SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1998; 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: 0000887936
FTI CONSULTING, INC.
(Exact Name of Registrant as Specified in its Charter)
MARYLAND 52-1261113
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2021 Research Drive, Annapolis, Maryland 21401
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(Address of Principal Executive Offices)
(Zip Code)
(410) 224-8770
--------------
(Registrant's Telephone Number, Including Area Code)
---------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
---------------------------------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of 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.
[ X ] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at August 13, 1998
- ------------------------- -----------------------------
Common Stock, par value 4,753,901
$.01 per share
FTI CONSULTING, INC.
--------------------
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - December 31, 1997 and
June 30, 1998 3
Statements of Income - Three months ended
June 30, 1997, three months ended June 30, 1998 5
Statements of Income - Six months ended
June 30, 1997, six months ended June 30, 1998 6
Statements of Cash Flows - Six months ended
June 30, 1997, six months ended June 30, 1998 7
Notes to Unaudited Financial Statements - June 30, 1998 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
FTI Consulting, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands of dollars)
DECEMBER 31, JUNE 30,
1997 1998
--------------------------------------
(audited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,456 $ 3,816
Accounts receivable, less allowance of $487 in 1997 and $405 in
1998 10,198 9,570
Unbilled receivables, less allowance of $415 in 1997 and $426 in
1998 4,194 3,940
Income taxes receivable - 576
Deferred income taxes 160 78
Prepaid expenses and other current assets 681 1,400
--------------------------------------
Total current assets 17,689 19,380
Property and equipment:
Buildings 411 411
Furniture and equipment 11,745 12,970
Leasehold improvements 1,591 1,565
--------------------------------------
13,747 14,946
Accumulated depreciation and amortization (7,459) (8,633)
--------------------------------------
6,288 6,313
Goodwill, net of accumulated amortization of $81 in 1997 and $247 in
1998 5,141 14,764
Other assets 58 84
======================================
Total assets $ 29,176 $ 40,541
======================================
3
DECEMBER 31, JUNE 30,
1997 1998
--------------------------------------
(audited) (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,825 $ 1,398
Accrued compensation expense 1,995 1,337
Income taxes payable 297 -
Current portion of long-term debt 1,200 7,550
Advances from clients 519 623
Other current liabilities 219 111
--------------------------------------
Total current liabilities 7,055 11,019
Long-term debt, less current portion 730 4,650
Other long-term liabilities 203 308
Deferred income taxes 169 414
Commitments and contingent liabilities - -
Stockholders' equity:
Preferred stock, $.01 par value; 4,000 shares authorized, none
outstanding -- --
Common stock, $.01 par value; 16,000 shares authorized; 4,551 and
4,742 shares issued and outstanding in 1997 and 1998,
respectively 46 47
Additional paid-in capital 14,526 15,981
Retained earnings 6,447 8,122
--------------------------------------
Total stockholders' equity 21,019 24,150
--------------------------------------
Total liabilities and stockholders' equity $ 29,176 $ 40,541
======================================
See accompanying notes.
4
FTI Consulting, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands of dollars except per share data)
THREE MONTHS ENDED JUNE 30
1997 1998
-----------------------------------------------
(unaudited)
Revenues $ 9,471 $ 11,860
Direct cost of revenues 5,232 6,732
Selling, general and administrative expenses 3,111 4,086
-----------------------------------------------
Total costs and expenses 8,343 10,818
-----------------------------------------------
Income from operations 1,128 1,042
Other income (expense):
Interest and other income 97 57
Interest expense (22) (139)
-----------------------------------------------
75 (82)
-----------------------------------------------
Income before income taxes 1,203 960
Income taxes 493 390
-----------------------------------------------
Net income $ 710 $ 570
===============================================
Net income per common share $ 0.16 $ 0.12
===============================================
Net income per common share - assuming dilution $ 0.15 $ 0.11
===============================================
See accompanying notes.
5
FTI Consulting, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands of dollars except per share data)
SIX MONTHS ENDED JUNE 30
1997 1998
-----------------------------------------------
(unaudited)
Revenues $ 19,011 $ 25,969
Direct cost of revenues 10,393 14,312
Selling, general and administrative expenses 6,460 8,748
-----------------------------------------------
Total costs and expenses 16,853 23,060
-----------------------------------------------
Income from operations 2,158 2,909
Other income (expense):
Interest and other income 172 113
Interest expense (42) (198)
-----------------------------------------------
130 (85)
-----------------------------------------------
Income before income taxes 2,288 2,824
Income taxes 938 1,149
-----------------------------------------------
Net income $ 1,350 $ 1,675
===============================================
Net income per common share $ 0.30 $ 0.36
===============================================
Net income per common share - assuming dilution $ 0.29 $ 0.33
===============================================
See accompanying notes.
