FTI Consulting Inc (FCN) 2002 Q4 法說會逐字稿

Good morning. My name is Toshiba and I will be your conference facilitator today. At this time, I would like to welcome everyone to the FTI Consulting fourth quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time simply press star then the number one on your telephone key pad. If you would like to withdraw your question press the pound key. Thank you.

Ms. Fortuna, you may begin the conference.

Good morning and thank you for joining us. On behalf of FTI Consulting, I would like to welcome everyone to the fourth quarter year end conference call. Before we begin, I would like to remind everyone that the conference call may include forward-looking statements that involve uncertainties and risks. There can be no assurance that actual results will not differ from the company's expectations.

The company has experienced fluctuating revenues, operating income, and cash flow in some prior periods and expects this may occur from time to time in the future. As a result of these possible fluctuations, the company's actual results may differ from our projections. Other factors that could cause such differences include pace and timing of additional acquisitions, the company's ability to realize cost savings and efficiencies, competitive and general economic conditions, and other risks described in the company's filings with the SEC.

I will now turn the call over to Jack Dunn, Chairman and Chief Executive Officer of FTI Consulting.

Thank you very much. I would like to welcome everybody and especially thank everyone for the support in our recent transaction last week. As you know, part of the reason this call was delayed until today is we needed the offering process to come to its completion and as of 9.18 this morning we were at least on a net basis debt free.

This morning we have over 50 people in attendance on the call and that's been fun over the last years to see that number increase and the interest of our company and what our fine folks are doing increase, and four years ago when we came to the end of that year there were only 4 people on the call. So, I hope the increase in the number is an omen for what we can expect to see in terms of continued interest and the continued prospects for us.

The fourth quarter was clearly a very important step in our evolution as a company. You got to see for the first time some of the earnings power generation from the combination of our fine folks with the folks who joined us from the BRS group of Price Waterhouse. That process continues to go well. All across our company we saw a good result. I think that probably with the press release going out last week and some time to digest it that questions and specifics are much more on your mind more than any preamble from me.

So, with that I would like to turn it over to Stew Kahn and Ted Pincus to talk about the results.

Thanks, Jack, and good morning, everybody. In terms of the results I echo Jack's comments that we think we had a great quarter. Our integration is continuing. We have combined probably 60%, 70% of the people from the former BRS groups into FTI offices which should give us some ongoing efficiencies on a going-forward basis.

Our restructuring business is still strong. And in fact there's a recent study. The Mackenzie came out with a study recently about the amount of future bond defaults and they say that for next year they expect it will be about $410b, which is slightly below the $480b I think for the year 2002. So that's a significant volume yet to work through the system. And then you hear things like GMs debt being downgraded this morning which sounds sort of scary. But good for the restructuring businesses overall.

Litigation practices have been extremely strong. We've been doing a great deal of fraud investigation and accounting restatements. We've been working on assignments that come out from the Sarbanes Oxley and some conflicts or problems that the Big Four firms have with uncertain city about their scope of practice. So that entire area has been extremely strong and our trial support business has been as good as it’s ever been over the last number of months.

In the Applied Sciences area, as you know, we sold LWG and closed that transaction in January as of December 31. And we've also announced that we have, will be retaining or have retained an investment banker to assist us in the sale of SEA and their process is already under way and we don't no yet how much we are going to get for it but it's going to, how it will compare with our carrying value or when it's going to close but we will certainly continue, we have good people in that organization, it's a good business, it's a valuable business and we intend to maximize both the people's future and our recoveries on that sale.

With that let me turn it over to Ted so he can touch on some of the metrics and numbers that you all have come to love so much

Good morning, everybody. I suspect that the first question on some people's minds is just what is, what are our pro forma earnings for the year 2002, from which we have stated in our press release that we believe we will be able to continue our goals of organic growth of 15% or greater growth and 20% or greater growth earnings per share organic at the bottom line.

