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EX-32.2 - EX-32.2 - FTI CONSULTING, INCfcn-ex322_6.htm
EX-32.1 - EX-32.1 - FTI CONSULTING, INCfcn-ex321_8.htm
EX-31.2 - EX-31.2 - FTI CONSULTING, INCfcn-ex312_9.htm
EX-31.1 - EX-31.1 - FTI CONSULTING, INCfcn-ex311_7.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number 001-14875

 

FTI CONSULTING, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Maryland

52-1261113

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

1101 K Street NW,

Washington, D.C.

20005

(Address of Principal Executive Offices)

(Zip Code)

(202) 312-9100

(Registrant’s telephone number, including area code)

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

Outstanding at April 20, 2017

Common stock, par value $0.01 per share

41,323,337

 

 

 

 


 

FTI CONSULTING, INC. AND SUBSIDIARIES

INDEX

 

 

 

Page 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Condensed Consolidated Balance Sheets—March 31, 2017 and December 31, 2016

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2017 and 2016

4

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity—Three Months Ended March 31, 2017

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2017 and 2016

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

Item 4.

Controls and Procedures

33

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

34

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 3.

Defaults Upon Senior Securities

35

 

 

 

Item 4.

Mine Safety Disclosures

35

 

 

 

Item 5.

Other Information

35

 

 

 

Item 6.

Exhibits

35

 

 

SIGNATURE

37

 

 

2


 

PART I—FINANCIAL INFORMATION

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

 

Item 1.

Financial Statements

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Assets

 

(Unaudited)

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

120,959

 

 

$

216,158

 

Accounts receivable:

 

 

 

 

 

 

 

 

Billed receivables

 

 

383,268

 

 

 

365,385

 

Unbilled receivables

 

 

330,062

 

 

 

288,331

 

Allowance for doubtful accounts and unbilled services

 

 

(187,150

)

 

 

(178,819

)

Accounts receivable, net

 

 

526,180

 

 

 

474,897

 

Current portion of notes receivable

 

 

29,314

 

 

 

31,864

 

Prepaid expenses and other current assets

 

 

60,683

 

 

 

60,252

 

Total current assets

 

 

737,136

 

 

 

783,171

 

Property and equipment, net of accumulated depreciation

 

 

59,474

 

 

 

61,856

 

Goodwill

 

 

1,183,627

 

 

 

1,180,001

 

Other intangible assets, net of amortization

 

 

49,895

 

 

 

52,120

 

Notes receivable, net of current portion

 

 

100,288

 

 

 

104,524

 

Other assets

 

 

42,142

 

 

 

43,696

 

Total assets

 

$

2,172,562

 

 

$

2,225,368

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other

 

$

87,411

 

 

$

87,320

 

Accrued compensation

 

 

172,593

 

 

 

261,500

 

Billings in excess of services provided

 

 

33,324

 

 

 

29,635

 

Total current liabilities

 

 

293,328

 

 

 

378,455

 

Long-term debt, net

 

 

402,717

 

 

 

365,528

 

Deferred income taxes

 

 

177,339

 

 

 

173,799

 

Other liabilities

 

 

102,649

 

 

 

100,228

 

Total liabilities

 

 

976,033

 

 

 

1,018,010

 

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 —  41,321 (2017) and 42,037 (2016)

 

 

413

 

 

 

420

 

Additional paid-in capital

 

 

387,797

 

 

 

416,816

 

Retained earnings

 

 

951,828

 

 

 

941,001

 

Accumulated other comprehensive loss

 

 

(143,509

)

 

 

(150,879

)

Total stockholders' equity

 

 

1,196,529

 

 

 

1,207,358

 

Total liabilities and stockholders' equity

 

$

2,172,562

 

 

$

2,225,368

 

 

See accompanying notes to condensed consolidated financial statements

 

3


 

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Revenues

 

$

446,344

 

 

$

470,285

 

Operating expenses

 

 

 

 

 

 

 

 

Direct cost of revenues

 

 

309,072

 

 

 

305,636

 

Selling, general and administrative expenses

 

 

107,295

 

 

 

103,609

 

Special charges

 

 

 

 

 

5,061

 

Acquisition-related contingent consideration

 

 

395

 

 

 

1,134

 

Amortization of other intangible assets

 

 

2,493

 

 

 

2,606

 

 

 

 

419,255

 

 

 

418,046

 

Operating income

 

 

27,089

 

 

 

52,239

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income and other

 

 

605

 

 

 

2,557

 

Interest expense

 

