  charges (benefit)...............................     (206)   12,778     1,312
Stock option compensation expense.................    3,850       --        --
                                                   --------  --------  --------
  Operating income (loss).........................   (3,604)   38,580    26,696
                                                   --------  --------  --------
Other expense (income):
  Interest income.................................   (3,857)   (3,063)   (1,184)
  Interest expense................................      376       688       446
  Other, net......................................    5,672      (263)     (467)
                                                   --------  --------  --------
   Total other expense (income)...................    2,191    (2,638)   (1,205)
                                                   --------  --------  --------
Income (loss) before income tax expense...........   (5,795)   41,218    27,901
  Income tax expense..............................    8,827    25,637     9,237
                                                   --------  --------  --------
Net Income (loss)................................. $(14,622) $ 15,581  $ 18,664
                                                   ========  ========  ========
Earnings (loss) per share:
  Basic........................................... $ (0.35)  $   0.43  $   0.56
  Diluted......................................... $ (0.35)  $   0.41  $   0.55
Weighted average shares outstanding:
  Basic...........................................   41,601    36,476    33,289
  Diluted.........................................   41,601    37,707    33,798
</TABLE>


        See accompanying Notes to the Consolidated Financial Statements.

                                      F-4
<PAGE>

                  NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                (In thousands)

<TABLE>
<CAPTION>
                    Preferred                                Notes      Accumulated
                      Stock     Common Stock   Additional  Receivable      Other               Treasury Stock        Total
                  ------------- --------------  Paid-In       From     Comprehensive Retained  ----------------  Stockholders'
                  Shares Amount Shares  Amount  Capital   Stockholders    Income     Earnings  Shares   Amount      Equity
                  ------ ------ ------  ------ ---------- ------------ ------------- --------  ------  --------  -------------
<S>               <C>    <C>    <C>     <C>    <C>        <C>          <C>           <C>       <C>     <C>       <C>
Balance at
December 31,
1996............   --     --    33,446   $ 34   $ 41,313    $ (3,045)      $   6     $ 12,378     --   $    --     $ 50,686
Comprehensive
income..........   --     --       --     --         --          --          (63)      18,664     --        --       18,601
Issuance of
common stock....   --     --     2,043      2     25,412         (87)        --           780     --        --       26,107
Purchase of
common stock....   --     --      (535)    (1)   (10,340)         44         --          (228)    --        --      (10,525)
Distributions...   --     --       --     --         --         (351)        --       (16,182)    --        --      (16,533)
Interest on
notes receivable
from
stockholders....   --     --       --     --         195        (195)        --           --      --        --          --
Collection of
notes receivable
from
stockholders....   --     --       --     --         --          879         --           --      --        --          879
                   ---    ---   ------   ----   --------    --------       -----     --------  ------  --------    --------
Balance at
December 31,
1997............   --     --    34,954     35     56,580      (2,755)        (57)      15,412     --        --       69,215
Comprehensive
income..........   --     --       --     --         --          --           27       15,581     --        --       15,608
Issuance of
common stock....   --     --     3,645      4     96,965         --          --           --      --        --       96,969
Purchase of
common stock....   --     --      (595)    (1)   (18,921)        --          --           --      --        --      (18,922)
Distributions...   --     --       --     --         --          --          --          (721)    --        --         (721)
Collection of
notes receivable
from
stockholders....   --     --       --     --         --        2,755         --           --      --        --        2,755
                   ---    ---   ------   ----   --------    --------       -----     --------  ------  --------    --------
Balance at
December 31,
1998............   --     --    38,004     38    134,624         --          (30)      30,272     --        --      164,904
Comprehensive
income (loss)...   --     --       --     --         --          --         (128)     (14,622)    --        --      (14,750)
Issuance of
common stock....   --     --     5,387      5    215,160         --          --           --      --        --      215,165
Purchase of
common stock....   --     --      (263)   --     (13,335)        --          --           --   (2,086)  (52,811)    (66,146)
Stock option
compensation
expense.........   --     --       --     --       3,850         --          --           --      --        --        3,850
Issuance of
notes receivable
from
stockholders....   --     --       --     --         --      (20,550)        --           --      --        --      (20,550)
Interest on
notes receivable
from
stockholders....   --     --       --     --         229        (229)        --           --      --        --          --
Collection of
notes receivable
from
stockholders....   --     --       --     --         --       12,929         --           --                         12,929
Impairment of
notes receivable
from
stockholders....   --     --       --     --         --        5,267         --           --      --        --        5,267
                   ---    ---   ------   ----   --------    --------       -----     --------  ------  --------    --------
Balance at
December 31,
1999............   --     --    43,129   $ 43   $340,528    $ (2,583)      $(158)    $ 15,650  (2,086) $(52,811)   $300,669
                   ===    ===   ======   ====   ========    ========       =====     ========  ======  ========    ========
</TABLE>

       See accompanying Notes to the Consolidated Financial Statements.

                                      F-5
<PAGE>

                   NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                            For The Years Ended December 31,
                                            ----------------------------------
                                               1999        1998        1997
                                            ----------  ----------  ----------
<S>                                         <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss).......................  $  (14,622) $   15,581  $   18,664
Adjustments to reconcile net income to net
 cash providedby operating activities:
  Depreciation............................      13,460       4,876       3,337
  Amortization............................      24,300         --          --
  Impairment of stockholder notes.........       5,267         --          --
  Stock option compensation expense.......       3,850         --          --
  Provision for bad debts.................      14,900       1,094         172
  Deferred income taxes...................     (10,970)      1,777       2,499
  Other non-cash items, net...............         404        (107)       (728)
  Changes in assets and liabilities, net
   of acquisitions:
    Accounts receivable...................     (19,543)    (20,917)    (12,339)
    Prepaid expenses and other current
     assets...............................       1,478      (3,467)     (1,292)
    Accounts payable and accrued
     liabilities..........................      (2,069)      7,291       2,099
    Accrued compensation and project
     costs................................      10,591      11,029         134
    Income taxes payable..................     (13,023)       (858)      2,923
    Other current liabilities.............       3,426       4,907       1,353
                                            ----------  ----------  ----------
      Net cash provided by operating
       activities.........................      17,449      21,206      16,822
                                            ----------  ----------  ----------
Cash flows from investing activities:
  Purchase of property and equipment......     (18,641)    (13,340)     (7,871)
  Acquisition of businesses, net of cash
   acquired...............................     (42,055)        --          --
  Other, net..............................      (1,582)       (296)         54
                                            ----------  ----------  ----------
      Net cash used in investing
       activities.........................     (62,278)    (13,636)     (7,817)
                                            ----------  ----------  ----------
Cash flows from financing activities:
  Issuance of common stock................      17,387      96,969      26,107
  Purchase of common stock................     (40,011)    (18,922)    (10,525)
  Repayment of long-term debt.............        (322)       (319)     (1,550)
  Proceeds from long-term debt............         --          --        3,300
  Net repayments of short-term debt.......      (2,584)     (8,242)     (3,007)
  Proceeds from short-term debt...........      10,000         --          --
  Issuance of notes receivable from
   stockholders...........................     (17,000)        --          --
  Payments of pre-acquisition
   undistributed income to former
   stockholders...........................         --       (6,079)    (10,121)
  Other, net..............................         --        2,755      (1,096)
                                            ----------  ----------  ----------
Net cash (used in )provided by financing
 activities...............................     (32,530)     66,162       3,108
                                            ----------  ----------  ----------
Net (decrease) increase in cash and cash
 equivalents..............................     (77,359)     73,732      12,113
Cash and cash equivalents at beginning of
 year.....................................     119,704      45,972      33,859
                                            ----------  ----------  ----------
Cash and cash equivalents at end of year..  $   42,345  $  119,704  $   45,972
                                            ==========  ==========  ==========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                      F-6
<PAGE>

