10-Q 1 nci-10q_20180930.htm 10-Q nci-10q_20180930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 1-12173

 

Navigant Consulting, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

36-4094854

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

150 North Riverside Plaza, Suite 2100, Chicago, Illinois 60606

(Address of principal executive offices, including zip code)

(312) 573-5600

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES      NO  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES      NO  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    YES      NO  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES      NO  

As of November 5, 2018, 42,589,165 shares of the registrant’s common stock, par value $.001 per share, were outstanding.

 

 

 


 

INDEX

 

 

 

 

2


 

Forward-Looking Statements

Statements included in this report which are not historical in nature are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may generally be identified by words such as “anticipate,” “believe,” “may,” “should,” “could,” “intend,” “estimate,” “expect,” “likely,” “continue,” “plan,” “projects,” “positioned,” “outlook” and similar expressions. These statements are based upon management’s current expectations and speak only as of the date of this quarterly statement and are not guarantees of future performance. The Company cautions readers that there may be events in the future that the Company is not able to accurately predict or control and the information contained in the forward-looking statements is inherently uncertain and subject to a number of risks that could cause actual results to differ materially from those contained in or implied by the forward-looking statements including, without limitation: the risk of unanticipated costs, liabilities and adverse impact on business operations arising from the Company’s provision of post-divestiture transition services and support in connection with the SaleCo transaction;  the execution of the Company’s long-term growth objectives and margin improvement initiatives; risks inherent in international operations, including foreign currency fluctuations; ability to make acquisitions and divestitures and complete such acquisitions and divestitures in the time anticipated; pace, timing and integration of acquisitions; operational risks associated with new or expanded service areas, including business process management services; impairments; changes in accounting standards or tax rates, laws or regulations; management of professional staff, including dependence on key personnel, recruiting, retention, attrition and the ability to successfully integrate new consultants into the Company’s practices; utilization rates; conflicts of interest; potential loss of clients or large engagements and the Company’s ability to attract new business; brand equity; competition; accurate pricing of engagements, particularly fixed fee and multi-year engagements; clients’ financial condition and their ability to make payments to the Company; risks inherent with litigation; higher risk client assignments; government contracting; professional liability; information security; the adequacy of our business, financial and information systems and technology; maintenance of effective internal controls; potential legislative and regulatory changes; continued and sufficient access to capital; compliance with covenants in our credit agreement; interest rate risk; and market and general economic and political conditions. Further information on these and other potential factors that could affect the Company’s business and financial condition and the results of operations are included in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, and elsewhere in the Company’s filings with the Securities and Exchange Commission (“SEC”), which are available on the SEC’s website or at investors.navigant.com. The Company cannot guarantee any future results, levels of activity, performance or achievement and undertakes no obligation to update any of its forward-looking statements.

 

3


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements.

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 

277,425

 

 

$

 

8,449

 

Accounts receivable, net and contract assets

 

 

176,326

 

 

 

 

165,838

 

Prepaid expenses and other current assets

 

 

30,902

 

 

 

 

21,006

 

Assets held for sale

 

 

-

 

 

 

 

361,030

 

Total current assets

 

 

484,653

 

 

 

 

556,323

 

Non-current assets:

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

67,257

 

 

 

 

71,432

 

Intangible assets, net

 

 

15,605

 

 

 

 

20,172

 

Goodwill

 

 

421,793

 

 

 

 

422,959

 

Other assets

 

 

8,990

 

 

 

 

9,378

 

Total assets

$

 

998,298

 

 

$

 

1,080,264

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

$

 

8,958

 

 

$

 

8,404

 

Accrued liabilities

 

 

19,459

 

 

 

 

9,734

 

Accrued compensation-related costs

 

 

63,750

 

 

 

 

58,515

 

Income tax payable

 

 

39,432

 

 

 

 

3,199

 

Other current liabilities

 

 

41,113

 

 

 

 

30,550

 

Liabilities held for sale

 

 

-

 

 

 

 

86,384

 

Total current liabilities

 

 

172,712

 

 

 

 

196,786

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

Deferred income tax liabilities

 

 

35,215

 

 

 

 

36,598

 

Other non-current liabilities

 

 

26,063

 

 

 

 

26,602

 

Bank debt non-current

 

 

-

 

 

 

 

132,944

 

Total non-current liabilities

 

 

61,278

 

 

 

 

196,144

 

Total liabilities

 

 

233,990

 

 

 

 

392,930

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

Common stock

 

 

59

 

 

 

 

58

 

Additional paid-in capital

 

 

662,647

 

 

 

 

659,825

 

Treasury stock

 

 

(279,816

)

 

 

 

(224,366

)

Retained earnings

 

 

383,648

 

 

 

 

270,995

 

Accumulated other comprehensive loss

 

 

(5,900

)

 

 

 

(19,178

)

Total Navigant Consulting, Inc. stockholders' equity

 

 

760,638

 

 

 

 

687,334

 

Non-controlling interest

 

 

3,670

 

 

 

 

-

 

Total stockholders' equity

 

 

764,308

 

 

 

 

687,334

 

Total liabilities and stockholders' equity

$

 

998,298

 

 

$

 

1,080,264

 

 

See accompanying notes to unaudited consolidated financial statements.