 

(5,801

)

 

 

(6,229

)

 

 

 

(5,196

)

 

 

(3,672

)

Income before income tax provision

 

 

21,893

 

 

 

48,567

 

Income tax provision

 

 

7,877

 

 

 

18,386

 

Net income

 

$

14,016

 

 

$

30,181

 

Earnings per common share — basic

 

$

0.35

 

 

$

0.75

 

Earnings per common share — diluted

 

$

0.34

 

 

$

0.73

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax expense of $0

 

$

7,370

 

 

$

(358

)

Total other comprehensive income (loss), net of tax

 

 

7,370

 

 

 

(358

)

Comprehensive income

 

$

21,386

 

 

$

29,823

 

 

See accompanying notes to condensed consolidated financial statements

 

 

4


 

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Total

 

Balance at December 31, 2016

 

 

42,037

 

 

$

420

 

 

$

416,816

 

 

$

941,001

 

 

$

(150,879

)

 

$

1,207,358

 

Net income

 

 

 

 

 

 

 

 

 

 

$

14,016

 

 

 

 

 

$

14,016

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,370

 

 

 

7,370

 

Issuance of common stock in connection with:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options

 

 

39

 

 

 

 

 

 

1,393

 

 

 

 

 

 

 

 

 

1,393

 

Restricted share grants, less net settled shares

   of 51

 

 

125

 

 

 

1

 

 

 

(2,116

)

 

 

 

 

 

 

 

 

(2,115

)

Stock units issued under incentive compensation

   plan

 

 

 

 

 

 

 

 

1,547

 

 

 

 

 

 

 

 

 

1,547

 

Purchase and retirement of common stock

 

 

(880

)

 

 

(8

)

 

 

(36,910

)

 

 

 

 

 

 

 

 

(36,918

)

Cumulative effect due to adoption of new accounting

   standard

 

 

 

 

 

 

 

 

 

 

 

(3,189

)

 

 

 

 

 

(3,189

)

Share-based compensation

 

 

 

 

 

 

 

 

7,067

 

 

 

 

 

 

 

 

 

7,067

 

Balance at March 31, 2017

 

 

41,321

 

 

$

413

 

 

$

387,797

 

 

$

951,828

 

 

$

(143,509

)

 

$

1,196,529

 

 

See accompanying notes to condensed consolidated financial statements

 

5


 

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

Operating activities

 

2017

 

 

2016

 

Net income

 

$

14,016

 

 

$

30,181

 

Adjustments to reconcile net income to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,571

 

 

 

7,971

 

Amortization and impairment of other intangible assets

 

 

2,493

 

 

 

2,606

 

Acquisition-related contingent consideration

 

 

395

 

 

 

1,134

 

Provision for doubtful accounts

 

 

3,551

 

 

 

437

 

Non-cash share-based compensation

 

 

7,281

 

 

 

6,158

 

Non-cash interest expense

 

 

496

 

 

 

497

 

Other

 

 

12

 

 

 

(81

)

Changes in operating assets and liabilities, net of effects from

   acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, billed and unbilled

 

 

(52,489

)

 

 

(52,047

)

Notes receivable

 

 

7,153

 

 

 

3,853

 

Prepaid expenses and other assets

 

 

553

 

 

 

3,824

 

Accounts payable, accrued expenses and other

 

 

287

 

 

 

5,619

 

Income taxes

 

 

3,650

 

 

 

17,561

 

Accrued compensation

 

 

(92,561

)

 

 

(65,511

)

Billings in excess of services provided

 

 

3,505

 

 

 

4,699

 

Net cash used in operating activities

 

 

(93,087

)

 

 

(33,099

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5,831

)

 

 

(6,362

)

Other

 

 

127

 

 

 

34

 

Net cash used in investing activities

 

 

(5,704

)

 

 

(6,328

)

Financing activities

 

 

 

 

 

 

 

 

Borrowings under revolving line of credit, net

 

 

37,000

 

 

 

7,000

 

Deposits

 

 

3,069

 

 

 

2,590

 

Purchase and retirement of common stock

 

 

(36,918

)

 

 

(2,903

)

Net issuance of common stock under equity compensation plans

 

 

(812

)

 

 

(1,371

)

Other

 

 

 

 

 

(135

)

Net cash provided by financing activities

 

 

2,339

 

 

 

5,181

 

Effect of exchange rate changes on cash and cash equivalents

 

 

1,253

 

 

 

(1,063

)

Net decrease in cash and cash equivalents

 

 

