Huron Consulting Group Inc. Form 10-Q For The Period Ended September 30, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended September 30, 2006
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Commission
file number: 000-50976
Huron
Consulting Group Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
01-0666114
|
(State
or other jurisdiction
|
|
(IRS
Employer
|
of
incorporation or organization)
|
|
Identification
Number)
|
550
West Van Buren Street
Chicago,
Illinois
60607
(Address
of principal executive offices)
(Zip
Code)
(312)
583-8700
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o Accelerated
filer x Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
As
of
October 31, 2006, approximately 18,028,100 shares of the registrant’s
common stock, par value $0.01 per share, were outstanding.
HURON
CONSULTING GROUP INC.
INDEX
|
|
|
|
|
Page
|
Part
I - Financial Information
|
|
|
|
|
|
|
Item
1.
|
Consolidated
Financial Statements
|
|
|
|
Consolidated
Balance Sheets
|
1
|
|
|
Consolidated
Statements of Income
|
2
|
|
|
Consolidated
Statement of Stockholders’ Equity
|
3
|
|
|
Consolidated
Statements of Cash Flows
|
4
|
|
|
Notes
to Consolidated Financial Statements
|
5
-
14
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations
|
15
- 26
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
27
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
27
|
|
|
|
|
Part
II - Other Information
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
27
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
27
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
28
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
|
|
|
|
|
Item
5.
|
Other
Information
|
28
|
|
|
|
|
|
Item
6.
|
Exhibits
|
28
|
|
|
|
|
Signature
|
29
|
PART
I ¾
FINANCIAL INFORMATION
ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS
HURON
CONSULTING GROUP INC.
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share amounts)
(Unaudited)
|
|
September 30,
2006
|
|
December 31,
2005
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
943
|
|
$
|
31,820
|
|
Receivables
from clients, net
|
|
|
51,858
|
|
|
29,164
|
|
Unbilled
services, net
|
|
|
24,726
|
|
|
18,187
|
|
Income
tax receivable
|
|
|
2,510
|
|
|
232
|
|
Deferred
income taxes
|
|
|
15,903
|
|
|
12,553
|
|
Other
current assets
|
|
|
5,619
|
|
|
5,799
|
|
Total
current assets
|
|
|
101,559
|
|
|
97,755
|
|
Property
and equipment, net
|
|
|
27,357
|
|
|
13,162
|
|
Deferred
income taxes
|
|
|
4,777
|
|
|
2,154
|
|
Deposits
and other assets
|
|
|
1,468
|
|
|
1,147
|
|
Intangible
assets, net
|
|
|
5,269
|
|
|
844
|
|
Goodwill
|
|
|
50,146
|
|
|
14,637
|
|
Total
assets
|
|
$
|
190,576
|
|
$
|
129,699
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
4,778
|
|
$
|
2,671
|
|
Accrued
expenses
|
|
|
8,572
|
|
|
4,357
|
|
Accrued
payroll and related benefits
|
|
|
33,356
|
|
|
32,073
|
|
Income
tax payable
|
|
|
¾
|
|
|
491
|
|
Deferred
revenues
|
|
|
3,538
|
|
|
4,609
|
|
Borrowings
|
|
|
22,000
|
|
|
¾
|
|
Current
portion of notes payable and capital lease obligations
|
|
|
1,143
|
|
|
1,282
|
|
Total
current liabilities
|
|
|
73,387
|
|
|
45,483
|
|
Non-current
liabilities:
|
|
|
|
|
|
|
|
Deferred
compensation and other liabilities
|
|
|
414
|
|
|
274
|
|
Notes
payable and capital lease obligations, net of current
portion
|
|
|
1,134
|
|
|
2,127
|
|
Deferred
lease incentives
|
|
|
10,623
|
|
|
6,283
|
|
Total
non-current liabilities
|
|
|
12,171
|
|
|
8,684
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
Common
stock; $0.01 par value; 500,000,000 shares authorized; 18,408,981
and
17,397,312 shares issued at September 30, 2006 and December 31, 2005,
respectively
|
|
|
178
|
|
|
174
|
|
Treasury
stock, at cost, 346,037 and 148,933 shares at September 30, 2006 and
December 31, 2005, respectively
|
|
|
(7,322
|
)
|
|
(3,061
|
)
|
Additional
paid-in capital
|
|
|
73,990
|
|
|
58,908
|
|
Retained
earnings
|
|
|
38,172
|
|
|
19,511
|
|
Total
stockholders’ equity
|
|
|
105,018
|
|
|
75,532
|
|
Total
liabilities and stockholders equity
|
|
$
|
190,576
|
|
$
|
129,699
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
HURON
CONSULTING GROUP INC.
