FTI Consulting Inc (FCN) 2003 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the FTI Consulting conference call. At this time all participants are in a listen-only mode. Following the presentation, instructions will be given for the question-and-answer session. If anyone should need assistance at any time during the conference, please press the star followed by the zero and an operator will assist you. As a reminder, this conference is being recorded today, Thursday, the 23rd of October, 2003.

I would now like to turn the conference over to Ms. [Lisa Fortuna]. Please go ahead, ma'am.

Good morning, thank you for joining us for the FTI Consulting third-quarter conference call. By now you should have received the news release sent out last evening. If not, access it at FTI's website at www.fticonsulting.com, or you can call us at 312-640-6688, and we can resend it.

Before we begin, I want to remind everyone that this 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 its 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 S.E.C.

I'll turn the call over to Jack Dunn, Chairman and Chief Executive Officer of FTI Consulting. Please go ahead, Jack.

Thank you. Good morning. I'd like to add my thanks to everyone for joining us. After several years and many quarters of bringing you very good news, I can't tell you how difficult it is for a management team that works hard to deliver shareholder satisfaction to come before you with the bittersweet picture of the 90 days just past. Whatever your thoughts, you should know that you have a board, a management team, and 775 soon-to-be almost 1,200 employees who are dedicated to building shareholder value. Many of whom are shareholders with you and all of whom are dedicated to and believe wholeheartedly in our plan to provide world-class consulting services to our clients as an alternative to the traditional providers. While the shortfall in our immediate expectations won't be overlooked and will be fully discussed, I also believe to get a true picture of where we are, it is crucial that we not overlook the large steps that have been taken during the last three months to pursue the plan that we set out four years ago to achieve. By this, I refer to the acquisitions of Lexicon, Tenike, and the DAS practice of KPMG. And while they've come to fruition in the last several weeks, they are the product of a lot of hard work by people at FTI. With these acquisitions, we add in critical mass respective professionals in the areas of economic consulting, dispute analysis, forensic accounting, and Sarbanes Oxley corporate governance disciplines. Together with our exceptional existing professionals, we believe this is enough to move the needle toward our goal of being a, if not the credible alternative of choice in the post-Sarbanes Oxley world. With the addition of these reputations, these credentials, and these people to our own, we can go to any C suite, any law firm, or any advisor and be a recognized factor in the field that they're seeking inquiry.

For the past several years, we have laid out our plan. Now it has and will continue to become more concrete. The Tenike transaction has closed. While there can be no assurances, subject to [Hardscotts Redenal] approval, we expect the DAS transaction to close quickly. And the next shareholder vote authorizing the sale of Lexicon is expected in mid November. Do we have the financial capacity to do these transactions? Yes, and we'll discuss that in detail. Do we have the systems and resources to accomplish the logistical integration? We also have that, and again, we'll discuss that. Is there integration risk? Absolutely. And we are not arrogant or blind to it. As these acquisitions close, we will have assembled a great platform to achieve our goal. The job in the next year, along with continuing to seek other opportunities will be getting it right. We will look diligently everywhere both inside and outside our company to do everything we can to make sure that we do it right. That is our commitment.

Before I turn it over to Stu and Ted, I would also note that our board has approved a stock buy-back program. Again, with our resources, we believe we can comfortably both aggressive pursue our goals and prudently invest in the shares of our stock if others are less enthusiastic about doing so.

When I came to FTI, there were 60 great people. Over the years we've been joined by folks at Click Kenton Allen, KCI, Price Waterhouse Coopers, and so many more. Our new professionals are right in their mold of dedication to client service. We have never a better team or better prospects for a company that is built to last.

So with that, I'd now turn it over to Stu. Stu?

Thank you, Jack. Good morning, thank you all for joining us also. I'd like to extend my thanks.

I wanted to explain the difference in our expectations between now and over the summer. As we indicated over the summer, our expectation was for restructuring to be at worst flat, and we expected significant organic growth in our nonrestructuring businesses in the next year. That assumption and expectation excluded acquisitions. Since that time, the parameters driving our estimates have changed. In the restructuring world, we expected by now to have seen an interest rate increase which we thought would drive some more restructuring opportunities. The high yield market heated up. And took out a whole flock of energy companies and others that are at least temporarily restructured without going through a formal restructuring process. And thereby took away some work that we thought we were working on at the time. And as we announced in September, we expected there would still be some pickup in work, but that hasn't happened. There has been no significant pickup in volume, and we haven't experienced at this point much of a change from our September run rate. We've talked to lenders and other practitioners and analyzed lending patterns. Our best estimate now is that we're in a trough that might extend through 2004 or to the end of 2004, and we expect some pickup in late 2004 and into 2005 in the restructuring activity.

Another change is in the forensic accounting area. Over the summer we were talking about organic growth of as much as 50% in some of those practice areas. Now having the opportunity to acquire the KPMG practice and become the go-to firm and the largest non-big-four source for our consulting talent, we thought we would take that opportunity to grow rapidly rather than to grow organically at a much slower pace. We still expect some future growth within the area as others in other public accounting firms or other practitioners seek to join our -- our very highly talented and large organization.

We also thought we'd have organic growth in economic consulting. Yet again, we had the opportunity to buy the best brand in the economic consulting business. So now when we're projecting that organic growth, we're -- we're looking at growth in the best performing areas over the next 15 months, which we expect will be forensic accounting, economic consulting, valuation, and the electronic evidence business. We expect that the forensic accounting business is, by virtue of the Tenike acquisition, will also continue to grow at a very, very rapid pace.

In all of those areas, as well as in restructuring, we will continue to work on increasing utilization. The three acquired practices all have about 75% utilization now. And we expect that our overall combined utilization for 2004 will be at or slightly below 80% by the time the year is finished. In terms of integration, we are drawing on our internal talent to aid in the integration of these three acquisitions as a start. And as Jack indicated, we will look outside for more help as time goes by and find the best additional help that we can. John Click, who came with us with the Click-Kenton-Allen acquisition in 1998 and has worked as part of the network industry strategy group already knew many of the folks at Lexicon, and he is the lead person on integrating the Lexicon Group. Don Dinapoli came with the BRS acquisition, and he is charged with the KPMG acquisition. He was the leader of the BRS practice group when we acquired it. John Solomon, who is possible for our already very successful Washington D.C. forensic accounting practice, and is experienced in S.E.C. investigations will be the -- is the person responsible for the Tenike acquisition. We do have -- we believe very adequate systems and procedures for integration. We will consolidate some of the people into our offices, in particular the KPMG people in the cities where we have offices. We will find a way to bring them together with our folks, and in most cases bring them into the same locations, but in some cases need to have to move from our existing locations. The Lexicon folks are in offices in -- in Cambridge, Massachusetts, and in Chicago. And we probably won't be moving them, at least over the near term. And the Tenike folks, at least the ones in Washington, D.C., will probably be moving into our office in Washington, D.C. In terms of how we're going to market with all of these practice, we have commenced a study of branding to make certain -- and we've had branding studies before. But this one will get us to the next level of looking at some of the new brands we've acquired to see which is the best way to go market. We'll know about that before the end of this year, and we'll is made a decision on that.

