FTI Consulting, Inc. - 10-K Summary (Fiscal Year Ended Dec 31, 1999)
Business Context and Reporting Period
This Annual Report on Form 10-K covers the fiscal year ended December 31, 1999. FTI Consulting, Inc. is a multi-disciplined consulting firm specializing in financial restructuring, litigation support, and engineering/scientific investigation. The company operates through three divisions: Expert Financial Services, Litigation Services, and Applied Sciences. FTI serves corporations, law firms, banks, and insurance companies, with a strategy focused on aggressive acquisitions and geographic expansion.
Key Financial Metrics
| Metric | 1999 | 1998 |
|---|---|---|
| Revenues | $84.6 million | $58.6 million |
| Net Income | $3.0 million | $2.6 million |
| Operating Income | $9.3 million | $5.7 million |
| Cash Flow from Operations | $8.4 million | $5.3 million |
| Direct Cost of Revenues | 52.2% of Revenue | 53.6% of Revenue |
| Long-Term Debt | $41.2 million | $35.6 million |
| Working Capital | $19.2 million | $9.1 million |
| Goodwill (Net) | $43.7 million | $45.2 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 44.4% to $84.6 million. The Expert Financial Services division grew 114.0% (driven by 1998 acquisitions and internal growth), and Applied Sciences grew 56.2% (primarily due to the S.E.A. acquisition). Litigation Services grew 9.8%.
- Profitability: Net income rose 16.5% to $2.99 million, despite a significant increase in interest expense ($4.15 million in 1999 vs. $1.48 million in 1998) and goodwill amortization ($2.31 million vs. $0.996 million).
- Acquisitions: The company completed six acquisitions over the prior three years, significantly expanding its service offerings and geographic footprint. Notable 1998 acquisitions included Klick, Kent & Allen, S.E.A., and Kahn Consulting.
- Stock Performance: Common stock trading moved from Nasdaq to the American Stock Exchange in March 1999. The stock price ranged from a low of $2.375 to a high of $6.375 in 1999.
Guidance, Outlook, Risks, and Unusual Items
Subsequent Event (Acquisition & Refinancing): On February 4, 2000, FTI acquired Policano & Manzo, L.L.C. ("P&M") for approximately $53 million ($47.5 million cash + stock). To finance this, the company entered into a new $91 million debt facility (including a $61 million term loan and $30 million subordinated debt), significantly increasing leverage.
Outlook: Management expects cash flows from operations to increase in 2000 due to acquired businesses. The company anticipates substantial increases in goodwill amortization and interest expense in 2000 due to the P&M acquisition.
Risks:
- High Leverage: Post-acquisition indebtedness totals $91 million plus a $7.5 million revolving line. The company is subject to strict financial covenants.
- Goodwill Impairment: The company holds approximately $96 million in goodwill (including pro forma P&M). Impairment could result in significant charges against income.
- Key Personnel: Loss of key officers (Jack B. Dunn, IV or Stewart J. Kahn) without replacement within 90 days constitutes a default under credit facilities.
- Market Risk: $33 million of debt (as of Dec 31, 1999) bears variable interest rates. A 200 basis point increase would reduce net income by approximately $372,000.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the new $91 million credit facility covenants, particularly regarding leverage ratios and liquidity.
- Goodwill Valuation: Assess the recoverability of the $96 million goodwill balance, especially given the high leverage and potential for industry downturns.
- Integration of P&M: Monitor the successful integration of the Policano & Manzo acquisition and its impact on 2000 operating margins.
- Interest Rate Exposure: Evaluate the impact of rising interest rates on the $61 million variable-rate term loan.
- Client Concentration: Confirm that no single client exceeds 10% of revenue (stated as true for 1999) and monitor for any shifts in client mix.