FTI Consulting Inc (FCN) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the FTI Consulting fourth-quarter conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today, Thursday, February 19th of 2004. I would now like to turn the conference over to Ms. Lisa Fortuna with the Financial Relations Board. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining us to discuss FTI Consulting's fourth quarter and year-end results. By now you should have a copy of the new release which was issued yesterday afternoon. Before we begin, I want to remind everyone that the conference call may contain 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; retention of staff and clients; and other risks described in the Company's filings with the Securities and Exchange Commission.

We will start with management's opening comments followed by a Q&A session, and we expect this call to last for about one hour. I will now turn the call over to Jack Dunn, Chairman and CEO of FTI Consulting.

As usual, I would like to thank everyone for being us. The purpose of this call is really to provide some more color to our conversation of last week and also to discuss some of the metrics that we have supplied to provide, hopefully, additional transparency to our results and our guidance. Before I turn it over to Stew and Ted to do that, I would just like to make a couple of observations, now that the dust is beginning to settle from the events of the last several weeks.

First, (indiscernible) and no matter what you think, our restructuring practice is not only alive, well and vibrant, but in terms of presence we are still the number one planner in the marketplace. We still bring to the bear in the (indiscernible) of our clients 240 billable professionals; and more importantly in terms of measuring our presence in the marketplace, if you look at the lead (ph) tables as collected in the Deal (ph) Magazine, where such things are done for our industry, the latest quarterly lead tables ranking firms involved in bankruptcy cases, which came out in October of last year, shows that we are the most active noninvestment bank by over 50 percent over our nearest competitor, and that is after the departures of the last several weeks. If you look at investment banks, we are involved in almost three times as many cases as the nearest competitor would be on the investment banking side. So as you can see, in the things that matter, where the clients are, where the professionals need to be, we still have been extremely active presence and we believe number one.

Second, as we mentioned last week, we did reserve the right to pursue our legal remedies and in fact we have filed legal action to protect our rights with regard to the employees who left us last week. I think it's an (indiscernible) thing, especially today with the advent of Court TV, but we really can't go much beyond what we said in our press release about the filing of the action, but to reiterate that we are dedicated to not only protecting our shareholders' rights, but also to providing the minimum of disruption (indiscernible) no disruption to our clients an ongoing matter because they are, at the end of the day, the most important, valuable asset to FTI.

We now have permittable practices, not only in the restructuring area, but with our recent acquisitions and with the great people that we've had from our historical and legacy practices, we have exceptional practices on both forensic accounting and in the economic consulting area. We remain committed to providing results to you that make this the place to be for our employees and our shareholders, and we also remain committed to our stock buyback program. As you know from our press release, we've repurchased about 194,000 shares, or about $4 million. Our original authorization from our Board was over the twelve months to be around $50 million. So with those kind of footnotes, I will pass it on to Stew and to Ted to discuss the results in more detail.

I think the most interesting thing in our results is -- and the news release is the additional information on metrics. I think it would be best if Ted covered that now.

I'll jump right to that. Just a couple of points about that. Rather than burden you all with ranges of metrics, the metrics that you see in the table were basically developed as the midpoint of the ranges for simplicity. The headcount numbers are year-end estimated headcounts. And just to reiterate something we said on the last call, the average rate for the Company next year is expected to be 345, utilization for the entire Company taken as a whole, 78 percent, and the headcount for the Company as a whole is obvious from the table, which is 800 headcount at the end of the year, which would represent growth from where we are our right now, because we were at 827 at year-end, and as Jack and Stew indicated earlier and last week, we did lose between 60 and 65 people as a result of the recent departures.

Let me just go back in time, back in the press release a bit and cover just a few things that may not be self-evident. Because it is very difficult to tell until the end of any given calendar year what our state tax rate is, because we operate in nearly 25 states in the United States and they have different tax rates, we estimate our tax rate at the beginning of the year we hope to become as close as possible. This year, we were off by 4/10 of a point; our actual tax rate, federal and state, became 40.9 versus the 40.5. And fundamentally there was a penny per share difference, all of which fell into the fourth quarter obviously, but the fourth quarter itself would have had only about one-quarter of a penny in that regard. So before that tax rate adjustment and before the special termination expenses we discussed last week, our results would have been nearly the high end of the range that we had given you guidance on several months ago.

