SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 14, 2007
FTI CONSULTING, INC.
(Exact Name of Registrant as Specified in Charter)
| Maryland | 001-14875 | 52-1261113 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
500 East Pratt Street, Suite 1400, Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (410) 951-4800
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| ITEM 2.02. | Results of Operations and Financial Condition |
On February 15, 2007, FTI Consulting, Inc. (“FTI”) issued its press release reporting its financial results for the fourth quarter and full year ended December 31, 2006 and providing guidance for fiscal year 2007. The full text of the press release (including Financial Tables and 2007 guidance) issued on February 15, 2007 is set forth in Exhibit 99.1 and is incorporated by reference herein.
| ITEM 7.01. | Regulation FD Disclosure |
The press release (and Financial Tables) includes a discussion of: (i) earnings before interest, taxes, depreciation and amortization (“EBITDA”); (ii) EBITDA excluding the impact of FASB Statement No. 123(R) (“Adjusted EBITDA”); (iii) net income excluding the impact of FASB Statement No. 123(R) (“Adjusted Net Income”); (iv) diluted earnings per share excluding the impact of FASB Statement No. 123(R) (“Adjusted EPS”); (v) Adjusted EBITDA excluding the special termination charge relating to FTI’s restructuring of its U.K. operations and the consolidation of certain non-core practices in the U.S. previously announced on October 31, 2006 (collectively, the “Special Charges”); (vi) Adjusted Net Income excluding the Special Charges; (vii) Adjusted EPS excluding the Special Charges (“Non-GAAP Diluted EPS”); (viii) Non-GAAP Diluted EPS excluding amortization of intangible assets previously announced on October 31, 2006 (“Amortization of Assets”); (ix) Adjusted Net Income excluding Special Charges and Amortization of Assets; (x) EBITDA by business segment; and (xi) Adjusted EBITDA by business segment. Although the foregoing financial measures are not measures of financial condition or performance determined in accordance with generally accepted accounting principles (“GAAP”), FTI believes that they are useful operating performance measures for evaluating our results of operations from period to period and year to year, and as compared to our competitors. EBITDA is a common alternative measure of operating performance used by investors, financial analysts and rating agencies to value and compare the financial performance of companies in our industry. FTI uses EBITDA to evaluate and compare the operating performance of its segments and it is one of the primary measures used to determine employee bonuses. FTI also uses EBITDA to value businesses it considers acquiring.
Adjusted EBITDA, Adjusted Net Income, Adjusted EBITDA excluding Special Charges, Adjusted Net Income excluding Special Charges, Adjusted Net Income excluding Special Charges and Amortization of Assets, Adjusted EPS, Non-GAAP Diluted EPS and Non-GAAP Diluted EPS excluding Amortization of Assets exclude certain items to provide better comparability from period to period and year to year. A reconciliation of non-GAAP financial measures to GAAP financial measures is included in the Financial Tables which are part of the press release furnished as Exhibit 99.1.
The non-GAAP financial measures provided by FTI are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies unless the definition is the same. We believe that EBITDA and Adjusted EBITDA as supplemental financial measures are also indicative of FTI’s
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capacity to incur and service debt and thereby provide additional useful information to investors regarding FTI’s financial condition and results of operations. EBITDA and Adjusted EBITDA for purposes of the covenants set forth in our senior secured credit facility are not calculated in the same manner as calculated for purposes of the Financial Tables included in the press release.
The information included herein, including Exhibit 99.1 furnished herewith, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any filing pursuant to the Securities Act of 1933, as amended, or the Exchange Act, regardless of any incorporation by reference language in any such filing, except as expressly set forth by specific reference in such filing.
| ITEM 8.01. | Other Events |
Share Repurchase Program
On February 14, 2007, the Board of Directors (the “Board”) of FTI authorized FTI to repurchase up to $50.0 million of its shares of common stock. The stock repurchase program authorizes FTI to repurchase shares of its common stock through open market or privately negotiated transactions. The Board has authorized FTI to make stock repurchases through December 31, 2007. The program will be funded with a combination of cash on hand or borrowings. The press release filed as Exhibit 99.1 includes the announcement of FTI’s Board’s authorization of the stock repurchase program and is hereby incorporated by reference herein.
| ITEM 9.01. | Financial Statements and Exhibits |
| (c) | Exhibits |
| 99.1 | Press Release dated February 15, 2007 (including Financial Tables and 2007 Guidance), of FTI Consulting, Inc. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, FTI has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FTI CONSULTING, INC. | ||||
| Dated: February 16, 2007 | By: | /S/ THEODORE I. PINCUS | ||
| Theodore I. Pincus Executive Vice President and Chief Financial Officer | ||||
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EXHIBIT INDEX
| Exhibit No. | Description | |
| 99.1 | Press Release dated February 15, 2007 (including Financial Tables and 2007 Guidance), of FTI Consulting, Inc. |
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Exhibit 99.1
FTI Consulting, Inc.
