SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO THE SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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.
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(Exact Name of Registrant as Specified in its Charter)
Maryland 52-1261113
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
900 Bestgate Road, Annapolis, Maryland 21401
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(Address of Principal Executive Offices) (Zip Code)
(410) 224-8770
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- ----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
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 the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at May 8, 2002
- ------------------------ ---------------------------
Common Stock, par value 20,028,797
$.01 per share
FTI CONSULTING, INC.
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INDEX
Page
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 2001 and
March 31, 2002 3
Consolidated Statements of Income - Three months ended
March 31, 2001 and three months ended
March 31, 2002 5
Consolidated Statements of Cash Flows - Three months
ended March 31, 2001 and three months ended
March 31, 2002 6
Notes to Unaudited Consolidated Financial Statements
- March 31, 2002 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
Part I. Financial Information
FTI Consulting, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands of dollars, except share amounts)
December 31, March 31,
2001 2002
--------------------------
(audited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 12,856 $ 7,233
Accounts receivable, less allowance of $1,508 in 2001
and $1,874 in 2002 20,435 23,631
Unbilled receivables, less allowance of $815 in 2001
and $1,136 in 2002 12,154 17,157
Income taxes recoverable 1,790 -
Deferred income taxes 1,325 1,325
Prepaid expenses and other current assets 2,361 3,928
--------------------------
Total current assets 50,921 53,274
Property and equipment:
Furniture, equipment and software 19,535 20,841
Leasehold improvements 4,102 4,166
--------------------------
23,637 25,007
Accumulated depreciation and amortization (11,384) (12,026)
--------------------------
12,253 12,981
Deferred income taxes 150 150
Goodwill, net of accumulated amortization of $13,245 90,156 93,971
Other assets 873 863
--------------------------
Total assets $ 154,353 $ 161,239
==========================
See accompanying notes.
3
FTI Consulting, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands of dollars, except share amounts)
December 31, March 31,
2001 2002
--------------------------------
(audited) (unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 4,788 $ 5,200
Accrued compensation expense 12,536 8,200
Income taxes payable - 644
Deferred income taxes 130 130
Current portion of long-term debt 4,333 4,333
Other current liabilities 368 280
--------------------------------
Total current liabilities 22,155 18,787
Long-term debt, less current portion 23,833 22,750
Other long-term liabilities 1,481 1,390
Deferred income taxes 1,748 1,748
Commitments and contingent liabilities - -
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none outstanding - -
Common stock, $.01 par value; 45,000,000 shares;
19,590,938 and 19,981,797 shares issued and
outstanding in 2001 and 2002, respectively 196 200
Additional paid-in capital 75,416 79,968
Unearned compensation (568) (520)
Retained earnings 31,036 37,640
Accumulated other comprehensive loss (944) (724)
--------------------------------
Total stockholders' equity 105,136 116,564
--------------------------------
Total liabilities and stockholders' equity $ 154,353 $ 161,239
================================
See accompanying notes.
4
FTI Consulting, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands of dollars, except per share data)
Three Months Ended March 31,
2001 2002
------------ ---------------
(unaudited) (unaudited)
Revenues $ 41,475 $ 50,680
Direct cost of revenues 21,806 25,458
Selling, general and administrative expenses 10,309 13,386
Amortization of goodwill 1,250 -
------------ ---------------
33,365 38,844
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Income from operations 8,110 11,836
Other income (expense):
Interest income 52 28
Interest expense (1,495) (766)
------------ ---------------
(1,443) (738)
------------ ---------------
Income before income taxes 6,667 11,098
Income taxes 2,834 4,494
------------ ---------------
Net income $ 3,833 $ 6,604
============ ===============
Earnings per common share, basic $ 0.24 $ 0.33
============ ===============
Earnings per common share, diluted $ 0.21 $ 0.31
============ ===============
See accompanying notes.
