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): July 31, 2014
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.) |
1101 K Street NW, Washington, D.C. 20005
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (202) 312-9100
(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 July 31, 2014, FTI Consulting, Inc. (“FTI Consulting”) issued its press release (the “Press Release”) reporting financial results for the second quarter and six months ended June 30, 2014. 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, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt, “Adjusted Segment EBITDA” as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges, and “Total Adjusted Segment EBITDA” as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. Although Adjusted EBITDA, Adjusted Segment EBITDA and Total Adjusted Segment EBITDA are not measures of financial condition or performance determined in accordance with generally accepted accounting principles (“GAAP”), FTI Consulting believes that they can be useful operating performance measures. FTI Consulting uses Adjusted Segment EBITDA to internally evaluate the financial performance of each 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 these non-GAAP 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 remeasurement of acquisition-related contingent consideration, special charges, and goodwill impairment charges. In addition, EBITDA is a common alternative measure of operating performance used by many of FTI Consulting’s competitors. It is 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 corresponding GAAP measures, provide management and investors with additional information for comparison of FTI Consulting’s operating results to the operating results of other companies.
FTI Consulting defines “Adjusted Net Income” and “Adjusted Earnings per Diluted Share” (“Adjusted EPS”) as net income and earnings per diluted share, respectively, excluding the impact of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. FTI Consulting uses Adjusted Net Income for the purpose of calculating Adjusted EPS and uses Adjusted EPS to assess total FTI Consulting operating performance on a consistent basis. FTI Consulting believes that this measure, when considered together with its GAAP financial results, provides management and investors with a more complete understanding of FTI Consulting’s business operating results,
1
including underlying trends, by excluding the effects of remeasurement of acquisition-related contingent consideration, 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 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 July 31, 2014, of FTI Consulting, Inc. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, FTI Consulting, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FTI CONSULTING, INC. | ||||||
| Dated: August 4, 2014 | By: | /S/ ERIC B. MILLER | ||||
| Eric B. Miller | ||||||
| Executive Vice President, General Counsel and Chief Risk Officer | ||||||
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EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Press Release dated July 31, 2014, of FTI Consulting, Inc. | |
1
Exhibit 99.1
FTI Consulting, Inc.
1101 K Street NW
Washington, D.C. 20005
+1.202.312.9100
Investor & Media Contact:
Mollie Hawkes
+1.617.747.1791
mollie.hawkes@fticonsulting.com
FTI Consulting Reports Second Quarter 2014 Results
• Second Quarter Revenues of $454.3 Million
• Second Quarter Adjusted EPS of $0.55; Fully Diluted EPS of $0.42
Washington, D.C., July 31, 2014 – FTI Consulting, Inc. (NYSE: FCN) (the “Company”), the global business advisory firm dedicated to helping organizations protect and enhance their enterprise value, today released its financial results for the quarter ended June 30, 2014.
For the quarter, revenues increased 9.6 percent to $454.3 million compared to $414.6 million in the prior year quarter. Fully diluted earnings per share (“EPS”) were $0.42 compared to $0.58 in the prior year quarter. EPS for the quarter included a special charge of $9.4 million related to the closure of the Company’s West Palm Beach office and the termination of a corporate plane lease which reduced EPS by $0.14. Adjusted EPS for the quarter were $0.55. Adjusted EBITDA for the quarter was $59.9 million or 13.2 percent of revenues compared to $66.0 million or 15.9 percent of revenues in the prior year quarter.
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, Steven H. Gunby, President and Chief Executive Officer of FTI Consulting said, “Our second quarter results are in line with the focus and expectations we discussed at our June investor day, including a focus on organic growth and continued investment to build the business.”
Cash and Capital Allocation
Net cash provided by operating activities for the quarter was $33.7 million compared to $21.7 million in the prior year. Cash and cash equivalents were $94.4 million at June 30, 2014.
Second Quarter Segment Results
Corporate Finance/Restructuring
Revenues in the Corporate Finance/Restructuring segment increased 7.6 percent to $104.0 million in the quarter compared to $96.7 million in the prior year quarter. The increase in revenues was driven by higher demand for the segment’s North America non-distressed service offerings partially offset by continued softness in global bankruptcy engagements. Adjusted Segment EBITDA was $19.1 million or 18.4 percent of segment revenues compared to $17.8 million or 18.5 percent of segment revenues in the prior year quarter.
