UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________
FORM
10-Q
(Mark
One)
|
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the quarterly period ended June 30, 2007
OR
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
Commission
file number: 000-50976
Huron
Consulting Group Inc.
(Exact
name of registrant as specified in its charter)
|
Delaware |
01-0666114 | |
|
(State
or other jurisdiction |
(IRS
Employer | |
|
of
incorporation or organization) |
Identification
Number) |
550
West Van Buren Street
Chicago,
Illinois
60607
(Address
of principal executive offices)
(Zip
Code)
(312)
583-8700
(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
x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o Accelerated
filer x Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
As of
July 27, 2007, approximately 18,682,932 shares of the registrant’s common
stock, par value $0.01 per share, were outstanding.
HURON
CONSULTING GROUP INC.
INDEX
|
Page | |||||
|
Part
I - Financial Information |
|||||
|
Item
1. |
Consolidated
Financial Statements |
||||
|
Consolidated
Balance Sheets |
1 | ||||
|
Consolidated
Statements of Income |
2 | ||||
|
Consolidated
Statement of Stockholders’ Equity |
3 | ||||
|
Consolidated
Statements of Cash Flows |
4 | ||||
|
Notes
to Consolidated Financial Statements |
5
-
14 | ||||
|
Item
2. |
Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations |
15
- 30 | |||
|
Item
3. |
Quantitative
and Qualitative Disclosures About Market Risk |
30 | |||
|
Item
4. |
Controls
and Procedures |
31 | |||
|
Part
II - Other Information |
|||||
|
Item
1. |
Legal
Proceedings |
31 | |||
|
Item
1A. |
Risk
Factors |
31 | |||
|
Item
2. |
Unregistered
Sales of Equity Securities and Use of Proceeds |
32 | |||
|
Item
3. |
Defaults
Upon Senior Securities |
32 | |||
|
Item
4. |
Submission
of Matters to a Vote of Security Holders |
32 | |||
|
Item
5. |
Other
Information |
32 | |||
|
Item
6. |
Exhibits |
33 | |||
|
Signature |
34 | ||||
PART
I ¾
FINANCIAL INFORMATION
ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS
HURON
CONSULTING GROUP INC.
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share amounts)
(Unaudited)
|
June
30,
2007 |
December
31,
2006 |
||||||
|
Assets |
|||||||
|
Current
assets: |
|||||||
|
Cash
and cash equivalents |
$ |
3,437 |
$ |
16,572 |
|||
|
Receivables
from clients, net |
66,116 |
41,848 |
|||||
|
Unbilled
services, net |
34,124 |
22,627 |
|||||
|
Income
tax receivable |
1,651 |
3,637 |
|||||
|
Deferred
income taxes |
22,280 |
15,290 |
|||||
|
Other
current assets |
12,204 |
6,435 |
|||||
|
Total
current assets |
139,812 |
106,409 |
|||||
|
Property
and equipment,
net |
32,017 |
27,742 |
|||||
|
Deferred
income taxes |
3,029 |
5,433 |
|||||
|
Deposits
and other assets |
7,508 |
2,294 |
|||||
|
Intangible
assets, net |
15,002 |
4,238 |
|||||
|
Goodwill |
137,707 |
53,328 |
|||||
|
Total
assets |
$ |
335,075 |
$ |
199,444 |
|||
|
Liabilities
and stockholders’ equity |
|||||||
|
Current
liabilities: |
|||||||
|
Accounts
payable |
$ |
4,634 |
$ |
2,684 |
|||
|
Accrued
expenses |
19,762 |
12,712 |
|||||
|
Accrued
payroll and related benefits |
35,100 |
41,649 |
|||||
|
Deferred
revenues |
6,608 |
4,035 |
|||||
|
Bank
borrowings |
¾ |
8,000 |
|||||
|
Current
portion of notes payable and capital lease obligations |
1,141 |
1,282 |
|||||
|
Total
current liabilities |
67,245 |
70,362 |
|||||
|
Non-current
liabilities: |
|||||||
|
Deferred
compensation and other liabilities |
2,737 |
1,169 |
|||||
|
Notes
payable and capital lease obligations, net of current
portion |
¾ |
1,000 |
|||||
|
Bank
borrowings |
107,000 |
¾ |
|||||
|
Deferred
lease incentives |
10,246 |
10,333 |
|||||
|
Total
non-current liabilities |
119,983 |
12,502 |
|||||
|
Commitments
and contingencies |
|||||||
|
Stockholders’
equity |
|||||||
|
Common
stock; $0.01 par value; 500,000,000 shares authorized; 19,166,689
and
18,470,623 shares issued at June 30, 2007 and December 31, 2006,
respectively |
180 |
178 |
|||||
|
Treasury
stock, at cost, 469,189 and 398,783 shares at June 30, 2007 and
December 31,
2006, respectively |
(12,252 |
) |
(9,396 |
) | |||
|
Additional
paid-in capital |
93,880 |
79,598 |
|||||
|
Retained
earnings |
66,112 |
46,200 |
|||||
|
Accumulated
other comprehensive loss |
(73 |
) |
¾ |
||||
|
Total
stockholders’ equity |
147,847 |
116,580 |
|||||
|
Total
liabilities and stockholders equity |
$ |
335,075 |
$ |
199,444 |
|||
The
accompanying notes are an integral part of the consolidated financial
statements.
- 1
- -
HURON
CONSULTING GROUP INC.
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except per share amounts)
(Unaudited)
|
Three
months ended
June 30, |
Six
months ended
June 30, |
||||||||||||
|
2007 |
2006 |
2007 |
2006 |
||||||||||
|
Revenues
and reimbursable expenses: |
|||||||||||||
|
Revenues |
$ |
118,266 |
$ |
67,769 |
$ |
234,275 |
$ |
129,956 |
|||||
|
Reimbursable
expenses |
10,910 |
6,691 |
20,945 |
12,130 |
|||||||||
|
Total
revenues and reimbursable expenses |
129,176 |
74,460 |
255,220 |
142,086 |
|||||||||
|
Direct
costs and reimbursable expenses (exclusive
of depreciation
and amortization shown in operating expenses): |
|||||||||||||
|
Direct
costs |
66,508 |
37,436 |
133,411 |
73,426 |
|||||||||
|
Intangible
assets amortization |
2,304 |
1,640 |
4,544 |
1,716 |
|||||||||
|
Reimbursable
expenses |
10,814 |
6,795 |
20,931 |
12,333 |
|||||||||
|
Total
direct costs and reimbursable expenses |
79,626 |
45,871 |
158,886 |
87,475 |
|||||||||
|
Operating
expenses: |
|||||||||||||
|
Selling,
general and administrative |
25,606 |
15,713 |
49,433 |
30,554 |
|||||||||
|
Depreciation
and amortization |
4,177 |
1,569 |
8,219 |
3,077 |
|||||||||
|
Total
operating expenses |
29,783 |
17,282 |
57,652 |
33,631 |
|||||||||
|
Operating
income |
19,767 |
11,307 |
38,682 |
20,980 |
|||||||||
|
Other
income (expense): |
|||||||||||||
|
Interest
income (expense), net |
(1,825 |
) |
(193 |
) |
(3,250 |
) |
39 |
||||||
|
Other
income |
95 |
¾ |
125 |
¾ |
|||||||||
|
Total
other income (expense) |
(1,730 |
) |
(193 |
) |
(3,125 |
) |
39 |
||||||
|
Income
before provision for income taxes |
18,037 |
11,114 |
35,557 |
21,019 |
|||||||||
|
Provision
for income taxes |
7,936 |
4,834 |
15,645 |
9,143 |
|||||||||
|
Net
income |
$ |
10,101 |
$ |
6,280 |
$ |
19,912 |
$ |
11,876 |
|||||
|
Earnings
per share: |
|||||||||||||
|
Basic |
$ |
0.60 |
$ |
0.39 |
$ |
1.19 |
$ |
0.73 |
|||||
|
Diluted |
$ |
0.56 |
$ |
0.36 |
$ |
1.11 |
$ |
0.69 |
|||||
|
Weighted
average shares used in calculating earnings per share: |
|||||||||||||
|
Basic |
16,842 |
16,309 |
16,784 |
16,194 |
|||||||||
|
Diluted |
17,993 |
17,244 |
17,881 |
17,120 |
|||||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
- 2
- -
HURON
CONSULTING GROUP INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(In
thousands, except share amounts)
(Unaudited)
|
Common
Stock |
Treasury
Stock |
Additional
Paid-In
Capital |
Retained
Earnings |
Accumulated
Other Compre-hensive
Loss |
Stockholders’
Equity |
|||||||||||||||||
|
Shares |
Amount |
|||||||||||||||||||||
Balance
at December 31, 2006 |
17,828,323 |
$ |
178 |
$ |
(9,396 |
) |
$ |
79,598 |
$ |
46,200 |
$ |
¾ |
$ |
116,580 |
||||||||
Comprehensive
income: |
||||||||||||||||||||||
Net income |
¾ |
¾ |
¾ |
¾ |
19,912 |
¾ |
19,912 |
|||||||||||||||
|
Foreign currency translation adjustment |
¾ |
¾ |
¾ |
¾ |
¾ |
(73 |
) |
(73 |
) | |||||||||||||
Total
comprehensive income |
19,839 |
|||||||||||||||||||||
Issuance
of common stock in connection
with: |
||||||||||||||||||||||
Restricted stock awards, net
of cancellations |
32,390 |
¾ |
(962 |
) |
962 |
¾ |
¾ |
¾ |
||||||||||||||
Exercise of stock options |
140,051 |
2 |
¾ |
403 |
¾ |
¾ |
405 |
|||||||||||||||
Share-based
compensation |
¾ |
¾ |
¾ |
9,051 |
¾ |
¾ |
9,051 |
|||||||||||||||
Shares
redeemed for employee tax
withholdings |
¾ |
¾ |
(1,894 |
) |
¾ |
¾ |
¾ |
(1,894 |
) | |||||||||||||
|
Income
tax benefit on share-based
compensation |
¾ |
¾ |
¾ |
3,866 |
¾ |
¾ |
3,866 |
|||||||||||||||
|
Balance
at June 30, 2007 |
18,000,764 |
$ |
180 |
$ |
(12,252 |
) |
$ |
93,880 |
$ |
66,112 |
$ |
(73 |
) |
$ |
147,847 |
|||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
- 3
- -
HURON
CONSULTING GROUP INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
Six
months ended
June 30, |
|||||||
|
2007 |
2006 |
||||||
|
Cash
flows from operating activities: |
|||||||
|
Net
income |
$ |
19,912 |
$ |
11,876 |
|||
|
Adjustments
to reconcile net income to net cash provided by operating
activities: |
|||||||
|
Depreciation
and amortization |
12,763 |
4,793 |
|||||
|
Deferred
income taxes |
(7,171 |
) |
(3,991 |
) | |||
|
Share-based
compensation |
9,051 |
4,721 |
|||||
|
Allowances
for doubtful accounts and unbilled services |
4,219 |
241 |
|||||
|
Other |
¾ |
134 |
|||||
|
Changes
in operating assets and liabilities, net of businesses
acquired: |
|||||||
|
Increase
in receivables from clients |
(19,623 |
) |
(9,464 |
) | |||
|
Increase
in unbilled services |
(12,741 |
) |
(5,140 |
) | |||
|
(Increase)
decrease in income tax receivable / payable, net |
1,987 |
(3,351 |
) | ||||
|
(Increase)
decrease in other assets |
(10,213 |
) |
450 |
||||
|
Increase
in accounts payable and accrued liabilities |
3,880 |
4,894 |
|||||
|
Decrease
in accrued payroll and related benefits |
(7,324 |
) |
(8,755 |
) | |||
|
(Decrease)
increase in deferred revenues |
(1,599 |
) |
1,071 |
||||
|
Net
cash used in operating activities |
(6,859 |
) |
(2,521 |
) | |||
|
Cash
flows from investing activities: |
|||||||
|
Purchases
of property and equipment, net |
(8,094 |
) |
(13,200 |
) | |||
|
Purchases
of a businesses, net of cash acquired |
(98,345 |
) |
(20,562 |
) | |||
|
Net
cash used in investing activities |
(106,439 |
) |
(33,762 |
) | |||
|
Cash
flows from financing activities: |
|||||||
|
Proceeds
from exercise of stock options |
405 |
234 |
|||||
|
Shares
redeemed for employee tax withholdings |
(1,894 |
) |
(1,014 |
) | |||
|
Tax
benefit from share-based compensation |
3,866 |
3,270 |
|||||
|
Proceeds
from borrowings under line of credit |
184,500 |
35,600 |
|||||
|
Repayments
on line of credit |
(85,500 |
) |
(29,100 |
) | |||
|
Principal
payment of notes payable and capital lease obligations |
(1,141 |
) |
(1,146 |
) | |||
|
Net
cash provided by financing activities |
100,236 |
7,844 |
|||||
|
Effect
of exchange rate changes on cash |
(73 |
) |
¾ |
||||
|
Net
decrease in cash and cash equivalents |
(13,135 |
) |
(28,439 |
) | |||
|
Cash
and cash equivalents at beginning of the period |
16,572 |
31,820 |
|||||
|
Cash
and cash equivalents at end of the period |
$ |
3,437 |
$ |
3,381 |
|||
The
accompanying notes are an integral part of the consolidated financial
statements.
- 4
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular
amounts in thousands, except per share amounts)
1. Description
of Business
Huron
Consulting Group Inc. was formed on March 19, 2002. Huron Consulting Group
Inc., together with its wholly-owned operating subsidiaries (collectively, the
“Company”), is an independent provider of financial and operational consulting
services, whose clients include Fortune 500 companies, medium-sized businesses,
leading academic institutions, healthcare organizations, and the law firms that
represent these various organizations.
2. Basis
of Presentation
The
accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, these financial statements
reflect all adjustments of a normal, recurring nature necessary for the fair
presentation of the Company’s financial position, results of operations and cash
flows for the interim periods presented in conformity with accounting principles
generally accepted in the United States of America. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 2006 included in the
Company’s annual report on Form 10-K and the Company’s Quarterly Report on
Form 10-Q for the period ended March 31, 2007. The Company’s results for
any interim period are not necessarily indicative of results for a full year or
any other interim period.
3.
Recent Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (“GAAP”), and
expands disclosures about fair value measurements. SFAS No. 157 does not
require any new fair value measurements in financial statements, but
standardizes its definition and guidance in GAAP. Thus, for some entities, the
application of this statement may change current practice. SFAS No. 157
will be effective for the Company beginning on January 1, 2008. The Company
is currently evaluating the impact that the adoption of this statement may have
on its future financial position, results of operations, earnings per share, and
cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115.” SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value. The objective
of this statement is to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 will be effective for the Company
beginning on January 1, 2008. The Company is currently evaluating the
impact that the adoption of this statement may have on its future financial
position, results of operations, earnings per share, and cash
flows.
4. Business
Combinations
Acquisition
of Wellspring Partners LTD
In
January 2007, the Company acquired Wellspring Partners LTD (“Wellspring”),
a management consulting firm specializing in integrated performance improvement
services for hospitals and health systems. With the acquisition of Wellspring,
the Company expanded its national presence in the healthcare provider sector.
This acquisition was consummated on January 2, 2007 and the results of
operations of Wellspring have been included within the Company’s Health and
Education Consulting operating segment since that date.
The
aggregate purchase price of this acquisition was approximately
$67.5 million, consisting of $64.7 million in cash paid at closing,
$0.4 million of transaction costs, a $2.1 million working capital
adjustment, and a $0.3 million holdback of the purchase price that will be
paid in the second half of 2007. The Company financed this acquisition with a
combination of cash on hand and borrowings of $55.0 million under the
Company’s bank credit agreement.
- 5
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
amounts in thousands, except per share amounts)
Additional
purchase consideration may be payable if specific performance targets are met
over a five-year period. Such amounts will be recorded as additional purchase
price and an adjustment to goodwill.
Based on
a preliminary valuation that is subject to refinement, the identifiable
intangible assets that were acquired totaled approximately $13.0 million
and have an estimated weighted average useful life of 27.1 months, which
consists of customer contracts totaling $4.7 million (9.0 months useful
life), customer relationships totaling $3.9 million (24.0 months useful
life), non-competition agreements totaling $2.3 million (72.0 months useful
life), and a tradename valued at $2.1 million (24.0 months useful life).
Additionally, the Company recorded approximately $56.5 million of goodwill,
which the Company does not intend to deduct for income tax
purposes.
Acquisition
of Glass & Associates, Inc.