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except per share amounts)
(Unaudited)
|
|
Three
months ended
September 30,
|
|
Nine
months ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenues
and reimbursable expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
75,194
|
|
$
|
54,309
|
|
$
|
205,150
|
|
$
|
151,586
|
|
Reimbursable
expenses
|
|
|
7,921
|
|
|
4,840
|
|
|
20,051
|
|
|
13,901
|
|
Total
revenues and reimbursable expenses
|
|
|
83,115
|
|
|
59,149
|
|
|
225,201
|
|
|
165,487
|
|
Direct
costs and reimbursable expenses (exclusive
of depreciation and amortization shown in operating expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs
|
|
|
42,973
|
|
|
30,596
|
|
|
116,399
|
|
|
85,294
|
|
Intangible
assets amortization
|
|
|
467
|
|
|
682
|
|
|
2,183
|
|
|
1,067
|
|
Reimbursable
expenses
|
|
|
7,907
|
|
|
4,974
|
|
|
20,240
|
|
|
14,065
|
|
Total
direct costs and reimbursable expenses
|
|
|
51,347
|
|
|
36,252
|
|
|
138,822
|
|
|
100,426
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
16,724
|
|
|
13,774
|
|
|
47,278
|
|
|
37,603
|
|
Depreciation
and amortization
|
|
|
2,921
|
|
|
1,905
|
|
|
5,998
|
|
|
3,861
|
|
Total
operating expenses
|
|
|
19,645
|
|
|
15,679
|
|
|
53,276
|
|
|
41,464
|
|
Operating
income
|
|
|
12,123
|
|
|
7,218
|
|
|
33,103
|
|
|
23,597
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
(404
|
)
|
|
84
|
|
|
(365
|
)
|
|
313
|
|
Other
expense
|
|
|
¾
|
|
|
(37
|
)
|
|
¾
|
|
|
(36
|
)
|
Total
other income (expense)
|
|
|
(404
|
)
|
|
47
|
|
|
(365
|
)
|
|
277
|
|
Income
before provision for income taxes
|
|
|
11,719
|
|
|
7,265
|
|
|
32,738
|
|
|
23,874
|
|
Provision
for income taxes
|
|
|
4,934
|
|
|
3,499
|
|
|
14,077
|
|
|
10,624
|
|
Net
income
|
|
$
|
6,785
|
|
$
|
3,766
|
|
$
|
18,661
|
|
$
|
13,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.41
|
|
$
|
0.24
|
|
$
|
1.15
|
|
$
|
0.85
|
|
Diluted
|
|
$
|
0.39
|
|
$
|
0.22
|
|
$
|
1.08
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in calculating earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,424
|
|
|
15,777
|
|
|
16,272
|
|
|
15,657
|
|
Diluted
|
|
|
17,415
|
|
|
16,950
|
|
|
17,220
|
|
|
16,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
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
|
|
Stockholders’
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Balance
at December 31, 2005
|
|
|
17,397,312
|
|
$
|
174
|
|
$
|
(3,061
|
)
|
$
|
58,908
|
|
$
|
19,511
|
|
$
|
75,532
|
|
Net
income
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
18,661
|
|
|
18,661
|
|
Issuance
of common stock in connection
with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock awards, net
of cancellations
|
|
|
5,000
|
|
|
¾
|
|
|
(2,864
|
)
|
|
2,864
|
|
|
¾
|
|
|
¾
|
|
Exercise
of stock options
|
|
|
384,369
|
|
|
4
|
|
|
¾
|
|
|
320
|
|
|
¾
|
|
|
324
|
|
Share-based
compensation
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
7,223
|
|
|
¾
|
|
|
7,223
|
|
Shares
redeemed for employee tax withholdings
|
|
|
¾
|
|
|
¾
|
|
|
(1,397
|
)
|
|
¾
|
|
|
¾
|
|
|
(1,397
|
)
|
Income
tax benefit on share-based
compensation
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
4,675
|
|
|
¾
|
|
|
4,675
|
|
Balance
at September 30, 2006
|
|
|
17,786,681
|
|
$
|
178
|
|
$
|
(7,322
|
)
|
$
|
73,990
|
|
$
|
38,172