Economic Consulting
Revenues in the Economic Consulting segment increased 5.6 percent to $117.2 million in the quarter compared to $111.0 million in the prior year quarter. The increase in revenues was due to higher demand in the segment’s
Europe, Middle East and Africa (“EMEA”) antitrust litigation practice and higher demand and realized pricing in its EMEA international arbitration, regulatory and valuation practices. Adjusted Segment EBITDA was $18.1 million or 15.4 percent of segment revenues compared to $20.8 million or 18.7 percent of segment revenues in the prior year quarter. The decline in Adjusted Segment EBITDA margin was due largely to increased compensation expense related to extensions of employment contracts entered into late last year with key senior client-service professionals and lower utilization in the financial economics practice in North America.
Forensic and Litigation Consulting
Revenues in the Forensic and Litigation Consulting segment increased 13.3 percent to $119.1 million in the quarter compared to $105.1 million in the prior year quarter. Revenues increased organically by 10.4 percent due to increased demand related primarily to disputes and investigations in the segment’s North America and Asia Pacific regions. Adjusted Segment EBITDA was $22.3 million or 18.7 percent of segment revenues compared to $18.8 million or 17.9 percent of segment revenues in the prior year quarter. The increase in Adjusted Segment EBITDA margin was due to strong utilization and employee leverage in the aforementioned practices, which was partially offset by higher performance-based compensation costs as well as lower success fees and lower utilization as a result of increased hiring in our health solutions practice.
Technology
Revenues in the Technology segment increased 18.6 percent to $60.7 million in the quarter compared to $51.2 million in the prior year quarter. The increase in revenues was primarily due to increased demand related to large scale complex global investigations. Adjusted Segment EBITDA was $15.1 million or 24.9 percent of segment revenues compared to $16.9 million or 33.0 percent of segment revenues in the prior year quarter. The decrease in Adjusted Segment EBITDA margin was due to an increase in the mix of lower margin services and increased investment in business development activities.
Strategic Communications
Revenues in the Strategic Communications segment increased 5.4 percent to $53.3 million in the quarter compared to $50.6 million in the prior year quarter. Favorable foreign currency translation resulted in a revenues increase of 2.8 percent and the remaining growth resulted from increases in the number of retainer-based relationships in EMEA. Adjusted Segment EBITDA was $5.8 million or 10.9 percent of segment revenues compared to $5.2 million or 10.3 percent of segment revenues in the prior year quarter. The increase in Adjusted Segment EBITDA margin was due to the favorable foreign currency translation impact and higher margins on pass-through revenues.
Second Quarter 2014 Conference Call
FTI Consulting will host a conference call for analysts and investors to discuss second quarter 2014 financial results at 9:00 a.m. Eastern Time on July 31, 2014. 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 more than 4,200 employees located in 26 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 $1.65 billion in revenues during fiscal year 2013. More information can be found at www.fticonsulting.com.
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, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, 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 remeasurement of acquisition-related contingent consideration, 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 remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. We use Adjusted Net Income for the purpose of calculating Adjusted EPS. Management uses Adjusted EPS 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 remeasurement of acquisition-related contingent consideration, 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 and in the Company’s other filings with the SEC, including the risks set forth under “Risks Related to Our Reportable 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
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(in thousands, except per share data)
(unaudited)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2014 | 2013 | |||||||
| Revenues |
$ | 879,876 | $ | 821,791 | ||||
|
|
|
|
|
|||||
| Operating expenses |
||||||||
| Direct cost of revenues |
569,824 | 518,008 | ||||||
| Selling, general and administrative expense |
215,419 | 192,972 | ||||||
| Special charges |
9,364 | 427 | ||||||
