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): November 7, 2013
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.) |
777 South Flagler Drive, Suite 1500, West Palm Beach, Florida 33401
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (561) 515-1900
Not Applicable
(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 240.14a-12) |
| ¨ | 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 November 7, 2013, FTI Consulting, Inc. (“FTI Consulting”) issued its press release (the “Press Release”) reporting financial results for the three-month and nine-month periods ended September 30, 2013. The full text of the Press Release (including the accompanying financial tables) is set forth in Exhibit 99.1 and is incorporated by reference herein.
ITEM 7.01. Regulation FD Disclosure
FTI Consulting defines “Segment Operating Income” as a segment’s share of consolidated operating income. FTI Consulting defines “Total Segment Operating Income” as the total of Segment Operating Income for all segments, which excludes unallocated corporate expenses. FTI Consulting uses Segment Operating Income and Total Segment Operating Income for the purpose of calculating “Adjusted Segment EBITDA” (as defined below) and “Total Adjusted Segment EBITDA” (as defined below), respectively.
FTI Consulting defines “Adjusted EBITDA” as consolidated net income before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, special charges and goodwill impairment charges, and “Adjusted Segment EBITDA” as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, special charges and goodwill impairment charges. FTI Consulting defines “Total Adjusted Segment EBITDA” as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. FTI Consulting uses Adjusted Segment EBITDA to internally evaluate the financial performance of its segments because it believes it is a useful supplemental measure, which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash. FTI Consulting also believes that Adjusted EBITDA, Adjusted Segment EBITDA and Total Adjusted Segment EBITDA, when considered together with the financial results under U.S. generally accepted accounting principles (“GAAP”); provide management and investors with a more complete understanding of its operating results, including underlying trends, by excluding the effects of special charges and goodwill impairment charges. In addition, “EBITDA,” which FTI Consulting defines as consolidated net income before income tax provision, other non-operating income (expense), depreciation and amortization of intangible assets, is a common alternative measure of operating performance used by many of its competitors. EBITDA is also used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in FTI Consulting’s industry. Therefore, FTI Consulting also believes that these measures, considered along with the corresponding GAAP measures, provide management and investors with additional information for comparison of its operating results to the operating results of other companies.
FTI Consulting defines “Adjusted Net Income” and “Adjusted Earnings per Diluted Share” as net income and earnings per diluted share, respectively, excluding the impact of special charges, goodwill impairment charges and losses on early extinguishment of debt. FTI Consulting uses Adjusted Net Income for the purpose of calculating Adjusted Earnings per Diluted Share. FTI Consulting uses Adjusted Earnings per Diluted Share to assess total FTI Consulting operating performance on a consistent basis. FTI Consulting believes that Adjusted
1
Earnings per Diluted Share, when considered together with its GAAP financial results, provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of special charges, goodwill impairment charges and losses on early extinguishment of debt.
Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in FTI Consulting’s Consolidated Statements of Comprehensive Income. Reconciliations of GAAP to non-GAAP financial measures are included in the accompanying financial tables to 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 Exchange 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 9.01. Financial Statements and Exhibits
(d) Exhibits
| 99.1 | Press Release dated November 7, 2013, of FTI Consulting, Inc. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, FTI Consulting has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FTI CONSULTING, INC. | ||||||
| Dated: November 8, 2013 | By: | /s/ ERIC B. MILLER | ||||
| Eric B. Miller | ||||||
| Executive Vice President, General Counsel and Chief Risk Officer | ||||||
3
EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Press Release dated November 7, 2013, of FTI Consulting, Inc. | |
Exhibit 99.1
FTI Consulting, Inc.
777 South Flagler Drive, Suite 1500
West Palm Beach, FL 33401
+1.561.515.6078
Investor & Media Contact:
Mollie Hawkes
+1.617.747.1791
mollie.hawkes@fticonsulting.com
FTI Consulting Reports Third Quarter 2013 Results
— Revenues of $414.6 Million, Up 7.4 Percent
— Adjusted EPS of $0.72, Excluding Goodwill Impairment and Special Charge
— Net Cash Provided by Operating Activities of $84.4 Million
West Palm Beach, Fla., Nov. 7, 2013 – FTI Consulting, Inc. (NYSE: FCN), the global business advisory firm dedicated to helping organizations protect and enhance their enterprise value (the “Company”), today released its financial results for the quarter ended September 30, 2013.
For the quarter, revenues increased 7.4 percent to $414.6 million compared to $386.1 million in the prior year quarter. On a GAAP basis, the fully diluted loss per share was ($1.29) for the quarter, including a non-cash goodwill impairment charge related to the Strategic Communications segment of $83.8 million and a special charge of $10.4 million. The goodwill impairment charge has no impact on the Company’s liquidity, cash flow, borrowing capability or operations. Adjusted EPS were $0.72 for the quarter compared to $0.60 in the prior year quarter which included a $2.8 million special charge. Please see the attached financial tables for a reconciliation of fully diluted loss per share and Adjusted EPS.