6
FTI Consulting, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands of dollars)
SIX MONTHS ENDED JUNE 30
1997 1998
-----------------------------------------
(unaudited)
OPERATING ACTIVITIES
Net income $ 1,350 $ 1,675
Adjustments to reconcile net income to net cash provided by
operating activities:
Provided by operating activities:
Depreciation 616 873
Amortization 77 258
Provision for doubtful accounts 36 (69)
Loss on disposal of assets 3 (1)
Non cash interest expense - 60
Changes in operating assets and liabilities:
Accounts receivable (439) 1,605
Unbilled receivables (839) 242
Prepaid expenses (254) (646)
Accounts payable (184) (1,602)
Accrued compensation expense (7) (694)
Income taxes payable 480 (818)
Advances from clients (59) 103
Other current liabilities (11) (113)
-----------------------------------------
Net cash provided by operating activities 769 873
INVESTING ACTIVITIES
Purchase of property and equipment (1,202) (878)
Proceeds from sale of property and equipment - 69
Cash assumed in acquistion of KK&A - 90
Contingent payments to LWG - (39)
Change in other assets (68) (26)
-----------------------------------------
Net cash used in investing activities (1,270) (784)
FINANCING ACTIVITIES
Exercise of stock options 24 1,402
Payments of other long-term liabilities (93) (131)
-----------------------------------------
Net cash provided by (used in) financing activities (69) 1,271
-----------------------------------------
Net increase in cash and cash equivalents (570) 1,360
Cash and cash equivalents at beginning of period 5,894 2,456
-----------------------------------------
Cash and cash equivalents at end of period $ 5,324 $ 3,816
=========================================
See accompanying notes.
7
FTI CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
(dollars in thousands, except for 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 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-KSB for the year ended December 31, 1997.
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 and six month periods ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
2. EARNINGS PER SHARE
The following table summarizes the computations of basic and diluted earnings
per share:
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
1997 1998 1997 1998
------------- --------------- ------------ ------------
Numerator used in basic and diluted
earnings per common share:
Net income $710 $570 $1,350 $1,675
=======================================================
Denominator:
Denominator for basic earnings per
common share - weighted average shares 4,527 4,744 4,523 4,671
Effect of dilutive securities:
Warrants - 10 - 9
Employee stock options 136 513 130 465
-------------------------------------------------------
136 523 130 474
Denominator for diluted earnings per
common share - weighted average shares
and assumed conversions 4,663 5,267 4,653 5,145
=======================================================
Basic earnings per common share $.16 $.12 $.30 $.36
=======================================================
Diluted earnings per common share $.15 $.11 $.29 $.33
=======================================================
FTI CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998 (CONTINUED)
3. STOCKHOLDERS EQUITY
Additional
Common Paid in Retained
Stock Capital Earnings Total
----- ------- -------- -----
Balance at January 1, 1998 $ 46 $ 14,526 $ 6,447 $ 21,019
Exercise of options to purchase 182,300
shares of Common Stock, including
income tax benefit of $55. 1 1,455 1,456
Net income for six months ended
June 30, 1998 1,675 1,675
------------------------------------------------------
Balance at June 30, 1998 $ 47 $ 15,981 $ 8,122 $ 24,150
======================================================
4. INCOME TAXES
The tax provision for the six months periods ended June 30, 1998 and 1997 are
based on the estimated effective tax rates applicable for the full years. The
Company's income tax provision of $1,149 for the six month period ended June 30,
1998 consists of federal and state income taxes.
9
FTI CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998 (CONTINUED)
5. ACQUISITIONS
Effective June 1, 1998 the Company acquired all of the outstanding common stock
of Klick, Kent & Allen, Inc. (KK&A). KK&A, based in Alexandria, VA, provides
strategic and economic consulting to various regulated businesses, advising on
such matters as industry deregulation, mergers and acquisitions, rate and cost
structures, economic and financial modeling and litigation risk analysis. The
purchase price was $10 million payable in installments of $6 million on July 1,
1998, $2 million on July 1, 1999 and $2 million on July 1, 2000. In addition,
contingent consideration equal to fifty percent of the pre-tax profits of KK&A
for the three years ended June 30, 2001 payable annually on a rolling basis.