500 East Pratt Street
Suite 1400
Baltimore, Maryland 21202
(410) 951-9800
FOR FURTHER INFORMATION:
| AT FTI CONSULTING: | AT FINANCIAL DYNAMICS: | |
| Jack Dunn, President & CEO | Investors: Gordon McCoun | |
| (410) 951-4883 | Media: Evan Goetz, Melissa Merrill | |
| (212) 850-5600 |
For Immediate Release
FTI CONSULTING, INC. REPORTS RECORD FOURTH QUARTER AND
YEAR END REVENUES
• Q4 Revenues of $217 Million and EPS of $0.42
• 2006 Full-Year Revenues of $708 million; EPS of $1.04; or $1.36 Excluding Special Charge
BALTIMORE, MD, February 15, 2007 — FTI Consulting, Inc. (NYSE: FCN), the leading global consulting firm that organizations rely on when confronting the critical legal, financial and reputational issues that shape their futures, today reported its financial results for the fourth quarter and full year ended December 31, 2006 and provided guidance for fiscal year 2007.
Fourth Quarter Results
Revenues for the fourth quarter of 2006 were a record $216.8 million, an increase of 30.8 percent over revenues of $165.8 million in the prior year period. Earnings per diluted share in the fourth quarter of 2006 were $0.42, versus $0.46 per diluted share in the prior year period. Results for the fourth quarter of 2006 include approximately $2.9 million of pre-tax FASB 123(R) share-based compensation expense ($0.05 per diluted share), for which there was not a comparable charge in 2005. The Company’s results for the fourth quarter of 2005 include a $22.5 million success fee.
Excluding the effect of FASB 123(R) compensation expense, earnings from operations before interest, taxes, depreciation and amortization (Adjusted EBITDA) rose 29.7 percent to $54.2 million from $41.8 million in the prior year period.
Commenting on the quarter, Jack Dunn, FTI’s president and chief executive officer, said, “The fourth quarter capped an outstanding year for FTI Consulting. All of our operating segments performed at or above our expectations, leading to overall revenue growth of over 30% and Adjusted EBITDA growth of over 22%. Our Technology practice, with $117 million in revenues, easily exceeded our goals, as client demand and increased product recognition drove results. We also saw excellent performance within our Forensic/Litigation and Economic Consulting practices, driven by a continued high level of litigation and
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investigations and our prominent position in the market. We are also pleased with the performance of our Corporate Finance/Restructuring practice, which continued to adapt to the difficult market conditions it faces and generated a significant improvement in profitability on a sequential basis from 2006 third quarter levels.”
Mr. Dunn continued, “The fourth quarter also marked the initial contribution from our Strategic and Financial Communications segment, which was created with our acquisition of FD. FD had an exceptional performance in the period due to robust levels of capital markets and M&A activity. During the quarter we began to integrate FD into the FTI organization here in the U.S., with a high level of cross client introductions, and have also begun to leverage FD’s international network to expand FTI’s presence and visibility outside of the U.S.”
Mr. Dunn concluded, “2006 was a transformative year for FTI Consulting in which we executed on all of our major objectives. We further diversified our business to ensure not only growth across economic cycles, but also to broaden our platform to a truly global entity and to provide our clients with the most robust, multi-disciplinary solutions available for their critical business needs. At the same time, we adapted to the changing conditions in the marketplace, taking the necessary steps to reduce our cost structure and streamline our operations. Finally, we continued our success in hiring and more importantly retaining the top talent in our industry. With the re-signing in January, 2007 of 23 Senior Managing Directors in the FLC and Technology practices to long term contracts and the previously announced re-signing of our top producers in Corporate Finance/Restructuring, we have been able to secure long term commitments from virtually all our senior leadership. With these accomplishments, we concluded the year with a business platform that operates in 20 countries and is poised for expanded growth in 2007 and beyond.”
Cash flow provided by operations in the fourth quarter of 2006 was a record $96.4 million, an increase of 107.8 percent over cash flow of $46.4 million in the prior year period. We ended the quarter with no outstanding borrowings under our line of credit, and cash and cash equivalents as of December 31, 2006 were $91.9 million. Accounts receivable days-sales-outstanding at the end of the 2006 fourth quarter were significantly below levels seen at the end of the 2006 third quarter. At December 31, 2006, total long-term debt was $565.0 million.
On February 14, 2007, the Board of Directors authorized a new stock repurchase program for up to $50.0 million of the Company’s common stock. This stock repurchase program will expire on December 31, 2007. The Company did not repurchase any shares of common stock during the fourth quarter. For the full year 2006, FTI repurchased 600,000 shares for a total cost of $16.5 million.