So that's my report for this quarter. Let me turn it over to Ted to give you more color on the numbers.

Good morning.

Just a few additional facts related to the numbers. Then I'll talk a bit about our acquisition financial capacity. On the numbers, for the three months ended September 30, we show a very considerable increase in our gross margins to 55.3%. I want to point out that that is affected by the $2.1 million reversible bonuses that we talked about in the press release before the reversal of those bonuses. The gross margins are in the roughly 53% range. Again, in line with our expectations, and very, very strong. Our EBITDA margin for the quarter was 34%. Again, affected somewhat by the $2.1 million reversal. Again, without the reversal, considerably above and in the low 30% range with our expectations.

I just want to move you over very quickly to our balance sheet for a moment. As we indicated, we have over $133 million worth of cash at September 30. I'll take you in a moment through our financial capacity and how we will be utilizing that.

Our net receive abs, which we have discussed in the past, the combination of accounts receivable, unbilled receivables, and net of the billings in excessive services provided average 45 days outstanding. Again, we believe the best in the industry, we worked very hard to continue to maintain that. They are similar to what we have experienced the rest of this year. Two of the acquisitions, their days outstanding are approximately the same as ours. Perhaps just a little bit higher in DSOs tending toward the mid 50's. One of the acquisitions has a considerably different business pattern than ours, which we hope to be able to improve somewhat.

During the -- during the quarter -- we're going to go over to the cash flow. For the quarter itself, we generated more than $29 million of cash from operations. And in this particular quarter, we did that without any help from income tax benefits on the exercise of stock options. There was essentially no income tax benefit this quarter. As you can see, no additional working capital was needed, so the $29.3 million of cash flow from operations was exactly that. Our purchases on fixed assets for the quarter were $2.5 million, in line with our expectations for the year of $10 million to $12 million. With respect to our acquisitions, there would be minimum needs for work -- for fixed asset acquisitions at Lexicon and at Tenike. And there will be some need, of course, to build out or refurbish some additional office space. With regard to the DAS acquisition, though very honestly not as dramatic as what we experienced last year when we did the acquisition of BRS. At this point, FTI is in 10 of the 14 cities. And fewer people, as well, of course.

Let me concentrate now on our capacity -- past financial capacity for this -- for the series of acquisitions. I think it is clear that our existing cash is sufficient to pay for the DAS acquisition, the Tenike acquisition which has closed, and still have a considerable amount of cash remaining. That plus our unused credit lines are sufficient to pay for the Lexicon acquisition. However, we are in the process of working with our traditional lending group for additional debt financing, which they have already indicated to us is clearly available to us. So that we will have additional new debt sufficient to absorb the Lexicon acquisition and still have unused credit lines of approximately the amount we have now, which would be again the contingent for our working capital needs and other corporate uses. We did indicate in our press release that we did not acquire the working capital of the DAS group, and therefore, we expect over a three to four-month period to have to infuse approximately $14 million for working capital into that business. That would be counterbalanced, however, with more than that amount, significantly more than that amount of cash flow from the rest of our business during that period of time to be able to provide that additional working capital toward the DAS acquisition.

Let me turn it back to Jack at this point. Thank you.

Thank you. At that point, I'd open it up for questions.

Thank you, sir. Ladies and gentlemen, at this time, we will begin the question-and-answer session. If you have a question, please press the star followed by the one on your push-button phone. If you would like to decline from the polling process, press the star followed by the two. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order that they are received. If you're using speakerphone equipment, you will need to lift the handset before making your selection. One moment, please, for our first question. Our first question is from Josh Rosen. State your company followed by your question.

Good morning, Josh Rosen with CSFB. I just wanted to follow up, Stu, on your commentary regarding organic growth, if you will, outlook for 2004. In particular, you talked about forensic accounting and economic consulting and about the restructuring market hitting a trough phase through potentially all of '04 but at least until the back half of '04. Does that term mean that you effectively expect growth to be flat there or do you expect things to fall off from current levels? And if so, can you give us some perspective of the magnitude?

Okay. In terms of the restructuring, the restructuring market, what we think -- our best estimate now based upon the work that we've done with the people who send us work and who also work in the field is that the level of activity in September is probably indicative of what the level of activity is going to be for the next 12 to 15 months. And so we've assumed in absence that the third quarter -- that the fourth quarter is roughly equivalent to the third quarter in the restructuring business. And that in essence the following year will be about the same in terms of quarterly results, which does give rise to the shrinkage in the percentage of the total as a result of restructuring, partly give rise to it. Our best estimates now is that the restructuring business will be significantly down from what the year-to-date numbers were for 2003. And that a good chunk that decrease will be offset by the rest of our businesses' growth in 2004.

Okay. Thanks for the clarification there. To follow up on the DAS acquisition in specific, could you talk a little about the business mix there? In particular the Sarbanes-Oxley work that's done. How much of that might be section 404 related? And just a little more color would be helpful.

Okay. I -- I don't think as we sit here today much of it is really section 404 for them today, that doesn't mean that between now and next September I guess when the 404 certifications are due that there wouldn't be some work there. But a good chunk of their work has been in the investigations side of -- of the Sarbanes-Oxley-type activity. Investigating -- investigating accounting misstatements, possible accounting misstatements, possible frauds, and things like that. Another big chunk of their work is in the more traditional litigation support areas like intellectual property consulting or damages or construction claims or defense contract consulting. And those types of areas. So it's not just about Sarbanes-Oxley that we wanted these folks. It's because of all the other talents that they bring to the table.

Okay. Thank you very much.

You're welcome.

Our next question comes from Arnold Arsaigner. Please state your company name followed by your question.

Good morning. This is Arnie Arsaigner at C.J. Securities. I have a question trying to understand the guidance you're giving for '04. It sounds like you're giving us pretty clear indications on three of the key metrics: utilization, fees per billable hour, and headcount. I can see that the revenue numbers are consistent what you've given out before but the profitability numbers are materially different. Can you walk us through what is happening on the expense side?