                           NAVIGANT CONSULTING, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

   Navigant Consulting, Inc. (the "Company") is a provider of consulting
services to electric and gas utilities, insurance companies, and pharmaceutical
companies, as well as other Fortune 100 companies. The Company's services
include: management consulting, strategic consulting, financial and claims
services, and economics and policy consulting. The Company is headquartered in
Chicago, Illinois and has regional offices in various cities within the United
States, and several international offices.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 Principles of Consolidation

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

 Use of Estimates

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

 Cash and Cash Equivalents

   Cash equivalents are comprised of highly liquid instruments with original
maturities of 90 days or less. The carrying amount of these financial
instruments approximates fair value because of the short maturities.

 Property and Equipment

   Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, ranging from
three to forty years, of the various classes of property and equipment.
Amortization of leasehold improvements is computed over the shorter of the
lease term or the estimated useful life of the asset.

 Intangible Assets

   Intangible assets consist of identifiable intangibles and goodwill.
Identifiable intangibles include customer lists, workforce in place, knowledge
capital, and non-compete agreements. Intangible assets are being amortized on
the straight-line method over 7 years.

 Fair Value of Financial Instruments

   The Company considers the recorded value of its financial assets and
liabilities, which consist primarily of cash and cash equivalents, accounts
receivable and accounts payable, to approximate the fair value of the
respective assets and liabilities at December 31, 1999 and 1998.


                                      F-7
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Revenue Recognition

   The Company recognizes revenues as the related services are provided.
Certain contracts are accounted for on the percentage of completion method
whereby revenues are recognized based upon costs incurred in relation to total
estimated costs at completion. Provision is made for the entire amount of
estimated losses, if any, at the time when they are known.

 Stock Based Compensation

   The Company utilizes the intrinsic value-based method of accounting for its
stock-based compensation arrangements with employees. The Company utilizes the
fair value method of accounting for its stock-based compensation arrangements
with non-employee consultants, advisors, and independent contractors.

 Income Taxes

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

   Prior to December 18, 1997, one of the Company's subsidiaries, LECG, Inc.
(LECG), had elected to be taxed under Subchapter S of the Internal Revenue Code
for income tax purposes. During such period, federal income taxes were the
responsibility of LECG's stockholders as were certain state income taxes.
Therefore, the financial statements do not include a provision for federal (and
some state) income taxes prior to LECG's initial public offering on December
18, 1997. LECG's S-corporation status terminated on December 18, 1997, thereby
subjecting LECG's income to federal and certain other state income taxes at the
corporate level. Accordingly, LECG applied the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
for the period ended December 31, 1997. In addition, LECG converted from a cash
basis to accrual basis for tax purposes in conjunction with its conversion to a
C-corporation. Due to temporary differences in recognition of revenue and
expenses, income for financial reporting purposes exceeded income for income
tax purposes. The conversion to accrual basis along with these temporary
differences resulted in the recognition of a net deferred tax liability (and a
corresponding one-time charge to expense) of $2.7 million as of December 31,
1997.

   Prior to August 14, 1998, another of the Company's subsidiaries, Peterson
Consulting, L.L.C. d/b/a Peterson Worldwide LLC (Peterson) was a limited
liability company, which, for income tax purposes, was treated as a
partnership. Accordingly, the income of Peterson was reported on the individual
income tax returns of its members and federal income taxes, as well as certain
state income taxes, were the responsibility of its members. Subsequent to
August 14, 1998, and based on events unrelated to its acquisition by the
Company, Peterson elected C-corporation status, thereby subjecting its income
to federal and certain state income taxes at the corporate level. As a result
of its acquisition of Peterson, the Company has applied the provisions of SFAS
No. 109, and has converted Peterson from the modified cash basis to the accrual
basis for tax purposes. Due to temporary differences in recognition of revenue
and expense, income for financial reporting purposes has exceeded income for
tax reporting purposes. The conversion to accrual basis, along with these
temporary differences, resulted in the recognition of a one-time, non-cash
charge of $7.2 million to be recorded during the period in which the merger
occurred.

                                      F-8
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Earnings Per Share

   The following table set forth the components of basic and diluted earnings
per share:

<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                                      -------------------------
                                                        1999     1998    1997
                                                      --------  ------- -------
                                                       (amounts in thousands)
   <S>                                                <C>       <C>     <C>
   Numerator:
     Net income (loss)............................... $(14,622) $15,581 $18,664
                                                      ========  ======= =======
   Denominator:
     Weighted average shares outstanding.............   41,601   36,476  33,289
   Effect of dilutive securities:
     Employee stock options..........................      --     1,231     509
                                                      --------  ------- -------
   Denominator for diluted earnings per share........   41,601   37,707  33,798
                                                      ========  ======= =======
</TABLE>

   For the year ended December 31, 1999, the weighted-average effect of
employee stock options was 1.68 million shares. However, the Company incurred a
loss for the period and the effect of these options was anti-dilutive.

 Foreign Currency Translation

   The balance sheets of the Company's foreign subsidiaries are translated into
U.S. dollars using the year-end exchange rate, and sales and expenses are
translated using the average exchange rate for the year. The resulting
translation gains or losses are recorded as a separate component of
stockholders' equity as other comprehensive income.

                                      F-9
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


3. RECONCILIATION TO PREVIOUSLY REPORTED AMOUNTS

   The following table sets forth select operating information as previously
reported and as amended. The amended amounts have been restated to
retroactively reflect the results of operations for certain business
combinations completed in 1998 and 1997 which were accounted for as poolings of
interests. At the respective dates of acquisition, the Company had determined
that the stockholders' equity and the results of operations of these businesses
were not material, individually or in the aggregate, in relation to those of
the Company. As such, the Company had recorded these combinations by restating
stockholders' equity as of the effective date of each acquisition without
restating prior period financial statements. The Company has restated
the financial statements for 1998 and 1997 to reflect the results of operations
of Sterling Consulting Group, Inc., Reed-Stowe & Co., Inc., AUC Management
Consultants, Inc., Hydrologic Consultants, Inc. of California, Saraswati
Systems Corporation and Applied Health Outcomes, Inc.