Total headcount at December 31, 2006 was 2,079, of which 1,596 represented revenue-generating headcount. As a result of the growth of the technology segment and the acquisition of Financial Dynamics, the Company believes utilization of revenue-generating personnel and average rate per hour metrics are much less meaningful for the Company taken as a whole, but are presented in the accompanying tables for those business segments for which the metrics continue to be relevant.
Fourth Quarter Business Segment Results
Forensic and Litigation Consulting
Forensic and Litigation Consulting demonstrated continued strong performance in the 2006 fourth quarter, with revenues rising 20.5 percent to $51.2 million from $42.5 million in the prior year period. This
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segment’s results benefited from strong performance from both its international investigations practice and from Brower, Kriz & Stynchcomb, a construction consulting firm acquired earlier in the period. Segment EBITDA increased 35.7 percent to $15.6 million, or 30.5 percent of revenues, compared to $11.5 million, or 27.1 percent of revenues, in the prior year period.
Technology Consulting
Technology continued its strong performance in the 2006 fourth quarter, generating revenues of $31.2 million, an increase of 50.7 percent from $20.7 million in the prior year period. Results in this segment were driven by a number of high-profile fraud and other investigations, as well as continued gains within the practice’s annuity-based hosting business. Segment EBITDA increased 54.9 percent to $12.7 million, or 40.7 percent of revenues, compared to $8.2 million, or 39.8 percent of revenues in the prior year period.
Corporate Finance/Restructuring
Corporate Finance/Restructuring revenues were $57.9 million, an increase of 9.0 percent compared with revenues of $53.1 million excluding the previously discussed significant success fee ($75.6 million including the fee) in the prior year period. Contributing to the segment’s quarterly results was solid performance within the transaction advisory services business, which won a number of new assignments for private equity clients seeking alternative sources for due diligence type services. Segment EBITDA was $15.1 million, or 26.1 percent of revenues, compared to $29.3 million, or 38.8 percent of revenues including the contribution of the significant success fee.
Economic Consulting
Economic Consulting had strong results, with revenues increasing 32.6 percent to $35.8 million from $27.0 million in the prior year period. There was solid performance within most areas of the business, including antitrust, finance, industrial organizations, energy and telecom. Segment EBITDA increased 150.0 percent to $11.0 million, or 30.7 percent of revenues, from $4.4 million, or 16.3 percent of sales, in the prior year period.
Strategic and Financial Communications
On October 3, 2006, the Company completed the acquisition of FD International (Holdings) Limited (“Financial Dynamics” or “FD”), a global strategic business and financial communications consulting firm. In its first quarter as a segment of the Company, FD generated revenues of $40.7 million, which included $5.7 million of pass through costs, and segment EBITDA of $14.2 million, or 34.9 percent of revenues. FD benefited from the combination of active capital markets and M&A in the U.S. and Europe, as well as a strong performance within its public affairs practice.
Full-Year Results
For the 2006 full-year period, revenues totaled $707.9 million compared to $539.5 million in the year ago period, an increase of 31.2 percent. Earnings per diluted share (before a one-time special charge of $0.32 in the 2006 third quarter as previously announced) were $1.36, compared to earnings per diluted share of $1.35 in 2005 which included a $22.5 million success fee. Results for the 2006 full-year period include incremental expenses of approximately $11.1 million of FASB 123(R) compensation expense ($0.20 per diluted share), for which there was not a comparable charge in 2005.
Excluding the effect of special charges in both periods and share-based compensation expense in 2006, Adjusted EBITDA rose 26.0 percent to $164.9 million from $130.9 million in the prior year period.
Forensic and Litigation Consulting revenues increased 22.9 percent to $193.3 million compared to $157.3 million in the prior year period. Segment Adjusted EBITDA excluding the effect of the special charge increased 21.8 percent to $55.3 million from $45.4 million in the prior year period.
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Technology Consulting revenues increased 86.3 percent to $117.2 million from $62.9 million in the prior year period. Segment EBITDA increased 88.0 percent to $47.0 million from $25.0 million in the prior year period.
Corporate Finance/Restructuring revenues increased 12.8 percent to $212.6 million from $188.5 million in the prior year period excluding the significant success fee ($211.0 million in the prior year period including the success fee). Segment Adjusted EBITDA excluding the effect of the special charge and including the success fee in the prior year period was $51.5 million compared to $70.8 million in the prior year.
Economic Consulting revenues increased 32.9 percent to $144.1 million from $108.4 million in the prior year period. Segment Adjusted EBITDA excluding the effect of the special charge increased 51.9 percent to $36.9 million from $24.3 million in the prior year.
Strategic and Financial Communications contributed revenues of $40.7 million and segment EBITDA of $14.2 million for the period October 3, 2006, when the Company completed the acquisition of FD International (Holdings) Limited (“Financial Dynamics” or “FD”), through December 31, 2006.
