SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________ FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): February 4, 2000 FTI Consulting, Inc. (Exact Name of Registrant as Specified in Charter) Maryland 001-14875 52-1261113 (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.) 2021 Research Drive, Annapolis, Maryland 21401 (Address of Principal Executive Offices) (ZIP Code) Registrant's telephone number, including area code (410) 224-8770
Item 2. Acquisition or Disposition of Assets. On February 4, 2000, FTI Consulting, Inc. ("FTI") completed the acquisition of all of the outstanding membership interests of Policano & Manzo, L.L.C., a privately-held consulting firm that is the leader in providing bankruptcy and turnaround consulting services to large corporations, money center banks and secured lenders throughout the United States. The acquisition was accomplished under an LLC Membership Interests Purchase Agreement (the "Purchase Agreement") dated as of January 31, 2000, by and among FTI, Michael Policano and Robert Manzo. FTI acquired the membership interests from Messrs. Policano and Manzo for a total consideration of approximately $53,000,000 in cash and shares of FTI's common stock. On February 15, 2000, FTI filed a report on Form 8-K stating that it had completed the acquisition and that the required financial statements and pro forma financial information would be filed within 60 days after the initial filing. This Form 8-K/A contains the required financial statements and information. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Acquired Business. Audited financial statements of Policano & Manzo, L.L.C., including notes thereto, for the three years ended December 31, 1999. (b) Pro Forma Financial Information. Unaudited pro forma combined balance sheets as of December 31, 1999, and unaudited pro forma combined statement of income, including notes thereto, for the year ended December 31, 1999. (c) Exhibits. 23.1 - Consent of Ernst & Young LLP
Financial Statements Policano & Manzo, L.L.C. Years Ended December 31, 1997, 1998 and 1999 with Report of Independent Auditors
Policano & Manzo, L.L.C. Financial Statements Years Ended December 31, 1997, 1998 and 1999 Contents Report of Independent Auditors.......................................... 1 Financial Statements Balance Sheets.......................................................... 2 Statements of Income.................................................... 3 Statement of Members' Equity............................................ 4 Statements of Cash Flows................................................ 5 Notes to Financial Statements........................................... 6
Report of Independent Auditors Board of Directors and Members Policano & Manzo, L.L.C. We have audited the balance sheets of Policano & Manzo, L.L.C. as of December 31, 1997, 1998 and 1999 and the related statements of income, members' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 Policano & Manzo, L.L.C. at December 31, 1997, 1998 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey March 10, 2000 1
Policano & Manzo, L.L.C. Balance Sheets December 31 1997 1998 1999 --------------------------------------------- Assets Current assets: Cash $ 163,453 $ 405,568 $ 1,101,480 Accounts receivable 2,384,825 4,570,642 4,819,521 Unbilled receivables 605,860 285,330 370,072 Other current assets - - 24,890 --------------------------------------------- Total current assets 3,154,138 5,261,540 6,315,963 Furniture and equipment 101,794 214,932 266,942 Accumulated depreciation (43,456) (74,588) (112,662) --------------------------------------------- 58,338 140,344 154,280 Other assets, principally unbilled receivables 469,859 233,923 218,566 --------------------------------------------- Total assets $ 3,682,335 $ 5,635,807 $ 6,688,809 ============================================= Liabilities and Members' Equity Current liabilities: Accounts payable and accrued expenses $ 323,557 $ 774,174 $ 1,026,527 Advances from clients 1,529,960 1,827,013 2,137,400 --------------------------------------------- Total current liabilities 1,853,517 2,601,187 3,163,927 Commitments and contingencies - - - Members' equity 1,828,818 3,034,620 3,524,882 --------------------------------------------- Total liabilities and members' equity $ 3,682,335 $ 5,635,807 $ 6,688,809 ============================================= See accompanying notes. 2
Policano & Manzo, L.L.C. Statements of Income Year Ended December 31, 1997 1998 1999 ----------------------------------------------- Revenues: Professional fees $11,290,378 $16,752,726 $21,422,335 Net billable expenses 322,942 401,880 89,856 ----------------------------------------------- Total revenues 11,613,320 17,154,606 21,512,191 Direct cost of revenues 2,830,491 4,788,254 6,897,632 Selling, general and administrative expenses 614,178 960,550 724,297 ----------------------------------------------- Total costs and expenses 3,444,669 5,748,804 7,621,929 ----------------------------------------------- Net income $ 8,168,651 $11,405,802 $13,890,262 =============================================== See accompanying notes. 3