|
|
$
|
105,018
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
HURON
CONSULTING GROUP INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
Nine
months ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
18,661
|
|
$
|
13,250
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
8,181
|
|
|
4,928
|
|
Deferred
income taxes
|
|
|
(6,420
|
)
|
|
(3,516
|
)
|
Share-based
compensation
|
|
|
7,223
|
|
|
4,993
|
|
Tax
benefit from share-based compensation
|
|
|
¾
|
|
|
1,969
|
|
Allowances
for doubtful accounts and unbilled services
|
|
|
750
|
|
|
513
|
|
Other
|
|
|
134
|
|
|
39
|
|
Changes
in operating assets and liabilities, net of businesses
acquired:
|
|
|
|
|
|
|
|
Increase
in receivables from clients
|
|
|
(17,058
|
)
|
|
(4,828
|
)
|
Increase
in unbilled services
|
|
|
(6,624
|
)
|
|
(11,096
|
)
|
Increase
in income tax receivable
|
|
|
(2,769
|
)
|
|
(188
|
)
|
Decrease
(increase) in other current assets and other
|
|
|
441
|
|
|
(509
|
)
|
Increase
in accounts payable and accrued expenses
|
|
|
7,079
|
|
|
1,150
|
|
Increase
in accrued payroll and related benefits
|
|
|
1,282
|
|
|
4,113
|
|
Decrease
in income tax payable
|
|
|
¾
|
|
|
(615
|
)
|
(Decrease)
increase in deferred revenues
|
|
|
(1,071
|
)
|
|
1,854
|
|
Net
cash provided by operating activities
|
|
|
9,809
|
|
|
12,057
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(14,956
|
)
|
|
(5,986
|
)
|
Purchases
of businesses, net of cash acquired
|
|
|
(50,187
|
)
|
|
(12,450
|
)
|
Net
cash used in investing activities
|
|
|
(65,143
|
)
|
|
(18,436
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from exercise of stock options
|
|
|
324
|
|
|
137
|
|
Tax
benefit from share-based compensation
|
|
|
4,676
|
|
|
¾
|
|
Shares
redeemed for employee tax withholdings
|
|
|
(1,397
|
)
|
|
¾
|
|
Proceeds
from borrowings under line of credit
|
|
|
89,500
|
|
|
¾
|
|
Repayments
on line of credit
|
|
|
(67,500
|
)
|
|
¾
|
|
Principal
payments of notes payable and capital lease obligations
|
|
|
(1,146
|
)
|
|
¾
|
|
Refund
of initial public offering costs
|
|
|
¾
|
|
|
25
|
|
Net
cash provided by financing activities
|
|
|
24,457
|
|
|
162
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(30,877
|
)
|
|
(6,217
|
)
|
Cash
and cash equivalents at beginning of the period
|
|
|
31,820
|
|
|
28,092
|
|
Cash
and cash equivalents at end of the period
|
|
$
|
943
|
|
$
|
21,875
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
18,591
|
|
$
|
12,974
|
|
Interest
|
|
$
|
398
|
|
$
|
69
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Liabilities
assumed in connection with businesses acquired
|
|
$
|
2,953
|
|
$
|
2,307
|
|
Issuance
of notes payable for purchase of business
|
|
$
|
¾
|
|
$
|
3,000
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular
amounts in thousands, except per share amounts)
1. |
Description
of Business
|
Huron
Consulting Group Inc. was formed on March 19, 2002. Huron Consulting Group
Inc., together with its indirect wholly-owned operating subsidiaries,
(collectively, the “Company”), is an independent provider of financial and
operational consulting services, whose clients include Fortune 500 companies,
medium-sized businesses, leading academic institutions, healthcare organizations
and the law firms that represent these various organizations.