Sure, Arnie. The -- basically we are anticipating a lower profitability in the restructuring business for 2004 versus 2003, driven by a couple of factors. First, because of our need to perhaps have a slightly greater incentive compensation arrangement to keep all of he good folks in 2004, number one. And number two, perhaps some of it is driven by a slightly lower utilization rate that gives rise to slightly lower margin and -- and we've estimated that slightly lower utilization rate primarily for conservativism purposes in order to be sure that we don't miss the earnings number at the end of the day. So for the restructuring practices, instead of estimating somewhere in the 87% to 90% utilization range, we're in the 70s for an estimation for the 2004 year.

Okay. And to follow up a little bit on that. The 2.3 million comp reversal. That is at senior executive level, not operating levels?

No, it was --

No. It was at operating levels.

Senior operating levels?

Right.

Okay. Again, let me -- let me ask it if I can as a question. I get asked this. Maybe would have you rather react, if you don't mind. Two years ago when you hired people, you gave them cash up front, you paid them less for, say, one and a half, two-year period. And that one of the issues you're facing as you enter '04 is people coming back in, kind of demanding a re-up to market rates. Is that, you know, a less polite way of saying the thing you said before, Stu?

Yeah, it's less polite. But I don't think, Arnie, it's really accurate. That's not our situation today. Nobody is coming to us and saying we need a higher salary to re-up. First off in connection with the acquisitions, the BRS acquisition, those folks had four-year contracts. I think the KPMG folks this time around in the five-year contracts. The Lexicon folks, five-year contracts. We don't have people coming back every year or two and hitting us up again. And I don't think that -- it's not about that so much. What we're trying to do is get people to increase the utilization, give them an incentive to cross sell into different practice areas, and what we're working on generating is an incentive compensation arrangement that significantly insentivizes them to do that. That's going to take points off the overall margin, at least in part. But we think that it's going to improve our overall total amount of profits. So that's our plan.

Okay. If I can ask a question of Jack. Jack, as a former banker, could you describe your view of the desired capital structure for the company, now that you've largely accomplished your rebalancing, how you view share repurchases versus acquisitions going forward.

Yeah, I think we will continue to look at opportunities that are out there. We've laid out the game plan now. It depends on how we see people respect and value the game plan. We'll be sitting there with an ability to look at that. I think it's -- I think we have the good fortune that, you know, as Ted described our capacity, that it -- you know, with the acquisitions now so far, we have very comfortable levels of debt. And with the cash flow that we expect next year, we'll have the money through the remainder this year and next year to be able to pursue both the acquisitions and the acquisition of our own debt. At the $50 million level that the board has authorized at this point, I don't see having to make a choice point before that.

Arnie, let me elaborate on that. There was probably a number I should have provided, which is that we expect our EBITDA, if the acquisitions get completed for next year, to be at least $140 million and probably higher. That would put us comfortably within debt capacity levels that would be entirely satisfactory to the company from a capital structure. Also want to point out that our overall margin's FTI has had a -- FTI has had a here of achieving approximately 50% or better gross margins, and high 20's to 30% EBITDA margins. And we are essentially returning to those very same parameters that have been successful for us.

Thank you very much.

Our next question comes from Adam Waldo. Please state your company name followed by your question.

Yes, good morning. Adam Waldo, Lehman Brothers.

Good morning, Adam.

A few more questions on financial capacity and capital structure. If I'm doing the math right, Jack and Ted, correct me if I'm not, you'll be levered when the deal closes by .9 times pro forma EBITDA, as Ted laid out what should be a fairly conservative $140 million in EBITDA next year. Is that a fair conclusion?

That's about right. Approximately right.

Okay. If we assume that, you know, you want to stay within fairly conservative guidelines in terms of EBITDA leverage ratios as the bank market looks at it for a professional services firm of two times EBITDA, would it be fair to say you have around $150 million, $160 million of additional revolving credit capacity for buy-backs once the new credit arrangement is completed?

Your math is correct.

Okay.

Whether or not we would do it that way was depending on the timing of our cash flows, you know, and other financial analyses, but your math is correct.

Okay. In terms of timing on the new credit facility, Ted, can you give a sense of when you think you'll have that finished in conservative timetable?

Well, as I said earlier, we do not need it to complete the Lexicon acquisition. But we certainly desire it to be in place by that time. So we're working toward that goal.

Terrific. So probably a month to a month and a half at the outside.

Well, we estimate that the Lexicon acquisition would close on or about November 30.

Okay. And then turning back then to share repurchase, is it -- is it conceivable that we might see the $50 million announcement of today be really the first of serial repurchases given the pro forma financial results projected for the firm in '04?

I think it would be premature to talk about any additional purchases at this point. I think we have been -- we are fairly fiscally conservative, and I think we want to just, you know, see how the plan goes. We did authorize the first 50.

Okay, my last questions on Lexicon specifically. You know, we've had a look at [INAUDIBLE] financials for the Lexicon segment. Clearly that business has continued to post excellent bill-rate inflation and revenue for consultant growth but has seen down-ticks in the last three or four quarters in terms of utilization and also in terms of consultant headcount. Can you comment on what you think the drivers are of that and the steps you may take should the deal on close to improve the trends?

Well, I think the best we could tell you, Adam, is that our analysis indicated that they were keyed up for an increase in acquisition M&A activity. And that hadn't happened in the last three, four quarters. We expect that to happen on a go-forward basis, to pick up their volume on a go-forward basis.

Thanks. One more quick one, if I could. When is the first day legally that you all could be in the market buying back stock as your securities lawyers advise you?

I don't know that it's a legal question as much as our policy.

Okay.

We typically wait three days before an announcement before we go. It's the same as our trading policy for, you know, 16-B executives in the firm.

Thank you very much, gentlemen.

Our next question comes from David Gold. Please state your company name followed by your question.

Hi, it's Severdy and Company. I was hoping to talk more on KPMG, the DAS acquisition. First, we put out a historical revenue number of about $74 million. I was curious how you look at that on the basis of one would think that presumably over the last nine months or so, maybe over the last year, they probably have been conflicted out of a decent amount to work. Is that something that you've kind of looked at and do you have thoughts there of, say, what the growth prospects could be?

We do -- it is not dissimilar from the time we acquired P & M. And they said they were capacity constrained by about $6.5 million. And instantaneously after we acquired them, we picked up that $6.5 million of capacity in revenue. We think that they were conflicted out of the number of different assignments that they wouldn't have been if they were part of our organization. But we do believe that that's inherent in our estimate for them for next year, which is some maybe 10 or -- only about a 10% or 15% growth estimate from the pro formas. And basically that's all because we're really trying to be conservative about it now and make sure that at worst we -- we will meet but certainly not fall below the expectations.

Okay. All right. That's fair. And little bit further on that. Can -- if you can or if you're free to, can you talk a little bit about how the purchase price is allocated between the partners and the actual firm.

