<PAGE>
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): February 4, 2000
FTI Consulting, Inc.
(Exact Name of Registrant as Specified in Charter)
Maryland 001-14875 52-1261113
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
2021 Research Drive, Annapolis, Maryland 21401
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code (410) 224-8770
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On February 4, 2000, FTI Consulting, Inc. ("FTI") completed the acquisition of
all of the outstanding membership interests of Policano & Manzo, L.L.C., a
privately-held consulting firm that is the leader in providing bankruptcy and
turnaround consulting services to large corporations, money center banks and
secured lenders throughout the United States. The acquisition was accomplished
under an LLC Membership Interests Purchase Agreement (the "Purchase Agreement")
dated as of January 31, 2000, by and among FTI, Michael Policano and Robert
Manzo. FTI acquired the membership interests from Messrs. Policano and Manzo for
a total consideration of approximately $53,000,000 in cash and shares of FTI's
common stock. On February 15, 2000, FTI filed a report on Form 8-K stating that
it had completed the acquisition and that the required financial statements and
pro forma financial information would be filed within 60 days after the initial
filing. This Form 8-K/A contains the required financial statements and
information.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Acquired Business. Audited financial
statements of Policano & Manzo, L.L.C., including notes
thereto, for the three years ended December 31, 1999.
(b) Pro Forma Financial Information. Unaudited pro forma combined
balance sheets as of December 31, 1999, and unaudited pro
forma combined statement of income, including notes thereto,
for the year ended December 31, 1999.
(c) Exhibits.
23.1 - Consent of Ernst & Young LLP
<PAGE>
Financial Statements
Policano & Manzo, L.L.C.
Years Ended December 31, 1997, 1998 and 1999
with Report of Independent Auditors
<PAGE>
Policano & Manzo, L.L.C.
Financial Statements
Years Ended December 31, 1997, 1998 and 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.......................................... 1
Financial Statements
Balance Sheets.......................................................... 2
Statements of Income.................................................... 3
Statement of Members' Equity............................................ 4
Statements of Cash Flows................................................ 5
Notes to Financial Statements........................................... 6
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors and Members
Policano & Manzo, L.L.C.
We have audited the balance sheets of Policano & Manzo, L.L.C. as of December
31, 1997, 1998 and 1999 and the related statements of income, members' equity
and cash flows for each of the three years in the period ended December 31,
1999. 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 Policano & Manzo, L.L.C. at
December 31, 1997, 1998 and 1999 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 10, 2000
1
<PAGE>
Policano & Manzo, L.L.C.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1998 1999
---------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 163,453 $ 405,568 $ 1,101,480
Accounts receivable 2,384,825 4,570,642 4,819,521
Unbilled receivables 605,860 285,330 370,072
Other current assets - - 24,890
---------------------------------------------
Total current assets 3,154,138 5,261,540 6,315,963
Furniture and equipment 101,794 214,932 266,942
Accumulated depreciation (43,456) (74,588) (112,662)
---------------------------------------------
58,338 140,344 154,280
Other assets, principally unbilled receivables 469,859 233,923 218,566
---------------------------------------------
Total assets $ 3,682,335 $ 5,635,807 $ 6,688,809
=============================================
Liabilities and Members' Equity
Current liabilities:
Accounts payable and accrued expenses $ 323,557 $ 774,174 $ 1,026,527
Advances from clients 1,529,960 1,827,013 2,137,400
---------------------------------------------
Total current liabilities 1,853,517 2,601,187 3,163,927
Commitments and contingencies - - -
Members' equity 1,828,818 3,034,620 3,524,882
---------------------------------------------
Total liabilities and members' equity $ 3,682,335 $ 5,635,807 $ 6,688,809
=============================================
</TABLE>
See accompanying notes.
2
<PAGE>
Policano & Manzo, L.L.C.
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
-----------------------------------------------
<S> <C> <C> <C>
Revenues:
Professional fees $11,290,378 $16,752,726 $21,422,335
Net billable expenses 322,942 401,880 89,856
-----------------------------------------------
Total revenues 11,613,320 17,154,606 21,512,191
Direct cost of revenues 2,830,491 4,788,254 6,897,632
Selling, general and administrative expenses 614,178 960,550 724,297
-----------------------------------------------
Total costs and expenses 3,444,669 5,748,804 7,621,929
-----------------------------------------------
Net income $ 8,168,651 $11,405,802 $13,890,262
===============================================
</TABLE>
See accompanying notes.
