FTI Consulting, Inc. - 10-K Summary (Fiscal Year Ended Dec 31, 2000)
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2000. FTI Consulting, Inc. is a multi-disciplined consulting firm specializing in financial restructuring, litigation consulting, and engineering/scientific investigation. The company operates through three divisions: Financial Consulting, Litigation Consulting, and Applied Sciences. A significant event during the period was the acquisition of Policano & Manzo, L.L.C. (P&M) in February 2000 for $54.9 million, which significantly expanded the Financial Consulting division.
Key Financial Metrics
| Metric | 2000 (Actual) | 2000 (Pro Forma) | 1999 |
|---|---|---|---|
| Revenues | $134.8 million | $137.2 million | $84.6 million |
| Income from Operations | $24.6 million | $25.8 million | $9.3 million |
| Net Income | $2.6 million | $2.9 million | $3.0 million |
| EPS (Diluted) | $0.32 | $0.36 | $0.59 |
| Operating Margin | 18.3% | 18.8% | 11.0% |
| Cash Flow from Operations | $15.6 million | N/A | $8.4 million |
| Total Debt | $60.5 million | N/A | $42.7 million |
| Goodwill (Net) | $92.0 million | N/A | $43.7 million |
| Stockholders' Equity | $68.6 million | N/A | $30.3 million |
Note: Pro Forma figures assume the P&M acquisition occurred on January 1, 1999.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 59.3% to $134.8 million, driven primarily by the P&M acquisition and organic growth in the Financial Consulting division (which grew 222.6% to $64.2 million).
- Profitability: Operating income more than doubled to $24.6 million. However, Net Income decreased to $2.6 million from $3.0 million in 1999 due to a $5.4 million extraordinary loss on the early extinguishment of debt.
- Debt Structure: Total debt increased to $60.5 million to finance the P&M acquisition. In Q4 2000, the company refinanced its debt, repaying $30.0 million in senior subordinated notes using proceeds from a public equity offering of 4.025 million shares.
- Intangible Assets: Goodwill increased significantly to $92.0 million (62.9% of total assets) due to acquisitions, resulting in higher amortization expenses ($4.7 million in 2000 vs. $2.3 million in 1999).
Guidance, Outlook, and Risks
Outlook: Management expects the bankruptcy and financial restructuring market to continue growing due to corporate defaults and deregulation. The company plans to continue expanding through selective acquisitions and leveraging its nationwide network of 33 offices.
Risks and Contingencies:
- Goodwill Impairment: With $92.0 million in goodwill, the company faces a risk of future write-downs if acquired businesses underperform.
- Debt and Liquidity: The company operates with substantial leverage ($60.5 million debt) and a deficit in tangible net worth ($23.4 million). Credit facilities restrict dividend payments.
- Key Personnel: Success depends heavily on retaining key professionals and management, as there are no non-competition agreements with most staff.
- Seasonality: Business typically slows in the third quarter due to court recesses and vacations.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the new credit facility covenants, particularly regarding operating performance and leverage ratios.
- Goodwill Valuation: Monitor the recoverability of the $92.0 million goodwill balance, especially given the high proportion of intangible assets to equity.
- Integration of P&M: Assess whether the Financial Consulting division continues to realize the expected synergies and revenue growth from the Policano & Manzo acquisition.
- Interest Rate Exposure: Review the impact of variable interest rates on the remaining $28.0 million of unhedged debt.
- Client Concentration: Confirm that no single client represents more than 10% of revenue (currently the largest client is <7%).