U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 30, 1998
FTI CONSULTING, INC.
(Exact name of registrant as specified in its charter)
Maryland 0000887936 52-1261113
(State of other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
2021 Research Drive, Annapolis, Maryland 21401
(Address of principal executive offices, including Zip Code)
(410) 224-8770
(Registrant's telephone number, including area code)
FTI CONSULTING, INC.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 30, 1998, FTI Consulting, Inc. (the "Company"), Klick, Kent &
Allen, Inc. ("KK&A"), and John C. Klick, Christopher D. Kent, Evan J. Allen, and
Michael R. Baranowski (each a "Stockholder" and collectively, the
"Stockholders") entered into a Stock Purchase Agreement whereby all of the
issued and outstanding shares of the capital stock of KK&A was purchased by the
Company for the purchase price of Ten Million Dollars ($10,000,000), as
evidenced by promissory notes. Six Million Dollars ($6,000,000) was paid to the
Stockholders on July 1, 1998. The balance will be paid in two equal installments
on the first and second anniversaries of the first installment. Additionally,
the Stockholders will be paid an earn-out as additional purchase price equal to
fifty percent (50%) of the aggregate pre-tax profits of KK&A for the three years
ended June 30, 2001. The purchase price was based upon the Company's evaluation
of the financial condition, business operations and prospects of KK&A and was
negotiated in an arms length transaction among unrelated and unaffiliated (as
defined under Rule 144 promulgated by the Securities and Exchange Commission)
parties. KK&A is in the business of providing strategic and economic consulting
to various regulated businesses, advising on such matters as industry
deregulation, mergers and acquisitions, rate and costs structures, economic and
financial modeling and litigation and litigation risk analysis
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. Audited financial statements of KK&A, for the
years ended December 31, 1997 and 1996 and unaudited financial statements of
KK&A, for the three months ended March 31, 1998 and 1997.
(b) Pro Forma Financial Information. Pro Forma Balance Sheet and Pro Forma
Statement of Income, combining the Company and KK&A for the year ended December
31, 1997, and the three months ended March 31, 1998.
(c) Exhibits
2.1 Stock Purchase Agreement dated June 30, 1998 by and among
the Company, KK&A, and the Stockholders.
23.1 Consent of Kearney & Company
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
FTI CONSULTING, INC.
(Registrant)
By: /s/ Gary Sindler
-----------------------------------------
Gary Sindler
Executive Vice President and Chief
Financial Officer, Secretary and Treasurer
DATED: July 15, 1998
KLICK, KENT & ALLEN, INC.
YEARS ENDED DECEMBER 31, 1997 AND 1996
KLICK, KENT & ALLEN, INC.
YEARS ENDED DECEMBER 31, 1997 AND 1996
TABLE OF CONTENTS
Page
----
Independent Auditor's Report ........................................... 1
Financial statements:
Balance sheets ....................................................... 2-3
Statements of operations.............................................. 4
Statements of stockholders' equity.................................... 5
Statements of cash flows ............................................. 6
Notes to financial statements ........................................ 7-9
Independent Auditor's Report on Additional
Information .......................................................... 10
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Klick, Kent & Allen, Inc.
Alexandria, Virginia
We have audited the accompanying balance sheets of Klick, Kent & Allen, Inc. as
of December 31, 1997 and 1996, and the related statements of operations and
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Klick, Kent & Allen, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Kearney & Company
- ---------------------
Annandale, VA
February 4, 1998
KLICK, KENT & ALLEN, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 63,086 $ 1,237
Accounts receivable 1,090,432 658,265
Prepaid expenses and deposits 69,029 35,373
---------- ----------
Total current assets 1,222,547 694,875
---------- ----------
Property and equipment:
Furniture and equipment 390,370 311,297
Software 19,573 13,635
Leasehold improvements 11,470 25,485
---------- ----------
421,413 350,417
Less: accumulated depreciation and amortization 331,220 293,306
---------- ----------
Net property and equipment 90,193 57,111
---------- ----------
Total assets $1,312,740 $ 751,986
========== ==========
See notes to financial statements.
