UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

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 001-14875

 

 

FTI CONSULTING, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Maryland		52-1261113
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1101 K Street NW, Washington, D.C.		20005
(Address of Principal Executive Offices)		(Zip Code)

(202) 312-9100

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during 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.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer    x				Accelerated filer		¨
Non-accelerated filer    ¨  (Do not check if a smaller reporting company)				Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding at October 24, 2014
Common stock, par value $0.01 per share		41,023,522

 

 

 

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FTI CONSULTING, INC. AND SUBSIDIARIES

INDEX

 

				Page
PART I—FINANCIAL INFORMATION
Item 1.		Financial Statements
		Condensed Consolidated Balance Sheets—September 30, 2014 and December 31, 2013			3
		Condensed Consolidated Statements of Comprehensive Income (Loss)—Three and Nine Months Ended September 30, 2014 and 2013			4
		Condensed Consolidated Statement of Stockholders’ Equity—Nine Months Ended September 30, 2014			5
		Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2014 and 2013			6
		Notes to Condensed Consolidated Financial Statements			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			48
Item 4.		Controls and Procedures			48
PART II—OTHER INFORMATION
Item 1.		Legal Proceedings			49
Item 1A.		Risk Factors			49
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 3.		Defaults Upon Senior Securities			49
Item 4.		Mine Safety Disclosures			49
Item 5.		Other Information			49
Item 6.		Exhibits			50
SIGNATURE					52

 

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PART I—FINANCIAL INFORMATION

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

 

Item 1.

Financial Statements

 

		September 30, 2014				December 31, 2013
		(Unaudited)
Assets
Current assets
Cash and cash equivalents		$	178,778			$	205,833
Accounts receivable:
Billed receivables			401,696				352,411
Unbilled receivables			305,572				233,307
Allowance for doubtful accounts and unbilled services			(141,611	)			(109,273	)
Accounts receivable, net			565,657				476,445
Current portion of notes receivable			28,757				33,093
Prepaid expenses and other current assets			54,045				61,800
Current portion of deferred tax assets			29,731				26,690
Total current assets			856,968				803,861
Property and equipment, net of accumulated depreciation			83,520				79,007
Goodwill			1,213,809				1,218,733
Other intangible assets, net of amortization			80,913				97,148
Notes receivable, net of current portion			126,561				108,298
Other assets			53,120				57,900
Total assets		$	2,414,891			$	2,364,947
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable, accrued expenses and other		$	99,857			$	126,886
Accrued compensation			200,513				222,738
Current portion of long-term debt			6,000				6,014
Billings in excess of services provided			39,492				28,692
Total current liabilities			345,862				384,330
Long-term debt, net of current portion			705,000				711,000
Deferred income taxes			152,583				137,697
Other liabilities			98,147				89,661
Total liabilities			1,301,592				1,322,688
Commitments and contingent liabilities (notes 8, 10 and 11)
Stockholders’ equity
Preferred stock, $0.01 par value; shares authorized—5,000; none outstanding			—				—
Common stock, $0.01 par value; shares authorized—75,000; shares issued and outstanding—41,027 (2014) and 40,526 (2013)			410				405
Additional paid-in capital			385,591				362,322
Retained earnings			788,507				730,621
Accumulated other comprehensive loss			(61,209	)			(51,089	)
Total stockholders’ equity			1,113,299				1,042,259
Total liabilities and stockholders’ equity		$	2,414,891			$	2,364,947

See accompanying notes to the condensed consolidated financial statements

 

3

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FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands, except per share data)

Unaudited

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Revenues		$	451,178			$	414,643			$	1,331,054			$	1,236,434
Operating expenses
Direct cost of revenues			293,244				255,152				863,068				773,160
Selling, general and administrative expense			102,461				94,513				317,880				287,485
Special charges			5,347				10,419				14,711				10,846
Acquisition-related contingent consideration			257				630				(1,591	)			(6,091	)
Amortization of other intangible assets			3,398				5,776				11,466				17,293
Goodwill impairment charge			—				83,752				—				83,752
			404,707				450,242				1,205,534				1,166,445
Operating income (loss)			46,471				(35,599	)			125,520				69,989
Other income (expense)
Interest income and other			1,014				1,152				3,465				1,702
Interest expense			(12,634	)			(12,814	)			(38,197	)			(38,600	)
			(11,620	)			(11,662	)			(34,732	)			(36,898	)
Income (loss) before income tax provision			34,851				(47,261	)			90,788				33,091
Income tax provision			12,329				3,360				32,902				36,546
Net income (loss)		$	22,522			$	(50,621	)		$	57,886			$	(3,455	)
Earnings (loss) per common share—basic		$	0.57			$	(1.29	)		$	1.46			$	(0.09	)
Earnings (loss) per common share—diluted		$	0.55			$	(1.29	)		$	1.43			$	(0.09	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax $0		$	(22,542	)		$	17,115			$	(10,120	)		$	(10,108	)
Total other comprehensive income (loss), net of tax			(22,542	)			17,115				(10,120	)			(10,108	)
Comprehensive income (loss)		$	(20	)		$	(33,506	)		$	47,766			$	(13,563	)

See accompanying notes to the condensed consolidated financial statements

 

4

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FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands)

Unaudited

 

		Common Stock								Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive (Loss)				Total
		Shares				Amount
Balance December 31, 2013			40,526			$	405			$	362,322			$	730,621			$	(51,089	)		$	1,042,259
Net income			—				—				—				57,886				—				57,886
Other comprehensive income (loss):
Cumulative translation adjustment			—				—				—				—				(10,120	)			(10,120	)
Issuance of common stock in connection with:
Exercise of options, net of income tax benefit from share-based awards of $323			232				2				5,165				—				—				5,167
Restricted share grants, less net settled shares of 159			269				3				(5,451	)			—				—				(5,448	)
Stock units issued under incentive compensation plan			—				—				1,674				—				—				1,674
Non-employee vesting of stock options			—				—				2,951				—				—				2,951
Share-based compensation			—				—				18,930				—				—				18,930
Balance September 30, 2014			41,027			$	410			$	385,591			$	788,507			$	(61,209	)		$	1,113,299

 

 

See accompanying notes to the condensed consolidated financial statements

 

5

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FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

Unaudited

 

		Nine Months Ended September 30,
		2014				2013
Operating activities
Net income (loss)		$	57,886			$	(3,455	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			26,318				24,218
Amortization of other intangible assets			11,466				17,293
Goodwill impairment charge			—				83,752
Acquisition-related contingent consideration			(1,591	)			(6,091	)
Provision for doubtful accounts			11,896				10,404
Non-cash share-based compensation			18,930				22,544
Non-cash interest expense			2,020				2,024
Other			(358	)			(286	)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, billed and unbilled			(107,847	)			(72,266	)
Notes receivable			(18,266	)			(9,644	)
Prepaid expenses and other assets			7,099				(2,313	)
Accounts payable, accrued expenses and other			10,538				16,822
Income taxes			8,315				12,989
Accrued compensation			(16,958	)			13,198
Billings in excess of services provided			11,031				(5,383	)
Net cash provided by operating activities			20,479				103,806
Investing activities
Payments for acquisition of businesses, net of cash received			(15,684	)			(40,766	)
Purchases of property and equipment			(31,797	)			(22,994	)
Other			69				24
Net cash used in investing activities			(47,412	)			(63,736	)
Financing activities
Payments of long-term debt			(6,014	)			(6,000	)
Purchase and retirement of common stock			(4,367	)			(48,769	)
Net issuance of common stock under equity compensation plans			(29	)			6,208
Deposits			12,956				—
Other			(1,036	)			(800	)
Net cash provided by (used in) financing activities			1,510				(49,361	)
Effect of exchange rate changes on cash and cash equivalents			(1,632	)			432
Net decrease in cash and cash equivalents			(27,055	)			(8,859	)
Cash and cash equivalents, beginning of period			205,833				156,785
Cash and cash equivalents, end of period		$	178,778			$	147,926
Supplemental cash flow disclosures
Cash paid for interest		$	25,323			$	25,129
Cash paid for income taxes, net of refunds			24,580				23,557
Non-cash investing and financing activities:
Issuance of stock units under incentive compensation plans			1,674				3,005
Issuance of common stock to acquire businesses			—				2,883

See accompanying notes to the condensed consolidated financial statements

 

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FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(dollar and share amounts in tables expressed in thousands, except per share data)

Unaudited

1. Basis of Presentation and Significant Accounting Policies

The unaudited condensed consolidated financial statements of FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our” or “FTI Consulting”) presented herein, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Some of the information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the interim financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All adjustments made were normal recurring accruals. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes contained in our Annual Report on Form 10-K for the year ended December 31, 2013.

2. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per common share adjust basic earnings per common share for the effects of potentially dilutive common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our equity compensation plans, including stock options and restricted stock, each using the treasury stock method. Due to a net loss applicable to common stockholders, we excluded 1,150,404 potentially dilutive securities for the three months ended September 30, 2013 and 1,172,602 potentially dilutive securities for the nine months ended September 30, 2013, as their effect would be anti-dilutive.

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Numerator—basic and diluted
Net income (loss)		$	22,522			$	(50,621	)		$	57,886			$	(3,455	)
Denominator
Weighted average number of common shares outstanding—basic			39,789				39,094				39,637				39,212
Effect of dilutive stock options			414				—				353				—
Effect of dilutive restricted shares			616				—				618				—
Weighted average number of common shares outstanding—diluted			40,819				39,094				40,608				39,212
Earnings (loss) per common share—basic		$	0.57			$	(1.29	)		$	1.46			$	(0.09	)
Earnings (loss) per common share—diluted		$	0.55			$	(1.29	)		$	1.43			$	(0.09	)
Antidilutive stock options and restricted shares			2,741				4,586				3,185				4,677

 

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3. New Accounting Standards Not Yet Adopted

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The new guidance is effective for annual periods ending after December 15, 2016 and interim periods thereafter, with early adoption permitted. The adoption of this ASU is not expected to have an impact on the Company’s consolidated financial position or results of operations.

In May 2014, the Financial Accounting Standards Board issued ASU 2014-09, Revenue from Contracts with Customers, or ASU 2014-09. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for interim and annual periods beginning after December 15, 2016 and early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU. The Company is currently evaluating which transition approach to use and the impact of the adoption of this accounting standard update on its condensed consolidated financial statements.

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08. ASU 2014-08 amends the criteria for reporting a discontinued operation. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s operations and financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. This guidance is effective for interim and annual periods beginning after December 15, 2014, with early adoption permitted. ASU 2014-08 would impact the Company’s consolidated results of operations and financial condition only in the instance of an event or transaction described above.

4. Special Charges

During the three months ended September 30, 2014, we recorded special charges of $5.3 million. The special charges consisted of $4.5 million contractual post-employment payments and equity award expense acceleration, net of forfeitures of unvested equity and liability awards and annual bonus payments, related to the departures of the Company’s former Chief Financial Officer, former Executive Vice President and Chairman of North America and former Chairman of Europe the Middle East and Africa (“EMEA”) region, and $0.8 million related to updated forecasts of expected sublease income for corporate and segment offices previously vacated.

During the nine months ended September 30, 2014, we recorded special charges of $14.7 million. The special charges consisted of:

 

•

$4.5 million contractual post-employment payments and equity award expense acceleration, net of forfeitures of unvested equity and liability awards and annual bonus payments, related to the departures of the Company’s former Chief Financial Officer, former Executive Vice President and Chairman of North America and former Chairman of the EMEA region.

 

•

$7.9 million related to the termination of the Company’s corporate airplane lease;

 

•

$2.3 million related to the closure of the Company’s former West Palm Beach executive office and related lease termination, and updated forecasts of expected sublease income for corporate and segment offices previously vacated. $0.7 million of these charges were non-cash.

 

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During the three and nine months ended September 30, 2013, we recorded special charges of $10.4 million and $10.8 million, respectively, of which $3.1 million was non-cash. The charges primarily reflect actions we took to realign our workforce to address current business demands impacting our Corporate Finance/Restructuring and Forensic and Litigation Consulting segments and to reduce certain corporate overhead within our EMEA region. The special charges consisted of $10.2 million of salary continuance and other contractual employee related costs associated with the reduction in workforce of 45 employees and $0.6 million of costs to consolidate leased office space within one location and to adjust prior year special charges for changes to sublease terms and employee termination costs.

The following table details the special charges by segment for the three and nine months ended September 30, 2014 and 2013.

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Corporate Finance/Restructuring		$	84			$	6,331			$	84			$	6,399
Forensic and Litigation Consulting			308				1,938				308				2,111
Economic Consulting			12				15				12				11
Technology			19				2				19				16
Strategic Communications			3				2				3				66
			426				8,288				426				8,603
Unallocated Corporate			4,921				2,131				14,285				2,243
Total		$	5,347			$	10,419			$	14,711			$	10,846

The total cash outflow associated with the special charges recorded in 2014, 2013 and 2012 is expected to be $63.5 million, of which $44.2 million has been paid as of September 30, 2014. Approximately $2.1 million is expected to be paid during the remainder of 2014, $5.1 million is expected to be paid in 2015, $3.2 million is expected to be paid in 2016, $3.1 million is expected to be paid in 2017, and the remaining balance of $5.8 million will be paid from 2018 to 2025. A liability for the current and noncurrent portions of the amounts to be paid is included in “Accounts payable, accrued expenses and other” and “Other liabilities,” respectively, on the Condensed Consolidated Balance Sheets.

