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): February 28, 2008
FTI CONSULTING, INC.
(Exact Name of Registrant as Specified in Charter)
| Maryland | 001-14875 | 52-1261113 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
500 East Pratt Street, Suite 1400, Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (410) 951-4800
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| ITEM 2.02. | Results of Operations and Financial Condition |
On February 28, 2008, FTI Consulting, Inc. (“FTI”) issued its press release (the “Press Release”) reporting its financial results for the fourth quarter and full year ended December 31, 2007 and providing its outlook for the fiscal year ending December 31, 2008. The full text of the Press Release (including financial tables and 2008 guidance) issued on February 28, 2008 is set forth in Exhibit 99.1 and is incorporated by reference herein.
| ITEM 7.01. | Regulation FD Disclosure |
The Press Release (and accompanying financial tables) includes information regarding earnings before interest, taxes, depreciation and amortization (“EBITDA”) for FTI and each of its five business segments for the three months and years ended December 31, 2006 and December 31, 2007, respectively. In addition, the Press Release (and accompanying financial tables) includes information regarding EBITDA adjusted for special charges (“Adjusted EBITDA”), Adjusted EBITDA by business segment (“Adjusted Segment EBITDA”), net income before special charges (“Adjusted Net Income”) and earnings per common share-diluted before special charges (“Adjusted EPS”) for the year ended December 31, 2006. FTI has provided Adjusted EBITDA, Adjusted Net Income and Adjusted EPS information for 2006 to illustrate the effect of special charges that were incurred that year and reduced 2006 EBITDA and earnings per diluted share. Adjusted Segment EBITDA is provided for 2006 for the three business segments that incurred those special charges. No special charges were incurred in 2007, so no Adjusted EBITDA, Adjusted Segment EBITDA, Adjusted Net Income and Adjusted EPS information is provided for the three months and year ended December 31, 2007.
Although EBITDA and Segment EBITDA are not measures of financial condition or performance determined in accordance with GAAP, FTI believes that they can be useful operating performance measures for evaluating FTI’s results of operations as compared from period to period and as compared to its competitors. EBITDA is a common alternative measure of operating performance used by investors, financial analysts and rating agencies to value and compare the financial performance of companies in FTI’s industry. FTI uses EBITDA to evaluate and compare the operating performance of its segments and it is one of the primary measures used to determine employee bonuses. FTI also uses EBITDA to value businesses it acquires or anticipates acquiring. The Adjusted EBITDA and Adjusted Segment EBITDA information is provided to assist investors in assessing period-to-period comparability. A reconciliation of EBITDA, Segment EBITDA, Adjusted EBITDA and Adjusted Segment EBITDA to net income, and a reconciliation of Adjusted EPS to earnings per common share-diluted are included in the accompanying tables to the Press Release. EBITDA and Adjusted EBITDA are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies unless the definition is the same. In addition, EBITDA is one of the financial measures included in the maintenance covenants contained in FTI’s bank credit facility and, thus, as a supplemental financial measure is also indicative of the Company’s capacity to service debt and thereby provides additional
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useful information to investors regarding FTI’s financial condition and results of operations. EBITDA for purposes of those covenants is not calculated in the same manner as it is calculated in the accompanying table. With respect to FTI’s guidance for 2008, a reconciliation of EBITDA to net income as projected for the year ending December 31, 2008 is not provided because FTI cannot reasonably determine the components of net income to provide a reconciliation to EBITDA for its 2008 fiscal year with certainty at this time.
The information included herein, including Exhibit 99.1 furnished herewith, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any filing pursuant to the Securities Act of 1933, as amended, or the Exchange Act, regardless of any incorporation by reference language in any such filing, except as expressly set forth by specific reference in such filing.
| ITEM 8.01. | Other Events |
Share Purchase Program
On February 25, 2008, the Board of Directors (the “Board”) of FTI authorized FTI to purchase up to $50.0 million of its shares of common stock. The stock purchase program authorizes FTI to purchase shares of its common stock through open market or privately negotiated transactions. The Board has authorized FTI to make stock purchases through February 25, 2009. The program will be funded with a combination of cash on hand or borrowings. The Press Release filed as Exhibit 99.1 includes the announcement of FTI’s Board’s authorization of the stock purchase program and is hereby incorporated by reference herein.
| ITEM 9.01. | Financial Statements and Exhibits |
| (c) | Exhibits |
| 99.1 | Press Release dated February 28, 2008 (including Financial Tables and 2008 Guidance) of FTI Consulting, Inc. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, FTI has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FTI CONSULTING, INC. | ||||
| Dated: February 29, 2008 | By: | /S/ ERIC B. MILLER | ||
| Eric B. Miller | ||||
| Senior Vice President and General Counsel | ||||
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EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1 | Press Release dated February 28, 2008 (including Financial Tables and 2008 Guidance), of FTI Consulting, Inc. |
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EXHIBIT 99.1
FTI Consulting, Inc.
500 East Pratt Street
Suite 1400
Baltimore, Maryland 21202
(410) 951-4800
| FOR FURTHER INFORMATION: |
||
| AT FTI CONSULTING: | AT FD: | |
| Jack Dunn, President & CEO | Investors: Gordon McCoun | |
| (410) 951-4800 | Media: Andy Maas | |
| (212) 850-5600 | ||
FOR IMMEDIATE RELEASE
FTI CONSULTING, INC. REPORTS RECORD 2007 RESULTS
• 2007 Revenues Top $1 Billion
• 2007 Record EPS of $2.00
• Fourth Quarter Revenue Up 29 Percent to Record $280.5 Million
• Fourth Quarter EPS Up 43 Percent to $0.60 Per Share
• 2008 Guidance for Revenue of $1.28-$1.32 Billion and EPS of $2.40 – $2.50
BALTIMORE, MD — February 28, 2008 — FTI Consulting (NYSE: FCN), the global business advisory firm dedicated to helping organizations protect and enhance their enterprise value, today reported its financial results for the fourth quarter and full year ended December 31, 2007.