2
KLICK, KENT & ALLEN, INC.
BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
---- ----
Current liabilities:
Accounts payable $ 49,633 $ 37,287
Cash overdraft 0 3,436
Retirement plan contribution payable 133,035 100,107
Note payable, credit line 450,000 250,000
Notes payable, stockholders 66,971 74,030
Security deposit, sub-tenant 11,489 0
---------- ----------
Total current liabilities 711,128 464,860
---------- ----------
Commitments
Stockholders' equity:
Common stock, $1 par, 1,000 shares authorized,
650 shares outstanding 650 650
Additional paid-in capital 89,960 89,960
Retained earnings 511,002 196,516
---------- ----------
Total stockholders' equity 601,612 287,126
Total liabilities and stockholders' equity $1,312,740 $ 751,986
========== ==========
See notes to financial statements.
3
KLICK, KENT & ALLEN, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Revenues $5,489,863 $2,877,194
Direct costs, except owners' compensation 2,039,803 816,795
---------- ----------
Gross profit before owners' compensation 3,450,060 2,060,399
Operating expenses, except owners' compensation 732,090 554,165
---------- ----------
Income before owners' compensation 2,717,970 1,506,234
Owners' compensation 2,463,897 1,457,669
---------- ----------
Income from operations 254,073 48,565
---------- ----------
Other income:
Interest 25,854 9,471
Miscellaneous 36 1,751
Rental 34,523 0
---------- ---------
Total other income 60,413 11,222
---------- ----------
Net income $ 314,486 $ 59,787
========== ==========
See notes to financial statements.
4
KLICK, KENT & ALLEN, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
Additional
Common Stock Paid-In Capital Retained Earnings
------------ --------------- -----------------
Balance, January 1, 1996 $ 700 $ 90,010 $ 200,159
Purchase of 50 shares (50) (50) (63,430)
Net income 59,787
-------- --------- ---------
Balance, December 31, 1996 650 89,960 196,516
Net income 314,486
-------- --------- ---------
Balance, December 31, 1997 $ 650 $ 89,960 $ 511,002
========= ========= =========
See notes to financial statements.
5
KLICK, KENT & ALLEN, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 314,486 $ 59,787
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation expense 50,444 37,624
Net loss from disposal of property 0 672
(Increase) in accounts receivable (432,167) (288,378)
(Increase) in prepaid expenses (33,656) (7,490)
Increase in accounts payable and
accrued expense 22,471 1,709
Increase in retirement plan contribution
payable 34,298 39,622
--------- ---------
Net cash used by operating activities (44,124) (156,454)
--------- ---------
Cash flows from investing activities:
Proceeds from disposition of leasehold
Improvements 24,559 0
Acquisition of property and equipment (108,086) (56,713)
--------- --------
Net cash (used) by investing activities (83,527) (56,713)
--------- ---------
Cash flows from financing activities:
Payments on notes payable, line of credit (300,000) (75,000)
Payments on notes payable, stockholders (10,500) (23,771)
Proceeds from notes payable, line of credit 500,000 225,000
Proceeds from notes payable, stockholders 0 23,549
--------- ---------
Net cash provided by financing activities 189,500 149,778
--------- ---------
Net increase (decrease) in cash 61,849 (63,389)
Cash balance, beginning 1,237 64,626
--------- ---------
Cash balance, ending $ 63,086 $ 1,237
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 19,800 $ 11,759
========= =========
See notes to financial statements.
6
KLICK, KENT & ALLEN , INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED CECEMBER 31, 1997 AND 1996
1. Organization and description of business:
The Company, which provides financial analysis and economic consulting
services primarily to network industries, including transportation,
telecommunication and pipeline companies, was incorporated in Virginia in
November 1987. Most of the Company's customers are Fortune 100 companies
located throughout the United States.
2. Summary of significant accounting policies:
Basis of accounting:
The Company prepares its books on the accrual basis of accounting. Income
is recognized when earned and expenses are realized when incurred.
