Exhibit 99.2
Pro Forma Financial Information.
On November 3, 2003, we acquired, through our acquisition subsidiary, DAS
Business LLC, certain assets and liabilities of the dispute advisory services,
or DAS, business of KPMG LLP, a U.S. accounting and tax firm, in exchange for
$89.125 million in cash. We also incurred acquisition-related expenses of about
$1.0 million, and we incurred a liability due to KPMG primarily for computer
equipment KPMG purchased on our behalf. The dispute advisory services business
assists clients in the analysis and resolution of all phases of complex disputes
in a variety of forums, including litigation, arbitration, mediation and other
forms of dispute resolution. We primarily acquired client backlog, goodwill and
a nominal amount of computer equipment. We did not acquire the accounts
receivable or any other working capital related to KPMG's DAS business.
Accordingly, we will be required to fund the initial operations of the acquired
DAS business out of our existing cash balances or our revolving line of credit
until we begin to receive sufficient cash collections from billing and
collection efforts for services provided.
KPMG, LLP has a fiscal year end of September 30, while we have a fiscal year end
of December 31. The accompanying unaudited pro forma combined statements of
income for the year ended December 31, 2002 and the nine months ended September
30, 2003 give effect to the acquisition of the DAS business as if the
acquisition had occurred on January 1, 2002. The pro forma combined statement of
income for the year ended December 31, 2002 includes our historical results of
operations for the year ended December 31, 2002 combined with the historical
revenues and expenses directly related to the DAS business for its fiscal year
ended September 30, 2003. The pro forma combined statement of income for the
nine months ended September 30, 2003 includes our historical results of
operations for the nine months ended September 30, 2003 combined with the
unaudited operating revenues and expenses directly related to the DAS business
for the nine months ended September 30, 2003.
It was not practicable for us to obtain the historical operating revenues and
direct expenses of DAS for the year ended September 30, 2002. In addition,
because a large portion of the former DAS partners and employees were hired by
DAS in May 2002, the operating results of DAS for the year ended September 30,
2002 would have been substantially different than the operating results of the
business we acquired. Accordingly, we believe we have presented a more
meaningful pro forma presentation of our historical results of operations by
combining our historical statement of income for the year ended December 31,
2002 with the DAS statement of revenues and direct expenses for the year ended
September 30, 2003.
The DAS business was not a separate reporting unit of KPMG. Accordingly,
separate complete historical financial statements for KPMG's DAS business are
not available and, in management's opinion, the preparation of complete separate
financial statements for the DAS business would require arbitrary allocations of
expenses that would not be meaningful. The DAS statement of revenues and direct
costs associated with the business acquired, presented in our pro forma
statements of income, includes revenues from the book-of-business of the 24
partners and 3 directors who joined FTI, direct expenses including billable
professional employees compensation and benefits of personnel joining FTI,
reimbursable and subcontractor costs and some practice related costs. Practice
related costs consist principally of non-reimbursable costs, bad debt expense,
administrative support, and depreciation.
The direct expenses of DAS do not include an allocation of KPMG firm wide
expenses, such as rent, insurance, national marketing, data processing,
accounting, the cost of national support offices and other similar corporate
expenses. The DAS business could not operate on a stand-alone basis without
incurring some or all of these expenses. As a result, the unaudited pro forma
combined statements of income are not indicative of what the actual results
would have been had the DAS acquisition been
1
completed on the date indicated nor do they purport to indicate the results of
our future operations or the future operations of the DAS business.
The accompanying unaudited pro forma combined balance sheet and statement of net
assets acquired at September 30, 2003 gives effect to the acquisition of DAS as
if the acquisition had occurred on September 30, 2003. We will allocate the cost
of the acquisition of the DAS assets to identifiable assets and liabilities
based on their estimated relative fair values. We have not completed our
allocation process, and therefore the allocation of the purchase price for the
DAS assets included in the accompanying pro forma combined financial statements
is preliminary. We are performing a valuation of the intangible assets that we
acquired from DAS. The estimated valuation of these intangible assets for
purposes of preparing the accompanying unaudited pro form a combined financial
statements is based on the data that we have developed to date, and we will
complete our valuation in 2004. The final purchase price allocation is not
expected to vary significantly from the preliminary allocation included in the
accompanying unaudited pro forma combined financial statements.