5
FTI Consulting, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands of dollars)
Three Months Ended March 31,
2001 2002
-----------------------
(unaudited)
Operating activities
Net income $ 3,833 $ 6,604
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Amortization of goodwill 1,250 -
Depreciation and other amortization 916 1,086
Provision for doubtful accounts 126 673
Non-cash stock compensation expense - 48
Other 152 164
Changes in operating assets and liabilities:
Accounts receivable, billed and unbilled (2,516) (8,445)
Prepaid expenses and other current assets (140) (1,567)
Accounts payable and accrued expenses (1,852) 412
Accrued compensation expense (2,358) (4,336)
Income taxes recoverable/payable 2,694 2,434
Other current liabilities (10) (144)
---------------------------
Net cash provided by (used in) operating activities 2,095 (3,071)
Investing activities
Purchase of property and equipment (815) (1,603)
Contingent payments to former owners of subsidiaries (90) (121)
Acquisition of businesses, including acquisition costs (516) (3,241)
Change in other assets 202 -
---------------------------
Net cash used in investing activities (1,219) (4,965)
Financing activities
Issuance of common stock and exercise of options 506 3,546
Payments of long-term debt (2,084) (1,083)
Payment of financing fees (5) (50)
---------------------------
Net cash provided by (used in) financing activities (1,583) 2,413
---------------------------
Net decrease in cash and cash equivalents (707) (5,623)
Cash and cash equivalents at beginning of period 3,235 12,856
---------------------------
Cash and cash equivalents at end of period $ 2,528 $ 7,233
===========================
See accompanying notes.
6
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2002
(amounts in tables expressed in thousands, except per share data)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2002 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002.
2. Recent Accounting Pronouncements
As of January 1, 2002, the Company adopted Financial Accounting Standards Board
Statement No. 142, Goodwill and Other Intangible Assets ("Statement 142"). Under
the new rules, goodwill and other intangible assets deemed to have indefinite
lives are no longer amortized but are subject to annual impairment tests in
accordance with the Statement. Other intangible assets will continue to be
amortized over their useful lives.
The amortization expense and net income of the Company for the three months
ended March 31, 2002 and 2001 are as follows:
2001 2002
--------------------
Reported net income $3,833 $6,604
Plus: Goodwill amortization, net of income
taxes 720 -0-
-------------------
Adjusted net income $4,553 $6,604
===================
Earnings per common share, basic
Reported net income $ 0.24 $0.33
Goodwill amortization, net of income taxes
0.05 -0-
-------------------
Adjusted net income $ 0.29 $0.33
===================
Earnings per common share, diluted
Reported net income $ 0.21 $0.31
Goodwill amortization, net of income taxes
0.04 -0-
-------------------
Adjusted net income $ 0.25 $0.31
===================
During the second quarter of 2002, the Company will complete the first of the
required impairment tests of goodwill and intangible assets deemed to have
indefinite lives. Currently, management has not yet determined the effect of
these tests; however, the impact is not expected to be material to the Company's
earnings or financial position.
7
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2002 (continued)
(amounts in tables expressed in thousands, except per share data)
2. Recent Accounting Pronouncements (continued)
Also, as of January 1, 2002, the Company adopted Financial Accounting Standards
Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("Statement 144"). Statement 144 supersedes and serves to clarify and
further define the provisions of Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and provides a single accounting model for long-lived
assets to be disposed of.
Statement 144 does not apply to goodwill and other intangibles assets that are
not amortized, and retains the Company's current policy to recognize an
impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted future cash flows and to measure the
impairment loss as the difference between the carrying amount and the fair value
of the asset. The effect of adoption of Statement 144 did not have a material
effect on the Company's consolidated financial position or results of
operations.
3. Stockholders' Equity
Accumulated
Additional Other
Common Paid-in Unearned Retained Comprehensive
Stock Capital Compensation Earnings Income (Loss) Total
----------------------------------------------------------------------
Balance at January 1, 2002 $196 $75,416 $(568) $31,036 $ (944) $105,136
Payment for fractional shares - (16) (16)
Issuance of 48,904 shares of common stock
under Employee Stock Purchase Plan 1 603 604
Issuance of 46,216 shares of common stock as part of
purchase price of TFC - 1,010 1,010
Exercise of stock options to purchase 293,939 shares
of common stock, including tax benefit of $1.5 million 3 2,955 2,958
Amortization of unearned compensation expense 48 48
Comprehensive Income:
Other comprehensive income - change in fair value of
interest rate swaps, net of income taxes of $163 220 220
Net income for the three months
ended March 31, 2002 6,604 6,604
------------------------------------
Total Comprehensive Income 6,604 220 6,824
----------------------------------------------------------------------
Balance at March 31, 2002 $200 $79,968 $(520) $37,640 $ (724) $116,564
======================================================================
Total comprehensive income for the three months ended March 31, 2002 was
$6,824,000, representing the change in fair value of interest rate swaps of
$220,000 and net income of $6,604,000. Total comprehe nsive income for the three
months ended March 31, 2001 was $3,126,000, composed of the change in the fair
value of interest rate swaps of $(359,000), the cumulative effect on prior years
of changing to a different method of accounting for interest rate swaps of
$(348,000) and net income of $3,833,000.