Our utilization for the entire year was 83 percent, which was as we had expected it to be. Our cash flow from operations for the year was expected to be approximately $100 million, before the cash flow from operations that was necessary to be provided in connection with the acquisition of the DAS group from KPMG, because we did not acquire their working capital. And before that amount we used in connection with KPMG, it was $101 million. Our purchases of property and equipment, primarily computer equipment and lease-hold improvements for the year, was right in between the range that we had expected; it was 10.6 million, and we had anticipated it would have been between 10 and $12 million (ph) for the year.

Going over to our balance sheet very quickly, there obviously is a change in the makeup of the business of FTI -- more economic consulting, more forensic consulting, less restructuring consulting. I think you probably all knew that our restructuring business has the lowest days sales outstanding of any of our practice units for, among other reasons, it gets the greatest amount of retainers, and much of its billings are court-directed in terms of the payment pattern, which tends to be earlier than many of our other businesses. Accordingly, our DSOs at 12/31 representing our new mix are approximately 70 days outstanding -- still very good compared to our peers, still very good intrinsically, but quite different than the mix that we used to have, which was closer to 50 days.

Also on our balance sheet, the very last item on the balance sheet, called accumulated other comprehensive loss, you see only at $24,000. That is essentially the expiration of the hedge that we used to carry on our debt, most of which was expired at 12/31; a small piece expired on January 15th, 2004. So we have no present hedge on the interest rates of our outstanding debt.

On the metrics themselves, going back to them, I think they pretty much speak for themselves. We operated three major practice areas -- corporate finance, which includes our restructuring practice; forensic and litigation consulting; and economic consulting. As you can see, there is variation among the practices in terms of their average rates. The primary difference in the average rate is caused by the mix of personnel in the practices, rather than any one of the practices having different rates per person. Or to say that differently, the rates per person of comparable skills and experience are generally the same on a person-by-person basis; it is a question of the leverage model within the practice areas that creates that difference.

In terms of utilization, as I mentioned, we expect that 78 percent overall for the year, and you can see the variation there among our practices is really not all that great, ranging from 76 percent in economic consulting, which is a combination of the Lexecon business that we acquired and our existing economic practice, up to 80 percent for our corporate finance restructuring group.

I don't think there is much else to add, other than we believe we have a firm foundation for going forward. We are pleased that we did come up with -- that we did have the fourth quarter that we expected to have, and that our outlook for next year is strong. We expect to generate significant cash flow during the year, and by virtue of that being a very solid financial position, to take other steps that might be necessary to take. With that, we want to turn over to questions, we would be glad to open it up for questions.

(OPERATOR INSTRUCTIONS) Josh Rosen.

Josh and Clayton (ph) at CSFB. First, just appreciate the further granularity in the guidance. That's very helpful. And along the lines of putting the practice groups together, as you look at it in aggregate, could you offer a little color on your branding strategy and perhaps marketing expenditures as you look into '04, particularly as you have -- obviously you've had the BRS acquisition from PwC for a while that's been under a different flagship, but now you have a KPMG business as well.

I'll be glad to answer that question. We have been studying the issue of how to go to market from a branding standpoint. We've had outside consultants working with us on the question of whether we should invent a new name, like Abai (ph) or Monday (ph), like PricewaterhouseCoopers did at one point, or rather whether the FTI name has cash value. We do believe it does have value, and we have proposals in hand that would require some considerable expenditure for the Company to pursue an active marketing program and branding program. And all of that activity will be studied and evaluated during the next quarter, and we will probably -- if we have the kind of results that we expect to have for this year, we will be able to afford a considerable effort in that regard.

We expect that our branding effort would be principally for the forensic and litigation consulting businesses and the corporate finance restructuring business. We think that the Lexecon Brand had a lot of value and, to the extent we can continue to capitalize on that value, we should do so.

Just as you look at the experience you have had with the PwC business, and now that you -- obviously, you have not had the Dispute Advisory practice from KPMG for all that long. Do you have any, particularly the KPMG side, as you have early results, have you seen any pressure from existing clients just relative to the fact that the KPMG brand isn't there any longer? Just any early anecdotal stories from that that might provide some color?