Adjusted EBITDA increased 16.5 percent to $72.5 million for the quarter compared to $62.3 million in the prior year quarter. This improvement was primarily due to strong performance in the Company’s Economic Consulting and Forensic and Litigation Consulting segments, including the impact of a success fee in the Forensic and Litigation Consulting segment.
Adjusted EPS, Adjusted EBITDA and Adjusted Segment EBITDA are non-GAAP measures defined elsewhere in this press release and are reconciled to GAAP measures in the financial tables that accompany this press release.
Commenting on these results, Jack Dunn, FTI Consulting President and Chief Executive Officer said, “Record third quarter revenues increased 7.4 percent year-over-year, including organic growth of 3.4 percent. Economic Consulting was strong in both North America and Europe with 17.3 percent revenue growth overall, while Forensic and Litigation Consulting and its health solutions practice saw excellent results with revenue growth of 12.5 percent and 24.4 percent, respectively. In Technology, we benefited from returns on the sustained strategic investments we have made in this business with respect to our products, people and business development initiatives globally.”
Cash and Capital Allocation
Net cash provided by operating activities in the quarter increased 19.0 percent to $84.4 million compared to $70.9 million in the prior year quarter due to continued strong cash collections. During the quarter, the Company used approximately $20.0 million to repurchase and retire 595,225 shares of the Company’s common stock. Cash and cash equivalents were $147.9 million at September 30, 2013. The Company has spent $40.8 million on acquisitions and $48.8 million on stock repurchases year to date through September 30, 2013.
Third Quarter Segment Results
Corporate Finance/Restructuring
Revenues in the Corporate Finance/Restructuring segment increased 1.0 percent to $94.0 million in the quarter compared to $93.1 million in the prior year quarter. The segment benefited from acquisitions which contributed revenues of $12.8 million in the quarter; however, the segment experienced a roughly equivalent decline in bankruptcy and restructuring revenues in the North America region. Adjusted Segment EBITDA was $19.4 million or 20.6 percent of segment revenues compared to $22.0 million or 23.6 percent of segment revenues in the prior year quarter reflecting continued underutilization in North America and the previously disclosed organic investment in a Europe, Middle East and Africa (“EMEA”) based transaction services practice, partially offset by reductions in performance-based compensation and headcount. In that regard, the segment recorded a special charge of $6.3 million in the quarter, compared to $0.8 million in the prior year quarter, related to headcount reductions to better align capacity with demand.
Economic Consulting
Revenues in the Economic Consulting segment increased 17.3 percent to $113.1 million in the quarter compared to $96.4 million in the prior year quarter. The increase in revenues was driven by continued strong performance for the segment’s antitrust litigation services in North America and EMEA and international arbitration, regulatory and valuation practices in EMEA. Adjusted Segment EBITDA was $23.2 million or 20.5 percent of segment revenues compared to $19.1 million or 19.8 percent of segment revenues in the prior year quarter.
Forensic and Litigation Consulting
Revenues in the Forensic and Litigation Consulting segment increased 12.5 percent to $113.1 million in the quarter compared to $100.5 million in the prior year quarter, primarily due to a success fee in the North America investigations practice and increased demand in the health solutions practice. Adjusted Segment EBITDA was $25.4 million or 22.4 percent of segment revenues compared to $16.3 million or 16.2 percent of segment revenues in the prior year quarter. The increase in Adjusted Segment EBITDA margin was due to a high margin success fee, improved utilization in the North America financial and enterprise data analytics practice and a reduction of performance-based compensation expense. The segment recorded a special charge of $1.9 million compared to $0.5 million in the prior year quarter, related to headcount reductions taken to better align capacity with demand.
Technology
Revenues in the Technology segment increased 1.8 percent to $51.2 million in the quarter compared to $50.3 million in the prior year quarter. The increase in revenues was due to higher services revenues primarily for investigations involving the Foreign Corrupt Practices Act and interest rate setting process concerning the London Interbank Offered Rate (“LIBOR”), as the segment still felt the impact of the decline of a large litigation-related matter which was very active last year. Adjusted Segment EBITDA was $15.4 million or 30.0 percent of segment revenues compared to $15.7 million or 31.2 percent of segment revenues in the prior year quarter.
Strategic Communications
Revenues in the Strategic Communications segment decreased 5.4 percent to $43.3 million in the quarter compared to $45.8 million in the prior year quarter. Revenues were lower due to reduced pass-through revenues for certain EMEA and North America retained engagements and weak mergers and acquisitions activity in the Asia Pacific region. This segment benefitted from $1.6 million of revenues from the acquisition of a U.S. public policy group completed in March 2013. Adjusted Segment EBITDA was $4.0 million or 9.3 percent of segment revenues compared to $6.8 million or 14.8 percent of segment revenues in the prior year quarter. Adjusted Segment EBITDA margin was adversely impacted by reduced project fees in the Asia Pacific region and lower retained fees in the North America region. A goodwill impairment charge of $83.8 million was recorded in this segment during the quarter.
Third Quarter Conference Call
FTI Consulting will hold a conference call for analysts and investors to discuss third quarter financial results at 9:00 a.m. Eastern Time on November 7, 2013. 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 at www.fticonsulting.com.