This is all publicly available in our in our recently filed registration statement. There was a nine-month pro forma which indicated earnings per share of $1.22 for the nine months. In addition, one of the footnotes in the registration statement indicated that FTI believed that there was $5.1b of costs included in that nine-month pro forma that was not replicable and then our press release contained actual results for the fourth quarter. We put all those numbers together and the earnings per share base for full year pro forma which is for 2002 is approximately $1.95. And the revenue base is simply adding two numbers together, $333m.

The number of common share equivalent that we have outstanding after our offering including the approximately additional 200,000 shares of that the underwriters requested that we increase the offering by, and the shoe which was the 350,000 additional shares the basis is now $28m common stock equivalent.

Just a few other metrics and then I think we will open it up for questions. Our capital expenditures for 2002 are expected to be in the $10m to $12m range. This is approximately the same amount that we announced at about the time we first acquired the BRS group. As Stew said, the integration of our offices is proceeding very nicely and in many cases we have actually moved into new space, combined into new space.

The effect of the goodwill amortization in the year 2001, if goodwill were not amortized in 2001, the effect of that would have been approximately 13 cents higher for 2001. Because we have paid down some of our debt early of the $100m of proceeds that we received this morning from the offering, $50m, one half of that, is being used to reduce our debt.

That is all that we are required to reduce our debt by, bringing our debt to about $46m. And this will result in additional interest expense in the first quarter, due to the early extinguishment of this debt of approximately $500,000, which after tax is approximately 1 penny per share. The accounting principal on that has changed you are no longer permitted to show it as an extraordinary item it will simply be included in our interest expense and was frankly contemplated in the guidance that we gave last evening.

Our cash flow from operations for 2002 was extremely strong as you can see. It was over $77m. As many of you who have followed us closely over the years know that our cash flow from operations in the first quarter of the year is always the lowest. Often it is nearly break even, sometimes even slightly negative and that is primarily because of the payment of bonuses that are generally paid in their entirety in the first quarter of the year, which have been approved throughout the previous year.

For those who care to do the calculation, the offering itself, the base offering of $2.1m shares was expected to be about 12 cents diluted to our 2003 earnings. Again, this has already been taken into account in the guidance, the and the additional shares that were issued, both the over allotment and the additional shares were approximately another 4 cents per share diluted and again, I repeat, already taken into account in the guidance.

Some of the other metrics that you expect are total head count in our continuing operations is 769 people, of which 610 are billable, approximately the same numbers as September 30. As Stew and Jack said our major hiring occurred with the acquisition of BRS.

Our average bill rate for the company remains at about $333 per hour. Our utilization for the fourth quarter company overall was about 87%, not statistically different from what we reported to you for the month of September after the immediate integration of BRS. And our turnover is now running approximately 15% on an annual basis, a bit higher than usual and primarily because of the expected turnover among the younger staff members that we have acquired.

As Jack mentioned, we have no net debt as we sit here today and in fact, we have a net positive cash position in excess of $20m, plus the $50m that we have from the offering left over. We have our full $100m credit line, our revolver available to us and clearly during this offering we have brought into the fold nearly a dozen new shareholders. We have increased our liquidity and as we have continued to state, prospects are good for us and we intend to use these funds for general corporate purposes including potential acquisitions as we have stated all along we continue to look for appropriate acquisitions.

Some of the other metrics that you expect, the fourth quarter margins are typically the best of the year. On an overall basis for 2003, we would expect our gross margins to be in the low 50%, perhaps 51%, 52% for the year taken as a whole. And our goal for our EBITDA margins for the year would be in the high 20%s, perhaps 30% EBITDA margin for the company; taken as a whole.

Our capital expenditures for 2002 were a little less than $9m, approximately $8m to $10m that we had forecasted earlier on in the year, and as we sit here today after the offering our total stockholders equity is in excess of $360m. And our goodwill is a little bit less than $300m.

Jack, let me turn it back to you

Great. We'll now open it up for questions, please.

At this time I would like to remind everyone, if you would like to ask a question please press star then the number one on your telephone key pad. We will pause for just a minute to compile the Q&A roster.