Also in
January 2007, the Company acquired Glass & Associates, Inc. (“Glass”), a
turnaround and restructuring consulting firm that provides advice and leadership
to troubled businesses in the United States and Europe. With the acquisition of
Glass, the Company expanded its position in the consulting and restructuring
marketplace, as well as expanded its interim management capabilities to
distressed companies in industries beyond healthcare. The stock purchase
agreement for this acquisition was executed on January 2, 2007 and the
transaction was consummated on January 9, 2007 upon the satisfaction of
certain closing conditions. The results of operations of Glass have been
included within the Company’s Corporate Consulting operating segment since
January 2, 2007.
The
aggregate purchase price of this acquisition was approximately
$32.8 million, consisting of $30.0 million in cash paid at closing,
$0.7 million of transaction costs, a $1.2 million working capital
adjustment, and $0.9 million of additional purchase consideration earned by
Glass during the first six months of 2007 subsequent to the acquisition. The
Company financed this acquisition with a combination of cash on hand and
borrowings of $20.0 million under the Company’s bank credit agreement.
Additional purchase consideration may be payable if specific performance targets
are met over a four-year period. Such amounts will be recorded as additional
purchase price and an adjustment to goodwill. Also, additional payments may be
made based on the amount of revenues the Company receives from referrals made by
certain employees of Glass over a four-year period. Such amounts will be
recorded as an expense.
Based on
a preliminary valuation that is subject to refinement, the identifiable
intangible assets that were acquired totaled approximately $5.0 million and
have an estimated weighted average useful life of 35.2 months, which
consists of customer contracts totaling $1.3 million (6.0 months useful
life), customer relationships totaling $1.5 million (24.0 months useful
life), and non-competition agreements totaling $2.2 million (60.0 months
useful life). Additionally, the Company recorded approximately
$26.5 million of goodwill, which the Company intends to deduct for income
tax purposes.
Acquisition
of MSGalt & Company, LLC
On
April 3, 2006, the Company acquired substantially all of the assets of
MSGalt & Company, LLC (“Galt”), a specialized advisory firm that designs and
implements corporate-wide programs to improve shareholder returns. With the
acquisition of Galt, the Company expanded its value and service offerings to the
office of the chief executive officer and boards of Fortune 500 companies. This
acquisition was consummated on April 3, 2006 and the results of operations
of Galt have been included within the Company’s Corporate Consulting operating
segment since that date.
The
aggregate purchase price of this acquisition was $28.4 million, consisting
of $20.4 million in cash paid at closing, $0.3 million of transaction
costs, and $7.7 million of additional purchase consideration earned by Galt
during 2006 subsequent to the acquisition, as certain performance targets were
met. The Company financed this acquisition with cash on hand and borrowings of
$6.5 million under the Company’s bank credit agreement. Additional purchase
consideration may be payable if specific performance targets are met over a
four-year period. Such amounts will be recorded as additional purchase price and
an adjustment to goodwill. Also, additional payments may be made based on the
amount of revenues the Company receives from referrals made by Galt employees
over a four-year period. Such amounts will be recorded as an expense.
- 6
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
amounts in thousands, except per share amounts)
The
identifiable intangible assets that were acquired totaled $4.3 million and
have an estimated weighted average useful life of 20.0 months, which
consists of customer contracts totaling $1.7 million (3.2 months weighted
average useful life), customer relationships totaling $1.4 million (6.1
months weighted average useful life), and non-competition agreements totaling
$1.2 million (60.0 months weighted average useful life). The Company
assigned relatively short lives to the customer contracts and customer
relationships due to the short-term nature of the services and relationships
provided under these contracts. Additionally, the Company recorded
$24.1 million of goodwill, which the Company intends to deduct for income
tax purposes.
Purchase
Price Allocations
The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed for the Company’s significant business
acquisitions.
|
Wellspring
January 2,
2007 |
Glass
January 2,
2007 |
Galt
April 3,
2006 |
||||||||
|
Assets
Acquired: |
||||||||||
|
Current
assets |
$ |
11,116 |
$ |
2,643 |
$ |
¾ |
||||
|
Property
and equipment |
1,073 |
215 |
11 |
|||||||
|
Long-term
assets |
¾ |
23 |
¾ |
|||||||
|
Intangible
assets |
13,000 |
5,000 |
4,300 |
|||||||
|
Goodwill |
56,543 |
26,461 |
24,077 |
|||||||
|
81,732 |
34,342 |
28,388 |
||||||||
|
Liabilities
Assumed: |
||||||||||
|
Current
liabilities |
8,978 |
1,514 |
¾ |
|||||||
|
Non-current
deferred tax liability |
5,278 |
¾ |
¾ |
|||||||
|
14,256 |
1,514 |
¾ |
||||||||
|
Net
Assets Acquired |
$ |
67,476 |
$ |
32,828 |
$ |
28,388 |
||||
Pro
Forma Financial Data
The
following unaudited pro forma financial data for the three and six months ended
June 30, 2006 give effect to the acquisitions of Wellspring, Glass and Galt
as if they had been completed at the beginning of the period. The financial data
for the three and six months ended June 30, 2007 reflect actual results
from these acquisitions and are already included in the Company’s consolidated
financial results. The unaudited pro forma financial data are not necessarily
indicative of the operating results that would have been achieved if the
acquisition had occurred on the dates indicated, nor are they necessarily
indicative of future results.
|
Historical
Huron and Historical Wellspring |
|||||||||||||
|
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
||||||||||||
|
2007
Actual |
2006
Pro
forma |
2007
Actual |
2006
Pro
forma |
||||||||||
|
Revenues,
net of reimbursable expenses |
$ |
118,266 |
$ |
80,762 |
$ |
234,275 |
$ |
156,540 |
|||||
|
Operating
income |
$ |
19,767 |
$ |
11,777 |
$ |
38,682 |
$ |
22,759 |
|||||
|
Income
before provision for income taxes |
$ |
18,037 |
$ |
11,092 |
$ |
35,557 |
$ |
21,537 |
|||||
|
Net
income |
$ |
10,101 |
$ |
6,267 |
$ |
19,912 |
$ |
12,182 |
|||||
|
Earnings
per share: |
|||||||||||||
|
Basic |
$ |
0.60 |
$ |
0.38 |
$ |
1.19 |
$ |
0.75 |
|||||
|
Diluted |
$ |
0.56 |
$ |
0.36 |
$ |
1.11 |
$ |
0.71 |
|||||
- 7
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
amounts in thousands, except per share amounts)
|
Historical
Huron and Historical Glass |
|||||||||||||
|
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
||||||||||||
|
2007
Actual |
2006
Pro
forma |
2007
Actual |
2006
Pro
forma |
||||||||||
|
Revenues,
net of reimbursable expenses |
$ |
118,266 |
$ |
73,316 |
$ |
234,275 |
$ |
141,588 |
|||||
|
Operating
income |
$ |
19,767 |
$ |
11,494 |
$ |
38,682 |
$ |
22,091 |
|||||
|
Income
before provision for income taxes |
$ |
18,037 |
$ |
10,964 |
$ |
35,557 |
$ |
21,459 |
|||||
|
Net
income |
$ |
10,101 |
$ |
6,191 |
$ |
19,912 |
$ |
12,136 |
|||||
|
Earnings
per share: |
|||||||||||||
|
Basic |
$ |
0.60 |
$ |
0.38 |
$ |
1.19 |
$ |
0.75 |
|||||
|
Diluted |
$ |
0.56 |
$ |
0.36 |
$ |
1.11 |
$ |
0.71 |
|||||
|
Historical
Huron and Historical Galt |
|||||||||||||
|
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
||||||||||||
|
2007
Actual |
2006
Actual |
2007
Actual |
2006
Pro
forma |
||||||||||
|
Revenues,
net of reimbursable expenses |
$ |
118,266 |
$ |
67,769 |
$ |
234,275 |
$ |
134,025 |
|||||
|
Operating
income |
$ |
19,767 |
$ |
11,307 |
$ |
38,682 |
$ |
22,700 |
|||||
|
Income
before provision for income taxes |
$ |
18,037 |
$ |
11,114 |
$ |
35,557 |
$ |
22,526 |
|||||
|
Net
income |
$ |
10,101 |
$ |
6,280 |
$ |
19,912 |
$ |
12,777 |
|||||
|
Earnings
per share: |
|||||||||||||
|
Basic |
$ |
0.60 |
$ |
0.39 |
$ |
1.19 |
$ |
0.79 |
|||||
|
Diluted |
$ |
0.56 |
$ |
0.36 |
$ |
1.11 |
$ |
0.75 |
|||||
5. Goodwill
and Intangible Assets
The
changes in the carrying amount of goodwill by segment for the six months ended
June 30, 2007 were as follows:
|
Legal
Financial
Consulting |
Legal
Operational Consulting |
Health
and Education Consulting |
Corporate
Consulting |
Total |
||||||||||||
|
Balance
as of December 31,
2006 |
$ |
1,334 |
$ |
13,771 |
$ |
11,256 |
$ |
26,967 |
$ |
53,328 |
||||||
|
Goodwill
acquired in connection
with business combinations |
¾ |
38 |
56,543 |
28,060 |
84,641 |
|||||||||||
|
Tax
adjustment |
¾ |
(262 |
) |
¾ |
¾ |
(262 |
) | |||||||||
|
Balance
as of June 30,
2007 |
$ |
1,334 |
$ |
13,547 |
$ |
67,799 |
$ |
55,027 |
$ |
137,707 |
||||||
Identifiable
intangible assets with finite lives are amortized over their estimated useful
lives. Intangible assets amortization expense was $3.9 million and
$7.7 million for the three and six months ended June 30, 2007,
respectively. Intangible assets amortization expense was $1.8 million and
$2.1 million for the three and six months ended June 30, 2006,
respectively. Estimated intangible assets amortization expense is
$12.5 million for 2007, $5.7 million for 2008, $1.7 million for
2009, $1.5 million for 2010, $0.9 million for 2011, and
$0.4 million for 2012. These amounts are based on intangible assets
recorded as of June 30, 2007 and actual amortization expense could differ
from these estimated amounts when the Company finalizes the Wellspring and Glass
valuations, or as a result of future acquisitions and other factors. Intangible
assets are as follows:
- 8
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
amounts in thousands, except per share amounts)
|
June 30,
2007 |
December 31,
2006 |
||||||||||||
|
Gross
Carrying
Amount |
Accumulated
Amortization |
Gross
Carrying
Amount |
Accumulated
Amortization |
||||||||||
|
Customer
contracts |
$ |
10,150 |
$ |
8,457 |
$ |
3,960 |
$ |
3,960 |
|||||
|
Customer
relationships |
9,946 |
4,337 |
4,366 |
2,411 |
|||||||||
|
Non-competition
agreements |
6,655 |
915 |
2,105 |
273 |
|||||||||
|
Tradename |
2,100 |
525 |
¾ |
¾ |
|||||||||
|
Technology
and software |
585 |
200 |
585 |
134 |
|||||||||
|
Total |
$ |
29,436 |
$ |
14,434 |
$ |
11,016 |
$ |
6,778 |
|||||
6. Earnings
Per Share
Basic
earnings per share excludes dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the period,
excluding unvested restricted common stock. Diluted earnings per share reflects
the potential reduction in earnings per share that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock under the treasury stock method. Earnings per share under the basic and
diluted computations are as follows:
|
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
||||||||||||
|
2007 |
2006 |
2007 |
2006 |
||||||||||
|
Net
income |
$ |
10,101 |
$ |
6,280 |
$ |
19,912 |
$ |
11,876 |
|||||
|
Weighted
average common shares outstanding - basic |
16,842 |
16,309 |
16,784 |
16,194 |
|||||||||
|
Weighted
average common stock equivalents |
1,151 |
935 |
1,097 |
926 |
|||||||||
|
Weighted
average common shares outstanding - diluted |
17,993 |
17,244 |
17,881 |
17,120 |
|||||||||
|
Basic
earnings per share |
$ |
0.60 |
$ |
0.39 |
$ |
1.19 |
$ |
0.73 |
|||||
|
Diluted
earnings per share |
$ |
0.56 |
$ |
0.36 |
$ |
1.11 |
$ |
0.69 |
|||||
There
were approximately 1,600 anti-dilutive securities for the six months ended
June 30, 2007 and none for the three months ended June 30, 2007 and
2006, as well as for the six months ended June 30, 2006.
7. Line
of Credit
At
December 31, 2006, the Company had a credit agreement with various
financial institutions under which it could borrow up to $130.0 million. On
February 23, 2007, the Company amended the credit agreement so that the
maximum amount of principal that may be borrowed increased to
$175.0 million, with an
accordion feature allowing for an additional amount of up to $50.0 million
to be borrowed upon approval from the lenders. On
July 27, 2007, the Company executed a fourth amendment to the credit
agreement. See note “11. Subsequent Events” below for further details. Fees and
interest on borrowings vary based on the Company’s total debt to earnings before
interest, taxes, depreciation and amortization (“EBITDA”) ratio as set forth in
the credit agreement and will be based on a spread over LIBOR or a spread over
the base rate, which is the greater of the Federal Funds Rate plus 0.5% or the
Prime Rate, as selected by the Company. All outstanding principal is due upon
expiration of the credit agreement on February 23, 2012. The credit
agreement includes quarterly financial covenants that require the Company to
maintain certain interest coverage ratio, total debt to EBITDA ratio, and net
worth levels. In addition, certain acquisitions and similar transactions will
need to be approved by the lenders. Borrowings outstanding under this credit
facility at June 30, 2007 totaled $107.0 million and bear a
weighted-average interest rate of 6.1%. Borrowings outstanding at
December 31, 2006 were $8.0 million and bear interest at 5.9%. At
both
- 9
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
amounts in thousands, except per share amounts)
June 30,
2007 and December 31, 2006, the Company was in compliance with its debt
covenants.
8. Income
Taxes
In July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”), which became effective for the Company on
January 1, 2007. FIN 48 addresses the determination of how tax benefits
claimed or expected to be claimed on a tax return should be recorded in the
financial statements. Under FIN 48, the Company must recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the
financial statements from such a position are measured based on the largest
benefit that has a greater than fifty percent likelihood of being realized upon
ultimate resolution.
The
Company’s unrecognized tax benefits at both January 1, 2007 and
June 30, 2007 totaled $0.1 million, all of which would have a
favorable impact on the Company’s effective tax rate if recognized.
The
Company does not expect that changes in the liability for unrecognized tax
benefits during the next 12 months will have a significant impact on the
Company’s financial position or results of operations.
Upon
adoption on January 1, 2007 and as of June 30, 2007, an accrual for
the potential payment of interest and penalties was deemed not necessary. If
deemed necessary, the Company will record accrued interest and penalties as a
component of provision for income taxes on the consolidated statement of
income.
The
Company files income tax returns with federal, state, local and foreign
jurisdictions. The 2004
federal and main office state of Illinois tax returns were examined and closed
in 2006 and no material adjustments were identified toward any of the Company’s
tax positions. The Company’s Federal and Illinois tax returns for 2005 and 2006
are subject to future examinations by relevant tax authorities. For all other
states, 2003 through 2006 are subject to future examinations. The Company does
not currently have any material foreign income tax filings.
9. Commitments
and Contingencies
Litigation
On
July 3, 2007, The Official Committee of Unsecured Creditors of Saint
Vincents Catholic Medical Centers of New York d/b/a Saint Vincent Catholic
Medical Centers (“St. Vincents”), et al. filed suit against the Company, certain
of its subsidiaries, including Speltz & Weis LLC, two of the Company’s
managing directors David E. Speltz (“Speltz”) and Timothy C. Weis (“Weis”) in
the Supreme Court of the State of New York, County of New York. Beginning in
2004, St. Vincents retained Speltz & Weis LLC to provide management services
to St. Vincents and its two principals, Speltz and Weis, were made the interim
chief executive officer and chief financial officer, respectively, of St.
Vincents. In May of 2005, Speltz & Weis LLC was acquired by the Company. On
July 5, 2005, St. Vincents filed for bankruptcy in the United States
Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”). On
December 13, 2005, the Bankruptcy Court approved the retention of Speltz
& Weis LLC and the Company in various capacities, including interim
management, revenue cycle management and strategic sourcing services. The suit
alleges, among other things, breach of fiduciary duties, breach of the New York
Not-For-Profit Corporation Law, breach of contract, tortuous interference in the
performance of a contract, aiding and abetting a breach of fiduciary duties, and
certain fraudulent transfers and fraudulent conveyances, and seeks unspecified
compensatory and punitive damages. Although the lawsuit has only recently been
filed, the Company believes that the claims are without merit and intends to
vigorously defend itself in this matter.
From time
to time, the Company is involved in various legal matters arising out of the
ordinary course of business. Although the outcome of these matters cannot
presently be determined, in the opinion of management, disposition of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
- 10
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
amounts in thousands, except per share amounts)
Guarantees
Guarantees
in the form of letters of credit totaling $6.3 million were outstanding at
both June 30, 2007 and December 31, 2006 to support certain office
lease obligations.