Actually, I don't think we can. I don't think -- basically that wasn't our -- that wasn't our negotiation, that was the firm's negotiation with its partners.

Right. It's their -- but you did say they have five-year nine competes?

Yes.

And are they picking up options on the way in?

I don't remember.

What?

They're getting some -- some restricted stock.

Okay.

Rather than options. And the reason for that, that we talked about options, we don't have that many. And so we're using restricted stock. And David, the projections include the amortization of value of that over a period of time.

All right. That's fair. And lastly, if I could, I think if we go back I guess a month ago, as a team you had made a comment about at the time you were talking about, say, four sets of people. And I guess three of them have now come to light. Is the fourth still out there?

Yes. And --

Are you still talking to them?

Not today.

Okay. Fair enough. Thanks so much.

Next we have a question from Rick Dundarteil. Please state your company name followed by your question.

Columbia Management. My first question relates to the -- what you've projected the accretiveness of the acquisitions will be for next year, 29 to 37 cents. I think you just gave a component of what you've assumed in that on the DAS piece. Could you help fill out what your assumptions are on either the cost side, margin side, and revenue side as it relates to the two acquisitions? What are you assuming --

Not sure --

-- Lexicon growth?

The top-line growth, as Stu mentioned, is estimated to be between 10% and 15% on a conservative basis.

Is that for both or is that just the DAS?

Both. That's for both. That's for all the acquisitions themselves. Accretive piece. That is -- I mean, I have so much information, I can share with you. I'm not quite sure how to find some I couldn't. I'm not sure how to best answer your question.

The point of my question is to get a sense of -- clearly there's been disappointments here. And part of it is issues with guidance and business falling off. And I guess I'm trying to get a sense of how conservative that 30-some-odd cents is for next year, if you're -- if there's a, you know, sort of stretch assumptions that are going into the model to get there. And --

I would not call any of these assumptions stretch assumptions. They are based upon the revenue, the revenue growth that we talked about a minute ago. They are -- they contain no improvement in their margins, though we hope that that could be achieved.

No cost savings --

And there are no cost savings estimated.

Okay.

And we expect that we'll get some.

We know the Lexicon piece well. Can you comment on the pipeline of what you see on both acquisitions but particularly the Lexicon side. Does it give you comfort? Because there are long cycles here and things sort of percolating through the -- through the pipeline in the stages they're at. Does it give you comfort that that 10% is realistic?

Gee, I think basically what we've done is assumed that between rate growth and some modest volume growth, that 10% would be pretty achievable within that business area. They've had -- historically over the last four years, I think they've grown 100%. We have some tuck-in opportunities within Lexicon in other markets like in Los Angeles and Washington, D.C., and London to bring in additional people as part of Lexicon, and we actually don't think 10% would be much challenge to make.

Okay.

I think also the DAS acquisition will be somewhat of a signal to the marketplace. I think there are a lot of folks out there who are having what they call the nonflict and conflict with their firms. That should be an opportunity to do the traditional growth of hiring. We haven't really built that in as well.

Okay. One other question on related. As it relates to your restructuring business, it appears to me like you're saying business is weak, but it's going to stay at these levels. Why should we be comfortable that business doesn't weaken from here going forward? And I think you mentioned thought there would be a pickup in -- at the end of 2004. What gives you confidence to make that statement?

Well, we -- as I indicated, we've talked to bankers and other practitioners in the field. We've talked to our key people whose job it is to manage resources and maximize their utilization in terms of people -- skilled people. We've done a number of things to reallocate resources and/or made some assumptions about sizing of the practices on a go-forward basis. We will take whatever steps are necessary to maintain the profitability in those practices.

Okay. But I assume these are the same sources that you have used in the past that haven't been as reliable as we would have hoped, I guess.

Well, I'm -- I'm sorry that our best estimates at a point in time don't turn out to be what the facts ultimately turn out to be. But unfortunately, I -- I can't quite be responsible for that. I'm doing the best I can what I have.

There clearly is an increase in corporate lending activity taking place now. That's being acknowledged as a fact. And at a point in time after beginnings of regrowth of corporate lending activity has generally followed a pattern of some companies eventually getting themselves into trouble again.

Okay. Thanks.

Next we have a question from Matt Cannon. Please state your company name followed by your question.

Good morning. I'm from Janney, Montgomery, Scott. I had a couple of questions, too, related to the breakdown of revenue to be clear. Based on your guidance, you're assuming no organic growth for your nonrestructuring business, as well, next year?

No.

No?

No. No.

At the current run rate, that is? Are you looking for revenue in both restructuring and non-restructuring staying constant excluding the impact of acquisition as you project out into next year?

No, we don't believe that. We are assuming continued growth in the forensic accounting and electronic evidence and evaluation businesses.

What Stu is basically saying is because the acquisitions are in our existing practice areas in that, that growth is a component of the overall growth, including the acquisition.

Also as Jack indicated, by virtue of having made the KPMG acquisition and just as, you know, for what it's worth so that people would understand this, if we hadn't done the -- it's a long story -- but if we hadn't done the P & M acquisition, I don't think the PWC/BRS folks would have felt comfortable joining us. If we hadn't done the PWC/BRS acquisition, I don't think the KPMG folks would have felt comfortable joining us. At this stage, we expect that and we welcome with open arms the folks from other accounting firms in the forensic accounting area in particular.

I was referring to your guidance before the acquisitions actually in terms of current run rate of business. And you're indicating that you expect the current run rate to maintain over the next 12 months. I was a little surprised to see that your projecting the same revenue rate for both restructuring and nonrestructuring excluding the impact of acquisitions.

I think that may be a matter of words having been said wrong. We were talking about, I think, the restructuring run rate continuing at the current rate.

Okay. Based on your guidance -- not to beat a dead horse, Stu -- based on your guidance excluding acquisition, it seems like that means the nonrestructuring would be constant with the current run rate. Is that fair?

I'm looking to see where you get that from.

Your guiding to $320 million to $340 million next year excluding the impact of acquisitions. Running at around $82 million to $84 million for quarter?

That's correct.

You're suggesting based on your guidance excluding the impact of acquisitions, you'll maintain the current run rate per quarter. And you're saying restructuring and structuring will maintain their current run rates. Is that correct?

No. Restructurings run rate in the -- in third and fourth quarters is less than it was before that. The forensic practices are expected to grow significantly making up the shortfall --

Some of the shortfall.

Some of the shortfall in the run rate of revenue to date.

Okay. You're lowering the organic growth rate for these nonrestructuring practices because you're more focused on the acquisitions? Is that correct?

