fcn-10q_20160331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

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

For the quarterly period ended March 31, 2016

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  x    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  x    No  ¨

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

 

Large accelerated filer

x

Accelerated filer

¨

 

 

 

 

Non-accelerated filer

¨  (Do not check if a smaller reporting company)

Smaller reporting company

¨

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

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 22, 2016

Common stock, par value $0.01 per share

41,447,033

 

 

 

 


FTI CONSULTING, INC. AND SUBSIDIARIES

INDEX

 

 

 

Page 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Condensed Consolidated Balance Sheets—March 31, 2016 and December 31, 2015

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2016 and 2015

4

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity—Three Months Ended March 31, 2016

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2016 and 2015

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

32

 

 

 

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

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6.

Exhibits

35

 

 

SIGNATURE

36

 

 

2


PART I—FINANCIAL INFORMATION

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(Unaudited)

Item 1.

Financial Statements

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Assets

 

(Unaudited)

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

114,451

 

 

$

149,760

 

Accounts receivable:

 

 

 

 

 

 

 

 

Billed receivables

 

 

420,824

 

 

 

405,000

 

Unbilled receivables

 

 

329,933

 

 

 

280,538

 

Allowance for doubtful accounts and unbilled services

 

 

(197,527

)

 

 

(185,754

)

Accounts receivable, net

 

 

553,230

 

 

 

499,784

 

Current portion of notes receivable

 

 

31,474

 

 

 

36,115

 

Prepaid expenses and other current assets

 

 

45,196

 

 

 

55,966

 

Total current assets

 

 

744,351

 

 

 

741,625

 

Property and equipment, net of accumulated depreciation

 

 

71,263

 

 

 

74,760

 

Goodwill

 

 

1,198,070

 

 

 

1,198,298

 

Other intangible assets, net of amortization

 

 

61,193

 

 

 

63,935

 

Notes receivable, net of current portion

 

 

108,095

 

 

 

106,882

 

Other assets

 

 

42,072

 

 

 

43,518

 

Total assets

 

$

2,225,044

 

 

$

2,229,018

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other

 

$

95,606

 

 

$

89,845

 

Accrued compensation

 

 

157,687

 

 

 

227,783

 

Billings in excess of services provided

 

 

34,226

 

 

 

29,449

 

Total current liabilities

 

 

287,519

 

 

 

347,077

 

Long-term debt, net

 

 

501,961

 

 

 

494,772

 

Deferred income taxes

 

 

150,557

 

 

 

139,787

 

Other liabilities

 

 

103,761

 

 

 

99,779

 

Total liabilities

 

 

1,043,798

 

 

 

1,081,415

 

Commitments and contingent liabilities (note 10)

 

 

 

 

 

 

 

 

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 —  41,385 (2016) and 41,234 (2015)

 

 

414

 

 

 

412

 

Additional paid-in capital

 

 

404,523

 

 

 

400,705

 

Retained earnings

 

 

885,662

 

 

 

855,481

 

Accumulated other comprehensive loss

 

 

(109,353

)

 

 

(108,995

)

Total stockholders' equity

 

 

1,181,246

 

 

 

1,147,603

 

Total liabilities and stockholders' equity

 

$

2,225,044

 

 

$

2,229,018

 

 

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,

 

 

 

2016

 

 

2015

 

Revenues

 

$

470,285

 

 

$

432,338

 

Operating expenses

 

 

 

 

 

 

 

 

Direct cost of revenues

 

 

305,636

 

 

 

279,030

 

Selling, general and administrative expenses

 

 

103,609

 

 

 

102,214

 

Special charges

 

 

5,061

 

 

 

 

Acquisition-related contingent consideration

 

 

1,134

 

 

 

234

 

Amortization of other intangible assets

 

 

2,606

 

 

 

3,012

 

 

 

 

418,046

 

 

 

384,490

 

Operating income

 

 

52,239

 

 

 

47,848

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income and other

 

 

2,557

 

 

 

(137

)

Interest expense

 

 

(6,229

)

 

 

(12,368

)

 

 

 

(3,672

)

 

 

(12,505

)

Income before income tax provision

 

 

48,567

 

 

 

35,343

 

Income tax provision

 

 

18,386

 

 

 

11,657

 

Net income

 

$

30,181

 

 

$

23,686

 

Earnings per common share — basic

 

$

0.75

 

 

$

0.59

 

Earnings per common share — diluted

 

$

0.73

 

 

$

0.57

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

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

 

$

(358

)

 