| Acquisition-related contingent consideration |
(1,848 | ) | (6,721 | ) | ||||
| Amortization of other intangible assets |
8,068 | 11,517 | ||||||
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|
|||||
| 800,827 | 716,203 | |||||||
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| Operating income |
79,049 | 105,588 | ||||||
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|
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|
|||||
| Other income (expense) |
||||||||
| Interest income and other |
2,451 | 550 | ||||||
| Interest expense |
(25,563 | ) | (25,786 | ) | ||||
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|
|||||
| (23,112 | ) | (25,236 | ) | |||||
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|
|||||
| Income before income tax provision |
55,937 | 80,352 | ||||||
| Income tax provision |
20,573 | 33,186 | ||||||
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|||||
| Net income |
$ | 35,364 | $ | 47,166 | ||||
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| Earnings per common share - basic |
$ | 0.89 | $ | 1.20 | ||||
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| Earnings per common share - diluted |
$ | 0.87 | $ | 1.17 | ||||
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| Weighted average common shares outstanding - basic |
39,560 | 39,272 | ||||||
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| Weighted average common shares outstanding - diluted |
40,604 | 40,456 | ||||||
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| Other comprehensive income (loss), net of tax: |
||||||||
| Foreign currency translation adjustments, net of tax of $0 |
$ | 12,422 | $ | (27,223 | ) | |||
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| Total other comprehensive income (loss), net of tax |
12,422 | (27,223 | ) | |||||
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| Comprehensive income |
$ | 47,786 | $ | 19,943 | ||||
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FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013
(in thousands, except per share data)
(unaudited)
| Three Months Ended | ||||||||
| June 30, | ||||||||
| 2014 | 2013 | |||||||
| Revenues |
$ | 454,324 | $ | 414,613 | ||||
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| Operating expenses |
||||||||
| Direct cost of revenues |
295,549 | 259,528 | ||||||
| Selling, general and administrative expense |
107,032 | 96,325 | ||||||
| Special charges |
9,364 | — | ||||||
| Acquisition-related contingent consideration |
(5 | ) | (7,452 | ) | ||||
| Amortization of other intangible assets |
3,452 | 5,953 | ||||||
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| 415,392 | 354,354 | |||||||
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| Operating income |
38,932 | 60,259 | ||||||
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| Other income (expense) |
||||||||
| Interest income and other |
1,448 | (387 | ) | |||||
| Interest expense |
(12,908 | ) | (13,071 | ) | ||||
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| (11,460 | ) | (13,458 | ) | |||||
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| Income before income tax provision |
27,472 | 46,801 | ||||||
| Income tax provision |
10,225 | 23,315 | ||||||
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| Net income |
$ | 17,247 | $ | 23,486 | ||||
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| Earnings per common share - basic |
$ | 0.43 | $ | 0.60 | ||||
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| Earnings per common share - diluted |
$ | 0.42 | $ | 0.58 | ||||
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| Weighted average common shares outstanding - basic |
39,681 | 39,143 | ||||||
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| Weighted average common shares outstanding - diluted |
40,750 | 40,293 | ||||||
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| Other comprehensive income (loss), net of tax: |
||||||||
| Foreign currency translation adjustments, net of tax of $0 |
$ | 7,694 | $ | (11,714 | ) | |||
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| Total other comprehensive income (loss), net of tax |
7,694 | (11,714 | ) | |||||
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| Comprehensive income |
$ | 24,941 | $ | 11,772 | ||||
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FTI CONSULTING, INC.
OPERATING RESULTS BY BUSINESS SEGMENT
| Revenues | Adjusted EBITDA (1) |
Margin(1) | Utilization | Average Billable Rate |
Revenue- Generating Headcount |
|||||||||||||||||||
| (in thousands) | (at period end) | |||||||||||||||||||||||
| Three Months Ended June 30, 2014 |
||||||||||||||||||||||||
| Corporate Finance/Restructuring |