In
connection with certain business acquisitions, the Company may be required to
pay additional purchase consideration to the sellers if specific performance
targets are met over a number of years as specified in the related purchase
agreements. Such amounts are generally measured and determined at the end of the
Company’s fiscal year. There is no limitation to the maximum amount of
additional purchase consideration and the aggregate amount that potentially may
be paid could be significant. Based on current and projected financial
performance, we anticipate aggregate additional purchase consideration that will
be earned by certain sellers to be approximately $30.0 million for the year
ending December 31, 2007. Of this amount, the Company has accrued for
$0.9 million as of June 30, 2007. Additional purchase consideration
earned by certain sellers totaled $8.0 million for the year ended
December 31, 2006.
To the
extent permitted by law, the Company’s by-laws and articles of incorporation
require that the Company indemnify its officers and directors against judgments,
fines, and amounts paid in settlement, including attorneys’ fees, incurred in
connection with civil or criminal action or proceedings, as it relates to their
services to the Company if such person acted in good faith. Although there is no
limit on the amount of indemnification, the Company may obtain payments from its
insurance carrier for certain indemnification payments made.
10. Segment
Information
Segments
are defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and
Related Information,” as components of a company in which separate financial
information is available and is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance.
Historically,
the Company provided financial results under two operating segments: Financial
Consulting and Operational Consulting. In
response to the Company’s continued growth and acquisitions of complementary
businesses, effective January 1, 2007, the Company reorganized its practice
areas and service lines to better meet market demands and serve its clients.
Under the new organizational structure, the Company’s chief operating decision
maker manages the business under four operating segments as follows.
| · |
Legal
Financial Consulting. This
segment assists corporations with complex accounting and financial
reporting matters, financial analysis in business disputes and litigation,
as well as valuation analysis related to business acquisitions. This
segment is comprised of certified public accountants, economists,
certified fraud examiners, chartered financial analysts and valuation
experts that serve attorneys and corporations as expert
witnesses and consultants in connection with business disputes, as well as
in regulatory or internal investigations. |
| · |
Legal
Operational Consulting. This
segment provides guidance and business services to corporate law
departments, law firms and government agencies by helping to reduce legal
spending, enhance client service delivery and increase operational
effectiveness. These services include digital evidence and discovery
services, document review, law firm management services, records
management, and strategy and operational
improvements. |
| · |
Health
and Education Consulting.
This segment provides consulting services to hospitals, health systems,
physicians, managed care organizations, academic medical centers,
colleges, universities, and pharmaceutical and medical device
manufacturers. This segment’s professionals develop and implement
solutions to help clients address financial management, strategy,
operational and organizational effectiveness, research administration, and
regulatory compliance. |
- 11
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
amounts in thousands, except per share amounts)
| · |
Corporate
Consulting.
This segment leads clients through various stages of transformation that
result in measurable and sustainable performance improvement. This
segment works with clients to solve complex business problems
and implements strategies and solutions to effectively address
and manage stagnant or declining stock price, acquisitions and
divestitures, process inefficiency, third party contracting difficulties,
lack of or misaligned performance measurements, margin and cost pressures,
performance issues, bank defaults, covenant violations and liquidity
issues. |
Segment
operating income consists of the revenues generated by a segment, less the
direct costs of revenue and selling, general and administrative costs that are
incurred directly by the segment. Unallocated corporate costs include costs
related to administrative functions that are performed in a centralized manner
that are not attributable to a particular segment. These administrative function
costs include costs for corporate office support, office facility costs, costs
relating to accounting and finance, human resources, legal, marketing,
information technology and company-wide business development functions, as well
as costs related to overall corporate management.
The table
below sets forth information about the Company’s operating segments along with
the items necessary to reconcile the segment information to the totals reported
in the accompanying consolidated financial statements. Segment information for
the three and six months ended June 30, 2006 have been restated to reflect
the new operating segment structure.
- 12
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
amounts in thousands, except per share amounts)
|
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
||||||||||||
|
2007 |
2006 |
2007 |
2006 |
||||||||||
|
Legal
Financial Consulting: |
|||||||||||||
|
Revenues |
$ |
32,669 |
$ |
23,981 |
$ |
69,281 |
$ |
50,030 |
|||||
|
Operating
income |
$ |
15,281 |
$ |
11,186 |
$ |
31,456 |
$ |
22,889 |
|||||
|
Segment
operating income as a percent of
segment
revenues |
46.8 |
% |
46.6 |
% |
45.4 |
% |
45.8 |
% | |||||
|
Legal
Operational Consulting: |
|||||||||||||
|
Revenues |
$ |
22,795 |
$ |
9,219 |
$ |
46,066 |
$ |
16,769 |
|||||
|
Operating
income |
$ |
7,272 |
$ |
2,630 |
$ |
15,174 |
$ |
4,787 |
|||||
|
Segment
operating income as a percent of
segment
revenues |
31.9 |
% |
28.5 |
% |
32.9 |
% |
28.5 |
% | |||||
|
Health
and Education Consulting: |
|||||||||||||
|
Revenues |
$ |
42,810 |
$ |
20,716 |
$ |
81,662 |
$ |
39,140 |
|||||
|
Operating
income |
$ |
14,021 |
$ |
6,435 |
$ |
26,221 |
$ |
11,723 |
|||||
|
Segment
operating income as a percent of
segment
revenues |
32.8 |
% |
31.1 |
% |
32.1 |
% |
30.0 |
% | |||||
|
Corporate
Consulting: |
|||||||||||||
|
Revenues |
$ |
19,992 |
$ |
13,853 |
$ |
37,266 |
$ |
24,017 |
|||||
|
Operating
income |
$ |
5,920 |
$ |
4,614 |
$ |
10,116 |
$ |
8,221 |
|||||
|
Segment
operating income as a percent of
segment
revenues |
29.6 |
% |
33.3 |
% |
27.1 |
% |
34.2 |
% | |||||
|
Total
Company: |
|||||||||||||
|
Revenues |
$ |
118,266 |
$ |
67,769 |
$ |
234,275 |
$ |
129,956 |
|||||
|
Reimbursable
expenses |
10,910 |
6,691 |
20,945 |
12,130 |
|||||||||
|
Total
revenues and reimbursable expenses |
$ |
129,176 |
$ |
74,460 |
$ |
255,220 |
$ |
142,086 |
|||||
|
Statement
of operations reconciliation: |
|||||||||||||
|
Segment
operating income |
$ |
42,494 |
$ |
24,865 |
$ |
82,967 |
$ |
47,620 |
|||||
|
Charges
not allocated at the segment level: |
|||||||||||||
|
Other
selling, general and administrative expenses |
18,550 |
11,989 |
36,066 |
23,563 |
|||||||||
|
Depreciation
and amortization |
4,177 |
1,569 |
8,219 |
3,077 |
|||||||||
|
Other
expense (income) |
1,730 |
193 |
3,125 |
(39 |
) | ||||||||
|
Income
before provision for income taxes |
$ |
18,037 |
$ |
11,114 |
$ |
35,557 |
$ |
21,019 |
|||||
|
As
of |
|||||||||||||
|
Segment
assets: |
Jun
30, 2007 |
Dec
31, 2006 |
|||||||||||
|
Legal
Financial Consulting |
$ |
23,144 |
$ |
17,659 |
|||||||||
|
Legal
Operational Consulting |
28,606 |
16,273 |
|||||||||||
|
Health
and Education Consulting |
26,798 |
17,940 |
|||||||||||
|
Corporate
Consulting |
21,692 |
12,603 |
|||||||||||
|
Unallocated
assets (1) |
234,835 |
134,969 |
|||||||||||
|
Total
assets |
$ |
335,075 |
$ |
199,444 |
|||||||||
| (1) |
Goodwill
and intangible assets are included in unallocated assets, as the Company
does not allocate these items in assessing segment performance or in
allocating resources. |
- 13
- -
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
amounts in thousands, except per share amounts)
11. Subsequent
Events
On
July 27, 2007, the Company executed a fourth amendment to the credit
agreement dated June 7, 2006. Pursuant to the fourth amendment, the maximum
amount of
principal that may be borrowed was increased from $175.0 million to
$200.0 million.
No other
key terms of the credit agreement were modified under the fourth amendment. On
July 30, 2007, the Company borrowed $58.5 million to fund its
acquisition of Callaway Partners, LLC described below. After consideration of
this borrowing, the aggregate amount of borrowings outstanding as of
August 1, 2007 totaled $162.5 million and bears a current
weighted-average interest rate of 6.1%.
On
July 29, 2007, the Company acquired Callaway Partners, LLC (“Callaway”), an
accounting and finance professional services firm based in Atlanta, GA. Callaway
specializes in project management and staff augmentation for clients, focusing
on general accounting/finance support, accounting and SEC reporting advisory
services, internal audit, Sarbanes-Oxley compliance and corporate tax. Under the
terms of the purchase agreement, the Company acquired substantially all of the
assets of Callaway for a purchase price at closing of approximately
$60.0 million in cash, subject to standard post-closing adjustments.
Additional purchase consideration is payable in cash if specific performance
targets are met over the five-year period beginning on January 1, 2008 and
ending on December 31, 2012.
- 14
- -
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In this
Quarterly Report on Form 10-Q, unless the context otherwise requires, the
terms “Huron,” “Company,” “we,” “us” and “our” refer to Huron Consulting Group
Inc. and its subsidiaries.
This
Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are identified by
words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” or “continues” or the negative of such terms or other comparable
terminology. These forward-looking statements reflect our current expectation
about our future results, levels of activity, performance or achievements,
including without limitation, that our business continues to grow at the current
expectations with respect to, among other factors, utilization and billing
rates, number of revenue-generating professionals; that we are able to expand
our service offerings; that we
successfully integrate the businesses we acquire; and that
existing market conditions do not change from current expectations. These
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. Please
see “Risk Factors” in our 2006 annual report on Form 10-K for a complete
description of the material risks we face.
OVERVIEW
Our
History
Huron was
formed in March 2002 and commenced operations in May 2002. We were founded by a
core group of experienced financial and operational consultants that consisted
primarily of former Arthur Andersen LLP partners and professionals. In October
2004, we completed our initial public offering (“IPO”) and became a publicly
traded company.
Since the
date of our IPO through December 31, 2006, we completed the following
significant acquisitions:
| · |
In
May 2005, we acquired Speltz & Weis LLC (“Speltz & Weis,” renamed
in 2007 as Wellspring Management Services LLC), a specialized consulting
firm that provides interim management and crisis management services to
healthcare facilities. |
| · |
In
April 2006, we acquired MSGalt & Company, LLC (“Galt”), a specialized
advisory firm that designs and implements corporate-wide programs to
improve shareholder returns. |
| · |
In
July 2006, we acquired Document Review Consulting Services LLC (“DRCS”), a
consulting firm that provides comprehensive document review using
experienced contract reviewers. |
| · |
Also
in July 2006, we acquired Aaxis Technologies Inc. (“Aaxis”). Aaxis
provides full-service electronic data discovery support to litigation
teams and corporate counsel with a focus on forensics and data gathering,
end-to-end data processing, and information
consulting. |
During
the first six months of 2007, we completed two additional significant
acquisitions:
| · |
In
January 2007, we acquired Wellspring Partners LTD (“Wellspring”), a
management consulting firm specializing in integrated performance
improvement services for hospitals and health systems. With the
acquisition of Wellspring, we expanded our national presence in the
healthcare provider sector. This acquisition was consummated on
January 2, 2007 and the results of operations of Wellspring have been
included within our Health and Education Consulting operating segment
since that date. |
The
aggregate purchase price of this acquisition was approximately
$67.5 million, consisting of $64.7 million in cash paid at closing,
$0.4 million of transaction costs, a $2.1 million working capital
adjustment, and $0.3 million holdback of the purchase price that will be
paid in the second half of 2007. We financed this acquisition with a combination
of cash on hand and borrowings of $55.0 million under our bank credit
agreement. Additional purchase consideration may be payable if specific
performance targets are met over a
- 15
- -
five-year
period. Such amounts will be recorded as additional purchase price and an
adjustment to goodwill.
| · |
Also
in January 2007, we acquired Glass & Associates, Inc. (“Glass”), a
turnaround and restructuring consulting firm that provides advice and
leadership to troubled businesses in the United States and Europe. With
the acquisition of Glass, we expanded our position in the consulting and
restructuring marketplace, as well as expanded our interim management
capabilities to distressed companies in industries beyond healthcare. The
stock purchase agreement for this acquisition was executed on
January 2, 2007 and the transaction was consummated on
January 9, 2007 upon the satisfaction of certain closing conditions.
The results of operations of Glass have been included within our Corporate
Consulting operating segment since January 2,
2007. |
The
aggregate purchase price of this acquisition was approximately
$32.8 million, consisting of $30.0 million in cash paid at closing,
$0.7 million of transaction costs, a $1.2 million working capital
adjustment, and $0.9 million of additional purchase consideration earned by
Glass during the first six months of 2007 subsequent to the acquisition. We
financed this acquisition with a combination of cash on hand and borrowings of
$20.0 million under our bank credit agreement. Additional purchase
consideration may be payable if specific performance targets are met over a
four-year period. Such amounts will be recorded as additional purchase price and
an adjustment to goodwill. Also, additional payments may be made based on the
amount of revenues the Company receives from referrals made by certain employees
of Glass over a four-year period. Such amounts will be recorded as an
expense.
Our
Business
Huron is
an independent provider of financial and operational consulting services, with
clients that include Fortune 500 companies, medium-sized businesses, leading
academic institutions, healthcare organizations and the law firms that represent
these various organizations.
Historically,
we provided our services through two operating segments: Financial Consulting
and Operational Consulting. In response to our continued growth and acquisitions
of complementary businesses, effective January 1, 2007, we reorganized our
practice areas and service lines to better meet market demands and serve our
clients. Under the new organizational structure, we manage our business under
four operating segments as follows.
| · |
Legal
Financial Consulting. This
segment assists corporations with complex accounting and financial
reporting matters, financial analysis in business disputes and litigation,
as well as valuation analysis related to business acquisitions. This
segment is comprised of certified public accountants, economists,
certified fraud examiners, chartered financial analysts and valuation
experts that serve attorneys and corporations as expert
witnesses and consultants in connection with business disputes, as well as
in regulatory or internal investigations. |
| · |
Legal
Operational Consulting. This
segment provides guidance and business services to corporate law
departments, law firms and government agencies by helping to reduce legal
spending, enhance client service delivery and increase operational
effectiveness. These services include digital evidence and discovery
services, document review, law firm management services, records
management, and strategy and operational
improvements. |
| · |
Health
and Education Consulting.
This segment provides consulting services to hospitals, health systems,
physicians, managed care organizations, academic medical centers,
colleges, universities, and pharmaceutical and medical device
manufacturers. This segment’s professionals develop and implement
solutions to help clients address financial management, strategy,
operational and organizational effectiveness, research administration, and
regulatory compliance. |
| · |
Corporate
Consulting.
This segment leads clients through various stages of transformation that
result in measurable and sustainable performance improvement. This
segment works with clients to solve complex business problems
and implements strategies and solutions to effectively address
and manage stagnant or declining stock price, acquisitions and
divestitures, process inefficiency, third party contracting difficulties,
lack of or misaligned performance measurements, margin and cost pressures,
performance issues, bank defaults, covenant violations and liquidity
issues. |
- 16
- -
The
majority of our revenues are generated by our billable consultants who provide
consulting services to our clients. A smaller portion of our revenues is
generated by our other professionals, consisting of our document review and
electronic data discovery groups, who generate revenues primarily based on
number of hours worked and units produced, such as pages reviewed or data
processed. We refer to our billable consultants and other professionals
collectively as revenue-generating professionals. Additionally, we utilize
independent contractors to supplement our full-time professionals.
Consulting
services revenues are primarily driven by the number of billable consultants we
employ and their utilization rates, as well as the billing rates we charge our
clients. Revenues generated by our document review and electronic data discovery
groups are largely dependent on the number of professionals and independent
contractors we employ, their utilization and billing rates charged, as well as
the number of pages reviewed and amount of data processed.
We also
bill our clients for reimbursable expenses such as travel and out-of-pocket
costs incurred in connection with engagements. We manage our business on the
basis of revenues before reimbursable expenses. We believe this is the most
accurate reflection of our services because it eliminates the effect of these
reimbursable expenses that we bill to our clients at cost.