“With $1 billion in revenue and record earnings per share up over 92% for the year, 2007 was an historic year for FTI” said Jack Dunn, President and CEO of FTI. “I want to thank and salute all the people who made this possible by serving the world’s leading enterprises on their most important matters. We look forward with them to even more exciting accomplishments as we enter 2008 with a platform of unparalleled intellectual capital, strong momentum and the right portfolio of services for a turbulent world and stressed global economy.”
Fourth Quarter Results
For the fourth quarter of 2007, revenue increased 29.4 percent to a record $280.5 million compared to revenue of $216.8 million in the prior year period. Earnings per diluted share increased 42.9 percent to $0.60, compared to earnings per diluted share of $0.42 in the prior year period, despite a 24.1 percent increase in the weighted average shares outstanding to 51.3 million shares from 41.4 million shares in the prior year period. Earnings from operations before interest, taxes, depreciation and amortization and litigation settlement losses (EBITDA) increased 26.4 percent to $64.3 million, also a record, compared to EBITDA of $50.9 million in the prior year period.
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Commenting on the quarter and full year, Mr. Dunn continued, “The fourth quarter of 2007 was a great finale to a record year for FTI:
| • | We experienced organic revenue growth of 24 percent and 19 percent for the fourth quarter and full year, respectively, driven by robust global demand for our diversified portfolio of services. |
| • | We maintained strong margins consistent with our guidance for the year. |
| • | Our operations are now truly global with revenue outside the U.S. representing 19 percent of our total revenue for the fourth quarter. This growth is driven both by strong local market needs and accelerating demand from multi-national organizations engaging FTI to help manage their risks around the world. |
| • | We completed the key goals for our 2009 five year plan |
| • | Annual revenue of $1 billion; |
| • | Global expansion; |
| • | Continued practice diversification; |
| • | All while maintaining industry leading profitability; |
And these goals were accomplished fully two years ahead of plan.
| • | In October we raised $232 million from a public equity offering that provides the capital necessary to continue aggressively growing and serving the robust demand the Company is experiencing around the world. |
| • | We continued to invest in our brand, as evidenced by our outstanding organic growth for the quarter and the year, and in our infrastructure to support our future growth.” |
Mr. Dunn added, “As we enter 2008, we are continuing to maintain our industry-leading pace and expect another very good year. In the first two months we have been actively engaged in attracting and recruiting the best talent, adding 22 senior managing directors through hiring, acquisition and promotion, and have acquired four businesses in three different countries that deepen our presence and expand our capabilities.”
Mr. Dunn concluded, “On a final note, from a business driver perspective, the global credit crisis cannot be ignored. What began as a virus in the U.S. sub-prime mortgage sector has erupted into a financial and economic plague – destabilizing world-wide economies, roiling credit markets and whipsawing stock markets. This plague is attacking transparency, liquidity and, most importantly, confidence in the world’s financial markets and the institutions and enterprises that rely on them. Transparency, liquidity and confidence – the very issues our skills are designed to enhance – are vital to enterprise value, which our mission statement calls out for us to protect. We are seeing broadly-based demand in every one of our segments from credit related engagements – and that demand appears to be accelerating.”
At December 31, 2007, cash and cash equivalents were $360.5 million with total debt outstanding of $573 million and no borrowings were outstanding under the Company’s senior bank revolving credit facility.
Fully diluted weighted average common shares outstanding increased 24.1 percent to 51.3 million in the fourth quarter compared to 41.4 million in the prior year period due to the Company’s offering of 4,830,000 shares during the fourth quarter of 2007 and the effects of a higher average share price on the calculation of fully diluted shares outstanding associated with the Company’s convertible notes and stock options.
On February 25, 2008, the Board of Directors authorized a stock purchase program for up to $50 million of the Company’s common stock. This stock purchase program will expire on February 25, 2009. The Company did not purchase any shares of common stock under its stock purchase program during the fourth quarter. For the full year 2007, FTI repurchased 500,000 shares for a total cost of $18.1 million.
Total headcount as of December 31, 2007, was 2,549, of which 1,954 represented revenue-generating professionals, compared to 2,079 and 1,596, respectively, in the prior year period. Total headcount is approximately 2,800 as of February 28, 2008, over 2,200 of whom were client facing. Turnover for 2007 was 15.8%.
Fourth Quarter Business Segment Results
Segment earnings from operations before interest, taxes, depreciation, amortization and litigation settlement losses are defined as segment EBITDA.
Corporate Finance/Restructuring
Revenue in the Corporate Finance/Restructuring segment accelerated its strong growth, increasing 27.2 percent to $73.6 million compared to $57.9 million in the prior year period. Segment EBITDA increased 48.1 percent to $22.4 million from segment EBITDA of $15.1 million in the prior year period. Segment EBITDA margins expanded to 30.4 percent of revenue from 26.1 percent in the prior year period. The segment continued to perform well ahead of plan, led by improving market demand for restructuring resulting from recent economic and financial turmoil. Industries of importance included automotive, real estate, financial services and retailing. Transaction advisory services practice results were also strong, driven by post acquisition integration engagements and work with large private equity funds who are seeking to enhance returns in their portfolio companies. Services to the health care industry, particularly profit and operations improvement engagements for major hospitals, also continued to expand in the quarter. In addition, the recently-created U.K. practice continued to gain traction, with several significant engagements and the addition of 12 professionals in the second half of 2007.
Strategic Communications
In the Strategic Communications segment, revenue increased 47.4 percent to $60.0 million from $40.7 million in the prior year period. Segment EBITDA increased to $16.2 million, or 26.9 percent of revenue, from $14.2 million, or 34.8 percent of revenue, in the prior year period. The lower margin percent reflects the introduction of a bonus plan in 2007. The segment ended its first full year as part of FTI with strong performances in the U.K., France, Germany and the U.S., growth in retained clients, particularly in the U.K., and solid contributions from businesses acquired during the year. The developing regions of Russia, Asia and the Middle East continued to build momentum with growing profitability. Strategic acquisitions of financial communications firms in Dublin and Chicago in the fourth quarter complement those made earlier in the year in London, Latin America, Australia and China to extend the segment’s global footprint and provide further geographical and service diversification. This segment also benefited from several significant engagements referred by other FTI segments as clients became aware of the opportunity to protect and enhance their reputations through strategic communications.