Policano & Manzo, L.L.C. Statement of Members' Equity Members' Equity -------------- Balance at January 1, 1997 $ 1,060,167 Net income 8,168,651 Members' distributions (7,400,000) -------------- Balance at December 31, 1997 1,828,818 Net income 11,405,802 Members' distributions (10,200,000) -------------- Balance at December 31, 1998 3,034,620 Net income 13,890,262 Members' distributions (13,400,000) -------------- Balance at December 31, 1999 $ 3,524,882 ============== See accompanying notes. 4
Policano & Manzo, L.L.C. Statements of Cash Flows Year Ended December 31, 1997 1998 1999 -------------------------------------------------------- Cash flows from operating activities: Net income $ 8,168,651 $ 11,405,802 $ 13,890,262 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 16,452 31,132 38,074 Changes in assets and liabilities: Accounts receivable (1,074,772) (2,185,817) (248,879) Unbilled receivables (437,738) 320,530 (84,742) Other assets 151,664 235,936 (9,533) Accounts payable and accrued expenses 78,886 450,617 252,353 Advances from clients 576,225 297,053 310,387 -------------------------------------------------------- Net cash provided by operating activities 7,479,368 10,555,253 14,147,922 Cash flows from investing activities: Purchases of furniture and equipment, net (1,026) (113,138) (52,010) -------------------------------------------------------- Net cash used in investing activities (1,026) (113,138) (52,010) Cash flows from financing activities: Members' distributions (7,400,000) (10,200,000) (13,400,000) -------------------------------------------------------- Net cash used in financing activities (7,400,000) (10,200,000) (13,400,000) -------------------------------------------------------- Net increase in cash 78,342 242,115 695,912 Cash balance at beginning of year 85,111 163,453 405,568 -------------------------------------------------------- Cash balance at end of year $ 163,453 $ 405,568 $ 1,101,480 ======================================================== See accompanying notes. 5
Policano & Manzo, L.L.C. Notes to Financial Statements December 31, 1999 1. Summary of Significant Accounting Policies Business Activity Policano & Manzo, L.L.C., (the "Company") was formed as a New Jersey limited liability company in 1994 for the purpose of providing financial advisory services principally to financially troubled companies. The Company is located in New Jersey and its principal market area is the United States. The Company includes only individuals as member partners and the duration of the Company shall be 49 years from the date of formation unless sooner terminated in accordance with the operating agreement of the Company. Accounts Receivable The Company periodically reviews individual customer account balances and other customer financial information as part of its credit policy. Furniture and Equipment Furniture and equipment is stated at cost. Depreciation of furniture and equipment is computed on the straight-line method over an estimated useful life of 7 years. Advances from Clients Advances from clients represent deposits made on initial engagements and are applied against invoices periodically. Revenue The Company derives its revenues from professional service activities. These activities are provided principally under "time and materials" billing arrangements and revenues, consisting of billed fees and expenses, are recorded as work is performed and expenses are incurred. Revenues recognized, but not yet billed to clients, have been recorded as unbilled receivables. 6
Policano & Manzo, L.L.C. Notes to Financial Statements (continued) December 31, 1999 1. Summary of Significant Accounting Policies (continued) Direct Cost of Revenues Direct cost of revenues consists primarily of billable employee compensation and related payroll benefits and the cost of consultants assigned to revenue generating activities. Income Taxes The Company is a limited liability company and as such does not pay federal or state income taxes; instead, the members are liable for individual income taxes on the Company's profits. Therefore, no provision for federal or state income taxes is included in the accompanying financial statements. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. Concentrations of Credit Risk The Company maintains cash balances with a quality financial institution and, consequently, management believes funds maintained there are secure. Concentrations of credit risk with respect to customer receivables are limited due to the Company's customer base and its credit policy. No single customer represents greater than 10% of total accounts receivable as of December 31, 1997 and 1999, and two customers make up 25% of total accounts receivable at December 31, 1998. Also, no single customer represents greater than 10% of total revenues for the years ended December 31, 1997 and 1999, one customer makes up 10% of total revenues for the year ended December 31, 1998. 7