Your first question comes from Adam Waldo of Lehman Brothers.

Thanks. Just wanted to go into your guidance with a little more specificity. When you are telling us to look for 2003 earnings per share, including the effects of the offering at 230 to 235 plus intense guidance, what kind of assumptions are you making with respect to organic growth at BRS relative to the core business?

: Well, BRS growth at the income line, Adam, we soon will be mirroring the overall company-wide growth. I don't think we think there's going to be much of a difference between their growth rate and the litigation business is certainly not the P&M, the legacy P&M business we had in restructuring.

Okay. And, Stew, is it fair to say now that you would be looking for some organic revenue growth perhaps consistent with the 15% range from BRS in 2003 versus the your earlier conservative guidance for no revenue growth and no guidance expansion from BRS?

I don't know. We can't pin down the top line as well as we can pin down the bottom line quite honestly.

Fair enough. Can you give us some sense for, I know you stopped reporting this in the third quarter, but I wonder if you would start to report it again now, give us a sense for the financial consulting units billings and EBITDA in the fourth quarter relative to litigation?

When you say the historic litigation consulting business?

Yes, thank you.

Actually the timeing of stopping to report that was really not so fortuitous in the fourth quarter. It turned out they had a great quarter in the fourth quarter and nobody would ask me how they did otherwise. But as a group their volume picked up nicely, their trial activity picked up nicely, a there have been management changes that we made we think generated some really good results.

So, Stew, you had some on the third quarter call of business litigation did around $6.6m or so revenue did it do materially better than that in the fourth quarter.

I don't know if I can actually pin it down because of the way we pulled the operations out of it.

Okay.

I know everybody was busy, our turnover slide down. I mean our employee turnover slowed down. And we paid some individual bonuses to some individual people. So, I think we did pretty well in the fourth quarter.

Then finally, Jack, if you could give us an update on some of the initiatives you've been working on over the last year or so with respect to the development of bull market cycle practices within the consulting business. Could you give us a sense with the intellectual property practice in terms of run rate revenues or billings or head count and where you see that going in '03?

I think a lot of the things, especially on the M&A side, are still in their initial stages. We are really over the last several months, as you can imagine, our major efforts were working on the integration of our new folks who have joined us. But one of the keys to being able to develop some additional practices that will be beneficiaries of the changing economy within those folks is a tremendous resource of people who have done those things with their former employers. So, people who in prior practices had worked on, for example, transaction support services, who had worked on expert testimony and things like that.

So, we picked up a well of industry specific knowledge, a well of talents in serving some of the equity sponsors, things like that and doing the due diligence on a deal, and the wealth of people who can compliment the people that we have already in the crisis management area. I think it's safe to say that we kind of fostered the embryos there and we need a little help from the market now, as more transactions are done, as more financings are done, to supply the work to take advantage of that. So, we are laying seeds right now is the way I look at it.

Thank you very much everyone.

Your next question comes from Joshua N. Rosen of Credit Suisse First Boston.

Josh with First Boston. Just a couple quick items. First if you could talk a little bit about the integration by BRS and, in particular, from a challenging standpoint what do you see as the greatest challenges since you brought the company on board?

The greatest challenges are two very different business styles; to start with, folks who came from a large organization, I, too, was a partner in a public accounting firm many years ago. So, I had some of that kind of experience myself. But bringing a group of folks from a partnership into a corporate environment is a challenge, although not one that we weren't up to and weren't anticipating. I think some of the relative lack of formality in FTI versus PWC was a bit of a challenge for some of the folks, but they are getting used to it now, getting to know us, we are getting to know them.

I think the biggest challenge probably is to get as much of the best practices of each of the practices and each of the companies pulled together and identified and get people to buy into them on a longer term basis. I think we can accomplish that. We, in fact, have management meetings right now and will be going into a long-term strategic planning cycle to bring some of that up to the surface and see if we can't implement more of it.

But I think that's basically, we have the good fortune of having 50 wonderful talented people who were partners in a major highly regarded accounting firms to join the rest of our probably 50 senior people that we have within our company. And it's a wonderful force to move forward with, as Jack indicated before.