 

4


 

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data (1))

 

 

For the three months ended

 

 

For the nine months ended

 

 

September 30,

 

 

September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues before reimbursements

$

 

171,386

 

 

$

 

164,523

 

 

$

 

498,055

 

 

$

 

480,307

 

Reimbursements

 

 

16,232

 

 

 

 

20,989

 

 

 

 

52,344

 

 

 

 

56,726

 

Total revenues

 

 

187,618

 

 

 

 

185,512

 

 

 

 

550,399

 

 

 

 

537,033

 

Cost of services before reimbursable expenses

 

 

121,945

 

 

 

 

111,197

 

 

 

 

352,002

 

 

 

 

334,414

 

Reimbursable expenses

 

 

16,232

 

 

 

 

20,989

 

 

 

 

52,344

 

 

 

 

56,726

 

Total cost of services

 

 

138,177

 

 

 

 

132,186

 

 

 

 

404,346

 

 

 

 

391,140

 

General and administrative expenses

 

 

32,073

 

 

 

 

35,326

 

 

 

 

104,064

 

 

 

 

106,361

 

Depreciation expense

 

 

5,026

 

 

 

 

4,777

 

 

 

 

14,966

 

 

 

 

15,592

 

Amortization expense

 

 

1,568

 

 

 

 

2,102

 

 

 

 

4,985

 

 

 

 

6,418

 

Other operating costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent acquisition liability adjustments, net

 

 

-

 

 

 

 

1,014

 

 

 

 

-

 

 

 

 

2,213

 

Gain on termination of swaps and other financing costs

 

 

(448

)

 

 

 

-

 

 

 

 

(448

)

 

 

 

-

 

Other costs

 

 

247

 

 

 

 

-

 

 

 

 

3,525

 

 

 

 

107

 

Operating income

 

 

10,975

 

 

 

 

10,107

 

 

 

 

18,961

 

 

 

 

15,202

 

Interest expense

 

 

669

 

 

 

 

833

 

 

 

 

2,408

 

 

 

 

2,264

 

Interest income

 

 

(697

)

 

 

 

(100

)

 

 

 

(893

)

 

 

 

(211

)

Other expense, net

 

 

390

 

 

 

 

103

 

 

 

 

568

 

 

 

 

485

 

Income from continuing operations before income tax expense

 

 

10,613

 

 

 

 

9,271

 

 

 

 

16,878

 

 

 

 

12,664

 

Income tax expense

 

 

3,785

 

 

 

 

3,430

 

 

 

 

5,519

 

 

 

 

3,673

 

Net income from continuing operations

 

 

6,828

 

 

 

 

5,841

 

 

 

 

11,359

 

 

 

 

8,991

 

Income from discontinued operations, net of tax

 

 

67,287

 

 

 

 

6,098

 

 

 

 

103,435

 

 

 

 

22,841

 

Less: Income attributable to non-controlling interest, net of tax

 

 

(70

)

 

 

 

-

 

 

 

 

(70

)

 

 

 

-

 

Net income

$

 

74,045

 

 

$

 

11,939

 

 

$

 

114,724

 

 

$

 

31,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

$

 

0.15

 

 

$

 

0.13

 

 

$

 

0.25

 

 

$

 

0.19

 

Income from discontinued operations, net of tax

 

 

1.51

 

 

 

 

0.13

 

 

 

 

2.30

 

 

 

 

0.49

 

Net income (1)

$

 

1.66

 

 

$

 

0.26

 

 

$

 

2.55

 

 

$

 

0.68

 

Shares used in computing basic per share data

 

 

44,645

 

 

 

 

46,619

 

 

 

 

44,957

 

 

 

 

46,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

$

 

0.15

 

 

$

 

0.12

 

 

$

 

0.24

 

 

$

 

0.19

 

Income from discontinued operations, net of tax

 

 

1.46

 

 

 

 

0.13

 

 

 

 

2.23

 

 

 

 

0.47

 

Net income (1)