(95,199

)

 

 

(35,309

)

Cash and cash equivalents, beginning of period

 

 

216,158

 

 

 

149,760

 

Cash and cash equivalents, end of period

 

$

120,959

 

 

$

114,451

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

762

 

 

$

1,255

 

Cash paid for income taxes, net of refunds

 

$

4,246

 

 

$

824

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of stock units under incentive compensation plans

 

$

1,547

 

 

$

1,842

 

 

See accompanying notes to condensed consolidated financial statements

 

 

6


 

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(dollar and share amounts in tables in thousands, except per share data)

(Unaudited)

 

1. Basis of Presentation and Significant Accounting Policies

The unaudited condensed consolidated financial statements of FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our,” or “FTI Consulting”), presented herein, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Some of the information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the interim financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All adjustments made were normal recurring accruals. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC.

 

 

2. Earnings Per Common Share

Basic earnings per common share are calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share adjust basic earnings per common share for the effects of potentially dilutive common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our equity compensation plans, including stock options and restricted shares, each using the treasury stock method.

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Numerator — basic and diluted

 

 

 

 

 

 

 

 

Net income

 

$

14,016

 

 

$

30,181

 

Denominator

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding — basic

 

 

40,527

 

 

 

40,506

 

Effect of dilutive stock options

 

 

194

 

 

 

131

 

Effect of dilutive restricted shares

 

 

524

 

 

 

511

 

Weighted average number of common shares outstanding — diluted

 

 

41,245

 

 

 

41,148

 

Earnings per common share — basic

 

$

0.35

 

 

$

0.75

 

Earnings per common share — diluted

 

$

0.34

 

 

$

0.73

 

Antidilutive stock options and restricted shares

 

 

903

 

 

 

2,657

 

 

 

3. New Accounting Standards

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04: Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard requires entities to measure goodwill impairment using the difference between the carrying amount and the fair value of the reporting unit, instead of performing a hypothetical purchase price allocation. This guidance is effective beginning January 1, 2020, although early adoption is permitted. The adoption of this guidance would only impact the measurement of a future goodwill impairment to the extent applicable.

 

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which removes the prohibition against immediate recognition of current and deferred income tax effects on intra-entity transfers of assets other than inventory. We elected to early adopt this standard as of January 1, 2017, and recorded a $3.2 million cumulative effect adjustment to the beginning balance of retained earnings in the first quarter of 2017 for the net impact of increasing deferred tax assets by $2.6 million and decreasing a deferred tax charge in other assets by $5.8 million related to a prior period intra-entity transfer of intellectual property.

7


 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how cash receipts and cash payments are classified in the statement of cash flows. This standard is effective January 1, 2018, although early adoption is permitted.  We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard makes several modifications to Topic 718, including the accounting for forfeitures, employer tax withholding on share-based compensation, income tax consequences, and clarifies the statement of cash flows presentation for certain components of share-based awards, all of which are intended to simplify various aspects of the accounting for share-based compensation. The ASU requires that the difference between the actual tax expense or benefit realized upon option exercise or restricted share or restricted stock unit release and the tax expense or benefit recorded based on the fair value of the stock award at the time of grant (the “excess tax benefits or detriment”) is to be reflected as an increase or reduction to the current period provision for income taxes rather than as a component of changes to additional paid-in capital. We adopted this standard as of January 1, 2017, and recorded $0.3 million benefit related to the excess benefits realized from stock compensation transactions during the three months ended March 31, 2017. The actual benefit or detriment realized in future periods cannot be precisely estimated and will vary based on the timing and relative value realized for future share-based transactions. Additionally, we elected to recognize forfeiture expense as forfeitures occur, rather than estimating forfeitures based on historical data. This election had no impact on our consolidated financial statements.  

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), that replaces existing lease guidance. Under this ASU, we will be required to record right-of-use assets and corresponding lease liabilities on the balance sheet. This guidance is effective beginning January 1, 2019. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented. We have not yet determined the impact that the adoption of this guidance will have on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under this ASU and subsequently issued amendments, revenues are recognized at the time when goods or services are transferred to a customer in an amount that reflects the consideration it expects to receive in exchange for those goods or services. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU. We believe that the adoption of this standard will impact engagements that contain variable fee arrangements including those in which we earn a completion fee when and if certain predefined outcomes occur, and certain engagements with fixed-fees that have multiple performance obligations. We will adopt this standard using the modified retrospective method effective January 1, 2018.