$ | 104,020 | $ | 19,133 | 18.4 | % | 71 | % | $ | 412 | 713 | |||||||||||||
| Forensic and Litigation Consulting |
119,081 | 22,271 | 18.7 | % | 71 | % | $ | 323 | 1,059 | |||||||||||||||
| Economic Consulting |
117,227 | 18,043 | 15.4 | % | 78 | % | $ | 522 | 525 | |||||||||||||||
| Technology (2) |
60,720 | 15,104 | 24.9 | % | N/M | N/M | 328 | |||||||||||||||||
| Strategic Communications (2) |
53,276 | 5,834 | 11.0 | % | N/M | N/M | 566 | |||||||||||||||||
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| $ | 454,324 | 80,385 | 17.7 | % | 3,191 | |||||||||||||||||||
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| Corporate |
(20,482 | ) | ||||||||||||||||||||||
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| Adjusted EBITDA (1) |
$ | 59,903 | 13.2 | % | ||||||||||||||||||||
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| Six Months Ended June 30, 2014 |
||||||||||||||||||||||||
| Corporate Finance/Restructuring |
$ | 198,002 | $ | 30,084 | 15.2 | % | 71 | % | $ | 396 | 713 | |||||||||||||
| Forensic and Litigation Consulting |
240,510 | 48,765 | 20.3 | % | 73 | % | $ | 319 | 1,059 | |||||||||||||||
| Economic Consulting |
224,078 | 31,073 | 13.9 | % | 75 | % | $ | 519 | 525 | |||||||||||||||
| Technology (2) |
120,783 | 32,452 | 26.9 | % | N/M | N/M | 328 | |||||||||||||||||
| Strategic Communications (2) |
96,503 | 8,563 | 8.9 | % | N/M | N/M | 566 | |||||||||||||||||
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|||||||||||||||||||
| $ | 879,876 | 150,937 | 17.2 | % | 3,191 | |||||||||||||||||||
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|||||||||||||||||||||
| Corporate |
(39,838 | ) | ||||||||||||||||||||||
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| Adjusted EBITDA (1) |
$ | 111,099 | 12.6 | % | ||||||||||||||||||||
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| Three Months Ended June 30, 2013 |
||||||||||||||||||||||||
| Corporate Finance/Restructuring |
$ | 96,714 | $ | 17,848 | 18.5 | % | 62 | % | $ | 416 | 718 | |||||||||||||
| Forensic and Litigation Consulting |
105,120 | 18,752 | 17.8 | % | 67 | % | $ | 307 | 969 | |||||||||||||||
| Economic Consulting |
111,014 | 20,803 | 18.7 | % | 82 | % | $ | 505 | 499 | |||||||||||||||
| Technology (2) |
51,196 | 16,888 | 33.0 | % | N/M | N/M | 285 | |||||||||||||||||
| Strategic Communications (2) |
50,569 | 5,219 | 10.3 | % | N/M | N/M | 611 | |||||||||||||||||
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| $ | 414,613 | 79,510 | 19.2 | % | 3,082 | |||||||||||||||||||
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| Corporate |
(13,498 | ) | ||||||||||||||||||||||
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| Adjusted EBITDA (1) |
$ | 66,012 | 15.9 | % | ||||||||||||||||||||
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| Six Months Ended June 30. 2013 |
||||||||||||||||||||||||
| Corporate Finance/Restructuring |
$ | 195,794 | $ | 36,933 | 18.9 | % | 66 | % | $ | 412 | 718 | |||||||||||||
| Forensic and Litigation Consulting |
205,844 | 31,563 | 15.3 | % | 65 | % | $ | 314 | 969 | |||||||||||||||
| Economic Consulting |
226,208 | 46,997 | 20.8 | % | 86 | % | $ | 501 | 499 | |||||||||||||||
| Technology (2) |
97,900 | 30,604 | 31.3 | % | N/M | N/M | 285 | |||||||||||||||||
| Strategic Communications (2) |
96,045 | 8,773 | 9.1 | % | N/M | N/M | 611 | |||||||||||||||||
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| $ | 821,791 | 154,870 | 18.8 | % | 3,082 | |||||||||||||||||||
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| Corporate |
(29,532 | ) | ||||||||||||||||||||||
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| Adjusted EBITDA (1) |
$ | 125,338 | 15.3 | % | ||||||||||||||||||||
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| (1) | We define Adjusted EBITDA as consolidated net income before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. 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, remeasurement of acquisition-related contingent consideration, 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 remeasurement of acquisition-related contingent consideration, 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. Margin is equal to Adjusted Segment EBITDA divided by the respective Segment Revenues. 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. 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. |
FTI CONSULTING, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE THREE AND SIX MONTHS ENDED JUNE, 2014 AND 2013
(in thousands, except per share data)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Net income |
$ | 17,247 | $ | 23,486 | $ | 35,364 | $ | 47,166 | ||||||||
| Add back: |
||||||||||||||||
| Special charges, net of tax effect (1) |
5,523 | — | 5,523 | 253 | ||||||||||||