Well, it's a fair question. I think we are getting more leeway than pressure, by virtue of their no longer being involved in the kind of complex and regulatory controls that they were in as part of KPMG. And I think we are finding more of an availability for us to go forward on bigger assignments without it. I don't think it's public information yet, but we are doing one of the many major investigations that -- internal investigations of accounting statements with the KPMG folks in the lead and the ex-KPMG folks. And there was no push back on the fact that they are no longer part of KPMG; rather it was much easier.

Okay, and then last -- that's very helpful, thank you -- just on the driver side of the business, could you talk a little bit about now that we've had Sarbanes-Oxley in effect for a longer period of time, could you talk about how that's been a driver over the last year, year and a half, and what you see relative to the regulatory environment going forward as drivers go?

Josh, you know what? I think it is really -- it has been a tremendous driver of our practices over the last year, year and a half. If it weren't for Sarbanes-Oxley, we wouldn't have the PwC BRS business, we wouldn't have the KPMG DAS business, number one. Number two, we wouldn't have all the opportunities that we have to work for -- like their (indiscernible) clients on matters where their people had been conflicted out. So for us, it has actually been -- I would call it almost like a life-changing event for the Company in terms of the potential size and the types of engagements that we can be involved in now that we weren't getting the opportunity to be involved in before.

Thanks for the color.

David Gold.

Sidoti & Company. Question for you -- I guess this probably lands under (ph) that header (ph) Stew, but in looking at the forecast year-end, I'm looking at particularly economic consulting. Looks like the thinking is (indiscernible) people will be down not many but a few from here. Are those departures that have sort of happened post-acquisition or what has been the thinking there?

David, there really is no -- the billable headcount that we acquired from Lexecon was about, I think, 120s. And this is just the ordinary pattern of change. What we are basically predicting here is a stable workforce in two of our practices and a growing workforce in the forensic and litigation consulting end of the business. There is nothing that is a decline from our current levels of --.

All right, so essentially, I guess the current level of staffing is enough, then, to basically (indiscernible) the business you project to do this year.

That is correct, David, and you can see that in utilization numbers.

And then, Ted, also jumping over for a second to forensic and litigation and consulting. I guess as you look at the fourth quarter versus the year, your average bill rate there is down considerably. And I know I guess there is maybe some of that can be a function of KPMG being in for a month or so. But then as you get out to '04, you are looking for let's say a pretty sharp return or jump year to year. Can you talk a little bit about that? Is some of that mix or (indiscernible) that you expect to bring in or sort of what pulled us down and what gets us back up?

Again, in the forensic and litigation consulting, we expect that business to continue strengthen as the year goes on, both in average rate due to the mix of people that we have brought in. You are quite correct that we only had the DAS and Ten Eyck people with us for very short periods of time in the fourth quarter, and frankly that fourth quarter was a quarter that included many holidays and it included some very rapid integration on our part. I think we can safely say that the DAS and Ten Eyck practices have been very rapidly integrated into FTI, perhaps faster than we could have foretold at the time. And so, we believe that will be a strengthening business.

Okay.

(multiple speakers) what is causing what you're seeing, the average (indiscernible).

I see. All right. And then just lastly, I guess post the departure, and I guess we'll assume that the 65 people who are leaving or have left, that has sort of happened, that is completely done now?

That is correct (ph).

Have we made any adjustments with that by way of SG&A, made any changes, or sort of as plans were before that or anything we should know about that?

Yes, we have, and those changes have been incorporated into the guidance.

Okay, is there any color that you can add on that?

Other than we don't operate with very high SG&A in the first place -- probably in the low 20s as a percentage of revenues, as you know. And where we had to take some reductions were in our corporate programs primarily, and a general tightening throughout the business. But in general, the group that left with their SG&A.

Got. Okay, thanks a lot.

Chuck Roth.

Insight Investments. Can you talk about your acquisition posture presently?

I think, as always, we will remain opportunistic. We think we have assembled quite a platform. We have had a continuing pipeline of opportunities to look at. What we will continue to look at is things that can be beneficiaries of our game plan to backfill for the big four (ph), where because of Sarbanes-Oxley and other consideration they cannot perform. We've always said we've been looking in the evaluation area and other areas to beef up our investment banking type operation.