The pro forma adjustments are described in the accompanying notes and are based
upon available information and various assumptions that management believes are
reasonable. These adjustments give effect to events directly attributable to the
acquisition and do not reflect any restructuring or integration costs, or any
potential cost savings or other synergies that management expects to realize as
a result of the transaction. The unaudited pro forma combined financial
statements do not purport to represent what our financial position and results
of operations would have actually been had the acquisition occurred on the dates
indicated, and as previously stated, cannot be considered indicative of actual
results because the DAS information is not complete. You should read the
unaudited pro forma combined financial statements in conjunction with our
historical consolidated financial statements and notes contained in our annual
report on Form 10-K for the year ended December 31, 2002 and our subsequent
quarterly reports on Form 10-Q for the quarters ended March 31, 2003, June 30,
2003 and September 30, 2003. You should also read the historical financial
statements of DAS, which are included elsewhere in this Form 8-K/A.
2
Unaudited Pro Forma Condensed Combined Statements of Income
Year Ended December 31, 2002
----------------------------------------------------------
Historical Historical Pro Forma Pro Forma
FTI DAS(2) Subtotal Adjustments Total
---------- ---------- -------- ----------- ---------
(in thousands)
Revenues $ 224,113 $ 73,999 $298,112 $ -- $298,112
--------- --------- -------- --------- --------
Operating expenses
Direct cost of revenues/(1)/ 108,104 36,302 144,406 1,536 (a) 145,942
Selling, general and administrative expense/(1)/ 51,647 4,676 56,323 32 (b) 56,355
Amortization of other intangible assets 1,033 -- 1,033 2,000 (c) 3,033
--------- --------- -------- --------- --------
160,784 40,978 201,762 3,568 205,330
--------- --------- -------- --------- --------
Operating income/(1)/ 63,329 33,021 96,350 (3,568) 92,782
Interest expense, net (4,717) -- (4,717) -- (4,717)
--------- --------- -------- --------- --------
Income from continuing operations before income taxes/(1)/ 58,612 33,021 91,633 (3,568) 88,065
Income taxes/(1)/ 23,704 -- 23,704 11,911 (d) 35,615
--------- --------- -------- --------- --------
Income from continuing operations/(1)/ $ 34,908 $ 33,021 $ 67,929 $( 15,479) $ 52,450
========= ========= ======== ========= ========
Earnings per common share from continuing operations/(1)/
Basic $ 1.09 $ 1.64
========= ========
Diluted $ 1.02 $ 1.53
========= ========
Weighted average number of common shares outstanding
Basic 32,031 32,031
========= ========
Diluted 34,197 -- (e) 34,197
========= ========== ========
/(1)/ The DAS business was not a separate reporting unit of KPMG and separate
complete historical financial statements are not available. The information
included in this statement consists of the revenue from the book-of-business of
the 24 partners and 3 directors who joined FTI and direct expenses of the DAS
business (compensation and benefits of the professionals and administrative
personnel joining FTI, reimbursable and subcontractor costs, bad debts and some
other practice related expenses), but do not include any allocation of KPMG firm
wide expenses such as rent, insurance, national marketing, data processing,
accounting, the cost of national support offices and other similar corporate
expenses. Accordingly, these statements are not indicative nor do they purport
to indicate the results of our future operations or the future operations of the
DAS business.
/(2)/ Amounts for the year ended September 30, 2003.