$

 

1.61

 

 

$

 

0.25

 

 

$

 

2.47

 

 

$

 

0.66

 

Shares used in computing diluted per share data

 

 

45,932

 

 

 

 

48,017

 

 

 

 

46,438

 

 

 

 

48,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

74,045

 

 

$

 

11,939

 

 

$

 

114,724

 

 

$

 

31,832

 

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to non-controlling interest

 

 

70

 

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

Unrealized net (loss) gain, foreign currency translation

 

 

(1,232

)

 

 

 

1,865

 

 

 

 

(3,269

)

 

 

 

5,409

 

Realized net loss on disposition, foreign currency translation

 

 

16,677

 

 

 

 

-

 

 

 

 

16,677

 

 

 

 

 

 

Unrealized net loss (gain) on interest rate derivatives

 

 

186

 

 

 

 

(18

)

 

 

 

548

 

 

 

 

(22

)

Realized net gain on termination of derivatives

 

 

(452

)

 

 

 

-

 

 

 

 

(452

)

 

 

 

-

 

Reclassification adjustment on interest rate derivatives included in

   interest expense and income tax expense

 

 

(194

)

 

 

 

36

 

 

 

 

(226

)

 

 

 

50

 

Other comprehensive gain, net of tax

 

 

15,055

 

 

 

 

1,883

 

 

 

 

13,348

 

 

 

 

5,437

 

Total comprehensive income, net of tax

$

 

89,100

 

 

$

 

13,822

 

 

$

 

128,072

 

 

$

 

37,269

 

 

(1)

Earnings per share may not foot due to rounding.  See accompanying notes to the unaudited consolidated financial statements.

5


 

 

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

 

 

Common Stock Shares

 

 

Treasury Stock Shares

 

 

Common Stock Par Value

 

 

Additional Paid-In Capital

 

 

Treasury Stock Cost

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Non-Controlling Interest

 

 

Retained Earnings

 

 

Total Stock-holders' Equity

 

Balance at December 31, 2017

 

 

58,047

 

 

 

(12,661

)

 

$

58

 

 

$

659,825

 

 

$

(224,366

)

 

$

(19,178

)

 

$

-

 

 

$

270,995

 

 

$

687,334

 

Cumulative-effect adjustment resulting from the adoption of ASU 2014-09 (Note 2)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

151

 

 

 

151

 

Comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,278

 

 

 

70

 

 

 

114,724

 

 

 

128,072

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

(2,222

)

 

 

(2,222

)

Non-controlling interest initial investment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,600

 

 

 

-

 

 

 

3,600

 

Issuances of common stock

 

 

210

 

 

 

-

 

 

 

-

 

 

 

3,110

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,110

 

Vesting of restricted stock units, net of forfeitures and tax withholdings

 

 

595

 

 

 

-

 

 

 

1

 

 

 

(5,408

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,407

)

Share-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,120

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,120

 

Repurchases of common stock

 

 

-

 

 

 

(2,451

)

 

 

-

 

 

 

-

 

 

 

(55,450

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(55,450

)

Balance at September 30, 2018

 

 

58,852

 

 

 

(15,112

)

 

$

59

 

 

$

662,647

 

 

$

(279,816

)

 

$

(5,900

)

 

$

3,670

 

 

$

383,648

 

 

$

764,308

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6


 

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

For the nine months ended

 

 

 

 

September 30,

 

 

 

 

2018

 

 

2017

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

114,724

 

 

$

 

31,832

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

 

 

18,741

 

 

 

 

22,041

 

 

Amortization expense

 

 

 

5,197

 

 

 

 

6,713

 

 

Share-based compensation expense

 

 

 

5,120

 

 

 

 

10,414

 

 

Deferred income taxes

 

 

 

(26,351

)

 

 

 

7,054

 

 

Allowance for doubtful accounts receivable

 

 

 

7,585

 

 

 

 

6,344

 

 

Payments of contingent acquisition liabilities in excess of initial fair value

 

 

 

(1,186

)

 

 

 

(1,700

)

 

Contingent acquisition liability adjustments, net

 

 

 

-

 

 

 

 

2,213

 

 

Gain on disposition

 

 

 

(87,171

)

 

 

 

-

 

 

Other, net

 

 

 

1,812

 

 

 

 

1,827

 

 

Changes in assets and liabilities (net of dispositions):

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net and contract assets

 

 

 

(29,195

)

 

 

 

(39,933

)

 

Prepaid expenses and other assets

 

 

 

10,095

 

 

 

 

(1,035

)

 

Accounts payable

 

 

 

(2,920

)

 

 

 

906

 

 