Most of
our revenues are generated based on either the number of hours incurred
by our
billable consultants and independent contractors, or the number of hours
incurred or units produced by our other professionals at
agreed upon rates. We refer to these types of arrangements collectively as time
and expense engagements. Time and expense engagements represented 71.2% and
78.6% of our revenues in the three months ended June 30, 2007 and 2006,
respectively, and 74.2% and 82.8% in the six months ended June 30, 2007 and
2006, respectively.
In fixed
fee engagements, we agree to a pre-established fee in exchange for a
pre-determined set of consulting services. We set the fees based on our
estimates of the costs and timing for completing the fixed fee engagements. It
is the client’s expectation in these engagements that the pre-established fee
will not be exceeded except in mutually agreed upon circumstances. For the three
months ended June 30, 2007 and 2006, fixed fee engagements represented
27.3% and 17.1% of our revenues, respectively; while they represented 24.6% and
13.9% of our revenues in the six months ended June 30, 2007 and 2006,
respectively. The increase primarily reflects the billing practices of
Wellspring, which we acquired in 2007 and which has a larger percentage of fixed
fee engagements.
Performance-based
fee engagements generally tie fees to the attainment of contractually defined
objectives. We enter into performance-based engagements in essentially two
forms. First, we generally earn fees that are directly related to the savings
formally acknowledged by the client as a result of adopting our recommendations
for improving cost effectiveness in the procurement area. Second, we have
performance-based engagements in which we earn a success fee when and if certain
pre-defined outcomes occur. Often this type of success fee supplements time and
expense or fixed fee engagements. While performance-based fee revenues
represented only 1.5% and 4.3% of our revenues for the three months ended
June 30, 2007 and 2006, respectively, and 1.2% and 3.3% for the six months
ended June 30, 2007 and 2006, respectively, such revenues in the future may
cause significant variations in quarterly revenues and operating results due to
the timing of achieving the performance-based criteria.
Business
Strategy, Opportunities and Challenges
Our
primary strategy is to meet the needs of our clients by providing a balanced
portfolio of service offerings and capabilities, so that we can adapt quickly
and effectively to emerging opportunities in the marketplace. To achieve this,
we have entered into select acquisitions of complementary businesses and
continue to hire highly qualified revenue-generating professionals. Since we
commenced operations, we have increased the number of our revenue-generating
professionals from 213 on May 31, 2002 to 1,002 as of June 30, 2007. To
expand our business, we will remain focused on growing our existing
relationships and developing new relationships, continue to promote and provide
an integrated approach to service delivery, broaden the scope of our existing
services, and continue to acquire complementary businesses. Additionally, we
intend to enhance our visibility in the marketplace by continuing to build our
brand.
- 17
- -
CRITICAL ACCOUNTING POLICIES
Management’s
discussion and analysis of financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America, or GAAP. The preparation of financial statements in conformity with
GAAP requires management to make assessments, estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Critical accounting policies are those policies that we believe present
the most complex or subjective measurements and have the most potential to
impact our financial position and operating results. While all decisions
regarding accounting policies are important, we believe that there are five
accounting policies that could be considered critical. These critical accounting
policies relate to revenue recognition, allowances for doubtful accounts and
unbilled services, carrying values of goodwill and other intangible assets,
valuation of net deferred tax assets, and share-based compensation.
Revenue
Recognition
We
recognize revenues in accordance with Staff Accounting Bulletin, or SAB, No.
101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104,
“Revenue Recognition.” Revenue is recognized when persuasive evidence of an
arrangement exists, the related services are provided, the price is fixed or
determinable and collectibility is reasonably assured. Our services are
primarily rendered under arrangements that require the client to pay based on
the hours incurred by our revenue-generating professionals, the number of pages
reviewed by our document review group, or the amount of data processed by our
electronic data discovery group at agreed-upon rates, which are recognized as
services are provided. Revenues related to fixed-fee engagements are recognized
based on estimates of services provided versus the total services to be provided
under the engagement. Losses, if any, on fixed fee engagements are recognized in
the period in which the loss first becomes probable and reasonably estimable. To
date, such losses have not been significant. Revenues earned from
performance-based engagements are recognized when all performance-based criteria
are met. We also have contracts with clients to deliver multiple services that
are covered under both individual and separate engagement letters. These
arrangements allow for our services to be valued and accounted for on a separate
basis. We recognize reimbursable expenses related to time and expense and fixed
fee engagements as revenue in the period in which the expense is incurred. We
recognize reimbursable expenses subject to performance-based criteria as revenue
when all performance criteria are met. We recognize direct costs incurred on all
types of engagements, including performance-based engagements, in the period in
which incurred.
We record
differences between the timing of billings and the recognition of revenue as
either unbilled services or deferred revenue. We record revenues recognized for
services performed but not yet billed to clients as unbilled services. We record
amounts billed to clients but not yet recognized as revenues as deferred
revenue. We also classify client prepayments and retainers that are unearned as
deferred revenue and recognize over future periods as earned in accordance with
the applicable engagement agreement.
Allowances
for Doubtful Accounts and Unbilled Services
We
maintain allowances for doubtful accounts and for services performed but not yet
billed for estimated losses based on several factors, including the historical
percentages of fee adjustments and write-offs by practice group, an assessment
of a client’s ability to make required payments and the estimated cash
realization from amounts due from clients. The allowances are assessed by
management on a regular basis. If the financial condition of a client
deteriorates in the future, impacting the client’s ability to make payments, an
increase to our allowance might be required or our allowance may not be
sufficient to cover actual write-offs.
We record
the provision for doubtful accounts and unbilled services as a reduction in
revenue to the extent the provision relates to fee adjustments and other
discretionary pricing adjustments. To the extent the provision relates to a
client’s inability to make required payments on accounts receivables, we record
the provision in operating expenses.
- 18
- -
Carrying Values of Goodwill and Other Intangible Assets
Goodwill
represents the excess of the cost of an acquired entity over the net of the
amounts assigned to assets acquired and liabilities assumed. Our goodwill
balance as of June 30, 2007 was $137.8 million, which resulted from
our acquisitions. Pursuant to the provisions of Statement of Financial
Accounting Standards, or SFAS, No. 142, “Goodwill and Other Intangible
Assets,” we test goodwill for impairment annually or whenever indications of
impairment arise, such as loss of key personnel, unanticipated competition, or
other unforeseen developments. Impairment exists when the carrying amount of
goodwill exceeds its implied fair value, resulting in an impairment charge for
this excess. An impairment test involves considerable management judgment and
estimates regarding future operating results and cash flows. Pursuant to our
policy, we performed the annual goodwill assessment as of April 30, 2007
and determined that no impairment of goodwill existed as of that date. Further,
no indications of impairment have arisen since that date.
Intangible
assets represent purchased assets that lack physical substance but can be
distinguished from goodwill. Our intangible assets, net of accumulated
amortization, totaled $15.0 million at June 30, 2007, and consist of
customer contracts, customer relationships, non-competition agreements, a
tradename, as well as technology and software. We use valuation techniques in
estimating the initial fair value of acquired intangible assets. These
valuations are primarily based on the present value of the estimated net cash
flows expected to be derived from the client contracts and relationships,
discounted for assumptions about future customer attrition. We evaluate our
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
Therefore, higher or earlier-than-expected customer attrition may result in
higher future amortization charges or an impairment charge for customer-related
intangible assets.
Valuation
of Net Deferred Tax Assets
We have
recorded net deferred tax assets as we expect to realize future tax benefits
related to the utilization of these assets. Although we experienced net losses
early in our history, no valuation allowance has been recorded relating to these
deferred tax assets because we believe that it is more likely than not that
future taxable income will be sufficient to allow us to utilize these assets.
Should we determine in the future that we will not be able to fully utilize all
or part of these deferred tax assets, we would need to establish a valuation
allowance, which would be recorded as a charge to income in the period the
determination was made. While utilization of these deferred tax assets will
provide future cash flow benefits, they will not have an effect on future income
tax provisions.
Share-based
Compensation
Effective
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based
Payment,” which requires that companies recognize compensation expense for
grants of stock, stock options and other equity instruments based on fair
value. Given
the lack of a public market for our common stock prior to our IPO, we
established an estimated fair value of the common stock as well as the exercise
price for the options to purchase this stock. We estimated the fair value of our
common stock by evaluating our results of business activities and projections of
our future results of operations.
RESULTS
OF OPERATIONS
As
previously described, historically we have provided our services through two
operating segments: Financial Consulting and Operational Consulting. In response
to our continued growth and acquisitions of complementary businesses, effective
January 1, 2007, we reorganized our practice areas and service lines to
better meet market demands and serve our clients. Under the new organizational
structure, we manage our business under four operating segments: Legal Financial
Consulting, Legal Operational Consulting, Health and Education Consulting, and
Corporate Consulting.
The table
below sets forth selected segment and consolidated operating results and other
operating data for the periods indicated. Segment information for the three and
six months ended June 30, 2006 have been restated to reflect the new
operating segment structure. Segment operating income consists of the revenues
generated by a segment, less the direct costs of revenue and selling, general
and administrative costs that are incurred directly by the segment. Unallocated
corporate costs include costs related to administrative functions that are
performed in a centralized manner that are not attributable to a particular
segment.
- 19
- -
|
Segment
and Consolidated Operating Results |
Three
Months Ended
June 30, |
Six
Months Ended
June 30, |
|||||||||||
|
(in
thousands): |
2007 |
2006 |
2007 |
2006 |
|||||||||
|
Revenues and reimbursable expenses: |
|||||||||||||
|
Legal
Financial Consulting |
$ |
32,669 |
$ |
23,981 |
$ |
69,281 |
$ |
50,030 |
|||||
|
Legal
Operational Consulting (1) |
22,795 |
9,219 |
46,066 |
16,769 |
|||||||||
|
Health
and Education Consulting |
42,810 |
20,716 |
81,662 |
39,140 |
|||||||||
|
Corporate
Consulting |
19,992 |
13,853 |
37,266 |
24,017 |
|||||||||
|
Total
revenues |
118,266 |
67,769 |
234,275 |
129,956 |
|||||||||
|
Total
reimbursable expenses |
10,910 |
6,691 |
20,945 |
12,130 |
|||||||||
|
Total
revenues and reimbursable expenses |
$ |
129,176 |
$ |
74,460 |
$ |
255,220 |
$ |
142,086 |
|||||
|
Operating
income: |
|||||||||||||
|
Legal
Financial Consulting |
$ |
15,281 |
$ |
11,186 |
$ |
31,456 |
$ |
22,889 |
|||||
|
Legal
Operational Consulting |
7,272 |
2,630 |
15,174 |
4,787 |
|||||||||
|
Health
and Education Consulting |
14,021 |
6,435 |
26,221 |
11,723 |
|||||||||
|
Corporate
Consulting |
5,920 |
4,614 |
10,116 |
8,221 |
|||||||||
|
Total
segment operating income |
42,494 |
24,865 |
82,967 |
47,620 |
|||||||||
|
Unallocated
corporate costs |
18,550 |
11,989 |
36,066 |
23,563 |
|||||||||
|
Depreciation
and amortization expense |
4,177 |
1,569 |
8,219 |
3,077 |
|||||||||
|
Total
operating expenses |
22,727 |
13,558 |
44,285 |
26,640 |
|||||||||
|
Operating
income |
$ |
19,767 |
$ |
11,307 |
$ |
38,682 |
$ |
20,980 |
|||||
|
Other
Operating Data: |
|||||||||||||
|
Number
of revenue-generating professionals
(at
period end)
(2): |
|||||||||||||
|
Legal
Financial Consulting - Billable Consultants |
291 |
225 |
|||||||||||
|
Legal
Operational Consulting - Billable Consultants |
126 |
112 |
|||||||||||
|
Legal
Operational Consulting - Other Professionals (1) |
62 |
¾ |
|||||||||||
|
Health
and Education Consulting - Billable Consultants |
355 |
220 |
|||||||||||
|
Corporate
Consulting - Billable Consultants |
168 |
113 |
|||||||||||
|
Total |
1,002 |
670 |
|||||||||||
|
Average number of revenue-generating professionals
(for
the period) (2): |
|||||||||||||
|
Legal
Financial Consulting - Billable Consultants |
288 |
223 |
284 |
225 |
|||||||||
|
Legal
Operational Consulting - Billable Consultants |
122 |
110 |
122 |
107 |
|||||||||
|
Legal
Operational Consulting - Other Professionals (1) |
59 |
¾ |
55 |
¾ |
|||||||||
|
Health
and Education Consulting - Billable Consultants |
356 |
211 |
350 |
210 |
|||||||||
|
Corporate
Consulting - Billable Consultants |
170 |
111 |
170 |
106 |
|||||||||
|
Total |
995 |
655 |
981 |
648 |
|||||||||
|
Billable consultant utilization rate (3): |
|||||||||||||
|
Legal
Financial Consulting |
74.6 |
% |
73.4 |
% |
79.8 |
% |
78.8 |
% | |||||
|
Legal
Operational Consulting (1) |
79.0 |
% |
74.6 |
% |
77.3 |
% |
71.3 |
% | |||||
|
Health
and Education Consulting |
80.5 |
% |
80.2 |
% |
79.4 |
% |
79.1 |
% | |||||
|
Corporate
Consulting |
77.1 |
% |
78.5 |
% |
72.7 |
% |
75.3 |
% | |||||
|
Total |
77.9 |
% |
76.7 |
% |
78.0 |
% |
77.1 |
% | |||||
|
Average billing rate per hour (4): |
|||||||||||||
|
Legal
Financial Consulting |
$ |
315 |
$ |
301 |
$ |
306 |
$ |
292 |
|||||
|
Legal
Operational Consulting (1) |
$ |
249 |
$ |
236 |
$ |
244 |
$ |
231 |
|||||
|
Health
and Education Consulting |
$ |
256 |
$ |
239 |
$ |
252 |
$ |
230 |
|||||
|
Corporate
Consulting |
$ |
313 |
$ |
341 |
$ |
304 |
$ |
321 |
|||||
|
Total |
$ |
283 |
$ |
276 |
$ |
277 |
$ |
266 |
|||||
- 20
- -
| (1) |
Legal
Operational Consulting revenues include revenues generated by our document
review and processing groups (Legal Operational Consulting - Other
Professionals) for the three and six months ended June 30, 2007.
Utilization rate and average billing rate per hour are not presented for
these professionals as they are not meaningful
measures. |
| (2) |
Revenue-generating
professionals consist of our billable consultants and other professionals.
Billable consultants generate revenues primarily based on number of hours
worked while our other professionals generate revenues based on number of
hours worked and units produced, such as pages reviewed and data
processed. Revenue-generating professionals exclude interns and
independent contractors. |
| (3) |
We
calculate the utilization rate for our billable consultants by dividing
the number of hours all our consultants worked on client assignments
during a period by the total available working hours for all of our
consultants during the same period, assuming a forty-hour work week, less
paid holidays and vacation days. |
| (4) |
For
engagements where revenues are based on number of hours worked by our
billable consultants, average billing rate per hour is calculated by
dividing revenues for a period by the number of hours worked (excluding
interns and independent contractor hours) on client assignments during the
same period. |
Three
Months Ended June 30, 2007 Compared to Three Months Ended June 30,
2006
Revenues
Revenues
increased $50.5 million, or 74.5%, to $118.3 million for the three months ended
June 30, 2007 from $67.8 million for the three months ended June 30,
2006. Revenues for the three months ended June 30, 2007 included revenues
generated by DRCS, Aaxis, Wellspring, and Glass, all of which we acquired
subsequent to June 30, 2006. Revenues from time and expense engagements
increased $30.9 million, or 58.0%, to $84.2 million for the second quarter
of 2007 from $53.3 million for the second quarter of 2006. Revenues from
fixed fee engagements increased $20.7 million, or 178.4%, to $32.3 million
for the three months ended June 30, 2007 from $11.6 million for the three
months ended June 30, 2006. Revenues from performance-based engagements
decreased $1.1 million, or 37.9%, to $1.8 million for the three months
ended June 30, 2007 from $2.9 million for the three months ended
June 30, 2006.
Of the
overall $50.5 million increase in revenues, $31.9 million was attributable
to our billable consultants and $18.6 million was attributable to our
document review and processing groups, as well as increased usage of independent
contractors. Of the $31.9 million increase in billable consultant revenues,
$28.5 million was attributable to an increase in the number of billable
consultants, $1.0 million was attributable to an increase in the
utilization rate of our billable consultants, and $2.4 million was
attributable to an increase in the average billing rate per hour. The
increases were reflective of growing demand for our services from new and
existing clients and our acquisitions. The average number of billable
consultants increased to 936 for the three months ended June 30, 2007 from
655 for the three months ended June 30, 2006, as we added a significant
number of billable consultants through our acquisitions. Our billable consultant
utilization rate increased to 77.9% for the three months ended June 30,
2007 from 76.7% for the three months ended June 30, 2006. The utilization
rate for any given period is calculated by dividing the number of hours all our
billable consultants worked on client assignments during the period by the total
available working hours for all of our billable consultants during the same
period, assuming a 40-hour work week, less paid holidays and vacation days. Our
average billing rate per hour for engagements where revenues are based on number
of hours worked by our billable consultants increased 2.5% to $283 for the three
months ended June 30, 2007 from $276 for the three months ended
June 30, 2006. Average billing rate per hour for any given period is
calculated by dividing revenues for the period by the number of hours worked by
our billable consultants on client assignments during the same
period.