We think we have an excellent game plan. We are very confident of our cash flow. So we haven't cut off those activities. But as you can imagine, we have an awful lot on our plate with the recent acquisitions that we've made, and for the short-term certainly, we will be concentrating on the continued integration of those companies and getting the most we can out of that and getting those off to a good start.

When you say short-term, should I assume basically the rest of this year you will be focusing on that before you move on to larger acquisitions?

I think it will be a little bit iterative. I think that to the extent that our feedback is that the integration is going as well as it is that we will be able to certainly, again, continue -- because we have the resources, to continue reviewing them. But in terms of (indiscernible) up, I wouldn't think before the midyear that anything would be close to fruition or actually being done. So we want to plan it a little bit cautiously and not overrun our headlights at the moment.

So possibly in the second half you guys start up again?

I would like to not convey that we are shutting down. Because I think, as I say, we have the resources and typically, as you know, we buy things that have significant cash flow that support their own purpose. So we are not shutting down; it is just a question of if one is opportunistic, one has to consider the work at hand as well as the opportunities, so we will take a balanced view of that.

Okay, and does your guidance assume any loss of business on referrals or business connected to the people who have left that was previously done by other parts of FTI, or is that not really appropriate to do?

Here's what we do -- we looked at a number of factors, and you have certainly -- when you have people that were as high-profile and as respected as them, there were referral opportunities. There are also a tremendous amount of collateral matters which we could not take because of conflicts issues. As we looked at those and did a review of the cases last year, which were an indication but certainly not a guarantee of what happened, it looked to us that the safest course was to call that a wash in terms of good referral in some cases, as opposed to maybe a forensic accounting matter that we couldn't take because we were all already in on the backside of the bankruptcy. So we decided rather than put any lofty windfall in that, we would look at that as a wash, and then obviously go about our business trying to maximize our ability to take advantage of that.

Lastly, can you share with us in '04 what you expect your depreciation and amortization to be in interest expense, obviously absent acquisitions?

Interest expense is expected to be in the 6 to $7 million range. And that is predicated, of course, on no major increases in interest rates for the remainder of the year. We, as I said earlier, do not have a hedge on our present position because the rates are reasonably low. And in terms of (ph) depreciation and amortization, let me break that into almost two equal pieces. Ordinary depreciation and amortization on hard assets is expected to be, give or take, about 6 million; and amortization of intangibles acquired in connection with the acquisitions of an equal amount of about 6 million, so for a total of about 12.

Okay. Thank you very much, guys.

Just one last point. We have not completed the initial valuation of our opening balance sheets in connection with the acquisition. As you may know, that takes quite some time and the amount of the intangibles that could be amortizable could change and could be a different amount than we have estimated.

When do you think you will have that complete?

Certainly before one year, which is the outside requirement. But it could take as much as six months from the various dates of acquisitions, which would put that answer probably into the middle of the second quarter.

Okay, and the tax rate for this year, should we stick with 40.9?

We are, at this point. We have done a hard analysis; we don't expect the mix of our business in terms of the state profile to change very much toward the higher rate states, and very honestly, the business that did depart from us was in high tax areas.

Okay, thanks a lot.

Vincent Malden (ph).

Thornburg Investment Management. I have two questions for Jack, probably. One is could you offer an update on the expansion into Europe, and what impact if any that will have on the P&L in the next couple of years. And two, a question related to the impact of developments at the Company and the stock price in particular for the last several weeks on the operating strategy or the financial strategy of the Company, what if anything are you doing differently there? So one, Europe, and two, what has changed since the stock's at 15 instead of 30? Thank you.

On the first question, Europe is in a -- I won't say a surprise, because it's being led by Mike Policano, and what he does, he does well. It has certainly (indiscernible). We never had anything in there much in terms of moving the dial from Europe. I don't think we at this point are ready to change that view. But because of the success we've had, because of frankly some opportunities with different constituencies among (ph) balance sheets, and also because it has proven to be an excellent entree into getting some additional work, we are in the process right now -- we have a team, and FTI is looking at the possible expansion of our small inroad there in Europe, as we speak, in terms of -- we've had some good success. We've made some somewhat of a name for ourselves and have some opportunities, either jointly with some other folks or (indiscernible) some hiring opportunities to beef that up and accelerate it a little bit. And I would like to not say more about that at this point, but over the next three weeks, it's something that management will be putting some resources to because of our initial success to see if we can expand that to something that while it still wouldn't move the dial, would get closer to being able to move the dial.