Forensic and Litigation Consulting
Revenue in the Forensic and Litigation Consulting segment increased 6.9 percent to $54.8 million compared to $51.2 million in the prior year period. Segment EBITDA was $15.4 million, compared to EBITDA of $15.6 million in the prior year period. As a percentage of revenue, the segment’s fourth quarter EBITDA margin was 28.1 percent, reflecting continuing improvement during the year, but was less than the 30.5 percent in the prior year period. Fourth quarter results in 2006 were exceptionally strong due to a large number of stock option backdating cases that needed to be resolved by year end for financial reporting purposes. This segment’s
global business intelligence and investigations practice, formed last year, continued its solid growth driven by accelerated Foreign Corrupt Practices Act (FCPA) activity and a growing number of cross border assignments from domestic clients expanding into Asia and Latin America. This segment has significant opportunities in early 2008 as litigation surrounding the global credit crisis and turmoil in the financial markets has started to provide multiple engagements, as yet only in their early stages. Issues involved include valuation of complex financial instruments, financial statement reporting and investigations into business practices.
Technology
Revenue growth in the Technology segment continued to accelerate, increasing 52.4 percent to $47.5 million compared to $31.2 million in the prior year period. Segment EBITDA increased 54.0 percent to $19.6 million from $12.7 million in the prior year period. Segment EBITDA margin expanded to 41.1 percent of revenue from 40.1 percent in the prior year period. Growth of the segment continued to be driven by global product liability matters, board initiated investigations, including FCPA matters, large class actions, and antitrust “second requests”. The Company also believes that the market is increasingly placing a premium on vertical industry knowledge and expertise, where the segment is particularly benefiting from its deep experience in the global pharmaceutical, financial services and banking, hedge fund and private equity industries. In addition, this segment is experiencing increasing demand for its on-demand software and related professional services from Europe and Asia due to greater market awareness of FTI’s global presence, the full scale opening in the second quarter of a network operating center in Europe equipped to handle complex and large scale on-demand electronic discovery needs and its reputation for managing large and complex multinational cases.
Margins benefited from a continuing shift in the revenue mix from consulting fee focused services to the more profitable and recurring subscription based and on-demand software licensing and processing fees. The Company’s Ringtail® suite of products is benefiting from new capability enhancements and heightened demand for tailored solutions that can scale for high volume/high profile matters and support a global base of opportunities based on Ringtail’s® strong multi-lingual capabilities. To leverage its indirect and channel focused sales efforts, in the fourth quarter the segment formalized its channel sales program and began to sell its Ringtail® technology through value-added resellers in domestic and international markets. As a result of these new partnerships, and by offering resellers both engineering and sales support to a broader prospect base, the segment is seeing accelerating demand from its partners.
Economic Consulting
Revenue in the Economic Consulting segment increased 24.4 percent to $44.6 million compared to $35.8 million in the prior year period. Segment EBITDA increased 7.1 percent to $11.8 million from segment EBITDA of $11.0 million in the prior year period. Segment EBITDA margin were 26.4 percent of revenue compared to 30.7 percent in the prior year period. Segment EBITDA, while still very strong, was affected by (a) the need to use outside consultants to augment capacity driven by the large increase in demand for the segment’s services and (b) non-cash compensation expense resulting from variable accounting treatment for certain options driven by the strong performance of FTI’s common stock. The segment has benefited from the turmoil in the credit markets, which is driving an increased frequency of disputes and associated financial consulting engagements. Since December 2007, the segment has received 19 new engagements in the financial arena, including sub-prime. Demand for the segment’s M&A services also continued to be strong with 14 new cases since December. Decreased liquidity in the credit markets is causing a shift in M&A activity from private equity toward strategic buyers, who are more likely to contend with anti-trust and competitive issues. The increased corporate M&A activity extends across a number of business sectors, notably financial services, hospitals, airlines and industrial corporations. In addition, this segment is seeing an increasing volume of rail commercial and regulatory work as a result of revised regulatory standards and continued strong demand resulting from antitrust enforcement. This segment has received eight new engagements since December involving anti-trust, price fixing and rate setting, as global competition becomes even more intense.
Full Year 2007 Results
For the full year 2007 period, company-wide revenue increased 41.4 percent to $1.0 billion from $707.9 million in the prior year. Earnings per diluted share for 2007 were $2.00, compared to earnings per diluted share of $1.04 in the prior year or adjusted earnings per diluted share of $1.36(1) in the prior year – an increase of 47.1 percent. EBITDA, as previously defined, for 2007 was $216.0 million, an increase of 40.9 percent over adjusted EBITDA (2) of $153.3 million. in the prior year.
| (1) | Adjusted earnings per diluted shares are defined as earnings per diluted share adjusted for special charges of $23.0 million ($13.0 million net of tax) in 2006. |
| (2) | Adjusted EBIDTA is defined as earnings from operations before interest, taxes, depreciation, amortization, litigation settlement losses and special charges of $23.0 million in 2006. |
Corporate Finance/Restructuring
Corporate Finance/Restructuring revenue increased 23.0 percent to $261.6 million from $212.6 million in the prior year period. Segment EBITDA was $71.6 million, or 27.4 percent of revenue, an increase of 39.0 percent over adjusted segment EBITDA of $51.5 million, or 24.2 percent of revenue, in the prior year period. (Adjusted segment EBITDA is defined as segment EBITDA excluding special charges of $7.7 million for 2006.)
Strategic Communications
Strategic Communications revenue was $185.3 million for the year. Segment EBITDA was $48.8 million, or 26.3 percent of revenue. The prior year results include one quarter’s contribution as this segment was acquired in October of 2006.