| Remeasurement of acquisition-related contingent consideration, net of tax effect (2) |
(164 | ) | (8,216 | ) | (1,514 | ) | (8,216 | ) | ||||||||
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| Adjusted Net Income (3) |
$ | 22,606 | $ | 15,270 | $ | 39,373 | $ | 39,203 | ||||||||
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| Earnings per common share – diluted |
$ | 0.42 | $ | 0.58 | $ | 0.87 | $ | 1.17 | ||||||||
| Add back: |
||||||||||||||||
| Special charges, net of tax effect (1) |
0.14 | — | 0.14 | — | ||||||||||||
| Remeasurement of acquisition-related contingent consideration, net of tax effect (2) |
(0.01 | ) | (0.20 | ) | (0.04 | ) | (0.20 | ) | ||||||||
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| Adjusted earnings per common share – diluted (3) |
$ | 0.55 | $ | 0.38 | $ | 0.97 | $ | 0.97 | ||||||||
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| Weighted average number of common shares outstanding – diluted |
40,750 | 40,293 | 40,604 | 40,456 | ||||||||||||
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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 rate for the adjustments related to special charges for the three and six months ended June 30, 2014 was 41.0%. The tax expense related to the adjustment for special charges for the three and six months ended June 30, 2014 were $3.8 million or a $0.09 impact on diluted earnings per share. The effective tax rate for the adjustments related to special charges for the six months ended June 30, 2013 was 40.7%. The tax expense related to the adjustment for special charges for the six months ended June 30, 2013 was $0.2 million with no impact on diluted earnings per share. In the three months ended June 30, 2013, there were no special charges. |
| (2) | 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 for the adjustments related to the remeasurement of acquisition-related contingent consideration for the three and six months ended June 30, 2014 were 37.2% and 36.5%, respectively. The tax expense related to the remeasurement of acquisition-related contingent consideration for the three and six months ended June 30, 2014 was $0.1 million with no impact on diluted earnings per share and $0.9 million or a $0.02 impact on diluted earnings per share. The adjustments related to remeasurement of acquisition-related contingent consideration for the three and six months ended June 30, 2013 were not taxable. |
| (3) | We define Adjusted Net Income and Adjusted Earnings per Diluted Share as net income and earnings per diluted share, respectively, excluding the impact of remeasurement of acquisition-related contingent consideration, 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 remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. |
RECONCILIATION OF NET INCOME AND OPERATING INCOME TO ADJUSTED EBITDA
(in thousands)
| Corporate Finance / Restructuring |
Forensic and Litigation Consulting |
Economic Consulting |
Technology | Strategic Communications |
Corp HQ | Total | ||||||||||||||||||||||
| Three Months Ended June 30, 2014 |
||||||||||||||||||||||||||||
| Net income |
$ | 17,247 | ||||||||||||||||||||||||||
| Interest income and other |
(1,448 | ) | ||||||||||||||||||||||||||
| Interest expense |
12,908 | |||||||||||||||||||||||||||
| Income tax provision |
10,225 | |||||||||||||||||||||||||||
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| Operating income (1) |
$ | 17,068 | $ | 20,839 | $ | 16,840 | $ | 10,905 | $ | 4,030 | $ | (30,750 | ) | $ | 38,932 | |||||||||||||
| Depreciation and amortization |
854 | 1,019 | 981 | 3,981 | 677 | 904 | 8,416 | |||||||||||||||||||||
| Amortization of other intangible assets |
1,211 | 674 | 222 | 218 | 1,127 | — | 3,452 | |||||||||||||||||||||
| Special charges |
— | — | — | — | — | 9,364 | 9,364 | |||||||||||||||||||||
| Remeasurement of acquisition-related contingent consideration |
— | (261 | ) | — | — | — | — | (261 | ) | |||||||||||||||||||
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| Adjusted EBITDA (2) |
$ | 19,133 | $ | 22,271 | $ | 18,043 | $ | 15,104 | $ | 5,834 | $ | (20,482 | ) | $ | 59,903 | |||||||||||||
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| Six Months Ended June 30, 2014 |
||||||||||||||||||||||||||||
| Net income |
$ | 35,364 | ||||||||||||||||||||||||||
| Interest income and other |
(2,451 | ) | ||||||||||||||||||||||||||
| Interest expense |
25,563 | |||||||||||||||||||||||||||
| Income tax provision |
20,573 | |||||||||||||||||||||||||||
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| Operating income (1) |
$ | 25,675 | $ | 46,241 | $ | 29,270 | $ | 23,971 | $ | 5,035 | $ | (51,143 | ) | $ | 79,049 | |||||||||||||
| Depreciation and amortization |