3
Unaudited Pro Forma Condensed Combined Statements of Income
Nine Months Ended September 30, 2003
----------------------------------------------------------
Historical Historical Pro Forma Pro Forma
FTI DAS Subtotal Adjustments Total
---------- ---------- -------- ----------- ---------
(in thousands)
Revenues $279,470 $ 49,257 $328,727 $ -- $328,727
-------- -------- -------- -------- --------
Operating expenses
Direct cost of revenues/(1)/ 126,998 26,703 153,701 1,266 (a) 154,967
Selling, general and administrative expense/(1)/ 59,119 3,477 62,596 16 (b) 62,612
Amortization of other intangible assets 2,325 -- 2,325 1,000 (c) 3,325
-------- -------- -------- -------- --------
188,442 30,180 218,622 2,282 220,904
-------- -------- -------- -------- --------
Operating income/(1)/ 91,028 19,077 110,105 (2,282) 107,823
Interest expense, net (3,416) -- (3,416) -- (3,416)
-------- -------- -------- -------- --------
Income from continuing operations before income taxes/(1)/ 87,612 19,077 106,689 (2,282) 104,407
Income taxes 35,485 -- 35,485 6,802 (d) 42,287
-------- -------- -------- -------- --------
Income from continuing operations/(1)/ $ 52,127 $ 19,077 $ 71,204 $ (9,084) $ 62,120
======== ======== ======== ======== ========
Earnings per common share from continuing operations/(1)/
Basic $ 1.28 $ 1.53
======== ========
Diluted $ 1.25 $ 1.49
======== ========
Weighted average number of common shares outstanding
Basic 40,597 40,597
======== ========
Diluted 41,806 20 (e) 41,826
======== ======== ========
/(1)/ The DAS business was not a separate reporting unit of KPMG and separate
complete historical financial statements are not available. The information
included in this statement consists of the revenue from the book-of-business of
the 24 partners and 3 directors who joined FTI and direct expenses of the DAS
business (compensation and benefits of the professionals and administrative
personnel joining FTI, reimbursable and subcontractor costs, bad debts and some
other practice related expenses), but do not include any allocation of KPMG firm
wide expenses such as rent, insurance, national marketing, data processing,
accounting, the cost of national support offices and other similar corporate
expenses. Accordingly, these statements are not indicative nor do they purport
to indicate the results of our future operations or the future operations of the
DAS business.
4
Unaudited Pro Forma Combined Balance Sheet and Statement of Net Assets Acquired
At September 30, 2003
------------------------------------------------------------------
Historical Historical Pro Forma Pro Forma
FTI DAS Subtotal Adjustments Total
---------- ---------- -------- ----------- ---------
Assets (in thousands)
Current assets
Cash and cash equivalents $ 133,418 $ -- $ 133,418 $ (90,125) (1) $ 43,293
Accounts receivable, net of allowance 36,919 -- 36,919 -- 36,919
Unbilled receivables, net of allowance 21,159 -- 21,159 -- 21,159
Prepaid expenses and other current assets 6,105 -- 6,105 -- 6,105
---------- ---------- ---------- --------- ----------
Total current assets 197,601 -- 197,601 (90,125) 107,476
Property and equipment, net 18,188 178 18,366 48 (2) 18,414
Goodwill 298,315 -- 298,315 87,120 (3) 385,435
Other intangible assets, net 1,742 -- 1,742 3,000 (3) 4,742
Notes receivable and other assets 12,691 -- 12,691 -- 12,691
---------- ---------- ---------- --------- ----------
Total assets $ 528,537 $ 178 $ 528,715 $ 43 $ 528,758
========== ========== ========== ========= ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and other current liabilities $ 35,153 $ -- $ 35,153 $ -- $ 35,153
Due to seller -- -- -- 65 (2) 65
Current portion of long-term debt 9,504 -- 9,504 -- 9,504
Billings in excess of services provided 18,361 -- 18,361 156 18,517
---------- ---------- ---------- --------- ----------
Total current liabilities 63,018 -- 63,018 221 63,239
Long-term debt, net of current portion 11,375 -- 11,375 -- 11,375
Deferred income taxes and other liabilities 13,300 -- 13,300 -- 13,300
Stockholders' equity
Common stock 418 -- 418 2 (4) 420
Additional paid-in capital 325,684 -- 325,684 4,077 (4) 329,761
Net assets acquired -- 178 178 (178) (5) --
Unearned compensation (79) -- (79) (4,079) (4) (4,158)
Retained earnings 115,003 -- 115,003 -- 115,003
Accumulated other comprehensive loss (182) -- (182) -- (182)
---------- ---------- ---------- --------- ----------
Total stockholders' equity 440,844 178 441,022 (178) 440,844
---------- ---------- ---------- --------- ----------
Total liabilities and stockholders' equity $ 528,537 $ 178 $ 528,715 $ 43 $ 528,758
========== ========== ========== ========= ==========
5
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(dollar amounts in tables expressed in thousands)
1. The DAS Acquisition
On November 3, 2003, we acquired, through our acquisition subsidiary, DAS
Business LLC, certain assets and liabilities of the dispute advisory services,
or DAS, business of KPMG, LLP in a purchase business combination. The purchase
price primarily includes cash paid at closing and the estimated
acquisition-related costs. The purchase price is summarized as follows.