Forensic and Litigation Consulting
Forensic and Litigation Consulting revenue increased 12.3 percent to $217.0 million compared to $193.3 million in the prior year period. Segment EBITDA was $57.3 million, or 26.4 percent of revenue, an increase of 3.6 percent over adjusted segment EBITDA of $55.3 million, or 28.6 percent of revenue, in the prior year period. (Adjusted segment EBITDA is defined as Segment EBITDA excluding special charges of $9.9 million for 2006.)
Technology
Technology revenue increased 38.9 percent to $162.8 million from $117.2 million in the prior year period. Segment EBITDA was $62.9 million, or 38.6 percent of revenue, an increase of 34.0 percent over segment EBITDA of $47.0 million, or 40.1 percent of revenue, in the prior year period.
Economic Consulting
Economic Consulting revenue increased 21.1 percent to $174.5 million from $144.1 million in the prior year period. Segment EBITDA increased 30.4 percent to $48.1 million, or 27.6 percent of revenue, from adjusted segment EBITDA of $36.9 million, or 25.6 percent of revenue, in the prior year period. (Adjusted segment EBITDA is defined as Segment EBITDA excluding special charges of $4.1 million for 2006.)
Introduction of 2008 Guidance
Based on current market conditions, the Company is introducing the following 2008 guidance:
(Dollars and shares in millions except per share amounts)
| 2007 | 2008 Guidance | |||||||||||||||||||
| Low | High | |||||||||||||||||||
| Amount | Increase | Amount | Increase | |||||||||||||||||
| Revenues |
$ | 1,001 | $ | 1,275 | 27 | % | $ | 1,315 | 31 | % | ||||||||||
| EBITDA |
216 | 300 | 39 | % | 310 | 44 | % | |||||||||||||
| Net Income |
92 | 129 | 40 | % | 135 | 47 | % | |||||||||||||
| Fully Diluted EPS |
$ | 2.00 | $ | 2.40 | 20 | % | $ | 2.50 | 25 | % | ||||||||||
| EBITDA Margin |
21.6 | % | 23.5 | % | 23.6 | % | ||||||||||||||
The low end of the Company’s guidance assumes organic revenue growth of 17.5% and the anticipated contribution from first quarter of 2008 acquisitions. The high end assumes organic revenue growth of 19.5% driven by greater activity generated by the global credit crisis and resulting operational leverage, as well as certain synergies from the acquisitions. The Company’s current assumption on fully diluted common shares outstanding for both the high and low end of guidance is approximately 54 million shares compared to 46 million in 2007.
Fourth Quarter Conference Call
FTI will hold a conference call for analysts and investors to discuss fourth quarter and full year 2007 financial results at 5:30 p.m. Eastern time on Thursday, February 28, 2008. The call can be accessed live and will be available for replay over the Internet for 90 days by logging onto the Company’s website, www.fticonsulting.com.
About FTI Consulting
FTI Consulting is a global business advisory firm dedicated to helping organizations protect and enhance enterprise value in an increasingly complex legal, regulatory and economic environment. With more than 2,800 professionals located in most major business centers in the world, we work closely with clients every day to anticipate, illuminate, and overcome complex business challenges in areas such as investigations, litigation, mergers and acquisitions, regulatory issues, reputation management and restructuring. More information can be found at www.fticonsulting.com.
Note: Although EBITDA and Segment EBITDA are not measures of financial condition or performance determined in accordance with GAAP, FTI believes that they are useful operating performance measures for evaluating its results of operations from period to period and as compared to its competitors. EBITDA is a common alternative measure of operating performance used by investors, financial analysts and rating agencies to value and compare the financial performance of companies in FTI’s industry. FTI uses EBITDA to evaluate and compare the operating performance of its segments and it is one of the primary measures used to determine employee bonuses. FTI also uses EBITDA to value businesses it acquires or anticipates acquiring. FTI provides Adjusted EBITDA and Adjusted earnings per diluted share information for 2006 to illustrate the effect of special charges that were incurred that year and reduced 2006 EBITDA and earnings per diluted share. Adjusted segment EBITDA is provided for 2006 for the three business segments that incurred those special charges. No special charges were incurred in 2007, so no Adjusted EBITDA or adjusted segment EBITDA information is provided for 2007. The adjusted EBITDA information is provided to assist investors in
assessing period-to-period comparability. Adjusted EBITDA and Adjusted diluted earnings per share are not financial measures determined in accordance with GAAP. A reconciliation of EBITDA, Segment EBITDA and adjusted EBITDA to Net Income, and a reconciliation of adjusted diluted earnings per share to diluted earnings per share are included in the accompanying tables to this press release. EBITDA and adjusted EBITDA are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies unless the definition is the same. In addition, EBITDA is one of the financial measures included in the maintenance covenants contained in FTI’s bank credit facility and, thus, as a supplemental financial measure is also indicative of the Company’s capacity to service debt and thereby provides additional useful information to investors regarding the company’s financial condition and results of operations. EBITDA for purposes of those covenants is not calculated in the same manner as it is calculated in the accompanying table. With respect to FTI’s guidance for 2008, a reconciliation of EBITDA to net income as projected for the year ending December 31, 2008 is not provided because FTI cannot reasonably determine the components of net income to provide a reconciliation to EBITDA for its 2008 fiscal year with certainty at this time.
Safe Harbor Statement
This press release includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 that involve uncertainties and risks including statements related our future financial results. There can be no assurance that actual results will not differ from the company’s expectations. The Company has experienced fluctuating revenue, operating income and cash flow in some prior periods and expects this will occur from time to time in the future. As a result of these possible fluctuations, the Company’s actual results may differ from our projections. Further, preliminary results are subject to normal year-end adjustments. Other factors that could cause such differences include the pace and timing of the consummation and integration of past and future acquisitions, the Company’s ability to realize cost savings and efficiencies, competitive and general economic conditions, retention of staff and clients and other risks described under the heading “Item 1A. Risk Factors” in the Company’s most recent Form 10-K and in the Company’s other filings with the Securities and Exchange Commission. We are under no duty to update any of the forward-looking statements to conform such statements to actual results or events and do not intend to do so.