Activity related to the liability for these costs for the nine months ended September 30, 2014 is as follows:

 

		Employee Termination Costs				Lease Costs				Total
Balance at December 31, 2013		$	19,965			$	6,096			$	26,061
Additions			5,510				9,580				15,090
Payments			(11,373	)			(10,421	)			(21,794	)
Foreign currency translation adjustment and other			(74	)			—				(74	)
Balance at September 30, 2014		$	14,028			$	5,255			$	19,283

5. Allowance for Doubtful Accounts and Unbilled Services

We record adjustments to the allowance for doubtful accounts and unbilled services as a reduction in revenue when there are changes in estimates of fee reductions that may be imposed by bankruptcy courts and other regulatory institutions, for both billed and unbilled receivables. The allowance for doubtful accounts and unbilled services is also adjusted after the related work has been billed to the client and we discover that collectability is not reasonably assured. These adjustments are recorded to “Selling, general and administrative expense” on the Condensed Consolidated Statements of Comprehensive Income (Loss) and totaled $3.2 million and $11.9 million for the three and nine months ended September 30, 2014, respectively, and $2.9 million and $10.4 million for the three and nine months ended September 30, 2013, respectively.

 

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6. Research and Development Costs

Research and development costs related to software development totaled $4.7 million and $13.8 million for the three and nine months ended September 30, 2014, respectively, and $4.2 million and $11.7 million for the three and nine months ended September 30, 2013, respectively. Research and development costs are included in “Selling, general and administrative expense” on the Condensed Consolidated Statements of Comprehensive Income (Loss).

7. Financial Instruments

Fair Value of Financial Instruments

We consider the recorded value of certain financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at September 30, 2014 and December 31, 2013, based on the short-term nature of the assets and liabilities. The fair value of our long-term debt at September 30, 2014 was $735.0 million compared to a carrying value of $711.0 million. At December 31, 2013, the fair value of our long-term debt was $752.8 million compared to a carrying value of $717.0 million. We determine the fair value of our long-term debt primarily based on quoted market prices for our 6³/ ₄% Senior Notes Due 2020 (“2020 Notes”) and 6.0% Senior Notes Due 2022 (“2022 Notes”). The fair value of our long-term debt is classified within Level 2 of the fair value hierarchy, because it is traded in less active markets.

For business combinations consummated on or after January 1, 2009, we estimate the fair value of acquisition-related contingent consideration based on the present value of the consideration expected to be paid during the remainder of the earnout period, based on management’s assessment of the acquired operations’ forecasted earnings. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Fair value measurements characterized within Level 3 of the fair value hierarchy are measured based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value.

The significant unobservable inputs used in the fair value measurements of our acquisition-related contingent consideration include our measures of the future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is accompanied by a directionally opposite change in the fair value measurement and a change in the assumptions used for the future cash flows is accompanied by a directionally similar change in the fair value measurement. The fair value of the contingent consideration is reassessed on a quarterly basis by the Company using additional information as it becomes available.

Any change in the fair value of an acquisition’s contingent consideration liability results in a remeasurement gain or loss that is recorded as income or expense, respectively, and is included within “Acquisition-related contingent consideration” in the Condensed Consolidated Statements of Comprehensive Income (Loss). During the nine months ended September 30, 2014, management determined that the fair value of the contingent consideration liability for certain of its acquisitions had declined and recorded a remeasurement gain of $2.4 million compared to a remeasurement gain of $8.2 million for the nine months ended September 30, 2013. There was no remeasurement gain or loss for the three months ended September 30, 2014, or three months ended September 30, 2013.

Accretion expense for acquisition-related contingent consideration totaled $0.3 million and $0.8 million for the three and nine months ended September 30, 2014, respectively, and $0.6 million and $2.1 million for the three and nine months ended September 30, 2013, respectively.

 

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The following table represents the changes in the acquisition-related contingent consideration liability during the three and nine months ended September 30, 2014 and 2013:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2014				2013				2014				2013
Beginning balance		$	6,601			$	13,285			$	13,329			$	16,426
Acquisition (1)			—				(206	)			(4,495	)			4,323
Accretion of acquisition-related contingent consideration			257				630				792				2,125
Remeasurement of acquisition-related contingent consideration			—				—				(2,383	)			(8,216	)
Payments			(200	)			(166	)			(578	)			(401	)
Unrealized gains (losses) related to currency translation in other comprehensive income			—				73				(7	)			(641	)
Ending balance		$	6,658			$	13,616			$	6,658			$	13,616

 

(1)	Includes adjustments during the purchase price allocation period.

8. Acquisitions

Certain purchase price allocations were preliminary at December 31, 2013. For these acquisitions, we recorded $4.7 million of acquisition related contingent consideration, $9.5 million of identifiable intangible assets, $1.2 million of deferred taxes and $10.1 million of goodwill in the year ended December 31, 2013. During the first and second quarter of 2014 we finalized the purchase price allocations and recorded adjustments to the preliminary purchase price for certain acquisitions completed during the fourth quarter of 2013. These adjustments were immaterial; therefore no retrospective adjustments were made to the fair value of the assets acquired and liabilities assumed in the Condensed Consolidated Balance Sheet as of December 31, 2013.

9. Goodwill and Other Intangible Assets

The changes in the carrying amounts of goodwill by operating segment for the nine months ended September 30, 2014, are as follows:

 

		Corporate Finance/ Restructuring				Forensic and Litigation Consulting				Economic Consulting				Technology				Strategic Communications				Total
Balances at December 31, 2013:
Goodwill		$	449,710			$	241,651			$	263,474			$	118,073			$	339,964			$	1,412,872
Accumulated goodwill impairment			—				—				—				—				(194,139	)			(194,139	)
Goodwill, net at December 31, 2013			449,710				241,651				263,474				118,073				145,825				1,218,733
Acquisitions (1)			—				(224	)			—				—				—				(224	)
Foreign currency translation adjustment and other			(1,280	)			(1,306	)			(326	)			(28	)			(1,760	)			(4,700	)
Goodwill			448,430				240,121				263,148				118,045				338,204				1,407,948
Accumulated goodwill impairment			—				—				—				—				(194,139	)			(194,139	)
Goodwill, net at September 30, 2014		$	448,430			$	240,121			$	263,148			$	118,045			$	144,065			$	1,213,809

 

(1)	Includes adjustments during the purchase price measurement period.

 

11

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Other intangible assets with finite lives are amortized over their estimated useful lives. For intangible assets with finite lives, we recorded amortization expense of $3.4 million and $11.5 million for the three and nine months ended September 30, 2014, respectively, and $5.8 million and $17.3 million for the three and nine months ended September 30, 2013, respectively. Based solely on the amortizable intangible assets recorded as of September 30, 2014, we estimate amortization expense to be $3.2 million during the remainder of 2014, $11.9 million in 2015, $10.7 million in 2016, $10.0 million in 2017, $8.4 million in 2018, $7.7 million in 2019, and $23.4 million in years after 2019. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, finalization of asset valuations for newly acquired assets, changes in useful lives, changes in value due to foreign currency translation, and other factors.

10. Debt

The components of debt obligations are presented in the table below:

 

		September 30, 2014				December 31, 2013
6 3/4% senior notes due 2020		$	400,000			$	400,000
6.0% senior notes due 2022			300,000				300,000
Notes payable to former shareholders of acquired businesses			11,000				17,000
Other			—				14
Total debt			711,000				717,014
Less current portion			6,000				6,014
Long-term debt, net of current portion			705,000				711,000

There were no borrowings outstanding under the Company’s senior secured bank credit facility as of September 30, 2014.

11. Commitments and Contingencies

Contingencies

We are subject to legal actions arising in the ordinary course of business. In management’s opinion, we believe we have adequate legal defenses and/or insurance coverage with respect to the resolutions of such actions. We do not believe any potential settlement or judgment would materially affect our financial position or results of operations.

12. Share-Based Compensation

Share-based Awards and Share-based Compensation Expense

Our officers, employees, non-employee directors and certain individual service providers are eligible to participate in the Company’s equity compensation plans, subject to the discretion of the administrator of the plans. During the three months ended September 30, 2014, we granted 223,944 stock options and 49,124 restricted stock awards. During the nine months ended September 30, 2014, we granted 594,943 stock options, 422,269 restricted stock awards and 84,554 restricted stock units. These awards are recorded as equity on the Condensed Consolidated Balance Sheet. During the three months ended September 30, 2014, 88,705 performance stock awards and 34,693 restricted stock awards were forfeited prior to the completion of the vesting requirements.

On April 1, 2014, certain executive officers of the Company were granted an aggregate of 234,536 cash-settled awards under the Company’s 2014 executive officer long-term incentive program. These awards include 97,752 cash-settled stock appreciation rights (the “Executive SARs”) and 36,851 cash-settled units, which vest

 

12

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pro rata on the first through third anniversaries of the date of grant, and 99,933 cash-settled performance units. The Executive SARs expire ten years from the date of grant. The cash-settled performance units are, subject to performance conditions based on the adjusted total shareholder return of the Company as compared to the adjusted total shareholder return of the adjusted S&P 500 for the three-year period ending March 31, 2017. The Executive SAR represents the right to receive cash upon exercise equal to the product of (i) the aggregate number of shares with respect to which the Executive SAR is exercised and (ii) the excess of (A) the closing price per share as reported on the New York Stock Exchange (the “NYSE”) of a share of our common stock as of the date of exercise over (B) the exercise price of such Executive SAR. The cash-settled units and performance units will have a value equivalent to the closing price per share of our common stock as reported on the NYSE for the applicable vesting or performance measurement date, as the case may be. As these awards will be settled in cash, they have been recorded as liabilities and are included in “Other Liabilities” on the Company’s Condensed Consolidated Balance Sheet at fair value. Subsequent changes in the fair value of these awards will be included in the related share-based compensation expense recorded over the vesting period. During the three months ended September 30, 2014, 34,842 Executive SARs, 13,134 cash-settled units and 35,620 cash-settled performance units were forfeited prior to the completion of the vesting requirements.

Total share-based compensation expense, net of forfeitures, for the three and nine months ended September 30, 2014 and 2013 is detailed in the following table:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
Comprehensive Income (Loss) Statement Classification		2014				2013				2014				2013
Direct cost of revenues		$	2,654			$	2,532			$	12,024			$	13,231
Selling, general and administrative expense			2,146				2,680				8,173				9,180
Special charges (1)			(994	)			209				(994	)			209
Total share-based compensation expense		$	3,806			$	5,421			$	19,203			$	22,620

 

(1)	Special charges of $0.2 million equity award expense acceleration are net of forfeitures of $1.2 million for the three and nine months ended September 30, 2014.

13. Income Taxes

The Company has estimated its annual effective tax rate for the full fiscal year 2014 and applied that rate to its income before income taxes in determining its provision for income taxes for the three and nine months ended September 30, 2014. The Company also records discrete items in each respective period as appropriate.

The effective tax rate for the three months ended September 30, 2014 is 35.4%. For the three months ended September 30, 2014, there were no discrete items recorded. The effective tax rate for the three months ended September 30, 2013 was not meaningful due to the impact of the non-deductible goodwill impairment charge of $83.8 million. The effective tax rate for the three months ended September 30, 2013, excluding the impact of the goodwill impairment charge, and a discrete item related to the settlement of a foreign audit would have been 38.0%.

The effective tax rate for the nine months ended September 30, 2014 is 36.2%. For the nine months ended September 30, 2014, the effective tax rate was not materially impacted by discrete items recorded. The effective tax rate for the nine months ended September 30, 2013 was not meaningful due to the impact of the non-deductible goodwill impairment charge of $83.8 million. For the nine months ended September 30, 2013, we recorded a deferred tax valuation reserve related to foreign tax credits, primarily due to lower forecasted foreign earnings, resulting in a discrete increase to the income tax provision in the amount of $6.9 million. We also recognized the impact of a discrete benefit related to the favorable resolution of an income tax contingency in the amount of $2.2 million. Excluding the impact of this discrete item and the non-deductible goodwill impairment charge, the effective tax rate for the nine months ended September 30, 2013 would have been 36.4%.

 

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During the second quarter of 2013, we determined that certain deferred tax assets associated with U.S. future foreign tax credits no longer met the “more-likely-than-not” test regarding the realization of those assets primarily due to lower forecasted foreign earnings. Accordingly, the Company increased the valuation allowance against its U.S. future foreign tax credit assets, resulting in a discrete adjustment to the income tax provision in the amount of $6.9 million for the nine months ended September 30, 2013. As of September 30, 2014 and December 31, 2013, valuation allowances of $9.8 million and $10.2 million, respectively, were recorded against the Company’s net deferred tax assets. During the nine months ended September 30, 2014, the company decreased its valuation allowance on its foreign deferred tax assets by $0.4 million associated with future foreign tax credits and foreign net operating loss carry forwards. As of September 30, 2013, valuation allowances of $9.5 million were recorded.

As of September 30, 2014, all of the Company’s undistributed non-U.S. subsidiary earnings are considered indefinitely invested. Accordingly, as of September 30, 2014, we have not provided for deferred taxes on $22.5 million of the undistributed non-U.S. subsidiary earnings. A deferred tax liability will be recognized if and when the Company is no longer able to demonstrate that it plans to indefinitely reinvest undistributed earnings. If these earnings were repatriated, the Company would be subject to U.S. income taxes. The amount of the unrecognized deferred U.S. income tax liability associated with the indefinitely reinvested undistributed earnings is estimated to be approximately $7.9 million as of September 30, 2014.

As of September 30, 2014 and December 31, 2013, the liability for uncertain tax positions was $2.2 million and $2.9 million, respectively. During the first nine months of 2014, the Company effectively settled certain prior year tax matters. As a result, the Company reversed approximately $1.2 million of its liability for uncertain tax positions.

14. Stockholder’s Equity

On June 6, 2012, our Board of Directors authorized a two-year stock repurchase program of up to $250.0 million (the “2012 Repurchase Program”). During the year ended December 31, 2013, we repurchased and retired 1,956,900 shares of our common stock for an average price per share of $36.35, at a cost of $71.1 million, of which $4.4 million was accrued and included in the Condensed Consolidated Balance Sheet, and $66.7 million was paid at December 31, 2013. In January 2014, we paid the balance due of $4.4 million on our 2013 share repurchases. No shares were repurchased during the nine months ended September 30, 2014. The 2012 Repurchase Program expired on June 5, 2014.