The
accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with the rules and regulations of the Securities
and
Exchange Commission. In the opinion of management, these financial statements
reflect all adjustments of a normal, recurring nature necessary for the fair
presentation of the Company’s financial position, results of operations and cash
flows for the interim periods presented in conformity with accounting principles
generally accepted in the United States of America. These financial statements
should be read in conjunction with the consolidated financial statements
and
notes thereto for the year ended December 31, 2005 included in the
Company’s annual report on Form 10-K and the Company’s quarterly reports on
Form 10-Q for the periods ended March 31, 2006 and June 30, 2006. The
Company’s results for any interim period are not necessarily indicative of
results for a full year or any other interim period.
3. |
Recent
Accounting Pronouncements
|
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued Financial
Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.”
FIN No. 48 provides a comprehensive model for the recognition, measurement,
and disclosure in the financial statements of uncertain tax positions taken
or
expected to be taken on a tax return. FIN No. 48 is effective for the
Company beginning on January 1, 2007. The adoption of this interpretation
is not
expected to have a material impact on the Company’s financial position, results
of operations, earnings per share, or cash flows.
In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” SAB No. 108 was issued to address diversity in practice in
quantifying financial statement misstatements. Current practice allows for
the
evaluation of materiality on the basis of either (1) the error quantified
as the
amount by which the current year income statement was misstated (“rollover
method”) or (2) the cumulative error quantified as the cumulative amount by
which the current year balance sheet was misstated (“iron curtain method”). The
guidance provided in SAB 108 requires both methods to be used in evaluating
materiality (“dual approach”). SAB No. 108 permits companies to initially apply
its provisions either by (1) restating prior financial statements as if the
dual
approach had always been used or (2) recording the cumulative effect of
initially applying the “dual approach” as adjustments to the carrying values of
assets and liabilities as of January 1, 2006 with an offsetting adjustment
recorded to the opening balance of retained earnings. The provisions of SAB
No. 108 is not expected to have a material impact on the Company’s
financial position, results of operations, earnings per share, or cash
flows.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles (“GAAP”), and expands disclosures about fair value
measurements. SFAS No. 157 does not require any new fair value measurements
in financial statements, but standardizes its definition and guidance in
GAAP.
Thus, for some entities, the application of this statement may change current
practice. SFAS No. 157 is effective for the Company beginning on
January 1, 2008. The Company is currently evaluating the impact that the
adoption of this statement may have on its financial position and results
of
operations.
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Tabular
amounts in thousands, except per share amounts)
4. |
Share-based
Compensation
|
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment,” (“SFAS No. 123R”). This statement requires that the costs of
employee share-based payments be measured at fair value on the awards’ grant
date and recognized in the financial statements over the requisite service
period.
Effective
January 1, 2006, the Company adopted the provisions of SFAS No. 123R
using the modified prospective application transition method. Under this method,
compensation cost for the portion of awards for which the requisite service
has
not yet been rendered that are outstanding as of the adoption date is recognized
over the remaining service period. The compensation cost for that portion of
awards is based on the grant-date fair value of those awards as calculated
for
pro forma disclosures under SFAS No. 123, as originally issued. All new
awards and awards that are modified, repurchased, or cancelled after the
adoption date are accounted for under the provisions of SFAS No. 123R.
Prior periods have not been restated under this transition method. The Company
recognizes share-based compensation ratably using the straight-line attribution
method over the requisite service period. In addition, pursuant to SFAS
No. 123R, the Company is required to estimate the amount of expected
forfeitures when calculating share-based compensation, instead of accounting
for
forfeitures as they occur, which was the Company’s practice prior to the
adoption of SFAS No. 123R. As of January 1, 2006, the cumulative
effect of adopting the estimated forfeiture method was not material.