FINANCIAL TABLES FOLLOW
FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(in thousands, except per share data)
| Year Ended December 31, | ||||||||
| 2007 | 2006 | |||||||
| (unaudited) | ||||||||
| Revenues |
$ | 1,001,270 | $ | 707,933 | ||||
| Operating Expenses |
||||||||
| Direct cost of revenues |
548,407 | 389,032 | ||||||
| Selling, general and administrative expense |
255,238 | 178,572 | ||||||
| Special charges |
— | 22,972 | ||||||
| Amortization of other intangible assets |
10,615 | 11,175 | ||||||
| 814,260 | 601,751 | |||||||
| Operating income |
187,010 | 106,182 | ||||||
| Other income (expense) |
||||||||
| Interest income |
8,173 | 2,575 | ||||||
| Interest expense and other |
(44,391 | ) | (29,405 | ) | ||||
| Litigation settlement losses, net |
(1,002 | ) | (187 | ) | ||||
| (37,220 | ) | (27,017 | ) | |||||
| Income before income tax provision |
149,790 | 79,165 | ||||||
| Income tax provision |
57,669 | 37,141 | ||||||
| Net income |
$ | 92,121 | $ | 42,024 | ||||
| Earnings per common share - basic |
$ | 2.14 | $ | 1.06 | ||||
| Weighted average common shares outstanding - basic |
43,028 | 39,741 | ||||||
| Earnings per common share - diluted |
2.00 | $ | 1.04 | |||||
| Weighted average common shares outstanding - diluted |
45,974 | 40,526 | ||||||
FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006
(in thousands, except per share data)
| Three Months Ended December 31, |
||||||||
| 2007 | 2006 | |||||||
| (unaudited) | ||||||||
| Revenues |
$ | 280,519 | $ | 216,841 | ||||
| Operating expenses |
||||||||
| Direct cost of revenues |
151,746 | 112,136 | ||||||
| Selling, general and administrative expense |
69,963 | 57,025 | ||||||
| Special charges |
— | — | ||||||
| Amortization of other intangible assets |
2,837 | 2,865 | ||||||
| 224,546 | 172,026 | |||||||
| Operating income |
55,973 | 44,815 | ||||||
| Other income (expense) |
||||||||
| Interest income |
4,182 | 688 | ||||||
| Interest expense and other |
(10,393 | ) | (11,413 | ) | ||||
| Litigation settlement losses, net |
(130 | ) | (606 | ) | ||||
| (6,341 | ) | (11,331 | ) | |||||
| Income before income tax provision |
49,632 | 33,484 | ||||||
| Income tax provision |
18,838 | 16,128 | ||||||
| Net income (loss) |
$ | 30,794 | $ | 17,356 | ||||
| Earnings (loss) per common share - basic |
$ | 0.66 | $ | 0.43 | ||||
| Weighted average common shares outstanding - basic |
46,996 | 40,574 | ||||||
| Earnings (loss) per common share - diluted |
$ | 0.60 | $ | 0.42 | ||||
| Weighted average common shares outstanding - diluted |
51,347 | 41,392 | ||||||
FTI CONSULTING, INC.
OPERATING RESULTS BY BUSINESS SEGMENT
(Unaudited)
| Revenues | EBITDA (1) | Margin | Utilization (2) | Average Billable Rate (2) |
Revenue- Generating Headcount | |||||||||||||
| (in thousands) | ||||||||||||||||||
| Three Months Ended December 31, 2007 |
||||||||||||||||||
| Forensic and Litigation Consulting |
$ | 54,770 | $ | 15,380 | 28.1 | % | 71 | % | $ | 331 | 430 | |||||||
| Corporate Finance |
73,644 | 22,370 | 30.4 | % | 82 | % | $ | 402 | 406 | |||||||||
| Economic Consulting |
44,580 | 11,776 | 26.4 | % | 81 | % | $ | 400 | 236 | |||||||||
| Technology |
47,535 | 19,557 | 41.1 | % | — | — | 344 | |||||||||||
| Strategic Communications |
59,990 | 16,147 | 26.9 | % | — | — | 538 | |||||||||||
| $ | 280,519 | 85,230 | 30.4 | % | 1,954 | |||||||||||||
| Corporate |
(20,943 | ) | ||||||||||||||||
| EBITDA (1) |
$ | 64,287 | 22.9 | % | ||||||||||||||
| Year Ended December 31, 2007 |
||||||||||||||||||
| Forensic and Litigation Consulting |
$ | 217,028 | $ | 57,292 | 26.4 | % | 75 | % | $ | 321 | 430 | |||||||
| Corporate Finance |
261,625 | 71,629 | 27.4 | % | 80 | % | $ | 409 | 406 | |||||||||
| Economic Consulting |
174,447 | 48,085 | 27.6 | % | 85 | % | $ | 412 | 236 | |||||||||
| Technology |
162,837 | 62,921 | 38.6 | % | — | — | 344 | |||||||||||
| Strategic Communications |
185,333 | 48,826 | 26.3 | % | — | — | 538 | |||||||||||
| $ | 1,001,270 | 288,753 | 28.8 | % | 1,954 | |||||||||||||
| Corporate |
(72,779 | ) | ||||||||||||||||
| EBITDA (1) |
$ | 215,974 | 21.6 | % | ||||||||||||||
| Three Months Ended December 31, 2006 |
||||||||||||||||||
| Forensic and Litigation Consulting |
$ | 51,229 | $ | 15,604 | 30.5 | % | 76 | % | $ | 312 | 388 | |||||||
| Corporate Finance |
57,888 | 15,102 | 26.1 | % | 82 | % | $ | 398 | 322 | |||||||||
| Economic Consulting |
35,834 | 10,996 | 30.7 | % | 81 | % | $ | 389 | 206 | |||||||||
| Technology |
31,182 | 12,695 | 40.7 | % | — | — | 256 | |||||||||||
| Strategic Communications |
40,708 | 14,173 | 34.8 | % | — | — | 424 | |||||||||||
| $ | 216,841 | 68,570 | 31.6 | % | 1,596 | |||||||||||||
| Corporate |
(17,693 | ) | ||||||||||||||||
| EBITDA (1) |
$ | 50,877 | 23.5 | % | ||||||||||||||
| Year Ended December 31, 2006 |
||||||||||||||||||
| Forensic and Litigation Consulting |
$ | 193,287 | $ | 55,306 | 28.6 | % | 78 | % | $ | 305 | 388 | |||||||
| Corporate Finance |
212,617 | 51,514 | 24.2 | % | 77 | % | $ | 400 | 322 | |||||||||
| Economic Consulting |
144,091 | 36,873 | 25.6 | % | 80 | % | $ | 386 | 206 | |||||||||
| Technology |
117,230 | 46,965 | 40.1 | % | — | — | 256 | |||||||||||
