10-Q
Table of Contents




 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
FORM 10–Q 
 
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
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 of
incorporation or organization)
 
(IRS Employer
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  ý    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
  
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o
  
Smaller reporting company
 
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  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 15, 2015, 22,934,318 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
 


Table of Contents




Huron Consulting Group Inc.
HURON CONSULTING GROUP INC.
INDEX

 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 



Table of Contents




PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HURON CONSULTING GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited) 
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
13,462

 
$
256,872

Receivables from clients, net
123,984

 
98,640

Unbilled services, net
82,447

 
91,392

Income tax receivable
4,778

 
8,125

Deferred income taxes, net
9,228

 
14,772

Prepaid expenses and other current assets
22,962

 
16,358

Total current assets
256,861

 
486,159

Property and equipment, net
47,457

 
44,677

Long-term investment
34,050

 
12,250

Other non-current assets
24,525

 
20,998

Intangible assets, net
102,450

 
24,684

Goodwill
806,801

 
567,146

Total assets
$
1,272,144

 
$
1,155,914

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
9,718

 
$
11,085

Accrued expenses
25,227

 
17,315

Accrued payroll and related benefits
62,600

 
106,488

Current maturities of long-term debt

 
28,750

Deferred revenues
22,721

 
12,738

Total current liabilities
120,266

 
176,376

Non-current liabilities:
 
 
 
Deferred compensation and other liabilities
16,204

 
10,838

Long-term debt, net of current portion
419,426

 
327,852

Deferred lease incentives
14,535

 
13,359

Deferred income taxes, net
53,842

 
26,855

Total non-current liabilities
504,007

 
378,904

Commitments and contingencies

 

Stockholders’ equity
 
 
 
Common stock; $0.01 par value; 500,000,000 shares authorized; 25,142,424 and 24,976,395 shares issued at September 30, 2015 and December 31, 2014, respectively
243

 
241

Treasury stock, at cost, 2,207,972 and 2,097,173 shares at September 30, 2015 and December 31, 2014, respectively
(101,239
)
 
(94,074
)
Additional paid-in capital
453,317

 
442,308

Retained earnings
294,523

 
254,814

Accumulated other comprehensive income (loss)
1,027

 
(2,655
)
Total stockholders’ equity
647,871

 
600,634

Total liabilities and stockholders’ equity
$
1,272,144

 
$
1,155,914


The accompanying notes are an integral part of the consolidated financial statements.

1

Table of Contents




HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND OTHER COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues and reimbursable expenses:
 
 
 
 
 
 
 
Revenues
$
209,881

 
$
198,049

 
$
621,378

 
$
618,185

Reimbursable expenses
17,356

 
18,679

 
55,900

 
58,923

Total revenues and reimbursable expenses
227,237

 
216,728

 
677,278

 
677,108

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
 
 
 
 
 
 
 
Direct costs
115,587

 
129,899

 
366,078

 
377,798

Amortization of intangible assets and software development costs
4,796

 
1,227

 
12,277

 
3,618

Reimbursable expenses
17,103

 
18,651

 
55,826

 
58,981

Total direct costs and reimbursable expenses
137,486

 
149,777

 
434,181

 
440,397

Operating expenses and other operating (gains) losses:
 
 
 
 
 
 
 
Selling, general and administrative expenses
43,629

 
39,276

 
132,627

 
120,148

Restructuring charges
303

 
233

 
2,490

 
1,396

Litigation and other (gains) losses

 
(150
)
 
524

 
(590
)
Depreciation and amortization
8,994

 
6,315

 
25,771

 
18,638

Total operating expenses and other operating (gains) losses
52,926

 
45,674

 
161,412

 
139,592

Operating income
36,825

 
21,277

 
81,685

 
97,119

Other income (expense), net:
 
 
 
 
 
 
 
Interest expense, net of interest income
(4,642
)
 
(1,878
)
 
(13,800
)
 
(4,843
)
Other income (expense), net
(1,379
)
 
(54
)
 
(1,939
)
 
291

Total other expense, net
(6,021
)
 
(1,932
)
 
(15,739
)
 
(4,552
)
Income before income tax expense
30,804

 
19,345

 
65,946

 
92,567

Income tax expense
11,430

 
7,126

 
26,237

 
26,309

Net income
$
19,374

 
$
12,219

 
$
39,709

 
$
66,258

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.88

 
$
0.54

 
$
1.79

 
$
2.94

Diluted
$
0.86

 
$
0.53

 
$
1.76

 
$
2.87

Weighted average shares used in calculating earnings per share:
 
 
 
 
 
 
 
Basic
22,107

 
22,488

 
22,151

 
22,573

Diluted
22,592

 
22,975

 
22,616

 
23,052

Comprehensive income:
 
 
 
 
 
 
 
Net income
$
19,374

 
$
12,219

 
$
39,709

 
$
66,258

Foreign currency translation loss, net of tax
(615
)
 
(1,127
)
 
(201
)
 
(735
)
Unrealized gain on investment, net of tax

 
152

 
4,135

 
152

Unrealized gain (loss) on cash flow hedging instruments, net of tax
(91
)
 
304

 
(252
)
 
124

Other comprehensive income (loss)
(706
)
 
(671
)
 
3,682

 
(459
)
Comprehensive income
$
18,668

 
$
11,548

 
$
43,391

 
$
65,799

The accompanying notes are an integral part of the consolidated financial statements.


2

Table of Contents




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
Comprehensive
Income (Loss)
 
Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2014
24,115,593

 
$
241

 
(2,109,316
)
 
$
(94,074
)
 
$
442,308

 
$
254,814

 
$
(2,655
)
 
$
600,634

Comprehensive income
 
 
 
 
 
 
 
 
 
 
39,709

 
3,682

 
43,391

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
404,525

 
4

 
(34,695
)
 
(1,971
)
 
1,967

 
 
 
 
 

Business acquisition
28,486

 

 
 
 
 
 
2,204

 
 
 
 
 
2,204

Share-based compensation
 
 
 
 
 
 
 
 
17,239

 
 
 
 
 
17,239

Shares redeemed for employee tax withholdings
 
 
 
 
(76,670
)
 
(5,194
)
 
 
 
 
 
 
 
(5,194
)
Income tax benefit on share-based compensation
 
 
 
 
 
 
 
 
3,095

 
 
 
 
 
3,095

Share repurchases
(217,279
)
 
(2
)
 
 
 
 
 
(13,496
)
 
 
 
 
 
(13,498
)
Balance at September 30, 2015
24,331,325

 
$
243

 
(2,220,681
)
 
$
(101,239
)
 
$
453,317

 
$
294,523

 
$
1,027

 
$
647,871

The accompanying notes are an integral part of the consolidated financial statements.


3

Table of Contents




HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended
September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
39,709

 
$
66,258

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
38,220

 
22,636

Share-based compensation
15,288

 
15,504

Amortization of debt discount and issuance costs
6,985

 
1,482

Allowances for doubtful accounts and unbilled services
(1,605
)
 
8,829

Deferred income taxes
13,407

 
1,817

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
(Increase) decrease in receivables from clients
(14,725
)
 
26,807

(Increase) decrease in unbilled services
15,179

 
(44,020
)
(Increase) decrease in current income tax receivable / payable, net
3,704

 
(9,690
)
(Increase) decrease in other assets
(5,381
)
 
3,258

Increase (decrease) in accounts payable and accrued liabilities
8,459

 
11,466

Increase (decrease) in accrued payroll and related benefits
(43,510
)
 
(9,565
)
Increase (decrease) in deferred revenues
7,507

 
(2,661
)
Net cash provided by operating activities
83,237

 
92,121

Cash flows from investing activities:
 
 
 
Purchases of property and equipment, net
(15,040
)
 
(16,683
)
Investment in life insurance policies
(4,823
)
 
(1,151
)
Purchases of businesses
(332,766
)
 
(51,694
)
Purchases of convertible debt investment
(15,138
)
 
(12,500
)
Capitalization of internally developed software costs
(735
)
 

Proceeds from note receivable

 
328

Net cash used in investing activities
(368,502
)
 
(81,700
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options

 
848

Shares redeemed for employee tax withholdings
(5,194
)
 
(3,461
)
Tax benefit from share-based compensation
3,117

 
4,962

Share repurchases
(13,498
)
 
(45,092
)
Proceeds from borrowings under credit facility
272,000

 
129,000

Repayments on credit facility
(214,500
)
 
(147,750
)
Proceeds from convertible senior notes issuance

 
250,000

Proceeds from sale of warrants

 
23,625

Payments for convertible senior note hedge

 
(42,125
)
Payments for debt issue costs

 
(7,346
)
Payments for capital lease obligations
(48
)
 
(63
)
Deferred payments for purchase of property and equipment

 
(471
)
Deferred acquisition payment

 
(4,745
)
Net cash provided by financing activities
41,877

 
157,382

Effect of exchange rate changes on cash
(22
)
 
(21
)
Net (decrease) increase in cash and cash equivalents
(243,410
)
 
167,782

Cash and cash equivalents at beginning of the period
256,872

 
58,131

Cash and cash equivalents at end of the period
$
13,462

 
$
225,913

Supplemental disclosure of cash flow information:
 
 
 
Non-cash investing and financing activities:
 
 
 
Property and equipment expenditures included in accounts payable and accrued expenses
$
2,201

 
$
2,755

Contingent consideration related to business acquisitions
$
900

 
$
590

Common stock issued related to business acquisition
$
2,204

 
$

The accompanying notes are an integral part of the consolidated financial statements.

