-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PfvfYq4LkhmlxUQUGM0ll21bG9Kg2ollh3eXwHyBqComL3z4eC/zqRwBg2usbpea AoBoRzAbivrmjaLUwPO6sg== 0001005150-98-001188.txt : 19981203 0001005150-98-001188.hdr.sgml : 19981203 ACCESSION NUMBER: 0001005150-98-001188 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980917 ITEM INFORMATION: FILED AS OF DATE: 19981201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FTI CONSULTING INC CENTRAL INDEX KEY: 0000887936 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 521261113 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 333-02002 FILM NUMBER: 98762498 BUSINESS ADDRESS: STREET 1: 2021 RESEARCH DR CITY: ANNAPOLIS STATE: MD ZIP: 21401 BUSINESS PHONE: 4102248770 FORMER COMPANY: FORMER CONFORMED NAME: FORENSIC TECHNOLOGIES INTERNATIONAL CORP DATE OF NAME CHANGE: 19960306 8-K/A 1 FORM 8-K/A U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) September 17, 1998 FTI CONSULTING, INC. (Exact name of registrant as specified in its charter)
Maryland 0000887936 52-1261113 (State of other jurisdiction of (Commission File Number) (IRS Employer Identification No.) incorporation)
2021 Research Drive, Annapolis, Maryland 21401 (Address of principal executive offices, including Zip Code) (410) 224-8770 (Registrant's telephone number, including area code) FTI CONSULTING, INC. The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report on Form 8-K dated September 17, 1998 and on Form 8-K dated September 25, 1998 as set forth below. ITEM 5. OTHER This Form 8-K/A provides financial information with respect to the acquisitions of S.E.A., Inc. and K.C.I., Inc. This Form 8-K/A with the financial information for these acquisitions is being filed today. As a result of these acquisitions FTI Consulting, Inc. (the "Company"), no longer satisfies the net tangible assets requirement for continued listing on the Nasdaq National Market System and, therefore, is subject to delisting. Accordingly, the Company will pursue other options in an effort to have its Common Stock remain listed on a national securities exchange. These options include applying to transfer the Company's listing to either the Nasdaq SmallCap Market or the American Stock Exchange. The Company believes it currently meets the applicable listing requirements on both of these exchanges. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of businesses acquired. Audited combined financial statements of Kahn Consulting Inc. and Affiliate, for the years ended December 31, 1997 and 1996 and unaudited combined financial statements of Kahn Consulting Inc. and Affiliate, for the six months ended June 30, 1998 and 1997. Audited financial statements of S.E.A., Inc., for the years ended December 31, 1997 and 1996 and unaudited financial statements of S.E.A., Inc., for the six months ended June 30, 1998 and 1997. (b) Pro Forma Financial Information. Unaudited pro forma combined statement of income for the nine months ended September 30, 1998. Unaudited pro forma combined statement of income for the year ended December 31, 1997. Notes to unaudited pro forma combined financial statements. (c) Exhibits 23.1 Consent of Ernst & Young LLP for Kahn Consulting Inc. COMBINED FINANCIAL STATEMENTS KAHN CONSULTING INC. AND AFFILIATE Years ended December 31, 1997 and 1996 with Report of Independent Auditors Kahn Consulting Inc. and Affiliate Combined Financial Statements Years ended December 31, 1997 and 1996 CONTENTS Report of Independent Auditors.................................................1 Audited Combined Financial Statements Combined Balance Sheets........................................................2 Combined Statements of Income and Retained Earnings............................3 Combined Statements of Cash Flows..............................................4 Notes to Combined Financial Statements.........................................5 Report of Independent Auditors The Board of Directors Kahn Consulting Inc. We have audited the accompanying combined balance sheets of Kahn Consulting Inc. and affiliate as of December 31, 1997 and 1996, and the related combined statements of income and retained earnings and cash flows for the years then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Kahn Consulting Inc. and affiliate at December 31, 1997 and 1996, and the combined results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Baltimore, MD July 24, 1998 1 Kahn Consulting Inc. and Affiliate Combined Balance Sheets
DECEMBER 31, 1997 1996 ------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 247,489 $ 167,611 Restricted cash 347,516 1,346,250 Accounts receivable, less allowance of $392,726 in 1997 and $41,020 in 1996 1,851,545 558,481 Unbilled receivables, less allowance of $480,000 in 1997 and $154,310 in 1996 1,656,836 1,886,498 Other assets 34,908 3,620 ---------- ---------- Total current assets 4,138,294 3,962,460 Equipment, net of accumulated depreciation 64,807 84,846 Other assets 55,241 55,241 ========== ========== Total assets $4,258,342 $4,102,547 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable and accrued expenses $ 285,861 $ 179,838 Accrued compensation expense 990,000 765,000 Advances from clients 347,516 1,346,250 Deferred income taxes 212,000 136,000 ---------- ---------- Total current liabilities 1,835,377 2,427,088 Stockholder's equity: Common stock, par value $.01 per share; 4,000 shares authorized, 200 shares issued and outstanding 2 2 Additional paid-in capital 98 98 Retained earnings 2,422,865 1,675,359 ---------- ---------- Total stockholder's equity 2,422,965 1,675,459 ---------- ---------- Total liabilities and stockholder's equity $4,258,342 $4,102,547 ========== ==========
See accompanying notes. 2 Kahn Consulting Inc. and Affiliate Combined Statements of Income and Retained Earnings
YEAR ENDED DECEMBER 31, 1997 1996 ----------------------------------- Net revenues $ 8,530,104 $ 6,765,686 Direct cost of revenues 6,190,134 5,196,091 General and administrative expenses 1,545,000 1,441,908 ----------- ----------- Total costs and expenses 7,735,134 6,637,999 ----------- ----------- Income from operations 794,970 127,687 Interest and other income 28,536 55,018 ----------- ----------- Income before income taxes 823,506 182,705 Income taxes (76,000) (38,000) ----------- ----------- Net income 747,506 144,705 Retained earnings, beginning of year 1,675,359 1,530,654 =========== =========== Retained earnings, end of year $ 2,422,865 $ 1,675,359 =========== ===========
See accompanying notes. 3 Kahn Consulting Inc. Combined Statements of Cash Flows