Total
Direct Costs
Our
direct costs increased $29.1 million, or 77.7%, to $66.5 million in the
three months ended June 30, 2007 from $37.4 million in the three
months ended June 30, 2006. Approximately $16.9 million of the
increase was attributable to the increase in the average number of
revenue-generating professionals, the promotion of our employees during the
year, including 16 to the managing director level effective January 1,
2007, and their related compensation and benefit costs. Additionally,
$8.6 million of the increase in direct costs was attributable to an
increased usage of independent contractors. Share-based compensation expense
associated with our revenue-generating professionals increased
$1.1 million, or 64.7%, to $2.8 million in the second quarter of 2007
from $1.7 million in the second quarter of 2006. We expect to continue to
hire additional managing directors, as well as hire additional managers,
associates and analysts to expand support for our existing practices and better
leverage our managing directors and directors. As such, we expect direct costs
will continue to increase in the near term.
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Total
direct costs for the three months ended June 30, 2007 included
$2.3 million of intangible assets amortization expense, primarily
attributable to customer contracts acquired in connection with the acquisitions
of Wellspring and Glass.
Operating
Expenses
Selling,
general and administrative expenses increased $9.9 million, or 63.0%, to $25.6
million in the three months ended June 30, 2007 from $15.7 million in the
three months ended June 30, 2006. Of the $9.9 million increase,
$2.5 million was attributable to higher salaries and related benefit costs,
$1.7 million was due to higher marketing spending, $0.9 million was
due to increased severance costs, and $0.7 million was attributable to
increased facilities costs. Share-based compensation expense associated with our
non-revenue-generating professionals increased $1.3 million, or 162.5%, to
$2.1 million in the second quarter of 2007 from $0.8 million in the
second quarter of 2006.
Depreciation
expense increased $1.2 million, or 85.7%, to $2.6 million in the three
months ended June 30, 2007 from $1.4 million in the three months ended
June 30, 2006 as computers, network equipment, furniture and fixtures, and
leasehold improvements were added to support our increase in employees.
Non-direct intangible assets amortization expense for the three months ended
June 30, 2007 and 2006 was $1.6 million and $0.2 million,
respectively. The increase in 2007 was attributable to amortization of
intangible assets, including customer relationships, non-competition agreements
and a tradename, acquired in connection with our acquisitions subsequent to
June 30, 2006.
Operating
Income
Operating
income increased $8.5 million, or 74.8%, to $19.8 million for the
three months ended June 30, 2007 from $11.3 million for the three
months ended June 30, 2006. The increase in operating income was
attributable to the factors discussed above under Revenues, Total Direct Costs
and Operating Expenses. Operating margin, defined as operating income expressed
as a percentage of revenues, remained steady at 16.7% in the three months ended
June 30, 2007 compared to the three months ended June 30,
2006.
Net
Income
Net
income increased $3.8 million, or 60.8%, to $10.1 million for the
three months ended June 30, 2007 from $6.3 million for the three
months ended June 30, 2006. Diluted earnings per share increased to $0.56
for the three months ended June 30, 2007 from $0.36 for the comparable
period last year.
Segment
Results
Legal
Financial Consulting
Revenues
Legal
Financial Consulting segment revenues increased $8.7 million, or 36.2%, to $32.7
million for the three months ended June 30, 2007 from $24.0 million for the
three months ended June 30, 2006. Revenues from time and expense
engagements increased $8.5 million, or 36.0%, to $32.1 million for the three
months ended June 30, 2007 from $23.6 million for the three months
ended June 30, 2006. Revenues from fixed fee engagements increase $0.2
million, or 50.0%, to $0.6 million for the three months ended June 30,
2007 from $0.4 million for the three months ended June 30, 2006.
Of the
overall $8.7 million increase in revenues, $7.1 million was attributable to
an increase in the number of billable consultants, $0.5 million was
attributable to an increase in the utilization rate of our billable consultants,
and $1.4 million was attributable to an increase in the average billing
rate per hour, partially offset by a $0.3 million decrease in independent
contractor revenues. The average number of billable consultants increased to 288
for the three months ended June 30, 2007 from 223 for the three months
ended June 30, 2006. The average billing rate per hour increased 4.7% to
$315 for the second quarter of 2007 from $301 for the second quarter of 2006.
The utilization rate increased to 74.6% for the three months ended June 30,
2007 from 73.4% for the comparable period last year.
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Operating
Income
Legal
Financial Consulting segment operating income increased $4.1 million, or
36.6%, to $15.3 million in the three months ended June 30, 2007 from
$11.2 million in the three months ended June 30, 2006. Segment operating
margin, defined as segment operating income expressed as a percentage of segment
revenues, remained steady at 46.8% for the second quarter of 2007 compared to
46.6% in the same period last year.
Legal
Operational Consulting
Revenues
Legal
Operational Consulting segment revenues increased $13.6 million, or 147.3%, to
$22.8 million for the three months ended June 30, 2007 from $9.2 million
for the three months ended June 30, 2006. Revenues for the second quarter
of 2007 included revenues generated by DRCS and Aaxis while revenues for the
second quarter of 2006 did not. Revenues from time and expense engagements
increased $13.3 million, or 175.0%, to $20.9 million for the three months
ended June 30, 2007 from $7.6 million for the comparable period last
year. Revenues from fixed fee engagements increased $0.6 million, or 66.7%,
to $1.5 million for the three months ended June 30, 2007 from
$0.9 million for the three months ended June 30, 2006. Revenues from
performance-based engagements decreased $0.3 million, or 42.9%, to $0.4 million
for the second quarter of 2007 from $0.7 million for the second quarter of
2006.
Of the
overall $13.6 million increase in revenues, $1.5 million was attributable to our
billable consultants and $12.1 million was attributable to our document
review and processing groups, as well as independent contractors supporting our
billable consultants. Of the $1.5 million, $0.3 million was
attributable to an increase in the number of billable consultants,
$0.7 million was attributable to an increase in the utilization rate of our
billable consultants, and $0.5 million was attributable to an increase in
the average billing rate per hour. The average number of billable consultants
increased to 122 for the second quarter of 2007 from 110 for the second quarter
of 2006, while the average number of other revenue-generating professionals was
59 for the three months ended June 30, 2007. The billable consultant
utilization rate increased to 79.0% for the three months ended June 30,
2007 from 74.6% for the three months ended June 30, 2006. The average
billing rate per hour for engagements where revenues are based on number of
hours worked by our billable consultants increased 5.5% to $249 for the second
quarter of 2007 from $236 for the comparable period last year.
Operating
Income
Legal
Operational Consulting segment operating income increased $4.7 million, or
176.5%, to $7.3 million for the three months ended June 30, 2007 from
$2.6 million for the three months ended June 30, 2006. Segment
operating margin increased to 31.9% for the second quarter of 2007 from 28.5% in
the same period last year primarily due to improved utilization of our billable
consultants, particularly at the analyst and associate levels.
Health
and Education Consulting
Revenues
Health
and Education Consulting segment revenues increased $22.1 million, or 106.7%, to
$42.8 million for the three months ended June 30, 2007 from $20.7 million
for the three months ended June 30, 2006. Revenues for the second quarter
of 2007 included revenues generated by Wellspring while revenues for the second
quarter of 2006 did not. Revenues from time and expense engagements increased
$6.8 million, or 45.0%, to $21.9 million for the three months ended
June 30, 2007 from $15.1 million for the three months ended
June 30, 2006. Revenues from fixed fee engagements increased $16.5 million,
or 423.1%, to $20.4 million for the three months ended June 30, 2007
from $3.9 million for the comparable period last year. Revenues from
performance-based engagements decreased $1.2 million, or 70.6%, to $0.5 million
for the second quarter of 2007 from $1.7 million for the second quarter of
2006.
Of the
overall $22.1 million increase in revenues, $13.3 million was attributable
to an increase in the number of billable consultants, $2.3 million was
attributable to an increase in the average billing rate per hour, and
$6.5 million was attributable to an increase in the usage of independent
contractors. The average number of billable consultants increased to 356 for the
three months ended June 30, 2007 from 211 for the three months ended
June 30, 2006, a portion of which was due to the acquisition of 65
Wellspring professionals. The average billing rate per hour increased 7.1% to
$256 for the second quarter of 2007 from $239 for the second quarter of 2006.
The utilization rate
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increased
slightly to 80.5% for the second quarter of 2007 from 80.2% for the second
quarter of 2006.
Operating
Income
Health
and Education Consulting segment operating income increased $7.6 million,
or 117.9%, to $14.0 million in the three months ended June 30, 2007
from $6.4 million in the three months ended June 30, 2006. Segment
operating margin increased to 32.8% for the second quarter of 2007 from 31.1% in
the same period last year, primarily due to higher revenues generated per
billable consultant as the average billing rate increased, resulting in improved
yield per consultant. This increase was partially offset by amortization of
customer contracts relating to the Wellspring acquisition.
Corporate
Consulting
Revenues
Corporate
Consulting segment revenues increased $6.1 million, or 44.3%, to $20.0 million
for the three months ended June 30, 2007 from $13.9 million for the three
months ended June 30, 2006. Revenues for the second quarter of 2007
included revenues generated by Glass while revenues for the second quarter of
2006 did not. Revenues from time and expense engagements increased $2.3 million,
or 32.9%, to $9.3 million for the three months ended June 30, 2007
from $7.0 million for the three months ended June 30, 2006. Revenues
from fixed fee engagements increased $3.4 million, or 53.1%, to
$9.8 million for the three months ended June 30, 2007 from
$6.4 million for the comparable period last year. Revenues from
performance-based engagements increased $0.4 million, or 80.0%, to $0.9
million for the second quarter of 2007 from $0.5 million for the second
quarter of 2006.
Of the
overall $6.1 million increase in revenues, $7.8 million was attributable to
an increase in the number of billable consultants and $0.3 million was
attributable to an increase in the usage of independent contractors, partially
offset by a $0.2 million decrease in revenues attributable to a decrease in
the utilization rate, as well as a $1.8 million decrease in revenues
attributable to a decrease in the average billing rate per hour. The average
number of billable consultants increased to 170 for the three months ended
June 30, 2007 from 111 for the three months ended June 30, 2006,
primarily due to the acquisition of Glass. The utilization rate decreased to
77.1% for the second quarter of 2007 from 78.5% for the comparable period last
year. The average billing rate per hour decreased to $313 for the second quarter
of 2007 from $341 for the second quarter of 2006. The decrease was reflective of
higher levels of activity on performance-based fee engagements that resulted in
net deferrals of $0.8 million of fees for services rendered, reducing the
average billing rate in the second quarter of 2007 by $13 compared to the second
quarter of 2006. We expect to recognize this revenue in the future when all the
performance-based criteria specified in the engagement contracts are
met.
Operating
Income
Corporate
Consulting segment operating income increased $1.3 million, or 28.3%, to
$5.9 million in the three months ended June 30, 2007 from
$4.6 million in the three months ended June 30, 2006. Segment
operating margin decreased to 29.6% for the second quarter of 2007 from 33.3% in
the same period last year, primarily due to a lower average billing rate as
discussed above, lower utilization of our billable consultants, and amortization
of customer contracts relating to the Glass acquisition.
Six
Months Ended June 30, 2007 Compared to Six Months Ended June 30,
2006
Revenues
Revenues
increased $104.3 million, or 80.3%, to $234.3 million for the six months ended
June 30, 2007 from $130.0 million for the six months ended June 30,
2006. Revenues for the six months ended June 30, 2007 included revenues
generated by DRCS, Aaxis, Wellspring and Glass, all of which we acquired
subsequent to June 30, 2006. Revenues from time and expense engagements
increased $66.2 million, or 61.5%, to $173.8 million for the six
months ended June 30, 2007 from $107.6 million for the six months
ended June 30, 2006. Revenues from fixed fee engagements increased
$39.6 million, or 218.8%, to $57.7 million for the first half of 2007 from
$18.1 million for the first half of 2006. Revenues from performance-based
engagements decreased $1.5 million, or 34.9%, to $2.8 million for the six
months ended June 30, 2007 from $4.3 million for the comparable period last
year.
Of the
overall $104.3 million increase in revenues, $64.8 million was attributable
to our billable consultants and $39.5 million was attributable to our
document review and processing groups, as well as increased usage
of
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independent
contractors. Of the $64.8 million increase in billable consultant revenues,
$55.8 million was attributable to an increase in the number of billable
consultants, $1.4 million was attributable to an increase in the
utilization rate of our billable consultants, and $7.6 million was
attributable to an increase in the average billing rate per hour. The increases
were reflective of growing demand for our services from new and existing clients
and our acquisitions. The average number of billable consultants increased to
926 for the six months ended June 30, 2007 from 648 for the six months
ended June 30, 2006, as we added a significant number of billable
consultants through our acquisitions. Our billable consultant utilization rate
increased to 78.0% for the six months ended June 30, 2007 from 77.1% for
comparable period last year. The average billing rate per hour increased 4.1% to
$277 for the first half of 2007 from $266 for the first half of
2006.
Total
Direct Costs
Our
direct costs increased $60.0 million, or 81.7%, to $133.4 million in the
six months ended June 30, 2007 from $73.4 million in the six months
ended June 30, 2006. Approximately $35.9 million of the increase was
attributable to the increase in the average number of revenue-generating
professionals, the promotion of our employees during the year, including 16 to
the managing director level effective January 1, 2007, and their related
compensation and benefit costs. Additionally, $17.0 million of the increase
in direct costs was attributable to an increased usage of independent
contractors. Share-based compensation expense associated with our
revenue-generating professionals increased $2.2 million, or 66.7%, to
$5.5 million in the first half of 2007 from $3.3 million in the first
half of 2006. We expect to continue to hire additional managing directors, as
well as hire additional managers, associates and analysts to expand support for
our existing practices and better leverage our managing directors and directors.
As such, we expect direct costs will continue to increase in the near term.
Total
direct costs for the three months ended June 30, 2007 included
$4.5 million of intangible assets amortization expense, primarily
attributable to customer contracts acquired in connection with the acquisitions
of Wellspring and Glass.
Operating
Expenses
Selling,
general and administrative expenses increased $18.8 million, or 61.8%, to $49.4
million in the six months ended June 30, 2007 from $30.6 million in the six
months ended June 30, 2006. Of the $18.8 million increase,
$6.3 million was attributable to higher salaries and related benefit costs,
$3.5 million was due to higher marketing spending, $1.2 million was
attributable to increased facilities costs, $0.9 million resulted from
increased legal fees, and $0.6 million was due to increased severance
costs. Share-based compensation expense associated with our
non-revenue-generating professionals increased $2.2 million, or 157.1%, to
$3.6 million in the first half of 2007 from $1.4 million in the first
half of 2006. These increases were partially offset by the absence of secondary
offering costs. During the first half of 2006 in connection with a secondary
offering of our common stock, we incurred costs totaling $0.6 million after
tax, or $0.03 per diluted share.
Depreciation
expense increased $2.4 million, or 88.9%, to $5.1 million in the six months
ended June 30, 2007 from $2.7 million in the six months ended June 30,
2006 as computers, network equipment, furniture and fixtures, and leasehold
improvements were added to support our increase in employees. Non-direct
intangible assets amortization expense for the six months ended June 30,
2007 and 2006 was $3.1 million and $0.3 million, respectively. The
increase in 2007 was attributable to amortization of intangible assets,
including customer relationships, non-competition agreements and a tradename,
acquired in connection with our acquisitions subsequent to June 30, 2006.
Operating
Income
Operating
income increased $17.7 million, or 84.4%, to $38.7 million for the six
months ended June 30, 2007 from $21.0 million for the six months ended
June 30, 2006. The increase in operating income was attributable to the
factors discussed above under Revenues, Total Direct Costs and Operating
Expenses. Operating margin increased slightly to 16.5% for the six months ended
June 30, 2007 from 16.1% for the comparable period last year.
Net
Income
Net
income increased $8.0 million, or 67.7%, to $19.9 million for the six
months ended June 30, 2007 from $11.9 million for the six months ended
June 30, 2006. Diluted earnings per share increased to $1.11 for the six
months ended June 30, 2007 from $0.69 for the comparable period last year.