| Strategic Communications |
40,708 | 14,173 | 34.8 | % | — | — | 424 | |||||||||||
| $ | 707,933 | 204,831 | 28.9 | % | 1,596 | |||||||||||||
| Corporate |
(51,492 | ) | ||||||||||||||||
| ADJUSTED EBITDA (1) |
$ | 153,339 | 21.7 | % | ||||||||||||||
| (1) |
We use earnings before interest, taxes, depreciation, amortization (“EBITDA”) and EBITDA excluding special charges (“adjusted EBITDA”) in evaluating the company’s financial performance. EBITDA is not a measurement under accounting principles generally accepted in the United States (“GAAP”). We define EBITDA as operating income before depreciation and amortization and amortization of intangible assets plus litigation settlements. This measure may not be similar to non-GAAP measures of other companies. We believe that the use of such measures, as a supplement to operating income, net income and other GAAP measures, is a useful indicator of a company’s financial performance and its ability to generate cash flow from operations that are available to fund capital expenditures and service debt. Further, these measures exclude certain items to provide better comparability from period to period. While depreciation and amortization are considered operating costs under GAAP, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. EBITDA is a common alternative performance measure used by investors, analysts and credit rating agencies to evaluate and compare the operating performance and value of companies within our industry. This non-GAAP measure should be considered in addition to, but not as a substitute for or superior to, the information contained in our statements of income. See also our reconciliation of Non-GAAP financial measures. |
| (2) |
The majority of the Technology and Strategic Communications segments’ revenues are not generated on an hourly basis. Accordingly, utilization and average billable rate metrics are not presented as they are not meaningful. Utilization where presented is based on a 2,032 hour year. |
FTI CONSULTING, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data)
(unaudited)
| Three Months Ended December 31, |
Year Ended December 31, | |||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||
| Net income (loss) |
$ | 30,794 | $ | 17,356 | $ | 92,121 | $ | 42,024 | ||||
| Earnings per common share-diluted |
$ | 0.60 | $ | 0.42 | $ | 2.00 | $ | 1.04 | ||||
| Add back: Special charges |
$ | — | $ | — | $ | — | $ | 22,972 | ||||
| Less: tax effect |
— | 10,039 | ||||||||||
| Adjusted net income before special charges (1) |
$ | 30,794 | $ | 17,356 | $ | 92,121 | $ | 54,957 | ||||
| Adjusted earnings per common share-diluted before special charges (1) |
$ | 0.60 | $ | 0.42 | $ | 2.00 | $ | 1.36 | ||||
| (1) |
We use earnings before interest, taxes, depreciation, amortization (“EBITDA”) and EBITDA excluding special charges (“adjusted EBITDA”) in evaluating the company’s financial performance. EBITDA is not a measurement under accounting principles generally accepted in the United States (“GAAP”). We define EBITDA as operating income before depreciation and amortization and amortization of intangible assets plus litigation settlements. This measure may not be similar to non-GAAP measures of other companies. We believe that the use of such measures, as a supplement to operating income, net income and other GAAP measures, is a useful indicator of a company’s financial performance and its ability to generate cash flow from operations that are available to fund capital expenditures and service debt. Further, these measures exclude certain items to provide better comparability from period to period. While depreciation and amortization are considered operating costs under GAAP, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. EBITDA is a common alternative performance measure used by investors, analysts and credit rating agencies to evaluate and compare the operating performance and value of companies within our industry. This non-GAAP measure should be considered in addition to, but not as a substitute for or superior to, the information contained in our statements of income. See also our reconciliation of Non-GAAP financial measures. |
RECONCILIATION OF OPERATING INCOME AND NET INCOME TO ADJUSTED EARNINGS BEFORE
INTEREST, TAXES, DEPRECIATION AND AMORTIZATION AND SPECIAL CHARGES
(unaudited)
| Forensic and Litigation Consulting |
Corporate Finance |
Economic Consulting |
Technology | Strategic Communications |
Corp HQ | Total | ||||||||||||||||||||
| Three Months Ended December 31, 2007 |
||||||||||||||||||||||||||
| Net income (loss) |
$ | 30,794 | ||||||||||||||||||||||||
| Interest income |
(4,182 | ) | ||||||||||||||||||||||||
| Interest expense and other |
10,393 | |||||||||||||||||||||||||
| Litigation settlement losses |
130 | |||||||||||||||||||||||||
| Income tax provision |
18,838 | |||||||||||||||||||||||||
| Operating income |
$ | 14,761 | $ | 21,876 | $ | 11,283 | $ | 17,590 | $ | 15,583 | $ | (25,120 | ) | 55,973 | ||||||||||||
| Depreciation |
619 | 484 | 493 | 1,967 | 654 | 1,390 | 5,607 | |||||||||||||||||||
| Amortization of other intangible assets |