3
<PAGE>
Policano & Manzo, L.L.C.
Statement of Members' Equity
<TABLE>
<CAPTION>
Members'
Equity
--------------
<S> <C>
Balance at January 1, 1997 $ 1,060,167
Net income 8,168,651
Members' distributions (7,400,000)
--------------
Balance at December 31, 1997 1,828,818
Net income 11,405,802
Members' distributions (10,200,000)
--------------
Balance at December 31, 1998 3,034,620
Net income 13,890,262
Members' distributions (13,400,000)
--------------
Balance at December 31, 1999 $ 3,524,882
==============
</TABLE>
See accompanying notes.
4
<PAGE>
Policano & Manzo, L.L.C.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
--------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,168,651 $ 11,405,802 $ 13,890,262
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 16,452 31,132 38,074
Changes in assets and liabilities:
Accounts receivable (1,074,772) (2,185,817) (248,879)
Unbilled receivables (437,738) 320,530 (84,742)
Other assets 151,664 235,936 (9,533)
Accounts payable and accrued expenses 78,886 450,617 252,353
Advances from clients 576,225 297,053 310,387
--------------------------------------------------------
Net cash provided by operating activities 7,479,368 10,555,253 14,147,922
Cash flows from investing activities:
Purchases of furniture and equipment, net (1,026) (113,138) (52,010)
--------------------------------------------------------
Net cash used in investing activities (1,026) (113,138) (52,010)
Cash flows from financing activities:
Members' distributions (7,400,000) (10,200,000) (13,400,000)
--------------------------------------------------------
Net cash used in financing activities (7,400,000) (10,200,000) (13,400,000)
--------------------------------------------------------
Net increase in cash 78,342 242,115 695,912
Cash balance at beginning of year 85,111 163,453 405,568
--------------------------------------------------------
Cash balance at end of year $ 163,453 $ 405,568 $ 1,101,480
========================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Policano & Manzo, L.L.C.
Notes to Financial Statements
December 31, 1999
1. Summary of Significant Accounting Policies
Business Activity
Policano & Manzo, L.L.C., (the "Company") was formed as a New Jersey limited
liability company in 1994 for the purpose of providing financial advisory
services principally to financially troubled companies. The Company is located
in New Jersey and its principal market area is the United States.
The Company includes only individuals as member partners and the duration of the
Company shall be 49 years from the date of formation unless sooner terminated in
accordance with the operating agreement of the Company.
Accounts Receivable
The Company periodically reviews individual customer account balances and other
customer financial information as part of its credit policy.
Furniture and Equipment
Furniture and equipment is stated at cost. Depreciation of furniture and
equipment is computed on the straight-line method over an estimated useful life
of 7 years.
Advances from Clients
Advances from clients represent deposits made on initial engagements and are
applied against invoices periodically.
Revenue
The Company derives its revenues from professional service activities. These
activities are provided principally 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, but not
yet billed to clients, have been recorded as unbilled receivables.
6
<PAGE>
Policano & Manzo, L.L.C.
Notes to Financial Statements (continued)
December 31, 1999
1. Summary of Significant Accounting Policies (continued)
Direct Cost of Revenues
Direct cost of revenues consists primarily of billable employee compensation and
related payroll benefits and the cost of consultants assigned to revenue
generating activities.
Income Taxes
The Company is a limited liability company and as such does not pay federal or
state income taxes; instead, the members are liable for individual income taxes
on the Company's profits. Therefore, no provision for federal or state income
taxes is included in the accompanying financial statements.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. Concentrations of Credit Risk
The Company maintains cash balances with a quality financial institution and,
consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the Company's customer base and its credit policy. No single customer
represents greater than 10% of total accounts receivable as of December 31, 1997
and 1999, and two customers make up 25% of total accounts receivable at December
31, 1998. Also, no single customer represents greater than 10% of total revenues
for the years ended December 31, 1997 and 1999, one customer makes up 10% of
total revenues for the year ended December 31, 1998.
7
<PAGE>
Policano & Manzo, L.L.C.
Notes to Financial Statements (continued)
December 31, 1999
3. Operating Leases
The Company leases office space and equipment under operating leases that
expires in 2002. Rent expense under these leases totaled $90,293, $153,972 and
$155,646 for the years ended December 31, 1997, 1998 and 1999, respectively.