   The amended amounts also incorporate certain reclassifications to conform
the presentation of revenue and cost of sales for 1998 and 1997 to the 1999
presentation. Certain billable expenses which had previously been presented net
of related revenues have been reclassified.

<TABLE>
<CAPTION>
                                                                Years ended
                                                               December 31,
                                                             ------------------
                                                               1998      1997
                                                             --------  --------
                                                                (amounts in
                                                              thousands, except
                                                             per share amounts)
   <S>                                                       <C>       <C>
   Total revenue, as previously reported.................... $266,877  $196,780
   Retroactive effect of pooling accounting.................    6,844    19,079
   Reclassifications........................................   13,905    12,872
                                                             --------  --------
   Total revenue, as amended................................ $287,626  $228,731
                                                             ========  ========
   Gross profit, as previously reported..................... $112,555  $ 81,658
   Retroactive effect of pooling accounting.................      896     1,929
   Reclassifications........................................      --        --
                                                             --------  --------
   Gross profit, as amended................................. $113,451  $ 83,587
                                                             ========  ========
   Operating income, as previously reported................. $ 38,884  $ 26,195
   Retroactive effect of pooling accounting.................     (304)      501
                                                             --------  --------
   Operating income, as amended............................. $ 38,580  $ 26,696
                                                             ========  ========
   Net Income, as previously reported....................... $ 16,123  $ 18,419
   Retroactive effect of pooling accounting.................     (542)      245
                                                             --------  --------
   Net Income, as amended................................... $ 15,581  $ 18,664
                                                             ========  ========
   Earnings per diluted share as previously reported........ $   0.43  $   0.57
   Retroactive effect of pooling accounting.................    (0.02)    (0.02)
                                                             --------  --------
   Earnings per diluted share, as amended................... $   0.41  $   0.55
                                                             ========  ========
   Dilutive shares as previously reported...................   37,179    32,288
   Retroactive effect of pooling accounting.................      528     1,510
                                                             --------  --------
   Dilutive shares, as amended..............................   37,707    33,798
                                                             ========  ========
</TABLE>

                                      F-10
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4. BUSINESS COMBINATIONS

   On July 31, 1997, the Company issued 3.2 million shares of common stock for
substantially all the outstanding common stock of Resource Management
International, Inc. (RMI). In connection with the acquisition of RMI, the
Company acquired assets and assumed liabilities with book values of $13.9
million and $11.1 million, respectively. On August 15, 1997, the Company issued
0.8 million shares of common stock for substantially all of the outstanding
common stock of Reed Consulting Group, Inc. (Reed). In connection with the
acquisition of Reed, the Company acquired assets and assumed liabilities with
book values of $2.5 million and $2.5 million, respectively. Additionally, the
Company completed the acquisition of all of the common stock of L.E. Burgess
Consultants, Inc. (Burgess) as of January 1, 1997 and Sterling Consulting
Group, Inc. (Sterling) and Reed-Stowe & Co., Inc. (RSC), as of December 1,
1997. In the aggregate for the Burgess, Sterling and RSC transactions, the
Company issued 0.7 million shares of common stock. In connection with the
acquisitions of Burgess, Sterling and RSC, the Company acquired assets and
assumed liabilities with book values of $0.6 million and $0.9 million,
respectively. All of the 1997 transactions were accounted for as poolings of
interests. There were no pre-acquisition intercompany transactions or
investments among the Company, RMI, Reed, Burgess, Sterling, and RSC. The
Company's consolidated financial statements have been restated as if RMI, Reed,
Sterling and RSC had been combined for all periods presented. The Company's
consolidated statement of operations for the year ended December 31, 1997
includes revenues and net income from RMI, Reed, Sterling and RSC totaling
$35.3 million and $1.5 million, respectively, through the dates of acquisition.
The stockholders' equity and the operations of Burgess were not significant in
relation to those of the Company. As such, the Company recorded the Burgess
transaction by restating stockholders' equity as of the date of the acquisition
without restating prior period financial statements.

   On August 19, 1998, the Company issued 7.3 million shares of common stock
for substantially all the outstanding common stock of LECG. In connection with
the acquisition of LECG, the Company acquired assets and assumed liabilities
with book values of $49.8 million and $17.4 million, respectively. On August
31, 1998, the Company issued 5.6 million shares of common stock for
substantially all of the outstanding common stock of Peterson. In connection
with the acquisition of Peterson, the Company acquired assets and assumed
liabilities with book values of $34.8 million and $24.7 million, respectively.
Additionally, the Company completed the acquisitions all of the common stock of
American Corporate Resources, Inc. (ACR), AUC Management Consultants, Inc.
(AUC), and Hydrologic Consultants, Inc. of California (HCI) as of April 3,
1998; The Vision Trust Marketing Group, LLC (VTM) as of June 1, 1998; and
Saraswati Systems Corporation (SSC) and Applied Health Outcomes, Inc. (AHO) as
of September 1, 1998. In the aggregate for the ACR, AUC, HCI, VTM, SSC, and AHO
transactions, the Company issued 1.2 million shares of common stock. In
connection with the acquisitions of ACR, AUC, HCI, VTM, SSC, and AHO, the
Company acquired assets and assumed liabilities with book values of $1.9
million and $1.4 million, respectively. All of the 1998 transactions were
accounted for as poolings of interests. The Company's consolidated financial
statements have been restated as if LECG, Peterson, AUC, HCI, SSC, and AHO had
been combined for all periods presented. The Company's consolidated statement
of operations for the year ended December 31, 1998 and 1997 includes revenues
totaling $104.8 million and $125.7 million, respectively, and net income
totaling $5.5 million and $9.0 million, respectively, from LECG, Peterson, AUC,
HCI, SSC, and AHO, through the dates of acquisition. The stockholders' equity
and the operations of ACR and VTM were not significant in relation to those of
the Company. As such, the Company recorded the ACR and VTM transactions by
restating stockholders' equity as of the date of the acquisition without
restating prior period financial statements.

   The Company incurred significant costs and expenses in connection with these
acquisitions, including legal and accounting, and other various expenses. These
costs and expenses were recorded in the consolidated statements of operations
during the third quarter in each of the years 1998 and 1997.