4

Table of Contents

HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)


1. Description of Business
We are a leading provider of operational and financial consulting services. We help clients in diverse industries improve performance, transform the enterprise, reduce costs, leverage technology, process and review large amounts of complex data, address regulatory changes, recover from distress, and stimulate growth. Our professionals employ their expertise in finance, operations, strategy, analytics, and technology to provide our clients with specialized analyses and customized advice and solutions that are tailored to address each client’s particular challenges and opportunities to deliver sustainable and measurable results. We provide consulting services to a wide variety of both financially sound and distressed organizations, including healthcare organizations, leading academic institutions, Fortune 500 companies, governmental entities, and law firms.
2. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements reflect the financial position, results of operations, and cash flows as of and for the three and nine months ended September 30, 2015 and 2014. These financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q. Accordingly, these financial statements do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements. In the opinion of management, these financial statements reflect all adjustments of a normal, recurring nature necessary for the fair statement of our financial position, results of operations, and cash flows for the interim periods presented in conformity with GAAP. These financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto for the year ended December 31, 2014 included in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2015 and June 30, 2015.
Certain amounts reported in the previous year have been reclassified to conform to the 2015 presentation. Our results for any interim period are not necessarily indicative of results for a full year or any other interim period.
3. New Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance is effective for us beginning in the first quarter of 2016 with early adoption permitted. The guidance may be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We are currently evaluating the potential effect this guidance will have on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements: Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after the adoption of ASU 2015-03. ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This guidance is effective for us beginning in the first quarter of 2016 and will be applied on a retrospective basis. Early adoption is permitted. We are currently evaluating the potential effect this guidance will have on our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which amends the consolidation requirements in Accounting Standards Codification (“ASC”) 810, Consolidation. ASU 2015-02 makes targeted amendments to the current consolidation guidance, which could change consolidation conclusions. This guidance will be effective for us beginning in the first quarter of 2016 and early adoption is permitted. We do not expect the adoption of this guidance to have any impact on our consolidated financial statements.

5

Table of Contents

HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. As a result, ASU 2014-09, as amended, is effective for us beginning in the first quarter of 2018 and is to be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption will be permitted as of the original effective date in ASU 2014-09 (i.e., annual reporting periods beginning after December 15, 2016). We are currently evaluating the potential effect of adopting this guidance on our consolidated financial statements, as well as the transition methods.
4. Goodwill and Intangible Assets
The table below sets forth the changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2015.
 
Huron
Healthcare
 
Huron
Education
and Life
Sciences
 
Huron
Legal
 
Huron
Business
Advisory
 
Total
Balance as of December 31, 2014:
 
 
 
 
 
 
 
 
 
Goodwill
$
377,588

 
$
102,906

 
$
52,555

 
$
177,080

 
$
710,129

Accumulated impairment

 

 

 
(142,983
)
 
(142,983
)
Goodwill, net as of December 31, 2014
377,588

 
102,906

 
52,555

 
34,097

 
567,146

Goodwill recorded in connection with business acquisitions
232,676

 

 
7,363

 
448

 
240,487

Foreign currency translation

 

 
(219
)
 
(613
)
 
(832
)
Goodwill, net as of September 30, 2015
$
610,264

 
$
102,906

 
$
59,699

 
$
33,932

 
$
806,801

Refer to Note 5 “Acquisitions” for additional information on our recent acquisitions.
Intangible assets as of September 30, 2015 and December 31, 2014 consisted of the following: 
 
 
 
September 30, 2015
 
December 31, 2014
 
Useful
Life in
Years
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Customer contracts
1 to 4
 
$
25,373

 
$
8,634

 
$
243

 
$
71

Customer relationships
3 to 13
 
84,971

 
27,585

 
42,345

 
21,228

Non-competition agreements
2 to 5
 
3,700

 
1,728

 
3,495

 
1,072

Trade names
5 to 8
 
22,920

 
3,906

 
160

 
67

Technology and software
3 to 7
 
9,851

 
5,124

 
4,321

 
3,461

Publishing content
3
 
3,300

 
688

 

 

License
2
 

 

 
50

 
31

Total
 
 
$
150,115

 
$
47,665

 
$
50,614

 
$
25,930

Identifiable intangible assets with finite lives are amortized over their estimated useful lives. The majority of customer relationships, as well as the customer contracts and trade name acquired in the acquisition of Studer Group, are amortized on an accelerated basis to correspond to the cash flows expected to be derived from the assets. All other intangible assets are amortized on a straight-line basis. Refer to Note 5 “Acquisitions” for additional information on the intangible assets acquired in the Studer Group acquisition.

6

Table of Contents

HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

Intangible assets amortization expense was $8.3 million and $22.0 million for the three and nine months ended September 30, 2015, respectively. Intangible asset amortization expense was $2.8 million and $8.3 million for the three and nine months ended September 30, 2014, respectively. The table below sets forth the estimated annual amortization expense for the year ending December 31, 2015 and each of the five succeeding years for the intangible assets recorded as of September 30, 2015.
Year Ending December 31,
 
Estimated Amount
2015
 
$
30,318

2016
 
$
29,372

2017
 
$
24,950

2018
 
$
14,660

2019
 
$
9,241

2020
 
$
5,664

Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions and other factors.
5. Acquisitions
Studer Holdings, Inc.
On February 12, 2015, we acquired 100% of the outstanding stock of Studer Holdings, Inc. (“Studer Group”) from the existing shareholders in accordance with an Agreement and Plan of Merger dated January 26, 2015 (the “Merger Agreement”). Studer Group is a professional services firm that assists healthcare providers achieve cultural transformation to deliver and sustain improvement in clinical outcomes and financial results. The acquisition combines Huron Healthcare’s performance improvement and clinical transformation capabilities with Studer Group’s Evidence-Based LeadershipSM framework to provide leadership and cultural transformation expertise for healthcare provider clients.
The acquisition date fair value of the consideration transferred for Studer Group was approximately $325.2 million, which consisted of the following:
 
Fair value of consideration transferred
 
Cash
$
323,237

Common stock
2,204

Net working capital adjustment
(255
)
Total consideration transferred
$
325,186

We funded the cash component of the purchase price with cash on hand and borrowings of $102.0 million under our senior secured credit facility. We issued 28,486 shares of our common stock as part of the consideration transferred, with an acquisition date fair value of $2.2 million based on the closing price of $77.35 on the date of acquisition.
The acquisition was accounted for using the acquisition method of accounting. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The current fair values of assets acquired and liabilities assumed are considered preliminary and are based on the information that was available as of the date of the acquisition. We believe that the information provides a reasonable basis for estimating the preliminary fair values of assets acquired and liabilities assumed, but certain items, such as taxes payable and deferred taxes, among other things, may be subject to change as additional information is received. Thus, the provisional measurements of fair value and goodwill are subject to change. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

7

Table of Contents

HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

The following table summarizes the preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed as of the acquisition date.
 
 
Amount
Assets acquired:
 
Accounts receivable
$
14,906

Prepaid expenses and other current assets
1,385

Deferred income tax asset
4,335

Property and equipment
4,509

Intangible assets
97,500

Liabilities assumed:
 
Accounts payable
760

Accrued expenses and other current liabilities
2,868

Accrued payroll and related benefits
1,574

Deferred revenues
2,449

Deferred income tax liability
21,263

Other non-current liabilities
1,211

Total identifiable net assets
92,510

Goodwill
232,676

Total purchase price
$
325,186

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the acquisition date. 
 
Fair Value
 
Useful Life in
Years
Customer relationships
$
42,400

 
9
Customer contracts
25,100

 
4
Trade name
22,800

 
5
Technology and software
3,900

 
3
Publishing content
3,300

 
3
Total intangible assets subject to amortization
$
97,500

 
 
The weighted-average amortization period for the identifiable intangible assets shown above is 6.3 years. Customer relationships and customer contracts represent the fair values of the underlying relationships and agreements with Studer Group customers. The trade name represents the fair value of the brand and name recognition associated with the marketing of Studer Group’s service offerings. Technology and software and publishing content represent the estimated fair values of Studer Group’s software and books that are sold to customers. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed, and largely reflects the expanded market opportunities expected from combining the service offerings of Huron and Studer Group, as well as the assembled workforce of Studer Group. Goodwill recognized in conjunction with the acquisition of Studer Group was recorded in the Huron Healthcare segment. Goodwill of $119.5 million is expected to be deductible for income tax purposes.
Studer Group’s results of operations have been included in our unaudited consolidated statements of earnings and other comprehensive income and results of operations of our Huron Healthcare segment from the date of acquisition. For the three months ended September 30, 2015, revenues from Studer Group were $22.3 million and operating income was $1.6 million, which included $6.1 million of amortization expense for intangible assets acquired. For the nine months ended September 30, 2015, revenues from Studer Group were $56.0 million and operating income was $3.6 million, which included $15.2 million of amortization expense for intangible assets acquired. In connection with the acquisition of Studer Group, we incurred $2.1 million of transaction and acquisition-related expenses, $0.9 million of which were incurred in the fourth quarter of 2014, $1.0

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

million of which were incurred in the first quarter of 2015, and the remaining $0.2 million were incurred in the second quarter of 2015. These costs are recorded in selling, general, and administrative expenses in the period in which they were incurred.
The following supplemental pro forma information summarizes the combined results of operations for Huron and Studer Group as though the companies were combined on January 1, 2014.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
209,881