YEAR ENDED DECEMBER 31, 1997 1996 --------------------------------- OPERATING ACTIVITIES Net income $ 747,506 $ 144,705 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 42,949 55,020 Provision for bad debts 254,203 244,817 Deferred income taxes 76,000 38,000 Changes in operating assets and liabilities: Accounts receivable (1,547,267) (244,785) Unbilled receivables 229,662 (960,144) Other current assets (31,288) 8,397 Other assets -- 535 Accounts payable and accrued expenses 106,023 72,822 Accrued compensation expense 225,000 462,459 ----------- ----------- Net cash provided by (used in) operating activities 102,788 (178,174) INVESTING ACTIVITIES Change in restricted cash -- (50,000) Purchase of equipment (22,910) (38,966) ----------- ----------- Net cash used in investing activities (22,910) (88,966) ----------- ----------- Net increase (decrease) in cash and cash equivalents 79,878 (267,140) Cash and cash equivalents at beginning of year 167,611 434,751 =========== =========== Cash and cash equivalents at end of year $ 247,489 $ 167,611 =========== ===========
See accompanying notes. 4 Kahn Consulting Inc. and Affiliate Notes to Combined Financial Statements December 31, 1997 and 1996 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying combined financial statements include the accounts of Kahn Consulting Inc. and KCI Management Corp. (collectively, "the Company"). Kahn Consulting Inc. provides strategic advisory, turnaround, bankruptcy, and trustee services, as well as litigation consulting services. These litigation services include expert testimony in financial proceedings, forensic accounting and fraud investigation. KCI Management Corp. provides general administrative services to Kahn Consulting Inc. Inter-company transactions have been eliminated in combination. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company uses estimates to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable and unbilled receivables to their expected net realizable value. The Company estimates the amount of the required allowance by reviewing the status of each individual account. The Company has experienced significant variations in the estimate of the allowance for doubtful accounts, due primarily to client concentrations at each respective year-end. At December 31, 1997, one client comprised 48% of total gross receivables. At December 31, 1996, that same client comprised 37% of total gross receivables. These concentrations make the estimates of the allowance for receivables subject to change in the near term, and the differences could be material. 5 Kahn Consulting Inc. and Affiliate Notes to Combined Financial Statements (continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. RESTRICTED CASH Restricted cash represents cash held in escrow accounts by the Company on behalf of clients. EQUIPMENT Equipment is stated at cost and depreciated using the straight-line method. Computer equipment is depreciated over a period of 3 years, furniture and fixtures is depreciated over estimated useful lives ranging from 5 to 7 years, and leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the lease term. REVENUE RECOGNITION The Company derives its revenues from professional service activities. Revenues consist of fees and expenses, and are recorded as work is performed and expenses are incurred at their estimated net realizable value. Revenues recognized in excess of amounts billed to clients have been recorded as unbilled receivables. DIRECT COST OF REVENUES Direct cost of revenues consists primarily of billable employee compensation and related payroll benefits, and direct expenses billable to clients. Direct cost of revenues does not include an allocation of overhead costs. 6 Kahn Consulting Inc. and Affiliate Notes to Combined Financial Statements (continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES Kahn Consulting Inc. is organized as an S-Corporation for federal income tax purposes, and its income is included in the tax return of its sole shareholder for federal income tax purposes. However, income taxes are provided in the accompanying statement of income related to certain jurisdictions that require the payment of taxes at the corporate level. KCI Management Corp. is organized as a C Corporation and its profits are taxable at the corporate level. Income taxes are recorded using the liability method, whereby deferred income taxes are recorded to reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities reported for financial reporting and income tax filing purposes. 2. SIGNIFICANT CUSTOMER The Company recognized from one customer net revenue representing 17% and 19%, respectively, of total net revenue in 1997 and 1996. See also, Note 1, Use of Estimates. 3. EQUIPMENT Equipment consists of the following:
DECEMBER 31 1997 1996 ----------------------------------- Furniture and fixtures $ 161,731 $ 161,731 Computer equipment 338,699 315,789 Leasehold improvements 37,651 37,651 --------- --------- 538,081 515,171 Less accumulated depreciation (473,274) (430,325) ========= ========= Equipment, net $ 64,807 $ 84,846 ========= =========
7 Kahn Consulting Inc. and Affiliate Notes to Combined Financial Statements (continued) 4. OPERATING LEASE The Company leases office space under a noncancelable operating lease with a minimum lease payment of $370,000 per annum through the period ended January 2001. Rent expense for all leases was $425,000 and $399,000 for 1997 and 1996, respectively. 5. INCOME TAXES The Company's provision for income taxes in 1997 and 1996 consists of local income taxes related to the operations of Kahn Consulting Inc. Kahn Consulting Inc. uses the cash method of accounting for income tax purposes, and net deferred income taxes payable have been recorded principally for net cumulative temporary differences in accounts receivable, accounts payable and accrued expenses at the balance sheet date. No income taxes were paid in 1997 or 1996, and no income taxes are currently due. Income taxes related to KCI Management Corp. are insignificant. 6. EMPLOYEE BENEFIT PLAN The Company maintains a qualified defined contribution plan which covers substantially all employees. Under the plan, participants are entitled to make pre-tax contributions. The Company matches at its discretion participant contributions. The Company recorded expense of $93,000 and $0 during 1997 and 1996, respectively, related to this plan. 7. YEAR 2000 (UNAUDITED) The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has developed a formal plan to remediate its systems for Year 2000 Issues, made necessary changes to certain mission-critical systems, and successfully tested a portion of those systems for data integrity. Other necessary remediation and testing will take place in 8 Kahn Consulting Inc. and Affiliate Notes to Combined Financial Statements (continued) 7. YEAR 2000 (UNAUDITED) (CONTINUED) 1998. Management believes that the risk associated with its information systems is not significant, and, accordingly management does not anticipate that the Year 2000 will have a significant impact on its information systems or result in a significant commitment of resources to resolve any potential problems associated with this event. 9 COMBINED UNAUDITED FINANCIAL STATEMENTS KAHN CONSULTING INC. AND AFFILIATE Period ended June 30, 1998 and 1997 Kahn Consulting Inc. and Affiliate Combined Unaudited Financial Statements Period ended June 30, 1998 and 1997 CONTENTS Unaudited Combined Financial Statements Combined Balance Sheets........................................................1 Combined Statements of Income and Retained Earnings............................2 Combined Statements of Cash Flows..............................................3 Notes to Combined Financial Statements.........................................4 Kahn Consulting Inc. and Affiliate Unaudited Combined Balance Sheets