Accrued liabilities

 

 

 

6,500

 

 

 

 

1,069

 

 

Accrued compensation-related costs

 

 

 

(3,889

)

 

 

 

(17,943

)

 

Income taxes payable

 

 

 

35,745

 

 

 

 

(33

)

 

Other liabilities

 

 

 

(11,418

)

 

 

 

2,050

 

 

Net cash provided by operating activities

 

 

 

43,389

 

 

 

 

31,819

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

(11,290

)

 

 

 

(30,729

)

 

Proceeds from dispositions, net of selling costs and cash

 

 

 

426,079

 

 

 

 

-

 

 

Other, net

 

 

 

-

 

 

 

 

(691

)

 

Net cash provided by (used in) investing activities

 

 

 

414,789

 

 

 

 

(31,420

)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Issuances of common stock

 

 

 

3,110

 

 

 

 

3,211

 

 

Repurchases of common stock

 

 

 

(55,450

)

 

 

 

(28,012

)

 

Dividend payments

 

 

 

(2,222

)

 

 

 

-

 

 

Payments of contingent acquisition liabilities

 

 

 

(1,170

)

 

 

 

(8,630

)

 

Repayments to banks

 

 

 

(453,064

)

 

 

 

(349,164

)

 

Borrowings from banks

 

 

 

321,231

 

 

 

 

388,458

 

 

Payments of debt issuance costs

 

 

 

-

 

 

 

 

(1,292

)

 

Contributions from non-controlling interest

 

 

 

3,600

 

 

 

 

-

 

 

Other, net

 

 

 

(4,694

)

 

 

 

(4,887

)

 

Net cash used in financing activities

 

 

 

(188,659

)

 

 

 

(316

)

 

Effect of exchange rate changes on cash and cash equivalents

 

 

 

(543

)

 

 

 

631

 

 

Net increase in cash and cash equivalents

 

 

 

268,976

 

 

 

 

714

 

 

Cash and cash equivalents at beginning of the period

 

 

 

8,449

 

 

 

 

8,291

 

 

Cash and cash equivalents at end of the period

 

$

 

277,425

 

 

$

 

9,005

 

 

 

Supplemental Unaudited Consolidated Cash Flow Information

(In thousands)

 

 

 

For the nine months ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

Interest paid

 

$

 

3,777

 

 

$

 

2,987

 

Income taxes paid, net of refunds

 

$

 

(26,720

)

 

$

 

11,876

 

 

See accompanying notes to unaudited consolidated financial statements.

7


 

NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Navigant Consulting, Inc. (“Navigant,” “we,” “us,” or “our”) (NYSE: NCI) is a specialized, global professional services firm that helps clients take control of their future. Navigant’s professionals apply deep industry knowledge, substantive technical expertise, and an enterprising approach to help clients build, manage, and/or protect their business interests. With a focus on markets and clients facing transformational change and significant regulatory or legal pressures, Navigant primarily serves clients in the healthcare, energy, and financial services industries. Across a range of advisory, consulting, outsourcing, and technology/analytics services, we believe our practitioners bring sharp insight that pinpoints opportunities and delivers powerful results.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The information contained herein includes all adjustments, consisting of normal and recurring adjustments except where indicated, which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods presented.

The results of operations for the nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2018.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes as of and for the year ended December 31, 2017 included in our Annual Report on Form 10-K filed with the SEC on February 23, 2018 (“2017 Form 10-K”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and the related notes. Actual results could differ from those estimates and may affect future results of operations and cash flows. We have evaluated events and transactions occurring after the balance sheet date and prior to the date of the filing of this report.

On August 24, 2018, we completed the previously announced sale of our former Disputes, Forensics and Legal Technology segment and the transaction advisory services practice within our Financial Services Advisory and Compliance segment (collectively, “SaleCo”) to Ankura Consulting Group, LLC (“Ankura”). The sale represented a strategic shift in our services and as such the results from operations of SaleCo have been classified as “discontinued operations” for all periods presented. All other operations are considered “continuing operations” and were presented in our three remaining segments. In addition, the assets and liabilities of SaleCo prior to the sale have been classified as assets held for sale and liabilities held for sale (see Note 3 – Dispositions and Discontinued Operations).

During the three months ended September 30, 2018, we commenced operation of our joint venture Health Systems Solutions (“HSS”), with Baptist Health South Florida. We have a 60% financial and controlling interest in HSS and as such we fully consolidate its operations. As a result, as of September 30, 2018 there is $3.7 million of non-controlling interest.  