In terms of the recent stock price and looking at what we're doing, we didn't have a financing in mind. We think that with approximately 1 to 1 EBITDA to debt ratio that we are in a very comfortable position, so it hasn't changed our thinking. And not only that, I think is important that it not change our thinking. Our intention and our plan had always been to make opportunistic acquisitions on companies that have significant cash flow. We are not a buy 'em and fix 'em situation so much as being able to look at significant competitors in their niche in the marketplace and have them join us.

But I think it has been important for us, again, as the dust settles to make sure we don't change our game plan and continue to consider both our options vis-a-vis the stock purchase program and vis-a-vis acquisitions, because we still have a very healthy cash flow, and we do not see that changing our operating plan at this point.

Bill Warmington.

SunTrust Robinson Humphrey. A couple of questions for you on the operating metrics for 2004.

Bill, we can't hear you.

Can you hear me like this?

That's better, yes.

Sorry about that. I'm calling from outside the office and the connection isn't particularly good. The first question for you is on the operating metrics for 2004. On the corporate finance and the restructuring side, we see that the average bill rate is expected to remain stable at about 408. And the question there is related to some of what one of your competitors, Zoful Gruper (ph), has been saying about what they expect to happen in their business and how they are looking at pressure on the bill rate as they face greater competition going into 2004, and probably moving down in (indiscernible) of the size of the engagements possibly into the middle market. I just wanted to ask kind of what is your assumption behind being able to maintain an average bill rate at that level.

Basically, our view of it has been that we are going to manage to continue that. We changed some of the ways we approach some assignments. Some assignments we take now on a monthly rate rather than on a straight hourly rate, with a true-up at the end, and we believe the way we have done our bottoms-up estimate and budget for the year that the utilization of the people that we have and that we expect to have over the life of the year is going to yield that as a result. It is more as a result than it is that we started with that and went the other way, Bill.

Another question for you is historically, it seems that the restructuring business has been a big driver for a lot of other parts of the business, and that you would win one of these assignments and then as a result of that there would be a lot of other sources that would be required in order to do that. And you guys had a broad line of businesses that you could draw from, services you could draw from to fill that in. And going forward, given the changes in that business, is it reasonable to still assume continued growth and utilization and average rate (multiple speakers) some of the other businesses?

As we look at the business right now, it is probably more interrelated than it has ever been in the history of the Company in terms of our restructuring (indiscernible) switches, the area where there is the opportunity for that pull through, as you mentioned, as opposed to when you are working on the creditor side. So we look at that as a major opportunity going forward that if anything has been enhanced.

The other thing we might add to that, for what it's worth, is that while we have had some pull-through into other practice areas, interestingly enough, now we are getting pushed into the restructuring area. One of the cases we talked about at the management meeting last week involved a case where our forensic accounting guys came in to do some work in connection with -- I think it was a fraud audit, perhaps, and discovered that this company was in serious financial condition, and in fact, we wound up putting in a couple of our restructuring people as trustees to fix that company. So I think we are seeing some more of it going the other way, by virtue of having picked up the large group of folks from KPMG.

Bill, also, as you know, Zoful Gruper is not necessarily a direct competitor to ours per se. They, by their own admission, are more of a crisis management firm than we are, which means that they have almost an entirely different type of approach to their rates and income. And secondly, back in September when we had given some guidance for the fourth quarter and into 2004, I know many of you were rightfully concerned at that point about whether or not the level of the business in our restructuring practice and/or its rates were sustainable or whether there was even further decline. And if you look at our fourth-quarter results, I think you can see that they were sustainable, and the rates did in fact not decline.

A question for you on the improving economy. Are you starting to see some of the benefits in different portions of the business flowing through from, let's say for example, stronger M&A activity? Are you starting to see that benefit flow through, and if so, where?

Our economic consulting practice is as busy as it has ever been, although I think most of that continues to be driven by litigation. I expect, however, that they will have a role in the wireless acquisitions and the other things that are coming up, because we have extensive experience in the telecom industry, both within that group and throughout the rest of our Company.