Prior
to
January 1, 2006, the Company accounted for share-based compensation using
the intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees,” and related
interpretations and elected the disclosure option of SFAS No. 123 as amended
by
SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and
Disclosure.” SFAS No. 123 requires that companies either recognize compensation
expense for grants of stock, stock options and other equity instruments based
on
fair value, or provide pro forma disclosure of net income and earnings per
share
in the notes to the financial statements. Accordingly, the Company measured
compensation expense for stock options as the excess, if any, of the estimated
fair market value of the Company’s stock at the date of grant over the exercise
price. The following table details the effect on net income and earnings per
share for the three and nine months ended September 30, 2005 had
compensation expense for the stock plans been recorded based on the fair value
method under SFAS No. 123.
|
|
Three
Months
Ended
September 30,
2005
|
|
Nine
Months
Ended
September 30,
2005
|
|
Net
income
|
|
$
|
3,766
|
|
$
|
13,250
|
|
Add:
Total share-based compensation expense included in reported net income,
net of related tax effects
|
|
|
1,091
|
|
|
2,948
|
|
Deduct:
Total share-based compensation expense determined under the
fair
value method for all awards, net of related tax effects
|
|
|
(1,136
|
)
|
|
(3,082
|
)
|
Pro
forma net income
|
|
$
|
3,721
|
|
$
|
13,116
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic - as reported
|
|
$
|
0.24
|
|
$
|
0.85
|
|
Basic
- pro forma
|
|
$
|
0.24
|
|
$
|
0.84
|
|
Diluted - as reported
|
|
$
|
0.22
|
|
$
|
0.79
|
|
Diluted
- pro forma
|
|
$
|
0.22
|
|
$
|
0.78
|
|
Equity
Incentive Plans
In
connection with its initial public offering, the Company adopted the 2004
Omnibus Stock Plan (the “Omnibus Plan”), which replaced the Company’s then
existing equity plans for grants of share-based awards. The Omnibus Plan permits
the grant of stock options, restricted stock, and other share-based awards
valued in whole or in part by reference to, or otherwise based on, the Company’s
common stock. Under the Omnibus Plan, as originally adopted,
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Tabular
amounts in thousands, except per share amounts)
a
total
of 2,141,000 shares of common stock were reserved for issuance to eligible
employees, executive officers, independent contractors and outside directors.
The Plan was amended effective as of May 2, 2006 to increase the number of
shares of common stock available for issuance by 2,100,000. As of
September 30, 2006, approximately 2,273,000 shares remain available for
future issuance.
The
Compensation Committee of the board of directors has the responsibility of
interpreting the Omnibus Plan and determining all of the terms and conditions
of
awards made under the Omnibus Plan, including when the awards will become
exercisable or otherwise vest. Subject to acceleration under certain conditions,
the majority of the Company’s stock options and restricted stock vest annually,
pro-rata over 4 years. All stock options have a ten-year contractual
term.
The
weighted average fair values of options granted during the nine months ended
September 30, 2006 and 2005 were $18.39 and $22.84, respectively, which
were estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions for both periods:
Expected
dividend yield
|
|
|
0
|
%
|
Expected
volatility
|
|
|
40
|
%
|
Risk-free
interest rate
|
|
|
4.6
|
%
|
Expected
option life (in years)
|
|
|
4
|
|
Stock
option activity for the nine months ended September 30, 2006 was as
follows:
|
|
Number
of
Options
(in
thousands)
|
|
Weighted
Average Exercise Price
(in
dollars)
|
|
Weighted
Average Remaining Contractual Term
(in
years)
|
|
Aggregate
Intrinsic Value
(in
millions)
|
|
Outstanding
at January 1, 2006
|
|
|
1,305
|
|
$
|
2.15
|
|
|
|
|
|
|
|
Granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
price = fair market value
|
|
|
8
|
|
$
|
30.29
|
|
|
|
|
|
|
|
Exercised
|
|
|
(384
|
)
|
$
|
0.84
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(82
|
)
|
$
|
3.31
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2006
|
|
|
847
|
|
$
|
2.91
|
|
|
7.0
|
|
$
|
30.7
|
|
Exercisable
at September 30, 2006
|
|
|
463
|
|
$
|
2.17
|
|
|
6.7
|
|
$
|
17.2
|
|
The
aggregate intrinsic value of options exercised during the nine months ended
September 30, 2006 and 2005 was $11.7 million and $5.7 million,
respectively.