— | — | — | — | — | 2,837 | 2,837 | |||||||||||||||||||
| Litigation settlement losses |
— | 10 | — | — | (90 | ) | (50 | ) | (130 | ) | ||||||||||||||||
| EBITDA (1) |
15,380 | 22,370 | 11,776 | 19,557 | 16,147 | (20,943 | ) | 64,287 | ||||||||||||||||||
| Special charges |
— | — | — | — | — | — | — | |||||||||||||||||||
| Adjusted EBITDA (1) |
$ | 15,380 | $ | 22,370 | $ | 11,776 | $ | 19,557 | $ | 16,147 | $ | (20,943 | ) | 64,287 | ||||||||||||
| Year Ended December 31, 2007 |
||||||||||||||||||||||||||
| Net income (loss) |
$ | 92,121 | ||||||||||||||||||||||||
| Interest income |
(8,173 | ) | ||||||||||||||||||||||||
| Interest expense and other |
44,391 | |||||||||||||||||||||||||
| Litigation settlement losses |
1,002 | |||||||||||||||||||||||||
| Income tax provision |
57,669 | |||||||||||||||||||||||||
| Operating income |
$ | 55,237 | $ | 70,574 | $ | 46,313 | $ | 56,298 | $ | 46,547 | $ | (87,959 | ) | 187,010 | ||||||||||||
| Depreciation |
2,230 | 1,581 | 1,772 | 6,623 | 2,376 | 4,769 | 19,351 | |||||||||||||||||||
| Amortization of other intangible assets |
— | — | — | — | — | 10,615 | 10,615 | |||||||||||||||||||
| Litigation settlement losses |
(175 | ) | (526 | ) | — | — | (97 | ) | (204 | ) | (1,002 | ) | ||||||||||||||
| EBITDA (1) |
57,292 | 71,629 | 48,085 | 62,921 | 48,826 | (72,779 | ) | 215,974 | ||||||||||||||||||
| Special charges |
— | — | — | — | — | — | — | |||||||||||||||||||
| Adjusted EBITDA (1) |
$ | 57,292 | $ | 71,629 | $ | 48,085 | $ | 62,921 | $ | 48,826 | $ | (72,779 | ) | $ | 215,974 | |||||||||||
| Three Months Ended December 31, 2006 |
||||||||||||||||||||||||||
| Net income (loss) |
$ | 17,356 | ||||||||||||||||||||||||
| Interest income |
(688 | ) | ||||||||||||||||||||||||
| Interest expense and other |
11,413 | |||||||||||||||||||||||||
| Litigation settlement losses |
606 | |||||||||||||||||||||||||
| Income tax provision |
16,128 | |||||||||||||||||||||||||
| Operating income |
$ | 15,163 | $ | 15,292 | $ | 10,631 | $ | 11,491 | $ | 13,726 | $ | (21,488 | ) | 44,815 | ||||||||||||
| Depreciation |
441 | 310 | 365 | 1,204 | 447 | 1,036 | 3,803 | |||||||||||||||||||
| Amortization of other intangible assets |
— | — | — | — | — | 2,865 | 2,865 | |||||||||||||||||||
| Litigation settlement losses |
— | (500 | ) | — | — | — | (106 | ) | (606 | ) | ||||||||||||||||
| EBITDA (1) |
15,604 | 15,102 | 10,996 | 12,695 | 14,173 | (17,693 | ) | 50,877 | ||||||||||||||||||
| Special charges |
— | — | — | — | — | — | — | |||||||||||||||||||
| Adjusted EBITDA (1) |
$ | 15,604 | $ | 15,102 | $ | 10,996 | $ | 12,695 | $ | 14,173 | $ | (17,693 | ) | $ | 50,877 | |||||||||||
| Year Ended December 31, 2006 |
||||||||||||||||||||||||||
| Net income (loss) |
$ | 42,024 | ||||||||||||||||||||||||
| Interest income |
(2,575 | ) | ||||||||||||||||||||||||
| Interest expense and other |
29,405 | |||||||||||||||||||||||||
| Litigation settlement losses |
187 | |||||||||||||||||||||||||
| Income tax provision |
37,141 | |||||||||||||||||||||||||
| Operating income |
$ | 43,566 | $ | 43,181 | $ | 31,381 | $ | 42,833 | $ | 13,726 | $ | (68,505 | ) | 106,182 | ||||||||||||
| Depreciation |
1,855 | 1,323 | 1,344 | 4,132 | 447 | 4,096 | 13,197 | |||||||||||||||||||
| Amortization of other intangible assets |
— | — | — | — | — | 11,175 | 11,175 | |||||||||||||||||||
| Litigation settlement losses |
(5 | ) | (730 | ) | — | — | — | 548 | (187 | ) | ||||||||||||||||
| EBITDA (1) |
45,416 | 43,774 | 32,725 | 46,965 | 14,173 | (52,686 | ) | 130,367 | ||||||||||||||||||
| Special charges |
9,890 | 7,740 | 4,148 | — | — | 1,194 | 22,972 | |||||||||||||||||||
| Adjusted EBITDA (1) |
$ | 55,306 | $ | 51,514 | $ | 36,873 | $ | 46,965 | $ | 14,173 | $ | (51,492 | ) | $ | 153,339 | |||||||||||
| (1) |
We use earnings before interest, taxes, depreciation, amortization (“EBITDA”) and EBITDA excluding special charges (“adjusted EBITDA”) in evaluating the company’s financial performance. EBITDA is not a measurement under accounting principles generally accepted in the United States (“GAAP”). We define EBITDA as operating income before depreciation and amortization and amortization of intangible assets plus litigation settlements. This measure may not be similar to non-GAAP measures of other companies. We believe that the use of such measures, as a supplement to operating income, net income and other GAAP measures, is a useful indicator of a company’s financial performance and its ability to generate cash flow from operations that are available to fund capital expenditures and service debt. Further, these measures exclude certain items to provide better comparability from period to period. While depreciation and amortization are considered operating costs under GAAP, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. EBITDA is a common alternative performance measure used by investors, analysts and credit rating agencies to evaluate and compare the operating performance and value of companies within our industry. This non-GAAP measure should be considered in addition to, but not as a substitute for or superior to, the information contained in our statements of income. See also our reconciliation of Non-GAAP financial measures. |