JUNE 30, 1998 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 765,023 $ 284,259 Restricted cash 30,009 237,107 Accounts receivable, net 706,381 241,023 Unbilled receivables, net 2,925,512 3,475,708 Other assets 9,913 7,414 ---------- ---------- Total current assets 4,436,838 4,245,511 Equipment, net of accumulated depreciation 62,115 56,548 Other assets 59,522 59,522 ---------- ---------- Total assets $4,558,475 $4,361,581 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable and accrued expenses $ 19,360 $ 15,188 Line of credit - 52,500 Accrued compensation expense 1,015,311 1,886,796 Profit sharing payable - 93,693 Income taxes payable 79,000 23,400 Other taxes payable 1,010 10,714 Advances from clients 30,009 237,107 Deferred income taxes 212,000 136,000 ---------- ---------- Total current liabilities 1,356,690 2,455,398 Stockholder's equity: Common stock, par value $.01 per share; 4,000 shares authorized, 200 shares issued and outstanding 2 2 Additional paid-in capital 98 98 Retained earnings 3,201,685 1,906,083 ---------- ---------- Total stockholder's equity 3,201,785 1,906,183 ---------- ---------- Total liabilities and stockholder's equity $4,558,475 $4,361,581 ========== ==========
See accompanying notes. 1 Kahn Consulting Inc. and Affiliate Unaudited Combined Statements of Income and Retained Earnings
PERIOD ENDED JUNE 30, 1998 1997 ----------- ----------- Net revenues $ 4,883,027 $ 4,175,464 Direct cost of revenues 3,304,187 3,206,362 General and administrative expenses 723,430 725,662 ----------- ----------- Total costs and expenses 4,027,617 3,932,024 ----------- ----------- Income from operations 855,410 243,440 Interest and other income 2,410 10,684 ----------- ----------- Income before income taxes 857,820 254,124 Income taxes (79,000) (23,400) ----------- ----------- Net income 778,820 230,724 Retained earnings, beginning of year 2,422,865 1,675,359 ----------- ----------- Retained earnings, end of year $ 3,201,685 $ 1,906,083 =========== ===========
See accompanying notes. 2 Kahn Consulting Inc. Unaudited Combined Statements of Cash Flows
PERIOD ENDED JUNE 30, 1998 1997 ---------- ---------- OPERATING ACTIVITIES Net income $ 778,820 $ 230,724 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 27,600 27,600 Changes in operating assets and liabilities: Accounts receivable 1,145,164 317,458 Unbilled receivables (1,268,676) (1,589,210) Other current assets 24,995 (3,794) Other assets (4,281) (4,281) Accounts payable and accrued expenses (266,501) (164,650) Accrued compensation expense 25,311 1,121,796 Profit sharing payable -- 93,693 Other tax payable 1,010 10,714 Income tax payable 79,000 23,400 Advances from clients (347,516) (1,346,250) ---------- ---------- Net cash provided by (used in) operating activities 194,926 (1,282,800) INVESTING ACTIVITIES Change in restricted cash 347,516 1,346,250 Purchase of equipment (24,908) 698 ---------- ---------- Net cash used in investing activities 322,608 1,346,948 FINANCING ACTIVITIES Advance on line of credit -- 52,500 ---------- ---------- Net cash provided by financing activities -- 52,500 Net increase in cash 517,534 116,648 Cash and cash equivalents at beginning of period 247,489 167,611 ----------- ----------- Cash and cash equivalents at end of period 765,023 284,259 =========== ===========
See accompanying notes. 3 Kahn Consulting Inc. and Affiliate Notes to Unaudited Combined Financial Statements June 30, 1998 and 1997 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying combined financial statements include the accounts of Kahn Consulting Inc. and KCI Management Corp. (collectively, "the Company"). Kahn Consulting Inc. provides strategic advisory, turnaround, bankruptcy, and trustee services, as well as litigation consulting services. These litigation services include expert testimony in financial proceedings, forensic accounting and fraud investigation. KCI Management Corp. provides general administrative services to Kahn Consulting Inc. The accompanying unaudited combined financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 8-K and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting princples for complete financial statements. In the opinion of management all adjustments considered necessary for a fair presentation have been included. Inter-company transactions have been eliminated in combination. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company uses estimates to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable and unbilled receivables to their expected net realizable value. The Company estimates the amount of the required allowance by reviewing the status of each individual account. The Company has experienced significant variations in the estimate of the allowance for doubtful accounts, due primarily to client concentrations at each respective year-end. These concentrations make the estimates of the allowance for receivables subject to change in the near term, and the differences could be material. 4 Kahn Consulting Inc. and Affiliate Notes to Unaudited Combined Financial Statements (continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. RESTRICTED CASH Restricted cash represents cash held in escrow accounts by the Company on behalf of clients. EQUIPMENT Equipment is stated at cost and depreciated using the straight-line method. Computer equipment is depreciated over a period of 3 years, furniture and fixtures is depreciated over estimated useful lives ranging from 5 to 7 years, and leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the lease term. REVENUE RECOGNITION The Company derives its revenues from professional service activities. Revenues consist of fees and expenses, and are recorded as work is performed and expenses are incurred at their estimated net realizable value. Revenues recognized in excess of amounts billed to clients have been recorded as unbilled receivables. DIRECT COST OF REVENUES Direct cost of revenues consists primarily of billable employee compensation and related payroll benefits, and direct expenses billable to clients. Direct cost of revenues does not include an allocation of overhead costs. 5 Kahn Consulting Inc. and Affiliate Notes to Unaudited Combined Financial Statements (continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES Kahn Consulting Inc. is organized as an S-Corporation for federal income tax purposes, and its income is included in the tax return of its sole shareholder for federal income tax purposes. However, income taxes are provided in the accompanying statement of income related to certain jurisdictions that require the payment of taxes at the corporate level. KCI Management Corp. is organized as a C Corporation and its profits are taxable at the corporate level. Income taxes are recorded using the liability method, whereby deferred income taxes are recorded to reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities reported for financial reporting and income tax filing purposes. 