$

(20,482

)

Total other comprehensive loss, net of tax

 

 

(358

)

 

 

(20,482

)

Comprehensive income

 

$

29,823

 

 

$

3,204

 

 

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, 2015

 

 

41,234

 

 

$

412

 

 

$

400,705

 

 

$

855,481

 

 

$

(108,995

)

 

$

1,147,603

 

Net income

 

 

 

 

 

 

 

 

 

 

$

30,181

 

 

 

 

 

$

30,181

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(358

)

 

 

(358

)

Issuance of common stock in connection with:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options, net of income tax benefit

   from share-based awards of $107

 

 

53

 

 

 

1

 

 

 

1,312

 

 

 

 

 

 

 

 

 

1,313

 

Restricted share grants, less net settled shares

   of 69

 

 

183

 

 

 

2

 

 

 

(2,377

)

 

 

 

 

 

 

 

 

(2,375

)

Stock units issued under incentive

   compensation plan

 

 

 

 

 

 

 

 

1,842

 

 

 

 

 

 

 

 

 

1,842

 

Purchase and retirement of common stock

 

 

(85

)

 

 

(1

)

 

 

(2,902

)

 

 

 

 

 

 

 

 

(2,903

)

Share-based compensation

 

 

 

 

 

 

 

 

5,943

 

 

 

 

 

 

 

 

 

5,943

 

Balance at March 31, 2016

 

 

41,385

 

 

$

414

 

 

$

404,523

 

 

$

885,662

 

 

$

(109,353

)

 

$

1,181,246

 

 

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,

 

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

30,181

 

 

$

23,686

 

Adjustments to reconcile net income to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,971

 

 

 

7,808

 

Amortization and impairment of other intangible assets

 

 

2,606

 

 

 

3,012

 

Acquisition-related contingent consideration

 

 

1,134

 

 

 

234

 

Provision for doubtful accounts

 

 

437

 

 

 

2,998

 

Non-cash share-based compensation

 

 

6,158

 

 

 

6,736

 

Non-cash interest expense

 

 

497

 

 

 

671

 

Other

 

 

(81

)

 

 

(132

)

Changes in operating assets and liabilities, net of effects from

   acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, billed and unbilled

 

 

(52,047

)

 

 

(41,330

)

Notes receivable

 

 

3,853

 

 

 

(1,003

)

Prepaid expenses and other assets

 

 

3,824

 

 

 

3,583

 

Accounts payable, accrued expenses and other

 

 

5,619

 

 

 

15,959

 

Income taxes

 

 

17,561

 

 

 

5,524

 

Accrued compensation

 

 

(65,511

)

 

 

(74,987

)

Billings in excess of services provided

 

 

4,699

 

 

 

(4,092

)

Net cash used in operating activities

 

 

(33,099

)

 

 

(51,333

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(6,362

)

 

 

(8,876

)

Other

 

 

34

 

 

 

71

 

Net cash used in investing activities

 

 

(6,328

)

 

 

(8,805

)

Financing activities

 

 

 

 

 

 

 

 

Borrowings under revolving line of credit, net

 

 

7,000

 

 

 

 

Deposits

 

 

2,590

 

 

 

1,380

 

Purchase and retirement of common stock

 

 

(2,903

)

 

 

 

Net issuance of common stock under equity compensation plans

 

 

(1,371

)

 

 

4,031

 

Other

 

 

(135

)

 

 

(85

)

Net cash provided by financing activities

 

 

5,181

 

 

 

5,326

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,063

)

 

 

(3,573

)

Net decrease in cash and cash equivalents

 

 

(35,309

)

 

 

(58,385

)

Cash and cash equivalents, beginning of period

 

 

149,760

 

 

 

283,680

 

Cash and cash equivalents, end of period

 

$

114,451

 

 

$

225,295

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,255

 

 

$

226

 

Cash paid for income taxes, net of refunds

 

$

824

 

 

$

6,134

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of stock units under incentive compensation plans

 

$

1,842

 

 

$

2,124

 

 

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, 2015 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 stock, each using the treasury stock method.