Introduction of 2007 Guidance
Based on current market conditions, the Company is introducing the following guidance for the 2007 full-year period:
| Revenues (in millions) |
EBITDA (in millions) |
EBITDA Margin | ||||||
| Forensic and Litigation Consulting |
$234-$239 | $67-$70 | 28.6%-29.3% | |||||
| Technology Consulting |
$147-$152 | $53-$56 | 36.1%-36.8% | |||||
| Corporate Finance/Restructuring |
$224-$229 | $56-$58 | 25.0%-25.3% | |||||
| Economic Consulting |
$151-$156 | $45-$47 | 29.8%-30.1% | |||||
| Strategic and Financial Communications |
$148-$153 | $40-$42 | 27.0%-27.5% | |||||
| Corporate Expenses |
($57-$59) | |||||||
| Totals |
$ | 904-$929 | $ | 204-$214 | 22.6%-23.0% | |||
| EPS |
$ | 1.74-$1.84 | ||||||
Fourth Quarter Conference Call
FTI will hold a conference call to discuss fourth quarter financial results at 9:00 a.m. Eastern time on Thursday, February 15, 2007. The call can be accessed live and will be available for replay over the Internet for 90 days by logging onto the Company’s website, www.fticonsulting.com.
About FTI Consulting
FTI is a leading global firm that organizations rely on for advice and solutions in the areas of forensic analysis, investigation, economic analysis, restructuring, due diligence, strategic communication, financial communication and technology when confronting the critical legal, financial and reputational issues that shape their futures.
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FTI delivers solutions every day through its network of nearly 2,000 professionals in offices in every major business center in the world.
Note: Although EBITDA, Adjusted EBITDA and Adjusted Net Income are not measures of financial condition or performance determined in accordance with GAAP, FTI believes that they are useful operating performance measures for evaluating its results of operations from period to period and as compared to its competitors. EBITDA is a common alternative measure of operating performance used by investors, financial analysts and rating agencies to value and compare the financial performance of companies in FTI’s industry. FTI uses EBITDA and Adjusted EBITDA to evaluate and compare the operating performance of its segments and it is one of the primary measures used to determine employee bonuses. FTI also uses EBITDA to value businesses it acquires or anticipates acquiring. A reconciliation of EBITDA, Adjusted EBITDA and Adjusted Net Income to Net Income is included in the accompanying tables to this press release. Information relating to stock option issuances and stock prices during 2006 cannot be predicted and are not quantifiable with certainty at this time. Such information is not available without an unreasonable effort or otherwise. EBITDA, Adjusted EBITDA and Adjusted Net Income are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies unless the definition is the same. In addition, because the calculation of EBITDA and Adjusted EBITDA in the maintenance covenants contained in FTI’s credit facilities is based on accounting policies in use, consistently applied from the time the indebtedness was incurred, EBITDA and Adjusted EBITDA as supplemental financial measures are also indicative of the company’s capacity to service debt and thereby provides additional useful information to investors regarding the company’s financial condition and results of operations. EBITDA and Adjusted EBITDA for purposes of those covenants are not calculated in the same manner as they are calculated in the accompanying table.
Safe Harbor Statement
This press release includes “forward-looking” statements that involve uncertainties and risks. There can be no assurance that actual results will not differ from the company’s expectations. The company has experienced fluctuating revenues, operating income and cash flow in some prior periods and expects this may occur from time to time in the future. As a result of these possible fluctuations, the company’s actual results may differ from our projections. Further, preliminary results are subject to normal year-end adjustments. Other factors that could cause such differences include the pace and timing of the consummation and integration of past and future acquisitions, the company’s ability to realize cost savings and efficiencies, competitive and general economic conditions, retention of staff and clients and other risks described in the company’s filings with the Securities and Exchange Commission. We are under no duty to update any of the forward-looking statements to conform such statements to actual results or events and do not intend to do so.