Cash $ 89,125
Estimated amounts due to seller 65
Estimated acquisition related costs 1,000
-----------
$ 90,190
===========
2. Adjustments to Unaudited Pro Forma Condensed Combined Statements of Income
Adjustments to the unaudited pro forma condensed combined statements of income
for the year ended December 31, 2002 and the nine-month period ended September
30, 2003 in connection with the DAS acquisition are presented below.
(a) Adjustment to record pro forma retirement and other benefits for the former
partners and non-partner employees of DAS. Historically, partners of DAS
were personally responsible for their respective fringe benefits.
Therefore, the historical operating results for DAS did not include partner
benefit related expenses. In addition, historical benefits expenses for
former non-partner employees of DAS were charged to the business units at a
rate of $5.00 per available hour per employee. The adjustment reflects an
estimate of what the employee benefit compensation expense would have been
under FTI's benefit plans. The adjustment also includes equity related
compensation expense attributable to restricted shares of FTI common stock
issued to former partners of DAS pursuant to employment arrangements we
entered into at the time of the acquisition.
(b) Adjustment to record additional depreciation expense attributable to
computer equipment acquired by the seller on our behalf using a remaining
estimated useful life of 18 months.
(c) Adjustment to record pro forma amortization expense for the $3.0 million of
estimated other intangible assets recorded when we acquired DAS. These
intangible assets consist primarily of engagement backlog and will be
amortized over three years.
(d) Adjustment to record pro forma income tax expense for
. the operations of DAS for which no taxes were provided in the historical
financial statements because DAS was a component of a partnership, and
. the estimated tax effects of pro forma adjustments, all at our combined
effective income tax rate of 40.4% in 2002 and 40.5% in 2003.
(e) Adjustment to increase the diluted weighted average shares outstanding for
the 205,000 restricted shares of our common stock that we issued to former
partners of DAS pursuant to employment arrangements we entered into at the
time of the acquisition. The issuance of these shares had an antidilutive
effect on the pro forma calculation of diluted earnings per share for the
year ended December 31, 2002.
6
3. Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
The adjustments we made to the unaudited pro forma condensed combined balance
sheet at September 30, 2003 in connection with the DAS acquisition are presented
below.
(1) Adjustment to record the use of cash to purchase DAS. Upon the closing of
the acquisition, we paid KPMG, LLP $89.125 million and incurred transaction
costs of about $1.0 million.
(2) Adjustment to reflect estimated liability to seller in the amount of
$65,000 primarily for additional computer equipment acquired by the seller
on our behalf.
(3) Adjustment to record the allocation of the purchase price to goodwill and
other intangible assets acquired in the transaction. The estimated purchase
price of $90.2 million has been assigned to the tangible and intangible
assets acquired and liabilities assumed as discussed above.
(4) Adjustment to record restricted shares of our common stock that we issued
to former partners of DAS pursuant to employment arrangements we entered
into at the time of the acquisition.
(5) Adjustment to eliminate the value of net assets acquired.
7