I think the straight litigation business has continued to be very active for us, and the bankruptcy business hasn't gone away. The number of new assignments that we have in the bankruptcy area continues to be quite supportive of the overall practice. So I'm not sure -- I'm frankly not so sure that the economy is improving that terribly much. But I've been there for a long time, Bill, and you haven't agreed with me for a long time.

Well, thank you very much.

Marta Nichols.

Banc of America Securities. I'm wondering if you can give us just some sense of how the three practices trended during the fourth quarter. We've got the fourth quarter '03 numbers, but maybe not a sense of how they looked year-over-year, and obviously, in particular with the restructuring practice having sort of begun to fall off in September, how did that trend through the three months, and perhaps any outlook that you have for January and February at this point.

We can tell you that the fourth quarter of the restructuring business in '03 was lower than the fourth quarter in '02. And while -- I don't know -- we don't actually publish that as a quarterly information number separately, but we do know that that was lower. It was a little bit better, actually, than we thought the -- when we did the re-forecast for the fourth quarter, it probably came in a bit higher, like maybe 15 percent higher than we thought it would, something along the lines of 15 percent higher than the re-forecast but lower than what we had originally expected it to be.

The forensic and litigation businesses basically had a relatively soft fourth quarter. Part of that was integration related. Part of that was startup of the KPMG folks. The Ten Eyck folks did exactly as we had hoped they would do. And economic consulting we only had for a month, and the rest of our economic consulting business was pretty good. The trial practices businesses, if that's one of the separate businesses you were talking about, is not really one that we track separately because it is pretty small, but they had a good quarter.

The Trial Practice is included within one of (multiple speakers) segments.

Forensic (ph) and Litigation.

Okay. And then I was just curious about your assumptions on the billable headcount for the restructuring in corporate finance. I know you said the 240 (ph) that you are talking about for 2004 is meant to represent a year-end 2004 number.

(indiscernible) the same as we have today. We expect that the headcount in that business will remain flat for 2004.

So if you are assuming, though, that for example, utilization rates fall off, that potentially demand for restructuring services is a little bit lower this year, particularly during the early part of the year than it was during the early part of 2003, does it make sense to assume some lower headcount in that business or is there something they keeps you optimistic that you can keep it flat?

One of the things that makes us optimistic about keeping it flat is (indiscernible) we have given you on the revenues for that business. In other words, it will require that many people at that average 80 percent utilization to generate the $159 million of revenues and position us for the ultimate regrowth of the restructuring practice, hopefully as we move into 2005.

I guess I'm thinking about it more sort of building up from the headcount rate as opposed to down from the revenue number. Maybe the right way to ask it is, assuming that the number of projects that you are working on and the utilization rates slip, is there a reason why you wouldn't seek to reduce headcount in that business a little bit?

That's not what we are assuming, Marta. The guidance we have given does not indicate the level slipping.

Okay, and then --

Clearly, the business has slipped from a year ago. We have discussed that many times. And clearly, the headcount has been reduced accordingly, as the business was declining, including a restructuring charge in the fourth quarter of 2003 to represent that.

Okay. And then I guess on the forensic and litigation consulting, I was intrigued and I think you addressed this a little bit earlier, but intrigued that both your headcount and your billable rates are expected to be up double-digit, in '04 versus '03. Is that really because the mix at DAS and potentially Ten Eyck as well is so much higher in terms of billable rate, and can you also address why you would expect the headcount to rise that much?

It's a growing business. It's a very energetic business. It certainly does well in the nature of the economy that we're facing in 2004. And yes, there certainly is an impact from amalgamating the DAS and Ten Eyck practices.

So they essentially operate at higher bill rates?

On average.

On average, right. Okay. Just finally, a follow-up to an earlier question about your SG&A levels. Won't you have some office space and equipment and so forth that might have been a part of the former Policano & Manzo practice that will still be on FTI's books when these people depart?

Actually, to be very specific, Marta, one reasonably modest sized office in northern New Jersey. We are under such pressures in New York City because of our growth that we were struggling with amalgamating the DAS people in New York physically into our offices in New York City and hadn't done that. This is now presenting us with the opportunity to do that and save money accordingly, and those two are effectively even slightly better than a push.

Do you have any retention concerns, given that you may be asking people to move? It sounds like you are saying you are asking people to move from working in New York to potentially working in (multiple speakers).