6 Audited Financial Statements S.E.A., Inc. Years ended December 31, 1997 and 1996 S.E.A., Inc. Audited Financial Statements Years ended December 31, 1997 and 1996 CONTENTS Report of Independent Auditors................................................1 Balance Sheets................................................................2 Statements of Operations......................................................4 Statements of Stockholders' Equity............................................5 Statements of Cash Flows......................................................6 Notes to Financial Statements.................................................7 Report of Independent Auditors The Board of Directors S.E.A., Inc. We have audited the accompanying balance sheets of S.E.A., Inc. as of December 31, 1997 and 1996, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of S.E.A., Inc. at December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Columbus, OH July 31, 1998 /s/ Ernst & Young 1 S.E.A., Inc. Balance Sheets
DECEMBER 31 1997 1996 -------------------------------------- ASSETS Current assets: Cash $ 34,663 $ 33,481 Receivables: Trade (net of allowance for doubtful accounts of $15,000 in 1997 and 1996) 2,588,122 2,598,264 Unbilled 1,087,570 977,411 Notes receivable 7,500 6,300 ----------- ----------- Total receivables 3,683,192 3,581,975 Other current assets 117,809 87,046 ----------- ----------- Total current assets 3,835,664 3,702,502 Property and equipment: Building under capital lease 1,575,000 1,575,000 Vehicles 151,721 143,398 Office equipment 1,098,139 1,034,762 Laboratory equipment 220,764 222,775 Test machines 200,000 200,000 Office furniture 222,272 227,413 Leasehold improvements 123,934 123,934 Software and other assets 57,170 64,830 ----------- ----------- Total property and equipment 3,649,000 3,592,112 Accumulated depreciation (2,714,951) (2,536,265) ----------- ----------- 934,049 1,055,847 Other assets: Cash surrender value of life insurance -- 169,685 Notes receivable 209,690 217,652 Deposits 15,194 12,693 Deferred tax asset 105,350 153,215 ----------- ----------- Total other assets 330,234 553,245 ----------- ----------- Total assets $ 5,099,947 $ 5,311,594 =========== ===========
2
DECEMBER 31 1997 1996 ------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit $ 25,000 $ 500,000 Current portion of long-term debt 135,000 128,950 Current portion of capital lease obligations 227,612 258,696 Notes payable - officers -- 200,000 Accounts payable 44,058 150,953 Accrued payroll 601,817 541,710 Profit-sharing payable 235,188 209,585 Income taxes payable 240,100 22,075 Other taxes payable 71,248 71,771 Deferred tax liability 1,236,047 1,183,801 ---------- ---------- Total current liabilities 2,816,070 3,267,541 Long-term debt, net of current portion 270,662 405,844 Capital lease obligations, net of current portion 532,912 758,279 ---------- ---------- Total liabilities 3,619,644 4,431,664 Stockholders' equity: Common stock (no par value, 500 shares authorized, 60 shares issued and outstanding) 336 336 Additional paid-in capital 10,218 10,218 Retained earnings 1,469,749 869,376 ---------- ---------- 1,480,303 879,930 ---------- ---------- Total liabilities and shareholders' equity $5,099,947 $5,311,594 ========== ==========
See accompanying notes. 3 S.E.A., Inc. Statements of Operations
YEARS ENDED DECEMBER 31 1997 1996 ---------------------------------------- Revenues $ 16,070,069 $ 15,283,927 Direct cost of revenues 9,455,754 8,697,057 Selling, general and administrative expenses 5,471,420 5,067,173 ------------ ------------ Total costs and expenses 14,927,174 13,764,230 ------------ ------------ Income from operations 1,142,895 1,519,697 Other income and (expense): Interest income 30,779 3,914 Interest expense (169,301) (243,984) Gain from sale of assets 4,050 8,649 Other 24,950 17,771 ------------ ------------ Total other expense (109,522) (213,650) ------------ ------------ Income before taxes 1,033,373 1,306,047 Provision for income taxes 433,000 543,000 ------------ ------------ Net income $ 600,373 $ 763,047 ============ ============
See accompanying notes. 4 S.E.A., Inc. Statements of Stockholders' Equity
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL -------------------------------------------------------------------------- Balance at January 1, 1996 $ 336 $ 10,218 $ 106,329 $ 116,883 1996 net income -- -- 763,047 763,047 ---------- ---------- ---------- ---------- Balance at December 31, 1996 336 10,218 869,376 879,930 1997 net income -- -- 600,373 600,373 ---------- ---------- ---------- ---------- Balance at December 31, 1997 $ 336 $ 10,218 $1,469,749 $1,480,303 ========== ========== ========== ==========
See accompanying notes. 5 S.E.A., Inc. Statements of Cash Flows
YEAR ENDED DECEMBER 31 1997 1996 ------------------------------------- OPERATING ACTIVITIES Net income $ 600,373 $ 763,047 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 307,338 282,667 Gain from sale of fixed assets (4,050) (8,649) Cash surrender value of life insurance 169,685 (11,832) Changes in assets and liabilities: Decrease (increase) in accounts receivable - trade 10,142 (490,177) Increase in accounts receivable - unbilled (110,159) (200,250) Decrease in notes receivable 6,762 427 Increase in prepaids and other current assets (30,763) (78,940) Increase in deposits (2,501) (1,886) Decrease (increase) in deferred tax asset - long term 47,865 (1,087) Decrease in accounts payable (106,895) (191,265) Increase (decrease) in accrued liabilities 60,107 (46,379) Increase in profit sharing payable 25,603 103,796 Increase in deferred tax liabilities 52,246 414,824 Increase (decrease) in other liabilities 259,372 (27,047) ----------- ----------- Net cash provided by operating activities 1,285,125 507,249 INVESTING ACTIVITIES Proceeds from sale of fixed assets and real estate 4,050 48,892 Purchases of property and equipment, net (185,540) (276,023) ----------- ----------- Net cash used in investing activities (181,490) (227,131) FINANCING ACTIVITIES Net (decrease) increase in line of credit (475,000) 400,000 (Repayment) proceeds from officers' notes payable (200,000) 200,000 Payment of long-term debt (129,132) (706,562) Payment of capital lease obligations (298,321) (165,746) ----------- ----------- Net cash used in financing activities (1,102,453) (272,308) ----------- ----------- Net increase in cash 1,182 7,810 Cash at beginning of year 33,481 25,671 ----------- ----------- Cash at end of year $ 34,663 $ 33,481 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 129,676 $ 217,167 =========== =========== Income taxes paid $ 116,476 $ 114,488 =========== ===========