Restricted
stock activity for the nine months ended September 30, 2006 was as
follows:
|
|
Number
of Shares
(in
thousands)
|
|
Weighted
Average Grant-Date Fair Value
(in
dollars)
|
|
Restricted
stock at January 1, 2006
|
|
|
1,279
|
|
$
|
19.24
|
|
Granted
|
|
|
632
|
|
$
|
28.68
|
|
Vested
|
|
|
(174
|
)
|
$
|
22.00
|
|
Forfeited
|
|
|
(154
|
)
|
$
|
19.01
|
|
Restricted
stock at September 30, 2006
|
|
|
1,583
|
|
$
|
22.34
|
|
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Tabular
amounts in thousands, except per share amounts)
The
aggregate fair value of restricted stock that vested during the nine months
ended September 30, 2006 was $5.1 million. There was no restricted
stock vesting during the nine months ended September 30, 2005. On
July 1, 2006, the Company issued a total of 504,500 shares of restricted
stock to certain employees. Although these restricted shares were not issued
to
the grantees until July 1, 2006, a grant date was established for
measurement purposes under SFAS No. 123R on February 28, 2006,
the date that the Company’s Compensation Committee approved the award. As such,
the Company began to recognize the expense relating to this award effective
February 28, 2006.
Total
share-based compensation cost recognized for the three months ended
September 30, 2006 and 2005 was $2.5 million and $1.9 million,
respectively, with related income tax benefits of $1.0 million and
$0.8 million, respectively. Total share-based compensation cost recognized
for the nine months ended September 30, 2006 and 2005 was $7.2 million
and $5.0 million, respectively, with related income tax benefits of
$3.0 million and $2.0 million, respectively. As of September 30,
2006, there was $30.8 million of total unrecognized compensation cost
related to nonvested share-based awards. This cost is expected to be recognized
over a weighted-average period of 3.0 years.
Acquisitions
of Document Review Consulting Services LLC and Aaxis Technologies
Inc.
On
July 31, 2006, the Company acquired Document Review Consulting Services LLC
(“DRCS”) and Aaxis Technologies Inc. (“Aaxis”). With the acquisitions of DRCS
and Aaxis, the Company can enhance its service offerings to the office of the
general counsel and law firms by helping them manage information in a
comprehensive manner during litigation, investigations, mergers and
acquisitions, and other major transactions. The acquisitions were consummated
in
two separate transactions on July 31, 2006 and the results of operations of
DRCS and Aaxis have been included within the Operational Consulting segment
since that date.
The
aggregate purchase price of the DRCS acquisition was approximately
$16.7 million, which consisted of $2.0 million cash paid at closing,
$0.3 million of transaction costs, and $14.4 million of debt and
liabilities assumed, the majority of which we immediately discharged. Additional
purchase consideration may be payable if specific performance targets are met
over a three-year period. Such amounts will be recorded as an adjustment to
goodwill if payable.
The
aggregate purchase price of the Aaxis acquisition was approximately
$7.9 million, which consisted of $5.1 million cash paid at closing,
$0.2 million of transaction costs, $1.9 million of debt and
liabilities assumed, all of which we immediately discharged, and a
$0.7 million working capital adjustment accrued for at September 30,
2006. Additional purchase consideration may be payable if specific performance
targets are met over a three-year period. Such amounts will be recorded as
an
adjustment to goodwill if payable.
The
Company financed the DRCS and Aaxis acquisitions with cash on hand and
borrowings totaling $22.0 million under the Company’s bank credit
agreement.
Acquisition
of MSGalt & Company, LLC
On
April 3, 2006, the Company acquired substantially all of the assets of
MSGalt & Company, LLC (“Galt”), a specialized advisory firm consisting of 25
consultants that designs and implements corporate-wide programs to improve
shareholder returns. The aggregate purchase price of the acquisition was
$25.2 million, which consisted of $20.4 million cash paid at closing,
$0.2 million of transaction costs, and $4.6 million of additional
purchase price earned by Galt during the second quarter as certain performance
targets were met. The Company financed this acquisition with cash on hand and
borrowings of $6.5 million under the Company’s bank credit agreement.