Policano & Manzo, L.L.C. Notes to Financial Statements (continued) December 31, 1999 3. Operating Leases The Company leases office space and equipment under operating leases that expires in 2002. Rent expense under these leases totaled $90,293, $153,972 and $155,646 for the years ended December 31, 1997, 1998 and 1999, respectively. Future minimum payments under non-cancelable operating leases with initial terms of one year or more consist of the following at December 31, 1999: 2000 $ 29,467 2001 29,467 2002 22,205 ---------- Total minimum lease payments $ 81,139 ========== 4. Employee Benefit Plan The Company maintains a Simplified Employee Pension (SEP) Plan, which covers all employees. The Company contributes a certain percentage of the employees eligible compensation to the SEP. The Company made contributions of $231,472, $304,493 and $387,216 during the years ended December 31, 1997, 1998 and 1999, respectively. 5. Subsequent Event Effective January 31, 2000, the Company entered into a LLC membership purchase agreement with FTI Consulting, Inc., ("FTI"). Under the terms of the membership purchase agreement, FTI purchased all of the membership interests of the Company. 6. Year 2000 (Unaudited) During 1999, the Company completed modifications of both information technology (IT) systems as well as non-IT systems in preparation for the Year 2000 (Y2K). The Company is currently operating in calendar year 2000 and has not experienced any operational issues associated with Y2K. The Company has not become aware of any material adverse effects resulting from the impact of the Y2K issue on any customers, vendors or other entities with whom the Company has a relationship. 8
FTI CONSULTING, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The unaudited pro forma combined financial statements give retroactive effect to the acquisition of Policano & Manzo, L.L.C., ("P&M") effective January 31, 2000, (the date that control of P&M was transferred to the Company). The acquisition of P&M was accounted for by FTI Consulting, Inc., (the "Company" or "FTI") as a purchase. Pro forma adjustments to the unaudited pro forma combined balance sheet assume that the transaction was consummated on December 31, 1999. Pro forma adjustments to the pro forma combined statement of income assume that the transaction was consummated on January 1, 1999, and are based on the allocated purchase price as reported in the unaudited pro forma combined balance sheet at December 31, 1999. These adjustments are described below. The purchase price for the acquisition of P&M, consisting of $47.5 million in cash and 815,000 shares of the Company's common stock valued at $5.5 million, plus estimated expenses of $725,000 and a working capital adjustment of $768,000 was allocated as follows: Assets acquired: (in thousands) Cash $ 0 Billed and unbilled accounts receivable 5,190 Prepaid expenses and other assets 244 Property and equipment 154 Goodwill 52,073 ------- Total assets $57,661 ------- Liabilities assumed: Accounts payable and accrued expenses $ 1,027 Advances from clients 2,137 ------- Total purchase price $54,497 ------- The value of goodwill will be amortized over a 20 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 P&M 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 consolidated financial statements of the Company. 9
FTI CONSULTING, INC. Unaudited Pro Forma Combined Balance Sheets As of December 31, 1999 Pro Forma Pro Forma Unaudited (in thousands) Adjustments Adjustments Pro Forma FTI P&M Dr. Cr. Combined ---------------------------------------------------------------- Assets Current assets: Cash and equivalents $ 5,046 $1,101 $ 91,000 (2) $ 49,329 (1) $ 1,881 128 (4) 3,944 (5) 41,097 (4) 768 (1) Accounts receivable, net of allowance for doubtful accounts 14,458 4,820 19,278 Unbilled receivables, net of allowance for doubtful accounts 9,222 370 9,592 Prepaid expenses and other current assets 2,166 25 2,191 --------------------------------------------------------------- Total current assets 30,892 6,316 91,000 95,266 32,942 Property and equipment, net 8,379 154 8,533 Goodwill, net of accumulated amortization 43,658 - 52,073 (1) 95,731 Other assets 1,363 219 3,944 (5) 805 (6) 4,721 --------------------------------------------------------------- Total assets $84,292 $6,689 $147,017 $ 96,071 $141,927 =============================================================== Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued expenses $ 8,613 $1,027 $ 128 (4) $ 9,512 Income taxes payable 471 - 471 Current portion of long-term debt 1,718 - 1,718 (4) 4,250 (2) 4,250 Advances from clients and other 857 2,137 2,994 --------------------------------------------------------------- Total current liabilities 11,659 3,164 1,846 4,250 17,227 Long-term debt, less current portion and 39,379 (4) 91,000 (2) net of discounts 41,009 2,683 (3) 1,053 (6) 83,036 4,250 (2) 3,714 (2) Deferred income taxes and other liabilities 1,372 - 1,372 Stockholders' equity: Common stock 49 - 8 (1) 63 6 (3) Additional paid-in capital 18,197 - 5,493 (1) 30,081 3,714 (2) 2,677 (3) Members' equity - 3,525 3,525 (1) - Retained earnings 12,006 - 1,858 (6) 10,148 --------------------------------------------------------------- Total stockholders' equity 30,252 3,525 5,383 11,898 40,292 --------------------------------------------------------------- Total liabilities and stockholders' equity $84,292 $6,689 $ 57,255 $108,201 $141,927 =============================================================== 10