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Segment
Results
Legal
Financial Consulting
Revenues
Legal
Financial Consulting segment revenues increased $19.3 million, or 38.5%, to
$69.3 million for the six months ended June 30, 2007 from $50.0 million for
the six months ended June 30, 2006. Revenues from time and expense
engagements increased $19.2 million, or 39.3%, to $68.1 million for the six
months ended June 30, 2007 from $48.9 million for the six months ended
June 30, 2006. Revenues from fixed fee engagements increased $0.1 million,
or 9.1%, to $1.2 million for the six months ended June 30, 2007 from
$1.1 million for the six months ended June 30, 2006.
Of the
overall $19.3 million increase in revenues, $14.7 million was attributable
to an increase in the number of billable consultants, $0.7 million was
attributable to an increase in the utilization rate of our billable consultants,
$3.1 million was attributable to an increase in the average billing rate
per hour, and $0.8 million resulted from increased usage of independent
contractors. The average number of billable consultants increased to 284 for the
six months ended June 30, 2007 from 225 for the six months ended
June 30, 2006. The utilization rate increased to 79.8% for the six months
ended June 30, 2007 from 78.8% for the comparable period last year. The
average billing rate per hour increased 4.8% to $306 for the first half of 2007
from $292 for the first half of 2006.
Operating
Income
Legal
Financial Consulting segment operating income increased $8.6 million, or
37.4%, to $31.5 million in the six months ended June 30, 2007 from
$22.9 million in the six months ended June 30, 2006. Segment operating
margin decreased slightly to 45.4% for the first half of 2007 compared to 45.8%
for the first half of 2006.
Legal
Operational Consulting
Revenues
Legal
Operational Consulting segment revenues increased $29.3 million, or 174.7%, to
$46.1 million for the six months ended June 30, 2007 from $16.8 million for
the six months ended June 30, 2006. Revenues for the six months ended
June 30, 2007 included revenues generated by DRCS and Aaxis while revenues
for the six months ended June 30, 2006 did not. Revenues from time and
expense engagements increased $29.6 million, or 217.6%, to $43.2 million
for the six months ended June 30, 2007 from $13.6 million for the
comparable period last year. Revenues from fixed fee engagements increased
$0.3 million, or 13.6%, to $2.5 million for the six months ended
June 30, 2007 from $2.2 million for the six months ended June 30,
2006. Revenues from performance-based engagements decreased $0.6 million, or
60.0%, to $0.4 million for the first half of 2007 from $1.0 million for the
first half of 2006.
Of the
overall $29.3 million increase in revenues, $3.4 million was attributable to our
billable consultants and $25.9 million was attributable to our document
review and processing groups, as well as independent contractors supporting our
billable consultants. Of the $3.4 million, $1.0 million was
attributable to an increase in the number of billable consultants,
$1.4 million was attributable to an increase in the utilization rate of our
billable consultants, and $1.0 million was attributable to an increase in
the average billing rate per hour. The average number of billable consultants
increased to 122 for the first half of 2007 from 107 for the first half of 2006,
while the average number of other revenue-generating professionals was 55 for
the six months ended June 30, 2007. The billable consultant utilization
rate increased to 77.3% for the six months ended June 30, 2007 from 71.3%
for the six months ended June 30, 2006. The average billing rate per hour
increased 5.6% to $244 for the six months ended June 30, 2007 from $231 for
the comparable period last year.
Operating
Income
Legal
Operational Consulting segment operating income increased $10.4 million, or
217.0%, to $15.2 million for the six months ended June 30, 2007 from
$4.8 million for the six months ended June 30, 2006. Segment operating
margin increased to 32.9% for the first half of 2007 from 28.5% in the same
period last year primarily due to improved utilization of our billable
consultants, particularly at the analyst and associate levels.
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Health
and Education Consulting
Revenues
Health
and Education Consulting segment revenues increased $42.6 million, or 108.6%, to
$81.7 million for the six months ended June 30, 2007 from $39.1 million for
the six months ended June 30, 2006. Revenues for the first half of 2007
included revenues generated by Wellspring while revenues for the first half of
2006 did not. Revenues from time and expense engagements increased $13.5
million, or 45.2%, to $43.4 million for the six months ended June 30,
2007 from $29.9 million for the six months ended June 30, 2006.
Revenues from fixed fee engagements increased $30.4 million, or 447.1%, to
$37.2 million for the six months ended June 30, 2007 from
$6.8 million for the comparable period last year. Revenues from
performance-based engagements decreased $1.3 million, or 54.2%, to $1.1 million
for the first half of 2007 from $2.4 million for the first half of 2006.
Of the
overall $42.6 million increase in revenues, $24.8 million was attributable
to an increase in the number of billable consultants, $0.1 million was
attributable to an increase in the utilization rate of our billable consultants,
$5.7 million was attributable to an increase in the average billing rate
per hour, and $12.0 million was attributable to an increase in the usage of
independent contractors. The average number of billable consultants increased to
350 for the six months ended June 30, 2007 from 210 for the six months
ended June 30, 2006, a portion of which was due to the acquisition of 65
Wellspring professionals. The utilization rate increased slightly to 79.4% for
the six months ended June 30, 2007 from 79.1% for the comparable period
last year. The average billing rate per hour increased 9.6% to $252 for the
first half of 2007 from $230 for the first half of 2006.
Operating
Income
Health
and Education Consulting segment operating income increased $14.5 million,
or 123.7%, to $26.2 million in the six months ended June 30, 2007 from
$11.7 million in the six months ended June 30, 2006. Segment operating
margin increased to 32.1% for the first half of 2007 from 30.0% for the first
half of 2006, primarily due to higher revenues generated per billable consultant
as the average billing rate increased, resulting in improved yield per
consultant. This increase was partially offset by amortization of customer
contracts relating to the Wellspring acquisition.
Corporate
Consulting
Revenues
Corporate
Consulting segment revenues increased $13.3 million, or 55.2%, to $37.3 million
for the six months ended June 30, 2007 from $24.0 million for the six
months ended June 30, 2006. Revenues for the first half of 2007 included
revenues generated by Galt and Glass. Revenues for the first three months of
2006 did not include Galt and revenues for the first half of 2006 did not
include Glass. Revenues from time and expense engagements increased $4.1
million, or 27.2%, to $19.2 million for the six months ended June 30,
2007 from $15.1 million for the six months ended June 30, 2006.
Revenues from fixed fee engagements increased $8.8 million, or 110.0%, to
$16.8 million for the six months ended June 30, 2007 from
$8.0 million for the comparable period last year. Revenues from
performance-based engagements increased $0.4 million, or 44.4%, to $1.3
million for the first half of 2007 from $0.9 million for the first half of
2006.
Of the
overall $13.3 million increase in revenues, $15.3 million was attributable
to an increase in the number of billable consultants and $0.9 million was
attributable to an increase in the usage of independent contractors, partially
offset by a $0.8 million decrease in revenues attributable to a decrease in
the utilization rate, as well as a $2.1 million decrease in revenues
attributable to a decrease in the average billing rate per hour. The average
number of billable consultants increased to 170 for the six months ended
June 30, 2007 from 106 for the six months ended June 30, 2006,
primarily due to the acquisitions of Galt and Glass. The utilization rate
decreased to 72.7% for the first half of 2007 from 75.3% for the first half of
2006. The average billing rate per hour decreased to $304 for the six months
ended June 30, 2007 from $321 for comparable period last year. The decrease
was reflective of higher levels of activity on performance-based fee engagements
that resulted in net deferrals of $1.6 million of fees for services
rendered, reducing the average billing rate in the first half of 2007 by $13
compared to the first half of 2006. We expect to recognize this revenue in the
future when all the performance-based criteria specified in the engagement
contracts are met.
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Operating
Income
Corporate
Consulting segment operating income increased $1.9 million, or 23.1%, to
$10.1 million in the six months ended June 30, 2007 from
$8.2 million in the six months ended June 30, 2006. Segment operating
margin decreased to 27.1% for the six months ended June 30, 2007 from 34.2%
in the same period last year, primarily due to a lower average billing rate as
discussed above, lower utilization of our billable consultants, and amortization
of customer contracts relating to the Glass acquisition.
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary sources of liquidity are cash flows from operations and debt capacity
available under our credit facility. Cash and cash equivalents decreased
$13.1 million from $16.6 million at December 31, 2006 to
$3.4 million at June 30, 2007 primarily due to our
acquisitions.
Cash
flows used in operating activities totaled $6.9 million for the six months
ended June 30, 2007, compared to $2.5 million for the same period last
year. Our operating assets and liabilities consist primarily of receivables from
billed and unbilled services, accounts payable and accrued expenses, and accrued
payroll and related benefits. The volume of billings and timing of collections
and payments affect these account balances. Cash used for operations during the
first half of 2007 primarily consisted of cash payments for bonuses, payroll and
related benefits that were accrued for at December 31, 2006. Prepaid
expenses and other assets increased $10.2 million during the first half of
2007 primarily due to taxes that were prepaid for restricted shares that will
vest on July 1, 2007, as well as an increase in prepaid licenses.
Receivables from clients and unbilled services increased $32.4 million
during the six months ended June 30, 2007 as a result of increased revenues
generated and billed.
Cash used
in investing activities was $106.4 million for the six months ended
June 30, 2007 and $33.8 million for the same period last year. The use of
cash in the first half of 2007 primarily related to the acquisitions of
Wellspring and Glass. The use of cash in the first half of 2006 related to the
acquisition of Galt, as well as leasehold improvements and construction in
progress at our office in New York City.
At
December 31, 2006, we had a credit agreement with various financial
institutions under which we may borrow up to $130.0 million. On
February 23, 2007, we amended the credit agreement so that the maximum
amount of principal that may be borrowed increased to $175.0 million,
with an
accordion feature allowing for an additional amount of up to $50.0 million
to be borrowed upon approval from the lenders. On
July 27, 2007, we executed a fourth amendment to the credit agreement. See
Subsequent Events below for further details. Fees and interest on borrowings
vary based on our total debt to earnings before interest, taxes, depreciation
and amortization (“EBITDA”) ratio as set forth in the credit agreement and will
be based on a spread over LIBOR or a spread over the base rate, which is the
greater of the Federal Funds Rate plus 0.5% or the Prime Rate, as selected by
us. All outstanding principal is due upon expiration of the credit agreement on
February 23, 2012. The credit agreement includes quarterly financial
covenants that require us to maintain certain interest coverage ratio, total
debt to EBITDA ratio, and net worth levels. In addition, certain acquisitions
and similar transactions will need to be approved by the lenders.
During
the first six months of 2007, we borrowed $75.0 million under the credit
facility to fund our acquisitions of Wellspring and Glass. We also made
borrowings throughout the first half of 2007 to fund our daily operations.
During the six months ended June 30, 2007, the average daily outstanding
balance under our credit facility was $105.8 million. Borrowings
outstanding under this credit facility at June 30, 2007 totaled
$107.0 million and bear a weighted-average interest rate of 6.1%.
Borrowings outstanding at December 31, 2006 totaled $8.0 million and
bear interest at 5.9%. At both June 30, 2007 and December 31, 2006,
the Company was in compliance with its debt covenants.
Future
Needs
Our
primary financing need has been to fund our growth. Our growth strategy includes
hiring additional revenue-generating professionals and expanding our service
offerings through existing professionals, new hires or acquisitions. In
connection with our acquisitions, we may be required under earn-out provisions
to pay additional purchase consideration to the sellers if specific performance
targets are met. We intend to fund such growth and earn-out obligations with
cash generated from operations and borrowings under our credit agreement.
Because we
- 28
- -
expect
that our future annual growth rate in revenues and related percentage increases
in working capital balances will moderate, we believe cash generated from
operations, supplemented as necessary by borrowings under our credit facility,
will be adequate to fund this growth. Our ability to secure short-term and
long-term financing in the future will depend on several factors, including our
future profitability, the quality of our accounts receivable and unbilled
services, our relative levels of debt and equity and overall condition of the
credit markets.
CONTRACTUAL
OBLIGATIONS
The
following table represents our obligations and commitments to make future
payments under contracts, such as lease agreements, and under contingent
commitments as of December 31, 2006 (in thousands).
|
Less
than 1 Year |
1
to 3
Years |
4
to 5
Years |
After
5 Years |
Total |
||||||||||||
|
Notes
payable |
$ |
1,000 |
$ |
1,000 |
$ |
¾ |
$ |
¾ |
$ |
2,000 |
||||||
|
Interest
on notes payable |
80 |
40 |
¾ |
¾ |
120 |
|||||||||||
|
Capital
lease obligations |
282 |
¾ |
¾ |
¾ |
282 |
|||||||||||
|
Operating
lease obligations |
11,761 |
32,035 |
16,432 |
20,216 |
80,444 |
|||||||||||
|
Additional
purchase consideration |
3,400 |
¾ |
¾ |
¾ |
3,400 |
|||||||||||
|
Purchase
obligations |
1,573 |
110 |
¾ |
¾ |
1,683 |
|||||||||||
|
Total
contractual obligations |
$ |
18,096 |
$ |
33,185 |
$ |
16,432 |
$ |
20,216 |
$ |
87,929 |
||||||
During
the six months ended June 30, 2007, we borrowed $75.0 million under
our credit facility to fund our acquisitions of Wellspring and Glass. We also
made borrowings throughout the first half of 2007 to fund our daily operations.
As of June 30, 2007, outstanding borrowings totaled $107.0 million.
Although outstanding principal under the credit facility is not contractually
due until February 2012, we may periodically make repayments to the extent we
have excess cash on hand.
We lease
our facilities and certain equipment under operating lease arrangements expiring
on various dates through 2016, with various renewal options. We lease office
facilities under noncancelable operating leases that include fixed or minimum
payments plus, in some cases, scheduled base rent increases over the term of the
lease. Certain leases provide for monthly payments of real estate taxes,
insurance and other operating expense applicable to the property. Some of the
leases contain provisions whereby the future rental payments may be adjusted for
increases in operating expense above the specified amount.
In
connection with certain business acquisitions, we may be required to pay
additional purchase consideration to the sellers if specific performance targets
are met over a number of years as specified in the related purchase agreements.
Such amounts are generally measured and determined at the end of our fiscal
year. There is no limitation to the maximum amount of additional purchase
consideration and the aggregate amount that potentially may be paid could be
significant. We would expect, however, to fund such payments using cash flows
generated from our operations. Based on current and projected financial
performance, we anticipate aggregate additional purchase consideration that will
be earned by certain sellers to be approximately $30.0 million for the year
ending December 31, 2007. This amount will be paid to the sellers in the
first quarter of 2008.
Purchase
obligations include sponsorships, subscriptions to research tools and other
commitments to purchase services where we cannot cancel or would be required to
pay a termination fee in the event of cancellation.
OFF
BALANCE SHEET ARRANGEMENTS
We have
not entered into any off-balance sheet arrangements.
SUBSEQUENT
EVENTS
On
July 27, 2007, we executed a fourth amendment to the credit agreement dated
June 7, 2006. Pursuant to the fourth amendment, the maximum amount of
principal that may be borrowed was increased from $175.0 million
to
- 29
- -
$200.0 million.
No other
key terms of the credit agreement were modified under the fourth amendment. On
July 30, 2007, we borrowed $58.5 million to fund the acquisition of
Callaway Partners, LLC described below. After consideration of this borrowing,
the aggregate amount of borrowings outstanding as of August 1, 2007 totaled
$162.5 million and bears a current weighted-average interest rate of
6.1%.
On
July 29, 2007, we acquired Callaway Partners, LLC (“Callaway”), an
accounting and finance professional services firm based in Atlanta, GA. Callaway
specializes in project management and staff augmentation for clients, focusing
on general accounting/finance support, accounting and SEC reporting advisory
services, internal audit, Sarbanes-Oxley compliance and corporate tax. Under the
terms of the purchase agreement, we acquired substantially all of the assets of
Callaway for a purchase price at closing of approximately $60.0 million in
cash, subject to standard post-closing adjustments. Additional purchase
consideration is payable in cash if specific performance targets are met over
the five-year period beginning on January 1, 2008 and ending on
December 31, 2012.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (“GAAP”), and expands
disclosures about fair value measurements. SFAS No. 157 does not require
any new fair value measurements in financial statements, but standardizes its
definition and guidance in GAAP. Thus, for some entities, the application of
this statement may change current practice. SFAS No. 157 will be effective
for us beginning on January 1, 2008. We are currently evaluating the impact
that the adoption of this statement may have on our financial position and
results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115.” SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value. The objective
of this statement is to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 will be effective for us beginning on
January 1, 2008. We are currently evaluating the impact that the adoption
of this statement may have on our financial position and results of
operations.
|
ITEM
3. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
We are
exposed to market risks related to changes in interest rates and changes in the
market value of our investments. We do not enter into interest rate swaps, caps
or collars or other hedging instruments.