About FTI Consulting
FTI Consulting, Inc. is a global business advisory firm dedicated to helping organizations protect and enhance enterprise value in an increasingly complex legal, regulatory and economic environment. With over 4,100 employees located in 25 countries, FTI Consulting professionals work closely with clients to anticipate, illuminate and overcome complex business challenges in areas such as investigations, litigation, mergers and acquisitions, regulatory issues, reputation management, strategic communications and restructuring. The Company generated $1.58 billion in revenues during fiscal year 2012. More information can be found at www.fticonsulting.com.
Use of Non-GAAP Measures
Note: We define Segment Operating Income as a segment’s share of consolidated operating income. We define Total Segment Operating Income as the total of Segment Operating Income for all segments, which excludes unallocated corporate expenses. We use Segment Operating Income for the purpose of calculating Adjusted Segment EBITDA. We define Adjusted EBITDA as consolidated net income before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, special charges and goodwill impairment charges. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, special charges and goodwill impairment charges. We define Total Adjusted Segment EBITDA as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. We use Adjusted Segment EBITDA to internally evaluate the financial performance of our segments because we believe it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash. We also believe that these measures, when considered together with our GAAP financial results, provide management and investors with a more complete understanding of our operating results, including underlying trends, by excluding the effects of special charges and goodwill impairment charges. In addition, EBITDA is a common alternative measure of operating performance used by many of our competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in our industry. Therefore, we also believe that these measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of our operating results to the operating results of other companies.
We define Adjusted Net Income and Adjusted Earnings per Diluted Share (“Adjusted EPS”) as net income and earnings per diluted share, respectively, excluding the impact of special charges, goodwill impairment charges and losses on early extinguishment of debt. We use Adjusted Net Income for the purpose of calculating Adjusted Earnings per Diluted Share. Management uses Adjusted Earnings per Diluted Share to assess total Company operating performance on a consistent basis. We believe that this measure, when considered together with our GAAP financial results, provides management and investors with a more complete understanding of our business operating results, including underlying trends, by excluding the effects of special charges, goodwill impairment charges and losses on early extinguishment of debt. Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Consolidated Statements of Comprehensive Income. Reconciliations of GAAP to non-GAAP financial measures are included elsewhere in this press release.
Safe Harbor Statement
This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions relating to acquisitions and other matters, business trends and other information that is not historical, including statements regarding estimates of our future financial results. When used in this press release, words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, estimates of our future financial results, are based upon our expectations at the time we make them and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and estimates will be achieved, and the Company’s actual results may differ materially from our expectations, beliefs and estimates. Further, preliminary results are subject to normal year-end adjustments. The Company has experienced fluctuating revenues, operating income and cash flow in prior periods and expects that this will occur from time to time in the future. Other factors that could cause such differences include declines in demand for, or changes in, the mix of services and products that we
offer, the mix of the geographic locations where our clients are located or where services are performed, adverse financial, real estate or other market and general economic conditions, which could impact each of our segments differently, 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 under the heading “Item 1A Risk Factors” in the Company’s most recent Form 10-K filed with the SEC on February 28, 2013, the Current Report on Form 8-K dated May 21, 2013 and in the Company’s other filings with the Securities and Exchange Commission, including the risks set forth under “Risks Related to Our Operating Segments” and “Risks Related to Our Operations”. 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
# # #
FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(in thousands, except per share data)
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2013 | 2012 | |||||||
| Revenues |
$ | 1,236,434 | $ | 1,177,526 | ||||
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|
|
|
|||||
| Operating expenses |
||||||||
| Direct cost of revenues |
773,160 | 735,452 | ||||||
| Selling, general and administrative expense |
287,485 | 283,958 | ||||||
| Special charges |
10,846 | 29,557 | ||||||
| Acquisition-related contingent consideration |
(6,091 | ) | (2,581 | ) | ||||
| Amortization of other intangible assets |
17,293 | 16,773 | ||||||
| Goodwill impairment charge |
83,752 | — | ||||||
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|