                                      F-11
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   During 1999, the Company completed eleven acquisitions (collectively, the
"1999 Acquisitions") in exchange for Company stock and cash having an aggregate
value of $235.7 million. On February 7, 1999, the Company issued 2.4 million
shares of common stock (valued at the time of closing at approximately $123.7
million) for substantially all of the outstanding common stock of Strategic
Decisions Group, Inc. and acquired the remaining minority interest in exchange
for $13.3 million in cash. On March 31, 1999, the Company completed the
acquisitions of all of the outstanding stock of Triad International, Inc.,
GeoData Solutions, Inc., and Dowling Associates, Inc. in exchange for 1.8
million shares of the Company's common stock (valued at the time of closing at
approximately $57.3 million). On September 30, 1999, the Company completed its
acquisition of the business operations and certain assets of Penta Advisory
Services LLC (Penta) and the stock of Scope International, Inc. (Scope) for a
total cash purchase price of $15.1 million. The purchase agreements for Penta
and Scope also provide for additional payments, payable in cash or Company
common stock, over the next two to five years contingent on future revenue
growth and gross margin targets. The additional payments, if any, will be
accounted for as additional goodwill. On October 1, 1999, the Company completed
the acquisition of the stock of Brooks International AB, Brooks International
Consulting OY, and Brooks International SPRL for an aggregate cash purchase
price of $3.3 million. On November 1, 1999, the Company completed the
acquisition of the stock of The Barrington Consulting Group, Inc. (Barrington)
in exchange for $14.4 million in cash paid at closing and total deferred cash
payments of $7.8 million, payable in two equal annual installments. The
liability related to the deferred cash payments is reflected in the consolidated
balance sheet as of December 31, 1999 as $3.9 million of other current
liabilities and $3.9 million of other non-current liabilities. The purchase
agreement for Barrington also provides for additional cash payments of up to
$7.7 million in the aggregate, which are contingent on continued employment by
the Company of certain Barrington shareholders and are payable in cash in two
annual installments. The contingent payments will be charged to expense ratably
over the period of employment. On December 1, 1999, the Company completed the
acquisition of all of the assets of Glaze Creek Partners, LLC in exchange for
$0.8 million in cash. There were no pre-acquisition intercompany transactions
between the Company and the 1999 Acquisitions.

   The 1999 Acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the results of operations have been included in
the accompanying consolidated financial statements from the date of
acquisition. Certain assets acquired of $46.2 million and liabilities assumed
of $36.9 million have been recorded at their estimated fair values. The excess
of cost over the net assets acquired of approximately $226.4 million has been
recorded as intangible assets, including goodwill. The allocation of the excess
cost over the net assets acquired to identifiable intangible assets and goodwill
was based upon independent appraisals, as were the estimated useful lives. The
estimated lives range from between one and 20 years, and approximate, on a
straight-line basis, an average life of 7 years.

   The following unaudited pro forma financial information presents the
combined results of operations as if the 1999 Acquisitions had occurred as of
January 1, 1998, after giving effect to certain adjustments. The adjustments
include the amortization of goodwill and other intangibles, a reduction in
interest income and related income tax effects, and an increase in the weighted
average common shares outstanding. The pro forma information is for
informational purposes only. The information presented does not necessarily
reflect the results of operations that would have occurred had the acquisitions
been completed as of January 1, 1998, nor are they indicative of future
results.

<TABLE>
<CAPTION>
                                                              1999      1998
                                                            --------  --------
   <S>                                                      <C>       <C>
   Revenue, in thousands................................... $437,095  $402,664
   Net loss, in thousands..................................  (23,600)  (17,995)
   Net loss per diluted Share.............................. $  (0.52) $  (0.44)
</TABLE>

                                      F-12
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5. STOCKHOLDERS' EQUITY

 Initial Public Offering

   On December 18, 1997, LECG completed an initial public offering, resulting
in net proceeds of approximately $24.4 million, net of issuance costs.

 Secondary Public Offering

   On March 2, 1998, the Company completed a secondary offering of its common
stock in which an additional 1.5 million shares were sold by the Company,
resulting in net proceeds of approximately $36 million. On November 19, 1998,
the Company completed a secondary offering of its common stock in which an
additional 1.5 million shares were sold by the Company, resulting in net
proceeds of approximately $51 million.

 Employee Stock Purchase Plan

   During 1996, the Company implemented a plan which permits employees to
purchase shares of the Company's common stock each quarter at 85% of the market
value. The market value for this purpose is determined to be the lower of the
closing market price on the first and last day of each calendar quarter. There
are 450,000 shares authorized for issuance under the plan. The Company had
issued 159,000 shares under the plan through December 31, 1999. As of December
31, 1999, the Company held $0.8 million of withholdings from employees which
were used to purchase approximately 84,000 additional shares under the plan in
January 2000.

 Treasury Stock Repurchases

   On August 9, 1999, the Company announced that the Board of Directors had
authorized the repurchase of up to 3.0 million shares of the Company's common
stock in open market or in privately negotiated transactions. In August and
September of 1999, the Company repurchased a total of 0.5 million shares for
$18.9 million in privately negotiated transactions. In November 1999, the
Company repurchased 1.0 million shares for $20.8 million in open market
transactions. Also in November 1999, the Company accepted 0.6 million shares
with a then market value of $12.9 million as payment for the principal amount
of certain notes plus accrued interest related to borrowings by Mr. Maher, the
Company's Chairman and Chief Executive Officer at that time. See also Note 17,
"Related Party Transactions".

 Shareholder Notes Receivable

   At December 31, 1999, the Company held notes receivable from three former
Company officers with an aggregate principal balance of $7.9 million. See also
Note 17, "Related Party Transactions". The notes receivable arose from
transactions whereby these individuals borrowed money from the Company to
purchase a total of 200,000 shares of the Company's common stock from third
parties and 37,500 shares of common stock from the Company. The notes
receivable are shown on the balance sheet as a reduction in stockholders'
equity. The notes receivable were accompanied by pledge agreements which pledge
the shares as collateral security for repayment of the notes, which shares are
currently held by the Company. At the closing market price for the Company's
common stock on December 31, 1999 of $10 7/8 per share, the value of the shares
held as collateral for the notes receivable was approximately $2.6 million.
Although the notes receivable are full recourse, are not due until the year
2002 and there has been no event of default, the Company is not certain that it
will be able to collect the full amount due. In March 2000, the borrowers have
either challenged the

                                      F-13
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

enforceability or declined to confirm their intention to comply with the terms
of the notes and each have refused to provide the Company with personal
financial information that would support their ability to pay the full amounts
due. The Company has accrued a loss contingency at December 31, 1999 in the
amount of $5.3 million, representing the difference between the principal amount
of the notes receivable and the value of the shares held by the Company as
collateral. The $5.3 million was included as a non-operating charge within other
expense in the consolidated statement of operations. The Company intends to take
all appropriate legal steps to enforce the notes in accordance with their terms.