Cash and cash equivalents:
The Company considers all highly liquid debt instruments purchased with
maturities of 90 days or less to be cash equivalents.
Property and equipment:
Property and equipment are recorded at cost. The assets are depreciated
using accelerated and straight line methods over the estimated useful lives
ranging from 1 to 40 years.
Income taxes:
The Company, with the consent of its stockholders, has elected to be an "S"
corporation under the Internal Revenue Code and similar state law. Instead
of paying corporate income taxes, the stockholders are taxed individually
on the Company's taxable income. Therefore, no provision or liability for
federal or state income taxes has been made.
7
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
3. Notes payable:
Balance at Balance at
December 31, 1997 December 31, 1996
----------------- -----------------
Line of credit, with NationsBank
Interest is payable monthly at 9.5% $450,000 $250,000
Note payable Harry W. Bues dated
December 28, 1994 in the amount of
$10,000; interest accrues at 7.22%
per annum; principal plus interest
are due January 2, 1997 0 10,500
Note payable Harry W. Bues, dated
November 30, 1996 in the amount of
$63,530, simple interest at 5.00%
per annum; principal plus interest
are due upon termination of his
employment 66,971 63,530
-------- --------
Total notes payable 516,971 324,030
Less current portion 516,971 324,030
-------- --------
Long-term debt net of current portion $ 0 $ 0
======== ========
Substantially all of the Company's net assets are pledged as collateral for the
NationsBank loan. The NationsBank loan is subject to a covenant regarding
maintenance of a minimum debt to equity ratio. At December 31, 1997, the Company
was in compliance with that covenant.
8
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
4. Commitments:
The Company entered into a new lease on June 14, 1997 for its office
facilities and parking spaces pursuant to an agreement which expires June
14, 2004, with an option to extend it until June 13, 2009. The lease
includes a provision for annual escalations which are computed based on
changes in the consumer price index commencing on the first day of January
1998 and every January 1st thereafter. For the year ended December 31, 1997
and 1996, rental expense accrued pursuant to this lease was $196,778 and
$131,195, respectively. The Company also leases office equipment under
various operating leases. Rent expense under these leases was $17,848 and
$4,935 for the years ended December 31, 1997 and 1996, respectively.
Future minimum annual lease payments under all operating leases with
initial terms in excess of one year are as follows:
Year ended December 31,
1998 $ 273,247
1999 278,411
2000 274,983
2001 273,955
2002 279,434
Thereafter 418,271
------------
$1,798,301
===========
Common stock is subject to a stock repurchase agreement whereby the Company
has the option to purchase any stock offered for sale by a stockholder not
purchased by the other stockholders. Upon death of a stockholder, the
Company is obligated to purchase all of the deceased stockholder's shares.
The price per share is determined periodically by the Board of Directors.
5. Retirement plan:
Employees of the Company may participate in a 401(k) savings plan, whereby
the Employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting age and length-of-service requirements.
The Company can elect to match the contribution of electing employees'
deferrals. Matching contributions to the plan were approximately $105,422
and $69,000 for the years ended December 31, 1997 and 1996, respectively.
9
KLICK, KENT & ALLEN, INC.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
KLICK, KENT & ALLEN, INC.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
TABLE OF CONTENTS
Page
----
Financial statements:
Balance sheets................................................ 1-2
Statements of income and retained earnings.................... 3
Statements of cash flows...................................... 4
Notes to financial statements.................................. 5
KLICK, KENT& ALLEN, INC.
BALANCE SHEETS
MARCH 31, 1998 AND 1997
ASSETS
1998 1997
---- ----
Current assets:
Cash $ 441,105 $ 278,412
Accounts receivable 930,433 990,189
Prepaid expenses and deposits 76,652 44,003
---------- ----------
Total current assets 1,448,190 1,312,604
---------- ----------
Property and equipment:
Furniture and equipment 393,669 341,049
Software 21,212 13,635
Leasehold improvements 11,768 25,485
---------- ----------
426,649 380,169
Less: accumulated depreciation 344,878 316,086
---------- ----------
Net property and equipment 81,771 64,083
---------- ----------
Total assets $ 1,529,961 $ 1,376,687
========== ==========
See notes to financial statements.