Okay. Great. Thanks. As you look at 2003 guidance, in specific, any thoughts on improving utilization within that guidance as to where it is right now?

I think overall our expectation is that we will be working on improving that utilization, we put some measures in place to improve it and we expect that we will. Whether overall when we add it all up it will be statistically significant like 87 versus 92. I can't tell you that right now, but I sure hope to get it improved overall the next three months and I think we can.

Okay. Then the last thing we've been hearing more recently from some others as well that there's been increased activity around the Sarbanes Oxley push, if you will. Any more specifics regarding that in terms of what you've been seeing in the market?

A lot. We started a venture called corporate diagnostics. We have a, with a couple of law firms. Our folks in Washington and New York and Los Angeles and in Texas are up to their eyeballs in accounting statements for major house hold names and working on behalf of committees, on complex accounting questions. We think that there's great potential there. And we have been fulfilling those requests with very talented people. Because we've got a bunch of ex-investigators, as well as enforcement division accountants from the SEC as part of our staff to do this kind of work.

Okay. Thanks and congratulations other continued progress, guys.

Your next question comes from Arnold Ursaner of CJS Securities.

I'd like to focus a little bit on your revenue growth assumptions and kind of a puzzle I am putting together here. IF I heard Ted Pincus right, your number of full-time employees and billable employees was basically flat in Q4. Is that correct?

That's basically right.

When you think about the upcoming year and availability of people, what sort of head count growth do you think is a reasonable number? Of billable people?

I think overall with all the changes that we are going through right now I don't know that we expect any significant head count growth. But I think what we do expect is that more of our people will do more valuable client work than they have in the past. So that from a mix standpoint our average rate may go up, our realized rate may go up from where it is now.

That was the second part of my mix, I was expecting if you had some modest head count growth coupled with mix that would get you pretty good revenue growth?

Historically we've gotten 6% to 8% rate increase, increases over time, and we might expect that. And when you take that in conjunction with some mix changes. When we say the head count stayed about flat, what that means in part is some junior people with lower billing rates have moved on because that was the traditional way within the PWC – BRS group, younger people might have joined nor a couple of years and gotten experience and moved on, but we've hired more experienced, more valuable people. So, even if the head count stays flat, the mix changes and the revenues realized change. Another thing that we suspect that we will get in addition to somewhat higher utilization is somewhat higher realization in terms of achieving the net fees that we build. There is some improvement that we can make in that area and that's in our business plan for next year.

Okay. One question I would like to follow up on, you mentioned seeing more activity regarding Sarbanes Oxley. Are you also seeing increased activity as companies are scrambling to funds various pension issues?

We haven't seen that in any of our business lines at the moment, but we expect that what's going to happen is the companies that need to find, get bank waivers and what have you to enable them to remain in compliance with their pension provisions are going to be coming to us for help. And I think there's at least one case that I know of now that's not at all public where that's the case.

My final question is looking at your balance sheet post this transaction you mentioned you have some net cash but more importantly your cash generation is just enormous. Obviously acquisitions should play some role in your future growth. Can you comment at little bit about where you are in terms of the integration and your willingness and time frame for possible target acquisition?

: Yeah, we have been and as we've mentioned before on some of these calls, we have lots of opportunities and recalls have lots of opportunities. And we have been very selective. One of the great benefits of the acquisition we completed last year is the fact that we've got so much senior talent who have immediately taken on senior responsibility with our company.

So, I think that the reason we didn't do two or three acquisitions last year is because we carefully calculated what we could digest. We believe we are in a situation where we have some capability now some management debt to continue now looking at acquisition opportunistically and since you never see us going far afield we typically are looking at business that we have some fundamental understanding of, that we have some vestige of already. I think that increases our capability both to assess our ability to assimilate them and to go ahead and make a good investment. So, I think we are in excellent position both from the dry powder that we have and the management capability that we have to pursue things in real time.