 
$
218,409

 
$
632,200

 
$
674,118

Net income
$
19,606

 
$
10,173

 
$
41,016

 
$
60,988

Net income per share - basic
$
0.89

 
$
0.45

 
$
1.85

 
$
2.70

Net income per share - diluted
$
0.87

 
$
0.44

 
$
1.81

 
$
2.64

The historical financial information has been adjusted to give effect to pro forma adjustments, which consist of intangible assets amortization expense, transaction and acquisition-related costs, interest expense, the related income tax effects, and shares issued as consideration. These adjustments are based upon currently available information and certain assumptions. Therefore, the pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations actually would have been had it completed the acquisition on January 1, 2014. The historical results included in the pro forma consolidated results do not purport to project future results of operations of the combined companies nor do they reflect the expected realization of any cost savings or revenue synergies associated with the acquisition.
Sky Analytics, Inc.
Effective January 1, 2015, we completed the acquisition of Sky Analytics, Inc. ("Sky Analytics"), a Massachusetts-based provider of legal spend management software for corporate law departments. The acquisition date fair value of the consideration transferred totaled $9.7 million, which included cash of $8.8 million and the fair value of contingent consideration of $0.9 million. As part of the purchase price allocation, we recorded $2.0 million of intangible assets and $7.4 million of goodwill. The goodwill balance is not deductible for income tax purposes. Sky Analytics' results of operations have been included in our unaudited consolidated financial statements and results of operations of our Huron Legal segment from the date of acquisition.
Rittman Mead India
Effective July 1, 2015, we completed the acquisition of Rittman Mead Consulting Private Limited ("Rittman Mead India"), the India affiliate of Rittman Mead Consulting Ltd. Rittman Mead India is a data and analytics consulting firm that specializes in the implementation of enterprise performance management and analytics systems. The acquisition date fair value of the consideration transferred totaled $1.2 million. Rittman Mead India's results of operations have been included in our unaudited consolidated financial statements and results of operations of our Huron Business Advisory segment from the date of acquisition.

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

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. Such securities or other contracts include unvested restricted stock awards, outstanding common stock options, convertible senior notes, and outstanding warrants, to the extent dilutive. Earnings per share under the basic and diluted computations are as follows: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
19,374

 
$
12,219

 
$
39,709

 
$
66,258

Weighted average common shares outstanding – basic
22,107

 
22,488

 
22,151

 
22,573

Weighted average common stock equivalents
485

 
487

 
465

 
479

Weighted average common shares outstanding – diluted
22,592

 
22,975

 
22,616

 
23,052

Earnings per share:
 
 
 
 

 

Basic
$
0.88

 
$
0.54

 
$
1.79

 
$
2.94

Diluted
$
0.86

 
$
0.53

 
$
1.76

 
$
2.87

The number of anti-dilutive securities excluded from the computation of the weighted average common stock equivalents presented above is shown in the following table.
 
As of September 30,
 
2015
 
2014
Unvested restricted stock awards

 
14

Convertible senior notes
3,129

 
3,129

Warrants related to the issuance of convertible senior notes
3,129

 
3,129

Total anti-dilutive securities
6,258

 
6,272

See Note 7 “Financing Arrangements” for further information on the convertible senior notes and warrants related to the issuance of convertible notes.
In October 2014, our board of directors authorized a share repurchase program pursuant to which we may, from time to time, repurchase up to $50 million of our common stock through October 31, 2015 (the “October 2014 Share Repurchase Program”). In October 2015, our board of directors authorized an extension of the October 2014 Share Repurchase Program through October 31, 2016. The amount and timing of the repurchases will be determined by management and will depend on a variety of factors, including the trading price of our common stock, general market and business conditions, and applicable legal requirements. In the second quarter of 2015, 217,279 shares were repurchased and retired for $13.5 million under the October 2014 Share Repurchase Program. No shares were repurchased in the first or third quarter of 2015.

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

7. Financing Arrangements
A summary of the carrying amounts of our debt is as follows:
 
September 30,
2015
 
December 31,
2014
1.25% convertible senior notes due 2019
$
218,176

 
$
212,852

Senior secured credit facility
201,250

 
143,750

Total debt
419,426

 
356,602

Current maturities of debt

 
(28,750
)
Long-term debt, net of current portion
$
419,426

 
$
327,852

Convertible Notes
In September 2014, the Company issued $250 million principal amount of 1.25% convertible senior notes due 2019 (the “Convertible Notes”) in a private offering. The Convertible Notes are governed by the terms of an indenture between the Company and U.S. Bank National Association, as Trustee (the “Indenture”). The Convertible Notes are senior unsecured obligations of the Company and will pay interest semi-annually on April 1 and October 1 of each year at an annual rate of 1.25%. The Convertible Notes will mature on October 1, 2019, unless earlier repurchased by the Company or converted in accordance with their terms.
Upon conversion, the Convertible Notes will be settled, at our election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amount of the Convertible Notes paid in cash, in accordance with the settlement provisions of the Indenture.
The initial conversion rate for the Convertible Notes is 12.5170 shares of our common stock per $1,000 principal amount of the Convertible Notes, which is equal to an initial conversion price of approximately $79.89 per share of our common stock. The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest, except in certain limited circumstances described in the Indenture. Upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture) the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change. Additionally, if the Company undergoes a “fundamental change” (as defined in the Indenture), a holder will have the option to require the Company to repurchase all or a portion of its Convertible Notes for cash at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest. As discussed below, the warrants, which were entered into in connection with the Convertible Notes, effectively raise the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share.
Holders of the Convertible Notes may convert their Convertible Notes at their option at any time prior to July 1, 2019, only under the following circumstances: 
during any calendar quarter (and only during such calendar quarter) commencing after December 31, 2014 if, for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter, the last reported sale price of the Company’s common stock for such trading day is equal to or greater than 130% of the applicable conversion price on such trading day;
during the five consecutive business day period immediately following any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which, for each trading day of the measurement period, the “trading price” (as defined in the Indenture) per $1,000 principal amount of the Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock for such trading day and the applicable conversion rate on such trading day; or
upon the occurrence of specified corporate transactions described in the Indenture.

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

On or after July 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or a portion of its Convertible Notes, regardless of the foregoing circumstances.
In accordance with ASC 470, Debt, we have separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated convertible feature, assuming our non-convertible debt borrowing rate. The carrying value of the equity component representing the conversion option, which is recognized as a debt discount, was determined by deducting the fair value of the liability component from the proceeds of the Convertible Notes. The debt discount is amortized to interest expense using an effective interest rate of 4.751% over the term of the Convertible Notes. As of September 30, 2015, the remaining life of the Convertible Notes is 4.0 years. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.
As of September 30, 2015 and December 31, 2014, the Convertible Notes consisted of the following: 
 
September 30,
2015
 
December 31,
2014
Liability component:
 
 
 
Proceeds
$
250,000

 
$
250,000

Less: debt discount, net of amortization
(31,824
)
 
(37,148
)
Net carrying amount
$
218,176

 
$
212,852

Equity component(1)
$
39,287

 
$
39,287

 
(1)
Included in Additional paid-in capital on the consolidated balance sheet.
The transaction costs related to the issuance of the Convertible Notes were separated into liability and equity components based on their relative values, as determined above. Transaction costs attributable to the liability component are capitalized and amortized to interest expense over the term of the Convertible Notes, and transaction costs attributable to the equity component were netted with the equity component of the Convertible Notes in stockholders’ equity. Total debt issuance costs were approximately $7.3 million, of which $6.2 million was allocated to liability issuance costs and $1.1 million was allocated to equity issuance costs.
The following table presents the amount of interest expense recognized related to the Convertible Notes for the periods presented. 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Contractual interest coupon
$
781

 
$
182

 
$
2,344

 
$
182

Amortization of debt issuance costs
295

 
68

 
883

 
68

Amortization of debt discount
1,795

 
406

 
5,324

 
406

Total interest expense
$
2,871

 
$
656

 
$
8,551

 
$
656

In connection with the issuance of the Convertible Notes, we entered into convertible note hedge transactions and warrant transactions. The convertible note hedge transactions are intended to reduce the potential future economic dilution associated with the conversion of the Convertible Notes and, combined with the warrants, effectively raise the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share. For purposes of the computation of diluted earnings per share in accordance with GAAP, dilution will occur when the average share price of our common stock for a given period exceeds the conversion price of the Convertible Notes, which initially is equal to approximately $79.89 per share. The convertible note hedge transactions and warrant transactions are discussed separately below.
 