We will have one office in New Jersey that we will be carrying for a while until we see what the marketplace is for subleasing it. But that excess carrying is being balanced off against the expansion plans for space that we had built in at New York City.

Okay, great. Thank you very much.

Dan Dittler (ph).

Lehman Brothers. First of all, just a quick question regarding the revenue and earnings impact from your acquisitions in the fourth -- .

Dan, you are breaking up at this end.

What was the revenue and earnings impact from the acquisitions that occurred in the fourth quarter?

Well, we really don't disclose down to the earnings impact line for either acquisitions or these practice areas because we don't operate them as global segments. Suffice it to say when we gave you all guidance of a range of 32 to 36 cents originally, including acquisitions, and we would have ended up but for the restructuring charge of the tax change at 35. I think that tells you that we did achieve approximately what we had anticipated from the acquisitions.

I see. And so moving on to your SG&A, you really did a good job of holding the line sequentially in the fourth quarter versus the third quarter, even though you brought on three new groups of varying sizes. How should we expect that to trend into the first quarter of 2004? Should we expect the bump to finally occur in this quarter?

No, not really, Dan. Not really. We tried to keep this under reasonably good control. We were very fortunate with the DAS practice that we were able to amalgamate them into our existing offices very quickly without having to go out and lease substantial amounts of additional space, for example. But no, the answer to your question is that we do not expect a major upsurge in G&A.

And if I could turn the page back to August 2002 when you made the PwC acquisition, if you look at their trailing revenue and EBITDA margin statistics, it showed a 30 percent EBITDA margin for that group. And back then, if I recall correctly, utilization while under Pricewaterhouse was roughly, give or take, 70 to 75 percent. Is there any reason to believe that the 30 percent EBITDA margin for that group would be substantially different now versus then, either on the positive side with cost rationalization or integration or some other issues?

You broke up a little at the beginning. Were you referring to the restructuring group we acquired from Pricewaterhouse?

Yes, I was.

If anything, they are operating more efficiently, though obviously a smaller size, than they were when we acquired them.

Okay, thank you very much.

Dan Sundheim (ph).

Viking. My question is -- actually, I have a few for you. But it looks to me like backing through the numbers of forensic and litigations consulting business was running about 25 million a quarter, X the acquisitions for the first three quarters, and then dropped to about 17 million in the fourth quarter. Does Freddie Mac have anything to do with that? And the bill rate also dropped (indiscernible) obviously. Can you give us an update of the Freddie Mac assignment? I think you had 40 people working on that. How many people are currently working on that, and why in the business -- I presume it will be healthier in '04, but why did it drop from 25 million to 17 million sequentially from the first three quarters to the fourth quarter?

Number one, I'm not sure that we gave you exact numbers.

I'm just taking the 2003 revenue for forensic litigation consulting, backing out the fourth quarter, and then backing kind of the run rate of the two acquisitions you made -- well, Ten Eyck I don't have, but certainly that's small, and also DAS for two months, given you acquired it October 31st. Is that number wrong?

If your question is, is the forensics and litigation business expected to do better in the first quarter of '04 than it did in the fourth quarter; is that what the essence of your question comes from?

I'm just trying to understand what caused the drop-off in --.

I'm going to give you the answer to the question. The answer to that question is yes. The fourth quarter, clearly we acquired both DAS and Ten Eyck midway through the quarter right into the middle of a holiday season, and we spent an enormous amount of time integrating those practices (indiscernible).

So it's just distraction from any of your other practices that caused the --.

And also, you're quite right, I think we finished the Freddie Mac job sometime either late in the third quarter or early into the fourth quarter, and until one of the next ones started up, which we I think just have started up another big gigantic one. I don't know whether it is 40 people or 60 people right now, to be honest with you, or 100, and where it is. But until that started up, we probably did have a little slowdown.

Okay and how many people were working on Freddie Mac? Was it 40?

I couldn't tell you and I probably can't tell you.

Okay, all right. Thank you.

James Fessel.

James Fessel with Janney Montgomery Scott on behalf of Mayank Tandon. I apologize if you already discussed this, but I was wondering if you could provide your rationale for building in flat pricing next year when the restructuring business which has traditionally higher bill rates is probably going to decline as a percentage of the total business?