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| 1,166,445 | 1,063,159 | |||||||
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| Operating income |
69,989 | 114,367 | ||||||
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| Other income (expense) |
||||||||
| Interest income and other |
1,702 | 4,503 | ||||||
| Interest expense |
(38,600 | ) | (43,607 | ) | ||||
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|||||
| (36,898 | ) | (39,104 | ) | |||||
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| Income before income tax provision |
33,091 | 75,263 | ||||||
| Income tax provision |
36,546 | 26,372 | ||||||
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| Net income (loss) |
$ | (3,455 | ) | $ | 48,891 | |||
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| Earnings (loss) per common share - basic |
$ | (0.09 | ) | $ | 1.21 | |||
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| Weighted average common shares outstanding - basic |
39,212 | 40,446 | ||||||
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| Earnings (loss) per common share - diluted |
$ | (0.09 | ) | $ | 1.17 | |||
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| Weighted average common shares outstanding - diluted |
39,212 | 41,882 | ||||||
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| Other comprehensive income (loss), net of tax: |
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| Foreign currency translation adjustments, net of tax of $0 |
$ | (10,108 | ) | $ | 14,620 | |||
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| Other comprehensive income (loss), net of tax |
(10,108 | ) | 14,620 | |||||
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| Comprehensive income (loss) |
$ | (13,563 | ) | $ | 63,511 | |||
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FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(in thousands, except per share data)
(unaudited)
| Three Months Ended September 30, |
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| 2013 | 2012 | |||||||
| Revenues |
$ | 414,643 | $ | 386,055 | ||||
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| Operating expenses |
||||||||
| Direct cost of revenues |
255,152 | 241,614 | ||||||
| Selling, general and administrative expense |
94,513 | 88,909 | ||||||
| Special charges |
10,419 | 2,775 | ||||||
| Acquisition-related contingent consideration |
630 | 403 | ||||||
| Amortization of other intangible assets |
5,776 | 5,766 | ||||||
| Goodwill impairment charge |
83,752 | — | ||||||
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| 450,242 | 339,467 | |||||||
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| Operating income (loss) |
(35,599 | ) | 46,588 | |||||
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| Other income (expense) |
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| Interest income and other |
1,152 | 1,584 | ||||||
| Interest expense |
(12,814 | ) | (13,208 | ) | ||||
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| (11,662 | ) | (11,624 | ) | |||||
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| Income (loss) before income tax provision |
(47,261 | ) | 34,964 | |||||
| Income tax provision |
3,360 | 12,251 | ||||||
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| Net income (loss) |
$ | (50,621 | ) | $ | 22,713 | |||
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| Earnings (loss) per common share - basic |
$ | (1.29 | ) | $ | 0.56 | |||
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| Weighted average common shares outstanding - basic |
39,094 | 40,387 | ||||||
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| Earnings (loss) per common share - diluted |
$ | (1.29 | ) | $ | 0.55 | |||
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| Weighted average common shares outstanding - diluted |
39,094 | 41,102 | ||||||
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| Other comprehensive income, net of tax: |
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| Foreign currency translation adjustments, net of tax of $0 |
$ | 17,115 | $ | 12,731 | ||||
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| Other comprehensive income, net of tax |
17,115 | 12,731 | ||||||
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| Comprehensive income (loss) |
$ | (33,506 | ) | $ | 35,444 | |||
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FTI CONSULTING, INC.
OPERATING RESULTS BY BUSINESS SEGMENT
| Revenues | Adjusted EBITDA (1) |
As a percent of revenues |
Utilization (4) | Average Billable Rate (4) |
Revenue- Generating Headcount |
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| (in thousands) | (at period end) | |||||||||||||||||||||||
| Three Months Ended September 30, 2013 |
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| Corporate Finance/Restructuring (3) |
$ | 93,981 | $ | 19,402 | 20.6 | % | 64 | % | $ | 396 | 732 | |||||||||||||
| Forensic and Litigation Consulting (3) |
113,068 | 25,362 | 22.4 | % | 67 | % | $ | 324 | 999 | |||||||||||||||
| Economic Consulting |
113,069 | 23,225 | 20.5 | % | 79 | % | $ | 512 | 528 | |||||||||||||||
| Technology (2) |
51,201 | 15,381 | 30.0 | % | N/M | N/M | 297 | |||||||||||||||||
| Strategic Communications (2) |
43,324 | 4,036 | 9.3 | % | N/M | N/M | 617 | |||||||||||||||||
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| $ | 414,643 | 87,406 | 21.1 | % | 3,173 | |||||||||||||||||||
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| Unallocated Corporate Expenses |
(14,862 | ) | ||||||||||||||||||||||
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| Adjusted EBITDA (1) |
$ | 72,544 | 17.5 | % | ||||||||||||||||||||