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

Convertible Note Hedge Transactions. In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions whereby the Company has call options to purchase a total of approximately 3.1 million shares of the Company’s common stock, which is the number of shares initially issuable upon conversion of the Convertible Notes in full, at a price of approximately $79.89, which corresponds to the initial conversion price of the Convertible Notes, subject to customary anti-dilution adjustments substantially similar to those in the Convertible Notes. The convertible note hedge transactions are exercisable upon conversion of the Convertible Notes and will expire in 2019 if not earlier exercised. We paid an aggregate amount of $42.1 million for the convertible note hedge transactions, which was recorded as additional paid-in capital in the consolidated balance sheets. The convertible note hedge transactions are separate transactions and are not part of the terms of the Convertible Notes.
Warrants. In connection with the issuance of the Convertible Notes, the Company sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 3.1 million shares of the Company’s common stock at a strike price of approximately $97.12. The warrants will expire incrementally on 100 different dates from January 6, 2020 to May 28, 2020 and are exercisable at each such expiry date. If the average market value per share of our common stock for the reporting period exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share. We received aggregate proceeds of $23.6 million from the sale of the warrants, which was recorded as additional paid-in capital in the consolidated balance sheets. The warrants are separate transactions and are not part of the terms of the Convertible Notes or the convertible note hedge transactions.
The Company recorded an initial deferred tax liability of $15.4 million in connection with the debt discount associated with the Convertible Notes and recorded an initial deferred tax asset of $16.5 million in connection with the convertible note hedge transactions. The deferred tax liability and deferred tax asset are included in non-current deferred tax liabilities on the consolidated balance sheets.
Senior Secured Credit Facility
On March 31, 2015, the Company and certain of the Company’s subsidiaries entered into a Second Amended and Restated Credit Agreement dated as of March 31, 2015 (the “Amended Credit Agreement”) by and among the Company, as borrower, certain subsidiaries of the Company, as guarantors, the lenders identified therein, and Bank of America, N.A., as administrative agent and collateral agent, consisting of a $500 million five-year senior secured revolving credit facility. The Amended Credit Agreement becomes due and payable in full upon maturity on March 31, 2020. The Amended Credit Agreement amended and restated, in its entirety, the credit agreement entered into as of April 14, 2011 (as amended and modified, the “Existing Credit Agreement”). The Amended Credit Agreement provides for, among other things, an extension of the maturity date and a reduction in pricing, and replaced the existing revolving credit and term loan facility with an increased revolving credit facility.
The Amended Credit Agreement provides for the option to increase the revolving credit facility or establish term loan facilities in an aggregate amount of up to $100 million, subject to customary conditions and the approval of any lender whose commitment would be increased, resulting in a maximum available principal amount under the Amended Credit Agreement of $600 million.
The initial borrowings under the Amended Credit Agreement were used to refinance borrowings outstanding under the Existing Credit Agreement, and future borrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, share repurchases, and general corporate purposes.
Fees and interest on borrowings vary based on our Consolidated Leverage Ratio (as defined in the Amended Credit Agreement). At our option, borrowings under the Amended Credit Agreement will bear interest at one, two, three or six-month LIBOR or an alternate base rate, in each case plus the applicable margin. The applicable margin will fluctuate between 1.25% per annum and 1.75% per annum, in the case of LIBOR borrowings, or between 0.25% per annum and 0.75% per annum, in the case of base rate loans, based upon our Consolidated Leverage Ratio at such time.
Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty. We are required to prepay the amounts outstanding under the Amended Credit Agreement in certain circumstances, including a requirement to pay all amounts outstanding under the Amended Credit Agreement 90 days prior to the Convertible Indebtedness Maturity Date (as defined in the Amended Credit Agreement) unless (1) the Convertible Indebtedness Maturity Date is waived or extended to a later date, (2) the Company can demonstrate (a) Liquidity (as defined in the Amended Credit Agreement) in an

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

amount at least equal to the principal amount due on the Convertible Indebtedness Maturity Date, and (b) financial covenant compliance after giving effect to such payments and any additional indebtedness incurred on a pro forma basis, or (3) this requirement is waived by the Required Lenders (as defined in the Amended Credit Agreement). In addition, we have the right to permanently reduce or terminate the unused portion of the commitments provided under the Amended Credit Agreement at any time.
The loans and obligations under the Amended Credit Agreement are secured pursuant to a Second Amended and Restated Security Agreement and a Second Amended and Restated Pledge Agreement (the “Amended Pledge Agreement”) with Bank of America, N.A. as collateral agent, pursuant to which the Company and the subsidiary guarantors grant Bank of America, N.A., for the ratable benefit of the lenders under the Amended Credit Agreement, a first-priority lien, subject to permitted liens, on substantially all of the personal property assets of the Company and the subsidiary guarantors, and a pledge of 100% of the stock or other equity interests in all domestic subsidiaries and 65% of the stock or other equity interests in each “material first-tier foreign subsidiary” (as defined in the Amended Pledge Agreement).
The Amended Credit Agreement contains usual and customary representations and warranties; affirmative and negative covenants, which include limitations on liens, investments, additional indebtedness, and restricted payments; and two quarterly financial covenants as follows: (i) a maximum Consolidated Leverage Ratio of either 3.25 to 1.00 or 3.50 to 1.00, depending on the measurement period, and (ii) a minimum Consolidated Interest Coverage Ratio (as defined in the Amended Credit Agreement) of 3.50 to 1.00. At September 30, 2015, we were in compliance with these financial covenants with a Consolidated Leverage Ratio of 2.49 to 1.00 and a Consolidated Interest Coverage Ratio of 18.30 to 1.00.
Borrowings outstanding under the Amended Credit Agreement at September 30, 2015 totaled $201.3 million. These borrowings carried a weighted average interest rate of 2.3%, including the effect of the interest rate swaps described below in Note 9 “Derivative Instruments and Hedging Activity." Borrowings outstanding under the Existing Credit Agreement at December 31, 2014 were $143.8 million and carried a weighted average interest rate of 2.3%. The borrowing capacity under the revolving credit facility is reduced by any outstanding borrowings under the revolving credit facility and outstanding letters of credit. At September 30, 2015, we had outstanding letters of credit totaling $5.2 million, which are primarily used as security deposits for our office facilities. As of September 30, 2015, the unused borrowing capacity under the revolving credit facility was $293.5 million.
8. Restructuring Charges
During the third quarter of 2015, we incurred a $0.3 million pretax restructuring charge primarily related to updated assumptions for the lease accrual of the Washington, D.C. space vacated in the fourth quarter of 2014. During the second quarter of 2015, we incurred a $0.6 million pretax restructuring charge primarily related to workforce reductions in our All Other segment as we continue to wind down our public sector consulting practice and our foreign consulting operations based in the Middle East. During the first quarter of 2015, we incurred a $1.6 million pretax restructuring charge primarily related to workforce reductions. Of the $1.6 million charge, $1.0 million related to our Huron Legal segment, $0.5 million related to our All Other segment, and the remaining $0.1 million related to our corporate operations.
During the third quarter of 2014, we incurred a $0.2 million pretax restructuring charge primarily related to updated assumptions for the lease accrual of the London office space vacated in the second quarter of 2014. During the second quarter of 2014, we incurred a $1.0 million pretax restructuring charge related to the consolidation of office spaces in Chicago, New York, and London. Of the total $1.0 million charge, $0.6 million related to the accrual of our remaining lease obligations at vacated spaces, net of estimated sublease income, and $0.4 million related to accelerated depreciation of assets disposed of as a result of the space consolidation. The vacated locations in Chicago and New York were acquired as part of business acquisitions during 2013 and 2014. During the first quarter of 2014, we incurred a $0.1 million pretax restructuring charge related to workforce reductions in our London office to better align our resources with market demand in our Huron Legal segment.
As of September 30, 2015, our restructuring charge liability was $1.0 million which primarily represents the present value of remaining lease payments for our vacated office space in Washington, D.C. As of December 31, 2014, our restructuring charge liability was $1.2 million, and primarily consisted of the present value of remaining lease payments, net of estimated sublease income, for our vacated office spaces in Washington, D.C., Chicago, and New York. The restructuring charge liabilities are included as a component of Accrued expenses and Deferred compensation and other liabilities.

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Table of Contents

HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

9. Derivative Instruments and Hedging Activity
On December 8, 2011, we entered into a forward amortizing interest rate swap agreement effective on February 29, 2012 and ending on April 14, 2016. We entered into this derivative instrument to hedge against the interest rate risks of our variable-rate borrowings described in Note 7 “Financing Arrangements.” The swap had an initial notional amount of $56.6 million and amortizes throughout the term. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one-month LIBOR and we pay to the counterparty a fixed rate of 0.9875%.
On May 30, 2012, we entered into an amortizing interest rate swap agreement effective on May 31, 2012 and ending on April 14, 2016. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings. The swap had an initial notional amount of $37.0 million and amortizes throughout the term. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one-month LIBOR and we pay to the counterparty a fixed rate of 0.70%. 
On April 4, 2013, we entered into a forward amortizing interest rate swap agreement effective on March 31, 2014 and ending on August 31, 2017. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings. The swap has an initial notional amount of $60.0 million and amortizes throughout the term. Under the terms of the interest rate swap agreement, we will receive from the counterparty interest on the notional amount based on one-month LIBOR and we will pay to the counterparty a fixed rate of 0.985%.
ASC 815, Derivatives and Hedging, requires companies to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. In accordance with ASC 815, we have designated these derivative instruments as cash flow hedges. As such, changes in the fair value of the derivative instruments are recorded as a component of other comprehensive income (“OCI”) to the extent of effectiveness and reclassified into interest expense upon settlement. The ineffective portion of the change in fair value of the derivative instruments is recognized in interest expense. As of September 30, 2015, it was anticipated that $0.3 million of the losses, net of tax, currently recorded in accumulated other comprehensive income will be reclassified into earnings within the next 12 months. Our interest rate swap agreements were effective during the three and nine months ended September 30, 2015, inclusive of consideration of our credit facility amendment discussed in Note 7 “Financing Arrangements.”
The table below sets forth additional information relating to these interest rate swaps designated as cash flow hedging instruments as of September 30, 2015 and December 31, 2014.
 