The Company's board of directors authorized a three-for-two stock split in the
form of a stock dividend to be distributed to stockholders of record on January
2, 2002. All share and per share data included in the consolidated financial
statements have been restated to reflect the stock split.
8
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2002 (continued)
(amounts in tables expressed in thousands, except per share data)
4. Income Taxes
The income tax provisions for interim periods in 2002 and 2001 are based on the
estimated effective tax rates applicable for the full years. The Company's
income tax provision of $4.5 million for the three month period ended March 31,
2002 consists of federal and state income taxes. The effective income tax rate
in 2002 is expected to be approximately 40.5%. This rate is higher than the
statutory federal income tax rate of 35% due principally to state and local
taxes.
5. Earnings Per Share
The following table summarizes the computations of basic and diluted earnings
per share:
Three months ended
March 31,
2001 2002
-----------------------
Numerator used in basic and diluted earnings per common share:
Net income $ 3,833 $ 6,604
========= =========
Denominator:
Denominator for basic earnings per common share -- weighted average shares 15,933 19,783
Effect of dilutive securities:
Warrants 899 -
Employee stock options 1,219 1,570
--------- ---------
2,118 1,570
--------- ---------
Denominator for diluted earnings per common share -- weighted
average shares and effect of dilutive securities 18,051 21,353
========= =========
Earnings per common share, basic $ 0.24 $ 0.33
========= =========
Earnings per common share, diluted $ 0.21 $ 0.31
========= =========
9
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2002 (continued)
(amounts in tables expressed in thousands, except per share data)
6. Acquisition of Technology & Financial Consulting, Inc.
On January 2, 2002, the Company completed the acquisition of all of the
outstanding common stock of Technology & Financial Consulting, Inc. ("TFC").
TFC, based in Houston, Texas, provides intellectual property consulting
services. As a result of the acquisition, the Company has added a new practice
area to its service offerings. The total purchase price was $4.1 million,
including cash payments of $3.1 million and common stock valued at $1.0 million.
The value of the 46,216 common shares issued was determined based on the closing
market price of the Company's common stock on December 31, 2001, pursuant to the
Agreement. The acquisition was accounted for using the purchase method of
accounting. In connection with the acquisition, assets with a fair market value
of $4.3 million including approximately $3.7 million of goodwill were acquired
and liabilities of $33,000 were assumed. The results of operations of TFC are
included in the accompanying consolidated financial statements commencing
January 2, 2002.
7. Segment Reporting
The Company is a multi-disciplined consulting firm with leading practices in the
areas of financial restructuring, litigation consulting, and
engineering/scientific investigation, through three distinct operating segments.
The Financial Consulting division offers a range of financial consulting
services, such as forensic accounting, bankruptcy and restructuring analysis,
expert testimony, damage assessment, cost benefit analysis, and business
valuations. The Applied Sciences division offers engineering/scientific
consulting services, accident reconstruction, fire investigation, equipment
procurement, and expert testimony regarding intellectual property rights. The
Litigation Consulting division provides advice and services in connection with
all phases of the litigation process.
The Company evaluates performance and allocates resources based on operating
income before depreciation and amortization, corporate general and
administrative expenses, and income taxes. The Company does not allocate assets
to its reportable segments, as assets generally are not specifically
attributable to any particular segment. Accordingly, asset information by
reportable segment is not presented. The accounting policies used by the
reportable segments are the same as those used by the Company. There are no
significant intercompany sales or transfers.