Jack, just remind me your goals has been to build practice or buy them when you could do that more efficiently, is that still the case?

Sure.

Okay. Congratulations.

Your next question comes from Mayank Tandon of Janney Montgomery Scott.

Good morning, congratulations. I want to break down revenue growth a little further. Jack, in the past you have cemented that you had a big opportunity to penetrate your existing accounts even further. Given the demise or at least decline in the big four auditing practices, do you see that the opportunity now is a lot bigger now in terms of existing client opportunities penetrating them further and growing market share?

We didn't talk about the decline of the big four auditing. They have determined that is their core business and that is with a little bit of a help from Sarbanes Oxley and the SEC. That's why we've had some opportunity to increase our penetration. So, obviously the beneficiary of the wonderful transaction last year. So, as we look at the landscape, quietly over the last couple of years as Stew has been reminding us on these calls, we have built a first class forensic accounting capability that really is the equal in terms of the big four.

If you look at the number of people we have, we did this in a presentation the other day to a Fortune 500 client, the number of people we have, the number of cases we are working on from the forensic accounting standpoint, it really puts us in the forefront of that marketplace. So, the combination of accounting firms choosing to focus on their core business which is auditing and having some conflicts, I think we have quietly and efficiently grown up to be at least their equal in that regard. Similarly, in the restructuring area, because of conflicts, because of our opportunities of that presented themselves and because of our business model, we have certainly in our opinion and our estimation become the largest factor in that marketplace in the United States.

So, as that continues to unfold as there is clarification going forward on what practices the accounting firms can do for their audit clients, what they will not allowed to do we would certainly hope that we would make a foray into the tax area in terms of the work we do now. Typically, the tax assessment of transactions and all that going forward, that's an area we would look to build. We mentioned the M&A advisory work which we look to build the transaction support. This is the moment that we've been waiting for to have the critical mass and to have the balance sheet to take advantage of it. So we plan to.

Just to be clear your growth is going to be driven by new cases, cross-selling among these different surfaces and also increased penetration on existing cases? Is that fair?

When somebody needs us they need the whole ball of wax so there is some increased penetration. But realistically it will be as it always has been is the utilization and the increase in our number of people and the ability to now step out because of the broader capabilities that we have that I mentioned earlier of the backgrounds of the folks who have joined us to be able to capitalize on those. It won't be dramatic things overnight but you will see these capabilities grow over time so it will be almost a seamless seeing way into the other areas that we are talking about.

Could you comment specifically on the crisis management practice, what has been your success there over the past 12 months?

As you know, we took an embryo group last year and put them in the crisis management business and I think they have certainly grown that practice. I think we have 5 or 6 cases that we are working on in that regard. And as the economy improves a little bit as we all hope it will, although I haven't seen all the great tangible indicia of that, but as it does crisis management becomes an even bigger practice because that's the time when people say it's better to salvage these things and eventually people are starting to put money out again and banks are starting to put money out again. You can bridge the time between the crisis and the turnaround through the crisis management. So I think we have, with the folks that joined us from Price Waterhouse, we have a number of folks there as well that have experience doing that. So, we have some real capability now if that market increases.

Can you give us a feel for the crossing of BRS, maybe some examples of cases where you guys have worked together or in partnership?

There's been some really great ones in terms of utilizing our electronic evidence folks on BRS cases to pulling together the information that we've had other cases where we had jointly both PWC folks doing restructuring work and forensic accounting people out finding the assets because, as you know, some of these bankruptcies and a number of the bankruptcies, one of the reasons why the company's come to us is because somebody took the money. And somebody needs to go find it and that's is something that we are darn good at.

So we've had a number of those kind of cases already and I think the volume of those are only going to increase. The more we get all the folks to co-locate in offices. We now have the LA office, Chicago -- not Chicago yet, New York, Washington, D.C., Chicago is maybe next week, I think, coming together, and that's where the bulk of our folks are. And as those folks start working together more and more and appreciate each others talents, they will be getting more of those cross-selling opportunities.