 
Fair Value (Derivative Asset and Liability)
Balance Sheet Location
 
September 30,
2015
 
December 31,
2014
Other non-current assets
 
$

 
$
516

Accrued expenses
 
$
487

 
$
643

Deferred compensation and other liabilities
 
$
67

 
$
10

All of the Company’s derivative instruments are transacted under the International Swaps and Derivatives Association (ISDA) master agreements. These agreements permit the net settlement of amounts owed in the event of default and certain other termination events. Although netting is permitted, it is the Company’s policy to record all derivative assets and liabilities on a gross basis on the Consolidated Balance Sheets. All of the Company’s derivative instruments as of September 30, 2015 and December 31, 2014 were held with the same counterparty.
We do not use derivative instruments for trading or other speculative purposes. Refer to Note 11 “Other Comprehensive Income (Loss)” for additional information on our derivative instruments.

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Table of Contents

HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

10. Fair Value of Financial Instruments
Certain of our assets and liabilities are measured at fair value. ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy for inputs used in measuring fair value and requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy consists of three levels based on the objectivity of the inputs as follows:  
Level 1 Inputs
 
Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 
 
Level 2 Inputs
 
Quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
 
Level 3 Inputs
 
Unobservable inputs for the asset or liability, and include situations in which there is little, if any, market activity for the asset or liability.
The table below sets forth our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014.
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
September 30, 2015
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Promissory note
$

 
$

 
$
2,278

 
$
2,278

Convertible debt investment

 

 
34,050

 
34,050

Total assets
$

 
$

 
$
36,328

 
$
36,328

Liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
554

 
$

 
$
554

Contingent consideration for business acquisitions

 

 
900

 
900

Total liabilities
$

 
$
554

 
$
900

 
$
1,454

December 31, 2014
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Promissory note
$

 
$

 
$
2,137

 
$
2,137

Interest rate swaps

 
172

 

 
172

Convertible debt investment

 

 
12,250

 
12,250

Total assets
$

 
$
172

 
$
14,387

 
$
14,559

Liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
309

 
$

 
$
309

Contingent consideration for business acquisition

 

 
226

 
226

Total liabilities
$

 
$
309

 
$
226

 
$
535

 Promissory note: As part of the consideration received for the sale of our Accounting Advisory practice on December 30, 2011, the Company received a $3.5 million promissory note payable over four years. During the second quarter of 2014, we agreed to amend and restate the note such that principal payments will be paid to the Company annually based on the amount of excess cash flows earned each year by the maker of the note until the maturity date of December 31, 2018, at which time the remaining principal balance and any accrued interest is due. The fair value of the note is based on the net present value of the projected cash flows using a discount rate of 17%, which accounts for the risks associated with the note. The increase in the fair value of the note during the first nine months of 2015 reflects the accretion of interest income in excess of interest payments received.

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Table of Contents

HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

The portion of the note expected to be received in the next 12 months is recorded as a receivable in Prepaid expenses and other current assets. The remaining portion of the note is recorded in Other non-current assets.
Interest rate swaps: The fair value of the interest rate swaps was derived using estimates to settle the interest rate swap agreements, which are based on the net present value of expected future cash flows on each leg of the swaps utilizing market-based inputs and discount rates reflecting the risks involved.
Convertible debt investment: In the third quarter of 2014, we invested $12.5 million, in the form of zero coupon convertible debt, in Shorelight Holdings, LLC (“Shorelight”), the parent company of Shorelight Education, a U.S.-based company that partners with leading nonprofit universities to increase access and retention of international students, boost institutional growth, and enhance an institution’s global footprint. In the first nine months of 2015, we invested an additional $15.1 million in convertible notes of Shorelight, including $12.0 million in July 2015 in conjunction with the third-party financing event discussed below. The notes will mature on July 1, 2020, unless converted earlier. As of September 30, 2015, the total cost basis of our investment is $27.6 million.
To determine the appropriate accounting treatment for our investment, we performed a variable interest entity (“VIE”) analysis and concluded that Shorelight does not meet the definition of a VIE. We also reviewed the characteristics of our investment to confirm that the convertible notes are not in-substance common stock that would warrant equity method accounting. After we reviewed all of the terms of the investment, we concluded the appropriate accounting treatment to be that of an available-for-sale security in accordance with ASC 320, Investments – Debt and Equity Securities.
The investment is carried at fair value with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income. We estimated the fair value of our investment using cash flow projections discounted at a risk-adjusted rate and certain assumptions related to equity volatility, default probability, and recovery rate, all of which are Level 3 inputs. In arriving at the estimated fair value, we also considered the probability-weighted likelihood of conversion of the notes, in accordance with the various conversion features of the notes.
During the second quarter of 2015, Shorelight sought additional financing from new third-party investors in order to help fund their continued growth. During the financing process, interest from potential investors indicated that the fair value of the business had increased since our initial investment. As a result, the estimated fair value of our convertible debt investment increased during the second quarter of 2015, and we recorded an unrealized gain of $6.7 million as a component of other comprehensive income during the period. The additional round of financing closed in July 2015. The fair value of the convertible debt investment is recorded in Long-term investment.
Contingent consideration for business acquisitions: We estimate the fair value of acquisition-related contingent consideration using either a probability-weighted discounted cash flow model or a Monte Carlo simulation model, as appropriate. These fair value measurements are based on significant inputs not observable in the market and thus represent Level 3 measurements. The significant unobservable inputs used in the fair value measurements of our contingent consideration are our measures of the estimated payouts based on internally generated financial projections and discount rates. The fair value of the contingent consideration is reassessed quarterly based on assumptions used in our latest projections and input provided by practice leaders and management. Any change in the fair value estimate is recorded in the earnings of that period. During the first quarter of 2015, we recorded a $0.9 million contingent consideration liability for one acquisition completed during the quarter. In addition, we determined that the fair value of another contingent consideration liability had declined to zero and recorded a remeasurement gain of $0.3 million. There was no change to the fair value of the outstanding contingent consideration liabilities for the quarters ended June 30, 2015 and September 30, 2015. Refer to Note 5 “Acquisitions” for information on the acquisitions completed in 2015. At September 30, 2015, the current portion of the contingent consideration liability is recorded in Accrued expenses and the long-term portion is recorded in Deferred compensation and other liabilities.
Financial assets and liabilities not recorded at fair value are as follows:
Senior Secured Credit Facility
The carrying value of borrowings outstanding under our senior secured credit facility is stated at cost. Our carrying value approximates fair value, using Level 2 inputs, as the senior secured credit facility bears interest at variable rates based on market rates as set forth in the Amended Credit Agreement. Refer to Note 7 “Financing Arrangements.”

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

Convertible Notes
The carrying amount and estimated fair value of the Convertible Notes are as follows: 
 
September 30, 2015
 
December 31, 2014
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
1.25% convertible senior notes due 2019
$
218,176

 
$
258,998

 
$
212,852

 
$
261,903

The difference between the $250 million principal amount of the Convertible Notes and the carrying amount represents the unamortized debt discount. As of September 30, 2015 and December 31, 2014, the carrying value of the equity component of $39.3 million was unchanged from the date of issuance. Refer to Note 7 “Financing Arrangements” for additional details of our Convertible Notes. The estimated fair value of the Convertible Notes was determined based on the quoted bid price of the Convertible Notes in an over-the-counter market, which is a Level 2 input, on the last day of trading for the quarters ended September 30, 2015 and December 31, 2014.
Based on the closing price of our common stock of $62.53 on September 30, 2015, the if-converted value of the Convertible Notes was less than the principal amount.
Cash and cash equivalents are stated at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled services, accounts payable, deferred revenues and other accrued liabilities reasonably approximate fair market value due to the nature of the financial instrument and the short-term maturity of these items.
We hold our cash in accounts at multiple third-party financial institutions. These deposits, at times, may exceed federally insured limits. We review the credit ratings of these financial institutions, regularly monitor the cash balances in these accounts, and adjust the balances as appropriate. However, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.
11. Other Comprehensive Income (Loss)
The tables below set forth the components of other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2015 and 2014.
 
 
Three Months Ended
September 30, 2015
 
Three Months Ended
September 30, 2014
 
Before
Taxes
 
Tax
(Expense)
Benefit
 
Net of
Taxes
 
Before
Taxes
 
Tax
(Expense)
Benefit
 
Net of
Taxes
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
(613
)
 
$
(2
)
 
$
(615
)
 
$
(1,127
)
 
$

 
$
(1,127
)
Unrealized gain on investment
$

 
$

 
$

 
$
250

 
$
(98
)
 
$
152

Unrealized gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Change in fair value
$
(346
)
 
$
137

 
$
(209
)
 
$
255

 
$
(98
)
 
$
157

Reclassification adjustments into earnings
196

 
(78
)
 
118

 
246

 
(99
)
 
147

Net unrealized gain (loss)
$
(150
)
 
$
59

 
$
(91
)
 
$
501

 
$
(197
)
 
$
304

Other comprehensive income (loss)
$
(763
)
 
$
57

 
$
(706
)
 
$
(376
)
 
$
(295
)
 
$
(671
)


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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

 
Nine Months Ended
September 30, 2015
 
Nine Months Ended
September 30, 2014
 
Before
Taxes
 
Tax
(Expense)
Benefit
 
Net of
Taxes
 
Before
Taxes
 
Tax
(Expense)
Benefit
 
Net of
Taxes
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
(228
)
 
$
27

 
$
(201
)
 
$
(735
)
 
$

 
$
(735
)
Unrealized gain on investment
$
6,661

 
$
(2,526
)
 