The Company's reportable segments are business units that offer distinct
services. The following table sets forth historical information on the Company's
reportable segments:
Three months ended March 31, 2001
-------------------------------------------------------------------------
Financial Applied Litigation
Consulting Sciences Consulting Total
- ---------------------------------------------------------------------------------------------------
Revenues $24,213 $10,210 $7,052 $41,475
Operating expenses 14,522 8,468 6,094 29,084
------- ------- ------ -------
Segment profit $ 9,691 $ 1,742 $ 958 $12,391
======= ======= ====== =======
Three months ended March 31, 2002
-------------------------------------------------------------------------
Financial Applied Litigation
Consulting Sciences Consulting Total
- ---------------------------------------------------------------------------------------------------
Revenues $31,380 $12,773 $6,527 $50,680
Operating expenses 18,918 10,185 5,671 34,774
------- ------- ------ -------
Segment profit $12,462 $ 2,588 $ 856 $15,906
======= ======= ====== =======
10
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2002 (continued)
(amounts in tables expressed in thousands, except per share data)
7. Segment Reporting (continued)
A reconciliation of segment profit for all segments to income before income
taxes is as follows:
Three months ended March 31,
- --------------------------------------------------------------------
2001 2002
- --------------------------------------------------------------------
Operating Profit:
Total segment profit $12,391 $15,906
Corporate general and administrative
expenses (2,115) (2,984)
Depreciation and amortization (2,166) (1,086)
Interest expense, net (1,443) (738)
------- -------
Income before income taxes $ 6,667 $11,098
======= =======
Substantially all of the revenue and assets of the Company's reportable segments
are attributed to or located in the United States. Additionally, the Company
does not have a single customer that represents ten percent or more of its
consolidated revenues.
The carrying amount of goodwill, by segment, at March 31, 2002, is as follows:
Financial Applied Litigation
Consulting Sciences Consulting Total
---------- -------- ---------- -----
Balance at March 31, 2002 - $ 76,760 $ 14,422 $ 2,789 $ 93,971
==============================================
11
FTI Consulting, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
FTI Consulting, Inc. (the "Company" or "FTI") is a multi-disciplined consulting
firm with leading practices in the areas of financial restructuring, litigation
support, and engineering/scientific investigation. We are organized into three
distinct operating segments that contribute to the overall performance of our
company.
Our Financial Consulting division, which accounted for 61.9% of our first
quarter 2002 revenues and was our most profitable division, offers a broad range
of financial consulting services, such as forensic accounting, bankruptcy and
restructuring analysis, expert testimony, damage assessment, cost benefit
analysis, and business valuations. Our Applied Sciences division, which
accounted for 25.2% of our first quarter 2002 revenues, offers forensic
engineering/scientific investigation services, accident reconstruction, fire
investigation, and expert testimony regarding intellectual property rights. Our
Litigation Consulting division, which accounted for 12.9% of our first quarter
2002 revenues, provides advice and services in connection with all phases of the
litigation process.
We evaluate segment performance based on our operating income before
depreciation and amortization, corporate general and administrative expenses and
income taxes for each division. In the first quarter of 2002, our Financial
Consulting division accounted for 78.3% of our operating income, while our
Applied Sciences division accounted for 16.3% and our Litigation Consulting
division accounted for 5.4%.
Our direct cost of revenues consists primarily of employee compensation and
related payroll benefits, the cost of outside consultants assigned to
revenue-generating activities and other related expenses billable to clients. In
the first quarter of 2002, our direct costs were 50.2% of revenues, consistent
with our overall long-term 50.0% target and an improvement from 52.6% in the
first quarter of 2001.
Selling, general and administrative expenses consist primarily of salaries and
benefits paid to office and corporate staff, as well as rent, marketing,
corporate overhead expenses, and depreciation and amortization of property and
equipment. In the first quarter of 2002, selling, general and administrative
expenses, including depreciation and amortization, accounted for about 26.4% of
our revenues, slightly higher than the 24.9% result in the first quarter of
2001, but consistent with our long-term target of 25.0% excluding depreciation
and amortization. Our corporate overhead costs, which are included in selling,
general and administrative expenses, represented about 5.9% of revenues in 2002
and 5.1% in 2001.
Effect of Recent Accounting Pronouncements
In connection with our various acquisitions, we recorded goodwill. Goodwill
arises when an acquirer pays more for a business than the fair value of the
tangible and separately measurable intangible net assets.
On March 31, 2002, we had about $94.0 million of unamortized goodwill, which,
prior to this year, we had been amortizing over 20 to 25 year periods. On
January 1, 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Statement 142
eliminates the requirement to amortize goodwill over finite lives. Rather, the
asset must be tested for impairment at least annually at the reporting level
using an approach defined by the Statement.