15. Segment Reporting

We manage our business in five reportable segments: Corporate Finance/Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology and Strategic Communications.

Our Corporate Finance/Restructuring segment focuses on strategic, operational, financial and capital needs of businesses around the world and provides consulting and advisory services on a wide range of areas, such as restructuring (including bankruptcy), interim management, financings, mergers and acquisitions, post-acquisition integration, valuations, tax issues and performance improvement.

Our Forensic and Litigation Consulting segment provides law firms, companies, government clients and other interested parties with dispute advisory, investigations, forensic accounting, business intelligence assessments, data analytics, risk mitigation services as well as interim management and performance improvement services for our health solutions practice clients.

Our Economic Consulting segment provides law firms, companies, government entities and other interested parties with analysis of complex economic issues for use in legal, regulatory and international arbitration proceedings, strategic decision making and public policy debates in the U.S. and around the world.

 

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Our Technology segment provides electronic discovery and information management consulting, software and services to its clients. It provides products, services and consulting to companies, law firms, courts and government agencies worldwide. Its comprehensive suite of software and services help clients locate, review and produce electronically stored information, including e-mail, computer files, voicemail, instant messaging, and financial and transactional data.

Our Strategic Communications segment provides advice and consulting services relating to financial and corporate communications and investor relations, reputation management and brand communications, public affairs, business consulting and digital design and marketing.

We evaluate the performance of our operating segments based on Adjusted Segment EBITDA. Beginning with the quarter ended March 31, 2014, the definition of Adjusted Segment EBITDA has been updated to exclude the impact of changes in the fair value of acquisition-related contingent consideration liabilities. Prior period amounts have been reclassified to conform to the current period’s presentation.

We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. We define Total Adjusted Segment EBITDA as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. Although Adjusted Segment EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, we use Adjusted Segment EBITDA to internally evaluate the financial performance of our segments because we believe it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash.

The table below presents revenues and Adjusted Segment EBITDA for our reportable segments for the three and nine months ended September 30, 2014 and 2013:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Revenues
Corporate Finance/Restructuring		$	100,041			$	93,981			$	298,043			$	289,775
Forensic and Litigation Consulting			121,732				113,068				362,242				318,912
Economic Consulting			120,494				113,069				344,572				339,277
Technology			62,359				51,201				183,142				149,101
Strategic Communications			46,552				43,324				143,055				139,369
Revenues		$	451,178			$	414,643			$	1,331,054			$	1,236,434
Adjusted Segment EBITDA
Corporate Finance/Restructuring		$	15,534			$	19,402			$	45,618			$	56,335
Forensic and Litigation Consulting			22,260				25,362				71,025				56,925
Economic Consulting			18,426				23,225				49,499				70,222
Technology			17,835				15,381				50,287				45,985
Strategic Communications			6,605				4,036				15,168				12,809
Total Adjusted Segment EBITDA		$	80,660			$	87,406			$	231,597			$	242,276

 

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The table below reconciles Total Adjusted Segment EBITDA to income before income tax provision:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Total Adjusted Segment EBITDA		$	80,660			$	87,406			$	231,597			$	242,276
Segment depreciation expense			(7,293	)			(7,112	)			(22,353	)			(20,932	)
Amortization of other intangible assets			(3,398	)			(5,776	)			(11,466	)			(17,293	)
Special charges			(5,347	)			(10,419	)			(14,711	)			(10,846	)
Goodwill impairment charge			—				(83,752	)			—				(83,752	)
Unallocated corporate expenses, excluding special charges			(18,151	)			(15,946	)			(59,930	)			(47,680	)
Interest income and other			1,014				1,152				3,465				1,702
Interest expense			(12,634	)			(12,814	)			(38,197	)			(38,600	)
Remeasurement of acquisition-related contingent consideration			—				—				2,383				8,216
Income (loss) before income tax provision		$	34,851			$	(47,261	)		$	90,788			$	33,091

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information

Substantially all of our domestic subsidiaries are guarantors of borrowings under our senior bank credit facility and 2020 Notes and 2022 Notes (collectively, the “Senior Notes”). The guarantees are full and unconditional and joint and several. All of the guarantors are 100%-owned, direct or indirect, subsidiaries. The following financial information presents condensed consolidating balance sheets, statements of comprehensive income and statements of cash flows for FTI Consulting, all the guarantor subsidiaries, all the non-guarantor subsidiaries and the eliminations necessary to arrive at the consolidated information for FTI Consulting and its subsidiaries. For purposes of this presentation, we have accounted for our investments in our subsidiaries using the equity method of accounting. The principal eliminating entries eliminate investment in subsidiary and intercompany balances and transactions.

 

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Condensed Consolidating Balance Sheet Information as of September 30, 2014

 

		FTI Consulting, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Assets
Cash and cash equivalents		$	96,462			$	163			$	82,153			$	—			$	178,778
Accounts receivable, net			175,246				196,548				193,863				—				565,657
Intercompany receivables			—				826,971				15,681				(842,652	)			—
Other current assets			66,311				22,288				23,934				—				112,533
Total current assets			338,019				1,045,970				315,631				(842,652	)			856,968
Property and equipment, net			33,629				16,320				33,571				—				83,520
Goodwill			559,318				408,903				245,588				—				1,213,809
Other intangible assets, net			30,845				17,523				58,013				(25,468	)			80,913
Investments in subsidiaries			1,875,192				503,249				—				(2,378,441	)			—
Other assets			63,043				78,844				37,794				—				179,681
Total assets		$	2,900,046			$	2,070,809			$	690,597			$	(3,246,561	)		$	2,414,891
Liabilities
Intercompany payables		$	736,122			$	56,574			$	49,956			$	(842,652	)		$	—
Other current liabilities			144,005				102,379				99,478				—				345,862
Total current liabilities			880,127				158,953				149,434				(842,652	)			345,862
Long-term debt, net			700,000				5,000				—				—				705,000
Other liabilities			206,620				14,161				29,949				—				250,730
Total liabilities			1,786,747				178,114				179,383				(842,652	)			1,301,592
Stockholders’ equity			1,113,299				1,892,695				511,214				(2,403,909	)			1,113,299
Total liabilities and stockholders’ equity		$	2,900,046			$	2,070,809			$	690,597			$	(3,246,561	)		$	2,414,891

Condensed Consolidating Balance Sheet Information as of December 31, 2013

 

		FTI Consulting, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Assets
Cash and cash equivalents		$	111,943			$	494			$	93,396			$	—			$	205,833
Accounts receivable, net			154,357				162,505				159,583				—				476,445
Intercompany receivables			—				820,158				18,881				(839,039	)			—
Other current assets			68,292				20,932				32,359				—				121,583
Total current assets			334,592				1,004,089				304,219				(839,039	)			803,861
Property and equipment, net			31,304				19,047				28,656				—				79,007
Goodwill			559,820				408,903				250,010				—				1,218,733
Other intangible assets, net			33,746				19,534				72,221				(28,353	)			97,148
Investments in subsidiaries			1,772,130				498,001				—				(2,270,131	)			—
Other assets			75,561				56,949				33,688				—				166,198
Total assets		$	2,807,153			$	2,006,523			$	688,794			$	(3,137,523	)		$	2,364,947
Liabilities
Intercompany payables		$	709,628			$	74,813			$	54,598			$	(839,039	)		$	—
Other current liabilities			154,049				114,883				115,398				—				384,330
Total current liabilities			863,677				189,696				169,996				(839,039	)			384,330
Long-term debt, net			700,000				11,000				—				—				711,000
Other liabilities			201,217				15,009				11,132				—				227,358
Total liabilities			1,764,894				215,705				181,128				(839,039	)			1,322,688
Stockholders’ equity			1,042,259				1,790,818				507,666				(2,298,484	)			1,042,259
Total liabilities and stockholders’ equity		$	2,807,153			$	2,006,523			$	688,794			$	(3,137,523	)		$	2,364,947

 

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Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended

September 30, 2014

 

		FTI Consulting, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Revenues		$	157,285			$	268,949			$	127,813			$	(102,869	)		$	451,178
Operating expenses
Direct cost of revenues			101,646				210,283				83,910				(102,595	)			293,244
Selling, general and administrative expense			40,185				30,033				32,517				(274	)			102,461
Special charges			4,235				30				1,082				—				5,347
Acquisition-related contingent consideration			65				192				—				—				257
Amortization of other intangible assets			1,038				641				2,675				(956	)			3,398
Operating income			10,116				27,770				7,629				956				46,471
Other (expense) income			(12,926	)			(1,743	)			3,049				—				(11,620	)
Income (loss) before income tax provision			(2,810	)			26,027				10,678				956				34,851
Income tax (benefit) provision			(810	)			11,519				1,620				—				12,329
Equity in net earnings of subsidiaries			24,522				8,972				—				(33,494	)			—
Net income			22,522				23,480				9,058				(32,538	)			22,522
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net of tax $0			—				—				(22,542	)			—				(22,542	)
Total other comprehensive income, net of tax			—				—				(22,542	)			—				(22,542	)
Comprehensive income		$	22,522			$	23,480			$	(13,484	)		$	(32,538	)		$	(20	)

Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended

September 30, 2013

 

		FTI Consulting, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Revenues		$	149,176			$	243,186			$	111,867			$	(89,586	)		$	414,643
Operating expenses
Direct cost of revenues			89,410				181,561				73,678				(89,497	)			255,152
Selling, general and administrative expense			37,470				28,279				28,853				(89	)			94,513
Special Charges			6,447				8				3,964				—				10,419
Acquisition-related contingent consideration			152				229				249				—				630
Amortization of other intangible assets			1,089				2,689				2,807				(809	)			5,776
Goodwill impairment charge			—				30,321				53,431				—				83,752
Operating income (loss)			14,608				99				(51,115	)			809				(35,599	)
Other (expense) income			(13,468	)			(1,165	)			2,971				—				(11,662	)
Income (loss) before income tax provision			1,140				(1,066	)			(48,144	)			809				(47,261	)
Income tax (benefit) provision			(3,530)				14,070				(7,180)				—				3,360
Equity in net earnings of subsidiaries			(55,291	)			(42,632	)			—				97,923				—
Net income			(50,621	)			(57,768	)			(40,964	)			98,732				(50,621	)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments, net of tax $0			(61	)			—				17,176				—				17,115
Total other comprehensive income, net of tax			(61	)			—				17,176				—				17,115
Comprehensive income		$	(50,682	)		$	(57,768	)		$	(23,788	)		$	98,732			$	(33,506	)

 

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Condensed Consolidating Statement of Comprehensive Income for the Nine Months Ended

September 30, 2014

 

		FTI Consulting, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Revenues		$	463,774			$	790,361			$	380,145			$	(303,226	)		$	1,331,054
Operating expenses
Direct cost of revenues			299,718				616,437				249,206				(302,293	)			863,068
Selling, general and administrative expense			131,347				88,610				98,856				(933	)			317,880
Special charges			13,599				30				1,082				—				14,711
Acquisition-related contingent consideration			(531	)			(211	)			(849	)			—				(1,591	)
Amortization of other intangible assets			3,197				2,011				9,143				(2,885	)			11,466
Operating income			16,444				83,484				22,707				2,885				125,520
Other (expense) income			(38,502	)			(5,978	)			9,748				—				(34,732	)
Income (loss) before income tax provision			(22,058	)			77,506				32,455				2,885				90,788
Income tax (benefit) provision			(8,515	)			34,423				6,994				—				32,902
Equity in net earnings of subsidiaries			71,429				23,662				—				(95,091	)			—
Net income			57,886				66,745				25,461				(92,206	)			57,886
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax $0			—				—				(10,120	)			—				(10,120	)
Total other comprehensive income, net of tax			—				—				(10,120	)			—				(10,120	)
Comprehensive income		$	57,886			$	66,745			$	15,341			$	(92,206	)		$	47,766

Condensed Consolidating Statement of Comprehensive Income for Nine Months Ended

September 30, 2013

 

		FTI Consulting, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
Revenues		$	444,526			$	744,241			$	333,428			$	(285,761	)		$	1,236,434
Operating expenses
Direct cost of revenues			283,028				561,434				212,376				(283,678	)			773,160
Selling, general and administrative expense			118,941				84,869				85,758				(2,083	)			287,485
Special charges			6,770				112				3,964				—				10,846
Acquisition-related contingent consideration			331				424				(6,846	)			—				(6,091	)
Amortization of other intangible assets			3,411				7,637				8,636				(2,391	)			17,293
Goodwill impairment charge			—				30,321				53,431				—				83,752
Operating income			32,045				59,444				(23,891	)			2,391				69,989
Other (expense) income			(45,181	)			(634	)			8,917				—				(36,898	)
Income (loss) before income tax provision			(13,136	)			58,810				(14,974	)			2,391				33,091
Income tax (benefit) provision			(10,751	)			48,132				(835	)			—				36,546
Equity in net earnings of subsidiaries			(1,070	)			(18,518	)			—				19,588				—
Net income			(3,455	)			(7,840	)			(14,139	)			21,979				(3,455	)
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net of tax $0			(61	)			—				(10,047	)			—				(10,108	)
Total other comprehensive income, net of tax			(61	)			—				(10,047	)			—				(10,108	)
Comprehensive income		$	(3,516	)		$	(7,840	)		$	(24,186	)		$	21,979			$	(13,563	)

 

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Condensed Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2014

 