I guess a final question for Ted, I think just to clarify you said 195 is the pro forma earnings per share number for '02 is where we should be at the 20% growth off.

That's approximately right.

And related to that, I mean how much margin leverage have you built in for '03 guidance, was the potential that we can see in terms of EBITDA margins, the synergies that you saw in the fourth quarter?

I think I mentioned that earlier that we typically set a goal for our gross margins and EBITDA margins and we try to maintain that goal not to expand from it. That goal will be gross margins in the low 50%s, 51% to 52%, and I object today in the high 20%s or nearly 30%. Again recognizing that the fourth quarter of any year is typically our strongest quarter, our third quarter is typically our weakest, so I’m giving you goals taken on the whole.

Thanks.

Your next question comes from David J. Gold of Sidoti & Company.

Good morning. When you spoke a little bit about the 6% to 8% rate increases, that's sort of a January, February type thing you’ve done in the past. Has that happened yet?

Some of it actually happened a little before that and went into effects then. Some of it will happen in the middle of the year. There's going to be along little bit of a rolling impact, more avenue rolling impact because in conjunction with the acquisition of the business from PWC, we coordinated or normalized all our rates. They are on a different, their folks were on a different raise and promotion cycle. So their rates changed I think mid year. So, some of that will just flow through.

You don't have any sense for any resistance to it, right?

There's always some, but our goal is to maximize our realization and as a result of that we keep working towards explaining to folks that, if we just give the best service, we don't give discount service.

That's fair. Jack if you can add a little bit more color on the acquisition front, obviously with the cash position that you have and the cash generation that you guys have you are fairly well suited to do something, but are you comfortable enough with the digestion I guess at this point of PWC to do something tomorrow or is this something that you see for the next couple of quarters or so?

Typically when you do an offering you are relatively quite on the acquisition front so I don't think we'll be announcing anything tomorrow. But we are ready to, now that the offering is behind us we are actively looking now, see what things look best strategically, complement what we have or add to the dimension. So, we are in active mode as of now.

Obviously you are not doing something tomorrow but if you found the right thing and it were sort of an ASAP deal, you are comfortable enough to do something quickly?

I'm free all day Friday.

The SG&A front, how should we look at that going forward, I guess the service star guidance has been in the 23% or so zone post PWC and December quarter you were closer to 21% as a percentage of revenue, what would be.

The same 22, 23. If you use the metrics I gave you a moment ago, 51, 52 and 22, 23 of SG&A and high 20 to 30 for EBITDA.

All right. That's fair. There's nothing, let's say, odd about the fourth quarter that brought that down a little bit?

As I say the fourth quarter is always our strongest quarter of the year in terms of metrics.

Okay. Fair enough. Thank you.

Next question comes from Sandra M. Notardonato of Adams Harkness & Hill.

Thanks. I'd like to talk about the turnover commentary that was made, I think it was by you, Ted, can you talk about how many junior people versus any senior people that voluntarily left out of the BRS business?

Yes, I think I can. Primarily it was junior people, period. There was not a senior managing director, for example, that has left us. The total number was approximately 30, primarily junior people.

That's out of BRS. What about our FTI, any senior people leave in the quarter?

No.

What is the bill rate range, junior to senior now?

The bill rate, I guess it's lowest bill rate is about 100, highest bill rate is probably about 600.

Okay. And maybe if Ted can give me any commentary, any seasonality that we should be modeling in 2003 specifically to BRS outside of the summer seasonality?

Outside, I think that's it, the summer seasonality is even more pronounced than our legacy business was in the past.

Okay. Great. Thank you.

Or at least it had been historically. We can't actually, we are not actually certain, because there are some things that in the history of the BRS practice, there was some things that they had planned that created seasonality, like big long training sessions off site in the summertime that certainly caused a whole lot of billable ours out. I don't think we are going to see that again. We'll have different means of accomplishing the training and what have you.

Okay.

So, while we don't think we should have quite as severe a seasonality as they had in the past, we might yet.