We adopted Statement 142 in January 2002 and accordingly amortization of
goodwill is no longer recorded. Goodwill amortization was approximately $5.0
million in 2001. The Statement also provides that any impairment loss recognized
as a result of a transitional impairment test of goodwill is recognized as the
effect of a change in accounting principle in the period of adoption. While we
have not yet completed the impairment tests required by Statement 142, we
believe that a material transitional impairment charge will not be required.
12
Acquisition
On January 2, 2002, we completed the acquisition of all of the outstanding
common stock of Technology & Financial Consulting, Inc. ("TFC"). TFC, based in
Houston, Texas, provides intellectual property consulting services. The total
purchase price was $4.1 million, including cash payments of $3.1 million and
common stock valued at $1.0 million. This acquisition was accounted for using
the purchase method of accounting and at the acquisition date, approximately
$3.7 million of goodwill was recorded. The professionals and practices of TFC
have been incorporated into our Financial Consulting division in our Houston,
Texas office.
Results of Operations
Three Months Ended March 31, 2002 and March 31, 2001
Revenues. Total revenues for the three months ended March 31, 2002 increased
22.2% to $50.7 million from $41.5 million in 2001. Our Financial Consulting
division revenues grew by 29.6% to $31.4 million in 2002 from $24.2 million in
2001, primarily as a result our ability to recruit seasoned financial
professionals to meet the continued strong demand for our financial consulting
services in both restructuring and turnaround activities and the forensic
accounting and strategic consulting portions of the business, coupled with
increases in professional rates. We believe that the market demand for our
services in these areas will continue to be strong throughout 2002, and we have
added several new practice areas to the division in early 2002, including crisis
management, intellectual property litigation consulting, electronic evidence
discovery, and utility regulatory and financial consulting. These new practice
areas did not contribute significantly to the revenues or operating income of
the Financial Consulting division during the first quarter of 2002.
Our Applied Sciences division experienced 25.1% revenue growth during the first
three months of 2002 to $12.8 million from $10.2 million in 2001. This division
grew faster than its historical rate of 6% to 10% due primarily to a significant
number of unanticipated assignments. These engagements included restoration
assignments near the site of the World Trade Center that were completed in the
first quarter of 2002. We do not anticipate any significant changes in the
long-term trends for this division and anticipate that its growth for the
remainder of 2002 will be within its historical range.
Our Litigation Consulting division revenues decreased 7.4% to $6.5 million in
2002 from $7.1 million in 2001, representing a slowing of the decline that began
in the third quarter of 2000 primarily as a result of an unusual number of
trials that were deferred or cancelled due to settlement or settlement
discussions. Because we do not foresee this trend reversing during the remainder
of 2002, we continue to monitor this business segment closely and continue to
take significant steps to contain costs. Our goals are to improve our overall
utilization of employees, further standardize practices, install new incentive
systems for our sales and marketing efforts, establish new profit incentive
programs, continue to reduce costs by flattening our organizational structure
and work on enhancing opportunities through our new electronic evidence and
intellectual property consulting businesses.
Direct Cost of Revenues. Direct cost of revenues was 50.2% of our total revenues
in the first quarter of 2002 and 52.6% in the same period of 2001. The
improvement in 2002 resulted primarily from the relative growth of the Financial
Consulting division, which has a somewhat higher gross margin than our other
divisions, and is in line with our long-term target of 50.0%.
Selling, General and Administrative Expenses. As a percent of our total
revenues, these expenses, which include depreciation and amortization of
property and equipment, were 26.4% in the first quarter of 2002, and 24.9% in
the same period of 2001. The increase in 2002 is primarily due to facilities
costs, related to the expansion of our offices in several major markets,
including Los Angeles and Washington, DC. Selling, general and administrative
expenses, excluding depreciation and amortization, was 24.3% of revenues in the
first quarter of 2002, and is consistent with our long-term target of 25.0%.
Amortization of Goodwill. As required by Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, we no longer amortize
our goodwill beginning January 1, 2002. Amortization of goodwill during the
first quarter of 2001 was $1.25 million.
13
Interest Expense. Interest expense consisted primarily of interest on debt we
incurred to purchase businesses over the past several years. Interest expense
decreased substantially in the first quarter of 2002 compared with 2001, because
we were able to retire our debt in accordance with its terms with cash flow from
operations and the proceeds from the exercise of options and, because interest
rates were lower than in the first quarter of 2001.