$
4,135

 
$
250

 
$
(98
)
 
$
152

Unrealized gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Change in fair value
$
(1,036
)
 
$
412

 
$
(624
)
 
$
(427
)
 
$
173

 
$
(254
)
Reclassification adjustments into earnings
619

 
(247
)
 
372

 
630

 
(252
)
 
378

Net unrealized gain (loss)
$
(417
)

$
165


$
(252
)

$
203


$
(79
)

$
124

Other comprehensive income (loss)
$
6,016


$
(2,334
)

$
3,682


$
(282
)

$
(177
)

$
(459
)
 
The before tax amounts reclassified from accumulated other comprehensive income (loss) related to our cash flow hedges are recorded to Interest expense, net of interest income.
Accumulated other comprehensive income (loss), net of tax, includes the following components: 
 
Foreign Currency
Translation
Adjustments
 
Net Unrealized
Gain (Loss) on
Investment
 
Net Unrealized
Loss on
Derivatives
 
Accumulated Other
Comprehensive 
Income (Loss)
Balance, December 31, 2014
$
(2,334
)
 
$
(250
)
 
$
(71
)
 
$
(2,655
)
Current period change
(201
)
 
4,135

 
(252
)
 
3,682

Balance, September 30, 2015
$
(2,535
)
 
$
3,885

 
$
(323
)
 
$
1,027

12. Income Taxes
The Company’s effective tax rates for the three months ended September 30, 2015 and 2014 were 37.1% and 36.8%, respectively. The Company's effective tax rates for the nine months ended September 30, 2015 and 2014 were 39.8% and 28.4%. The effective tax rate for the three months ended September 30, 2015 was in line with the statutory rate, inclusive of state income taxes, with the negative impact of certain non-deductible business expenses and foreign losses with no tax benefit largely offset by certain credits and deductions. The effective tax rate for the nine months ended September 30, 2015 was higher than the statutory rate, inclusive of state income taxes, primarily due to certain non-deductible business expenses and foreign losses with no tax benefit, partially offset by certain credits and deductions.
The effective tax rate for the third quarter of 2014 was lower than the statutory tax rate, inclusive of state income taxes, primarily due to the favorable settlement of the IRS audit for years 2009, 2010, and 2011. The effective tax rate for the first nine months of 2014 was lower than the statutory tax rate, inclusive of state income taxes, primarily due to the impact of a tax election made in the first quarter of 2014 to classify one of our wholly-owned foreign subsidiaries as a disregarded entity for U.S. federal income tax purposes (commonly referred to as a “check-the-box” election). As a result of this election, we expect to realize an income tax benefit of $13.8 million, of which $2.4 million is unrecognized, resulting in a net recognized tax benefit of $11.4 million. This recognized benefit was partially offset by $1.2 million in expenses in the first quarter of 2014 related to the establishment of a valuation allowance for certain foreign tax credits and increased deferred tax liabilities as a result of the aforementioned election.
13. Commitments, Contingencies and Guarantees
Litigation
Tamalluk Business Development LLC v. Huron Consulting Services LLC (Abu Dhabi Court of First Instance)
On August 22, 2013, we learned that Tamalluk Business Development LLC, who was Huron’s agent in Abu Dhabi, and its principal, Mubarak Ahmad Bin Hamouda Al Dhaheri, filed a claim against Huron Consulting Services LLC in the Abu Dhabi

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

Court of First Instance. The lawsuit alleges that under the agency agreement, Tamalluk was entitled to a commission on certain amounts that Huron collected from Abu Dhabi clients, and that Huron breached the agreement with Tamalluk and caused damages by declining to enter into a client engagement in Abu Dhabi and subsequently terminating the agency agreement with Tamalluk. Claimants allege they are entitled to $50 million for damage to reputation and defamation and another $50 million for breach of contract. Huron submitted its written response on September 25, 2013. The response states that Huron had the right to terminate the agency agreement with Tamalluk, and Huron had the sole discretion whether to accept or reject an engagement. Huron also filed a counterclaim on October 10, 2013 seeking a judicial order to permit the cancellation of Huron’s commercial license to allow Huron to cease doing business in Abu Dhabi. On December 17, 2013, the Abu Dhabi court ruled in Huron’s favor on all claims and held that Huron permissibly terminated the contract with Tamalluk and Huron does not owe Tamalluk any compensation related to Tamalluk’s claims. In addition, the court terminated the Local Sponsorship Agreement as requested by Huron in its counterclaim. Tamalluk appealed the decision, and on March 18, 2014, the appellate court upheld the decision in Huron’s favor. Tamalluk filed an appeal on May 18, 2014 to the Court of Cassation, which is the highest court in Abu Dhabi. On October 21, 2014, the Court of Cassation referred the case back to the appellate court for consideration of Claimants’ allegations relating to damage to reputation and defamation, which the appellate court had not previously addressed. The Court of Cassation ruled in Huron’s favor on the other claims and on Huron’s counterclaim. On October 13, 2015, the appellate court ruled in Huron's favor and denied Tamalluk's claims for defamation and damage to reputation. This ruling is appealable to the Court of Cassation.
Physiotherapy Associates
In 2011, Huron was engaged to design and implement new processes, software, tools, and techniques to assist Physiotherapy Associates, Inc. (“PA”) in reducing older accounts receivable levels and optimizing cash flow. The engagement agreement specifically provides that Huron will not be auditing financial statements and that Huron’s services are not designed, and should not be relied on, to disclose weaknesses in internal controls, financial statement errors, irregularities, illegal acts, or disclosure deficiencies.
In November 2013, Physiotherapy Holdings, Inc., and certain subsidiaries and affiliates (including PA) filed a voluntary petition for bankruptcy pursuant to Chapter 11 of the Bankruptcy Code, which resulted in part from claims related to an alleged overstatement of PA’s revenues and profitability in connection with the sale of PA in 2012. The Joint Prepackaged Plan of Reorganization (the “Plan”), which was confirmed by the Bankruptcy Court in December 2013, establishes and funds a Litigation Trust to pursue certain claims on behalf of certain beneficiaries. The Plan discloses a lengthy list of potential defendants and witnesses regarding these claims, including but not limited to the debtors’ officers, directors, certain employees, former owners, investment bankers, auditors, and various consultants. This list of potential defendants and witnesses includes Huron, as well as three of Huron’s current or former employees.
The Plan suggests that Huron, among others, was involved in “actively marketing PA” for sale and provided opinions to unnamed parties “defending the quality of PA’s earnings.” While we believe that we have meritorious defenses, to avoid the time and expense of protracted litigation, in September 2015 we reached an agreement in principle with the Litigation Trust to settle the matter for $3.6 million. As a result, in the third quarter of 2015 we increased our accrued liability from $1.3 million to $3.6 million, and increased our insurance receivable from $0.5 million to $2.8 million.  The settlement agreement, once finalized between the parties, will be subject to approval by the Bankruptcy Court. 
From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. As of the date of this Quarterly Report on Form 10-Q, we are not a party to any other litigation or legal proceeding that, in the current opinion of management, could have a material adverse effect on our financial position or results of operations. However, due to the risks and uncertainties inherent in legal proceedings, actual results could differ from current expected results.
Guarantees and Indemnification
Guarantees in the form of letters of credit totaling $5.2 million and $5.1 million were outstanding at September 30, 2015 and December 31, 2014, respectively, primarily to support certain office lease obligations.
To the extent permitted by law, our bylaws and articles of incorporation require that we indemnify our 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 us if such person acted in good faith. Although there is no limit on the amount of indemnification, we may have recourse against our insurance carrier for certain payments made.

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

14. Segment Information
Segments are defined by ASC 280, Segment Reporting, as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for 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. Our chief operating decision maker manages the business under five operating segments, which are our reportable segments: Huron Healthcare, Huron Education and Life Sciences, Huron Legal, Huron Business Advisory, and All Other.
 
Huron Healthcare
Our Huron Healthcare segment provides consulting services to national and regional hospitals and integrated health systems, academic medical centers, community hospitals, and physician practices. We deliver solutions to enhance the ability of our clients to address challenges in the rapidly-evolving healthcare environment and to improve quality, increase revenue, reduce expenses, and enhance patient, physician, and employee satisfaction across the healthcare enterprise. By partnering with healthcare organizations, we design solutions that teach providers how to achieve cultural transformation and deliver and sustain improvement in clinical outcomes and financial results. Our people provide a depth of expertise across the healthcare industry, and our culture of collaboration extends to our client engagements, enabling teams to effectively implement successful client projects.
Huron Education and Life Sciences
Our Huron Education and Life Sciences segment provides management consulting services and software solutions to the higher education, academic medical center, pharmaceutical and medical device, and research industries. We work with our clients to develop and implement performance improvement, technology, and research enterprise solutions to help them address challenges relating to financial management, strategy, operational and organizational effectiveness, research administration, and regulatory compliance.  
Huron Legal
Our Huron Legal segment provides consulting and technology-enabled services to assist law departments of major global corporations and their associated law firms with cost and risk reduction and operational efficiency. Our professionals and business solutions focus on four primary areas: electronic discovery and litigation management, law department management, information governance and compliance, and legal analytics. Our clients benefit from the experience of business, discovery, and technical consultants who are experts in the legal, compliance, technology, and management fields.
Huron Business Advisory
Our Huron Business Advisory segment provides services to the C-suite of middle market and large organizations, lending institutions, law firms, investment banks, and private equity firms. We assist clients in a broad range of industries and across the spectrum from healthy, well-capitalized companies to organizations in transition, creditors, owners, and other key constituents. Also included in the Huron Business Advisory segment is our Enterprise Performance Management and Analytics practice, which delivers solutions that enable organizations to manage and optimize their financial performance, operational efficiency, and client experience. With expertise in full-service enterprise performance management (EPM), business analytics, customer relationship management (CRM), and big data professional services, Huron helps global clients across industries drive results and gain a competitive advantage.
 