Additional purchase consideration may be payable if specific performance targets
are met over a four-year period. Such amounts will be recorded as an adjustment
to goodwill if payable. Also, additional payments may be made based on the
amount of revenues the Company receives from referrals made by Galt employees
over a four-year period. Such amounts will be recorded as an expense if payable.
The acquisition was consummated on April 3, 2006
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Tabular
amounts in thousands, except per share amounts)
and
the
results of operations of Galt have been included within the Operational
Consulting segment since that date.
The
identifiable intangible assets that were acquired totaled $4.3 million and
have an estimated weighted average useful life of 20.0 months, which
consisted of customer contracts totaling $1.7 million (3.2 months weighted
average useful life), customer relationships totaling $1.4 million (6.1
months weighted average useful life), and non-competition agreements totaling
$1.2 million (60.0 months weighted average useful life). Additionally, the
Company recorded $20.9 million of goodwill, which the Company intends to
deduct for income tax purposes.
Acquisition
of Speltz & Weis LLC
On
May 9, 2005, Huron Consulting Group Inc. acquired Speltz & Weis LLC
(“S&W”), a specialized consulting firm that consisted of 26 consultants. The
aggregate purchase price of the acquisition was $17.2 million, which
consisted of $14.0 million cash paid at closing, notes payable totaling
$3.0 million payable in three equal annual installments of
$1.0 million (together with accrued interest at 4% per annum) that began on
May 8, 2006, and $0.2 million of transaction costs. Additional
purchase consideration may be payable based on the performance of S&W over a
three-year period. Such amounts will be recorded as an adjustment to goodwill
if
payable. No additional purchase consideration has been earned by S&W as of
September 30, 2006. Also, additional payments may be made based on the
amount of revenues the Company receives from certain referrals made by S&W
employees. Such amounts will be recorded as an expense if payable. The
acquisition was consummated on May 9, 2005 and the results of operations of
S&W have been included within the Financial Consulting segment since that
date.
The
identifiable intangible assets that were acquired consisted of customer
contracts of $1.9 million (8.4 months weighted average useful life) and
customer relationships of $0.7 million (15.1 months weighted average useful
life). Additionally, the Company recorded $14.6 million of goodwill, which
the Company intends to deduct for income tax purposes.
Purchase
Price Allocations
The
following table summarizes the estimated fair values of the assets acquired
and
liabilities assumed for the Company’s significant business
acquisitions.
|
|
Galt
|
|
S&W
|
|
Assets
Acquired:
|
|
April 3,
2006
|
|
May 9,
2005
|
|
Current
assets
|
|
$
|
—
|
|
$
|
2,291
|
|
Equipment
|
|
|
11
|
|
|
16
|
|
Intangible
assets
|
|
|
4,300
|
|
|
2,600
|
|
Goodwill
|
|
|
20,864
|
|
|
14,637
|
|
|
|
|
25,175
|
|
|
19,544
|
|
Liabilities
Assumed:
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
—
|
|
|
2,307
|
|
|
|
|
|
|
|
|
|
Net
Assets Acquired
|
|
$
|
25,175
|
|
$
|
17,237
|
|
Pro
Forma Financial Data
The
following unaudited pro forma financial data gives effect to the acquisitions
of
Galt and S&W as if they had been completed at the beginning of the period
presented. The acquisitions of DRCS and Aaxis had an immaterial impact on the
Company’s consolidated results of operations and thus, pro forma financial
information is not presented. The unaudited pro forma financial data are not
necessarily indicative of the operating results that would have been achieved
if
the acquisition had occurred on the dates indicated, nor are they necessarily
indicative of future results.
