FTI Consulting, Inc. - 10-Q Summary (Period Ended June 30, 2002)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2002, and the six-month period ended June 30, 2002. FTI Consulting, Inc. is a multi-disciplined consulting firm operating through three segments: Financial Consulting, Applied Sciences, and Litigation Consulting. The company adopted Financial Accounting Standards Board (FASB) Statement No. 142 effective January 1, 2002, which eliminated the requirement to amortize goodwill.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2002 | Six Months Ended June 30, 2001 |
|---|---|---|
| Revenues | $101.8 million | $83.6 million |
| Net Income | $13.3 million | $8.0 million |
| Diluted EPS | $0.62 | $0.43 |
| Operating Cash Flow | $13.0 million | $10.0 million |
| Cash and Equivalents | $21.2 million | $3.2 million (beginning of period) |
| Total Debt | $26.0 million | $28.2 million (Dec 31, 2001) |
| Direct Cost of Revenues | 50.5% of revenue | 52.0% of revenue |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 21.8% year-over-year. Financial Consulting revenue grew 34.5% to $64.7 million, driven by strong demand for restructuring and forensic accounting services. Applied Sciences revenue grew 14.8% to $24.1 million, aided by World Trade Center restoration assignments. Litigation Consulting revenue declined 10.3% to $13.0 million.
- Profitability: Net income increased 66% to $13.3 million. This improvement was significantly aided by the cessation of goodwill amortization ($2.5 million expense in 2001 vs. $0 in 2002) and reduced interest expense due to debt retirement and lower rates.
- Accounting Changes: The adoption of FASB 142 eliminated goodwill amortization. No goodwill impairment was identified in the transitional test.
- Acquisitions: The company acquired Technology & Financial Consulting, Inc. (TFC) on January 2, 2002, for $4.1 million, adding intellectual property consulting capabilities.
Guidance, Outlook, and Risks
- Strategic Transactions: On July 24, 2002, the company agreed to acquire the PricewaterhouseCoopers (PwC) U.S. Business Recovery Services division for $140 million in cash plus 3.0 million shares. The cash portion will be financed via existing cash and a new senior bank credit facility (approx. $75 million term loan and $100 million revolving line).
- Divestiture: The company is exploring the sale of its Applied Sciences division to a group led by the division's president. No significant losses are expected from this sale.
- Outlook: Management expects strong demand for Financial Consulting services to continue. Applied Sciences growth is expected to return to its historical 6-10% range. Litigation Consulting is expected to continue its decline.
- Liquidity: As of June 30, 2002, the company held $21.2 million in cash with $46.6 million available under its revolving credit agreement. Management believes these resources are sufficient for near-term operations.
- Risks: Market risks include exposure to variable interest rates, though this is hedged via interest rate swaps. Forward-looking statements are subject to risks regarding the completion of the PwC acquisition and the sale of the Applied Sciences division.
Investor Verification Checklist
- Verify the closing conditions and financing details for the PwC Business Recovery Services acquisition.
- Monitor the progress and terms of the potential sale of the Applied Sciences division.
- Assess the sustainability of the 34.5% revenue growth in the Financial Consulting segment post-acquisition.
- Review the impact of the new $175 million credit facility on future interest expense and leverage ratios.
- Confirm the trend in Litigation Consulting revenues and the effectiveness of management's mitigation strategies.