 Shareholder Rights Plan

   On December 15, 1999, the Company's Board of Directors adopted a
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 description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Company and American
Stock Transfer & Trust Company, as Rights Agent.

   Until the Distribution Date under the Rights Agreement, the surrender for
transfer of any shares of common stock outstanding will also constitute the
transfer of the Rights associated with such shares. The Rights are not
exercisable until the Distribution Date and will expire at the close of
business on December 15, 2009, unless earlier redeemed or exchanged by the
Company. The Company may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (subject to adjustment and payable in cash, common
stock or other consideration deemed appropriate by the Company's Board of
Directors) at any time until ten days following the Stock Acquisition Date
under the Rights Agreement. Immediately upon the action of the Company's Board
of Directors authorizing any redemption, the Rights will terminate and the only
right of the holders of Rights will be to receive the redemption price. Until a
Right is exercised, its holder, as such, will have no rights as a stockholder
of the Company, including, without limitation, the right to vote or to receive
dividends.

6. ACCOUNTS RECEIVABLE

   The components of accounts receivable as of December 31 were as follows:

<TABLE>
<CAPTION>
                                                                1999     1998
                                                              --------  -------
                                                               (in thousands)
   <S>                                                        <C>       <C>
   Billed amounts ........................................... $ 86,849  $60,730
   Engagements in process....................................   45,581   27,559
   Allowance for uncollectible accounts......................  (16,330)  (8,126)
                                                              --------  -------
                                                              $116,100  $80,163
                                                              ========  =======
</TABLE>

   Engagements in process represent balances accrued by the Company for
services that have been performed but have not been billed to the customer.
Billings are generally done on a monthly basis for the prior month's services.

                                      F-14
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


7. PROPERTY AND EQUIPMENT

   Property and equipment, at cost, as of December 31 consisted of:

<TABLE>
<CAPTION>
                                                               1999      1998
                                                             --------  --------
                                                              (in thousands)
   <S>                                                       <C>       <C>
   Land and buildings....................................... $  3,421  $  2,878
   Furniture, fixtures and equipment........................   40,444    27,877
   Software.................................................   10,241     5,338
   Leasehold improvements...................................    5,714     4,736
                                                             --------  --------
                                                               59,820    40,829
   Less: accumulated depreciation and amortization..........  (26,057)  (18,632)
                                                             --------  --------
                                                             $ 33,763  $ 22,197
                                                             ========  ========
</TABLE>

   In December 1999, the Company made a decision to dispose of its corporate
headquarters land and building and is actively seeking a buyer. At such time,
the Company re-evaluated the carrying amount of the asset and estimated the net
realizable value through an independent appraisal. The Company has recorded
additional depreciation expense of $1.1 million to reflect the impairment in
value.

   Based upon a comprehensive review of the Company's long-lived assets, the
Company recorded a non-cash charge to depreciation expense of $3.8 million in
1999. This charge reflects the write-down of a portion of the recorded asset
values of certain computer equipment and software. No additional assets were
deemed to be impaired.

8. INTANGIBLE ASSETS

   The excess of the cost of the 1999 Acquisitions over the net assets acquired
of approximately $226.4 million has been recorded as intangible assets,
including goodwill, and is being amortized over the estimated useful lives. The
allocation of the excess of the cost over the net assets acquired to
identifiable intangible assets and goodwill was based upon independent
appraisals, as were the related estimated useful lives. Goodwill and other
intangible assets consisted of the following as of December 31, 1999:(in
thousands)

<TABLE>
   <S>                                                                 <C>
   Goodwill........................................................... $ 96,906
   Customer lists.....................................................   49,565
   Employee workforce.................................................   33,455
   Non-compete agreements.............................................   25,570
   Other..............................................................   20,900
                                                                       --------
                                                                        226,396
   Less: accumulated amortization.....................................  (24,300)
                                                                       --------
   Goodwill and intangibles, net...................................... $202,096
                                                                       ========
</TABLE>

   The Company periodically examines the carrying value of its goodwill and
other intangible assets to determine whether there are any impairment losses.
If indicators of impairment were present, and future cash flows were not
expected to be sufficient to recover the assets' carrying amount, an impairment
loss would be charged to expense in the period identified. No event has been
identified that would indicate an impairment of the value of the goodwill and
other intangible assets as of December 31, 1999.

                                      F-15
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


9. SHORT-TERM AND LONG-TERM DEBT

   The Company maintains a line of credit agreement in the amount of $50.0
million which expires May 31, 2001. Under the agreement, the Company may borrow
a maximum amount of up to 80% of eligible accounts receivable. The agreement
contains certain covenants, the most restrictive of which require the Company
to maintain a minimum level of earnings before interest, taxes, depreciation
and amortization. The balance outstanding under the line of credit was $10
million at December 31, 1999. At December 31, 1999, the Company had letters of
credit of $2.2 million outstanding. The letters of credit expire at various
dates through July 2003.

   At December 31, 1998, The Company had no outstanding short-term debt. The
Company had no long-term debt outstanding as of December 31, 1999 or 1998.

10. MERGER-RELATED COSTS AND RESTRUCTURING CHARGES

   The Company recognized $1.2 million of expense in 1999 for employee
separations associated with consolidation of certain accounting and human
resources functions. In July 1999, the Company announced a restructuring
initiative and offered involuntary severance packages to 73 employees in the
administrative, accounting and human resources functions. In 1998, the Company
incurred restructuring charges and merger-related costs of $12.8 million related
to the acquisitions of LECG and Peterson, which were accounted for as poolings
of interests. These costs included legal, accounting and other transaction
related fees and expenses, as well as accruals to consolidate certain
facilities. At December 31, 1999, the Company reviewed the merger-related
accruals and determined that certain amounts previously accrued were no longer
necessary given subsequent acquisition activity and changes in the Company's
organizational structure. The results of operations for 1999 reflect a benefit
of $1.4 million for the reversal of the previously accrued amounts. In 1997, the
Company incurred legal, accounting and other transaction related fees and
expenses of $1.3 million related to the acquisitions of RMI and Reed, which were
accounted for as poolings of interests. During 1999, the Company increased the
accrual for restructuring charges and merger-related costs by $3.0 million
related to the 1999 Acquisitions, which were accounted for under the purchase
method of accounting. These costs were reflected as purchase price adjustments
and, as such, increased the amount of goodwill.