2.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

On January 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers Topic 606. For updates to our revenue recognition policy see Note 4 – Revenue Recognition.  Other than Topic 606, there have been no material changes to our significant accounting policies and estimates from the information provided in Part II, Item 8, “Financial Statements and Supplementary Data” in our 2017 Form 10-K.

On January 1, 2018, we adopted ASU 2016-15, Statement of Cash Flow (Topic 230). This update is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The update provides new guidance regarding the classification of debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies including bank-owned life insurance policies, distributions received from equity method investments, beneficial interests in securitized transactions, and separately identifiable cash flows and application of the predominance principle. We determined that the manner in which we classify our contingent acquisition liability payments in the consolidated statement of cash flows will change.  Based on our evaluation, adoption of this standard requires a reclassification of a portion of the payments previously reported as financing activities for comparative periods in the statement of cash flows within our consolidated financial statements issued for periods beginning on or after January 1, 2018. Under this guidance, portions of these payments have

8


 

been reclassified from financing activities to operating activities. We applied this change retrospectively, and it did not have a material impact on our consolidated financial statements.

On January 1, 2018, we adopted ASU 2017-01, Business Combinations: Clarifying the Definition of a Business (Topic 805), which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We applied this change prospectively, and it did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update amends the requirements for assets and liabilities recognized for all leases longer than twelve months. Lessees will be required to recognize a lease liability measured on a discounted basis, which is the lessee’s obligation to make lease payments arising from the lease, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This standard will be effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018. The standard, as amended, will require a modified retrospective approach either for leases existing at or entered into after the beginning of the earliest comparative period presented (comparative method), or for all leases existing as of the effective date of adoption (effective date method). We expect to apply the effective date method and are currently evaluating the potential impact of our adoption of this guidance on our consolidated financial statements. Due to the number of office leases we are party to, the related obligation and right-of-use asset is expected to be material to our consolidated balance sheets.  

3.DISPOSITIONS AND DISCONTINUED OPERATIONS

On August 24, 2018, we completed the disposition of SaleCo to Ankura for total proceeds of $462.8 million net of working capital adjustments. The operations of SaleCo have been presented in accordance with ASC Topic 205 “Discontinued Operations” for all periods presented. All other operations are considered “continuing operations” and have been presented in three segments.  See Note 5 – Segment Information. During the nine months ended September 30, 2018, the assets and liabilities of SaleCo were reclassified as assets held for sale and liabilities relating to assets held for sale in the unaudited consolidated balance sheets as of December 31, 2017.

The gain on sale was calculated as follows (in thousands):

 

 

 

September 30,

 

 

 

2018

 

Proceeds from disposition, net of cash

$

 

462,810

 

Current assets

 

 

121,301

 

Non-current assets

 

 

236,804

 

Current liabilities

 

 

(34,139

)

Non-current liabilities

 

 

(4,573

)

Net assets and liabilities related to SaleCo

 

 

319,393

 

Transaction costs

 

 

38,497

 

Foreign currency translation

 

 

17,749

 

Gain on disposition

$

 

87,171

 

 

In addition to the purchase agreement, for SaleCo, we entered into a Transition Services Agreement pursuant to which we provide Ankura with certain services to enable Ankura to operate SaleCo (the “TSA Services”). The TSA Services include information technology, finance and accounting, human resources and other corporate support services. The TSA Services will be provided at a cost to Ankura for a period of up to 6 months after the closing date for most services, although some services such as office location related services may extend beyond that date. Income related to the TSA Services has been recorded in general and administrative expenses.

9


 

The amounts attributable to each category of discontinued operations were as follows (in thousands):

 

 

For the three months ended

 

 

For the nine months ended

 

 

September 30,

 

 

September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues before reimbursements

$

 

45,334

 

 

$

 

72,982

 

 

$

 

214,936

 

 

$

 

228,647

 

Total revenues

$

 

47,875

 

 

$

 

76,765

 

 

$

 

225,340

 

 

$

 

239,927

 

Cost of services including reimbursable expenses

$

 

32,262

 

 

$

 

54,184

 

 

$

 

150,917

 

 

$

 

172,237

 

General and administrative expenses

$

 

4,997

 

 

$

 

8,854

 

 

$

 

21,050

 

 

$

 

21,030

 

Amortization and depreciation expense

$

 

102

 

 

$

 

2,039

 

 

$

 

3,986

 

 

$

 

6,746

 

Interest expense

$

 

400

 

 

$

 

534

 

 

$

 

1,488

 

 

$

 

1,453

 

Gain on disposition

$

 

87,171

 

 

$

 

-

 

 

$

 

87,171

 

 

$

 

-

 

Income from discontinued operations before income tax expense

$