Future minimum payments under non-cancelable operating leases with initial terms
of one year or more consist of the following at December 31, 1999:
<TABLE>
<S> <C>
2000 $ 29,467
2001 29,467
2002 22,205
----------
Total minimum lease payments $ 81,139
==========
</TABLE>
4. Employee Benefit Plan
The Company maintains a Simplified Employee Pension (SEP) Plan, which covers all
employees. The Company contributes a certain percentage of the employees
eligible compensation to the SEP. The Company made contributions of $231,472,
$304,493 and $387,216 during the years ended December 31, 1997, 1998 and 1999,
respectively.
5. Subsequent Event
Effective January 31, 2000, the Company entered into a LLC membership purchase
agreement with FTI Consulting, Inc., ("FTI"). Under the terms of the membership
purchase agreement, FTI purchased all of the membership interests of the
Company.
6. Year 2000 (Unaudited)
During 1999, the Company completed modifications of both information technology
(IT) systems as well as non-IT systems in preparation for the Year 2000 (Y2K).
The Company is currently operating in calendar year 2000 and has not experienced
any operational issues associated with Y2K.
The Company has not become aware of any material adverse effects resulting from
the impact of the Y2K issue on any customers, vendors or other entities with
whom the Company has a relationship.
8
<PAGE>
FTI CONSULTING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements give retroactive effect to
the acquisition of Policano & Manzo, L.L.C., ("P&M") effective January 31, 2000,
(the date that control of P&M was transferred to the Company). The acquisition
of P&M was accounted for by FTI Consulting, Inc., (the "Company" or "FTI") as a
purchase.
Pro forma adjustments to the unaudited pro forma combined balance sheet assume
that the transaction was consummated on December 31, 1999. Pro forma
adjustments to the pro forma combined statement of income assume that the
transaction was consummated on January 1, 1999, and are based on the allocated
purchase price as reported in the unaudited pro forma combined balance sheet at
December 31, 1999. These adjustments are described below.
The purchase price for the acquisition of P&M, consisting of $47.5 million in
cash and 815,000 shares of the Company's common stock valued at $5.5 million,
plus estimated expenses of $725,000 and a working capital adjustment of $768,000
was allocated as follows:
<TABLE>
<CAPTION>
Assets acquired: (in thousands)
<S> <C>
Cash $ 0
Billed and unbilled accounts receivable 5,190
Prepaid expenses and other assets 244
Property and equipment 154
Goodwill 52,073
-------
Total assets $57,661
-------
Liabilities assumed:
Accounts payable and accrued expenses $ 1,027
Advances from clients 2,137
-------
Total purchase price $54,497
-------
</TABLE>
The value of goodwill will be amortized over a 20 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 P&M business.
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 consolidated financial statements of the Company.
9
<PAGE>
<TABLE>
<CAPTION>
FTI CONSULTING, INC.
Unaudited Pro Forma
Combined Balance Sheets
As of December 31, 1999 Pro Forma Pro Forma Unaudited
(in thousands) Adjustments Adjustments Pro Forma
FTI P&M Dr. Cr. Combined
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and equivalents $ 5,046 $1,101 $ 91,000 (2) $ 49,329 (1) $ 1,881
128 (4)
3,944 (5)
41,097 (4)
768 (1)
Accounts receivable, net of allowance
for doubtful accounts 14,458 4,820 19,278
Unbilled receivables, net of allowance
for doubtful accounts 9,222 370 9,592
Prepaid expenses and other current assets 2,166 25 2,191
---------------------------------------------------------------
Total current assets 30,892 6,316 91,000 95,266 32,942
Property and equipment, net 8,379 154 8,533
Goodwill, net of accumulated amortization 43,658 - 52,073 (1) 95,731
Other assets 1,363 219 3,944 (5) 805 (6) 4,721
---------------------------------------------------------------
Total assets $84,292 $6,689 $147,017 $ 96,071 $141,927
===============================================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 8,613 $1,027 $ 128 (4) $ 9,512
Income taxes payable 471 - 471
Current portion of long-term debt 1,718 - 1,718 (4) 4,250 (2) 4,250
Advances from clients and other 857 2,137 2,994
---------------------------------------------------------------
Total current liabilities 11,659 3,164 1,846 4,250 17,227
Long-term debt, less current portion and 39,379 (4) 91,000 (2)
net of discounts 41,009 2,683 (3) 1,053 (6) 83,036
4,250 (2)
3,714 (2)
Deferred income taxes and other liabilities 1,372 - 1,372
Stockholders' equity:
Common stock 49 - 8 (1) 63
6 (3)
Additional paid-in capital 18,197 - 5,493 (1) 30,081
3,714 (2)
2,677 (3)
Members' equity - 3,525 3,525 (1) -
Retained earnings 12,006 - 1,858 (6) 10,148
---------------------------------------------------------------
Total stockholders' equity 30,252 3,525 5,383 11,898 40,292
---------------------------------------------------------------
Total liabilities and stockholders' equity $84,292 $6,689 $ 57,255 $108,201 $141,927
===============================================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
FTI CONSULTING, INC.