		FTI Consulting, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidated
Operating activities
Net cash used in operating activities		$	(12,091	)		$	40,238			$	(7,668	)		$	20,479
Investing activities
Payments for acquisition of businesses, net of cash received			(14,729	)			—				(955	)			(15,684	)
Purchases of property and equipment			(10,988	)			(9,197	)			(11,612	)			(31,797	)
Other			2				—				67				69
Net cash used in investing activities			(25,715	)			(9,197	)			(12,500	)			(47,412	)
Financing activities
Payments of long-term debt			—				(6,000	)			(14	)			(6,014	)
Purchase and retirement of common stock			(4,367	)			—				—				(4,367	)
Net issuance of common stock under equity compensation plans			(29	)			—				—				(29	)
Deposits			—				—				12,956				12,956
Other			226				(319	)			(943	)			(1,036	)
Intercompany transfers			26,495				(25,053	)			(1,442	)			—
Net cash (used in) provided by financing activities			22,325				(31,372	)			10,557				1,510
Effect of exchange rate changes on cash and cash equivalents			—				—				(1,632	)			(1,632	)
Net decrease in cash and cash equivalents			(15,481	)			(331	)			(11,243	)			(27,055	)
Cash and cash equivalents, beginning of period			111,943				494				93,396				205,833
Cash and cash equivalents, end of period		$	96,462			$	163			$	82,153			$	178,778

Condensed Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2013

 

		FTI Consulting, Inc.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidated
Operating activities
Net cash (used in) provided by operating activities		$	(37,182	)		$	111,908			$	29,080				103,806
Investing activities
Payments for acquisition of businesses, net of cash received			(11,855	)			(7,157	)			(21,754	)			(40,766	)
Purchases of property and equipment			(2,092	)			(16,064	)			(4,838	)			(22,994	)
Other			24				—				—				24
Net cash used in investing activities			(13,923	)			(23,221	)			(26,592	)			(63,736	)
Financing activities
Payments of long-term debt			—				(6,000	)			—				(6,000	)
Purchase and retirement of common stock			(48,769	)			—				—				(48,769	)
Net issuance of common stock under equity compensation plans			6,208				—				—				6,208
Other			229				—				(1,029	)			(800	)
Intercompany transfers			91,226				(82,938	)			(8,288	)			—
Net cash provided by (used in) financing activities			48,894				(88,938	)			(9,317	)			(49,361	)
Effect of exchange rate changes on cash and cash equivalents			—				—				432				432
Net decrease in cash and cash equivalents			(2,211	)			(251	)			(6,397	)			(8,859	)
Cash and cash equivalents, beginning of period			66,663				610				89,512				156,785
Cash and cash equivalents, end of period		$	64,452			$	359			$	83,115			$	147,926

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our consolidated financial condition and results of operations for the three and nine months ended September 30, 2014 and 2013 and significant factors that could affect our prospective financial condition and results of operations. This discussion should be read together with the accompanying unaudited condensed consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended December 31, 2013. Historical results and any discussion of prospective results may not indicate our future performance. See “—Forward-Looking Statements.”

BUSINESS OVERVIEW

We are a leading global business advisory firm dedicated to helping organizations protect and enhance their enterprise value. We work closely with our clients to help them anticipate, understand, manage and overcome complex business matters arising from such factors as the economy, financial and credit markets, governmental regulation, legislation and litigation. We assist clients in addressing a broad range of business challenges, such as restructuring (including bankruptcy), financing and credit issues and indebtedness, interim business management, forensic accounting and litigation matters, international arbitrations, mergers and acquisitions (“M&A”), antitrust and competition matters, securities litigation, electronic discovery (“e-discovery”), management and retrieval of electronically stored information (“ESI”), reputation management and strategic communications. We also provide services to help our clients take advantage of economic, regulatory, financial and other business opportunities. Our experienced teams of professionals include many individuals who are widely recognized as experts in their respective fields. We believe clients retain us because of our recognized expertise and capabilities in highly specialized areas as well as our reputation for satisfying client needs.

We report financial results for the following five reportable segments:

Our Corporate Finance/Restructuring segment focuses on strategic, operational, financial and capital needs of businesses around the world and provides consulting and advisory services on a wide range of areas, such as restructuring (including bankruptcy), interim management, financings, M&A, post-acquisition integration, valuations, tax issues and performance improvement.

Our Forensic and Litigation Consulting segment provides law firms, companies, government clients and other interested parties with dispute advisory, investigations, forensic accounting, business intelligence assessments, data analytics, risk mitigation services as well as interim management and performance improvement services for our health solutions practice clients.

Our Economic Consulting segment provides law firms, companies, government entities and other interested parties with analysis of complex economic issues for use in legal, regulatory and international arbitration proceedings, strategic decision making and public policy debates in the United States (“U.S.”) and around the world.

Our Technology segment provides e-discovery and information management consulting, software and services to its clients. It provides products, services and consulting to companies, law firms, courts and government agencies worldwide. Its comprehensive suite of software and services help clients locate, review and produce ESI, including e-mail, computer files, voicemail, instant messaging and financial and transactional data.

Our Strategic Communications segment provides advice and consulting services relating to financial and corporate communications and investor relations, reputation management and brand communications, public affairs, business consulting and digital design and marketing.

We derive substantially all of our revenues from providing professional services to both U.S. and global clients. Over the past several years the growth in our revenues and profitability has resulted from our ability to attract new and recurring engagements and the acquisitions we have completed.

 

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Most of our services are rendered under time-and-expense arrangements that obligate the client to pay us a fee for the hours that we incur at agreed upon rates. Under this arrangement, we typically bill our clients for reimbursable expenses, which may include the cost of producing our work product and other direct expenses that we incur on behalf of the client, such as travel costs. We also render services for which certain clients may be required to pay us a fixed fee or recurring retainer. These arrangements are generally cancellable at any time. Some of our engagements contain performance-based arrangements in which we earn a success fee when and if certain predefined outcomes occur. This type of success fee may supplement a time-and-expense or fixed-fee arrangement. Success fee revenues may cause variations in our revenues and operating results due to the timing of achieving the performance-based criteria. In our Technology segment, certain clients are also billed based on the amount of data stored on our electronic systems, the volume of information processed or the number of users licensing our Ringtail^® software products for use or installation within their own environments. We license certain products directly to end users as well as indirectly through our channel partner relationships. Unit-based revenue is defined as revenue billed on a per-item, per-page, or some other unit-based method and includes revenue from data processing and hosting, software usage and software licensing. Unit-based revenue includes revenue associated with our proprietary software that is made available to customers, either via a web browser (“on-demand”) or installed at our customer or partner locations (“on-premise”). On-demand revenue is charged on a unit or monthly basis and includes, but is not limited to, processing and review related functions. On-premise revenue is comprised of up-front license fees, with recurring support and maintenance. Seasonal factors, such as the timing of our employees’ and clients’ vacations and holidays, impact the timing of our revenues.

Our financial results are primarily driven by:

 

•

the number, size and type of engagements we secure;

 

•

the rate per hour or fixed charges we charge our clients for services;

 

•

the utilization rates of the revenue-generating professionals we employ;

 

•

the number of revenue-generating professionals;

 

•

fees from clients on a retained basis or other;

 

•

licensing of our software products and other technology services;

 

•

the types of assignments we are working on at different times;

 

•

the length of the billing and collection cycles; and

 

•

the geographic locations of our clients or locations in which services are rendered.

Non-GAAP Measures

In the accompanying analysis of financial information, we sometimes use information derived from consolidated and segment financial information that is not presented in our financial statements and prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain of these measures are considered “non-GAAP financial measures” under the SEC rules. Specifically, we have referred to:

 

•

Segment Operating Income

 

•

Total Segment Operating Income

 

•

Adjusted EBITDA

 

•

Adjusted Segment EBITDA

 

•

Total Adjusted Segment EBITDA

 

•

Adjusted Net Income

 

•

Adjusted Earnings per Diluted Share

 

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Beginning with the quarter ended March 31, 2014, the definitions of each of these non-GAAP measures have been updated to exclude the impact of changes in the fair value of acquisition-related contingent consideration liabilities. Prior period amounts have been reclassified to conform to the current period’s presentation.

We define Segment Operating Income (Loss) as a segment’s share of consolidated operating income. We define Total Segment Operating Income (Loss) as the total of Segment Operating Income (Loss) for all segments, which excludes unallocated corporate expenses. We use Segment Operating Income (Loss) for the purpose of calculating Adjusted Segment EBITDA. We define Adjusted EBITDA as consolidated net income (loss) before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. We define Total Adjusted Segment EBITDA as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. We use Adjusted Segment EBITDA to internally evaluate the financial performance of our segments because we believe it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash. We also believe that these measures, when considered together with our GAAP financial results, provide management and investors with a more complete understanding of our operating results, including underlying trends, by excluding the effects of remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. In addition, EBITDA is a common alternative measure of operating performance used by many of our competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in our industry. Therefore, we also believe that these measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of our operating results to the operating results of other companies.

We define Adjusted Net Income and Adjusted Earnings per Diluted Share (“Adjusted EPS”) as net income and earnings per diluted share, respectively, excluding the impact of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. We use Adjusted Net Income for the purpose of calculating Adjusted EPS. Management uses Adjusted EPS to assess total company operating performance on a consistent basis. We believe that this measure, when considered together with our GAAP financial results, provides management and investors with a more complete understanding of our business operating results, including underlying trends, by excluding the effects of the remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt.

Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Consolidated Statements of Comprehensive Income. Reconciliations of GAAP to non-GAAP financial measures are included elsewhere in this filing.

We define acquisition growth as revenue of acquired companies in the first twelve months following the effective date of an acquisition. Our definition of organic growth is the change in revenue excluding the impact of all such acquisitions.

 

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EXECUTIVE HIGHLIGHTS

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(dollars in thousands, except per share amounts)								(dollars in thousands, except per share amounts)
Revenues		$	451,178			$	414,643			$	1,331,054			$	1,236,434
Special charges		$	5,347			$	10,419			$	14,711			$	10,846
Goodwill impairment charge		$	—			$	83,752			$	—			$	83,752
Adjusted EBITDA		$	63,395			$	72,544			$	174,494			$	197,882
Net income (loss)		$	22,522			$	(50,621	)		$	57,886			$	(3,455	)
Earnings (loss) per common share—diluted		$	0.55			$	(1.29	)		$	1.43			$	(0.09	)
Adjusted EPS		$	0.63			$	0.72			$	1.60			$	1.69
Cash provided by operating activities		$	97,583			$	84,437			$	20,479			$	103,806
Total number of employees			4,336				4,130				4,336				4,130

Third Quarter 2014 Executive Highlights

Revenues

Revenues for the three months ended September 30, 2014 increased $36.5 million, or 8.8%, to $451.2 million, compared to $414.6 million in the same prior year period. The revenue increase largely resulted from organic growth in all segments, with the most significant revenue growth due to higher demand for complex global investigations and financial services industry investigations in our Technology segment, as well as, increased demand in our global construction solutions, data analytics and North America investigation and disputes practices in our in Forensic and Litigation Consulting (“FLC”) segment. Additionally, our results reflected improved demand in our European practice and in our North American non-distressed service offerings in the Corporate Finance/Restructuring (“Corporate Finance”) segment, and the international arbitration, valuation and financial advisory offerings in the Europe, Middle East and Africa (“EMEA”) region, in our Economics Consulting segment.

Special Charges

During the three months ended September 30, 2014, we recorded special charges of $5.3 million. The special charges consisted of $4.5 million contractual post-employment payments and equity award expense acceleration, net of forfeitures of unvested equity and liability awards and annual bonus payments, related to the departures of the Company’s former Chief Financial Officer, former Executive Vice President and Chairman of North America and former Chairman of the EMEA region, and $0.8 million related to updated forecasts of expected sublease income for corporate and segment offices previously vacated.

Adjusted EBITDA

Adjusted EBITDA in the third quarter decreased $9.1 million, or 12.6%, to $63.4 million, or 14.1% of revenues, compared to $72.5 million, or 17.5% of revenues, in the same prior year period. Adjusted EBITDA was unfavorably impacted by increases in performance-based compensation costs, investments in certain global corporate initiatives, the impact of employment contract extensions of certain key senior client-service professionals in our Economics Consulting segment, and investments in hiring key personnel in our FLC health solutions practice.

 

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Net Income (Loss)

Net income for the three months ended September 30, 2014 increased $73.1 million to $22.5 million, compared to a net loss of $50.6 million in the same prior year period. Net income for the quarter was impacted by the segment results and the special charges described above. Net loss for the prior year quarter was impacted by $10.4 million of special charges as well as by an $83.8 million goodwill impairment charge for our Strategic Communications segment.

Earnings per diluted share and Adjusted EPS

Earnings per diluted share for the three months ended September 30, 2014 increased $1.85 to $0.55 from a loss per diluted share of $1.29 in the same prior year period. Earnings per diluted share for the quarter ended September 30, 2014 were impacted by the results as outlined above, including the impact of the special charge of $5.3 million recorded in the quarter. Loss per diluted common share for the quarter ended September 30, 2013 of $1.29 included the impact of the $83.8 million goodwill impairment charge for our Strategic Communications segment and the impact of the special charges of $6.8 million.

Adjusted earnings per diluted share for the three months ended September 30, 2014 were $0.63 as compared to $0.72 in the same prior year period.

Liquidity highlights

Cash provided by operating activities increased $13.2 million, or 15.6%, to $97.6 million for the three months ended September 30, 2014 compared to $84.4 million for the same prior year period, primarily as a result of higher revenue driven cash collections partially offset by increased payments for compensation and other operating expenses. Days sales outstanding (“DSO”), which is one measure of the collections cycle, was 107 days at September 30, 2014 and 102 days at September 30, 2013. DSO for the third quarter compared to the same prior year period has been impacted by the mix of revenues between our segments and extended payment terms, which have been granted to certain large scale engagements.

Headcount

As of September 30, 2014, our total headcount of 4,336 increased by 206 employees from 4,130 as of September 30, 2013.

We increased the number of non-billable employees by 61, from 983 as of December 31, 2013 to 1,044 as of September 30, 2014. Billable headcount additions for the nine-months ended September 30, 2014 are referenced in the table below.