   The restructuring charges and merger-related costs were determined based on
formal plans approved by the Company's management using the best information
available at the time. The amounts the Company may ultimately incur may change
as the balance of the Company's initiative to integrate acquired companies is
executed. The activity affecting the accrual for restructuring charges and
merger-related costs during 1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                    Direct
                                 Transaction  Facilities  Workforce     Other
                                    Costs      Closings   Reductions    Costs     Total
                                    -----      --------   ----------    -----     -----
                                                  (amounts in thousands)
<S>                              <C>          <C>         <C>           <C>       <C>
Year ended December 31, 1997
   Charges to operations              706           --         330        276      1,312
   Utilized                          (706)          --        (330)      (276)    (1,312)
Year ended December 31, 1998
   Charges to operations            7,638        3,600          --      1,540     12,778
   Utilized                        (4,434)        (239)         --     (1,655)    (6,328)
Year ended December 31, 1999
   Charges to operations               --           --       1,160         --      1,160
   Purchase price adjustments       2,425          350         255         --      3,030
   Utilized                        (4,803)        (232)       (879)        --     (5,914)
   Changes in estimates              (826)        (655)         --        115     (1,366)
                                 --------------------------------------------------------
Balance at December 31, 1999           --        2,824         536         --      3,360
                                 ========================================================
</TABLE>

11. LEASE COMMITMENTS

   The Company leases its office facilities and certain equipment under
operating lease arrangements which expire at various dates through 2012. The
Company leases office facilities under noncancelable operating leases which
include fixed or minimum payments plus, in some cases, scheduled base rent
increases over the term of the lease and additional rents based on the Consumer
Price Index. Certain leases provide for monthly payments of real estate taxes,
insurance and other operating expenses applicable to the property. In addition,
the Company leases equipment under noncancelable operating leases.

   Future minimum annual lease payments, for the years subsequent to 1999 and
in the aggregate, are as follows:

<TABLE>
<CAPTION>
   Year Ending December 31,                                         Amount
   ------------------------                                     --------------
                                                                (in thousands)
   <S>                                                          <C>
   2000........................................................    $ 15,241
   2001........................................................      16,312
   2002........................................................      13,965
   2003........................................................      11,539
   2004........................................................       8,710
   Thereafter..................................................      39,439
                                                                   --------
                                                                   $105,206
                                                                   ========
</TABLE>

   Rent expense for operating leases entered into by the Company and charged to
operations amounted to $15.8 million for 1999, $10.0 million for 1998, and $9.8
million for 1997.

                                      F-16
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


12. INCOME TAX EXPENSE

   Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                                          December 31,
                                                     ------------------------
                                                      1999     1998     1997
                                                     -------  -------  ------
                                                         (in thousands)
   <S>                                               <C>      <C>      <C>
   Federal:
     Current........................................ $14,186  $20,180  $5,264
     Deferred.......................................  (7,391)   1,600   2,648
                                                     -------  -------  ------
       Total........................................   6,795   21,780   7,912
                                                     -------  -------  ------
   State:
     Current........................................   3,272    3,461   1,392
     Deferred.......................................  (1,716)     396     (67)
                                                     -------  -------  ------
       Total........................................   1,556    3,857   1,325
                                                     -------  -------  ------
   Foreign..........................................     476      --      --
                                                     -------  -------  ------
       Total federal, state and foreign income tax
        expense.....................................  $8,827  $25,637  $9,237
                                                     =======  =======  ======

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

<CAPTION>
                                                          December 31,
                                                     ------------------------
                                                      1999     1998     1997
                                                     -------  -------  ------
   <S>                                               <C>      <C>      <C>
   Federal tax at statutory rate....................    35.0%    35.0%   35.0%
   State tax at statutory rate, net of federal tax
    benefits........................................   (17.8)     7.3     4.6
   Foreign taxes....................................    (8.2)      --      --
   Effect of nontaxable interest and dividends......    12.5     (1.7)   (0.9)
   Effect of nontaxable entity status...............     --       --     (5.2)
   Effect of non-deductible merger-related costs....    (1.0)     4.0     --
   Effect of non-deductible amortization............  (139.2)     --      --
   Effect of non-deductible stock compensation
    expense.........................................   (23.3)     --      --
   Effect of conversion from cash to accrual method
    of accounting for acquired company..............     --      14.7     --
   Effect of other non-deductible expenses..........   (10.4)     2.9    (0.4)
                                                     -------  -------  ------
                                                      (152.4)%   62.2%   33.1%
                                                     =======  =======  ======
</TABLE>

   The tax benefits associated with nonqualified stock options and
disqualifying dispositions of incentive stock options reduced taxes payable by
$4.9 million in 1999 and $3.3 million in 1998. Such benefits were recorded as
an increase to additional paid-in capital in each year.

                                      F-17
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                                December 31,
                                                               ---------------
                                                                1999    1998
                                                               ------  -------
                                                               (in thousands)
<S>                                                            <C>     <C>
Deferred tax assets:
  State income taxes.......................................... $ (121) $   479
  Allowance for uncollectible receivables.....................  4,379      194
  Merger-related costs........................................    --     1,427
  Stockholders' notes.........................................  2,239      --
  Insurance related costs.....................................    865      --
  Other.......................................................    202      315
                                                               ------  -------
Total deferred tax assets.....................................  7,564    2,415
                                                               ------  -------
Deferred tax liabilities:
  Adjustment resulting from changes in the method of
   accounting used for tax purposes...........................  6,435    9,136
  Other.......................................................   (531)     726
                                                               ------  -------
Deferred tax liabilities......................................  5,904    9,862
                                                               ------  -------
Net deferred tax assets (liabilities)......................... $1,660  $(7,447)
                                                               ======  =======
</TABLE>

The Company has not recorded a valuation allowance as it believes it is more
likely than not that the net deferred tax asset is recoverable.

13. SUPPLEMENTAL CASH FLOW INFORMATION

   Total interest paid during the years ended December 31, 1999, 1998 and 1997
were $0.4 million, $0.7 million, and $0.3 million, respectively. Total income
taxes paid during the years ended December 31, 1999, 1998 and 1997 were $27.6
million, $17.7 million, and $3.5 million, respectively.

   During the first quarter of 1999, the Company issued 4.2 million shares of
common stock (valued at the time at approximately $181.0 million) for
substantially all of the outstanding common stock of four companies acquired in
transactions accounted for by the purchase method of accounting. In addition to
the $42.1 million of cash used to acquire certain businesses during 1999, the
Company entered into commitments for deferred cash payments of $7.8 million,
payable in two equal annual installments. See also Note 4, "Business
Combinations".

   In April 1999, certain of the Company's then officers borrowed $3.5 million
from the Company to exercise certain then-vested options. In November 1999, the
Company received 605,684 shares of the Company's common stock, with a then
market value of $12.9 million, in lieu of cash as payment for the principal
amount of certain loans plus accrued interest. See also Note 17, "Related Party
Transactions".

14. LONG-TERM INCENTIVE PLAN

   On June 30, 1996, the Company adopted a Long-Term Incentive Plan which
provides for common stock, common stock-based, and other performance incentives
to employees, consultants, directors, advisors, and independent contractors of
the Company. The Long-Term Incentive Plan, as amended, was re-approved by a
vote of the Company's shareholders in July 1999. As of December 31, 1999, the
Company had 8.2 million options outstanding at a weighted average exercise
price of $29.15 per share. As of December 31, 1999, 0.7 million options were
exercisable.