Okay. Just let me follow up with the comment that you made, Stew, are there any plans for company-wide weak event to just kind of bring the two companies together now that you are officially, the deal is behind you, the secondary offering is behind you, anything that we need to be aware of number one and number two, any thoughts about changing the name of the company?

Changing the.

It seems like FTI Consulting is now becoming somewhat of a misnomer, forensic technology.

Well, the name had been changed from forensic technology to FTI Consulting a long time ago. We don't have any plans to change the name of the company, no.

What we've been doing, Sandy, is growing the brand name FTI and eventually we will be going to market with that name without the formerly the BRS division of Price Waterhouse Coopers or formerly Policano and Manzo. In terms of your question about the company-wide event are you talking about as it might impact revenues or something?

Just to know what's going on in terms of your plans for integration more than anything, Jack.

We actually have, the first step is the amalgamation of the offices is to get people where they really live together and throughout the year we have several events plan where people on different groups will be getting together but nothing that would stands out as an event that would impact the revenues or anything like that.

Stewart J. Kahn And we actually as I indicated we have a senior management meeting where all the senior managers, the BRS group as well as the other senior management people in the company are all together for a couple of days. And in a month or two, I think we are going to have a senior managing director video conference meeting for a day, as soon as we can put it together for all the people in the restructuring practices. Just to go over some more of the ending integration rather than the familiarization.

For what it's worth, we met with the entire PWC BRS group in August last year; the management group from FTI met with them at a conference they were holding at that time. So, we've had a couple of those meetings. But we certainly are not going to have any big meet things will impact revenues. When we do that senior managing director meeting, we will probably do it by video conference because we have TV conference facilities in all our major offices and we will probably do it at one of the major offices. We don't spend money on stuff like that if we can help it.

Just two other questions, the financial systems have all been integrated. Is that right, Ted?

Totally.

Last question, all around utilization, if some of the steps that you're taking to get the two businesses at utilization rates that are similar occur in the first half of this year what do you think utilization rates could essentially be as we close out 2003? What's your internal goal?

I have several goals for the company overall, the top 90%. It's going to be a challenge to get there. We will figure out how. I think we have a shot of doing that, but we can't promise that. There's a lot of things that have to happen.

Okay. Thank you.

We have a follow-up question from Adam Waldo of Lehman Brothers.

Yes, I just want to go back to some comments on head count additions in 2003 made earlier in the Q&A. Just help me understand better why you would expect limited head count additions in 2003. Philosophically, given relatively strong operating environment for the financial restructuring and bankruptcy business as well as opportunities for growth in Sarbanes Oxley and pension related work that you might seek head count growth in the high single digits, low double digits, help me to see why you expect low head counts addition in '03?

Most of it is about changes as I said before. We do expect continued turnover. We do expect, of some sort, and we do expect to replace that turnover with additional individuals. But most of it will be turning it over into more experienced people which will yield more revenues per person. And we have some practices where we do have considerable increase in head count. Other practices where we are, with growth, trying to support that business with some outside consultants rather than full-time employees. So that at the end of the day we would expect to see the growth numbers but our best guess at the moment is that our head count position will probably be about neutral.

Okay. One last question for Jack. Jack, given the strong growth of a number of your practices, give us your sense of what your current thinking is with respect to international expansion over the next year?

I think we've obviously with that activity we have seen a number of opportunities. I think we will cautiously explore them. I think there are, because of the working relationships which all of us have had on an international basis. We have no problem taking and getting international cases because we have traditionally all of our people have done that in the past and we have working relationships. But we can at this point, given the size of our core business, explore a little bit more formal relationships with somebody over there and we may do that as we go forward.

So, you would expect sort of parachuting in case teams if you will and or alliance to be the primary mode in '03 rather than organic openings?