 

		Corporate Finance/ Restructuring				Forensic and Litigation Consulting				Economic Consulting				Technology				Strategic Communications				Total
Billable Headcount
December 31, 2013			737				1,061				530				306				590				3,224
Additions (reductions), net			(15	)			74				21				29				(41	)			68
September 30, 2014			722				1,135				551				335				549				3,292

 

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CONSOLIDATED RESULTS OF OPERATIONS

Segment and Consolidated Operating Results:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(in thousands, except per share amounts)								(in thousands, except per share amounts)
Revenues
Corporate Finance/Restructuring		$	100,041			$	93,981			$	298,043			$	289,775
Forensic and Litigation Consulting			121,732				113,068				362,242				318,912
Economic Consulting			120,494				113,069				344,572				339,277
Technology			62,359				51,201				183,142				149,101
Strategic Communications			46,552				43,324				143,055				139,369
Revenues		$	451,178			$	414,643			$	1,331,054			$	1,236,434
Operating income (loss)
Corporate Finance/Restructuring		$	13,406			$	10,590			$	39,081			$	48,725
Forensic and Litigation Consulting			20,276				21,915				66,517				52,194
Economic Consulting			17,245				21,708				46,515				66,233
Technology			13,741				9,755				37,712				29,129
Strategic Communications			4,875				(81,490	)			9,910				(76,369	)
Total segment operating income (loss)			69,543				(17,522	)			199,735				119,912
Unallocated corporate expenses			(23,072	)			(18,077	)			(74,215	)			(49,923	)
Operating income (loss)			46,471				(35,599	)			125,520				69,989
Other income (expense)
Interest income and other			1,014				1,152				3,465				1,702
Interest expense			(12,634	)			(12,814	)			(38,197	)			(38,600	)
			(11,620	)			(11,662	)			(34,732	)			(36,898	)
Income (loss) before income tax provision			34,851				(47,261	)			90,788				33,091
Income tax provision			12,329				3,360				32,902				36,546
Net income (loss)		$	22,522			$	(50,621	)		$	57,886			$	(3,455	)
Earnings (loss) per common share—basic		$	0.57			$	(1.29	)		$	1.46			$	(0.09	)
Earnings (loss) per common share—diluted		$	0.55			$	(1.29	)		$	1.43			$	(0.09	)

 

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Reconciliation of Net Income to Adjusted EBITDA:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(in thousands)								(in thousands)
Net income (loss)		$	22,522			$	(50,621	)		$	57,886			$	(3,455	)
Add back:
Income tax provision			12,329				3,360				32,902				36,546
Other income (expense), net			11,620				11,662				34,732				36,898
Depreciation and amortization			8,179				8,196				25,180				24,218
Amortization of other intangible assets			3,398				5,776				11,466				17,293
Special charges			5,347				10,419				14,711				10,846
Remeasurement of acquisition-related contingent consideration			—				—				(2,383	)			(8,216	)
Goodwill impairment charge			—				83,752				—				83,752
Adjusted EBITDA		$	63,395			$	72,544			$	174,494			$	197,882

Reconciliation of Net Income to Adjusted Net Income and Earnings Per Share to Adjusted EPS:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(in thousands, except per share amounts)								(in thousands, except per share amounts)
Net income (loss)		$	22,522			$	(50,621	)		$	57,886			$	(3,455	)
Add back:
Special charges, net of tax effect (1)			3,154				6,847				8,676				7,100
Goodwill impairment charges (2)			—				83,752				—				83,752
Remeasurement of acquisition-related contingent consideration, net of tax effect (3)			—				—				(1,514	)			(8,216	)
Less:
Interim period impact of including goodwill impairment charges in the annual effective tax rate, net of tax			—				(10,805	)			—				(10,805	)
Adjusted Net Income		$	25,676			$	29,173			$	65,048			$	68,376
Earnings (loss) per common share—diluted		$	0.55			$	(1.29	)		$	1.43			$	(0.09	)
Add back:
Special charges, net of tax effect (1)			0.08				0.18				0.21				0.18
Goodwill impairment charges (2)			—				2.14				—				2.14
Remeasurement of acquisition-related contingent consideration, net of tax effect (3)			—				—				(0.04	)			(0.21	)
Less:
Interim period impact of including goodwill impairment charges in the annual effective tax rate, net of tax			—				(0.27	)			—				(0.28	)
Impact of denominator for diluted EPS (4)			—				(0.04	)			—				(0.05	)
Adjusted EPS		$	0.63			$	0.72			$	1.60			$	1.69
Weighted average number of common shares outstanding—diluted			40,819				40,244				40,608				40,385

 

(1)	The tax effect takes into account the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). As a result, the effective tax rate for the adjustments related to special charges for

 

27

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the three and nine months ended September 30, 2014 was 41.0%. The tax expense related to the adjustment for special charges for the three and nine months ended September 30, 2014 was $2.2 million, or a $0.05 impact on diluted earnings per share, and $6.0 million, or a $0.15 impact on diluted earnings per share, respectively. The effective tax rates for the adjustments related to special charges for the three and nine months ended September 30, 2013 were 34.3% and 34.5%, respectively. The tax expense related to the adjustment for special charges for the three and nine months ended September 30, 2013 was $3.6 million, or a $0.09 impact on diluted earnings per share, and $3.7 million, or $0.10 impact on diluted earnings per share, respectively.

 

(2)	The goodwill impairment charge was non-deductible for income tax purposes and resulted in no tax benefit for the year ended December 31, 2013.

 

(3)

The tax effect takes into account the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). As a result, the effective tax rates for the adjustments related to the remeasurement of acquisition-related contingent consideration for the nine months ended September 30, 2014 was 36.5%. The tax expense related to the remeasurement of acquisition-related contingent consideration for the nine months ended September 30, 2014 was $0.9 million, or a $0.02 impact on diluted earnings per share. The adjustment related to remeasurement of acquisition-related contingent consideration for the nine months ended September 30, 2013 was not taxable. There were no adjustments related to remeasurement of acquisition-related contingent consideration for the three months ended September 30, 2014 and 2013.

 

(4)

For the three and nine months ended September 30, 2013, the Company reported a net loss. For those periods, the number of basic weighted average shares outstanding equals the number of diluted weighted average shares outstanding for purposes of calculating GAAP earnings per share because potentially dilutive securities would be antidilutive. For non-GAAP purposes, the total per share and share amounts presented herein reflect the impact of the inclusion of share-based awards that are considered dilutive based on the impact of the add backs included in Adjusted Net Income above.

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Revenues and operating income

See “Segment Results” for an expanded discussion of segment revenues and operating income.

Unallocated corporate expenses

Unallocated corporate expenses increased $5.0 million, or 27.6%, to $23.1 million for the three months ended September 30, 2014 from $18.1 million for the same prior year period. Excluding the impact of special charges of $4.9 million in the three months ended September 30, 2014 and $2.1 million in the three months ended September 30, 2013, unallocated corporate expenses increased $2.2 million, or 13.8%. The increase was primarily due to higher costs related to performance based compensation for U.S. and regional personnel and increased resources to assess and evaluate certain strategic initiatives, partially offset by lower costs related to corporate executives and the termination of the airplane lease.

Interest income and other

Interest income and other, which includes foreign currency transaction gains and losses, decreased by $0.2 million, or 16.7%, to $1.0 million for the three months ended September 30, 2014 from $1.2 million for the same prior year period. The decrease was primarily due to an increase in net foreign currency transaction losses of $2.2 million in the period ended September 30, 2014 as compared to the net losses of $0.1 million in the same prior year period. Transaction gains and losses, both realized and unrealized, relate to the remeasurement or settlement of monetary assets and liabilities that are denominated in a currency other than an entity’s functional currency. These monetary assets and liabilities include both client and current intercompany receivables and payables. In addition, the quarter ended September 30, 2014 included a $1.2 million gain related to an insurance settlement.

 

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Interest expense

Interest expense decreased $0.2 million, or 1.6%, to $12.6 million for the three months ended September 30, 2014 from $12.8 million for the same prior year period. Interest expense in 2014 was favorably impacted by lower average borrowings.

Special charges

During the three months ended September 30, 2014, we recorded special charges of $5.3 million. The special charges consisted of $4.5 million contractual post-employment payments and equity award expense acceleration, net of forfeitures of unvested equity and liability awards and annual bonus payments, related to the departures of the Company’s former Chief Financial Officer, former Executive Vice President and Chairman of North America and former Chairman of the EMEA region, and $0.8 million related to updated forecasts of expected sublease income for corporate and segment offices previously vacated.

During the three months ended September 30, 2013, we recorded special charges totaling $10.4 million, of which $3.1 million was non-cash. The charges primarily reflect actions we took to realign our workforce to address current business demands impacting our Corporate Finance and FLC segments and to reduce certain corporate overhead within our EMEA region. The special charges consisted of $10.2 million of salary continuance and other contractual employee related costs associated with the reduction in workforce of 45 employees, and $0.2 million of costs to consolidate leased office space within one location and to adjust prior special charges for changes to sublease terms and associated costs. The following table details the special charges by segment for the three months ended September 30, 2014 and 2013:

 

		Three Months Ended
		September 30,				September 30,
		2014				2013
		(in thousands)
		Special Charges				Special Charges
Corporate Finance/Restructuring		$	84			$	6,331
Forensic and Litigation Consulting			308				1,938
Economic Consulting			12				15
Technology			19				2
Strategic Communications			3				2
			426				8,288
Unallocated Corporate			4,921				2,131
Total		$	5,347			$	10,419

Income tax provision

Our provision for income taxes in interim periods is computed by applying our estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur or become known. The effective tax rate for the three months ended September 30, 2014 is 35.4%. For the three months ended September 30, 2014, there were no discrete items recorded. The effective tax rate for the three months ended September 30, 2013 was not meaningful due to the impact of the non-deductible goodwill impairment charge of $83.8 million. The effective tax rate for the three months ended September 30, 2013, excluding the impact of the goodwill impairment charge, and a discrete item related to the settlement of a foreign audit would have been 38.0%.

 

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Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Revenues and operating income

See “Segment Results” for an expanded discussion of segment revenues and operating income.

Unallocated corporate expenses

Unallocated corporate expenses increased $24.3 million, or 48.7%, to $74.2 million for the nine months ended September 30, 2014 from $49.9 million for the same prior year period. Excluding the impact of special charges of $14.3 million in the nine months ended September 30, 2014 and $2.2 million in the nine months ended September 30, 2013, unallocated corporate expenses increased $12.3 million, or 25.7%. The increase was primarily due to higher costs related to performance based compensation for U.S. and regional personnel and increased resources to assess and evaluate certain strategic initiatives, partially offset by lower costs related to corporate executives and the termination of the airplane lease.

Interest income and other

Interest income and other, which includes foreign currency transaction gains and losses, increased by $1.8 million, or 105.9%, to $3.5 million for the nine months ended September 30, 2014 from $1.7 million for the same prior year period. The increase in interest income and other was primarily due to $1.2 million gain related to an insurance settlement in the nine months ended September 30, 2014.

Interest expense

Interest expense decreased $0.4 million, or 1%, to $38.2 million, for the nine months ended September 30, 2014, from $38.6 million for the same prior year period. Interest expense in 2014 was favorably impacted by lower average borrowings.

Special charges

During the nine months ended September 30, 2014, we recorded special charges of $14.7 million. The special charges consisted of:

 

•

$4.5 million contractual post-employment payments and equity award expense acceleration, net of forfeitures of unvested equity and liability awards and annual bonus payments, related to the departures of the Company’s former Chief Financial Officer, former Executive Vice President and Chairman of North America and former Chairman of the EMEA region.

 

•

$7.9 million related to the termination of the Company’s corporate airplane lease;

 

•

$2.3 million related to the closure of the Company’s former West Palm Beach executive office and related lease termination, and updated forecasts of expected sublease income for corporate and segment offices previously vacated. $0.7 million of these charges were non-cash.

During the nine months ended September 30, 2013, we recorded special charges totaling $10.8 million, of which $3.1 million was non-cash. The charges primarily reflect actions we took to realign our workforce to address current business demands impacting our Corporate Finance and FLC segments and to reduce certain corporate overhead within our EMEA region. The special charges consist of $10.2 million of salary continuance and other contractual employee related costs associated with the reduction in workforce of 45 employees and $0.6 million of costs to consolidate leased office space within one location and to adjust prior special charges for changes to sublease terms and employee termination costs.

 

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The following table details the special charges by segment for the nine months ended September 30, 2014 and 2013:

 

		Nine Months Ended
		September 30,				September 30,
		2014				2013
		(in thousands)
		Special Charges				Special Charges
Corporate Finance/Restructuring		$	84			$	6,399
Forensic and Litigation Consulting			308				2,111
Economic Consulting			12				11
Technology			19				16
Strategic Communications			3				66
			426				8,603
Unallocated Corporate			14,285				2,243
Total		$	14,711			$	10,846

Income tax provision

Our provision for income taxes in interim periods is computed by applying our estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur or become known. The effective tax rate for the nine months ended September 30, 2014 is 36.2%. For the nine months ended September 30, 2014, the effective tax rate was not materially impacted by discrete items recorded. The effective tax rate for the nine months ended September 30, 2013 was not meaningful due to the impact of the non-deductible goodwill impairment charge of $83.8 million. For the nine months ended September 30, 2013, we recorded a deferred tax valuation reserve related to foreign tax credits, primarily due to lower forecasted foreign earnings, resulting in a discrete increase to the income tax provision in the amount of $6.9 million. We also recognized the impact of a discrete benefit related to the favorable resolution of an income tax contingency in the amount of $2.2 million. Excluding the impact of this discrete item and the non-deductible goodwill impairment charge, the effective tax rate for the nine months ended September 30, 2013 would have been 36.4%.

 

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SEGMENT RESULTS

Total Adjusted Segment EBITDA

The following table reconciles net income to Total Segment Operating Income and Total Adjusted Segment EBITDA for the three and nine months ended September 30, 2014 and 2013.