FINANCIAL TABLES FOLLOW
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FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(in thousands, except per share data)
| Year Ended | ||||||||
| December 31, 2006 |
December 31, 2005 |
|||||||
| (unaudited) | ||||||||
| Revenues | $ | 707,933 | $ | 539,545 | ||||
| Operating expenses | ||||||||
| Direct cost of revenues |
389,032 | 291,592 | ||||||
| Selling, general and administrative expense |
178,131 | 126,807 | ||||||
| Loss from subleased facilities |
441 | 920 | ||||||
| Special charges |
22,972 | — | ||||||
| Amortization of other intangible assets |
11,175 | 6,534 | ||||||
| 601,751 | 425,853 | |||||||
| Operating income | 106,182 | 113,692 | ||||||
| Other income (expense) | ||||||||
| Interest income |
2,575 | 1,875 | ||||||
| Interest expense and other |
(29,405 | ) | (15,064 | ) | ||||
| Loss on early extinguishment of term loans |
— | (1,687 | ) | |||||
| Litigation settlement gains (losses), net |
(187 | ) | (1,629 | ) | ||||
| Income before income tax provision | 79,165 | 97,187 | ||||||
| Income tax provision | 37,141 | 40,819 | ||||||
| Net income | $ | 42,024 | $ | 56,368 | ||||
| Earnings per common share - basic | $ | 1.06 | $ | 1.38 | ||||
| Weighted average common shares outstanding - basic | 39,741 | 40,947 | ||||||
| Earnings per common share - diluted | $ | 1.04 | $ | 1.35 | ||||
| Weighted average common shares outstanding - diluted | 40,526 | 41,787 | ||||||
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FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005
(in thousands, except per share data)
| Three Months Ended | ||||||||
| December 31, 2006 |
December 31, 2005 |
|||||||
| (unaudited) | ||||||||
| Revenues | $ | 216,841 | $ | 165,825 | ||||
| Operating expenses | ||||||||
| Direct cost of revenues |
112,136 | 88,714 | ||||||
| Selling, general and administrative expense |
56,584 | 37,697 | ||||||
| Loss from subleased facilities |
441 | — | ||||||
| Amortization of other intangible assets |
2,865 | 2,225 | ||||||
| 172,026 | 128,636 | |||||||
| Operating income | 44,815 | 37,189 | ||||||
| Other income (expense) | ||||||||
| Interest income |
688 | 963 | ||||||
| Interest expense and other |
(11,413 | ) | (5,960 | ) | ||||
| Litigation settlement gains (losses), net |
(606 | ) | (638 | ) | ||||
| Income before income tax provision | 33,484 | 31,554 | ||||||
| Income tax provision | 16,128 | 13,253 | ||||||
| Net income | $ | 17,356 | $ | 18,301 | ||||
| Earnings per common share - basic | $ | 0.43 | $ | 0.47 | ||||
| Weighted average common shares outstanding - basic | 40,574 | 38,537 | ||||||
| Earnings per common share - diluted | $ | 0.42 | $ | 0.46 | ||||
| Weighted average common shares outstanding - diluted | 41,392 | 39,959 | ||||||
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FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(in thousands)
| December 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
| Operating activities | ||||||||
| Net income |
$ | 42,024 | $ | 56,368 | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities | ||||||||
| Depreciation and other amortization |
13,197 | 11,360 | ||||||
| Amortization of other intangible assets |
11,175 | 6,534 | ||||||
| Provision for doubtful accounts |
8,573 | 5,482 | ||||||
| Income tax benefit from stock option exercises |
(2,118 | ) | 3,564 | |||||
| Loss on early extinguishment of term loans |
— | 1,687 | ||||||
| Non-cash stock-based compensation expense |
14,680 | 1,956 | ||||||
| Loss from subleased facilities |
441 | 920 | ||||||
| Impairment of other intangible assets |
933 | — | ||||||
| Non-cash interest and other |
2,478 | 2,620 | ||||||
| Changes in operating assets and liabilities |
||||||||
| Accounts receivable, billed and unbilled |
(22,654 | ) | (34,664 | ) | ||||
| Notes receivable |
(33,351 | ) | 1,824 | |||||
| Prepaid expenses and other assets |
(1,349 | ) | (2,238 | ) | ||||
| Accounts payable, accrued expenses and other |
25,915 | 7,911 | ||||||
| Accrued special charges |
14,288 | — | ||||||
| Income taxes payable |
5,683 | 8,509 | ||||||
| Accrued compensation |
(17,725 | ) | 30,467 | |||||
| Billings in excess of services provided |
3,330 | (2,921 | ) | |||||
| Net cash (used in) provided by operating activities | 65,520 | 99,379 | ||||||
| Investing activities | ||||||||
| Payments for acquisition of businesses, including contingent payments and acquisition costs |
(267,332 | ) | (52,182 | ) | ||||
| Purchases of property and equipment |
(30,359 | ) | (17,827 | ) | ||||
| Proceeds from note receivable due from purchasers of former subsidiary |
— | 5,525 | ||||||
| Change in other assets |
306 | (374 | ) | |||||
| Net cash used in investing activities | (297,385 | ) | (64,858 | ) | ||||
| Financing activities | ||||||||
| Issuance of debt securities |
215,000 | 350,000 | ||||||
| Borrowings under long-term credit facilities |
400 | 50,000 | ||||||
| Payments of long-term debt |
(25,476 | ) | (155,000 | ) | ||||
| Borrowings under revolving line of credit |
40,000 | 33,500 | ||||||
| Payments of revolving line of credit |
(40,000 | ) | (33,500 | ) | ||||
| Purchase and retirement of common stock |
(23,376 | ) | (148,050 | ) | ||||
| Issuance of common stock under equity compensation plans |
10,218 | 9,551 | ||||||
| Income tax benefit from stock option exercises |
2,118 | — | ||||||
| Payments of debt financing fees, capital lease obligations and other |
(9,873 | ) | (13,343 | ) | ||||
| Net cash (used in) provided by financing activities | 169,011 | 93,158 | ||||||
| Effect of exchange rate changes on cash | 1,394 | — | ||||||
| Net decrease in cash and cash equivalents | (61,460 | ) | 127,679 | |||||
| Cash and cash equivalents, beginning of period | 153,383 | 25,704 | ||||||
| Cash and cash equivalents, end of period | $ | 91,923 | $ | 153,383 | ||||
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FTI CONSULTING, INC.