Those have been the way, we have worked on things but I think now some of the things you mentioned like Hoolihan's, that type of things have heightened the awareness on the other side. So, we are starting to get inquiries from them about people who might be interested. So it's opened up the playing filed for us to pick and choose where we want to do something on a more formal basis. I also think we have to look at the rest of the world, Asia and places like that. I don't think we are going to do anything wild because that's not our history. But I think their markets in effect are almost growing towards us because some of the problems around the world are so immense and despite what you read in the journals from time to time, our way of dealing with them is the best because we give businesses a second chance to survive. And when you have problems of the magnitude that you do all over the world that's going to become a necessity.

Terrific. Well said. Thank you very much.

Your next question comes from Marna Nichols of Banc of America Securities.

Hi, guys, thanks. Congratulations on both the offering and another great year. I wanted to, just following up on a couple of other questions that Adam and others had, when you talk about changing the mix of people that you had internally this year, is the inherent implication here that the incremental margin is higher on people that have higher bill rates and your incremental margin on the lower billing people is somewhat lower?

Yes, that's exactly correct.

All right. Can you talk at all, we've talked a little bit about the changes at BRS from the integration side of the people internally, can you talk a little bit about what your experience has been with clients there now that you found it for a longer period of time? Have you seen any specific client turnover or notable client turnover and or significant wins that you think are part of the fact that you are now under one roof with the BRS people?

In some cases, yes. There are some cases that, like working for WorldCom, that I don't think either of us would have gotten if they were still part of PWC and not part of our organization. And I think in general from what I hear from the senior management directors in the bankruptcy practice, our clients are real happy that we are together because now they can choose between two great organizations who approach, with somewhat different skill sets sometimes, and therefore might need a different approach to a particular matter.

Okay.

The other thing is of course we have the geographics now. We would do a lot of our work out of New York in the past or book to the northeast or in New York City, and now in some different cases if a matter comes up in Texas or something like that we have the resources to take care of it there.

This is still the marketplace is vibrant and still a marketplace where people are looking for the best people to help them and are not looking for reasons not to use it when you bring together two names like we have. So, I haven't heard of any client turnover or anything like that. If anything there's been a buzz in the marketplace about the capabilities that we now come to bear.

Back to what Stew was saying, do you as a company have to address the same kind of conflict issues that say one of the Big Four accounting firms does in the sense that there are aspects avenue project that you can work on for a client company that will prevent another aspect of the FTI or BRS business from working for the same core company? I guess the point is are the rules that are coming down on the Big Four firms really exclusive to the Big Four firms?

Absolutely. They only relate to auditing. They don't relate to us at all.

We are not regulated by the SEC. Our conflict issues are typical business and typical that a law firm might have.

I want to go back to the comment that you made Jack as well that McKenzie's view that bond defaults while still very high this year may be down somewhat from 2002. Obviously there's a very long tail on the business that you already have in the pipeline and you are already servicing, is there a concern that the level of this is going to decline?

Stew had mentioned the study and as hard as it is for me to imagine what $410b really looks like it's harder to imagine the difference between $410b and $490b, the point being it's a very robust market where we haven't even felt some of the collateral issues that could arise from that level of activity. Combined with that, you have major lending activity in the 98, 99 timeframe that will continue to provide the transactions, etc., which will face challenges as perhaps interest rates later in the year or other trees are impacted by war or what have you. We think it's an exceedingly robust marketplace. And at the levels, at $400b in estimated default or in that neighborhood, there's plenty of work for us to do and I think you will see us thrive in that environment.

A clean up question, you mentioned that you have the full revolver available for you right now, what's the total amount that's available for you on the revolver?

$100m.

Thank you very much.

There are no further questions at this time.

Once again, I know a lot of folks out there like to interpret our body language on these calls. I think what you see is a management team that is very inspired by the prospects before it. In effect, we did get what we wished for. Our value proposition has always been to have the smartest people in the world doing the hardest work for the best clients.

We now have the capabilities that four years ago we could only have imagined and you see a management team that is dedicated to making sure that we reap the harvest of all the hard work that we've put together to put us in the position we have. We have the balance sheet. We have the critical mass. Most importantly, we have the people, and we look forward very much to 2003 and the future to capitalize on that. So, thank you very much.

Thank you for participating in today's teleconference. You may now all disconnect.