FTI Consulting, Inc. - 10-K Summary (Fiscal Year Ended Dec 31, 2001)
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2001, for FTI Consulting, Inc., a multi-disciplined consulting firm specializing in financial restructuring, litigation consulting, and engineering/scientific investigation. The company operates through three divisions: Financial Consulting (58.4% of revenue), Applied Sciences (26.4%), and Litigation Consulting (15.2%). As of December 31, 2001, the firm employed 582 professionals across 33 U.S. locations.
Key Financial Metrics
| Metric | 2001 | 2000 |
|---|---|---|
| Revenues | $166.4 million | $134.8 million |
| Net Income | $16.5 million | $2.6 million |
| Operating Income | $32.3 million | $24.6 million |
| Cash Flow from Operations | $27.3 million | $15.6 million |
| Direct Cost of Revenues | 50.2% | 51.0% |
| Long-Term Debt | $28.2 million | $61.0 million |
| Working Capital | $28.8 million | $20.2 million |
| Earnings Per Share (Diluted) | $0.84 | $0.21 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 23.4% to $166.4 million, driven primarily by a 51.2% surge in the Financial Consulting division ($97.1 million) due to high demand for restructuring and forensic accounting services.
- Profitability: Net income increased significantly to $16.5 million from $2.6 million in 2000. This improvement was aided by a reduction in interest expense (due to debt paydown and lower rates) and the absence of the $5.4 million extraordinary loss on debt extinguishment recorded in 2000.
- Segment Performance: While Financial Consulting and Applied Sciences (up 12.2%) grew, Litigation Consulting revenues declined 19.7% to $25.2 million due to an unusual number of trials being deferred or settled.
- Debt Reduction: The company aggressively reduced its debt load, paying down $32.3 million during the year. Total long-term debt dropped from $61.0 million in 2000 to $28.2 million in 2001.
Guidance, Outlook, and Risks
Outlook: Management expects strong demand for Financial Consulting services to continue in 2002. Applied Sciences growth is expected to return to its historical 6-10% range. The decline in Litigation Consulting is not expected to reverse in 2002; the company is implementing cost containment measures and reorganizing this division.
Accounting Changes: Effective January 1, 2002, the company will adopt FASB Statement No. 142, eliminating the amortization of goodwill (previously $5.0 million annually) in favor of annual impairment testing. Management does not anticipate a transitional impairment charge.
Risks: Key risks include dependence on key professionals, intense competition, professional liability exposure, and the potential for revenue fluctuation due to the timing of client assignments. The company also faces risks related to the rapid evolution of technology in litigation consulting.
Investor Verification Checklist
- Goodwill Valuation: Verify the company's assessment of goodwill impairment under the new FASB 142 standard, as goodwill represents 58% of total assets ($90.2 million).
- Litigation Segment Turnaround: Monitor the effectiveness of cost-cutting and reorganization efforts in the Litigation Consulting division to determine if the revenue decline stabilizes.
- Debt Covenants: Confirm continued compliance with financial covenants under the $80 million credit facility, which restricts dividend payments.
- Client Concentration: Note that the largest client represented less than 2.4% of revenue, indicating low concentration risk, but verify the stability of the top 100 law firm and Fortune 500 client base.
- Stock-Based Compensation: Review the pro forma impact of stock options on net income, as the company uses the intrinsic value method rather than the fair value method required by Statement 123.