1
KLICK, KENT & ALLEN, INC.
BALANCE SHEETS (CONTINUED)
MARCH 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
---- ----
Current liabilities:
Accounts payable $ 43,399 $ 67,646
Retirement plan contribution payable 30,002 140,965
Notes payable, credit line 300,000 250,000
Note payable, stockholders 67,765 63,530
Security deposit, sub-tenant 11,489 0
---------- ----------
Total current liabilities 452,655 522,141
---------- ----------
Stockholders' equity:
Common stock, $1 par value; 1,000 shares authorized,
650 shares outstanding 650 650
Additional paid-in capital 89,960 89,960
Retained earnings 986,696 763,936
---------- ----------
Total stockholders' equity 1,077,306 854,546
---------- ----------
Total liabilities and stockholders' equity $1,529,961 $1,376,687
========== ==========
2
KLICK, KENT & ALLEN, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
---------- ----------
Revenues $1,375,863 $1,375,982
Direct costs, except owners' compensation 479,539 429,002
---------- ----------
Gross profit before owners' compensation 896,324 946,980
Operating expenses, except owners' compensation 208,761 171,064
---------- ----------
Income before owners' compensation 687,563 775,916
Owners' compensation 211,869 208,496
---------- ----------
Net income 475,694 567,420
Retained earnings, January 1 511,002 196,516
---------- ----------
Retained earnings, March 31 $ 986,696 $ 763,936
========== ==========
See notes to financial statements.
3
KLICK, KENT & ALLEN, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 475,694 $ 567,420
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation expense 13,658 22,780
(Increase) decrease in accounts receivable 159,999 (331,924)
Increase in prepaid expenses (7,623) (8,630)
Increase (decrease) in accounts payable
and accrued expenses (6,234) 26,923
Increase (decrease) in pension contribution payable (103,033) 40,858
--------- --------
Net cash provided by operating activities 532,461 317,427
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (5,236) (29,752)
--------- ---------
Net cash used by investing activities (5,236) (29,752)
--------- ---------
Cash flows from financing activities:
Payments on/increase in notes payable, stockholders 794 (10,500)
Repayment of notes payable, line of credit (150,000) 0
--------- ---------
Net cash used by financing activities (149,206) (10,500)
--------- ---------
Net increase in cash 378,019 277,175
Cash, January 1 63,086 1,237
--------- ---------
Cash, March 31 $ 441,105 $ 278,412
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 11,482 $ 6,264
========= =========
See notes to financial statements.
4
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
The Company, which provides financial analysis and economic consulting
services primarily to the network industries, including transportation,
telecommunications and pipeline companies, was incorporated in Virginia in
November 1987. Most of the Company's customers are Fortune 100 companies
located throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of accounting:
The Company prepares its books on the accrual basis of accounting. Income
is recognized when earned and expenses are realized when incurred.
Cash and cash equivalents:
The Company considers all highly liquid debt instruments purchased with
maturities of 90 days or less to be cash equivalents.
Property and equipment:
Property and equipment are recorded at cost. The assets are depreciated
using accelerated and straight line methods over the estimated useful lives
ranging from 1 to 39.5 years.
Income taxes:
The Company, with the consent of its stockholders, has elected to be an "S"
corporation under the Internal Revenue Code and similar state law. Instead
of paying corporate income taxes, the stockholders are taxed individually
on the Company's taxable income. Therefore, no provision or liability for
Federal or state income taxes has been made.