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Numerator—basic and diluted

 

 

 

 

 

 

 

 

Net income

 

$

30,181

 

 

$

23,686

 

Denominator

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

   — basic

 

 

40,506

 

 

 

40,384

 

Effect of dilutive stock options

 

 

131

 

 

 

376

 

Effect of dilutive restricted shares

 

 

511

 

 

 

564

 

Weighted average number of common shares outstanding

   — diluted

 

 

41,148

 

 

 

41,324

 

Earnings per common share — basic

 

$

0.75

 

 

$

0.59

 

Earnings per common share — diluted

 

$

0.73

 

 

$

0.57

 

Antidilutive stock options and restricted shares

 

 

2,657

 

 

 

2,173

 

 

 

3. New Accounting Standards

In March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 and income tax consequences, which are intended to simplify various aspects of the accounting for share-based compensation. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective beginning January 1, 2017, although early adoption is permitted. We have not yet determined the impact that the adoption of this guidance will have 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, leases 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.

7


In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under this ASU and subsequently issued amendments, revenue is 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. This guidance is effective beginning January 1, 2018. We are currently evaluating how the adoption of this accounting standard will impact our consolidated financial statements and related disclosures, including the transition approach.

 

 

4. Special Charges

During the three months ended March 31, 2016, we recorded special charges totaling $5.1 million related to the termination of 53 employees in our Technology segment to address current business demands and to position for future growth.  The special charges consisted of salary continuance and other contractual employee-related costs, including loan forgiveness and accelerated recognition of costs related to share-based compensation.  The total cash outflow associated with the special charges recorded in 2016 is expected to be $4.9 million, of which $2.3 million has been paid as of March 31, 2016.  Approximately $2.3 million is expected to be paid during the remainder of 2016, and the remaining balance of $0.3 million is expected to be paid in 2017.

We have paid approximately $54.3 million of the $65.5 million total expected payments related to special charges previously recorded in 2014, 2013, and 2012. Approximately $2.7 million is expected to be paid during the remainder of 2016, $3.1 million is expected to be paid in 2017, $2.6 million is expected to be paid in 2018, $1.2 million is expected to be paid in 2019, and the remaining balance of $1.6 million will be paid from 2020 to 2026. A liability for the current and noncurrent portions of the amounts to be paid is included in “Accounts payable, accrued expenses and other” and “Other liabilities,” respectively, on the Condensed Consolidated Balance Sheets.

Activity related to the liability for these costs for the three months ended March 31, 2016 is as follows:

 

 

 

Employee

 

 

Lease

 

 

 

 

 

 

 

Termination

 

 

Termination

 

 

 

 

 

 

 

Costs

 

 

Costs

 

 

Total

 

Balance at December 31, 2015

 

$

7,768

 

 

$

4,045

 

 

$

11,813

 

Additions

 

 

4,873

 

 

 

 

 

 

4,873

 

Payments

 

 

(2,787

)

 

 

(67

)

 

 

(2,854

)

Foreign currency translation adjustment and other

 

 

(3

)

 

 

 

 

 

(3

)

Balance at March 31, 2016

 

$

9,851

 

 

$

3,978

 

 

$

13,829

 

 

 

5. Allowance for Doubtful Accounts and Unbilled Services

We record adjustments to the allowance for doubtful accounts and unbilled services as a reduction in revenue 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 $0.4 million and $3.0 million for the three months ended March 31, 2016 and 2015, respectively.

 

 

6. Research and Development Costs

Research and development costs related to software development totaled $4.0 million and $5.9 million for the three months ended March 31, 2016 and 2015, 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, 2016 and December 31, 2015, based on the short-term nature of the assets and liabilities. The fair value of our long-term debt at March 31, 2016 was $522.0 million compared to a carrying value of $507.0 million. At December 31, 2015, the fair value of our long-term debt was $513.5 million compared to a carrying value of $500.0 million. We determine the fair value of our long-term debt primarily based on quoted market

8


prices for our 6% Senior Notes Due 2022 (“2022 Notes”). 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.

For business combinations consummated on or after January 1, 2009, we estimate the fair value of acquisition-related contingent consideration based on the present value of the consideration expected to be paid during the remainder of the earnout period, based on management’s assessment of the acquired operations’ forecasted earnings. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement.

The significant unobservable inputs used in the fair value measurements of our acquisition-related contingent consideration include our measures of the future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is accompanied by a directionally opposite change in the fair value measurement and a change in the assumptions used for the future cash flows is accompanied by a directionally similar change in the fair value measurement. The fair value of the contingent consideration is reassessed on a quarterly basis by the Company using additional information as it becomes available.

Any change in the fair value of an acquisition’s contingent consideration liability results in a remeasurement gain or loss that is recorded as income or expense, respectively, and is included within “Acquisition-related contingent consideration” in the Condensed Consolidated Statements of Comprehensive Income. During the three months ended March 31, 2016, we recorded a $1.0 million expense related to the increase in the liability for future expected contingent consideration payments, driven by improved business results in the current period as well as expected results during the remainder of the earn-out period. No remeasurement adjustments were recorded in the three months ended March 31, 2015.