OPERATING RESULTS BY BUSINESS SEGMENT
| Revenues | ADJUSTED EBITDA (1) |
Margin | Utilization (2) | Average Rate (2) |
Revenue Generating Headcount | |||||||||||||
| (in thousands) | ||||||||||||||||||
| Three Months Ended December 31, 2006 | ||||||||||||||||||
| Forensic and Litigation Consulting |
$ | 51,229 | $ | 15,604 | 30.5 | % | 76 | % | $ | 325 | 388 | |||||||
| Corporate Finance/Restructuring |
57,888 | 15,102 | 26.1 | % | 82 | % | 398 | 322 | ||||||||||
| Economic Consulting |
35,834 | 10,996 | 30.7 | % | 81 | % | 389 | 206 | ||||||||||
| Technology |
31,182 | 12,695 | 40.7 | % | N/M | N/M | 256 | |||||||||||
| Strategic and Financial Communications |
40,708 | 14,173 | 34.8 | % | N/M | N/M | 424 | |||||||||||
| $ | 216,841 | 68,570 | 31.6 | % | N/M | N/M | 1,596 | |||||||||||
| Corporate expenses |
(17,252 | ) | ||||||||||||||||
| ADJUSTED EBITDA (1) | $ | 51,318 | 23.7 | % | ||||||||||||||
| Year Ended December 31, 2006 | ||||||||||||||||||
| Forensic and Litigation Consulting |
$ | 193,287 | $ | 55,306 | 28.6 | % | 78 | % | $ | 311 | 388 | |||||||
| Corporate Finance/Restructuring |
212,617 | 51,514 | 24.2 | % | 77 | % | 400 | 322 | ||||||||||
| Economic Consulting |
144,091 | 36,873 | 25.6 | % | 80 | % | 386 | 206 | ||||||||||
| Technology |
117,230 | 46,965 | 40.1 | % | N/M | N/M | 256 | |||||||||||
| Strategic and Financial Communications |
40,708 | 14,173 | 34.8 | % | N/M | N/M | 424 | |||||||||||
| $ | 707,933 | 204,831 | 28.9 | % | N/M | N/M | 1,596 | |||||||||||
| Corporate expenses |
(51,051 | ) | ||||||||||||||||
| ADJUSTED EBITDA (1) | $ | 153,780 | 21.7 | % | ||||||||||||||
| Three Months Ended December 31, 2005 | ||||||||||||||||||
| Forensic and Litigation Consulting |
$ | 42,523 | $ | 11,462 | 27.0 | % | 79 | % | $ | 280 | 330 | |||||||
| Corporate Finance/Restructuring |
75,586 | 29,302 | 38.8 | % | 83 | % | 392 | 336 | ||||||||||
| Economic Consulting |
27,043 | 4,374 | 16.2 | % | 77 | % | 357 | 184 | ||||||||||
| Technology |
20,673 | 8,219 | 39.8 | % | N/M | N/M | 155 | |||||||||||
| Strategic and Financial Communications |
— | — | — | |||||||||||||||
| $ | 165,825 | 53,357 | 32.2 | % | N/M | N/M | 1,005 | |||||||||||
| Corporate expenses |
(11,529 | ) | ||||||||||||||||
| ADJUSTED EBITDA (1) | $ | 41,828 | 25.2 | % | ||||||||||||||
| Year Ended December 31, 2005 | ||||||||||||||||||
| Forensic and Litigation Consulting |
$ | 157,263 | $ | 45,379 | 28.9 | % | 76 | % | $ | 280 | 330 | |||||||
| Corporate Finance/Restructuring |
211,027 | 70,809 | 33.6 | % | 82 | % | $ | 396 | 336 | |||||||||
| Economic Consulting |
108,398 | 24,254 | 22.4 | % | 82 | % | $ | 368 | 184 | |||||||||
| Technology |
62,857 | 25,001 | 39.8 | % | N/M | N/M | 155 | |||||||||||
| Strategic and Financial Communications |
— | — | — | |||||||||||||||
| $ | 539,545 | 165,443 | 30.7 | % | N/M | N/M | 1,005 | |||||||||||
| Corporate expenses |
(34,566 | ) | ||||||||||||||||
| ADJUSTED EBITDA (1) | $ | 130,877 | 24.3 | % | ||||||||||||||
| (1) | We use earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA and adjusted net income in evaluating the company's financial performance. EBITDA, adjusted EBITDA and adjusted net income are not measurements under accounting principles generally accepted in the United States ("GAAP"). We define EBITDA as operating income before depreciation and amortization, amortization of intangible assets and litigation settlements. We define Adjusted EBITDA as EBITDA before special charges and loss from subleased facilities. These measures may not be similar to non-GAAP measures of other companies. We believe that the use of such measures, as supplements to operating income, net income and other GAAP measures, are useful indicators of a company's financial performance and its ability to generate cash flow from operations that are available to fund capital expenditures and service debt. Further, these measures exclude certain items to provide better comparability from period to period. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. EBITDA is a common alternative performance measure used by investors, analysts and credit rating agencies to evaluate and compare the operating performance and value of companies within our industry. These non-GAAP measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our statements of income. See also our reconciliation of Non-GAAP financial measures. |