 

 

4. Special Charges

There were no special charges recorded during the three months ended March 31, 2017. During the three months ended March 31, 2016, we recorded special charges totaling $5.1 million related to employee terminations in our Technology segment. The charges consisted of salary continuance and other contractual employee-related costs.  

Activity related to the liability for the special charges for the three months ended March 31, 2017 is as follows:

 

 

 

Employee

 

 

Lease

 

 

 

 

 

 

 

Termination

 

 

Termination

 

 

 

 

 

 

 

Costs

 

 

Costs

 

 

Total

 

Balance at December 31, 2016

 

$

8,225

 

 

$

3,335

 

 

$

11,560

 

Additions

 

 

 

 

 

 

 

 

 

Payments

 

 

(2,358

)

 

 

(35

)

 

 

(2,393

)

Foreign currency translation adjustment and other

 

 

 

 

 

 

 

 

 

Balance at March 31, 2017 (1)

 

$

5,867

 

 

$

3,300

 

 

$

9,167

 

 

(1)

Of the $9.2 million remaining liability for special charges, $3.6 million is expected to be paid in the remainder of 2017, $2.6 million is expected to be paid in 2018, $1.2 million is expected to be paid in 2019, $0.4 million is expected to be paid in 2020 and the remaining balance of $1.4 million is expected to be paid from 2021 to 2025.

 

 

8


 

5. Allowance for Doubtful Accounts and Unbilled Services

We record adjustments to the allowance for doubtful accounts and unbilled services as a reduction in revenues when there are changes in estimates of fee reductions that may be imposed by bankruptcy courts and other regulatory institutions for both billed and unbilled receivables. The allowance for doubtful accounts and unbilled services is also adjusted after the related work has been billed to the client and we discover that collectability is not reasonably assured. These adjustments are recorded to “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Comprehensive Income and totaled $3.6 million and $0.4 million for the three months ended March 31, 2017 and 2016, respectively.

 

 

6. Research and Development Costs

Research and development costs related to software development totaled $4.2 million and $4.0 million for the three months ended March 31, 2017 and 2016, respectively. Research and development costs are included in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Comprehensive Income.

 

 

7. Financial Instruments

Fair Value of Financial Instruments

We consider the recorded value of certain financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at March 31, 2017 and December 31, 2016, based on the short-term nature of the assets and liabilities. The fair value of our borrowings on our $107.0 million senior secured bank revolving credit facility (“Senior Bank Credit Facility”) approximates the carrying amount. The fair value of our long-term debt at March 31, 2017, which includes the Senior Bank Credit Facility, was $416.8 million compared with a carrying value of $407.0 million. At December 31, 2016, the fair value of our long-term debt was $382.8 million compared with a carrying value of $370.0 million. We determine the fair value of our long-term debt primarily based on quoted market prices for our 6% Senior Notes Due 2022 (“2022 Notes”) as of March 31, 2017. The fair value of our long-term debt is classified within Level 2 of the fair value hierarchy, because it is traded in less active markets.

 

 

8. Goodwill and Other Intangible Assets

Goodwill

The table below summarizes the changes in the carrying amount of goodwill by reportable segment:  

 

 

 

Corporate

 

 

Forensic and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance &

 

 

Litigation

 

 

Economic

 

 

 

 

 

 

Strategic

 

 

 

 

 

 

 

Restructuring

 

 

Consulting

 

 

Consulting

 

 

Technology

 

 

Communications

 

 

Total

 

Balance at December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

440,666

 

 

$

230,544

 

 

$

268,209

 

 

$

117,607

 

 

$

317,114

 

 

$

1,374,140

 

Accumulated goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(194,139

)

 

 

(194,139

)

Goodwill, net at December 31, 2016

 

 

440,666

 

 

 

230,544

 

 

 

268,209

 

 

 

117,607

 

 

 

122,975

 

 

 

1,180,001

 

Foreign currency translation adjustment and

   other

 

 

1,593

 

 

 

503

 

 

 

104

 

 

 

17

 

 

 

1,409

 

 

 

3,626

 

Goodwill

 

 

440,666

 

 

 

230,544

 

 

 

268,209

 

 

 

117,607

 

 

 

317,114

 

 

 

1,374,140

 

Accumulated goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(194,139

)

 

 

(194,139

)

Goodwill, net at March 31, 2017

 

$

442,259

 

 

$

231,047

 

 

$

268,313

 

 

$

117,624

 

 

$

124,384

 

 

$

1,183,627

 

 

Other Intangible Assets

Other intangible assets with finite lives are amortized over their estimated useful lives. We recorded amortization expense of $2.5 million and $2.6 million for the three months ended March 31, 2017 and 2016, respectively. Based solely on the amortizable intangible assets recorded as of March 31, 2017, we estimate amortization expense to be $7.1 million during the remainder of 2017, $7.9 million in 2018, $7.3 million in 2019, $7.1 million in 2020, $6.6 million in 2021, $4.9 million in 2022 and an aggregate of $3.4 million in years after 2022. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives, or other relevant factors or changes.