All Other
Our All Other segment consists of any line of business not managed by our other four operating segments. These businesses include our public sector consulting practice and our foreign consulting operations based in the Middle East, both of which we are in the process of winding down.
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, certain 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.

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

 
The table below sets forth information about our operating segments for the three and nine months ended September 30, 2015 and 2014, along with the items necessary to reconcile the segment information to the totals reported in the accompanying Consolidated Financial Statements.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Huron Healthcare:
 
 
 
 
 
 
 
Revenues
$
112,114

 
$
97,812

 
$
328,624

 
$
306,327

Operating income
$
47,609

 
$
27,727

 
$
122,120

 
$
117,422

Segment operating income as a percentage of segment revenues
42.5
%
 
28.3
%
 
37.2
%
 
38.3
%
Huron Education and Life Sciences:
 
 
 
 
 
 
 
Revenues
$
42,056

 
$
36,523

 
$
124,892

 
$
107,846

Operating income
$
10,473

 
$
9,459

 
$
35,427

 
$
27,539

Segment operating income as a percentage of segment revenues
24.9
%
 
25.9
%
 
28.4
%
 
25.5
%
Huron Legal:
 
 
 
 
 
 
 
Revenues
$
34,416

 
$
46,146

 
$
107,469

 
$
154,417

Operating income
$
9,584

 
$
10,949

 
$
23,461

 
$
39,227

Segment operating income as a percentage of segment revenues
27.8
%
 
23.7
%
 
21.8
%
 
25.4
%
Huron Business Advisory:
 
 
 
 
 
 
 
Revenues
$
21,249

 
$
17,142

 
$
59,173

 
$
47,098

Operating income
$
5,231

 
$
4,397

 
$
13,514

 
$
12,081

Segment operating income as a percentage of segment revenues
24.6
%
 
25.7
%
 
22.8
%
 
25.7
%
All Other:
 
 
 
 
 
 
 
Revenues
$
46

 
$
426

 
$
1,220

 
$
2,497

Operating loss
$
(132
)
 
$
(655
)
 
$
(1,654
)
 
$
(1,633
)
Segment operating loss as a percentage of segment revenues
N/M

 
N/M

 
N/M

 
N/M

Total Company:
 
 
 
 
 
 
 
Revenues
$
209,881

 
$
198,049

 
$
621,378

 
$
618,185

Reimbursable expenses
17,356

 
18,679

 
55,900

 
58,923

Total revenues and reimbursable expenses
$
227,237

 
$
216,728

 
$
677,278

 
$
677,108

Statements of Earnings reconciliation:
 
 
 
 
 
 
 
Segment operating income
$
72,765

 
$
51,877

 
$
192,868

 
$
194,636

Items not allocated at the segment level:
 
 
 
 
 
 
 
Other operating expenses and gains
26,946

 
24,285

 
85,412

 
78,879

Depreciation and amortization expense
8,994

 
6,315

 
25,771

 
18,638

Other expense, net
6,021

 
1,932

 
15,739

 
4,552

Income before income tax expense
$
30,804

 
$
19,345

 
$
65,946

 
$
92,567

 
N/M – Not Meaningful
At September 30, 2015 and December 31, 2014, no single client accounted for greater than 10% of our combined receivables and unbilled services balances. During the three and nine months ended September 30, 2015 and 2014, no single client generated greater than 10% of our consolidated revenues.
15. Subsequent Events
Effective October 1, 2015, we completed our acquisition of the assets of Cloud62, a Buffalo, New York-based provider of business consulting services specializing in Salesforce.com implementations and related cloud-based applications. The results of operations of Cloud62 will be included in the Huron Business Advisory segment.

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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.
Statements in this Quarterly Report on Form 10-Q that are not historical in nature, including those concerning the Company’s current expectations about its future requirements and needs, are “forward-looking” statements as defined in Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by words such as “may,” “should,” “expects,” “provides,” “anticipates,” “assumes,” “can,” “will,” “meets,” “could,” “likely,” “intends,” “might,” “predicts,” “seeks,” “would,” “believes,” “estimates,” “plans,” or “continues.” These forward-looking statements reflect our current expectations about our future requirements and needs, results, levels of activity, performance, or achievements. Some of the factors that could cause actual results to differ materially from the forward-looking statements contained herein include, without limitation: failure to achieve expected utilization rates, billing rates, and the number of revenue-generating professionals; inability to expand or adjust our service offerings in response to market demands; our dependence on renewal of client-based services; dependence on new business and retention of current clients and qualified personnel; failure to maintain third-party provider relationships and strategic alliances; inability to license technology to and from third parties; the impairment of goodwill; various factors related to income and other taxes; difficulties in successfully integrating the businesses we acquire and achieving expected benefits from such acquisitions; risks relating to privacy, information security, and related laws and standards; and a general downturn in market conditions. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including, among others, those described under “Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2014 that may cause actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. We disclaim any obligation to update or revise any forward-looking statements as a result of new information or future events, or for any other reason.

OVERVIEW
Our Business
We are a leading provider of operational and financial consulting services. We help clients in diverse industries improve performance, transform the enterprise, reduce costs, leverage technology, process and review large amounts of complex data, address regulatory changes, recover from distress, and stimulate growth. Our professionals employ their expertise in finance, operations, strategy, analytics, and technology to provide our clients with specialized analyses and customized advice and solutions that are tailored to address each client’s particular challenges and opportunities to deliver sustainable and measurable results. We provide consulting services to a wide variety of both financially sound and distressed organizations, including healthcare organizations, leading academic institutions, Fortune 500 companies, governmental entities, and law firms. We have worked with more than 450 health systems, hospitals, and academic medical centers; more than 400 corporate general counsel; and more than 400 universities and research institutions. We are a Platinum level member of the Oracle PartnerNetwork (OPN), a Workday Services Partner, and a Silver Partner of the Salesforce.com partner network.
We provide our services through five operating segments: Huron Healthcare, Huron Education and Life Sciences, Huron Legal, Huron Business Advisory, and All Other. 
Huron Healthcare
Our Huron Healthcare segment provides consulting services to national and regional hospitals and integrated health systems, academic medical centers, community hospitals, and physician practices. We deliver solutions to enhance the ability of our clients to address challenges in the rapidly-evolving healthcare environment and to improve quality, increase revenue, reduce expenses, and enhance patient, physician, and employee satisfaction across the healthcare enterprise. By partnering with healthcare organizations, we design solutions that teach providers how to achieve cultural transformation and deliver and sustain improvement in clinical outcomes and financial results. Our people provide a depth of expertise across the healthcare industry, and our culture of collaboration extends to our client engagements, enabling teams to effectively implement successful client projects. 
Huron Education and Life Sciences
Our Huron Education and Life Sciences segment provides management consulting services and software solutions to the higher education, academic medical center, pharmaceutical and medical device, and research industries. We work with our clients to develop and implement performance improvement, technology, and research enterprise solutions to help them

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address challenges relating to financial management, strategy, operational and organizational effectiveness, research administration, and regulatory compliance.
Huron Legal
Our Huron Legal segment provides consulting and technology-enabled services to assist law departments of major global corporations and their associated law firms with cost and risk reduction and operational efficiency. Our professionals and business solutions focus on four primary areas: electronic discovery and litigation management, law department management, information governance and compliance, and legal analytics. Our clients benefit from the experience of business, discovery, and technical consultants who are experts in the legal, compliance, technology, and management fields. 
Huron Business Advisory
Our Huron Business Advisory segment provides services to the C-suite of middle market and large organizations, lending institutions, law firms, investment banks, and private equity firms. We assist clients in a broad range of industries and across the spectrum from healthy, well-capitalized companies to organizations in transition, creditors, owners, and other key constituents. Also included in the Huron Business Advisory segment is our Enterprise Performance Management and Analytics practice, which delivers solutions that enable organizations to manage and optimize their financial performance, operational efficiency, and client experience. With expertise in full-service enterprise performance management (EPM), business analytics, customer relationship management (CRM), and big data professional services, Huron helps global clients across industries drive results and gain a competitive advantage.
All Other
Our All Other segment consists of any line of business not managed by our other four operating segments. These businesses include our public sector consulting practice and our foreign consulting operations based in the Middle East, both of which we are in the process of winding down.
Acquisitions
Rittman Mead India
Effective July 1, 2015, we completed our acquisition of Rittman Mead Consulting Private Limited ("Rittman Mead India"), the India affiliate of Rittman Mead Consulting Ltd. Rittman Mead India is a data and analytics consulting firm that specializes in the implementation of enterprise performance management and analytics systems. The acquisition date fair value of the consideration transferred totaled $1.2 million. Rittman Mead India's results of operations have been included in our consolidated financial statements and the segment operating results of Huron Business Advisory from the date of acquisition.
Studer Group
On February 12, 2015, we completed our acquisition of Studer Group in exchange for consideration with a fair value of approximately $325.2 million, consisting of $323.2 million in cash and $2.2 million in Huron common stock, less the receipt of a net working capital adjustment payment of $0.2 million. The cash portion of the acquisition was funded with available cash on hand and $102.0 million of borrowings under our senior secured credit facility. Studer Group is a premier professional services firm that assists healthcare providers achieve cultural transformation to deliver and sustain improvement in clinical outcomes and financial results. The acquisition combines our Huron Healthcare segment’s performance improvement and clinical transformation capabilities with Studer Group’s Evidence-Based LeadershipSM framework to provide leadership and cultural transformation expertise for healthcare provider clients. Studer Group’s results of operations have been included in our consolidated financial statements and the segment operating results of Huron Healthcare from the date of acquisition.
Sky Analytics
Effective January 1, 2015, we completed our acquisition of Sky Analytics, Inc. in exchange for consideration with a fair value of approximately $9.7 million. This included cash of $8.8 million and contingent consideration with a fair value of $0.9 million at the acquisition date. Sky Analytics is a Massachusetts-based provider of legal spend management software for corporate law departments. The addition strengthens our Huron Legal segment’s law department management offering and complements our deep consulting expertise. Sky Analytics’ results of operations have been included in our consolidated financial statements and the segment operating results of Huron Legal from the date of acquisition.