Because these new acquisitions are primarily again in the areas that we are already in, we have forecast them together. And of course we do expect -- of course you could never be certain, that the acquisitions will be consummated. The growth rate is now up, the existing forensic and litigation practices, and the acquisitions in those areas combined.

Right. Okay. And then I think to the previous question, you mentioned that you're building in 10% to 15% growth to get the accretion through these acquisitions next year.

That's correct. Rather than any -- rather than any higher number than that, yes.

Okay. And could you also comment on the pricing? Pricing did go up this quarter. Also you're building in a flat rate next year. I would have assumed that given the falloff in restructuring, your price point would be lower on average. If you could clarify that. And also maybe talk a little about turnover at the juncture with your existing BRS people.

Well, we can talk about turnover. Turnover has basically continued at about the same pace that we have previously during the year, the third quarter. We had mostly yet again junior folks going back. First and second-year people leaving, going to graduate school or switching into other careers. We haven't lost any significant number of senior people in our turnover numbers. That's number one, I guess. Number two is in terms of the pricing model, we think that what we're looking at for next year is about a relatively flat average billing rate. We think it's made up of an increase in rates in some practice areas and in some cities, offset by perhaps no increases in others. But in general, what we've done for the purpose of conservativism was to use a flat ultimate realized rated rather than a traditional increase in rates from -- that we've experienced in the past of 70% to 80%. The fact is we haven't given this level of guidance for a future fiscal year or quarter in the past. And so we're trying to be as conservative so as yet again I might reiterate that we do not overestimate.

Stu, in terms of the pricing, are the billing rates higher at Lexicon and KPMG's DAS practice relative to your existing practice? And could you give the actual turnover number in the quarter?

Lexicon's billing rates are equal to or higher than our existing rates. The DAS rate is lower that our existing rates, which again provides for an opportunity, and Tenike's rates are somewhat lower, as well, than our existing rates.

And do you have the actual turnover number in the quarter, Ted?

The tum turnover number in the quarter is slightly in excess of 18% on an annualized basis.

One final question for Jack. In the previous call, you mentioned that you were now beginning to look to build out your international restructuring business. What is the latest on that, and will you consider an acquisition to beef it up?

We had -- we opened our office, and in the first three days we had our first case. We've been generally well received. We have two people more or less permanently there, and another two or there are working on matters there right now. That's on their structuring side. I think our philosophy remains the same as to put our toe in the water before we would make an acquisition. We do have somebody actively looking on the network services side to see if there's a bridge, so to speak, through which we can provide some of our fairly unique and effective consulting services to the European common market. So that's where we're looking for an acquisition at the present time.

Okay. Thanks.

We're kind of familiarizing ourselves with the territory there before we would hire any restructuring folks from there.

Thanks.

Our next question comes from Priscilla Pena. Please state your company name followed by your question.

Sorry, this is Joseph Steckler of Steckler and Company. First, congratulations on the recent acquisitions.

Thank you, Joseph.

In the non-restructuring area, have you seen any areas of particular growth? Is business coming in from new areas? For example, are you at all involved in the mutual fund industry audits that are occurring as a result of S.E.C. investigations?

No, we're not involved in that. But within the restructuring business, what we -- we are seeing a significant step up in our loan review activities, including one loan review assignment that required our European folks to look at the subsidiaries of a -- an applicant for a loan. We're also -- we recently hired a new distressed -- distressed company, an M & A expert from Legg Mason and Company. And we expect to see more M & A activity coming out of our restructuring business. And the third area is we've -- and we'll be coming out with an announcement in the next day or two about these folks that we've brought on. We also hired a couple of highly qualified tax people who will be assisting us in connection with restructurings and transaction support assignments in giving tax advice to our clients.

You've discussed the make-up of your estimates for the fourth quarter and next year. Do they include the impact of the share repurchases? You indicate that you expect to --

No, they do not. They that has not been factored in.

Do they include possible synergies? You mentioned that the Lexicon acquisition in particular might open your doors to boardrooms for work in your more traditional areas. Is any of that factored in?

Well, in general, in our -- in our future estimates, we factor in a component for the work that the people could do. But we don't specifically identify nor do we specifically quantify in our future estimates what the -- what the synergistic benefits might be.

Ted, this may have been covered before. But I just want to make myself a little clearer on this point. Will you have the financial capacity to make additional acquisitions in the -- in both of the nonrestructuring and possibly as a counter cyclical move in the restructuring area?

We will have additional financial capacity, clearly.

What size --

Actually, Adam although earlier made indications that after these acquisitions and any possible new financing, we will be less than one-to-one debt to EBITDA ratio before our cash flows begin for 2004. Our bank group is very comfortable with us incurring significantly more than that if we choose to. Adam's estimate, I thought he said about $150 million. I told him his math was correct.

In your view, you indicated that you've already gotten your first assignment within a few days of opening. Will your European offices be limited to restructuring business, or will you also try to move other parts of your consulting business to the European theater?

I think in the economic area and the network strategies are two of the areas where we're very anxious to test the waters there.

And finally, in what areas would you say there is upside, your estimates? Obviously you've been rather badly burned by the sudden downturn in one area of your business. And as you indicated, you -- you are being conservative. You mentioned you are not including the share repurchases or any potential cost savings. Are there other areas that you might not be including in your estimates?

I don't know, Joseph. I think it's fair to say we tried to be as conservative as we possibly can be. I don't think that there are any significant success fees in our projections on a go-forward basis. I don't think we have any significant merger and acquisition fees baked into these numbers. And -- and those can come -- those could become significant at times and never materialize at other times. Excuse me.

There is one more question. That is in a business rebound, obviously restructuring activity, bankruptcy activity is impacted negatively. However, nonrestructuring consulting business often improves rather dramatically as companies want to spend in new areas and get rid of areas that are not growing as rapidly as the entire company and are willing to pay consultants when they may have not been able to do so or may not have wished to do so in difficult economic times. Are you seeing any opening of the pocketbooks in your nonrestructuring areas that might be due to the economic upturn?

We -- seeing it, not exactly. But expecting it more in the M & A area, yes. I think we've seen some pickup in M & A activity. And I don't know in the forensic accounting or litigation support area where companies are somewhat sure of their profitability. They tend to spend a bit more perhaps pursuing the patent infringement case or the -- or the defense -- or spend more on the defense of some other massive lawsuit. So we have seen little of that pick up. But not so much that we could say that it's going to impact our revenues by a massive amount.

Thanks very much.

You're welcome. Thank you, Joseph, for your interest.

Next we have a question from Bill Warmington. Please state your company name followed by your question.

Bill Warmington with SunTrust and Humphrey. Good morning, everyone.

Good morning.