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| Nine Months Ended September 30, 2013 |
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| Corporate Finance/Restructuring (3) |
$ | 289,775 | $ | 62,610 | 21.6 | % | 66 | % | $ | 407 | 732 | |||||||||||||
| Forensic and Litigation Consulting (3) |
318,912 | 58,866 | 18.5 | % | 68 | % | $ | 315 | 999 | |||||||||||||||
| Economic Consulting |
339,277 | 70,222 | 20.7 | % | 84 | % | $ | 509 | 528 | |||||||||||||||
| Technology (2) |
149,101 | 45,985 | 30.8 | % | N/M | N/M | 297 | |||||||||||||||||
| Strategic Communications (2) |
139,369 | 12,809 | 9.2 | % | N/M | N/M | 617 | |||||||||||||||||
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| $ | 1,236,434 | 250,492 | 20.3 | % | 3,173 | |||||||||||||||||||
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| Unallocated Corporate Expenses |
(44,394 | ) | ||||||||||||||||||||||
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| Adjusted EBITDA (1) |
$ | 206,098 | 16.7 | % | ||||||||||||||||||||
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| Three Months Ended September 30, 2012 |
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| Corporate Finance/Restructuring (3) |
$ | 93,123 | $ | 21,951 | 23.6 | % | 72 | % | $ | 402 | 621 | |||||||||||||
| Forensic and Litigation Consulting (3) |
100,460 | 16,289 | 16.2 | % | 63 | % | $ | 328 | 939 | |||||||||||||||
| Economic Consulting |
96,375 | 19,087 | 19.8 | % | 79 | % | $ | 495 | 467 | |||||||||||||||
| Technology (2) |
50,286 | 15,675 | 31.2 | % | N/M | N/M | 283 | |||||||||||||||||
| Strategic Communications (2) |
45,811 | 6,778 | 14.8 | % | N/M | N/M | 597 | |||||||||||||||||
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| $ | 386,055 | 79,780 | 20.7 | % | 2,907 | |||||||||||||||||||
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| Unallocated Corporate Expenses |
(17,499 | ) | ||||||||||||||||||||||
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| Adjusted EBITDA (1) |
$ | 62,281 | 16.1 | % | ||||||||||||||||||||
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| Nine Months Ended September 30, 2012 |
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| Corporate Finance/Restructuring (3) |
$ | 286,184 | $ | 73,419 | 25.7 | % | 75 | % | $ | 409 | 621 | |||||||||||||
| Forensic and Litigation Consulting (3) |
310,351 | 50,500 | 16.3 | % | 65 | % | $ | 323 | 939 | |||||||||||||||
| Economic Consulting |
295,882 | 56,002 | 18.9 | % | 82 | % | $ | 493 | 467 | |||||||||||||||
| Technology (2) |
147,643 | 41,739 | 28.3 | % | N/M | N/M | 283 | |||||||||||||||||
| Strategic Communications (2) |
137,466 | 16,277 | 11.8 | % | N/M | N/M | 597 | |||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||||||
| $ | 1,177,526 | 237,937 | 20.2 | % | 2,907 | |||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Unallocated Corporate Expenses |
(55,080 | ) | ||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Adjusted EBITDA (1) |
$ | 182,857 | 15.5 | % | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| (1) | We define Adjusted EBITDA as consolidated net income before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, special charges and goodwill impairment charges. Amounts presented in the Adjusted EBITDA column for each segment reflect the segments’ respective Adjusted Segment EBITDA. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, special charges and goodwill impairment charges. We use Adjusted Segment EBITDA to internally evaluate the financial performance of our segments because we believe it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash. We also believe that these measures, when considered together with our GAAP financial results, provide management and investors with a more complete understanding of our operating results, including underlying trends, by excluding the effects of special charges and goodwill impairment charges. In addition, EBITDA is a common alternative measure of operating performance used by many of our competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in our industry. Therefore, we also believe that these measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of our operating results to the operating results of other companies. Adjusted EBITDA and Adjusted Segment EBITDA are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. These non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Condensed Consolidated Statements of Comprehensive Income (Loss). See also our reconciliation of GAAP to non-GAAP financial measures. |
| (2) | The majority of the Technology and Strategic Communications segments’ revenues are not generated based on billable hours. Accordingly, utilization and average billable rate metrics are not presented as they are not meaningful as a segment-wide metric. |
| (3) | Effective in the first quarter of 2013, we modified our reportable segments to reflect changes in how we operate our business and the related internal management reporting. The Company’s healthcare and life sciences practices from both our Corporate Finance/Restructuring segment and our Forensic and Litigation Consulting segment have been combined under a single organizational structure. This single integrated practice, our health solutions practice, is now aggregated in its entirety within the Forensic and Litigation Consulting reportable segment. Prior period Corporate Finance/Restructuring and Forensic and Litigation Consulting segment information has been reclassified to conform to the current period presentation. |