See accompanying notes. 6 S.E.A., Inc. Notes to Financial Statements December 31, 1997 1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES S.E.A., Inc. (the Company) provides data and evaluation related to fire investigation, product failure analysis, vehicle or accident reconstruction, and other services related to the investigation of catastrophic events. The Company provides services from seven locations in Ohio, Georgia, Missouri, Florida, Texas, North Carolina and South Carolina. SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Property and Equipment Property and equipment are stated at cost and depreciated using the straight-line method. Expenditures for maintenance and repairs are expensed as incurred. Renewals and betterments that materially extend the life of the assets are capitalized. Furniture and equipment is depreciated over estimated lives ranging from 5 to 7 years, leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the lease term. The building under capital lease is depreciated over the 15 year lease term. Revenue Recognition The Company derives its revenues from professional service activities. The majority of these activities are provided under "time and materials" billing arrangements, and revenues, consisting of billed fees and expenses, are recorded as work is performed and expenses are incurred. Revenues recognized in excess of amounts billed to clients have been recorded as unbilled receivables in the accompanying balance sheets. 7 S.E.A., Inc. Notes to Financial Statements (continued) 1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. 2. BORROWINGS UNDER LINE OF CREDIT The Company has a $500,000 revolving line of credit with a bank expiring on April 1, 1999. Borrowings under this line of credit bear interest at prime minus 1/8%, and are secured by accounts receivable, inventory and equipment. At December 31, 1997, $475,000 of this line of credit was available. In connection with this line of credit, the Company is required to maintain covenants regarding certain financial statement amounts, ratios and activities of the Company. 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations consist of the following:
1997 1996 ---------------- --------------- Capitalized building lease, payable in monthly installments of $24,756 plus interest at 13.6% through December 1, 2001. $ 728,894 $ 968,781 Capitalized computer equipment lease, payable in monthly lease installments of $1,381, including interest at 11%, through November, 1999 31,630 48,194
8 S.E.A., Inc. Notes to Financial Statements (continued) 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
1997 1996 ---------------- --------------- Notes payable-bank for $700,000, payable in monthly installments of $14,127 including interest at 8.35%, due September, 2000, secured by inventory, accounts receivable, and equipment 405,662 477,093 Note payable - other - 57,701 ---------------- --------------- 1,166,186 1,551,769 Less: current portion 362,612 387,646 ---------------- --------------- Long-term debt $ 803,574 $1,164,123 ================ ===============
Principal maturities of long-term debt and capital lease obligations are as follows: YEAR ENDING DECEMBER 31, ------------ 1998 $ 362,612 1999 408,430 2000 395,144 ---------- Total $1,166,186 ========== 4. OPERATING LEASES The Company is committed under noncancelable leases for various equipment, warehouse and office facilities, expiring at various dates through 2012. These leases require the Company to pay for insurance, real estate taxes, maintenance, sales tax, and escalations in operating expenses over the taxable base year. Total rental payments under the leases were $227,487 in 1997 and $205,216 in 1996 to outside lessors, and $42,000 in 1997 to a related party. 9 S.E.A., Inc. Notes to Financial Statements (continued) 4. OPERATING LEASES (CONTINUED) Future minimum rental payments under noncancelable operating leases are as follows: 1998 $ 267,561 1999 237,684 2000 213,543 2001 212,275 2002 177,551 Thereafter 231,683 ---------- Total $1,340,297 ========== 5. RELATED PARTY TRANSACTIONS The Company leases its office locations in Columbus, Ohio from S.E.A., Properties, an Ohio partnership, and GBDG, Ltd., an Ohio limited liability company, which are related to the Company through common ownership. (See Note 4). In December, 1996, the Company sold certain real estate totaling $250,000 to GBDG, Ltd. A note receivable was established for $200,000. The terms of the note provide for monthly payments of principal and interest of $1,969. The note carries interest at 8.5% and is due January, 2012. The note receivable balance from GBDG, Ltd. as of December 31, 1997 and 1996 was $193,700 and $200,000, respectively. 6. PROFIT SHARING AND 401K PLANS The Company has a Defined Contribution Profit Sharing Plan and a 401(k) plan that covers all eligible employees. Company contributions to the plans totaled $235,188 and $209,585 in 1997 and 1996, respectively. Profit sharing contributions are approved by the Board of Directors. The Company matches 25% of each employee 401(k) contribution up to 1% of total salary. 10 S.E.A., Inc. Notes to Financial Statements (continued) 7. INCOME TAXES Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:
1997 1996 ----------- ----------- Deferred tax asset - non current: Building under capital lease $ 165,361 $ 197,430 Tax depreciation in excess of book depreciation (60,011) (44,215) ----------- ----------- Net deferred tax asset $ 105,350 $ 153,215 =========== =========== Deferred tax liability - current: Use of cash basis for income tax purposes $ 1,236,047 $ 1,183,801 =========== ===========
Income tax expense (benefit) consisted of the following:
1997 1996 ----------- ----------- Current: Federal $ 261,500 $ 86,500 State 73,389 12,763 ----------- ----------- 334,889 99,263 Deferred: Federal 116,753 388,519 State (18,642) 55,218 ----------- ----------- 98,111 443,737 ----------- ----------- Total $ 433,000 $ 543,000 =========== ===========
11 S.E.A., Inc. Notes to Financial Statements (continued) 7. INCOME TAXES (CONTINUED) The Company's provision for income taxes resulted in effective tax rates that varied from statutory federal income tax rates as follows:
1997 % 1996 % ----------------- ----------------- ---------------- ----------------- Expected federal income tax provision at 35% $361,681 35.0% $457,117 35.0% Expenses not deductible for tax purposes 16,572 1.6 17,903 1.4 State income taxes, net of federal benefit 54,747 5.3 67,980 5.2 -------- ---- -------- ---- $433,000 41.9% $543,000 41.6% ======== ==== ======== ====
8. SUBSEQUENT EVENT On July 6, 1998, the Company's stockholders signed a letter of intent to sell all of the outstanding stock of S.E.A. Inc. 9. YEAR 2000 ISSUE (UNAUDITED) The Company has developed a plan to modify its information technology to be ready for the year 2000 and is in the process of converting all of its critical data processing systems. The Company expects this project to be complete by mid-1999 and does not expect this project to have a significant effect on operations. Unaudited Financial Statements S.E.A., Inc. Period ended June 30, 1998 and 1997 S.E.A., Inc. Unaudited Financial Statements Periods ended June 30, 1998 and 1997 CONTENTS Balance Sheets.................................................................2 Statements of Operations.......................................................4 Statements of Stockholders' Equity.............................................5 Statements of Cash Flows.......................................................6 Notes to Financial Statements..................................................7