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How We Generate Revenues
A large portion of our revenues is generated by our full-time billable consultants who provide consulting services to our clients and are billable to our clients based on the number of hours worked. A smaller portion of our revenues is generated by our other professionals, also referred to as full-time equivalents, many of whom work variable schedules as needed by our clients. Full-time equivalents include specialized finance and operational consultants, our document review and electronic data discovery groups, our cultural transformation consultants from the Studer Group acquisition, which include coaches and their support staff, and our employees who provide software support and maintenance services to our clients. Our document review and electronic data discovery groups generate revenues primarily based on the number of hours worked and units produced, such as pages reviewed or amount of data processed. We translate the hours that these other professionals work on client engagements into a full-time equivalent measure that we use to manage our business. We refer to our full-time consultants and other professionals collectively as revenue-generating professionals.
Revenues generated by our full-time consultants are primarily driven by the number of consultants we employ and their utilization rates, as well as the billing rates we charge our clients. Revenues generated by our other professionals, or full-time equivalents, are largely dependent on the number of consultants we employ, their hours worked, and billing rates charged, as well as the number of pages reviewed and amount of data processed in the case of our document review and electronic data discovery groups, respectively. Revenues generated by our coaches are largely dependent on the number of coaches we employ and the total value, scope, and terms of the consulting contracts under which they provide services, which are primarily fixed-fee contracts.
We generate the majority of our revenues from providing professional services under four types of billing arrangements: time-and-expense, fixed-fee (including software license revenue), performance-based, and support and maintenance for the software we deploy.
Time-and-expense billing arrangements require the client to pay based on either the number of hours worked, the number of pages reviewed, or the amount of data processed by our revenue-generating professionals at agreed upon rates. We recognize revenues under time-and-expense billing arrangements as the related services are rendered. Time-and-expense engagements represented 40.5% and 44.6% of our revenues for the three months ended September 30, 2015 and 2014, respectively, and 40.4% and 45.1% of our revenues for the nine months ended September 30, 2015 and 2014, respectively.
In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a pre-determined set of professional services. We set the fees based on our estimates of the costs and timing for completing the 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. We generally recognize revenues under fixed-fee billing arrangements using a proportionate performance approach, which is based on work completed to-date versus our estimates of the total services to be provided under the engagement.
Fixed-fee arrangements also include our software license and subscription revenue, which is primarily derived from revenue cycle management software, research administration and compliance software, and subscriptions to our cloud-based analytic tools and solutions. Licenses for our revenue cycle management software are sold only as a component of our consulting projects, and the services we provide are essential to the functionality of the software. Therefore, revenues from these software licenses are recognized over the term of the related consulting services contract. License revenue from our research administration and compliance software is generally recognized in the month in which the software is delivered. Subscription revenue from our cloud-based solutions is recognized on a straight-line basis over the term of the customer contract.
Fixed-fee engagements represented 50.7% and 39.6% of our revenues for the three months ended September 30, 2015 and 2014, respectively, and 48.6% and 39.4% of our revenues for the nine months ended September 30, 2015 and 2014, respectively.
In performance-based fee billing arrangements, fees are tied 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 operational and cost effectiveness in the areas we review. Second, we have performance-based engagements in which we earn a success fee when and if certain pre-defined outcomes occur. Often, performance-based fees supplement our time-and-expense or fixed-fee engagements. We do not recognize revenues under performance-based billing arrangements until all related performance criteria are met. Performance-based fee revenues represented 5.0% and 12.1% of our revenues for the three months ended September 30, 2015 and 2014, respectively, and 7.1% and 12.3% of our revenues for the nine months ended September 30, 2015 and 2014, respectively. Performance-based fee engagements may cause significant variations in quarterly revenues and operating results depending on the timing of achieving the performance-based criteria.
Clients who have purchased one of our software licenses can pay an additional fee for software support and maintenance. The software support and maintenance fee revenue is recognized ratably over the support period, which is generally one year. These fees are billed in advance and included in deferred revenues until recognized. Support and maintenance revenues represented 3.8% and

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3.7% of our revenues for the three months ended September 30, 2015 and 2014, respectively, and 3.9% and 3.2% of our revenues for the nine months ended September 30, 2015 and 2014, respectively.
Our quarterly results are impacted principally by our full-time consultants’ utilization rate, the billing rate we charge our clients, the number of our revenue-generating professionals who are available to work, and the amount of performance-based fees recognized, which often vary significantly between quarters. Our utilization rate can be negatively affected by increased hiring because there is generally a transition period for new professionals that results in a temporary drop in our utilization rate. Our utilization rate can also be affected by seasonal variations in the demand for our services from our clients. For example, during the third and fourth quarters of the year, vacations taken by our clients can result in the deferral of activity on existing and new engagements, which would negatively affect our utilization rate. The number of business work days is also affected by the number of vacation days taken by our consultants and holidays in each quarter. We typically have fewer business work days available in the fourth quarter of the year, which can impact revenues during that period.
Time-and-expense engagements do not provide us with a high degree of predictability as to performance in future periods. Unexpected changes in the demand for our services can result in significant variations in utilization and revenues and present a challenge to optimal hiring and staffing. Moreover, our clients typically retain us on an engagement-by-engagement basis, rather than under long-term recurring contracts. The volume of work performed for any particular client can vary widely from period to period.
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 continue to hire highly qualified professionals and have entered into select acquisitions of complementary businesses.
To expand our business, we will remain focused on growing our existing relationships and developing new relationships, execute our managing director compensation plan to attract and retain senior practitioners, continue to promote and provide an integrated approach to service delivery, broaden the scope of our existing services, and acquire complementary businesses. We will regularly evaluate the performance of our practices to ensure our investments meet these objectives. Furthermore, we intend to enhance our visibility in the marketplace by refining our overarching messaging and value propositions for the organization as well as each practice. We will continue to focus on reaching our client base through clear, concise, endorsed messages.

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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected segment and consolidated operating results and other operating data. 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 costs include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment.
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Segment and Consolidated Operating Results (in thousands):
 
 
 
 
 
 
 
Huron Healthcare:
 
 
 
 
 
 
 
Revenues
$
112,114

 
$
97,812

 
$
328,624

 
$
306,327

Operating income
$
47,609

 
$
27,727

 
$
122,120

 
$
117,422

Segment operating income as a percentage of segment revenues
42.5
%
 
28.3
%
 
37.2
%
 
38.3
%
Huron Education and Life Sciences:
 
 
 
 
 
 
 
Revenues
$
42,056

 
$
36,523

 
$
124,892

 
$
107,846

Operating income
$
10,473

 
$
9,459

 
$
35,427

 
$
27,539

Segment operating income as a percentage of segment revenues
24.9
%
 
25.9
%
 
28.4
%
 
25.5
%
Huron Legal:
 
 
 
 
 
 
 
Revenues
$
34,416

 
$
46,146

 
$
107,469

 
$
154,417

Operating income
$
9,584

 
$
10,949

 
$
23,461

 
$
39,227

Segment operating income as a percentage of segment revenues
27.8
%
 
23.7
%
 
21.8
%
 
25.4
%
Huron Business Advisory:
 
 
 
 
 
 
 
Revenues
$
21,249

 
$
17,142

 
$
59,173

 
$
47,098

Operating income
$
5,231

 
$
4,397

 
$
13,514

 
$
12,081

Segment operating income as a percentage of segment revenues
24.6
%
 
25.7
%
 
22.8
%
 
25.7
%
All Other:
 
 
 
 
 
 
 
Revenues
$
46

 
$
426

 
$
1,220

 
$
2,497

Operating loss
$
(132
)
 
$
(655
)
 
$
(1,654
)
 
$
(1,633
)
Segment operating loss as a percentage of segment revenues
N/M

 
N/M

 
N/M

 
N/M

Total Company:
 
 
 
 
 
 
 
Revenues
$
209,881

 
$
198,049

 
$
621,378

 
$
618,185

Reimbursable expenses
17,356

 
18,679

 
55,900

 
58,923

Total revenues and reimbursable expenses
$
227,237

 
$
216,728

 
$
677,278

 
$
677,108

Statements of Earnings reconciliation:
 
 
 
 
 
 
 
Segment operating income
$
72,765

 
$
51,877

 
$
192,868

 
$
194,636