| (4) | 2013 and 2012 utilization and average bill rate calculations for our Corporate Finance/Restructuring, Forensic and Litigation Consulting, and Economic Consulting segments were updated to reflect the realignment of certain practices as well as information related to non-U.S. operations that was not previously available. |
FTI CONSULTING, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(in thousands, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Net income (loss) |
$ | (50,621 | ) | $ | 22,713 | $ | (3,455 | ) | $ | 48,891 | ||||||
| Add back: |
||||||||||||||||
| Special charges, net of tax effect (1) |
6,847 | 1,794 | 7,100 | 19,115 | ||||||||||||
| Goodwill impairment charges (2) |
83,752 | — | 83,752 | — | ||||||||||||
| Less: |
||||||||||||||||
| Interim period impact of including goodwill impairment charges in the annual effective tax rate |
(10,805 | ) | — | (10,805 | ) | — | ||||||||||
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|
|
|
|
|
|
|
|
|||||||||
| Adjusted Net Income (4) |
$ | 29,173 | $ | 24,507 | $ | 76,592 | $ | 68,006 | ||||||||
|
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|
|
|
|
|
|
|
|||||||||
| Earnings (loss) per common share - diluted |
$ | (1.29 | ) | $ | 0.55 | $ | (0.09 | ) | $ | 1.17 | ||||||
| Add back: |
||||||||||||||||
| Special charges, net of tax effect (1) |
0.18 | 0.05 | 0.18 | 0.45 | ||||||||||||
| Goodwill impairment charges (2) |
2.14 | — | 2.14 | — | ||||||||||||
| Less: |
||||||||||||||||
| Interim period impact of including goodwill impairment charges in the annual effective tax rate |
(0.27 | ) | — | (0.28 | ) | — | ||||||||||
| Impact of denominator for diluted earnings per common share (3) |
(0.04 | ) | — | (0.05 | ) | — | ||||||||||
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|
|
|
|
|
|||||||||
| Adjusted EPS (4) |
$ | 0.72 | $ | 0.60 | $ | 1.90 | $ | 1.62 | ||||||||
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|
|
|
|
|||||||||
| Weighted average number of common shares outstanding - diluted (3) |
40,244 | 41,102 | 40,385 | 41,882 | ||||||||||||
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|||||||||
| (1) | The tax effect takes into account the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). As a result, the effective tax rates related to the special charges for the three and nine months ended September 30, 2013 were 34.3% and 34.5%, respectively, and 35.3% for both of the three and nine months ended September 30, 2012. The tax expense related to the special charges for the three and nine months ended September 30, 2013 was $3.6 million or $0.09 impact on diluted earnings per common share and $3.7 million or $0.10 impact on diluted earnings per common share, respectively. The tax expense related to the special charges for the three and nine months ended September 30, 2012 was $1.0 million or $0.02 impact on diluted earnings per common share and $10.4 million or $0.25 impact on diluted earnings per common share, respectively. |
| (2) | The goodwill impairment charge is non-deductible for income tax purposes and will result in no tax benefit for the year ending December 31, 2013. |
| (3) | For the three and nine months ended September 30, 2013, the Company reported a net loss. For those periods, the basic weighted average common shares outstanding equals the diluted weighted average common shares outstanding for purposes of calculating U.S. GAAP earnings per share because potentially dilutive securities would be antidilutive. For non-GAAP purposes, the per share and share amounts presented herein reflect the impact of the inclusion of share-based awards and convertible notes that are considered dilutive based on the impact of the add backs included in Adjusted Net Income above. |
| (4) | We define Adjusted Net Income and Adjusted Earnings per Diluted Share as net income and earnings per diluted share, respectively, excluding the impact of special charges, goodwill impairment charges and losses on early extinguishment of debt. We use Adjusted Net Income for the purpose of calculating Adjusted Earnings per Diluted Share. Management uses Adjusted Earnings per Diluted Share to assess total company operating performance on a consistent basis. We believe that this measure, when considered together with our GAAP financial results, provides management and investors with a more complete understanding of our business operating results, including underlying trends, by excluding the effects of special charges, goodwill impairment charges and losses on early extinguishment of debt. |
RECONCILIATION OF NET INCOME (LOSS) AND OPERATING INCOME (LOSS) TO ADJUSTED EBITDA
(in thousands)
| Corporate Finance / Restructuring (3) |
Forensic and Litigation Consulting (3) |
Economic Consulting |
Technology | Strategic Communi- cations |
Unallocated Corporate Expenses |
Total | ||||||||||||||||||||||
| Three Months Ended September 30, 2013 |
||||||||||||||||||||||||||||
| Net income (loss) |
$ | (50,621 | ) | |||||||||||||||||||||||||
| Interest income and other |
(1,152 | ) | ||||||||||||||||||||||||||
| Interest expense |
12,814 | |||||||||||||||||||||||||||
| Income tax provision |
3,360 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Operating income (loss) (1) |
$ | 10,590 | $ | 21,915 | $ | 21,708 | $ | 9,755 | $ | (81,490 | ) | $ | (18,077 | ) | $ | (35,599 | ) | |||||||||||
| Depreciation and amortization |
919 | 997 | 979 | 3,642 | 575 | 1,084 | 8,196 | |||||||||||||||||||||
| Amortization of other intangible assets |
1,562 | 512 | 523 | 1,982 | 1,197 | — | 5,776 | |||||||||||||||||||||
| Special Charges |
6,331 | 1,938 | 15 | 2 | 2 | 2,131 | 10,419 | |||||||||||||||||||||
| Goodwill impairment charge |
— | — | — | — | 83,752 | — | 83,752 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Adjusted EBITDA (2) |