Accretion expense for acquisition-related contingent consideration totaled $0.2 million and $0.2 million for the three months ended March 31, 2016 and 2015, respectively.

 

 

8. Goodwill and Other Intangible Assets

Goodwill

The changes in the carrying amounts of goodwill by operating segment for the three months ended March 31, 2016, are as follows:

 

 

 

Corporate

 

 

Forensic and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance &

 

 

Litigation

 

 

Economic

 

 

 

 

 

 

Strategic

 

 

 

 

 

 

 

Restructuring

 

 

Consulting

 

 

Consulting

 

 

Technology

 

 

Communications

 

 

Total

 

Balance at December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

441,548

 

 

 

235,211

 

 

 

269,341

 

 

 

117,888

 

 

 

328,449

 

 

 

1,392,437

 

Accumulated goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(194,139

)

 

 

(194,139

)

Goodwill, net at December 31, 2015

 

$

441,548

 

 

$

235,211

 

 

$

269,341

 

 

$

117,888

 

 

$

134,310

 

 

$

1,198,298

 

Foreign currency translation adjustment and

   other

 

 

1,640

 

 

 

(415

)

 

 

(102

)

 

 

(48

)

 

 

(1,303

)

 

 

(228

)

Goodwill

 

 

443,188

 

 

 

234,796

 

 

 

269,239

 

 

 

117,840

 

 

 

327,146

 

 

 

1,392,209

 

Accumulated goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(194,139

)

 

 

(194,139

)

Goodwill, net at March 31, 2016

 

$

443,188

 

 

$

234,796

 

 

$

269,239

 

 

$

117,840

 

 

$

133,007

 

 

$

1,198,070

 

 

Other Intangible Assets

Other intangible assets with finite lives are amortized over their estimated useful lives. For intangible assets with finite lives, we recorded amortization expense of $2.6 million and $3.0 million for the three months ended March 31, 2016 and 2015, respectively. Based solely on the amortizable intangible assets recorded as of March 31, 2016, we estimate amortization expense to be $7.8 million during the remainder of 2016, $9.6 million in 2017, $8.0 million in 2018, $7.4 million in 2019, $7.2 million in 2020, $6.7 million in 2021, and $8.9 million in years after 2021. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, finalization of asset valuations for newly acquired assets, changes in useful lives, changes in value due to foreign currency translation, and other factors.

 

 

9


9. Long-Term Debt

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

6% senior notes due 2022

 

 

300,000

 

 

 

300,000

 

Senior bank credit facility

 

 

207,000

 

 

 

200,000

 

Total debt

 

 

507,000

 

 

 

500,000

 

Less deferred debt issue costs

 

 

(5,039

)

 

 

(5,228

)

Long-term debt, net

 

$

501,961

 

 

$

494,772

 

 

There were $207.0 million in borrowings outstanding under the Company’s senior secured bank revolving credit facility (“Senior Bank Credit Facility”) as of March 31, 2016. 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, to refinance these borrowings for more than one year from the Balance Sheet date. Additionally, $1.4 million of the borrowing limit was utilized (and, therefore, unavailable) as of March 31, 2016 for letters of credit.

 

For further information on our 6% senior notes due 2022 and Senior Bank Credit Facility, see footnote “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, 2015.

 

 

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

Our officers, employees, non-employee directors and certain individual service providers are eligible to participate in the Company’s equity compensation plans, subject to the discretion of the administrator of the plans. During the three months ended March 31, 2016, we awarded 225,272 restricted shares, stock options exercisable for up to 118,865 shares, 53,104 restricted stock units, and 83,914 performance stock units. These awards are recorded as equity on the Condensed Consolidated Balance Sheets. During the three months ended March 31, 2016, stock options exercisable for up to 31,467 shares and 10 restricted shares 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, 2016 and 2015 is detailed in the following table:

 

 

 

Three Months Ended March 31,

 

Income Statement Classification

 

2016

 

 

2015

 

Direct cost of revenues

 

$

3,848

 

 

$

3,899

 

Selling, general and administrative expenses

 

 

2,709

 

 

 

3,043

 

Special charges

 

 

105

 

 

 

 

Total share-based compensation expense

 

$

6,662

 

 

$

6,942

 

 

 

12. 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 businesses around the world and provides consulting and advisory services on a wide range of areas, such as restructuring (including bankruptcy), interim management, financings, mergers and acquisitions (“M&A”), M&A integration, valuations and tax issues, as well as financial,

10


operational and performance improvement. Our distressed service offerings generally include corporate restructurings and interim management, and our non-distressed service offerings generally include all other services mentioned above.