FTI CONSULTING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(in thousands)
| Year Ended December 31, | ||||||||
| 2007 | 2006 | |||||||
| (unaudited) | ||||||||
| Operating activities |
||||||||
| Net income |
$ | 92,121 | $ | 42,024 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation |
19,351 | 13,197 | ||||||
| Amortization of other intangible assets |
10,615 | 11,175 | ||||||
| Provision for doubtful accounts |
11,777 | 8,573 | ||||||
| Non-cash share-based compensation |
22,703 | 14,680 | ||||||
| Excess tax benefits from share-based compensation |
(17,986 | ) | (2,118 | ) | ||||
| Non-cash interest expense |
3,139 | 2,830 | ||||||
| Non-cash loss on subleased facilities |
— | 441 | ||||||
| Impairment of other intangible assets |
— | 933 | ||||||
| Other |
357 | 785 | ||||||
| Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||||
| Accounts receivable, billed and unbilled |
(85,565 | ) | (22,654 | ) | ||||
| Notes receivable |
(22,037 | ) | (33,351 | ) | ||||
| Prepaid expenses and other assets |
(1,771 | ) | (697 | ) | ||||
| Accounts payable, accrued expenses and other |
26,734 | 16,323 | ||||||
| Accrued special charges |
(8,703 | ) | 14,288 | |||||
| Income taxes |
(683 | ) | 8,493 | |||||
| Accrued compensation |
27,687 | (14,286 | ) | |||||
| Billings in excess of services provided |
214 | 3,330 | ||||||
| Net cash provided by operating activities |
77,953 | 63,966 | ||||||
| Investing activities |
||||||||
| Payments for acquisition of businesses, including contingent payments and acquisition costs, net of cash received |
(32,243 | ) | (267,332 | ) | ||||
| Purchases of property and equipment |
(36,422 | ) | (30,359 | ) | ||||
| Other |
482 | 306 | ||||||
| Net cash used in investing activities |
(68,183 | ) | (297,385 | ) | ||||
| Financing activities |
||||||||
| Borrowings under revolving line of credit |
25,000 | 40,000 | ||||||
| Payments of revolving line of credit |
(25,000 | ) | (40,000 | ) | ||||
| Payments of long-term debt |
(7,945 | ) | (25,476 | ) | ||||
| Issuance of debt securities |
— | 215,000 | ||||||
| Borrowings under long-term credit facilities |
— | 400 | ||||||
| Payments of debt financing fees and other |
— | (9,119 | ) | |||||
| Issuance of common stock, net of offering costs |
231,408 | — | ||||||
| Purchase and retirement of common stock |
(18,118 | ) | (23,376 | ) | ||||
| Issuance of common stock under equity compensation plans |
37,105 | 10,217 | ||||||
| Excess tax benefit from share based compensation |
17,986 | 2,118 | ||||||
| Net cash provided by financing activities |
260,436 | 169,764 | ||||||
| Effect of exchange rate changes and fair value adjustments on cash and cash equivalents |
(1,666 | ) | 2,195 | |||||
| Net decrease in cash and cash equivalents |
268,540 | (61,460 | ) | |||||
| Cash and cash equivalents, beginning of period |
91,923 | 153,383 | ||||||
| Cash and cash equivalents, end of period |
$ | 360,463 | $ | 91,923 | ||||
FTI CONSULTING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2006
(in thousands, except per share amounts)
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| (unaudited) | ||||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 360,463 | $ | 91,923 | ||||
| Accounts Receivable |
||||||||
| Billed |
190,900 | 135,220 | ||||||
| Unbilled |
84,743 | 56,228 | ||||||
| Allowance for doubtful accounts and unbilled services |
(30,467 | ) | (20,351 | ) | ||||
| 245,176 | 171,097 | |||||||
| Notes receivable |
11,687 | 7,277 | ||||||
| Prepaid expenses and other current assets |
33,657 | 16,259 | ||||||
| Deferred income taxes |
10,544 | 8,393 | ||||||
| Total current assets |
661,527 | 294,949 | ||||||
| Property and equipment, net |
67,843 | 51,326 | ||||||
| Goodwill |
940,878 | 885,711 | ||||||
| Other intangible assets, net |
84,673 | 77,711 | ||||||
| Notes receivable, net of current portion |
52,374 | 35,303 | ||||||
| Other assets |
51,329 | 46,156 | ||||||
| Total assets |
$ | 1,858,624 | $ | 1,391,156 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities |
||||||||
| Accounts payable, accrued expenses and other |
$ | 103,410 | $ | 77,914 | ||||
| Accrued compensation |
102,054 | 76,765 | ||||||
| Current portion of long-term debt |
157,772 | 6,917 | ||||||
| Billings in excess of services provided |
17,826 | 16,863 | ||||||
| Total current liabilities |
381,062 | 178,459 | ||||||
| Long-term debt, net of current portion |
415,653 | 563,441 | ||||||
| Deferred income taxes |
49,113 | 57,782 | ||||||
| Other liabilities |
40,546 | 26,374 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock, $0.01 par value; 5,000 shares authorized, none outstanding |
— | — | ||||||
| Common stock, $0.01 par value; 75,000 shares authorized; 48,979 shares issued and outstanding in 2007 and 41,890 shares issued and outstanding in 2006 |
490 | 419 | ||||||
| Additional paid-in capital |
601,637 | 294,350 | ||||||
| Retained earnings |
361,058 | 268,937 | ||||||
| Accumulated other comprehensive income |
9,065 | 1,394 | ||||||
| Total stockholders’ equity |
972,250 | 565,100 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,858,624 | $ | 1,391,156 | ||||