I'm not sure that the last part really drives the equation. It actually, when you look at the rate in the outlook, while it does appear to be about the same as it was for the entire year of 2003 for restructuring, that was actually two half-years. The first half of the year probably had a lower rate, lower average billing rate I think than the second half of the year for them, because there was such high utilization and so much of the junior staff were utilized. And as you can see in the fourth quarter, the average rate was about $424. So the fact that it is now a smaller piece of the total of the business, if it's now, what, 60 percent or so?

36 percent.

Whereas it used to be something closer to 60 or 70 percent. I don't know that that should drive the rate equation. I don't understand that part of the question.

Okay, let me ask -- I believe you said you're predicting 16 to 18 percent price increases --

I'm sorry, sir. Did you just say we're expecting 16 to 18 percent price increases?

Yes, within the forensic accounting (multiple speakers).

Not necessarily price increases. This is the mix of the rates used on the engagements. It is based more on the leverage model than price increases itself.

Okay.

Our average rate is really a function of the mix of people utilized on the types of engagements we have. The more heavily utilized the senior people are, the higher the average rate will appear to be. It is also affected by any changes in the actual intrinsic rates. And in terms of our plans for doing that, we have had rate increases every year, modest in some years, less modest in others. And to the extent there are any, they are built into these numbers. But mostly the change is driven by the mix of people.

Okay. Thanks, that helps.

Mr. Dittler.

Could you provide more color on the restructuring charge? Specifically how many people were let go and then what was the cash component versus the non-cash component?

The cash component, just to answer the back part, is the number that you see in the P&L, the 3 million 060. In terms of the number of people, I think the last time around we gave some rough estimates of that. We would rather not be all that specific on it. Suffice it to say it included a few of our senior managing directors, as well as an associated number of staff.

Great. Thank you.

Bill Sutherland.

Penning (ph). I'm sorry -- I had to hop on and off. Ted, did you mention what you expect CAPEX to kind of range to in '04?

(multiple speakers) I can, Bill, but at this point, we don't see much of a change in our normal pattern of 10 to 12 million.

And then Ted, any contingent or other deferred acquisition payments in '04?

No, none --

Nothing of any great consequence.

That was it. I appreciate it, you guys.

(OPERATOR INSTRUCTIONS) Mr. Sundheim.

Can you give us some clarity on the corporate restructuring revenue projection? How much of that is currently based on contracts that you are currently working on or have already gotten a mandate on, and how much is just appreciation of the overall macro environment and demand for your business?

In general for a year taken as a whole, our restructuring practice does have the greatest clarity. But for a year taken as a whole, it is probably 40 to 50 percent for a year taken as a whole. Going into any given quarter, it can be as high as 75 percent. But I think in general, you're talking about call it 40 percent just for the sake of estimate for a year.

And how about the rest of the businesses? I don't have a sense of the DAS business.

The rest of the businesses will have less clarity than that in terms of engagements already booked because they have a shorter length of assignment. Now, with that said, however, occasionally there are some rather substantial sized assignments in the other practices that can skew that at any point in time.

Okay. Will you let us know about those, just because stuff like Freddie Mac, when that falls off, it creates a big gap and it's hard for us to follow --.

I think it is fair to say that given the nature of assignments, we tend to have one or more major assignments in the other practice areas at any time. I'd like to remind you that a lot of litigation, which drives portions of the rest of our business, can settle at any time, and our arrangements with our clients are at will. They are not fixed (indiscernible) contracts of any kind.

So basically in the other businesses besides restructuring, it is harder to see forward, but you are kind of assuming that the bill rates go up a lot because of the mix of people you have, and just generally your feel of the market is why you're seeing the utilization (multiple speakers) so much?

It is more than that, because obviously there are some assignments throughout there that are fairly sizable and fairly lengthy.

Okay. All right. Thank you very much.

Gentlemen, there are no further questions at this time. Please continue.

I think you've heard from us a lot the last two weeks. We look forward to chatting with you at the end of our -- when we announce our first quarter. So with that, thank everybody again for being here and for sticking with us.

Ladies and gentlemen, this concludes the FTI Consulting fourth-quarter conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3000 or 1-800-405-2236, followed by the pass code 563097. Once again, if you would like to listen to a replay of today's conference call, please dial 303-590-3000 or 1-800-405-2236, followed by the pass code 563097. You may now disconnect, and thank you.