                                      F-18
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In general, options issued under the Long Term Incentive Plan were issued at
the fair market value at the dates of grant, have a ten-year term and become
vested and thus exercisable in annual installments over a four year period
following the date of grant. However, the plan permits the Compensation
Committee, or the chief executive officer as its delegate, to vary such terms
and conditions, including granting nonqualified options at prices below fair
market value at the date of grant. The Company has determined, based in part on
the absence of contemporaneous documentation, that 0.3 million nonqualified
options issued to a total of sixteen individuals were issued at prices below
fair market value. Accordingly, the Company has recorded an expense in 1999 of
$3.5 million for stock option compensation expense attributable to such options.
The amount charged to expense represents the aggregate dollar amount by which
the grant prices of the options differ from the market prices as of the dates
for which the Company has independent evidence to support the issuance of the
options. The amount charged to expense has been amortized over the relevant
vesting periods. See also Note 17, "Related Party Transactions."

   The Company applies APB Opinion 25, Accounting for Stock Issued to
employees, and related Interpretations in accounting for its plan. Accordingly,
no compensation cost has been recognized for those option grants where the
exercise price is equal to the fair market value at the date of grant. Had
compensation cost for the plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's compensation
expense for the years ended December 31, 1999, 1998 and 1997 would have been
increased by $18.3 million, $4.6 million, and $1.1 million, respectively, net of
related income taxes. As a result, the Company's pro forma net earnings
available to common stockholders and earnings per common and common equivalent
shares would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                         1999           1998          1997
                                    --------------  ------------- -------------
                                     (in thousands, except per share amounts)
   <S>                              <C>             <C>           <C>
   Earnings, as reported:
     Net income (loss) ...........    $(14,622)         $15,581         $18,664
     Net income (loss) per basic
      share.......................    $  (0.35)         $  0.43         $  0.56
     Net income (loss) per
      dilutive share..............    $  (0.35)         $  0.41         $  0.55
   Earnings, fair value method:
     Net income (loss), with
      compensation expense from
      fair value options..........    $(32,941)         $10,990         $17,526
     Fair value method net income
      (loss) per basic share......    $  (0.79)         $  0.30         $  0.53
     Fair value method net income
      (loss) per dilutive share...    $  (0.79)         $  0.29         $  0.52
</TABLE>

   The weighted average fair value of options granted in 1999, 198O and 1997
was $12.04, $5.68, and $4.46, respectively. For purposes of calculating
compensation cost under SFAS No. 123, the fair value of each option grant is
estimated as of the date of grant using the Black-Scholes option pricing model.
The following weighted average assumptions were used in the model for grants
made in 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                               1999  1998  1997
                                                               ----  ----  ----
   <S>                                                         <C>   <C>   <C>
   Expected volatility........................................  75%   45%   45%
   Risk free interest rate.................................... 5.5%  5.0%  5.7%
   Dividend yield.............................................   0%    0%    0%
   Contractual or Expected lives (years)...................... 8.5   2.8   2.5
</TABLE>

                                      F-19
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Additional information on the shares subject to options is as follows:

<TABLE>
<CAPTION>
                               1999              1998              1997
                         ----------------- ----------------- -----------------
                         Number  Weighted- Number  Weighted- Number  Weighted-
                           of     Average    of     Average    of     Average
                         Shares  Exercise  Shares  Exercise  Shares  Exercise
                         (000's)   Price   (000's)   Price   (000's)   Price
                         ------  --------- ------- --------- ------  ---------
<S>                      <C>     <C>       <C>     <C>       <C>     <C>
Options outstanding at
 beginning of year......  5,510   $24.19    2,623   $16.53     689    $10.37
Granted.................  4,481    32.68    3,849    28.47   2,173     18.35
Exercised...............   (696)   17.98     (361)   13.07      (3)     8.00
Forfeited............... (1,082)   25.24     (601)   24.90    (236)    16.35
                         ------   ------    -----   ------   -----    ------
Options outstanding at
 end of year............  8,213   $29.15    5,510   $24.19   2,623    $16.53
                         ======             =====            =====
Options exercisable at
 year end...............    676   $19.31      138   $14.41      14    $18.45
                         ======             =====            =====
</TABLE>

   The following table summarizes information about stock options outstanding
at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                      1999                      1998
                           -------------------------- --------------------------
                                Weighted-Average          Weighted-Average
                           -------------------------- --------------------------
                           Shares  Exercise Remaining Shares  Exercise Remaining
Range of Exercise Price    (000's)  Price     Life    (000's)  Price     Life
-----------------------    ------- -------- --------- ------  -------- ---------
<S>                        <C>     <C>      <C>       <C>     <C>      <C>
$ 0 to $15................    790   $12.17     4.6    1,025    $12.46  0.7 years
$16 to $25................    737    21.23     6.0    1,277     20.99  2.5 years
$26 to $35................  5,656    29.03     8.8    3,174     29.06  3.6 years
$36 to $45................    307    43.71     9.5       34     39.30  3.8 years
$46 to $55................    723    50.53     9.1      --        --         --
                            -----                     -----
                            8,213   $29.15     8.2    5,510    $24.19  2.8 years
                            =====                     =====
</TABLE>

15. EMPLOYEE BENEFIT PLANS

   The Company maintained profit sharing and savings plans for several
operating subsidiaries through December 31, 1999. Eligible employees may
contribute a portion of their compensation to their respective operating
subsidiary's plan. The Company matches a percentage of employees' current
contributions on some operating subsidiaries' plans and has discretion to match
contributions on other plans. The Company may also make an annual profit
sharing contribution at its discretion. The Company, as sponsor of the plans,
uses independent third parties to provide administrative services to the plans.
The Company has the right to terminate the plans at any time. The Company
contributions to the various plans which were charged to operations were $1.9
million, $1.0 million, and $1.0 million in the years ended December 31, 1999,
1998, and 1997, respectively.

   Effective February 2000, the Company amended the profit sharing and savings
plans of all operating subsidiaries to provide an employer matching
contribution for all participants in an amount equal to 100% of the employees'
current contributions, up to a maximum of 3% of the employees' total eligible
compensation.

16. SEGMENT INFORMATION

   The Company has applied the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. This statement establishes
standards for reporting information regarding operating segments, products and
services, geographic areas and major customers. The Company's operations
represent a

                                      F-20
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

single reportable segment under the provisions of SFAS No. 131. The Company's
operations have a high degree of similarity in their economic and operational
characteristics, including the nature of the services provided, the type or
class of customers for those services, and the methods used for delivering such
services. While the Company has retained certain brand identities associated
with its principal operating subsidiaries, these distinctions have not been a
critical factor for management in making operating decisions or in assessing
performance. In addition, the structure of the Company's internal organization
has changed from time to time as a result of acquisition activity and in
response to customer, project, personnel or geographic requirements and, as
such, discrete financial information is not available on a consistent basis at
the operating subsidiary level.