$ | 19,402 | $ | 25,362 | $ | 23,225 | $ | 15,381 | $ | 4,036 | $ | (14,862 | ) | $ | 72,544 | |||||||||||||
|
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|
|
|
|||||||||||||||
| Nine Months Ended September 30, 2013 |
||||||||||||||||||||||||||||
| Net income (loss) |
$ | (3,455 | ) | |||||||||||||||||||||||||
| Interest income and other |
(1,702 | ) | ||||||||||||||||||||||||||
| Interest expense |
38,600 | |||||||||||||||||||||||||||
| Income tax provision |
36,546 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Operating income (loss) (1) |
$ | 48,725 | $ | 52,194 | $ | 66,233 | $ | 29,129 | $ | (76,369 | ) | $ | (49,923 | ) | 69,989 | |||||||||||||
| Depreciation and amortization |
2,541 | 2,958 | 2,647 | 10,888 | 1,898 | 3,286 | 24,218 | |||||||||||||||||||||
| Amortization of other intangible assets |
4,945 | 1,603 | 1,331 | 5,952 | 3,462 | — | 17,293 | |||||||||||||||||||||
| Special charges |
6,399 | 2,111 | 11 | 16 | 66 | 2,243 | 10,846 | |||||||||||||||||||||
| Goodwill impairment charge |
— | — | — | — | 83,752 | — | 83,752 | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Adjusted EBITDA (2) |
62,610 | 58,866 | 70,222 | 45,985 | 12,809 | (44,394 | ) | 206,098 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Corporate Finance / Restructuring (3) |
Forensic and Litigation Consulting (3) |
Economic Consulting |
Technology | Strategic Communi- cations |
Unallocated Corporate Expenses |
Total | ||||||||||||||||||||||
| Three Months Ended September 30, 2012 |
||||||||||||||||||||||||||||
| Net income |
$ | 22,713 | ||||||||||||||||||||||||||
| Interest income and other |
(1,584 | ) | ||||||||||||||||||||||||||
| Interest expense |
13,208 | |||||||||||||||||||||||||||
| Income tax provision |
12,251 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Operating income (1) |
$ | 19,024 | $ | 14,062 | $ | 17,810 | $ | 10,445 | $ | 4,874 | $ | (19,627 | ) | $ | 46,588 | |||||||||||||
| Depreciation and amortization |
713 | 981 | 702 | 3,098 | 544 | 1,114 | 7,152 | |||||||||||||||||||||
| Amortization of other intangible assets |
1,443 | 778 | 402 | 1,984 | 1,159 | — | 5,766 | |||||||||||||||||||||
| Special charges |
771 | 468 | 173 | 148 | 201 | 1,014 | 2,775 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Adjusted EBITDA (1) |
$ | 21,951 | $ | 16,289 | $ | 19,087 | $ | 15,675 | $ | 6,778 | $ | (17,499 | ) | $ | 62,281 | |||||||||||||
|
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|||||||||||||||
| Nine Months Ended September 30, 2012 |
||||||||||||||||||||||||||||
| Net income |
$ | 48,891 | ||||||||||||||||||||||||||
| Interest income and other |
(4,503 | ) | ||||||||||||||||||||||||||
| Interest expense |
43,607 | |||||||||||||||||||||||||||
| Income tax provision |
26,372 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Operating income (1) |
$ | 55,488 | $ | 37,360 | $ | 51,681 | $ | 23,403 | $ | 6,161 | $ | (59,726 | ) | 114,367 | ||||||||||||||
| Depreciation and amortization |
2,278 | 3,062 | 2,131 | 9,262 | 1,913 | 3,514 | 22,160 | |||||||||||||||||||||
| Amortization of other intangible assets |
4,321 | 1,802 | 1,199 | 5,960 | 3,491 | — | 16,773 | |||||||||||||||||||||
| Special charges |
11,332 | 8,276 | 991 | 3,114 | 4,712 | 1,132 | 29,557 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Adjusted EBITDA (2) |
73,419 | 50,500 | 56,002 | 41,739 | 16,277 | (55,080 | ) | 182,857 | ||||||||||||||||||||
|
|
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|
|
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|
|||||||||||||||
| (1) | We define Segment Operating Income as a segment’s share of consolidated operating income. We define Total Segment Operating Income as the total of Segment Operating Income for all segments, which excludes unallocated corporate expenses. We use Segment Operating Income for the purpose of calculating Adjusted Segment EBITDA. |
| (2) | We define Adjusted EBITDA as consolidated net income before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, special charges and goodwill impairment charges. Amounts presented in the Adjusted EBITDA row for each segment reflect the segments’ respective Adjusted Segment EBITDA. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, special charges and goodwill impairment charges. We use Adjusted Segment EBITDA to internally evaluate the financial performance of our segments because we believe it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash. We also believe that these measures, when considered together with our GAAP financial results, provide management and investors with a more complete understanding of our operating results, including underlying trends, by excluding the effects of special charges and goodwill impairment charges. In addition, EBITDA is a common alternative measure of operating performance used by many of our competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in our industry. Therefore, we also believe that these measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of our operating results to the operating results of other companies. Adjusted EBITDA and Adjusted Segment EBITDA are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. These non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Condensed Consolidated Statements of Comprehensive Income (Loss). See also our reconciliation of GAAP to non-GAAP financial measures. |