FTI CONSULTING, INC. Unaudited Pro Forma Combined Statement of Income Year Ended December 31, 1999 UNAUDITED (in thousands, except per share data) PRO FORMA PRO FORMA FTI P&M ADJUSTMENTS COMBINED -------------------------------------------------- Revenues $84,607 $21,512 $ - $106,119 Direct cost of revenues 44,149 6,898 51,047 Selling, general and administrative expenses 28,829 724 700 (7) 30,253 Amortization of goodwill 2,313 - 2,604 (8) 4,917 -------------------------------------------------- Total costs and expenses 75,291 7,622 3,304 86,217 -------------------------------------------------- Income from operations 9,316 13,890 (3,304) 19,902 Interest expense, net 4,014 - 8,130 (9) 12,144 -------------------------------------------------- Income before income taxes 5,302 13,890 (11,434) 7,758 Income taxes 2,311 - 947 (10) 3,258 -------------------------------------------------- Net income $ 2,991 $13,890 $(12,381) $ 4,500 ================================================== Weighted average shares, basic 4,872 - 1,420 (183) 6,292 -------------------------------------------------- Earnings per common share, basic $0.61 $0.72 ================================================== Weighted average shares, diluted 5,028 - 1,420 (183) 6,448 -------------------------------------------------- Earnings per common share, diluted $0.59 $0.70 ================================================== EBITDA $14,012 $13,897 $ (700) $ 27,209 ================================================== 11
FTI CONSULTING, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (1) Adjustment to reflect the acquisition of P&M for $47.5 million in cash, the issuance of 815,000 shares of the Company's common stock, valued at $5.5 million, costs of $.7 million, and a working capital adjustment of $.8 million in accordance with the Purchase Agreement. (2) Adjustment to reflect the issuance of $91.0 million of Senior and Subordinated debt, the current portion thereof, and 670,404 warrants valued at $5.54 each. (3) Adjustment to reflect the issuance of 604,504 shares of the Company's common stock in exchange for $2.7 million of seller notes outstanding. (4) Adjustment to reflect the payment in full of prior Senior, Subordinated and seller debt outstanding, including accrued interest. (5) Adjustment to reflect costs and expenses related to the financing. (6) Adjustment to eliminate prior debt discount, net of taxes, as an extraordinary item in connection with the early extinguishment of such debt. (7) In connection with the acquisition, the Company entered into four-year employment contracts with two principals of P&M. The pro forma adjustment assumes that the principals had received compensation for 1999 as provided in such employment contracts. Because P&M is organized as a limited liability company, its owners, who have substantially the same duties and responsibilities as before the acquisition, were taxed on the profits of the firm and received only a small amount of actual compensation in 1999. (8) Adjustment to reflect the additional amortization of acquired goodwill, which will be amortized over a 20 year period. (9) Adjustment to reflect the interest expense in connection with the financing, including the amortization of related costs and expenses over the life of the debt on a debt outstanding basis. (10) Adjustment to reflect income tax expense at a 42.0% effective rate. 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 hereunto duly authorized. FTI CONSULTING, INC. By:/s/ Theodore I. Pincus _____________________________ Theodore I. Pincus Executive Vice President and Chief Financial Officer Date: April 6, 2000 13
Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the following Registration Statements of our report dated March 10, 2000, with respect to the financial statements of Policano & Manzo, L.L.C. as of and for each of the three years in the period ended December 31, 1999 included in the Current Report (Form 8-K/A) filed with the Securities and Exchange Commission. Registration Statements on Form S-8 Registration Name Number Date Filed - ------------------------------------------------------------------------------- 1992 Stock Option Plan, As Amended 333-19251 January 3, 1997 Employee Stock Purchase Plan 333-30173 June 27, 1997 1997 Stock Option Plan 333-30357 June 30, 1997 1997 Stock Option Plan, As Amended 333-32160 March 10, 2000 /s/ Ernst & Young LLP Baltimore, Maryland April 4, 2000 14