 

 

9


 

9. Long-Term Debt

The components of debt obligations are presented in the table below:

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

2022 Notes

 

$

300,000

 

 

$

300,000

 

Senior Bank Credit Facility

 

 

107,000

 

 

 

70,000

 

Total debt

 

 

407,000

 

 

 

370,000

 

Less deferred debt issue costs

 

 

(4,283

)

 

 

(4,472

)

Long-term debt, net

 

$

402,717

 

 

$

365,528

 

 

There were $107.0 million in borrowings outstanding under the Company’s Senior Bank Credit Facility as of March 31, 2017. The Company has classified these borrowings as long-term debt in the accompanying Condensed Consolidated Balance Sheets as the Company has the intent and ability, as supported by availability under the credit agreement entered into as of June 26, 2015, which expires on June 26, 2020, to refinance these borrowings for more than one year from the applicable balance sheet date. Additionally, $0.7 million of the borrowing limit was utilized for letters of credit (and, therefore, unavailable) as of March 31, 2017.

For further information on our 2022 Notes and Senior Bank Credit Facility, see Note 12, “Long-Term Debt” in Part II, Item 8, of our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2016.

 

 

10. Commitments and Contingencies

Contingencies

We are subject to legal actions arising in the ordinary course of business. In management’s opinion, we believe we have adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions. We do not believe any settlement or judgment relating to any pending legal action would materially affect our financial position or results of operations.

 

 

11. Share-Based Compensation

Share-based Awards and Share-based Compensation Expense

During the three months ended March 31, 2017, we granted 144,989 restricted stock awards, stock options exercisable for up to 130,650 shares, 38,487 restricted stock units, and 100,052 performance stock units. These awards are recorded as equity on the Condensed Consolidated Balance Sheets. During the three months ended March 31, 2017, stock options exercisable for up to 3,147 shares and 5,841 restricted stock awards were forfeited prior to the completion of the vesting requirements.

Total share-based compensation expense, net of forfeitures, for the three months ended March 31, 2017 and 2016 is detailed in the following table:

 

 

 

Three Months Ended March 31,

 

Income Statement Classification

 

2017

 

 

2016

 

Direct cost of revenues

 

$

5,838

 

 

$

3,848

 

Selling, general and administrative expenses

 

 

843

 

 

 

2,709

 

Special charges

 

 

 

 

 

105

 

Total share-based compensation expense

 

$

6,681

 

 

$

6,662

 

 

 

12. Stockholders’ Equity

On June 2, 2016, our Board of Directors authorized a stock repurchase program of up to $100.0 million (the “Stock Repurchase Program”). No time limit has been established for the completion of the program, and the program may be suspended, discontinued or replaced by the Board of Directors at any time without prior notice. During the three months ended March 31, 2017, we repurchased and retired 879,585 shares of our common stock for an average price per share of $41.95, at a total cost of $36.9 million, which was paid in full. As of March 31, 2017, we have $44.5 million available under this program to repurchase additional shares. During the three months ended March 31, 2016, we repurchased and retired 85,100 shares of our common stock for an average per share price of $34.12, at a total cost of $2.9 million under the previous stock repurchase program that expired on May 5, 2016.

 

10


 

13. Segment Reporting

We manage our business in five reportable segments: Corporate Finance & Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology and Strategic Communications.

Our Corporate Finance & Restructuring segment focuses on the strategic, operational, financial and capital needs of our clients around the world and delivers a wide range of distressed and non-distressed practice offerings. Our distressed practice offerings include corporate restructuring (and bankruptcy) and interim management services. Our non-distressed practice offerings include financings, mergers and acquisitions (“M&A”), M&A integration, valuations and tax advice, as well as financial, operational and performance improvement services.

Our Forensic and Litigation Consulting segment provides law firms, companies, government clients and other interested parties with multidisciplinary, independent dispute advisory, investigations, data analytics, forensic accounting, business intelligence and risk mitigation services, as well as interim management and performance improvement services for our health solutions practice clients.