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

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 provides e-discovery and information governance, hosting and consulting services and software to its clients. It provides products, services and consulting to companies, law firms, courts and government agencies worldwide. Its comprehensive suite of software and services help clients locate, review and produce electronically stored information (“ESI”), including e-mail, computer files, voicemail, instant messaging, cloud and social media data, as well as financial and transactional data.

Our Strategic Communications segment provides advice and consulting services relating to financial and corporate communications, investor relations, reputation management, brand communications, public affairs, business consulting, digital design and marketing.

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 as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. Although Adjusted Segment EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, 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.

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

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

 

Corporate Finance & Restructuring

 

$

127,156

 

 

$

106,212

 

Forensic and Litigation Consulting

 

 

119,004

 

 

 

123,265

 

Economic Consulting

 

 

130,731

 

 

 

106,081

 

Technology

 

 

48,281

 

 

 

54,654

 

Strategic Communications

 

 

45,113

 

 

 

42,126

 

Total revenues

 

$

470,285

 

 

$

432,338

 

Adjusted Segment EBITDA

 

 

 

 

 

 

 

 

Corporate Finance & Restructuring

 

$

31,603

 

 

$

22,480

 

Forensic and Litigation Consulting

 

 

19,808

 

 

 

22,071

 

Economic Consulting

 

 

21,319

 

 

 

11,556

 

Technology

 

 

7,823

 

 

 

10,073

 

Strategic Communications

 

 

6,108

 

 

 

5,752

 

Total Adjusted Segment EBITDA

 

$

86,661

 

 

$

71,932

 

 

11


The table below reconciles Total Adjusted Segment EBITDA to income before income tax provision:

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Total Adjusted Segment EBITDA

 

$

86,661

 

 

$

71,932

 

Segment depreciation expense

 

 

(7,029

)

 

 

(6,991

)

Amortization of intangible assets

 

 

(2,606

)

 

 

(3,012

)

Special charges

 

 

(5,061

)

 

 

 

Unallocated corporate expenses, excluding special charges

 

 

(18,746

)

 

 

(14,081

)

Interest income and other

 

 

2,557

 

 

 

(137

)

Interest expense

 

 

(6,229

)

 

 

(12,368

)

Remeasurement of acquisition-related contingent

   consideration

 

 

(980

)

 

 

 

Income before income tax provision

 

$

48,567

 

 

$

35,343

 

 

 

13. 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 (loss) 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 Information as of March 31, 2016

 

 

 

FTI

 

 

Guarantor

 

 

Non-Guarantor

 

 

 

 

 

 

 

 

 

 

 

Consulting, Inc.

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Eliminations

 

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,992

 

 

$

163

 

 

$

100,296

 

 

$

 

 

$

114,451

 

Accounts receivable, net

 

 

176,302

 

 

 

191,471

 

 

 

185,457

 

 

 

 

 

 

553,230

 

Intercompany receivables

 

 

 

 

 

921,720

 

 

 

39,450

 

 

 

(961,170

)

 

 

 

Other current assets

 

 

33,076

 

 

 

22,789

 

 

 

20,805

 

 

 

 

 

 

76,670

 

Total current assets

 

 

223,370

 

 

 

1,136,143

 

 

 

346,008

 

 

 

(961,170

)

 

 

744,351

 

Property and equipment, net

 

 

31,765

 

 

 

12,649

 

 

 

26,849

 

 

 

 

 

 

71,263

 

Goodwill

 

 

558,978

 

 

 

416,053

 

 

 

223,039

 

 

 

 

 

 

1,198,070

 

Other intangible assets, net

 

 

24,877

 

 

 

15,013

 

 

 

41,528

 

 

 

(20,225

)

 

 

61,193

 

Investments in subsidiaries

 

 

2,021,892

 

 

 

495,463

 

 

 

 

 

 

(2,517,355

)

 

 

 

Other assets

 

 

40,855

 

 

 

70,630

 

 

 

38,682

 

 

 

 

 

 

150,167

 

Total assets

 

$

2,901,737

 

 

$

2,145,951

 

 

$

676,106

 

 

$

(3,498,750

)

 

$

2,225,044

 

Liabilities