5
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
3. NOTES PAYABLE:
Balance at March 31,
1998 1997
---- ----
Line of credit with NationsBank; interest is
payable monthly at 9.5% $300,000 $250,000
Note payable stockholder, Harry W
Bues, dated November 30, 1996 in the
amount of $63,530, simple interest at
5.00% per annum; principal plus
interest are due upon termination of his
employment 67,765 63,530
-------- --------
Total notes payable 367,765 313,530
Less current portion 367,765 313,530
-------- --------
Long-term debt net of current portion $ 0 $ 0
======== ========
Substantially, all of the Company's assets are pledged as collateral for the
NationsBank loan. The NationsBank loan is subject to a covenant regarding
maintenance of a minimum debt to equity ratio. At March 31, 1998, according to
management, the Company was in compliance of that covenant.
6
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31 1998 AND 1997
4. COMMITMENTS:
The Company entered into a new lease on June 14, 1997 for its office
facilities and parking spaces pursuant to an agreement which expires June
14, 2004. The lease includes a provision for annual escalations which are
computed based on changes in the consumer price index commencing on the
first day of January 1998 and every January 1st thereafter. For the three
months ended March 31, 1998 and 1997, rental expense accrued pursuant to
this lease was $64,538 and $35,083, respectively. The Company also leases
office equipment under various operating leases. Rent expense under these
leases was $4,276 and $1,164 for the three months ended March 31, 1998 and
1997, respectively. Future minimum annual lease payments under all
operating leases with initial terms in excess of one year are as follows:
Year ended December 31,
1998 $ 273,247
1999 278,411
2000 274,983
2001 273,955
2002 279,434
Thereafter 418,271
------------
$1,798,301
============
Common stock is subject to a stock repurchase agreement, whereby the
Company has the option to purchase any stock offered for sale by a
stockholder not purchased by the other stockholders. Upon death of a
stockholder, the Company is obligated to purchase all of the deceased
stockholder's shares. The price per share is determined periodically by the
Board of Directors. To provide the funds for such purchases, the Company
has purchased life insurance on the lives of the stockholders.
5. RETIREMENT PLAN:
Employees of the Company may participate in a 401(k) savings plan, whereby
the Employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting age and length-of-service requirements.
The Company can elect to match the contribution of electing employees'
deferrals. Matching contributions to the plan were $26,698 and $20,628 for
the three months ended March 31, 1998 and 1997, respectively.
7
FTI CONSULTING, INC.
BALANCE SHEETS
PRO FORMA FTI/KK&A
MARCH 31, 1998 PRO FORMA PRO FORMA
FTI KK&A ADJUSTMENTS COMBINED
--------------- -------------- --------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,663,165 $441,105 $3,104,270
Accounts receivable, net 11,465,555 930,433 12,395,988
Unbilled receivables, net 3,702,827 3,702,827
Deferred income taxes 160,065 160,065
Prepaid expenses 1,165,139 76,652 1,241,791
--------------- -------------- --------------- -----------------
TOTAL CURRENT ASSETS 19,156,750 1,448,190 - 20,604,940
PROPERTY AND EQUIPMENT:
Buildings 411,241 411,241
Furniture and equipment 12,315,450 414,881 12,730,331
Leasehold improvements 1,526,219 11,768 1,537,987
--------------- -------------- --------------- -----------------
14,252,911 426,649 - 14,679,560
Accumulated depreciation and (7,863,293) (344,878) (8,208,171)
amortization --------------- -------------- --------------- -----------------
PROPERTY - NET 6,389,618 81,771 - 6,471,389
Goodwill 5,222,214 9,682,461 (1) 15,029,675
125,000 (2)
Accumulated amortization (143,627) (143,627)
--------------- --------------- -----------------
5,078,586 9,807,461 14,886,047
Other assets 60,136 60,136
--------------- -------------- --------------- -----------------
TOTAL ASSETS 30,685,090 1,529,961 9,807,461 $42,022,512
=============== ============== =============== =================
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payble 1,963,252 43,399 125,000 (2) 2,131,651
Current note payable 1,200,000 300,000 8,000,000 (1) 9,500,000
Accrued compensation expense 1,674,193 30,002 1,704,195
Incomes tax payable 689,836 689,836
Advances from clients 401,828 401,828
Other current liabilities 117,238 79,254 196,492
--------------- -------------- --------------- -----------------
TOTAL CURRENT LIABILITIES 6,046,347 452,655 8,125,000 14,624,002
Long-term debt, less current 729,920 2,000,000 (1) 2,729,920
portion
Other long-term liabilities 223,592 223,592