Unaudited Pro Forma Combined Statement of Income
Year Ended December 31, 1999 UNAUDITED
(in thousands, except per share data) PRO FORMA PRO FORMA
FTI P&M ADJUSTMENTS COMBINED
--------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $84,607 $21,512 $ - $106,119
Direct cost of revenues 44,149 6,898 51,047
Selling, general and administrative expenses 28,829 724 700 (7) 30,253
Amortization of goodwill 2,313 - 2,604 (8) 4,917
--------------------------------------------------
Total costs and expenses 75,291 7,622 3,304 86,217
--------------------------------------------------
Income from operations 9,316 13,890 (3,304) 19,902
Interest expense, net 4,014 - 8,130 (9) 12,144
--------------------------------------------------
Income before income taxes 5,302 13,890 (11,434) 7,758
Income taxes 2,311 - 947 (10) 3,258
--------------------------------------------------
Net income $ 2,991 $13,890 $(12,381) $ 4,500
==================================================
Weighted average shares, basic 4,872 - 1,420 (183) 6,292
--------------------------------------------------
Earnings per common share, basic $0.61 $0.72
==================================================
Weighted average shares, diluted 5,028 - 1,420 (183) 6,448
--------------------------------------------------
Earnings per common share, diluted $0.59 $0.70
==================================================
EBITDA $14,012 $13,897 $ (700) $ 27,209
==================================================
</TABLE>
11
<PAGE>
FTI CONSULTING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Adjustment to reflect the acquisition of P&M for $47.5 million in cash, the
issuance of 815,000 shares of the Company's common stock, valued at $5.5
million, costs of $.7 million, and a working capital adjustment of $.8
million in accordance with the Purchase Agreement.
(2) Adjustment to reflect the issuance of $91.0 million of Senior and
Subordinated debt, the current portion thereof, and 670,404 warrants valued
at $5.54 each.
(3) Adjustment to reflect the issuance of 604,504 shares of the Company's
common stock in exchange for $2.7 million of seller notes outstanding.
(4) Adjustment to reflect the payment in full of prior Senior, Subordinated and
seller debt outstanding, including accrued interest.
(5) Adjustment to reflect costs and expenses related to the financing.
(6) Adjustment to eliminate prior debt discount, net of taxes, as an
extraordinary item in connection with the early extinguishment of such
debt.
(7) In connection with the acquisition, the Company entered into four-year
employment contracts with two principals of P&M. The pro forma adjustment
assumes that the principals had received compensation for 1999 as provided
in such employment contracts. Because P&M is organized as a limited
liability company, its owners, who have substantially the same duties and
responsibilities as before the acquisition, were taxed on the profits of
the firm and received only a small amount of actual compensation in 1999.
(8) Adjustment to reflect the additional amortization of acquired goodwill,
which will be amortized over a 20 year period.
(9) Adjustment to reflect the interest expense in connection with the
financing, including the amortization of related costs and expenses over
the life of the debt on a debt outstanding basis.
(10) Adjustment to reflect income tax expense at a 42.0% effective rate.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities 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.
By:/s/ Theodore I. Pincus
_____________________________
Theodore I. Pincus
Executive Vice President and
Chief Financial Officer
Date: April 6, 2000
13
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registration
Statements of our report dated March 10, 2000, with respect to the financial
statements of Policano & Manzo, L.L.C. as of and for each of the three years in
the period ended December 31, 1999 included in the Current Report (Form 8-K/A)
filed with the Securities and Exchange Commission.
Registration Statements on Form S-8
<TABLE>
<CAPTION>
Registration
Name Number Date Filed
- -------------------------------------------------------------------------------
<S> <C> <C>
1992 Stock Option Plan, As Amended 333-19251 January 3, 1997
Employee Stock Purchase Plan 333-30173 June 27, 1997
1997 Stock Option Plan 333-30357 June 30, 1997
1997 Stock Option Plan, As Amended 333-32160 March 10, 2000
</TABLE>
/s/ Ernst & Young LLP
Baltimore, Maryland
April 4, 2000
14