S.E.A., Inc. Unaudited Balance Sheets JUNE 30 1998 1997 ----------- ----------- ASSETS Current assets: Cash $ 231,382 $ 203,941 Receivables: Trade (net of allowance for doubtful accounts of $15,000 in 1997 and 1996) 2,925,077 2,731,871 Unbilled 1,383,030 1,437,438 ----------- ----------- Total receivables 4,308,107 4,169,309 Other current assets 229,337 247,377 ----------- ----------- Total current assets 4,768,826 4,620,627 Property and equipment: Building under capital lease 1,575,000 1,575,000 Office equipment 1,146,195 1,095,434 Furniture and Equipment 372,486 384,173 Test machines 200,000 200,000 Office furniture 226,390 240,849 Leasehold improvements 123,934 123,934 Software and other assets 57,670 64,830 ----------- ----------- Total property and equipment 3,701,675 3,684,220 Accumulated depreciation (2,850,255) (2,689,159) ----------- ----------- 851,420 995,061 Other Assets 70,119 219,845 Deferred tax asset 105,350 105,350 ----------- ----------- Total other assets 175,469 325,195 ----------- ----------- Total assets $ 5,795,715 $ 5,940,883 =========== ===========
2
JUNE 30 1998 1997 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 77,737 $ 179,923 Current portion of capital lease obligations 643,573 840,867 Accounts payable 163,324 279,473 Accrued payroll 1,021,787 837,841 Income taxes payable 286,985 397,496 Deferred tax liability 1,316,484 1,236,047 ---------- ---------- Total current liabilities 3,509,890 3,771,647 Capital lease obligations, net of current portion 277,421 429,176 ---------- ---------- Total liabilities 3,787,311 4,200,823 Stockholders' equity: Common stock (no par value, 500 shares authorized, 60 shares issued and outstanding) 336 336 Additional paid-in capital 10,218 10,218 Retained earnings 1,997,850 1,729,506 ---------- ---------- Total Stockholders' equity 2,008,404 1,740,060 ---------- ---------- Total liabilities and shareholders' equity $5,795,715 $5,940,883 ========== ==========
See accompanying notes. S.E.A., Inc. Unaudited Statements of Operations
PERIODS ENDED JUNE 30 1998 1997 ----------- ----------- Revenues $ 8,533,221 $ 8,139,202 Direct cost of revenues 4,111,580 4,450,259 Selling, general and administrative expenses 3,526,555 2,231,095 ----------- ----------- Total costs and expenses 7,638,135 6,681,354 ----------- ----------- Income from operations 895,086 1,457,848 Other income and (expense): Other - - ----------- ----------- Total other expense - - ----------- ----------- Income before taxes 895,086 1,457,848 Provision for income taxes 366,985 597,718 ----------- ----------- Net income $ 528,101 $ 860,130 =========== ===========
See accompanying notes. 4 S.E.A., Inc. Unaudited Statements of Stockholders' Equity
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ---------------------------------------------------------- Balance at January 1, 1997 $ 336 $ 10,218 $ 869,376 $ 879,930 Net Income - - 860,130 860,130 ---------------------------------------------------------- Balance at June 30, 1997 336 10,218 1,729,506 1,740,060 ========================================================== Balance at January 1, 1998 $ 336 $ 10,218 $ 1,469,749 $ 1,480,303 Net Income - - 528,101 528,101 ---------------------------------------------------------- Balance at June 30, 1998 336 10,218 1,997,850 2,008,404 ========================================================== See accompanying notes.
5 S.E.A., INC. Unaudited Statements of Cash Flows
PERIOD ENDED JUNE 30 1998 1997 ------------------------ Operating activities Net income $ 528,101 $ 860,130 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 78,753 106,644 Changes in assets and liabilities: Decrease in accounts receivable - trade (336,955) (133,607) Decrease in accounts receivable - unbilled (295,460) (460,027) Increase in notes receivable 7,500 6,300 Increase in prepaids and other current assets 43,237 67,719 Increase in accounts payable 119,266 128,519 Increase in accrued liabilities 419,970 296,131 Decrease in profit sharing payable (235,188) (209,585) Increase in deferred tax liabilities 80,437 52,246 Increase (decrease) in income tax payable (24,363) 303,650 --------- --------- Net cash provided by operating activities 385,298 1,018,120 INVESTING ACTIVITIES Proceeds from sale of fixed assets and real estate 3,876 - Purchases of property and equipment, net - (45,858) --------- -------- Net cash used in investing activities 3,876 (45,858) FINANCING ACTIVITIES Net Decrease in line of credit (25,000) (500,000) Repayment officers' notes payable and long term debt (327,925) (554,871) Payment of capital lease obligations 160,469 253,069 --------- --------- Net cash used in financing activities (192,456) (801,802) --------- -------- Net increase in cash 196,718 170,460 Cash at beginning of period 34,664 33,481 --------- --------- Cash at end of period $ 231,382 $ 203,941 ========= =========
See accompanying notes. 6 S.E.A., INC. Unaudited Notes to Financial Statements June 30, 1998 1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES S.E.A., Inc. (the Company) provides data and evaluation related to fire investigation, product failure analysis, vehicle or accident reconstruction, and other services related to the investigation of catastrophic events. The Company provides services from seven locations in Ohio, Georgia, Missouri, Florida, Texas, North Carolina and South Carolina. The accompanying unaudited combined financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 8-K and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting princples for complete financial statements. In the opinion of management all adjustments considered necessary for a fair presentation have been included SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Property and Equipment Property and equipment are stated at cost and depreciated using the straight-line method. Expenditures for maintenance and repairs are expensed as incurred. Renewals and betterments that materially extend the life of the assets are capitalized. Furniture and equipment is depreciated over estimated lives ranging from 5 to 7 years, leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the lease term. The building under capital lease is depreciated over the 15 year lease term. Revenue Recognition The Company derives its revenues from professional service activities. The majority of these activities are provided under "time and materials" billing arrangements, and revenues, consisting of billed fees and expenses, are recorded as work is performed and expenses are incurred. Revenues recognized in excess of amounts billed to clients have been recorded as unbilled receivables in the accompanying balance sheets. 7 S.E.A., Inc. Unaudited Notes to Financial Statements (continued) 1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. 2. RELATED PARTY TRANSACTIONS The Company leases its office locations in Columbus, Ohio from S.E.A., Properties, an Ohio partnership, and GBDG, Ltd., an Ohio limited liability company, which are related to the Company through common ownership. 8 FTI CONSULTING, INC. PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997