Income Taxes. Our effective tax rate decreased to 40.5% in the first quarter of
2002, reduced from 41.0% for fiscal 2001, principally due to the reduced effect
of some of the goodwill amortization in 2001 not being deductible for income tax
purposes.
Liquidity and Capital Resources
During the first quarter of 2002, net cash used in operations was about $3.1
million, principally as a result of the $8.4 million increase in our billed and
unbilled accounts receivable. Our revenues for the first quarter of 2002 were
$9.2 million more than in the same period of 2001, a significant portion of
which was in the last month of the quarter. We also paid all incentive
compensation related to 2001, reducing our accrued compensation balances by $4.3
million.
During the three months ended March 31, 2002, we spent $1.6 million for net
additions to property and equipment, primarily for the cost of the expansion of
one of our major offices and the investment in technology and equipment for our
new practice areas. For the year ended December 31, 2002, we expect to spend
approximately $5.0 million for property and equipment additions. During the
first quarter of 2002, we also paid $3.1 million in cash to acquire TFC.
Also, during the quarter ended March 31, 2002, stock options to purchase 293,939
shares of our common stock were exercised and 48,904 shares of our common stock
were issued under our Employees Stock Purchase Plan, generating $3.5 million in
cash. At the end of March 2002, we made the scheduled payment of $1.1 million on
our long-term debt.
At March 31, 2002, we had $7.2 million in cash plus availability under our
revolving credit agreement to borrow $46.6 million. We have not drawn upon this
credit facility during the first quarter of 2002. We expect that available cash
and credit facilities will be sufficient to meet our normal operating
requirements in the near term.
A summary of our contractual obligations and commitments including the
aforementioned credit facility are as follows:
- ---------------------------------------------------------------------------------------------------
Payments Due by Period
- ---------------------------------------------------------------------------------------------------
Contractual Obligations Total 2002 2003 2004 2005 Thereafter
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Long-Term Debt 27,083 3,250 6,500 8,667 8,666 -
- ---------------------------------------------------------------------------------------------------
Operating Leases 35,842 5,470 5,333 4,982 4,650 15,407
- ---------------------------------------------------------------------------------------------------
Total Obligations 62,925 8,720 11,833 13,649 13,316 15,407
- ---------------------------------------------------------------------------------------------------
Forward-Looking Statements
Some of the statements under "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" and elsewhere in this report contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements not to be fully achieved. These forward-looking
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "intends," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
or other comparable terminology. These statements are only predictions.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of such statements. We are under no duty to update any
of the forward-looking statements after the date of this report to conform such
statements to actual results and do not intend to do so. Factors, which may
cause the actual results of operations in future periods to differ materially
from intended or expected results include, but are not limited to, the risk
factors described elsewhere in this report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk associated with changes in interest rates on our
variable rate debt. We have managed this risk by entering into interest rate
swaps. These hedges reduce our exposure to rising interest rates, but also
reduce the benefits from lower interest rates. We do not anticipate any material
changes to our market risk exposures in 2002.
Interest rate swaps with notional principal amounts of $27.1 million at March
31, 2002 were designated as hedges against outstanding debt and were used to
convert the interest rate on our variable rate debt to fixed rates for the life
of the swap. Our pay rate on our debt was 8.39% at March 31, 2002, compared to
our receive rate of 3.63%. Because of the effectiveness of our hedge of variable
interest rates associated with our debt, the change in fair value of our
interest rate swaps resulting from changes in market interest rates is reported
as a component of other comprehensive income.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not presently a party to any material litigation.
Item 2. Changes in Securities
On January 2, 2002, the Company completed the acquisition of all of the
outstanding common stock of Technology & Financial Consulting, Inc. The purchase
price totaled $4.1 million, consisting of $3.1 million in cash and 46,216 shares
of common stock of the Company valued at $21.64 per share. The issuance of the
shares was exempt from registration under the Securities Act of 1933, as
amended.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FTI CONSULTING, INC.
Date: May 9, 2002 By /s/Theodore I. Pincus
---------------------
THEODORE I. PINCUS
Executive Vice President, Chief Financial
Officer (principal financial and accounting
officer) and Secretary
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