Our Economic Consulting segment provides law firms, companies, government entities and other interested parties with analysis of complex economic issues for use in legal, regulatory and international arbitration proceedings, strategic decision making and public policy debates in the U.S. and around the world.

Our Technology segment offers a comprehensive portfolio of information governance and e-discovery software, services and consulting support to companies, law firms, courts and government agencies worldwide. Our services allow our clients to control the risk and expense of e-discovery events, as well as manage their data in the context of compliance and risk.

Our Strategic Communications segment designs and executes communications strategies for management teams and boards of directors to help them seize opportunities, manage financial, regulatory and reputational challenges, navigate market disruptions, articulate their brand, stake a competitive position, and preserve and grow their operations.

We evaluate the performance of our operating segments based on 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 define Total Adjusted Segment EBITDA, a non-GAAP financial measure, 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 reflects current core operating performance and provides an indicator of the segment’s ability to generate cash.

The table below presents revenues and Adjusted Segment EBITDA for our reportable segments:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Revenues

 

 

 

 

 

 

 

 

Corporate Finance & Restructuring

 

$

105,901

 

 

$

127,156

 

Forensic and Litigation Consulting

 

 

111,406

 

 

 

119,004

 

Economic Consulting

 

 

139,221

 

 

 

130,731

 

Technology

 

 

46,087

 

 

 

48,281

 

Strategic Communications

 

 

43,729

 

 

 

45,113

 

Total revenues

 

$

446,344

 

 

$

470,285

 

Adjusted Segment EBITDA

 

 

 

 

 

 

 

 

Corporate Finance & Restructuring

 

$

10,325

 

 

$

31,603

 

Forensic and Litigation Consulting

 

 

13,521

 

 

 

19,808

 

Economic Consulting

 

 

20,110

 

 

 

21,319

 

Technology

 

 

7,804

 

 

 

7,823

 

Strategic Communications

 

 

4,257

 

 

 

6,108

 

Total Adjusted Segment EBITDA

 

$

56,017

 

 

$

86,661

 

 

11


 

The table below reconciles Net income to Total Adjusted Segment EBITDA:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Net income

 

$

14,016

 

 

$

30,181

 

Add back:

 

 

 

 

 

 

 

 

Income tax provision

 

 

7,877

 

 

 

18,386

 

Interest income and other

 

 

(605

)

 

 

(2,557

)

Interest expense

 

 

5,801

 

 

 

6,229

 

Unallocated corporate expenses

 

 

19,053

 

 

 

18,746

 

Segment depreciation expense

 

 

7,216

 

 

 

7,029

 

Amortization of intangible assets

 

 

2,493

 

 

 

2,606

 

Segment special charges

 

 

 

 

 

5,061

 

Remeasurement of acquisition-related contingent consideration

 

 

166

 

 

 

980

 

Total Adjusted Segment EBITDA

 

$

56,017

 

 

$

86,661

 

 

14. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information

Substantially all of our domestic subsidiaries are guarantors of borrowings under our Senior Bank Credit Facility and 2022 Notes. The guarantees are full and unconditional and joint and several. All of our guarantors are wholly owned, direct or indirect, subsidiaries.

The following financial information presents condensed consolidating balance sheets, statements of comprehensive income and statements of cash flows for FTI Consulting, all the guarantor subsidiaries, all the non-guarantor subsidiaries and the eliminations necessary to arrive at the consolidated information for FTI Consulting and its subsidiaries. For purposes of this presentation, we have accounted for our investments in our subsidiaries using the equity method of accounting. The principal eliminating entries eliminate investment in subsidiary and intercompany balances and transactions.

Condensed Consolidating Balance Sheet as of March 31, 2017

 

 

 

FTI

 

 

Guarantor

 

 

Non-Guarantor

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Eliminations

 

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,371

 

 

$

157

 

 

$

102,431

 

 

$

 

 

$

120,959

 

Accounts receivable, net

 

 

150,859

 

 

 

195,389

 

 

 

179,932

 

 

 

 

 

 

526,180

 

Intercompany receivables

 

 

 

 

 

1,012,679

 

 

 

52,036

 

 

 

(1,064,715

)

 

 

 

Other current assets

 

 

39,235

 

 

 

24,973

 

 

 

25,789

 

 

 

 

 

 

89,997

 

Total current assets

 

 

208,465

 

 

 

1,233,198

 

 

 

360,188

 

 

 

(1,064,715

)

 

 

737,136

 

Property and equipment, net

 

 

23,956