Our
exposure to changes in interest rates is limited to borrowings under our bank
credit agreement, which has variable interest rates tied to the LIBOR, Federal
Funds rate or prime rate. At June 30, 2007, we had borrowings outstanding
totaling $107.0 million that bear interest at a weighted-average interest
rate of 6.1%. A one percent change in this interest rate would have a
$1.1 million effect on our pre-tax income.
At
June 30, 2007, we had a note payable in the amount of $1.0 million
that will become due on May 8, 2008. We are not exposed to material
interest rate risks in respect to this note as it bears a fixed interest rate at
4% per annum.
From time
to time, we invest excess cash in marketable securities. These investments
principally consist of overnight sweep accounts and short-term commercial paper.
Due to the short maturity of our investments, we have concluded that we do not
have material market risk exposure.
- 30
- -
|
ITEM
4. |
CONTROLS
AND PROCEDURES |
Our
management, with the participation of the Company’s Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of June 30, 2007. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of June 30,
2007, our disclosure controls and procedures were effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by us in the reports we file or submit under the Exchange Act
and such information is accumulated and communicated to management as
appropriate to allow timely decisions regarding required
disclosure.
There has
been no change in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the “Exchange Act”) that occurred
during the quarter ended June 30, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II ¾
OTHER INFORMATION
|
ITEM
1. |
LEGAL
PROCEEDINGS |
On July 3, 2007, The Official Committee of Unsecured Creditors of Saint Vincents Catholic Medical Centers of New York d/b/a Saint Vincent Catholic Medical Centers (“St. Vincents”), et al. filed suit against the Company, certain of its subsidiaries, including Speltz & Weis LLC, two of the Company’s managing directors David E. Speltz (“Speltz”) and Timothy C. Weis (“Weis”) in the Supreme Court of the State of New York, County of New York. Beginning in 2004, St. Vincents retained Speltz & Weis LLC to provide management services to St. Vincents and its two principals, Speltz and Weis, were made the interim chief executive officer and chief financial officer, respectively, of St. Vincents. In May of 2005, Speltz & Weis LLC was acquired by the Company. On July 5, 2005, St. Vincents filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”). On December 13, 2005, the Bankruptcy Court approved the retention of Speltz & Weis LLC and the Company in various capacities, including interim management, revenue cycle management and strategic sourcing services. The suit alleges, among other things, breach of fiduciary duties, breach of the New York Not-For-Profit Corporation Law, breach of contract, tortuous interference in the performance of a contract, aiding and abetting a breach of fiduciary duties, and certain fraudulent transfers and fraudulent conveyances, and seeks unspecified compensatory and punitive damages. Although the lawsuit has only recently been filed, the Company believes that the claims are without merit and intends to vigorously defend itself in this matter.
From time
to time, the Company is involved in various legal matters arising out of the
ordinary course of business. Although the outcome of these matters cannot
presently be determined, in the opinion of management, disposition of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
|
ITEM
1A. |
RISK
FACTORS |
See “Risk Factors” in the Company’s 2006 annual report on Form 10-K for a complete description of the material risks it faces. There have been no material changes to the Company’s business risk factors since December 31, 2006.
- 31
- -
|
ITEM
2. |
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS |
Our 2004 Omnibus Stock Plan permits the netting of common stock upon vesting of restricted stock awards to satisfy individual tax withholding requirements. During the quarter ended June 30, 2007, the Company redeemed such shares as presented in the table below.
|
Period |
Total
Number of Shares Redeemed to Satisfy
Employee
Tax Withholding Requirements |
Weighted-
Average
Fair Market Value
Per
Share Redeemed |
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs |
Maximum
Number
of Shares that May Yet Be Purchased Under the Plans or
Programs |
|||||||||
|
April
2007 |
941 |
$ |
60.84 |
N/A |
N/A |
||||||||
|
May
2007 |
4,209 |
$ |
64.82 |
N/A |
N/A |
||||||||
|
June
2007 |
¾ |
¾ |
N/A |
N/A |
|||||||||
|
Total |
5,150 |
$ |
64.10 |
N/A |
N/A |
||||||||
N/A - Not
applicable.
|
ITEM
3. |
DEFAULTS
UPON SENIOR SECURITIES |
None.
|
ITEM
4. |
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS |
The
Annual Meeting of Stockholders of Huron Consulting Group Inc. was held on
May 8, 2007, and a total of 18,174,182 shares were present in person or by
proxy at the meeting. The shareholders of Huron Consulting Group Inc. voted on
the following proposals:
Proposal
No. 1 - Election of directors
|
Name |
Shares
For |
Shares
Withheld | ||
|
James
D. Edwards |
14,748,173 |
3,426,009 | ||
|
Gary
E. Holdren |
14,544,523 |
3,629,659 | ||
|
John
McCartney |
14,719,409 |
3,454,773 |
The other
members of the Company’s board of directors whose terms of office continued
after the meeting were H. Eugene Lockhart, George E. Massaro, DuBose Ausley and
John S. Moody.
Proposal
No. 2 - To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31,
2007.
|
Shares
For |
Shares
Against |
Shares
Abstain |
Non-vote | |||
|
18,036,193 |
134,450 |
3,539 |
¾ |
|
ITEM
5. |
OTHER
INFORMATION |
None.
- 32
- -
|
ITEM
6. |
EXHIBITS |
(a) The
following exhibits are filed as part of this Quarterly Report on Form
10-Q.
|
Exhibit
Number |
Exhibit | |
|
10.1 |
Third
Amendment to Credit Agreement, dated as of May 25,
2007. | |
|
31.1 |
Certification
of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. | |
|
31.2 |
Certification
of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. | |
|
32.1 |
Certification
of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. | |
|
32.2 |
Certification
of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
- 33
- -
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Huron
Consulting Group Inc. | |||
|
(Registrant) | |||
|
Date: |
August 7,
2007 |
/s/
Gary L. Burge | |
|
Gary
L. Burge | |||
|
Vice
President, | |||
|
Chief
Financial Officer and Treasurer |
- 34
- -
Exhibit
10.1
THIRD
AMENDMENT TO CREDIT AGREEMENT
This
THIRD
AMENDMENT TO CREDIT AGREEMENT, dated as
of May 25, 2007 (the "Amendment”), is
executed by and among HURON
CONSULTING GROUP INC., a
Delaware corporation (the
“Borrower” or the
"Company"),
HURON
CONSULTING GROUP HOLDINGS LLC, a
Delaware limited liability company ("HCG”),
HURON
CONSULTING SERVICES LLC, a
Delaware limited liability company ("HCS")
WELLSPRING
MANAGEMENT SERVICES LLC, formerly known as SPELTZ
& WEIS LLC, a
Delaware limited liability company ("WMS"),
Huron
(UK) LIMITED, a UK
limited liability company ("Huron
UK"),
AAXIS
TECHNOLOGIES, INC., a
Virginia corporation ("ATI"),
FAB
ADVISORY SERVICES, LLC, an
Illinois limited liability company ("FAB"),
GLASS
& ASSOCIATES, INC., a
Delaware corporation ("GLASS"),
GLASS
EUROPE LIMITED, a United
Kingdom Private Company ("GEL"),
WELLSPRING
PARTNERS, LTD., a
Delaware corporation ("Wellspring"),
WELLSPRING
VALUATION, LTD., a
Delaware corporation ("WVL"), and
KABUSHIKI
KAISHA HURON
CONSULTING GROUP (JAPAN), a Japan
corporation ("HURON JAPAN") (each
of HCG, HCS, WMS, Huron UK, ATI, FAB, Glass, GEL, Wellspring, WVL, and Huron
Japan being referred to herein as a “Guarantor” and
collectively referred to herein as the “Guarantors”), and
LASALLE
BANK NATIONAL ASSOCIATION, a
national banking association, as Administrative Agent (the "Administrative Agent"),
Arranger and Lender (“LaSalle”),
JPMORGAN
CHASE BANK, NATIONAL ASSOCIATION, a
national banking association, as Co-Syndication Agent and Lender (“JPMorgan”),
FIFTH
THIRD BANK, a
Michigan banking corporation, as Co-Syndication
Agent and Lender
(“Fifth Third”), BANK OF AMERICA, N.A., a
national banking association, as Lender ("BA"),
NATIONAL
CITY BANK, a
national banking association, as Lender ("National"), and
HSBC
BANK USA, NATIONAL
ASSOCIATION, a
national banking association (“HSBC”) (the
foregoing first three (3) Lenders, LaSalle, JPMorgan and Fifth Third, shall
collectively be referred to herein as the "Original
Lenders"; the
subsequent two (2) Lenders, BA and National, shall collectively be referred to
herein as the "Additional
Lenders"); and
all six (6) Lenders shall collectively be referred to herein as the
“Lenders”.
R
E C I T A L S:
A. The
Borrower, Administrative Agent, and Original Lenders entered into that certain
Credit Agreement dated as of June 7, 2006 (the “Credit
Agreement”),
providing for the Original Lenders to make Revolving Loans to the Borrower in
the aggregate principal amount of up to Seventy-Five Million and 00/100 Dollars
($75,000,000.00) evidenced by the following notes (collectively, the
“Original
Revolving Notes”): (i)
that certain Revolving Note dated as of June 7, 2006 in the maximum principal
amount of Thirty-Five Million and 00/100 Dollars ($35,000,000.00) executed by
the Borrower in favor of LaSalle and made payable to the order of LaSalle; (ii)
that certain Revolving Note dated as of June 7, 2006 in the maximum principal
amount of Twenty Million and 00/100 Dollars ($20,000,000.00) executed by the
Borrower in favor of JPMorgan and made payable to the order of JPMorgan; and
(iii) that certain Revolving Note dated as of June 7, 2006 in the maximum
principal amount
1
of Twenty Million and 00/100 Dollars ($20,000,000.00)
executed by the Borrower in favor of Fifth Third and made payable to Fifth
Third.
B. In
connection with the Credit Agreement, HCS, HCG, Speltz & Weis LLC (now known
as WMS) and Huron UK executed that certain Guaranty Agreement dated as of June
7, 2006, and ATI, FAB and Document Review Consulting Services LLC, a Delaware
limited liability company (“DRC”) executed that certain Guaranty Agreement dated
as of August 14, 2006, both of which Guaranty Agreements were for the benefit of
the Lenders (each such Guaranty Agreement being referred to herein as a
“Guaranty” and
collectively with the Guaranty Agreements referred to in Recitals E and I below
as the “Guaranties”) (DRC
subsequently was merged into another Guarantor and therefore no longer exists as
a separate entity).
C. Pursuant
to that certain First Amendment to Credit Agreement dated as of December 29,
2006 (the "First
Amendment"),
Borrower, Administrative Agent, and Original Lenders, among other things,
increased the maximum amount of principal that may be borrowed under the Credit
Agreement to One Hundred Thirty Million and 00/100 Dollars ($130,000,000.00) in
order to enable Borrower to consummate the following proposed acquisitions
(collectively, the "Acquisitions") in
early January, 2007: (i) acquisition of all of the outstanding capital stock of
Wellspring; and (ii) acquisition of all of the outstanding capital stock of
Glass. Pursuant to the First Amendment, the Amended and Restated Revolving Notes
dated December 29, 2006 (collectively, the "December
2006 Notes") were
executed and delivered by Borrower in favor of each of the Original Lenders
reflecting the increased Pro Rata Shares of each of the Original Lenders in
replacement of the Original Revolving Notes.
D. Under the
First Amendment, Administrative Agent and Lenders consented to the maximum
amount of debt to be utilized in connection with the Acquisitions, as such
consent was required to be obtained under the Credit Agreement.
E. Upon the
consummation of the Acquisitions, as required by the Credit Agreement, the
following Guaranty Agreements were executed: (i) Wellspring and WVL (the
Wellspring subsidiary acquired as part of the Acquisitions) executed that
certain Guaranty Agreement dated as of January 2, 2007; and (ii) Glass and GEL
and PWS Group, Inc., a Delaware corporation ("PWS") (the
Glass subsidiaries acquired as part of the Acquisitions) executed that certain
Guaranty Agreement dated January 10, 2007; PWS was recently dissolved and is
therefore no longer a Guarantor.
F. Pursuant
to that certain Second Amendment to Credit Agreement dated as of February 23,
2007 (the “Second
Amendment”),
Borrower, Administrative Agent and Lenders further amended the Credit Agreement
to: (i) increase the maximum amount of principal that may be borrowed under the
Credit Agreement to One Hundred Seventy-Five Million and 00/100 Dollars
($175,000,000.00), with an "accordian" feature allowing for an additional amount
of up to Fifty Million Dollars ($50,000,000.00) in principal to be borrowed;
(ii) reduce certain pricing; (iii) modify the covenant with respect to the
amount of aggregate debt which may be utilized for an acquisition or series of
related acquisitions in order to increase such amount to Forty Million Dollars
2
($40,000,000.00); (iv) extend the maturity date of
the Revolving Loans from May 31, 2011 to February 23, 2012; (v) make a
clarification to the covenant concerning restricted payments; and (vi) modify
the "use of proceeds" covenant to add an additional Ten Million and 00/100
Dollars ($10,000,000.00) "bucket" for certain specified uses.
G. The
Second Amendment also: (i) provided for the participation of the Additional
Lenders in the increased amount of the Revolving Commitment and the joinder of
the Additional Lenders as parties to the Credit Agreement, as amended; and (ii)
required Borrower to execute and deliver Second Amended and Restated Revolving
Notes in favor of each of the Original Lenders in replacement of the December
2006 Notes in order to reflect their modified Pro Rata Shares and Revolving
Notes in favor of each of the Additional Lenders to reflect their Pro Rata
Shares.
H. The
parties desire to further amend the Credit Agreement, as amended, to provide for
the participation by HSBC in the Revolving Commitment and the joinder of HSBC as
a party to the Credit Agreement, as well as the modification of the Pro Rata
Shares of the Original Lenders and the Additional Lenders in order to allow for
such participation by HSBC.
I. The
parties further wish to provide for the execution and delivery of a Guaranty
Agreement by Huron Japan, which is a new subsidiary of Borrower, as required
under the Credit Agreement, as amended.
J. Administrative
Agent and Lenders desire to amend the Credit Agreement to incorporate the
matters in the preceding two Recitals, pursuant to and on the terms and
conditions set forth below. The term "Credit Agreement", as hereinafter used in
this Amendment, shall mean the Credit Agreement as defined in Recital A above,
as amended by the First Amendment, the Second Amendment and this
Amendment.
NOW
THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Borrower,
the
Guarantors, the Administrative Agent and the Lenders hereby agree as
follows:
A
G R E E M E N T S:
1. RECITALS. The
foregoing Recitals are hereby made a part of this Amendment.
2. DEFINITIONS.
Capitalized words and phrases used herein without definition shall have the
respective meanings ascribed to such words and phrases in the Credit
Agreement.
3. AMENDMENTS
TO THE CREDIT AGREEMENT.
3.1 Annex
A.
Annex
A to the
Credit Agreement is hereby amended to read in its entirety as set forth in
Annex
A to this
Amendment.
3
3.2 Revolving
Note. All
references in the Loan Agreement to the “Revolving Note”, “Note” or “Notes”
(collectively, the “Notes”) shall
be deemed to be references to the Replacement Notes (as defined below). Borrower
shall execute and deliver: (i) Notes in the form of Exhibit
"A" hereto
in favor of each of the Original Lenders which shall replace the December 2006
Notes and reflect the modified Pro Rata Shares of each of the Original Lenders
set forth in Annex
A to this
Amendment; (ii) Notes in the form of Exhibit
"B" hereto
in favor of each of the Additional Lenders which shall reflect the modified Pro
Rata Shares of such Additional Lenders set forth in Annex
A to this
Amendment, and (iii) a Note in the form of Exhibit
"C" hereto
in favor of HSBC which shall reflect the Pro Rata Share of HSBC set forth in
Annex
A to this
Amendment (the Notes in subsections (i), (ii) and (iii) of this Section 3.2
shall collectively be referred to herein as the "Replacement
Notes"). In
order to effectuate the modification of the Pro Rata Shares set forth in
Annex
A, the
following Lenders hereby assign, transfer and convey to HSBC the Pro Rata Share
set forth below opposite their respective names:
LaSalle: $7,500,000.00
Fifth
Third:
$2,500,000.00
JPMorgan: $2,500,000.00
Bank of
America: $2,500,000.00
4. COMMITMENT
FEE. In
addition to any other fees payable by Borrower in connection with the Credit
Agreement, Borrower shall pay to Administrative Agent, for the benefit of HSBC,
an upfront commitment fee equal to seven and one-half basis points (0.075%) of
the Pro Rata Share of HSBC set forth in Annex
A to this
Amendment (which Pro Rata Share is equal to Fifteen Million and 00/100 Dollars
($15,000,000.00). Such fee shall be payable at the time of the Borrower's
execution and delivery to Administrative Agent of this Amendment and shall be
deemed fully earned and non-refundable when paid.