I have a question for you on the restructuring business and in terms of what percentage of revenue it was in the third quarter and where you think that's going to come in as a percentage of revenue for the fourth quarter.

We expect it to -- the third quarter was slightly less than 70%. And we expect it to be less than that for the fourth quarter.

Somewhere in the 65% --

Yeah. I mean, it doesn't change that dramatically on a quarter-to-quarter basis. But the trend is clearly down, and we expect it to be very -- obviously, that will depend on the timing of the acquisitions, as well. Excluding acquisitions, we still expect it to be below the 70. Very difficult for me to pin it down that closely for you.

The -- and for the guidance of the $320 million to $340 million, what was the percentage of restructuring as -- what of the restructuring revenue percent to total in that figure?

Thank you very much, Bill, for the question. I'm going to do the math.

I actually have it on a piece of paper.

We had been assuming that the mix would be about 2/3.

In the low 60s, Bill.

Okay.

I mean -- again, even though acquisitions can never be predicted with certainty, the integration process is well under way. The planning for it literally some steps toward the execution of it. We are beginning to act as if the acquisitions are, you know, are -- are going to happen again even though they may not. So some of these questions become theoretical as to what they that number might have been.

No, I'm just trying to use that as kind of the baseline, and then put the acquisitions top of that. And then that 320 to 340 includes the Tenike acquisition, right? That's taken place?

That's correct. It has to -- it's already taken place.

And just approximately, how many consultants are actually in doing restructuring work? Currently?

Well, that -- again, that's a question, Bill. You know, our resources are pretty flexible as we -- you know, as we do indicate. And so that number will vary. We still have the same number -- well, that's not -- it's a very difficult question to answer in terms of the number of consultants any moment in time. In general, the number of people involved in restructuring is somewhat less as a percent than its revenue. Because the average rate in restructuring is somewhat higher than the general average rate. So the number of people involved are less. So if we tell you it's 70% of revenue, it's less than that in terms of the number of people. But the people are drawn from the various disciplines to a certain extent. So the exact number literally will change with the engagements.

Well, how -- how many billable consultants do you expect to get from the three acquisitions that have been --

I can answer that for you. Lexicon is one.

320 --

320, Stu has. It's basically 150 from Lexicon and --

320.

Okay. So 150 from Lexicon. 150 from the resolution and maybe 20 from Tenike?

Right. Grand total of about 870 we guess of billables by the time the three acquisitions are done.

Okay. Okay. That's good. Thank you very much, gentlemen. Thank you.

You're welcome.

Our next question comes from Martin Nichols. Please state your company name followed by your question.

Good morning, Martin Nichols with Banc of America Securities.

Good morning.

Good morning, guys. I just wanted to ask sort of a strategic question. You guy have been very successful in the past with acquisitions. But you've never done sort of multiple acquisitions simultaneously as you're doing now. I wonder if you could talk us how you plan to manage the process and keep enough eyes on the process internally. Have you assigned specific people internally to oversee the integration and all the new business, and then also, you know, sort of keep an eye on what's going on in the bankruptcy restructuring business?

Okay. Well, let's do a couple of pieces at a time. Yes, yes, it's a bit more difficult to do the integration of three at once rather than one of about the same size. As we did the last time. Last year, when we basically when we did the BRS acquisition. I guess we were about 325 people as part of that acquisition. And this is about 325 people, but in three different pieces.

Right.

Culturally, there are some cultural differences, although Ernie Teniet could have been my brother, I think. We have absolutely the same attitude toward work and client service and his firm looks -- looks and feels almost exactly like the firm that I built a number of years ago. And his partner, Roy, who manages the D.C. office is -- those guys will not be particularly difficult to integrate. The Lexicon folks are at least at the beginning going to -- economists are quite a bit different from graphic designers and forensic accountants. They're going to run for a while on their own. And the forensic accounting practices from KPMG, they're quite like the BRS factors that we integrated last year in terms of the places they come from and the background that they have. We have identified three individuals, as I mentioned earlier during the introductory remarks. Whose principal job or main focus for at least the near term is to assist in the integration of these. Unlike in the past where perhaps it might have all come to corporate, what we've done is taken three of our very seasoned practitioners and assigned them the responsibility of working with these folks. So to that end, John Solomon in our Washington, D.C., office is actively involved in integrating the Tenike acquisition. John Click, who is also in the Washington, D.C., office but comes from a network industry strategies group, has the responsibility of integrating and helping to grow the Lexicon business. And Don DeNapoli, who came to us from Price, Waterhouse, Coopers, in the BRS acquisition and who used to lead the BRS practice nationally for Price Waterhouse and then when it came here for us has now stepped up to be willing to undertake the responsibility of the KPMG acquisition.

From the physical side of it, it's about the same number of people as last year. It's about the aim number of offices as last year. The integration teams on human resources systems, accounting and all those other activities are quite experienced in doing that. These integration processes start -- they don't start on the day after the gig. They don't even start on the day after the signing. They are part of the initial negotiations and discussions.

Right as part of doing to do the due diligence, to decide whether or not we want to do the transaction, we figure out whether or not, you know, what our problems are going to be. So we can figure out what returns are on investment and what the additional costs might be. I think you may have asked some other questions, Martin, but I really focused on this one.

No, it was a long question. That of the jist of it. The second question was maybe for Ted. You've been reticent in the past to give, you know, very granular guidance on utilization rates and billable head counts and so forth on a quarterly basis because you really wanted the flexibility quarter to quarter to be able to manage those things. I'm wondering what we can infer from the fact you're giving more data other than the fact that we've been asking for it for a long time. Are you actually trying to manage the metrics more closely on an individual basis or do you still expect some movement in between -- movement on a quarter-to-quarter basis?

Well, there will -- the business still has quarterly patted earns to it. As we indicated in the press release, we still expect the third quarter of the year to be the weakest of any quarter of the year. We do expect to give you more information than we have ever provided before. The last press release was an indication of it. This is clearly yet another step along that path. So we will be clearer with you as best we can. It still will have patterns because it's still a professional services business are people and with clients and there are patterns inherent in that.

I guess my point is to the extent that you say 80% should be the utilization rate and the fourth quarter, should we assume that you're managing closely to that number or that it could be, you know, within plus or minus, you know, 200 or 300 basis points?

That surprised us recently in our ability to forecast. We certainly do try to manage it to its seasonal pattern. As we said in the press release, if we expect 80% for next year, for example, it will not be 80% for each quarter. It clearly will be goals and abilities to achieve better than that some some quarters. And certainly in the third quarter, clearly less than that. But we will be as clear with you as is practical.

Great. Thank you.

We just have not finished as we said, the quarter over quarter analysis yet for next year.