(8) PRO FORMA PRO FORMA FTI KK&A KAHN SEA ADJUSTMENTS COMBINED ------------- ------------------------------------------ ------------ -------------- Revenues $44,175,343 $5,489,863 $8,530,104 $16,070,069 74,265,379 Direct cost of revenues 23,564,284 2,719,803 6,190,134 9,455,754 (1,837,715)(3) 40,092,260 Selling,general and administrative Expenses 15,240,802 2,092,663 1,545,000 5,471,420 (552,715)(3) 25,383,340 1,586,170 (2) ------------- ------------------------------------------ ------------ ------------- Total costs and expenses 38,805,086 4,812,466 7,735,134 14,927,174 (804,260) 65,475,600 ------------- ------------------------------------------ ------------ ------------- Income from operations 5,370,257 677,397 794,970 1,142,895 804,260 8,789,779 Other income (expense): Interest and other income 343,000 60,413 28,536 59,779 491,728 Interest expense (170,000) (19,800) (169,301) (2,572,250)(1) (2,931,351 ------------- ------------------------------------------ ------------ ------------ 173,000 40,613 28,536 (109,522) (2,572,250) (2,439,623 ------------- ------------------------------------------ ------------ ------------ Income from continuing operations before income taxes 5,543,257 718,010 823,506 1,033,373 (1,767,990) 6,350,156 Income taxes 2,249,982 287,204 76,000 433,000 (171,598)(5) 2,874,588 ------------- ------------------------------------------ ------------ ------------ Net income 3,293,275 430,806 747,506 600,373 (1,596,392) 3,475,568 ------------- ------------------------------------------ ------------ Income available to common stock holders $3,293,275 $430,806 $747,506 $600,373 ($1,596,392) 3,475,568 ============= ========================================== ============ ============ Earnings Per Common Share: Net income per common share $0.73 0.77 ============= ============ Earnings Per Common Share - Assuming Dilution: Net income per common share- assuming dilution $0.70 0.74 ============= ============ Weighted average shares used in the calculation of basic and diluted earnings per commons share: Basic 4,528,627 4,528,627(4) ============= ============ Diluted 4,697,517 4,697,517(4) ============= ============
FTI CONSULTING, INC. UNAUDITED PRO FORMA BALANCE SHEETS SEPTEMBER 30, 1998
PRO FORMA PRO FORMA FTI KAHN SEA ADJUSTMENTS COMBINED --------------- ---------------- -------------- ----------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $3,442,103 ($27,264) $390,791 $3,805,630 Accounts receivable, net 7,613,666 739,222 2,934,929 11,287,817 Unbilled receivables, net 4,624,526 2,626,399 1,670,712 8,921,637 Income taxes receivable 0 - Deferred income taxes 180,905 180,905 Prepaid expenses 1,942,937 59,522 (42,936) 1,959,523 --------------- ---------------- -------------- ----------------- ----------------- TOTAL CURRENT ASSETS 17,804,137 3,397,879 4,953,496 - 26,155,512 PROPERTY AND EQUIPMENT: Buildings 411,241 - - 411,241 Furniture and equipment 12,918,957 68,467 595,771 13,583,195 Leasehold improvements 1,609,462 - - 1,609,462 --------------- ---------------- -------------- ----------------- ----------------- 14,939,660 68,467 595,771 - 15,603,898 Accumulated depreciation and amortization (8,303,878) 0 (19,450) (8,323,328) --------------- ---------------- -------------- ----------------- ----------------- 6,635,782 68,467 576,321 - 7,280,570 Deferred Income taxes (12,728) - 105,350 92,622 Goodwill 15,431,244 31,295,896 (1) 47,154,640 427,500 (2) Accumulated amortization (432,660) (34,000) (54,185) (520,845) --------------- ---------------- -------------- ----------------- ----------------- 14,998,584 (34,000) (54,185) 31,723,396 46,633,795 Other assets 57,502 52,220 109,722 Investment in subsidiaries 35,630,000 (35,630,000) - - --------------- ---------------- -------------- ----------------- TOTAL ASSETS $75,113,277 $3,432,346 $5,633,202 -$3,906,604 $80,272,221 =============== ================ ============== ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $1,537,045 $44,160 $46,790 $427,500 (2) $2,055,495 Due to Previous owner $467,434 $80,526 $547,960 Line of Credit $26,000,000 $26,000,000 Current note payable 10,650,000 - - 10,650,000 Current Portion on Capital lease 102,374 16,574 118,948 Accrued compensation expense 1,531,120 264,232 997,623 2,792,975 Incomes tax payable (617,343) 15,144 179,167 (423,032) Advances from clients 472,609 (761) 471,848 Current deferred taxes 102,711 324,678 346,511 773,900 Other current liabilities 26,253 - 175,000 201,253 --------------- ---------------- -------------- ----------------- ----------------- TOTAL CURRENT LIABILITIES 40,272,203 727,979 1,761,665 427,500 43,189,347 Long-term debt, less current portion 9,700,000 - 9,700,000 Other long-term liabilities 224,593 2,614 227,207 Deferred income taxes 401,463 974,033 1,039,535 2,415,031 Commitment and contingent liabilities - STOCKHOLDERS' EQUITY: Common stock, $.01 par value 47,819 100 336 (436) (1) 47,819 Additional paid-in capital 16,190,087 - 10,218 (10,218) (1) 16,190,087 Retained earnings 8,277,112 1,730,234 2,818,834 (4,323,450) (1) 8,502,730 --------------- ---------------- -------------- ----------------- ----------------- TOTAL STOCKHOLDERS' EQUITY 24,515,018 1,730,334 2,829,388 (4,334,104) 24,740,636 --------------- ---------------- -------------- ----------------- ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $75,113,277 $3,432,346 $5,633,202 ($3,906,604) $80,272,221 =============== ================ ============== ================= ================= - - - - -
FTI CONSULTING, INC. PRO FORMA STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(6) PRO FORMA PRO FORMA FTI KK&A KAHN SEA ADJUSTMENTS COMBINED ------------- --------------------------------------- --------------- -------------- Revenues $39,470,337 $2,085,508 $6,255,631 $11,579,920 $59,391,396 Direct cost of revenues 21,419,389 1,340,490 2,981,965 5,753,456 (1,500,717)(3) 29,994,583 Selling,general and administrative Expenses 14,115,595 498,126 3,008,515 4,702,519 (133,333)(3) 23,490,539 1,299,118 (2) ------------- --------------------------------------- --------------- ------------ Total costs and expenses 35,534,984 1,838,616 5,990,480 10,455,975 (334,932) 53,485,123 ------------- --------------------------------------- --------------- ------------ Income from operations 3,935,353 246,892 265,151 1,123,945 334,932 5,906,273 Other income (expense): Interest and other income 199,686 33,642 233,328 Interest expense (620,602) (2,075,250)(1) (2,695,852) ------------- --------------------------------------- --------------- ------------ (420,916) - 33,642 - (2,075,250) (2,462,524) ------------- --------------------------------------- --------------- ------------ Income from continuing operations before income taxes 3,514,437 246,892 298,793 1,123,945 (1,740,318) 3,443,749 Income taxes 1,458,873 81,000 27,500 355,156 (329,909)(5) 1,592,620 ------------- --------------------------------------- --------------- ------------ Net income 2,055,564 165,892 271,293 768,789 (1,410,408) 1,851,130 ------------- --------------------------------------- --------------- Income available to common stock holders $2,055,564 $165,892 $271,293 $768,789 ($1,410,408) $1,851,130 ============= ======================================= =============== ============ Earnings Per Common Share: Net income per common share $0.44 $0.39 ============= ============ Earnings Per Common Share - Assuming Dilution: Net income per common share- assuming dilution $0.41 $0.36 ============= ============ Weighted average shares used in the calculation of basic and diluted earnings per commons share: Basic 4,705,927 4,705,927(4) ============= ============ Diluted 5,075,076 5,075,076(4) ============= ============