5. JOINDER
OF HSBC. The
parties hereto hereby acknowledge that HSBC is hereby added as a party to the
Credit Agreement, as amended by the First Amendment, the Second Amendment and
this Amendment. HSBC hereby agrees to be a party to, and be bound by, the terms
and conditions of the Credit Agreement, as so amended. All references in the
Credit Agreement or in any of the Guaranties or any of the other Loan Documents
to the term "Lenders" or "any Lender" shall include HSBC. Annex
B to the
Credit Agreement, which sets forth the addresses of each of the parties to the
Credit Agreement for purposes of notices, is hereby amended to read in its
entirety as set forth in Annex
B to this
Amendment.
6. Guaranty
Agreement.
Borrower shall, contemporaneous with the execution of this Amendment, deliver to
Administrative Agent a Guaranty Agreement, executed by Huron Japan, which shall
be in the form of the Guaranty Agreement executed by each of Glass and
Wellspring (except modified to take into account the name of the Guarantor and
the subsequent amendment of the Credit Agreement).
4
7. REPRESENTATIONS
AND WARRANTIES. To
induce the Bank to enter into this Amendment, the Borrower hereby certifies,
represents and warrants to the Bank that:
7.1 Organization. The
Borrower is a corporation validly existing and in good standing under the laws
of the State of Delaware. The Borrower is duly qualified to do business in each
jurisdiction where the nature of its activities requires such qualification
except where the failure to be so qualified would not have a Material Adverse
Effect. The Articles of Incorporation and Bylaws, Borrowing Resolutions and
Incumbency Certificate of the Borrower have not been changed or amended since
the most recent date that certified copies thereof were delivered to the Bank.
7.2 Authorization. The
Borrower is duly authorized to execute and deliver this Amendment and is duly
authorized to borrow monies under the Credit Agreement, as amended hereby, and
to perform its Obligations under the Credit Agreement, as amended
hereby.
7.3 No
Conflicts. The
execution and delivery of this Amendment, the borrowings under the Credit
Agreement, as amended hereby, and the performance by the Borrower of its
Obligations under the Credit Agreement, as amended hereby, do not require any
consent or approval of any governmental agency or authority and do not conflict
with any provision of law or of the Certificate of Incorporation or Bylaws of
the Borrower or any agreement binding upon the Borrower (except for any such
agreement the conflict with which would not have a Material Adverse Effect)
..
7.4 Validity
and Binding Effect. The
Credit Agreement, as amended by the First Amendment, the Second Amendment and
hereby, is a legal, valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors’ rights or by general
principles of equity.
7.5 Compliance
with Credit Agreement. The
representations and warranties set forth in Section 9 of the Credit Agreement,
as amended hereby, are true and correct with the same effect as if such
representations and warranties had been made on the date hereof, with the
exception that all references to the financial statements shall mean the
financial statements most recently delivered to the Administrative Agent and
except for such changes as are specifically permitted under the Credit
Agreement. In addition, the Borrower has complied with and is in compliance with
all of the covenants set forth in the Credit Agreement.
7.6 No
Event of Default. As of
the date hereof, no Event of Default under the Credit Agreement, as amended
hereby, or event or condition which, with the giving of notice or the passage of
time, or both, would constitute an Event of Default, has occurred and is
continuing.
5
8. CONDITIONS
PRECEDENT. This
Amendment shall become effective as of the date above first written after
receipt by the Administrative Agent of the following:
8.1 Amendment. This
Amendment executed by the Borrower, the Guarantors, the Administrative Agent and
the Lenders.
8.2 Replacement
Notes. The
Replacement Notes in favor of each of the Lenders executed by the
Borrower.
8.3 Fee. The
payment of the upfront fee payable thereunder by the Borrower, with such amount
payable upon the execution and delivery of this Amendment by the Borrower to the
Administrative Agent.
8.4 Guaranty
Agreement. The
Guaranty Agreement executed by Huron Japan pursuant to Section 6
above.
8.5 Resolutions. A
certified copy of resolutions of the Board of Directors of the Borrower and
Huron Japan authorizing the execution, delivery and performance of this
Amendment and the related loan documents.
8.6 Affirmation
of Guaranties. The
Affirmation of Guaranties executed by the Guarantors in the form attached
hereto.
8.7 Other
Documents. Such
other documents, certificates, resolutions and/or opinions of counsel as the
Bank may request.
9. GENERAL.
9.1 Governing
Law; Severability. This
Amendment shall be construed in accordance with and governed by the laws of
Illinois, without regard to conflicts of laws principles. Wherever possible each
provision of the Credit Agreement, the First Amendment, the Second Amendment and
this Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Credit Agreement, the First
Amendment, the Second Amendment or this Amendment shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of the Credit Agreement, the First
Amendment, the Second Amendment and this Amendment.
9.2 Successors
and Assigns. This
Amendment shall be binding upon the Borrower, the Guarantors and the
Administrative Agent, Lenders and their respective successors and assigns, and
shall inure to the benefit of the Borrower, the Guarantors, the Administrative
Agent and the Lenders and the successors and assigns of the Administrative Agent
and the Lenders.
9.3 Continuing
Force and Effect of Loan Documents, Guaranties. Except
as specifically modified or amended by the terms of this Amendment, all other
terms and provisions of the Credit Agreement, the First Amendment, the Second
Amendment and
6
the other Loan Documents are incorporated by
reference herein, and in all respects, shall continue in full force and effect.
The Borrower, by execution of this Amendment, hereby reaffirms, assumes and
binds itself to all of the obligations, duties, rights, covenants, terms and
conditions that are contained in the Credit Agreement, the First Amendment, the
Second Amendment and the other Loan Documents. Each of the Guarantors, by
execution of this Amendment, hereby reaffirms, assumes and binds themselves to
all of the obligations, duties, rights, covenants, terms and conditions that are
contained in their respective Guaranties.
9.4 References
to Credit Agreement. Each
reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, or
words of like import, and each reference to the Credit Agreement in any and all
instruments or documents delivered in connection therewith, shall be deemed to
refer to the Credit Agreement, as amended by the First Amendment, the Second
Amendment and hereby.
9.5 Expenses. The
Borrower shall pay all reasonable costs and expenses in connection with the
preparation of this Amendment and other related loan documents, including,
without limitation, reasonable attorneys’ fees and time charges of attorneys who
may be employees of the Administrative Agent or any of the Lenders or any
affiliate or parent of any of such parties. The Borrower shall pay any and all
stamp and other taxes, UCC search fees, filing fees and other costs and expenses
in connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such costs and
expenses.
9.6 Counterparts. This
Amendment may be executed in any number of counterparts, all of which shall
constitute one and the same agreement.
[SIGNATURE
PAGE TO FOLLOW]
7
IN
WITNESS WHEREOF, the parties hereto have executed this Third Amendment to Credit
Agreement as of the date first above written.
BORROWER:
HURON
CONSULTING GROUP INC.,
a
Delaware corporation
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
GUARANTORS:
HURON
CONSULTING GROUP HOLDINGS LLC,
a
Delaware limited liability company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
HURON
CONSULTING SERVICES LLC, a
Delaware
limited
liability company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
WELLSPRING
MANAGEMENT SERVICES LLC,
formerly
known as SPELTZ
& WEIS LLC,
a
Delaware
limited liability company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
8
HURON
(UK) LIMITED, a UK
limited liability company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
AAXIS
TECHNOLOGIES, INC., a
Virginia corporation
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
FAB
ADVISORY SERVICES, LLC, an
Illinois limited
liability
company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
GLASS
& ASSOCIATES, INC., a
Delaware
corporation
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
GLASS
EUROPE LIMITED,
a United
Kingdom Private Company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
9
WELLSPRING
PARTNERS, LTD., a
Delaware
corporation
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
WELLSPRING
VALUATION, LTD., a
Delaware
corporation
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
KABUSHIKI
KAISHA HURON
CONSULTING
GROUP
(JAPAN), a Japan
corporation
By: /s/
Stan Logan
Name: Stan
Logan
Title: Director
LENDERS:
LASALLE
BANK NATIONAL ASSOCIATION,
a
national banking association, as Administrative
Agent,
Arranger and Lender
By: /s/
David Bacon
Name: David
Bacon
Title: FVP
JPMORGAN
CHASE BANK, NATIONAL
ASSOCIATION, a
national banking association, as
Co-Syndication
Agent and Lender
By: /s/
Nathan Margol
Name: Nathan
Margol
Title: Vice
President
10
Fifth
Third Bank,
a
Michigan banking corporation, as Co-Syndication
Agent and
Lender
By: /s/
Susan M. Kaminski
Name: Susan
M. Kaminski
Title: Vice
President
BANK
OF AMERICA, N.A.,
a
national banking association, as Lender
By: /s/
Daniel J. McHugh
Name: Daniel
J. McHugh
Title: Senior
Vice President
NATIONAL
CITY BANK,
a
national banking association, as Lender
By: /s/
Stephanie A. Kline
Name: Stephanie
A. Kline
Title: Vice
President
HSBC
BANK USA, NATIONAL ASSOCIATION,
a
national banking association, as Lender
By:
/s/ John S. Sneed
Name:
John S. Sneed
Title:
VP
11
AFFIRMATION
OF GUARANTIES
This
affirmation of Guaranties ("Affirmation") is
made by each of the undersigned Guarantors with respect to that certain Third
Amendment to Credit Agreement of even date herewith (the "Third
Amendment"), to
which this Reaffirmation is attached, executed by and among Huron Consulting
Group Inc. a Delaware corporation (the "Borrower"), the
undersigned Guarantors, and LASALLE
BANK NATIONAL ASSOCIATION, a
national banking association, as Administrative Agent (the "Administrative
Agent"),
Arranger and Lender, JPMORGAN
CHASE BANK NATIONAL ASSOCIATION, a
national banking association, as Co-Syndication Agent and Lender, FIFTH
THIRD BANK, a
Michigan banking corporation, as Co-Syndication Agent and Lender, BANK
OF AMERICA, N.A., a
national banking association, as Lender, NATIONAL
CITY BANK, a
national banking association, as Lender, HSBC
BANK USA, NATIONAL ASSOCIATION, a
national banking association (the foregoing six Lenders shall collectively be
referred to herein as the "Lenders"). All
capitalized terms used herein and not defined shall have the meanings assigned
to them in the respective Guaranty Agreements (each referred to herein as a
“Guaranty”) to
which each such Guarantor is a party, as referenced in Recitals B, E and I to
the Third Amendment. The definition of "Loan Documents" in the Credit Agreement
shall include each such Guaranty.
Each of
the Guarantors hereby expressly: (a) consents to the execution by the Borrower,
the Administrative Agent and the Lenders of the Third Amendment; (b)
acknowledges that the Company Obligations of the Borrower means all of the
"Obligations" of the Borrower as defined in the Credit Agreement, as amended by
the First Amendment to Credit Agreement dated as of December 29, 2006, the
Second Amendment to Credit Agreement dated as of February 23, 2007, and the
Third Amendment and as such may be further amended from time to time, and as
evidenced by the Replacement Notes (as defined in the Third Amendment), as
modified, extended and/or replaced from time to time, and that the obligations
with respect to each Guarantor, means all of "Guarantor Obligations", arising
under such Guarantor’s respective Guaranty; (c) acknowledges that such Guarantor
does not have any set-off, defense, or counterclaim to the payment or
performance of any or all of the Guarantor Obligations of such Guarantor under
its respective Guaranty; (d) reaffirms, assumes and binds itself in all respects
to all of the Guarantor’s obligations, liabilities, duties, covenants, terms and
conditions that are contained in its respective Guaranty; (e) agrees that all
Guarantor Obligations under its respective Guaranty shall continue in full force
and that the execution and delivery of the Third Amendment to, and its
acceptance by, the Administrative Agent and the Lenders shall not in any manner
whatsoever (i) impair or affect the liability of any Guarantor to the
Administrative Agent or any Lender under its respective Guaranty, (ii)
prejudice, waive, or be construed to impair, affect, prejudice or waive the
rights and abilities of the Administrative Agent or any Lender at law, in equity
or by statute, against any Guarantor pursuant to its respective
Guaranty, and/or (iii) release or discharge, nor be construed to release or
discharge, any of the Guarantor Obligations owing to the Administrative Agent or
any Lender by any Guarantor under its respective Guaranty; and (f) represents
and warrants that each of the representations and warranties made by such
Guarantor in any of the documents executed in connection with the Credit
Agreement remains true and correct as of the date hereof.
1
[SIGNATURE
PAGE TO FOLLOW]
2
IN
WITNESS WHEREOF, the undersigned have executed this Affirmation as of the
25th day of
May, 2007.
GUARANTORS:
HURON
CONSULTING GROUP HOLDINGS LLC,
a
Delaware limited liability company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
HURON
CONSULTING SERVICES LLC, a
Delaware
limited
liability company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
WELLSPRING
MANAGEMENT SERVICES LLC,
formerly
known as SPELTZ
& WEIS LLC,
a
Delaware
limited liability company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
HURON
(UK) LIMITED, a UK
limited liability company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
AAXIS
TECHNOLOGIES, INC., a
Virginia corporation
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
3
FAB
ADVISORY SERVICES, LLC, an
Illinois limited
liability
company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
GLASS
& ASSOCIATES, INC., a
Delaware
corporation
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
GLASS
EUROPE LIMITED,
a United
Kingdom Private Company
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
WELLSPRING
PARTNERS, LTD., a
Delaware
corporation
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
4
WELLSPRING
VALUATION, LTD., a
Delaware
corporation
By: /s/
Gary Burge
Name: Gary
Burge
Title: CFO
KABUSHIKI
KAISHA HURON
CONSULTING
GROUP
(JAPAN), a Japan
corporation
By: /s/
Stan Logan
Name: Stan
Logan
Title: Director
5
EXHIBIT
31.1
CERTIFICATION
OF THE CHIEF EXECUTIVE OFFICER,
PURSUANT
TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary
E. Holdren, certify that:
| 1. |
I
have reviewed this quarterly report on Form 10-Q of Huron Consulting Group
Inc.; |
| 2. |
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report; |
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report; |
| 4. |
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
| b) |
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles; |
| c) |
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and |
| d) |
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and |
| 5. |
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions): |
| a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and |
| b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting. |
|
Date: |
August 7,
2007 |
By: |
/s/
Gary E. Holdren |
||
|
Gary
E. Holdren |
|||||
|
Chairman,
Chief Executive Officer |
|||||
|
and
President |
EXHIBIT
31.2
CERTIFICATION
OF THE CHIEF FINANCIAL OFFICER,
PURSUANT
TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary
L. Burge, certify that:
| 1. |
I
have reviewed this quarterly report on Form 10-Q of Huron Consulting Group
Inc.; |
| 2. |
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report; |
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report; |
| 4. |
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
| b) |
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles; |
| c) |
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and |
| d) |
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and |
| 5. |
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
|
| a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and |
| b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting. |
|
Date: |
August 7,
2007 |
By: |
/s/
Gary L. Burge |
||
|
Gary
L. Burge |
|||||
|
Vice
President,
Chief
Financial Officer and Treasurer |
EXHIBIT
32.1
CERTIFICATION
OF THE CHIEF EXECUTIVE OFFICER,
PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Huron Consulting Group Inc. (the
“Company”) on Form 10-Q for the quarter ended June 30, 2007 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I,
Gary E. Holdren, Chairman and Chief Executive Officer of the Company, hereby
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
| 1. |
The
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
| 2. |
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
for the periods presented therein. |
|
Date: |
August 7,
2007 |
By: |
/s/
Gary E. Holdren |
||
|
Gary
E. Holdren |
|||||
|
Chairman,
Chief Executive Officer
and
President |
EXHIBIT
32.2
CERTIFICATION
OF THE CHIEF FINANCIAL OFFICER,
PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Huron Consulting Group Inc. (the
“Company”) on Form 10-Q for the quarter ended June 30, 2007 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I,
Gary L. Burge, Vice President, Chief Financial Officer and Treasurer of the
Company, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
| 1. |
The
Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
| 2. |
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
for the periods presented therein. |
|
Date: |
August 7,
2007 |
By: |
/s/
Gary L. Burge |
||
|
Gary
L. Burge |
|||||
|
Vice
President,
Chief
Financial Officer and Treasurer |