1,645 | 2,034 | 2,062 | 8,045 | 1,274 | 1,941 | 17,001 | |||||||||||||||||||||
| Amortization of other intangible assets |
3,426 | 1,424 | 528 | 436 | 2,254 | — | 8,068 | |||||||||||||||||||||
| Special charges |
— | — | — | — | — | 9,364 | 9,364 | |||||||||||||||||||||
| Remeasurement of acquisition-related contingent consideration |
(662 | ) | (934 | ) | (787 | ) | — | — | — | (2,383 | ) | |||||||||||||||||
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| Adjusted EBITDA (2) |
$ | 30,084 | $ | 48,765 | $ | 31,073 | $ | 32,452 | $ | 8,563 | $ | (39,838 | ) | $ | 111,099 | |||||||||||||
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| Corporate Finance / Restructuring |
Forensic and Litigation Consulting |
Economic Consulting |
Technology | Strategic Communications |
Corp HQ | Total | ||||||||||||||||||||||
| Three Months Ended June 30, 2013 |
||||||||||||||||||||||||||||
| Net income |
$ | 23,486 | ||||||||||||||||||||||||||
| Interest income and other |
387 | |||||||||||||||||||||||||||
| Interest expense |
13,071 | |||||||||||||||||||||||||||
| Income tax provision |
23,315 | |||||||||||||||||||||||||||
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| Operating income (1) |
$ | 21,436 | $ | 19,177 | $ | 19,530 | $ | 11,292 | $ | 3,394 | $ | (14,570 | ) | $ | 60,259 | |||||||||||||
| Depreciation and amortization |
855 | 937 | 863 | 3,611 | 678 | 1,072 | 8,016 | |||||||||||||||||||||
| Amortization of other intangible assets |
1,832 | 579 | 410 | 1,985 | 1,147 | — | 5,953 | |||||||||||||||||||||
| Remeasurement of acquisition-related contingent consideration |
(6,275 | ) | (1,941 | ) | — | — | — | — | (8,216 | ) | ||||||||||||||||||
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| Adjusted EBITDA (2) |
$ | 17,848 | $ | 18,752 | $ | 20,803 | $ | 16,888 | $ | 5,219 | $ | (13,498 | ) | $ | 66,012 | |||||||||||||
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| Six Months Ended June 30, 2013 |
||||||||||||||||||||||||||||
| Net income |
$ | 47,166 | ||||||||||||||||||||||||||
| Interest income and other |
(550 | ) | ||||||||||||||||||||||||||
| Interest expense |
25,786 | |||||||||||||||||||||||||||
| Income tax provision |
33,186 | |||||||||||||||||||||||||||
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| Operating income (1) |
$ | 38,135 | $ | 30,279 | $ | 44,525 | $ | 19,374 | $ | 5,121 | $ | (31,846 | ) | $ | 105,588 | |||||||||||||
| Depreciation and amortization |
1,622 | 1,961 | 1,668 | 7,246 | 1,323 | 2,202 | 16,022 | |||||||||||||||||||||
| Amortization of other intangible assets |
3,383 | 1,091 | 808 | 3,970 | 2,265 | — | 11,517 | |||||||||||||||||||||
| Special charges |
68 | 173 | (4 | ) | 14 | 64 | 112 | 427 | ||||||||||||||||||||
| Remeasurement of acquisition-related contingent consideration |
(6,275 | ) | (1,941 | ) | — | — | — | — | (8,216 | ) | ||||||||||||||||||
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| Adjusted EBITDA (2) |
$ | 36,933 | $ | 31,563 | $ | 46,997 | $ | 30,604 | $ | 8,773 | $ | (29,532 | ) | $ | 125,338 | |||||||||||||
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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, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. 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, remeasurement of acquisition-related contingent consideration, 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 remeasurement of acquisition-related contingent consideration, 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. See also our reconciliation of GAAP to non-GAAP financial measures. |
FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(in thousands)
(unaudited)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2014 | 2013 | |||||||
| Operating activities |
||||||||
| Net income |
$ | 35,364 | $ | 47,166 | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||
| Depreciation and amortization |
18,138 | 16,022 | ||||||
| Amortization of other intangible assets |
8,068 | 11,517 | ||||||
| Acquisition-related contingent consideration |
(1,848 | ) | (6,721 | ) | ||||
| Provision for doubtful accounts |
8,671 | 7,478 | ||||||
| Non-cash share-based compensation |
15,194 | 17,046 | ||||||
| Non-cash interest expense |
1,348 | 1,349 | ||||||
| Other |
(368 | ) | (197 | ) | ||||
| Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||||
| Accounts receivable, billed and unbilled |
(115,787 | ) | (58,827 | ) | ||||
| Notes receivable |
(22,559 | ) | (11,113 | ) | ||||
| Prepaid expenses and other assets |
8,860 | (1,485 | ) | |||||
| Accounts payable, accrued expenses and other |
2,645 | (1,354 | ) | |||||
| Income taxes |
4,832 | 14,740 | ||||||
| Accrued compensation |
(47,418 | ) | (10,467 | ) | ||||