The acquisition was accounted for by the Company as a purchase and accordingly,
the accompanying 1998 consolidated financial statements include the results of
operations and cash flows of the acquired business beginning June 1, 1998. The
excess of the cost of the acquisition over the fair value of the assets acquired
of $9,808 was recorded as goodwill. Any future payments paid for contingent
consideration will increase the amount of goodwill when such amounts are
determinable. Goodwill will be amortized over 20 years. Six million dollars in
promissory notes were issued at an interest rate of 7.0% and four million
dollars in promissory notes were issued at an interest rate of 7.5%.
The following unaudited pro forma summary combines the consolidated results of
operations of the Company and KK&A as if the acquisition had occurred at the
beginning of 1998 and 1997, after giving effect to certain adjustments,
including amortization of intangible assets, increased interest expense on the
acquisition debt, decrease in officer compensation, and related income tax
effects. 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.
Pro Forma Years Ended June 30, 1997 June 30, 1998
- --------------------- -------------- ------------
Revenues $ 21,850 $ 28,055
Net income $ 1,688 $ 1,653
Net income per common share - assuming
dilution $ .36 $ .32
The pro forma consolidated results do not purport to be indicative of results
that would have occurred had the acquisition been in effect for the periods
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
10
FTI CONSULTING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues for the second quarter and six months ended June 30, 1998 increased
25.2% to $11.9 million and 36.6% to $26.0 million over the same periods in 1997,
respectively. The increases in the quarter were attributable to the acquisitions
of LWG and Bodaken in September 1997 and to KK&A acquired in June of 1998.
Increases in the six months comparable periods from internal growth amounted to
approximately 10% with the remaining increase due to acquisitions. Internal
growth was impacted by the earlier-than-expected conclusion of several major
engagements and postponement of several others during the second quarter.
Direct costs during 1998 increased 28.7% and 37.7% over the comparable quarter
and six month periods, respectively. Such increases, representing increases in
resources attributable to client projects, were generally consistent with the
increases in revenues. The increases during 1998 in selling, general and
administrative expenses of 31.3% and 35.4% over the comparable quarter and six
month periods represent increased costs due to new operations added through
acquisitions and other cost increases attributable to growth of the business.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flows provided by operations during the six months of 1998 as compared to
the comparable period of 1997 remained constant despite increasing net income
due to decreases in accounts receivable and accounts payable balances. Cash was
used in this period for the purchase of property and equipment. Additional
inflows of cash were provided by the exercise of stock options during the six
months. Options for 182,300 shares were exercised in the first quarter of 1998
thus resulting in an overall increase in cash.
On July 1, 1998 the Company borrowed $6 million on the existing short-term line
of credit for the first installment on the acquisition of KK&A. The Company
expects that available cash and existing short-term lines of credit will be
sufficient to meet its normal operating requirements over the near term.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Incorporated by reference from the Forensic Technologies International
Corporation (filed as Forensic Technologies International Corporation prior to
the effectiveness of the name change) Notice of 1998 Annual Meeting and Proxy
Statement filed pursuant to Regulation 14A.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
22. PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO VOTE OF SECURITY
HOLDERS
Incorporated by reference from the Forensic Technologies International
Corporation (filed as Forensic Technologies International Corporation
prior to the effectiveness of the name change) Notice of 1998 Annual
Meeting and Proxy Statement filed pursuant to Regulation 14A.
27. FINANCIAL DATA SCHEDULE FOR SIX MONTHS ENDED JUNE 30, 1998.
(B) REPORTS ON FORM 8-K
THE COMPANY FILED AN 8-K FOR THE ACQUISITION OF KLICK, KENT & ALLEN,
INC. ON JULY 15, 1998.
12
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: August 13, 1998 By /s/Gary Sindler
-------------- ---------------
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer (principal
financial and accounting officer)
13
5
1
US DOLLARS
6-MOS
DEC-31-1998
JUN-30-1998
1
$3,816,437
$0
$14,341,786
$832,479
$0
$19,380,403
$14,945,999
$8,632,629
$40,541,271
$13,017,822
$0
$0
$0
$47,419
$24,103,381
$40,541,271
$25,969,355
$25,969,355
$14,311,897
$23,060,393
$0
$0
$197,729
$2,824,165
$1,149,408
$1,674,757
$0
$0
$0
$1,674,757
0.36
0.33