| (2) | Substantially more than half of the technology segment revenues are not generated on an hourly basis. Accordingly, utilization and average billable rate metrics are not presented as they are not meaningful. |
FTI CONSULTING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2006 AND 2005
(in thousands, except per share amounts)
| December 31, 2006 |
December 31, 2005 |
|||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 91,923 | $ | 153,383 | ||||
| Accounts receivable |
||||||||
| Billed |
135,220 | 87,947 | ||||||
| Unbilled |
56,228 | 56,871 | ||||||
| Allowance for doubtful accounts and unbilled services |
(20,351 | ) | (17,330 | ) | ||||
| 171,097 | 127,488 | |||||||
| Notes receivable |
7,277 | 2,713 | ||||||
| Prepaid expense and other current assets |
16,259 | 8,147 | ||||||
| Deferred income taxes |
8,479 | 6,404 | ||||||
| Total current assets |
295,035 | 298,135 | ||||||
| Property and equipment, net |
51,326 | 29,302 | ||||||
| Goodwill, net |
885,711 | 576,612 | ||||||
| Other intangible assets, net |
77,711 | 21,454 | ||||||
| Notes receivable, net of current portion |
35,303 | 6,516 | ||||||
| Other assets |
46,156 | 27,445 | ||||||
| Total assets |
$ | 1,391,242 | $ | 959,464 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities |
||||||||
| Accounts payable, accrued expenses and other |
$ | 85,000 | $ | 21,762 | ||||
| Accrued compensation |
69,765 | 72,688 | ||||||
| Current portion of long-term debt |
6,917 | — | ||||||
| Billings in excess of services provided |
16,863 | 10,477 | ||||||
| Total current liabilities |
178,545 | 104,927 | ||||||
| Long-term debt, less current portion |
563,441 | 348,431 | ||||||
| Deferred income taxes |
57,782 | 33,568 | ||||||
| Deferred rent and other liabilities |
26,374 | 18,269 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock, $0.01 par value; 5,000 shares authorized, none outstanding |
— | — | ||||||
| Common stock, $0.01 par value; 75,000 shares authorized; 41,890 shares issued and outstanding in 2006 and 39,009 shares issued and outstanding in 2005 |
419 | 390 | ||||||
| Additional paid-in capital |
294,350 | 238,055 | ||||||
| Unearned compensation |
— | (11,089 | ) | |||||
| Retained earnings |
268,937 | 226,913 | ||||||
| Accumulated other comprehensive income |
1,394 | — | ||||||
| Total stockholders’ equity |
565,100 | 454,269 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,391,242 | $ | 959,464 | ||||
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FTI CONSULTING, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data)
| Three months ended | Year ended | |||||||||||
| December 31, | December 31, | |||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||
| Net income |
$ | 17,356 | $ | 18,301 | $ | 42,024 | $ | 56,368 | ||||
| Earnings per common share-diluted |
$ | 0.42 | $ | 0.46 | $ | 1.04 | $ | 1.35 | ||||
| Add back: FASB 123 (revised) option-based compensation |
$ | 2,854 | — | $ | 11,109 | — | ||||||
| Tax effect |
924 | — | 3,003 | — | ||||||||
| Adjusted net income before FAS 123 (revised) option-based compensation and special charges |
$ | 19,286 | $ | 18,301 | $ | 50,130 | $ | 56,368 | ||||
| Adjusted earnings per common share-diluted before FAS 123 (revised) option-based compensation (1) |
$ | 0.47 | $ | 0.46 | $ | 1.24 | $ | 1.35 | ||||
| Add back: Special charges |
— | — | $ | 22,972 | — | |||||||
| Tax effect |
— | — | 10,039 | — | ||||||||
| Adjusted net income before FAS 123 (revised) option-based compensation and special charges (1) |
$ | 19,286 | $ | 18,301 | $ | 63,063 | $ | 56,368 | ||||
| Adjusted earnings per common share-diluted before special charges (1) |
$ | 0.42 | $ | 0.46 | $ | 1.36 | $ | 1.35 | ||||
| Adjusted earnings per common share-diluted before FAS 123 (revised) option-based compensation and special charges (1) |
$ | 0.47 | $ | 0.46 | $ | 1.56 | $ | 1.35 | ||||
| Add back: Amortization of intangible assets |
$ | 2,865 | $ | 2,225 | $ | 11,175 | $ | 6,534 | ||||
| Tax effect |
1,318 | 935 | 5,141 | 2,744 | ||||||||
| Adjusted net income before FAS 123 (revised) option-based compensation, special charges and amortization of intangible assets (1) |
$ | 20,833 | $ | 19,591 | $ | 69,097 | $ | 60,158 | ||||
| Adjusted earnings per common share-diluted before FAS 123 (revised) option-based compensation, special charges and amortization of intangible assets (1) |