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(in thousands)								(in thousands)
Net income (loss)		$	22,522			$	(50,621	)		$	57,886			$	(3,455	)
Add back:
Income tax provision			12,329				3,360				32,902				36,546
Other income (expense), net			11,620				11,662				34,732				36,898
Unallocated corporate expense			23,072				18,077				74,215				49,923
Total Segment Operating Income (Loss)		$	69,543			$	(17,522	)		$	199,735			$	119,912
Add back:
Segment depreciation expense			7,293				7,112				22,353				20,932
Amortization of other intangible assets			3,398				5,776				11,466				17,293
Segment special charges			426				8,288				426				8,603
Remeasurement of acquisition-related contingent consideration			—				—				(2,383	)			(8,216	)
Goodwill impairment charge			—				83,752				—				83,752
Total Adjusted Segment EBITDA		$	80,660			$	87,406			$	231,597			$	242,276

Other Segment Operating Data

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Number of revenue-generating professionals (at period end):
Corporate Finance/Restructuring			722				732				722				732
Forensic and Litigation Consulting			1,135				999				1,135				999
Economic Consulting			551				528				551				528
Technology			335				297				335				297
Strategic Communications			549				617				549				617
Total revenue-generating professionals			3,292				3,173				3,292				3,173
Utilization rates of billable professionals: (1)
Corporate Finance/Restructuring			70	%			64	%			71	%			66	%
Forensic and Litigation Consulting			68	%			67	%			71	%			68	%
Economic Consulting			77	%			79	%			77	%			84	%
Average billable rate per hour: (2)
Corporate Finance/Restructuring		$	396			$	396			$	388			$	407
Forensic and Litigation Consulting			323				324				323				315
Economic Consulting			535				512				517				509

 

(1)

We calculate the utilization rate for our billable professionals by dividing the number of hours that all of our billable professionals worked on client assignments during a period by the total available working hours for all of our billable professionals during the same period. Available hours are determined by the standard hours worked by each employee, adjusted for part-time hours, local country standard work weeks and local country holidays. Available working hours include vacation and professional training days, but exclude

 

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holidays. Utilization rates are presented for our segments that primarily bill clients on an hourly basis. We have not presented a utilization rate for our Technology and Strategic Communications segments as most of the revenues of these segments are not generated on an hourly basis.

 

(2)

For engagements where revenues are based on number of hours worked by our billable professionals, average billable rate per hour is calculated by dividing revenues (excluding revenues from success fees, pass-through and outside consultants) for a period by the number of hours worked on client assignments during the same period. We have not presented an average billable rate per hour for our Technology and Strategic Communications segments as most of the revenues of these segments are not based on billable hours.

CORPORATE FINANCE/RESTRUCTURING

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(dollars in thousands, except rate per hour)								(dollars in thousands, except rate per hour)
Revenues		$	100,041			$	93,981			$	298,043			$	289,775
Operating expenses:
Direct cost of revenues			66,276				58,424				197,755				180,373
Selling, general and administrative expenses			19,047				16,779				57,024				54,199
Special charges			84				6,331				84				6,399
Acquisition-related contingent consideration			53				295				(502	)			(4,866	)
Amortization of other intangible assets			1,175				1,562				4,601				4,945
			86,635				83,391				258,962				241,050
Segment operating income			13,406				10,590				39,081				48,725
Add back:
Depreciation and amortization of intangible assets			2,044				2,481				7,115				7,486
Special charges			84				6,331				84				6,399
Remeasurement of acquisition-related contingent consideration			—				—				(662	)			(6,275	)
Adjusted Segment EBITDA		$	15,534			$	19,402			$	45,618			$	56,335
Gross profit (1)		$	33,765			$	35,557			$	100,288			$	109,402
Gross profit margin (2)			33.8	%			37.8	%			33.6	%			37.8	%
Adjusted Segment EBITDA as a percent of revenues			15.5	%			20.6	%			15.3	%			19.4	%
Number of revenue generating professionals (at period end)			722				732				722				732
Utilization rates of billable professionals			70	%			64	%			71	%			66	%
Average billable rate per hour (3)		$	396			$	396			$	388			$	407

 

(1)	Revenues less direct cost of revenues

 

(2)	Gross profit as a percent of revenues

 

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Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Revenues increased $6.1 million, or 6.4%, to $100.0 million for the quarter ended September 30, 2014 compared to $94.0 million for the same prior year period. The increase in revenues was due to increased demand for non-distressed work in our North America businesses and growth in our European transaction advisory and tax practices; partially offset by declines in global bankruptcy and restructuring work.

Gross profit decreased $1.8 million, or 5.0%, to $33.8 million for the quarter ended September 30, 2014 compared to $35.6 million for the same prior year period. Gross profit margin decreased to 33.8% for the quarter ended September 30, 2014 compared to 37.8% for the same prior year period. The decrease in gross profit margin was due to the overall decline on higher margin global bankruptcy and restructuring work and increased performance based compensation, partially offset by increased demand for non-distressed engagements.

Selling, general and administrative (“SG&A”) expense increased $2.3 million, or 13.5%, to $19.0 million for the quarter ended September 30, 2014 compared to $16.8 million for the same prior year period. SG&A expense was 19.0% of revenues for the quarter ended September 30, 2014, compared to 17.9% for the same prior year period. The increase in SG&A expense was due to higher bad debt expense and higher legal costs in Asia Pacific and EMEA related to regional restructuring.

Amortization of other intangible assets was $1.2 million for the quarter ended September 30, 2014 compared to $1.6 million for the same prior year period.

Adjusted Segment EBITDA decreased $3.9 million, or 19.9%, to $15.5 million for the quarter ended September 30, 2014 compared to $19.4 million for the same prior year period.

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Revenues increased $8.3 million, or 2.9%, to $298.0 million for the nine months ended September 30, 2014 compared to $289.8 million for the same prior year period, including $4.4 million, or 1.5%, from acquisitions as compared to the same prior year period. Revenues increased organically $3.9 million, or 1.3%, primarily due to higher volume in our EMEA practice and growth in non-distressed engagements in North America, partially offset by continued slowdown in our global bankruptcy and restructuring practices and lower average realized bill rates in our North America, Asia Pacific and EMEA practices.

Gross profit decreased $9.1 million, or 8.3%, to $100.3 million for the nine months ended September 30, 2014 compared to $109.4 million for the same prior year period. Gross profit margin decreased to 33.6% for the nine months ended September 30, 2014 compared to 37.8% for the same prior year period. The decrease in gross profit margin was due to slowdown in global bankruptcy and restructuring activity, continued investments in our European transaction advisory practice, and higher performance-based compensation expense.

SG&A expense increased $2.8 million, or 5.2%, to $57.0 million for the nine months ended September 30, 2014 compared to $54.2 million for the same prior year period. SG&A expense was 19.1% of revenues for the nine months ended September 30, 2014, compared to 18.7% for the same prior year period. The increase in SG&A expense was due to increased bad debt expense, additional overhead costs related to acquired practices, and the investment in the European transaction advisory practice partially offset by the absence of the non-recurring acquisition costs of $1.8 million recorded in the same prior year period.

Amortization of other intangible assets was $4.6 million for the nine months ended September 30, 2014 compared to $4.9 million for the same prior year period.

Adjusted Segment EBITDA decreased $10.7 million, or 19.0%, to $45.6 million for the nine months ended September 30, 2014 compared to $56.3 million for the same prior year period.

 

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FORENSIC AND LITIGATION CONSULTING

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(dollars in thousands, except rate per hour)								(dollars in thousands, except rate per hour)
Revenues		$	121,732			$	113,068			$	362,242			$	318,912
Operating expenses:
Direct cost of revenues			79,074				68,488				228,207				203,323
Selling, general and administrative expenses			21,409				20,109				66,011				61,331
Special charges			308				1,938				308				2,111
Acquisition-related contingent consideration			12				106				(878	)			(1,650	)
Amortization of other intangible assets			653				512				2,077				1,603
			101,456				91,153				295,725				266,718
Segment operating income			20,276				21,915				66,517				52,194
Add back:
Depreciation and amortization of intangible assets			1,676				1,509				5,134				4,561
Special charges			308				1,938				308				2,111
Remeasurement of acquisition-related contingent consideration			—				—				(934	)			(1,941	)
Adjusted Segment EBITDA		$	22,260			$	25,362			$	71,025			$	56,925
Gross profit (1)		$	42,658			$	44,580			$	134,035			$	115,589
Gross profit margin (2)			35.0	%			39.4	%			37.0	%			36.2	%
Adjusted Segment EBITDA as a percent of revenues			18.3	%			22.4	%			19.6	%			17.8	%
Number of revenue generating professionals (at period end)			1,135				999				1,135				999
Utilization rates of billable professionals			68	%			67	%			71	%			68	%
Average billable rate per hour		$	323			$	324			$	323			$	315

 

(1)	Revenues less direct cost of revenues

 

(2)	Gross profit as a percent of revenues

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Revenues increased $8.7 million, or 7.7%, to $121.7 million for the three months ended September 30, 2014 from $113.1 million for the same prior year period. $3.3 million of this increase, or 2.9%, was due to acquisitions as compared to the same prior year period. Revenues increased organically $5.4 million, or 4.8%, due to higher demand in our North America investigations practice and global construction and disputes practices, partially offset by lower success fees and lower revenues in our heath solutions practice.

Gross profit declined $1.9 million, or 4.3%, to $42.7 million for the three months ended September 30, 2014 from $44.6 million for the same prior year period. Gross profit margin decreased 4.4 percentage points to 35.0% for the three months ended September 30, 2014 from 39.4% for the same prior year period. The decrease in gross profit margin was due to lower success fees, weaker performance in our health solutions practice and increased performance-based compensation partially offset by higher utilization in our global disputes, investigations, construction solutions and data analytics practices.

SG&A expense increased $1.3 million, or 6.5%, to $21.4 million for the three months ended September 30, 2014 from $20.1 million for the same prior year period. SG&A expense was 17.6% of revenue for the three months ended September 30, 2014, down from 17.8% for the same prior year period. The increase in SG&A expense was primarily due to increased corporate allocations and incremental overhead expenses from our acquired business partially offset by the collection on a previous period bad debt.

 

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Amortization of other intangible assets increased $0.1 million to $0.7 million for the three months ended September 30, 2014 compared to $0.5 million for the same prior year period.

Adjusted Segment EBITDA decreased by $3.1 million, or 12.2%, to $22.3 million for the three months ended September 30, 2014 from $25.4 million for the same prior year period.

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Revenues increased $43.3 million, or 13.6%, to $362.2 million for the nine months ended September 30, 2014 from $318.9 million for the same prior year period. Revenues increased $9.3 million, or 2.9%, due to acquisitions as compared to the same prior year period. Revenues increased organically $34.1 million, or 10.7%, due to higher demand in our global disputes, construction solutions and data analytics practices, and in investigation practices in the North America and Asia Pacific regions, partially offset by lower success fees and lower revenues in our heath solutions practice.

Gross profit increased $18.4 million, or 16.0%, to $134.0 million for the nine months ended September 30, 2014 from $115.6 million for the same prior year period. Gross profit margin increased 0.8 percentage points to 37.0% for the nine months ended September 30, 2014 from 36.2% for the same prior year period. The increase in gross profit margin is related to higher utilization in our construction solutions, data analytics and investigations practices, partially offset by increased performance based compensation and continued investments in the health solutions practice.

SG&A expense increased $4.7 million, or 7.6%, to $66.0 million for the nine months ended September 30, 2014 from $61.3 million for the same prior year period. SG&A expense was 18.2% of revenues for the nine months ended September 30, 2014, down from 19.2% for the same prior year period. The increase in SG&A expense was due to incremental overhead expenses from our acquired business and an increase in corporate allocations, partially offset by the collection on a previous period bad debt.

Amortization of other intangible assets increased $0.5 million to $2.1 million for the nine months ended September 30, 2014 compared to $1.6 million for the same prior year period.

Adjusted Segment EBITDA increased by $14.1 million, or 24.8%, to $71.0 million for the nine months ended September 30, 2014 from $56.9 million for the same prior year period.

 

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ECONOMIC CONSULTING

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(dollars in thousands, except rate per hour)								(dollars in thousands, except rate per hour)
Revenues		$	120,494			$	113,069			$	344,572			$	339,277
Operating expenses:
Direct cost of revenues			87,258				76,017				250,083				228,639
Selling, general and administrative expenses			15,683				14,692				47,805				42,902
Special charges			12				15				12				11
Acquisition-related contingent consideration			61				114				(606	)			161
Amortization of other intangible assets			235				523				763				1,331
			103,249				91,361				298,057				273,044
Segment operating income			17,245				21,708				46,515				66,233
Add back:
Depreciation and amortization of intangible assets			1,169				1,502				3,759				3,978
Special charges			12				15				12				11
Remeasurement of acquisition-related contingent consideration			—				—				(787	)			—
Adjusted Segment EBITDA		$	18,426			$	23,225			$	49,499			$	70,222
Gross profit (1)		$	33,236			$	37,052			$	94,489			$	110,638
Gross profit margin (2)			27.6	%			32.8	%			27.4	%			32.6	%
Adjusted Segment EBITDA as a percent of revenues			15.3	%			20.5	%			14.4	%			20.7	%
Number of revenue generating professionals (at period end)			551				528				551				528
Utilization rates of billable professionals			77	%			79	%			77	%			84	%
Average billable rate per hour		$	535			$	512			$	517			$	509

 

(1)	Revenues less direct cost of revenues

 

(2)	Gross profit as a percent of revenues

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Revenues increased $7.4 million, or 6.6%, to $120.5 million for the three months ended September 30, 2014 compared to $113.1 million for the same prior year period. Revenues increased organically $7.4 million, or 6.6%, including a 1.1% increase from the estimated positive impact from foreign currency translation. The remaining increase in revenue is due to higher demand for M&A related services and higher realized rates for our international arbitration services.