   The Company derives substantially all of its revenues from operations in the
United States. In each of the three years ended December 31, 1999, more than
95% of the Company's consolidated revenues and operating income were derived
from domestic operations. Substantially all of the Company's identifiable
assets are located in the United States.

17. RELATED PARTY TRANSACTIONS

   In April 1999, Mr. Maher, the Company's Chairman and Chief Executive Officer
at that time, borrowed $2.7 million from the Company so that he could exercise
his then-vested options. Mr. Maher exercised all 112,500 of his then-vested
options at an exercise price of $24.00 per share. In August 1999, Mr. Maher
borrowed an additional $10 million from the Company. The applicable interest
rate for this loan was 5.75%, payable annually. In November 1999, the Company
received from Mr. Maher 605,684 shares of the Company's common stock with a
then market value of $12.9 million as payment for the principal amount of the
loans plus accrued interest.

   Five non-employees related by blood or marriage to Mr. Maher received stock
option grants. Mr. Maher has informed the Company that each of these persons
provided services to the Company from time to time and received no other
compensation for those services. In addition, one other individual not employed
by the Company, but who was an employee of an unrelated company owned or
controlled by Mr. Maher, received stock option grants. Mr. Maher has informed
the Company that this individual provided certain services to the Company from
time to time. These persons are among sixteen as to whom the Company has
determined that their options were issued at prices below fair market value. See
also Note 14, "Long Term Incentive Plan". The Company has recorded an expense in
1999 of $3.5 million for stock option compensation expense attributable to such
options issued to the sixteen individuals. Of the total stock option
compensation expense of $3.5 million, $0.6 million is attributable to the six
persons described above.

   In April 1999, Mr. Cain and Mr. Demirjian, respectively the Company's Chief
Administrative Officer and the Company's General Counsel at that time, each
borrowed $425,063 from the Company to exercise all 18,750 of their then-vested
options at an exercise price of $22.67 per share. The notes which evidence
these borrowings are full recourse, are due on or before the third anniversary
date and bear interest at a rate equal to 5.75%, payable annually. The notes
were accompanied by pledge agreements which pledge the exercised option shares
as collateral security for repayment of the notes, which shares are currently
held by the Company.

   In late August, Mr. Cain, Mr. Demirjian and Mr. Kingsbury (the Company's
Chief Financial Officer at that time) borrowed $2.625 million, $2.625 million
and $1.75 million, respectively, from the Company, related to their purchases
of 75,000, 75,000 and 50,000 shares, respectively, of the Company's common
stock from third parties at $35 per share. The notes which evidence these
borrowings are full recourse, are due on or before the third anniversary date
and bear interest at a rate equal to 5.75%, payable annually. These notes were

                                      F-21
<PAGE>

                           NAVIGANT CONSULTING, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

accompanied by pledge agreements which pledge the shares as collateral security
for repayment of the notes, which shares are currently held by the Company.

   As a result of recent developments, the Company has accrued a loss
contingency at December 31, 1999 in the amount of $5.3 million, related to the
notes receivable from Mssrs. Cain, Demirjian and Kingsbury. See also Note 5,
"Stockholders Equity". The Company has discontinued the accrual of interest on
these notes.

   In November 1999, the Company entered into an agreement with Mr. Maher,
pursuant to which, among other things, Mr. Maher agreed to provide certain
consulting services to the Company over a two year period, including providing
information about past transactions or other matters as to which he may be
familiar, and the Company agreed to pay Mr. Maher twenty-four monthly payments
of $25,000.

18. LITIGATION

   Numerous purported class action lawsuits have been filed against the Company
since November 1999 in the United States District Court for the Northern
District of Illinois. These actions name as defendants the Company and certain
former directors and former executive officers (one of whom, however, remains
an employee of the Company) of the Company and are purported to be on behalf of
persons who purchased shares of the Company's common stock during various
periods through November 1999. The complaints allege various violations of
federal securities law, including violations of Section 10(b) of the Securities
Exchange Act of 1934, and that the defendants made materially misleading
statements and/or material omissions which artificially inflated prices for the
Company's common stock. The plaintiffs seek a judgement awarding damages and
other relief. The Company believes it has meritorious defenses and intends to
vigorously defend these actions. The outcome of these lawsuits cannot be
predicted with certainty and a material adverse judgment against the Company
could have a material adverse effect on the Company.

   Navigant International, Inc., a national travel agency headquartered in
Denver, Colorado, sued the Company in July 1999 in the United States District
Court for the District of Colorado claiming that the use of "Navigant" in our
name infringes on their use of and rights in such name. The complaint seeks
declaratory relief and an injunction against our use of "Navigant," attorneys'
fees and other related relief. The Company believes it has meritorious defenses
and intends to vigorously defend this action.

   In addition, from time to time, we are party to various other lawsuits and
claims in the ordinary course of business. While the outcome of those lawsuits
or claims cannot be predicted with certainty, we do not believe that any of
those lawsuits or claims will have a material adverse effect on the Company.

                                      F-22
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Navigant Consulting, Inc.:

   Under date of March 28, 2000 we reported on the consolidated balance sheets
of Navigant Consulting, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1999, which report was based in part on reliance of other auditors, as contained
in the annual report on Form 10-K for the year 1999. The 1998 and 1997 financial
statements have been restated as discussed in notes 3 and 4 to the consolidated
financial statements. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule of valuation and qualifying accounts. The
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits.

   In our opinion, the consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.

                                          /s/ KPMG LLP

Chicago, Illinois
March 28, 2000

                                      S-1
<PAGE>

                                  SCHEDULE II

                           NAVIGANT CONSULTING, INC.

                       VALUATION AND QUALIFYING ACCOUNTS
                  Years Ended December 31, 1999, 1998 and 1997
                             (amounts in thousands)

<TABLE>
<CAPTION>
                                       Balance at Charged                Balance
                                       Beginning     to                  at End
Description                             of Year   Expenses Deductions(1) of Year
-----------                            ---------- -------- ------------- -------
<S>                                    <C>        <C>      <C>           <C>
Year Ended December 31, 1999
 Allowance for doubtful accounts......    8,126    14,900     (6,696)    16,330
Year Ended December 31, 1998
 Allowance for doubtful accounts......    7,592     2,058     (1,524)     8,126
Year Ended December 31, 1997
 Allowance for doubtful accounts......   10,569     1,975     (4,952)     7,592
</TABLE>
--------
(1) Represent write-offs of bad debts.


                                      S-2