| (3) | Effective in the first quarter of 2013, we modified our reportable segments to reflect changes in how we operate our business and the related internal management reporting. The Company’s healthcare and life sciences practices from both our Corporate Finance/Restructuring segment and our Forensic and Litigation Consulting segment have been combined under a single organizational structure. This single integrated practice, our health solutions practice, is now aggregated in its entirety within the Forensic and Litigation Consulting reportable segment. Prior period Corporate Finance/Restructuring and Forensic and Litigation Consulting segment information has been reclassified to conform to the current period presentation. Adjusted EBITDA and Adjusted Segment EBITDA are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. These non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Condensed Consolidated Statements of Comprehensive Income (Loss). |
FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(in thousands)
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2013 | 2012 | |||||||
| Operating activities |
||||||||
| Net income (loss) |
$ | (3,455 | ) | $ | 48,891 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
24,218 | 26,475 | ||||||
| Amortization of other intangible assets |
17,293 | 16,948 | ||||||
| Goodwill impairment charge |
83,752 | — | ||||||
| Acquisition-related contingent consideration |
(6,091 | ) | (2,581 | ) | ||||
| Provision for doubtful accounts |
10,404 | 9,387 | ||||||
| Non-cash share-based compensation |
22,544 | 24,465 | ||||||
| Non-cash interest expense |
2,024 | 4,505 | ||||||
| Other |
(286 | ) | 10 | |||||
| Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||||
| Accounts receivable, billed and unbilled |
(72,266 | ) | (62,466 | ) | ||||
| Notes receivable |
(9,644 | ) | (20,732 | ) | ||||
| Prepaid expenses and other assets |
(2,313 | ) | (3,701 | ) | ||||
| Accounts payable, accrued expenses and other |
16,822 | 5,608 | ||||||
| Income taxes |
12,989 | (5,595 | ) | |||||
| Accrued compensation |
13,198 | (33,734 | ) | |||||
| Billings in excess of services provided |
(5,383 | ) | 6,144 | |||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
103,806 | 13,624 | ||||||
|
|
|
|
|
|||||
| Investing activities |
||||||||
| Payments for acquisition of businesses, net of cash received |
(40,766 | ) | (26,453 | ) | ||||
| Purchases of property and equipment |
(22,994 | ) | (20,534 | ) | ||||
| Other |
24 | (1,105 | ) | |||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(63,736 | ) | (48,092 | ) | ||||
|
|
|
|
|
|||||
| Financing activities |
||||||||
| Borrowings under revolving line of credit |
— | 75,000 | ||||||
| Payments of long-term debt |
(6,000 | ) | (156,487 | ) | ||||
| Purchase and retirement of common stock |
(48,769 | ) | (20,013 | ) | ||||
| Net issuance of common stock under equity compensation plans |
6,208 | 523 | ||||||
| Other |
(800 | ) | (1,982 | ) | ||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(49,361 | ) | (102,959 | ) | ||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on cash and cash equivalents |
432 | (68 | ) | |||||
|
|
|
|
|
|||||
| Net decrease in cash and cash equivalents |
(8,859 | ) | (137,495 | ) | ||||
| Cash and cash equivalents, beginning of period |
156,785 | 264,423 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of period |
$ | 147,926 | $ | 126,928 | ||||
|
|
|
|
|
|||||
FTI CONSULTING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
(in thousands, except per share amounts)
| September 30, 2013 |
December 31, 2012 |
|||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 147,926 | $ | 156,785 | ||||
| Restricted cash |
— | 1,190 | ||||||
| Accounts receivable: |
||||||||
| Billed receivables |
345,407 | 314,491 | ||||||
| Unbilled receivables |
260,211 | 208,797 | ||||||
| Allowance for doubtful accounts and unbilled services |
(110,708 | ) | (94,048 | ) | ||||
|
|
|
|
|
|||||
| Accounts receivable, net |
494,910 | 429,240 | ||||||
| Current portion of notes receivable |
32,112 | 33,194 | ||||||
| Prepaid expenses and other current assets |
40,334 | 50,351 | ||||||
| Current portion of deferred tax assets |
31,628 | 3,615 | ||||||
|
|
|
|
|
|||||
| Total current assets |
746,910 | 674,375 | ||||||
| Property and equipment, net of accumulated depreciation |
66,300 | 68,192 | ||||||
| Goodwill |
1,194,414 | 1,260,035 | ||||||
| Other intangible assets, net of amortization |
92,738 | 104,181 | ||||||
| Notes receivable, net of current portion |
112,194 | 101,623 | ||||||
| Other assets |
64,986 | 67,046 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 2,277,542 | $ | 2,275,452 | ||||
|
|
|
|
|
|||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities |
||||||||
| Accounts payable, accrued expenses and other |
$ | 107,363 | $ | 98,109 | ||||
| Accrued compensation |
164,585 | 168,392 | ||||||
| Current portion of long-term debt |
6,000 | 6,021 | ||||||
| Billings in excess of services provided |
26,186 | 31,675 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
304,134 | 304,197 | ||||||
| Long-term debt, net of current portion |
711,000 | 717,024 | ||||||
| Deferred income taxes |
140,746 | 105,751 | ||||||
| Other liabilities |
85,561 | 80,248 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
1,241,441 | 1,207,220 | ||||||
|
|
|
|
|
|||||
| Stockholders’ equity |
||||||||
| Preferred stock, $0.01 par value; shares authorized — 5,000; none outstanding |
— | — | ||||||
| Common stock, $0.01 par value; shares authorized — 75,000; shares issued and outstanding — 40,089 (2013) and 40,755 (2012) |
401 | 408 | ||||||
| Additional paid-in capital |
349,417 | 367,978 | ||||||
| Retained earnings |
737,760 | 741,215 | ||||||
| Accumulated other comprehensive loss |
(51,477 | ) | (41,369 | ) | ||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
1,036,101 | 1,068,232 | ||||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 2,277,542 | $ | 2,275,452 | ||||
|
|
|
|
|
|||||