$ | 0.50 | $ | 0.49 | $ | 1.71 | $ | 1.44 | ||||
| (1) | We use earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA and adjusted net income in evaluating the company’s financial performance. EBITDA, adjusted EBITDA and adjusted net income are not measurements under accounting principles generally accepted in the United States (“GAAP”). We define EBITDA as operating income before depreciation and amortization, amortization of intangible assets and litigation settlements. We define Adjusted EBITDA as EBITDA before special charges and loss from subleased facilities. These measures may not be similar to non-GAAP measures of other companies. We believe that the use of such measures, as supplements to operating income, net income and other GAAP measures, are useful indicators of a company’s financial performance and its ability to generate cash flow from operations that are available to fund capital expenditures and service debt. Further, these measures exclude certain items to provide better comparability from period to period. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. EBITDA is a common alternative performance measure used by investors, analysts and credit rating agencies to evaluate and compare the operating performance and value of companies within our industry. These non-GAAP measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our statements of income. |
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RECONCILIATION OF OPERATING INCOME AND NET INCOME TO ADJUSTED EARNINGS BEFORE
INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND SPECIAL CHARGES
| Three months ended December 31, |
Year ended December 31, |
|||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Net income |
$ | 17,356 | $ | 18,301 | $ | 42,024 | $ | 56,368 | ||||||||
| Add: Litigation settlements |
606 | 638 | 187 | 1,629 | ||||||||||||
| Interest expense, net |
10,725 | 4,997 | 26,830 | 13,189 | ||||||||||||
| Loss on early extinguishment of term loans |
— | — | — | 1,687 | ||||||||||||
| Income tax provision |
16,128 | 13,253 | 37,141 | 40,819 | ||||||||||||
| Operating income |
44,815 | 37,189 | 106,182 | 113,692 | ||||||||||||
| Add: Litigation settlements |
(606 | ) | (638 | ) | (187 | ) | (1,629 | ) | ||||||||
| Depreciation and amortization |
3,803 | 3,052 | 13,197 | 11,360 | ||||||||||||
| Amortization of other intangible assets |
2,865 | 2,225 | 11,175 | 6,534 | ||||||||||||
| EBITDA (1) |
50,877 | 41,828 | 130,367 | 129,957 | ||||||||||||
| Special charges |
— | — | 22,972 | — | ||||||||||||
| Loss from subleased facilities |
441 | — | 441 | 920 | ||||||||||||
| ADJUSTED EBITDA (1) |
51,318 | 41,828 | 153,780 | 130,877 | ||||||||||||
| FAS 123 (revised) option-based compensation |
2,854 | — | 11,109 | — | ||||||||||||
| ADJUSTED EBITDA before FAS 123 (revised) option-based compensation(1) |
$ | 54,172 | $ | 41,828 | $ | 164,889 | $ | 130,877 | ||||||||
| ADJUSTED EBITDA before FAS 123 (revised) option-based compensation(1) as a % of revenues |
25.0 | % | 25.2 | % | 23.3 | % | 24.3 | % | ||||||||
| (1) | We use earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA and adjusted net income in evaluating the company’s financial performance. EBITDA, adjusted EBITDA and adjusted net income are not measurements under accounting principles generally accepted in the United States (“GAAP”). We define EBITDA as operating income before depreciation and amortization, amortization of intangible assets and litigation settlements. We define Adjusted EBITDA as EBITDA before special charges and loss from subleased facilities. These measures may not be similar to non-GAAP measures of other companies. We believe that the use of such measures, as supplements to operating income, net income and other GAAP measures, are useful indicators of a company’s financial performance and its ability to generate cash flow from operations that are available to fund capital expenditures and service debt. Further, these measures exclude certain items to provide better comparability from period to period. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. EBITDA is a common alternative performance measure used by investors, analysts and credit rating agencies to evaluate and compare the operating performance and value of companies within our industry. These non-GAAP measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our statements of income. |
11