Right. Thanks.

Next we have a question from Greg Nathan. Please state your company name followed by your question.

Hi, Greg Nathan calling from First Pacific Advisors. I look at the press release. On the call, you use state that your revenue assumptions for fourth quarter and fiscal year '04 were using September and sort of annualizing the run rate. Is that correct?

Well, that's what I mean we did it truly top down and bottom up.

Okay.

But it does approximate that. That's correct.

Okay. So to someone fairly new to the company, you know, I read over the conference call transcripts for the second quarter. One participant indicated that, you know, the number of filings are down significantly year to date over last year. And the assets are down under bankruptcy are down even further. And so, you know, at the time you guys in the second quarter did not see sort of this decline coming in your business. And so I guess what I'm trying to understand is, you know, I look at sort of that $1.30, $1.35 number that you're projecting to fiscal year '04 and understanding the risks to the number. You know, a certain number of bankruptcy cases that are sort of pending to come out, some cases may be more mature than others. And I look at this year for the first nine months of the year. And the total number of assets under bankruptcy I think are around $65 billion. And, you know, Worldcomm, you know, let alone eclipsed that number. So what I'm trying to understand is sort of your backlog that came from, you know, the '02 cases, you know, how many cases are, you know, very mature? You know, by -- when I mean mature, I mean there have been in bankruptcy for, you know, at least a year now, maybe longer. Versus the number of cases that you started to work on, say six months or less. So I can sort of understand what's the risk of those sort of cases coming to a close. And you know, if you come back and say, hey, you know, October -- October, November, December, was weaker than expected. Then, you know, you're going to use different run rate I expect for fiscal year '04. Maybe you could give me some color on that.

Well, first let me just indicate that the number of bankruptcies themselves or assets in bankruptcy are not one of the better indications of our restructuring business. The amount of corporate debt outstanding, the amount of corporate debt to fall to the change in credit granting policies, and the expansion or contraction of credit are truly better indicators of that. Secondly, only a portion of our business in the time is in bankruptcy in the restructuring business. A considerable portion that we work with are companies that we work having to turn them around and/or restructure them. That are not in bankruptcy and may never be in bankruptcy. The number of new cases that we are getting is still significant. The numbers that our sources tell us we'll get will still be significant. From -- it may or may not have any relationship to the number of bankruptcies or to the assets in bankruptcy at any particular time.

So a lot of assumptions are based on what you feel you will get in the coming future from what your sources are telling you as far as not what you believe -- as far as not what you know is there already? Is that what you're saying?

The process was both externally and internally driven.

So there is a potential risk to that number. And, you know, it's so -- if October comes in weaker than expected, then would you then, you know, is that -- would it be a revision to the number, or --

Well, there's still estimates. There could be certainly risk in any of these estimates. The risk could be positive or negative.

Okay.

If it changes, we'll do our best to give outlook when we see differences in trends that are real. Clearly, this change in our outlook from our previous outlook was a change in a -- and a trend that is real. But sometimes very short activity differences do not represent a change this trends.

Okay. Thank you very much.

Our next question comes from Patrick Swindle. Please statute your company name followed by your question.

Patrick Swindle with AvonDale. Most of my questions have been asked. One last question, in looking at the DAS acquisition, it looks like you all are going to be competing more with the public accounting firms relative to the other practice groups. Do you see any concrete signs that the other accounting firms are moving away from the practice area as well?

Yeah, yes. Patrick, we have -- sorry. We have seen both domestically and internationally some situations where the other public accounting firms are finding themselves conflicted out or using opportunities for assignments, and have had a number of inquiries from people from the other public accounting firms about such things.

Right. Would you say that the pace has accelerated relative to the last six months to nine months, or is it more or less a just continued process of these firms looking to sell off certain assets?

Well, I don't know if it's about the sell-off -- I don't know that they're going to be selling off their assets. What we have found for sure is that there have been more and more people who -- in senior positions within the large public accounting firms who have expressed an interest in moving.

There was an initial reaction when Sarbanes-Oxley was passed with a great deal of angst of the. And then there was some transactions, some we participated in and others throughout the street, following that there was a kind of settling back and seeing what was going to be the reality of it. I think the reality that sunk in over the last year has been that there are these nonflicts and conflicts. It works two ways. One is actual conflicts. The other is that if you're going to set out to capture audit clients you have to think about not who your audit clients are but who you want them to be before the case. The soul searching is now increasing so that we have a lot of folks to talk with.

Thank you, gentlemen.

Our next question comes from Tom Purcell. Please state your company name followed by your question.

Thanks. They've been asked and answered. Appreciate it.

Thank you.

Next up is Sandra Notodonatto. Please state your company name followed by your question.

Just a couple of points of clarification. The numbers you have for next year, do they include the potential rebranding costs that you talked about earlier on the call? The expenses that you have for next year?

We don't expect -- Sandra, we don't expect that cost to be terribly significant. But it would be incorporated in our SG & A numbers.

And did you give out the total number of senior versus junior people that you would be acquiring from the DAS business?

Yeah, actually, I thought that was in the press release.

26 -- 26 former --

Maybe -- or 28 senior people and 125 --

Okay. And -- thank you. Sorry about that. The headcount. Sorry, the turnover for the quarter, a breakout of how many senior people versus junior people left?

I don't think there were any senior people in the quarter. They were all junior people.

Okay. I think that's it. All my other questions have been asked. Thank you.

Thank you.

You're welcome. Thank you, Sandra.

Our next question comes from Maz Jorge. State your company name followed by your question.

Yeah. I am calling from Ivy Capital. I had a question on initial guidance. [ Audio difficulties ] 130, 135 -- could --

Could you get closer to the phone, please. We can't hear you.

Yeah, had a question about the guidance. The 130 to 135. Is that -- you know, over the current run rate over Q3, I'm assuming that you're kind of assuming a lot more growth in the nonrestructuring business from the restructuring business. Can you break that out?

Yes. That's what we tried to do -- tried to do earlier.

I -- I'm aware of that. I'm --

There is growth predicted in the forensic practices, that is by double digits.

Right.

Some of the trial related activities, there was very little predicted growth in there. That always has been variable. Then there is the run rate of restructuring, the recent run rate of restructuring, which has declined from the previous rates.

Right.

Now, it -- It gets highly theoretical in the forensic numbers.

I understand that. I'm trying to separate the parts out. When you say run rate for Q3, are you saying that that run rate is -- should be applicable to Q1, Q2, and Q3? Or should we take into account the seasonality, Q3, meaning --

We haven't been very helpful on the quarter-over-quarter estimates for 2004 yet. Other than we don't expect them to differ from our seasonal patterns very much. But we simply -- we simply do not yet have it really refined enough to give you quarter-over-quarter information yet.