FTI CONSULTING, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The unaudited pro forma financial statements give retroactive effect to the acquisition of Kahn Consulting Inc. and Affliate ("KCI") by the Company effective September 17, 1998 (the date that control of KCI was transferred to the Company) and the acquisition of S.E.A., Inc. ("SEA") by the Company effective September 1, 1998 (the date that control of SEA was transferred to the Company). Both acquisitions were accounted for by the Company as a purchase. Pro forma adjustments to the unaudited pro forma combined statements of income assume that the transaction was consummated on January 1, 1997, and are based on the allocated purchase price as reported in the unaudited combined balance sheet as filed in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1998. These adjustments are described below. The purchase price for the acquisition of KCI of $20,000,000, plus estimated expenses of $206,250, includes an initial payment of $10,000,000 with the remainder evidenced by a note payable bearing interest at 7.5%. The purchase price was allocated as follows:
Assets acquired: (in thousands) -------------- Cash $ 1 Accounts receivable 3,172 Prepaid expenses 62 Property and equipment 68 Goodwill 18,498 ---------- Total assets $ 21,801 ========== Liabilities assumed: Accounts payable and accrued expenses $ 296 Current deferred tax 325 Long-term deferred tax liability 974 1,595 ---------- Total purchase price $ 20,206 ==========
FTI CONSULTING, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS - (Continued) The purchase price for the acquisition of SEA of $15,630,000, plus estimated expenses of $216,250, includes an initial payment of $10,000,000 with the remainder evidenced by a note payable bearing interest at 7.5%. The purchase price was allocated as follows:
Assets acquired: (in thousands) -------------- Cash $ 300 Accounts receivable 4,367 Prepaid expenses 229 Property and equipment 584 Goodwill 13,221 ---------- Total assets $ 18,701 ========== Liabilities assumed: Accounts payable and accrued expenses $ 1,300 Current portion of long-term debt and capital lease obligations 275 Current deferred tax 347 Long-term deferred tax liability 933 ---------- 2,855 ---------- Total purchase price $ 15,846 ==========
The value of goodwill will be amortized over a twenty-year period, and will be reviewed if the facts and circumstances suggest that the value of the goodwill is impaired, based on an analysis of future cash flows from the KCI and SEA businesses. If this review indicates that the goodwill will not be recoverable, the Company's carrying value of the goodwill will be reduced accordingly. These unaudited pro forma combined financial statements may not be indicative of the results that may be obtained in the future. The unaudited pro forma combined financial statements, including the notes thereto, should be read in conjunction with the historical financial statements of the Company, KCI and SEA. FTI CONSULTING, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS - (Concluded) (1) Adjustment to reflect interest expense on the $45.63 million promissory notes, which bear interest at rates from 7.0% to 7.5%, issued in connection with the acquisitions. (2) Adjustment to reflect the additional amortization of goodwill which is amortized over an estimated useful life of 20-year period. (3) In connection with the acquisitions, the Company entered into employment agreements with the stockholders and executive officers of KCI and SEA. The future amount of compensation to be paid to these officers, who will have substantially the same duties and responsibilities, will be less than the amounts paid in periods prior to the acquisitions. The pro forma adjustment assumes that the officers had received the reduced amount of compensation for the year ended December 31, 1997 and for the nine months ended September 30, 1998. (4) Weighted average shares used in calculating basic and diluted earnings per share are the same as reported in the Company's historical consolidated financial statements. (5) Adjustment to reflect (i) taxation of KCI as a C-corporation. KCI was organized as an S-Corporation and taxes principally at the shareholder level and (ii) the income tax effects of other proforma adjustments. The assumed effective income tax rate is 45%. (6) Klick, Kent & Allen (KK&A) was acquired June 1, 1998. The pro forma statement of income for the year ended December 31, 1997 includes unaudited pro forma financial data of KK&A for the year ended December 31, 1997 as presented in the Form 8K filed with the Securities and Exchange Commission on July 17, 1998. The unaudited statement of income for the six months ended June 30, 1998 includes five months of activity for the period prior to acquisition of January 1, 1998 to May 31, 1998. The pro forma adjustments assume that the transactions were consummated on June 30, 1998. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. FTI CONSULTING, INC. (Registrant) By: /s/ Gary Sindler --------------------------------------- Gary Sindler Executive Vice President and Chief Financial Officer, Secretary and Treasurer DATED: November 30, 1998 INDEX TO EXHIBITS EXHIBIT NO. EXHIBIT - ------- ------- 23.1 Consent of Ernst & Young LLP. EX-23.1 2 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements of FTI Consulting, Inc. our reports (a) dated July 24, 1998 with respect to the combined financial statements of Kahn Consulting, Inc. as of and for the years ended December 31, 1996 and 1997, and (b) dated July 31, 1998 with respect to the financial statements of S.E.A. Inc. as of and for the years ended December 31, 1996 and 1997, each included in the Current Report (Form 8-K/A) filed with the Securities and Exchange Commission. REGISTRATION STATEMENT ON FORM S-8
REGISTRATION NAME NUMBER DATE FILED - --------------------------------------------- ------------- ---------------- 1992 Stock Option Plan (As Amended) ......... 33-19251 January 3, 1997 1997 Stock Option Plan ...................... 33-30357 June 30, 1997 Employee Stock Purchase Plan ................ 33-30173 June 27, 1997
Baltimore, Maryland December 1, 1998 -----END PRIVACY-ENHANCED MESSAGE-----