Gross profit decreased $3.8 million, or 10.3%, to $33.2 million for the three months ended September 30, 2014 compared to $37.1 million for the same prior year period. Gross profit margin decreased to 27.6% for the three months ended September 30, 2014 from 32.8% for the same prior year period. The decrease in gross profit margin was the result of increased compensation expense related to employment contract extensions of certain key senior client-service professionals, partially offset by higher realized bill rates that were partially related to staff mix.

SG&A expense increased $1.0 million, or 6.7%, to $15.7 million for the three months ended September 30, 2014 compared to $14.7 million for the same prior year period. SG&A expense was 13.0% of revenues for the three months ended September 30, 2014 compared to 13.0% for the same prior year period. The increase in SG&A expense was due to higher overall employee related support expenses. Bad debt expense was $1.8 million or 1.5% of revenues for the three months ended September 30, 2014 compared to $1.6 million or 1.4% of revenues for the same prior year period.

 

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Amortization of other intangible assets decreased to $0.2 million for the three months ended September 30, 2014, from $0.5 million for the same prior year period.

Adjusted Segment EBITDA decreased $4.8 million, or 20.7%, to $18.4 million for the three months ended September 30, 2014, compared to $23.2 million for the same prior year period.

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Revenues increased $5.3 million, or 1.6%, to $344.6 million for the nine months ended September 30, 2014 compared to $339.3 million for the same prior year period. Revenues increased $2.2 million, or 0.7%, due to acquisitions as compared to the same prior year period. Revenues increased organically $3.1 million, or 0.9%, which includes a 1.2% increase from the estimated positive impact of foreign currency translation, primarily due to higher demand for our antitrust practice and higher average realized bill rates in our international arbitration practice offset by a decline in our financial economics practice.

Gross profit decreased $16.1 million, or 14.6%, to $94.5 million for the nine months ended September 30, 2014 compared to $110.6 million for the same prior year period. Gross profit margin decreased to 27.4% for the nine months ended September 30, 2014 from 32.6% for the same prior year period. The decrease in gross profit margin was the result of employment contract extensions of key senior client-service professionals

SG&A expense increased $4.9 million, or 11.4%, to $47.8 million for the nine months ended September 30, 2014 compared to $42.9 million for the same prior year period. SG&A expense was 13.9% of revenues for the nine months ended September 30, 2014 compared to 12.6% for the same prior year period. The increase in SG&A expense was due to higher employee driven expenses, higher cost for IT services, higher travel and entertainment expenses related to marketing and business development and higher bad debt expense. Bad debt expense was $6.4 million or 1.9% of revenues for the nine months ended September 30, 2014 compared to $5.5 million or 1.6% of revenues for the same prior year period.

Amortization of other intangible assets decreased to $0.8 million for the nine months ended September 30, 2014, compared to $1.3 million for the same prior year period.

Adjusted Segment EBITDA decreased $20.7 million, or 29.5%, to $49.5 million for the nine months ended September 30, 2014, compared to $70.2 million for the same prior year period.

 

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TECHNOLOGY

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(dollars in thousands)								(dollars in thousands)
Revenues		$	62,359			$	51,201			$	183,142			$	149,101
Operating expenses:
Direct cost of revenues			31,364				23,906				95,013				68,893
Selling, general and administrative expenses			17,017				15,556				49,744				45,111
Special charges			19				2				19				16
Amortization of other intangible assets			218				1,982				654				5,952
			48,618				41,446				145,430				119,972
Segment operating income			13,741				9,755				37,712				29,129
Add back:
Depreciation and amortization of intangible assets			4,075				5,624				12,556				16,840
Special charges			19				2				19				16
Adjusted Segment EBITDA		$	17,835			$	15,381			$	50,287			$	45,985
Gross profit (1)		$	30,995			$	27,295			$	88,129			$	80,208
Gross profit margin (2)			49.7	%			53.3	%			48.1	%			53.8	%
Adjusted Segment EBITDA as a percent of revenues			28.6	%			30.0	%			27.5	%			30.8	%
Number of revenue generating professionals (at period end) (3)			335				297				335				297

 

(1)	Revenues less direct cost of revenues

 

(2)	Gross profit as a percent of revenues

 

(3)	Includes personnel involved in direct client assistance and revenue generating consultants

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Revenue increased by $11.2 million, or 21.8%, to $62.4 million for the three months ended September 30, 2014 compared to $51.2 million for the same prior year period. The increase in revenue is due to continued higher demand from complex global investigations and financial services industry investigations that more than offset lower services pricing.

Gross profit increased by $3.7 million to $31.0 million for the three months ended September 30, 2014 compared to the $27.3 million for the same prior year period. Gross profit margin decreased to 49.7% of revenue from 53.3% of revenue compared to the same prior year period. The gross profit margin decline is due to an increased mix of lower margin services and investments in global data centers and operations support.

SG&A increased by $1.5 million, or 9.4%, to $17.0 million for the three months ended September 30, 2014 compared to $15.6 million for the same prior year period. SG&A expense was 27.3% of revenue for the three months ended September 30, 2014 compared to 30.4% of revenue for the same prior year period. SG&A expense increased due to hiring to support increased research and development, marketing and business development activities partially offset by bad debt recoveries of previously reserved balances. Research and development expense was $4.7 million for the three months ended September 30, 2014 compared to $4.1 million for the same prior year period.

 

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Amortization of other intangible assets decreased $1.8 million to $0.2 million for the three months ended September 30, 2014 compared to $2.0 million for the same prior year period. The decrease was due to the impact of certain intangible assets being fully amortized at the end of 2013.

Adjusted Segment EBITDA increased by $2.5 million, or 16.0%, for the three months ended September 30, 2014, compared to $15.4 million for the same prior year period.

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Revenue increased by $34.0 million, or 22.8%, to $183.1 million for the nine months ended September 30, 2014 compared to the $149.1 million for the same prior year period. The increase was due to higher services volumes in complex global investigations and financial services industry matters as well as an increase in consulting volume partially offset by lower services pricing.

Gross profit increased by $7.9 million, or 9.9%, to $88.1 million for the nine months ended September 30, 2014 compared to the $80.2 million for the same prior year period. Gross profit margin percentage decreased to 48.1% of revenue from 53.8%, or down 5.7 percentage points compared to the same prior year period. The gross profit margin percentage decrease was due to a change in the mix of revenue with higher margin unit-based revenue comprising a smaller percentage of total revenue, higher third party costs to support increased document review volumes, increased infrastructure costs as part of the global expansion of certain services capabilities and increased amortization of previously capitalized software development costs.

SG&A increased by $4.6 million, or 10.3%, to $49.7 million for the nine months ended September 30, 2014 compared to the $45.1 million for the same prior year period. SG&A expense was 27.2% of revenue for the nine months ended September 30, 2014 compared to 30.3% of revenue for the same prior year period. The SG&A expense increase was related to higher personnel costs in research and development and business development and marketing, corporate allocations in support of operations, reduced capitalization of software development costs, and higher rent in support of the additional personnel. Research and development expense was $13.7 million for the nine months ended September 30, 2014 compared to $11.6 million for the same prior year period. Bad debt expense decreased by $1.3 million due to increased recoveries of previously reserved balances.

Amortization of other intangible assets decreased $5.3 million to $0.7 million for the nine months ended September 30, 2014, compared to $6.0 million for the same prior year period. The decrease is due to the impact of certain intangible assets being fully amortized at the end of 2013.

Adjusted Segment EBITDA increased by $4.3 million, or 9.4%, to $50.3 million for the nine months ended September 30, 2014, compared to $46.0 million for the same prior year period.

 

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STRATEGIC COMMUNICATIONS

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		(dollars in thousands)								(dollars in thousands)
Revenues		$	46,552			$	43,324			$	143,055			$	139,369
Operating expenses:
Direct cost of revenues			29,272				28,317				92,010				91,932
Selling, general and administrative expenses			11,154				11,431				37,366				36,262
Special charges			3				2				3				66
Acquisition-related contingent consideration			131				115				395				264
Amortization of other intangible assets			1,117				1,197				3,371				3,462
Goodwill impairment charge			—				83,752				—				83,752
			41,677				124,814				133,145				215,738
Segment operating income (loss)			4,875				(81,490	)			9,910				(76,369	)
Add back:
Depreciation and amortization of intangible assets			1,727				1,772				5,255				5,360
Special charges			3				2				3				66
Goodwill impairment charge			—				83,752				—				83,752
Adjusted Segment EBITDA		$	6,605			$	4,036			$	15,168			$	12,809
Gross profit (1)		$	17,280			$	15,007			$	51,045			$	47,437
Gross profit margin (2)			37.1	%			34.6	%			35.7	%			34.0	%
Adjusted Segment EBITDA as a percent of revenues			14.2	%			9.3	%			10.6	%			9.2	%
Number of revenue generating professionals (at period end)			549				617				549				617

 

(1)	Revenues less direct cost of revenues

 

(2)	Gross profit as a percent of revenues

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Revenues increased $3.2 million, or 7.5%, to $46.6 million for the three months ended September 30, 2014 from $43.3 million for the same prior year period, including a 2.3% estimated positive impact from foreign currency translation, primarily due to the strengthening of the British pound relative to the U.S. dollar. The remaining revenue increase was primarily due to an increase in project revenues in North America and Asia Pacific.

Gross profit increased $2.3 million, or 15.1%, to $17.3 million for the three months ended September 30, 2014 from $15.0 million for the same prior year period. Gross profit margin increased to 37.1% for the three months ended September 30, 2014 from 34.6% for the same prior year period due to the mix of project engagements.

SG&A expense decreased $0.3 million, or 2.4%, to $11.2 million for the three months ended September 30, 2014 from $11.4 million for the same prior year period, including a 2.0% increase from the estimated impact of foreign currency translation. SG&A expense was 24.0% of revenue for the three months ended September 30, 2014, down from 26.4% of revenue for the same prior year period. The SG&A decrease was the result of lower facilities costs, partially offset by higher bad debt expense.

Amortization of other intangible assets decreased to $1.1 million for the three months ended September 30, 2014 from $1.2 million for the same prior year period.

Adjusted Segment EBITDA increased $2.6 million, or 63.7%, to $6.6 million for the three months ended September 30, 2014, from $4.0 million for the same prior year period.

 

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During the third quarter of 2013, we recorded an $83.8 million non-deductible goodwill impairment charge related to the Strategic Communications segment.

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Revenues increased $3.7 million, or 2.6%, to $143.1 million for the nine months ended September 30, 2014 from $139.4 million for the same prior year period, which included a 2.1% estimated increase from the positive impact of foreign currency translation, which was primarily due to the strengthening of the British pound relative to the U.S. dollar. The revenue increase was primarily due to an increase in retainer-based revenue in our EMEA region, increased project revenue in North America and Asia Pacific, partially offset by lower pass-through revenues in our North America and EMEA regions.

Gross profit increased $3.6 million, or 7.6%, to $51.0 million for the nine months ended September 30, 2014 from $47.4 million for the same prior year period. Gross profit margin increased 1.7 percentage points to 35.7% for the nine months ended September 30, 2014 from 34.0% for the same prior year period. The increase in gross profit margin was primarily due to improved revenue growth and mix involving higher margin engagements and lower proportion of low margin pass through revenues.

SG&A expense increased $1.1 million, or 3.0%, to $37.4 million for the nine months ended September 30, 2014 from $36.3 million for the same prior year period. SG&A expense was 26.1% of revenue for the nine months ended September 30, 2014, up from 26.0% of revenue for the same prior year period. The increase in SG&A was primarily due to higher facilities expenses related to the transition to our new London office and severance expense recorded in the EMEA region.

Amortization of other intangible assets decreased to $3.4 million for the nine months ended September 30, 2014 from $3.5 million for the same prior year period.

Adjusted Segment EBITDA increased $2.4 million, or 18.4%, to $15.2 million for the nine months ended September 30, 2014 from $12.8 million for the same prior year period.

During the third quarter of 2013, we recorded an $83.8 million non-deductible goodwill impairment charge related to the Strategic Communications segment.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013 describes the significant accounting policies and methods used in preparation of the Consolidated Financial Statements. We evaluate our estimates, including those related to bad debts, goodwill, income taxes and contingencies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

 

•

Revenue recognition

 

•

Allowance for doubtful accounts and unbilled services

 

•

Goodwill and other intangible assets

 

•

Business combinations

 

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•

Share-based compensation

 

•

Income taxes

There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies,” as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 24, 2014.

Goodwill and Other Intangible Assets

On a quarterly basis, we monitor the key drivers of fair value to detect events or other changes that would warrant an interim impairment test of our goodwill and intangible assets. Factors we consider important which could trigger an interim impairment review include, but are not limited to the following: significant underperformance relative to historical or projected future operating results; a significant change in the manner of our use of the acquired asset or strategy for our overall business; a significant negative industry or economic trend; and our market capitalization relative to net book value. When we evaluate these factors and determine that a triggering event has occurred, we perform an interim impairment analysis.

As of October 1, 2013, the date of our last annual goodwill impairment test, the fair value of all of our reporting units, with the exception of the Strategic Communications reporting unit, substantially exceeded the carrying value. The Strategic Communications reporting unit carrying value was adjusted to fair value through an $83.3 million goodwill impairment charge as of September 30, 2013. Through our quarterly assessment, we determined that there were no events or circumstances that more likely than not would reduce the fair value of any of our reporting units below their carrying value.

There can be no assurance that the estimates and assumptions used in our goodwill impairment testing will prove to be accurate predictions of the future. If our assumptions regarding forecasted cash flows are not achieved, we may be required to perform the two-step quantitative goodwill impairment analysis prior to our next annual impairment test. In addition, if the aforementioned factors have the effect of changing one of the critical assumptions or estimates we use to calculate the value of our goodwill or intangible assets, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment test or if a triggering event occurs outside of the quarter during which the annual goodwill impairment test is performed. It is not possible at this time to determine if any future impairment charge would result or, if it does, whether such charge would be material.

SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The new guidance is effective for annual periods ending after December 15, 2016 and interim periods thereafter, with early adoption permitted. The adoption of this ASU is not expected to have an impact on the Company’s consolidated financial position or results of operations.

In May 2014, the Financial Accounting Standards Board issued ASU 2014-09, Revenue from Contracts with Customers, or ASU 2014-09. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for interim and annual periods beginning after December 15, 2016 and early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU. The Company is currently evaluating which transition approach to use and the impact of the adoption of this accounting standard update on its condensed consolidated financial statements.

 

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In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08. ASU 2014-08 amends the criteria for reporting a discontinued operation. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s operations and financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. This guidance is effective for interim and annual periods beginning after December 15, 2014, with early adoption permitted. ASU 2014-08 would impact the Company’s consolidated results of operations and financial condition only in the instance of an event or transaction described above.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

 

		Nine Months Ended September 30,
		2014				2013
		(dollars in thousands)
Net cash provided by operating activities		$	20,479			$	103,806
Net cash used in investing activities		$	(47,412	)		$	(63,736	)
Net cash provided by (used in) financing activities		$	1,510			$	(49,361	)
DSO			107				102

We have generally financed our day-to-day operations, capital expenditures and acquisition-related contingent payments through cash flows from operations. Generally, during our first quarter of each fiscal year, our cash needs exceed our cash flows from operations due to the payments of annual incentive compensation and acquisition-related contingent payments. Our operating cash flows generally exceed our cash needs subsequent to the first quarter of each year.

Our operating assets and liabilities consist primarily of billed and unbilled accounts receivable, notes receivable from employees, accounts payable, accrued expenses and accrued compensation expense. The timing of billings and collections of receivables as well as payments for compensation arrangements affect the changes in these balances.

DSO is a performance measure used to assess how quickly revenues are collected by the Company. We calculate DSO at the end of each reporting period by dividing net accounts receivable reduced by billings in excess of services provided, by revenue for the quarter, adjusted for changes in foreign exchange rates. We multiply the result by the number of days in the quarter. Our DSO typically reaches its lowest point at December 31 each year and has consistently increased during the following quarters.

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Cash provided by operating activities was $20.5 million for the nine months ended September 30, 2014 compared to $103.8 million for the same prior year period. The primary driver for the $83.3 million decrease in operating cash flows relative to the prior year was higher salary payments driven by the impact of salary increases and headcount additions, and the timing of bonus payments. DSO, which is one measure of the collections cycle, was 107 days at September 30, 2014 and 102 days at September 30, 2013. Current DSO compared to the prior year has been impacted by the mix of revenues between our segments and extended payment terms which have been granted to certain large scale engagements.

Net cash used in investing activities for the nine months ended September 30, 2014 was $47.4 million compared to $63.7 million for the same prior year period. Payments for acquisitions completed during the nine

 

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months ended September 30, 2014 were $1.0 million, net of cash received, compared to $30.4 million for the same prior year period. Payments of acquisition-related contingent consideration were $14.6 million for the nine months ended September 30, 2014 compared to payments of acquisition-related contingent consideration and stock price guarantees of $6.2 million and $4.1 million, respectively, for the same prior year period. Capital expenditures were $31.8 million for the nine months ended September 30, 2014 compared to $23.0 million for the same prior year period.

Net cash provided by financing activities for the nine months ended September 30, 2014 was $1.5 million compared to net cash used in financing activities of $49.4 million for the same prior year period. Our financing activities for the nine months ended September 30, 2014 included payments of $4.4 million to settle repurchases of the Company’s common stock that were made, but not settled in the fourth quarter of 2013, and the receipt of $13.0 million of refundable deposits related to one of our foreign entities. Our financing activities for the nine months ended September 30, 2013 included the purchase and retirement of 1,422,025 shares of our common stock, at an aggregate cost of $48.8 million.

Capital Resources

As of September 30, 2014, our capital resources included $178.8 million of cash and cash equivalents and available borrowing capacity of $348.6 million under our $350.0 senior secured bank credit facility (“bank credit facility”). As of September 30, 2014, we had no outstanding borrowings under our bank credit facility and $1.4 million of outstanding letters of credit, which reduced the availability of borrowings under the bank credit facility. We use letters of credit primarily in lieu of security deposits for our leased office facilities.

Future Capital Needs

We anticipate that our future capital needs will principally consist of funds required for:

 

•

operating and general corporate expenses relating to the operation of our businesses;

 

•

capital expenditures, primarily for information technology equipment, office furniture and leasehold improvements;

 

•

debt service requirements, including interest payments on our long-term debt;

 

•

compensating designated executive management and senior managing directors under our various long-term incentive compensation programs;

 

•

contingent obligations related to our acquisitions;

 

•

potential acquisitions of businesses that would allow us to diversify or expand our service offerings; and

 

•

other known future contractual obligations.

For the full fiscal year ending December 31, 2014, we anticipate aggregate capital expenditures will range between $40.0 million and $44.0 million to support our organization, including direct support for specific client engagements of which we currently anticipate capital expenditures will range between $8.0 million and $12.0 million in the fourth quarter of 2014. Our estimate takes into consideration the needs of our existing businesses but does not include the impact of any purchases that we make as a result of future acquisitions or specific client engagements that are not currently contemplated. Our capital expenditure requirements may change if our staffing levels or technology needs change significantly from what we currently anticipate, if we purchase additional equipment specifically to support a client engagement or if we pursue and complete additional acquisitions.

For business combinations consummated on or after January 1, 2009, contingent consideration obligations are recorded as liabilities on our Condensed Consolidated Balance Sheets and remeasured to fair value at each subsequent reporting date with an offset to current period earnings. The fair value of future expected contingent purchase price obligations for these business combinations are $6.7 million at September 30, 2014 with payment dates extending through 2018.

 

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For the last several years, our cash flows from operations have exceeded our cash needs for capital expenditures and debt service requirements. We believe that our cash flows from operations, supplemented by short-term borrowings under our bank credit facility, as necessary, will provide adequate cash to fund our long-term cash needs from normal operations for at least the next twelve months.

Our conclusion that we will be able to fund our cash requirements by using existing capital resources and cash generated from operations does not take into account the impact of any future acquisition transactions or any unexpected significant changes in the number of employees or other expenditures that are currently not contemplated. The anticipated cash needs of our businesses could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if economic conditions change from those currently prevailing or from those now anticipated, or if other unexpected circumstances arise that have a material effect on the cash flow or profitability of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to raise additional debt or equity funding to meet those needs. Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:

 

•

our future profitability;

 

•

the quality of our accounts receivable;

 

•

our relative levels of debt and equity;

 

•

the volatility and overall condition of the capital markets; and

 

•

the market prices of our securities.

Any new debt funding, if available, may be on terms less favorable to us than our bank credit facility or the indentures that govern our 6³/₄% Senior Notes Due 2020 and 6.0% Senior Notes Due 2022. See “—Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Risk Factors” included in Part I—Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than operating leases, and we have not entered into any transactions involving unconsolidated subsidiaries or special purpose entities.

Future Contractual Obligations

There have been no significant changes in our future contractual obligations since December 31, 2013.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance, future capital expenditures, expectations, plans or intentions relating to acquisitions and other matters, business trends and other information that is not historical. Forward-looking statements often contain words such as estimates, expects, anticipates, projects, plans, intends, believes, forecasts and variations of such words or similar expressions. All forward-looking statements, including, without limitation, management’s examination of historical operating trends, are based upon our historical performance and our current plans, estimates and expectations at the time we make them and various assumptions. There can be no assurance that management’s expectations, beliefs and projections will result or be achieved. Our actual financial results, performance or achievements could differ materially from those expressed in, or implied by, any forward-looking

 

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statements. The inclusion of any forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Given these risks, uncertainties and other factors, you should not place undue reliance on any forward-looking statements.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in, or implied by, this Quarterly Report on Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q are set forth under the heading “Risk Factors” included in Part I—Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q include the following:

 

•

changes in demand for our services;

 

•

our ability to attract and retain qualified professionals and senior management;

 

•

conflicts resulting in our inability to represent certain clients;

 

•

our former employees joining or forming competing businesses;

 

•

our ability to manage our professionals’ utilization and billing rates and maintain or increase the pricing of our services and products;

 

•

our ability to identify suitable acquisition candidates, negotiate favorable terms, take advantage of opportunistic acquisition situations and integrate the operations of acquisitions as well as the costs of integration;

 

•

our ability to adapt to and manage the risks associated with operating in non-U.S. markets;

 

•

our ability to replace key personnel, including senior managers and practice and regional leaders who have highly specialized skills and experience;

 

•

our ability to protect the confidentiality of internal and client data and proprietary and confidential information;

 

•

legislation or judicial rulings, including rulings regarding data privacy and the discovery process;

 

•

periodic fluctuations in revenues, operating income and cash flows;

 

•

damage to our reputation as a result of claims involving the quality of our services;

 

•

fee discounting or renegotiation, lower pricing, less advantageous contract terms and unexpected terminations of client engagements;

 

•

competition for clients and key personnel;

 

•

general economic factors, industry trends, restructuring and bankruptcy rates, legal or regulatory requirements, capital market conditions, merger and acquisition activity, major litigation activity and other events outside of our control;

 

•

our ability to manage growth;

 

•

risk of non-payment of receivables;

 

•

the amount and terms of our outstanding indebtedness;

 

•

risks relating to the obsolescence of, changes to, or the protection of, our proprietary software products and intellectual property rights; and

 

•

fluctuations in the mix of our services and the geographic locations in which our clients are located or our services are rendered.

 

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There may be other factors that may cause our actual results to differ materially from our forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included herein. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances and do not intend to do so.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risks see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no significant changes in our market risk exposure during the period covered by this Quarterly Report on Form 10-Q.

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) included, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

Item 1.

Legal Proceedings

From time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with any certainty and in the case of more complex legal proceedings such as intellectual property and securities litigation, the results are difficult to predict at all. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of our operations.

 

Item 1A.

Risk Factors

There has been no material change in any risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2014. We may disclose changes to risk factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered sales of equity securities.

None

Repurchases of our common stock. The following table provides information with respect to purchases we made of our common stock during the third quarter ended September 30, 2014.

 

		Total Number of Shares Purchased				Average Price Paid per Share				Shares Purchased as Part of Publicly Announced Program				Approximate Dollar Value that May Yet Be Purchased Under the Program
July 1 through July 31, 2014			3,353	(1)		$	37.06				—			$	—
August 1 through August 31, 2014			1,063	(1)		$	37.07				—			$	—
September 1 through September 30, 2014			5,201	(1)		$	36.88				—			$	—
Total			9,617								—			$	—

 

(1)	Represents shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock.

 

Item 3.

Defaults Upon Senior Securities.

None

 

Item 4.

Mine Safety Disclosures.

Not applicable

 

Item 5.

Other Information.

None

 

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Item 6.

Exhibits

(a) Exhibits.

 

Exhibit Number		Exhibit Description
3.1		Articles of Incorporation of FTI Consulting, Inc., as amended and restated. (Filed with the SEC on May 23, 2003 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated May 21, 2003 and incorporated herein by reference.)
3.2		Articles of Amendment of FTI Consulting, Inc. (Filed with the SEC on June 2, 2011 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated June 1, 2011 and incorporated herein by reference.)
3.3		Bylaws of FTI Consulting, Inc., as amended and restated on June 1, 2011 (Filed with the SEC on June 2, 2011 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated June 1, 2011 and incorporated herein by reference.)
3.4		Amendment No. 1 to Amended and Restated Bylaws of FTI Consulting, Inc. (Filed with the SEC on December 16, 2013 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated December 13, 2013 and incorporated herein by reference.)
3.5		Amendment No. 2 to Amended and Restated Bylaws of FTI Consulting, Inc. (Filed with the SEC on September 22, 2014 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated September 17, 2014 and incorporated herein by reference.)
10.1*		Offer of Employment Letter dated July 10, 2014, by and between FTI Consulting, Inc. and David M. Johnson (Filed with the SEC on July 31,2014 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated July 30, 2014 and incorporated herein by reference.)
10.2*		Form of FTI Consulting, Inc. Restricted Stock Agreement for Employment Inducement Awards to Chief Financial Officer and Chief Strategy and Transformation Officer (Filed with the SEC on August 22, 2014 as an exhibit to FTI Consulting, Inc.’s Registration Statement on Form S-8 (File No.: 333-198311) and incorporated herein by reference.)
10.3*		Form of FTI Consulting, Inc. Non-Statutory Stock Option Agreement for Employment Inducement Award to Chief Financial Officer and Chief Strategy and Transformation Officer (Filed with the SEC on August 22, 2014 as an exhibit to FTI Consulting, Inc.’s Registration Statement on Form S-8 (File No.: 333-198311) and incorporated herein by reference.)
10.4†*		Offer of Employment Letter dated July 15, 2014, by and between FTI Consulting, Inc. and Paul Linton
10.5†*		Offer of Employment Letter dated July 2, 2014, by and between FTI Consulting, Inc. and Holly Paul
10.6†*		Amendment No. 1 to Offer of Employment Letter dated July 27, 2014, by and between FTI Consulting, Inc. and Holly Paul
31.1†		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended (Section 302 of the Sarbanes-Oxley Act of 2002).
31.2†		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended (Section 302 of the Sarbanes-Oxley Act of 2002).
32.1†		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
32.2†		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

 

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Exhibit Number		Exhibit Description
99.1		FTI Consulting, Inc. Corporate Governance Guidelines, Amended and Restated Effective as of September 17, 2014 (Filed with the SEC on September 22, 2014 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated September 17, 2014 and incorporated herein by reference.)
101		The following financial information from the Quarterly Report on Form 10-Q of FTI Consulting, Inc. for the quarter ended September 30, 2014, filed electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Income (Loss); (iii) Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.

 

*	Management contract or compensatory plan or arrangement

†	Filed herewith

 

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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.

Date: October 30, 2014

 

 

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