Deferred income taxes 168,578 168,578
Commitment and contingent - -
liabilities
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 47,332 650 (650) (1) 47,332
Additional paid-in capital 15,916,972 89,960 (89,960) (1) 15,916,972
Retained earnings 7,552,349 986,696 (226,929) (1) 8,312,116
--------------- -------------- --------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 23,516,653 1,077,306 (317,539) 24,276,420
--------------- -------------- --------------- -----------------
TOTAL LIABILITIES AND $30,685,090 $1,529,961 $9,807,461 $42,022,512
STOCKHOLDERS' =============== ============== =============== =================
FTI CONSULTING, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997 PRO FORMA PRO FORMA
FTI KK&A ADJUSTMENTS COMBINED
--------------- -------------- --------------- ---------------
Revenues $44,175,343 $5,489,863 $49,665,206
Direct cost of revenues 23,564,284 4,010,921 (1,291,118) (5) 26,284,087
Selling,general and administrative Expenses 15,240,802 1,205,069 (322,779) (5) 17,333,465
720,000 (3)
490,373 (4)
--------------- -------------- --------------- ---------------
Total costs and expenses 38,805,086 5,215,990 (403,524) 43,617,552
--------------- -------------- --------------- ---------------
Income from operations 5,370,257 273,873 403,524 6,047,654
Other income (expense):
Interest and other income 343,000 60,413 403,413
Interest expense (170,000) (19,800) (189,800)
--------------- -------------- --------------- ---------------
173,000 40,613 0 213,613
--------------- -------------- --------------- ---------------
Income from continuing operations before
income taxes 5,543,257 314,486 403,524 6,261,267
Income taxes 2,249,982 287,204 (7) 2,537,186
--------------- -------------- --------------- ---------------
---------------
Net income 3,293,275 314,486 116,320 3,724,081
=============== ============== =============== ===============
Income available to common stock holders $3,293,275 $314,486 $116,320 $ 3,724,081
=============== ============== =============== ===============
Earnings Per Common Share:
Net income per common share $0.73 $0.82
=============== ===============
Earnings Per Common Share - Assuming
Dilution:
Net income per common share- assuming
dilution $0.70 $0.79
=============== ===============
Weighted avereage shares used in the
calculation of basic and diluted earnings
per commons share:
Basic 4,528,627 4,528,627 (6)
=============== ===============
Diluted 4,697,517 4,697,517 (6)
=============== ===============
FTI CONSULTING, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 PRO FORMA PRO FORMA
FTI KK&A ADJUSTMENTS COMBINED
--------------- --------------- ----------------- -----------------
Revenues $14,109,375 $1,375,863 $15,485,238
Direct cost of revenues 7,579,505 649,034 8,228,539
Selling,general and administrative
Expenses 4,662,088 239,653 180,000 (3) 5,204,334
122,593 (4)
--------------- --------------- ----------------- -----------------
Total costs and expenses 12,241,593 888,687 302,593 13,432,873
--------------- --------------- ----------------- -----------------
Income from operations 1,867,782 487,176 (302,593) 2,052,365
Other income (expense):
Interest and other income 55,581 55,581
Interest expense (58,644) (11,482) (70,126)
--------------- --------------- ----------------- -----------------
(3,063) (11,482) 0 (14,545)
--------------- --------------- ----------------- -----------------
Income from continuing operations
before income taxes 1,864,719 475,694 (302,593) 2,037,820
Income taxes 759,535 69,240 (7) 828,775
--------------- --------------- ----------------- -----------------
Net income 1,105,184 475,694 (371,833) 1,209,045
Preferred stock dividends 0 0
=============== =============== ================= =================
Income available to common stock
holders $1,105,184 $475,694 ($371,833) $1,209,045
=============== =============== ================= =================
Earnings Per Common Share:
=============== =================
Net income per common share $0.24 $0.26
=============== =================
Earnings Per Common Share -
Assuming Dilution:
=============== =================
Net income per common share-
assuming dilution $0.22 $0.24
=============== =================
Weighted avereage shares used in
the calculation of basic and diluted
earnings per commons share:
Basic 4,598,130 4,598,130 (6)
=============== =================
Diluted 5,071,994 5,071,994 (6)
=============== =================
FTI CONSULTING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma financial statements give retroactive effect to the
acquisition of Klick, Kent & Allen, Inc. (KK&A) by the Company effective June 1,
1998 (the date that control of KK&A was transferred to the Company). The
acquisition of KK&A was accounted for by the Company as a purchase.