All right. Thank you very much.

Next we have a followup from Adam Waldo. Please go ahead.

Adam Waldo, Lehman Brothers. A few miscellaneous followups. The KPMG-DAS consolidation, from the offices, can you give us a quantification of the opportunity that you see there?

I don't understand you. Sorry, Adam.

Adam, both of us had trouble --

Sorry. Let me say it again. I'll try to be -- try to slow it down. The KPMG-DAS acquisition has 10 cities in which FTI offices and KPMG offices overlap. Presumably that gives rise to some operating expense synergy opportunity, from a co-location going forward. I wonder if you think that is significant, and to the extent that it is, could you try to give us some directional quantification of it?

It's not significant. Because in some of the major cities we had already anticipated some of the growth and so forth. So the -- you know, the costs have already been in our numbers, and the DAS folks, as you see from the press release, did not operate with high SG&A costs, either. So it's very modest. The direction will be to save some money in this regard. But it's not very much.

Again, it will depend upon how quickly we can go through the integration and -- and how much it's going to cost for us to say build out another floor in New York City. Or another 3/4 of a floor in Washington, D.C. to accommodate those folks.

Okay. Then in 2004, will you start to do quarterly practice level segment financial reporting in terms of revenues? Much as you seem to indicate you may start to give more precise quarterly guidance ranges in response to Marta's question?

Adam, we are considering the possibility of that, and part of it will be driven by the results of the branding study and how we might be going to market. And we obviously need to do this in consultation with our auditors. And depending upon when the acquisitions close in the quarter, we might in fact have conceivably even have some form of segment information for the fourth quarter. But I doubt it. I think it will probably wind up in the -- something more toward next year.

Okay. And then finally, Dr. Gully's role in the Lexicon integration process. Is he going to be involved in a material way in the integration, or is he going -- what's his role going to be, I guess, in the economic consulting practice going forward?

He's a very important part of our economic consulting practice. He's our New York representative. And in fact he will be working closely with senior people within Lexicon to help and John Click to help grow the New York economic consulting practice.

Would it be fair to say with the nodes of Lexicon in Cambridge and Chicago that you're really going to be trying to build up in New York behind Gully as the practice in that city, then?

I guess it would be fair to say. You know, I don't know what anybody has decided who's what practice head and who has the biggest market share within an office right now. We're in the market. But we also are intending to grow in the Washington, D.C., market. And four more in the California, in the Los Angeles and San Francisco markets.

Thanks a lot.

You're welcome.

Next we have a followup from Matt Cannon. Go ahead.

Yes, a couple of questions. The first, Ted, is related to the pricing issue once again. Now, the rates that you mentioned in your press release, that obviously is not with the acquisitions, right?

The --

The $362 an hour?

That's correct.

So if we build on the acquisitions -- I haven't done the exact calculations. Should we assume that the average rates would be more in the $340 to $350-per-hour levels?

Lexicon's rates, as I said are equal to or higher than ours. In fact, they have individuals within Lexicon whose rates are higher than any other individuals' at FTI. The DAS and Tenike practices are well less than ours -- are sufficiently similar than the blending aspect of it is not going to change things very much. Our prognosis for rates was driven by, yes, there will be rate increases, but there will be mixed changes. And with the somewhat of a decline in the restructuring practice which presently had the highest number of average rates, and mixed direction will be down. The rates will be up. That's why we predicted essentially flat. So I -- I would not go too dramatic in your estimations.

Sure. The fact that rates went up this quarter over last quarter -- I'm referring to the June quarter -- was that primarily a mixed shift issue?

And also there was a rate increase that was put in on July 1.

In the restructuring or in --

In part of the restructuring business.

Interesting. Okay. And related to a previous question regarding the bankruptcy business, now last call you mentioned that about 25% of your business every quarter in that segment is driven by new activity. Do you expect that number to go up, given, as your cases begin to wind down? In a sense I'm referring to your guidance and what are you building in as the new activity impact on the restructuring side.

I don't think we would expect that to change much. I think what we were looking at is that within a quarter, about 25% of the volume would be new business, and we would expect that probably would continue. I don't know why that would change necessarily.

Okay. Okay. Great. Thanks.

Next we have a followup from Mr. Joseph Steckler. Please go ahead.

You indicated that the acquisitions would add 320 billable employees, indicating about 550 currently are working for the company. Given the fact that you've indicated that the acquisitions will only add about, say, about 31 cents or so to your earnings, it seems out of line with the percentage of billable employees. Obviously, there are costs associated with the acquisitions, including interest costs and other costs. But I would assume that your returns on those acquisitions from the part paid for by the cash that you hold would be higher than your returns currently on cash.

Certainly.

So I'm not quite clear as to why the contribution from the 320 billable employees would be around 31 cents, why there's such a disparity between the amount estimated, say, about $1.30 to $1.33 for the 550 current employees.

It's the high end of that -- that accretion analysis is 37, not 31. Again, that's a reasonably conservative projection on our part. In addition to interest, you also have amortization of the intangibles that are allocated to advertisable intangibles upon an acquisition. In other words, not all of it goes to good will that is not amortized. A piece of it goes to intangibles that do get amortized. And they have been factored into our calculations already based upon our estimates of that. You're quite correct that we were only earning between 1% and 1.5% on our own existing cash. And our interest rates that we expect to pay on any new debt is reasonably modest. Probably in the 5.5%, blended in rate, including the amortization of the cost of incurring the debt. That may be a factor that you haven't taken into account either.

But on the other hand, your cash flow, given the fact that some of the disparities, accounted for, the amortization would seem to be much stronger than indicated by the earnings themselves -- from the acquisitions?

I'm not sure I agree what I believe to be your question.

That you indicated that the amount to be contributed from the acquisitions is low in part due to the amortization of certain intangibles.

That's correct.

But that --

That's one of the things --

That wouldn't impact the cash generation from the acquisitions, which might be considerably higher than that indicated by the actual --

That's right. But I -- I'm still not sure exactly what -- if you could phrase the question, please, sir, in a more concrete manner. I would be glad to --

Yes. Would you expect the EBITDA contribution to be from the acquisitions?

Very good. The EBITDA component from those acquisitions is more than $40 million at present, estimated. Great. Thank you very much.

Thank you.

There are no further questions. Do you have any closing remarks?

Yes. Again I'd like to thank everyone for being with us this morning. And we think that this is a very exciting place for FTI at the present time. We look forward to the new folks that are joining us and to our next conference call. Thank you.

Ladies and gentlemen, this concludes the FTI Consulting conference. Thank you for your participation today. You may now disconnect.