| Billings in excess of services provided |
7,756 | (5,785 | ) | |||||
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|
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| Net cash (used in) provided by operating activities |
(77,104 | ) | 19,369 | |||||
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| Investing activities |
||||||||
| Payments for acquisition of businesses, net of cash received |
(15,611 | ) | (40,512 | ) | ||||
| Purchases of property and equipment |
(21,778 | ) | (14,130 | ) | ||||
| Other |
(6 | ) | 21 | |||||
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|
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| Net cash used in investing activities |
(37,395 | ) | (54,621 | ) | ||||
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|
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| Financing activities |
||||||||
| Purchase and retirement of common stock |
(4,367 | ) | (28,758 | ) | ||||
| Net issuance of common stock under equity compensation plans |
(2,692 | ) | 1,245 | |||||
| Deposits |
11,580 | — | ||||||
| Other |
(891 | ) | (616 | ) | ||||
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|
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| Net cash used in financing activities |
3,630 | (28,129 | ) | |||||
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|
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| Effect of exchange rate changes on cash and cash equivalents |
(552 | ) | (850 | ) | ||||
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|
|
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| Net decrease in cash and cash equivalents |
(111,421 | ) | (64,231 | ) | ||||
| Cash and cash equivalents, beginning of period |
205,833 | 156,785 | ||||||
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| Cash and cash equivalents, end of period |
$ | 94,412 | $ | 92,554 | ||||
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FTI CONSULTING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 2014 AND DECEMBER 31, 2013
(in thousands, except per share amounts)
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 94,412 | $ | 205,833 | ||||
| Accounts receivable: |
||||||||
| Billed receivables |
423,058 | 352,411 | ||||||
| Unbilled receivables |
296,299 | 233,307 | ||||||
| Allowance for doubtful accounts and unbilled services |
(139,620 | ) | (109,273 | ) | ||||
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|
|
|||||
| Accounts receivable, net |
579,737 | 476,445 | ||||||
| Current portion of notes receivable |
29,911 | 33,093 | ||||||
| Prepaid expenses and other current assets |
52,162 | 61,800 | ||||||
| Current portion of deferred tax assets |
29,046 | 26,690 | ||||||
|
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|
|
|||||
| Total current assets |
785,268 | 803,861 | ||||||
| Property and equipment, net of accumulated depreciation |
83,495 | 79,007 | ||||||
| Goodwill |
1,225,403 | 1,218,733 | ||||||
| Other intangible assets, net of amortization |
86,270 | 97,148 | ||||||
| Notes receivable, net of current portion |
131,707 | 108,298 | ||||||
| Other assets |
61,097 | 57,900 | ||||||
|
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|
|
|||||
| Total assets |
$ | 2,373,240 | $ | 2,364,947 | ||||
|
|
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|
|
|||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities |
||||||||
| Accounts payable, accrued expenses and other |
$ | 96,005 | $ | 126,886 | ||||
| Accrued compensation |
169,923 | 222,738 | ||||||
| Current portion of long-term debt |
6,000 | 6,014 | ||||||
| Billings in excess of services provided |
36,946 | 28,692 | ||||||
|
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|
|
|
|||||
| Total current liabilities |
308,874 | 384,330 | ||||||
| Long-term debt, net of current portion |
711,000 | 711,000 | ||||||
| Deferred income taxes |
149,130 | 137,697 | ||||||
| Other liabilities |
96,316 | 89,661 | ||||||
|
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|
|
|
|||||
| Total liabilities |
1,265,320 | 1,322,688 | ||||||
|
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|
|
|
|||||
| 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 — 40,936 (2014) and 40,526 (2013) |
409 | 405 | ||||||
| Additional paid-in capital |
380,193 | 362,322 | ||||||
| Retained earnings |
765,985 | 730,621 | ||||||
| Accumulated other comprehensive loss |
(38,667 | ) | (51,089 | ) | ||||
|
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|
|||||
| Total stockholders’ equity |
1,107,920 | 1,042,259 | ||||||
|
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|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 2,373,240 | $ | 2,364,947 | ||||
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