Pro forma adjustments to the pro forma combined balance sheet assume that the
transaction was consummated on March 31, 1998. Pro forma adjustments to the pro
forma combined statement of operations assume that the transaction was
consummated on January 1, 1997, and are based on the allocated purchase price as
reported in the pro forma combined balance sheet at March 31, 1998. These
adjustments are described below.
The purchase price for the acquisition of KK&A of $10,000,000, plus estimated
expenses of $125,000 was allocated as follows:
Assets acquired: (in thousands)
Cash ..................................................$ 90
Accounts receivable ................................... 895
Prepaid expenses ...................................... 73
Property and equipment ................................ 88
Goodwill............................................... 9,808
-----
Total assets ...................................... 10,954
Liabilities assumed:
Accounts payable and accrued expenses ................. 90
Current portion of long-term debt and capital
lease obligations ................................. 414
Current deferred tax liability ........................ 81
Long-term deferred tax liability ...................... 244
-----
829
-----
Total purchase price . . . . . . . . . . . . . . 10,125
=====
The value of goodwill will be amortized over a twenty-year period, and will be
reviewed if the facts and circumstances suggest that the value of the goodwill
is impaired, based on an analysis of future cash flows from the KK&A business.
If this review indicates that the goodwill will not be recoverable, the
Company's carrying value of the goodwill will be reduced accordingly.
These unaudited pro forma combined financial statements may not be indicative of
the results that may be obtained in the future. The unaudited pro forma combined
financial statements, including the notes thereto, should be read in conjunction
with the historical financial statements of the Company and KK&A.
FTI CONSULTING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS - (Concluded)
(1) Adjustment to reflect the issuance of $10 million of promissory notes to
the KK&A stockholders and to record purchase accounting adjustments.
(2) Adjustment to reflect the acquisition expenses incurred relating to the
purchase of KK&A.
(3) Adjustment to reflect interest expense on the promissory notes issued in
connection with the acquisition. Six million in promissory notes were
issued at a 7.0% rate of interest. Four million in promissory notes were
issued at a 7.5% rate of interest.
(4) Adjustment to reflect the Hadditional amortization of acquired goodwill
which will be amortized over a 20-year period.
(5) In connection with the acquisition, the Company entered into employment
agreements with the four stockholders and executive officers of KK&A. The
future amount of compensation to be paid to these officers, who will have
substantially the same duties and responsibilities, will be less than the
amounts paid in periods prior to the acquisition, with the exception of the
three months ended March 31, 1998. The pro forma adjustment assumes that
the officers had received the reduced amount of compensation for the year
ended December 31, 1997.
(6) Weighted average shares used in calculating basic and diluted earnings per
share are the same as reported in the Company's consolidated financial
statements.
(7) Adjustment to reflect income tax expense of operations at a 40% income tax
rate.
INDEX TO EXHIBITS
EXHIBIT
NO. EXHIBIT
- ------- -------
2.1 Stock Purchase Agreement dated June 30, 1998 by and among the
Company, KK&A, and the Stockholders.
23.1 Consent of Kearney & Company