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Tabular
amounts in thousands, except per share amounts)
|
|
Historical
Huron and Historical Galt
|
|
|
|
Three
Months Ended
September 30,
|
|
Nine
Months Ended
September 30,
|
|
|
|
2006
Actual
|
|
2005
Pro
forma
|
|
2006
Pro
forma
|
|
2005
Pro
forma
|
|
Revenues,
net of reimbursable expenses
|
|
$
|
75,194
|
|
$
|
58,811
|
|
$
|
209,219
|
|
$
|
162,808
|
|
Operating
income
|
|
$
|
12,123
|
|
$
|
8,936
|
|
$
|
34,823
|
|
$
|
25,588
|
|
Income
before provision for income taxes
|
|
$
|
11,719
|
|
$
|
8,745
|
|
$
|
34,245
|
|
$
|
25,248
|
|
Net
income
|
|
$
|
6,785
|
|
$
|
4,651
|
|
$
|
19,562
|
|
$
|
14,071
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.41
|
|
$
|
0.29
|
|
$
|
1.20
|
|
$
|
0.90
|
|
Diluted
|
|
$
|
0.39
|
|
$
|
0.27
|
|
$
|
1.14
|
|
$
|
0.84
|
|
|
|
Historical
Huron and
Historical
S&W
|
|
|
|
Nine
Months Ended
September 30,
|
|
|
|
2006
Actual
|
|
2005
Pro
forma
|
|
Revenues,
net of reimbursable expenses
|
|
$
|
205,150
|
|
$
|
159,867
|
|
Operating
income
|
|
$
|
33,103
|
|
$
|
24,465
|
|
Income
before provision for income taxes
|
|
$
|
32,738
|
|
$
|
24,705
|
|
Net
income
|
|
$
|
18,661
|
|
$
|
13,621
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.15
|
|
$
|
0.87
|
|
Diluted
|
|
$
|
1.08
|
|
$
|
0.81
|
|
6. |
Goodwill
and Intangible Assets
|
The
changes in the carrying amount of goodwill by segment for the nine months ended
September 30, 2006 were as follows:
|
|
Financial
Consulting
|
|
Operational
Consulting
|
|
Total
|
|
Balance
as of January 1, 2006
|
|
$
|
11,739
|
|
$
|
2,898
|
|
$
|
14,637
|
|
Goodwill
acquired in connection with business combinations
|
|
|
854
|
|
|
34,655
|
|
|
35,509
|
|
Balance
as of September 30, 2006
|
|
$
|
12,593
|
|
$
|
37,553
|
|
$
|
50,146
|
|
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Tabular
amounts in thousands, except per share amounts)
Identifiable
intangible assets with finite lives are amortized over their estimated useful
lives. Intangible assets amortization expense was $1.5 million and
$3.5 million for the three and nine months ended September 30, 2006,
respectively. Intangible assets amortization expense was $1.4 million and
$1.8 million for the three and nine months ended September 30, 2005,
respectively, which included a charge of $0.6 million relating to the
write-off of a customer contract. Estimated intangible assets amortization
expense is $4.5 million for 2006, $1.7 million for 2007,
$1.1 million for 2008, $0.8 million for 2009, $0.6 million for
2010, and $0.1 million for 2011. These amounts are based on intangible
assets recorded as of September 30, 2006 and actual amortization expense
could differ from these estimated amounts as a result of the finalization of
the
DRCS and Aaxis valuations, future acquisitions and other factors. Intangible
assets are as follows:
|
|
September 30,
2006
|
|
December 31,
2005
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Customer
contracts
|
|
$
|
3,960
|
|
$
|
3,960
|
|
$
|
1,900
|
|
$
|
1,848
|
|
Customer
relationships
|
|
|
4,366
|
|
|
1,526
|
|
|
700
|
|
|
359
|
|
Non-competition
agreements
|
|
|
2,105
|
|
|
160
|
|
|
—
|
|
|
—
|
|
Technology
and software
|
|
|
585
|
|
|
101
|
|
|
475
|
|
|
24
|
|
Total
|
|
$
|
11,016
|
|
$
|
5,747
|
|
$
|
3,075
|
|
$
|
2,231
|
|
7. |
Property
and Equipment
|
Property
and equipment at September 30, 2006 and December 31, 2005 are detailed
below:
|
|
September 30,
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
Computers,
related equipment and software
|
|
$
|
14,545
|
|
$
|
9,747
|
|
Furniture
and fixtures
|
|
|
7,462
|
|
|
3,721
|
|
Leasehold
improvements
|
|
|
17,387
|
|
|
6,122
|
|
Assets
under capital lease
|
|
|
409
|
|
|
409
|
|
Assets
under construction
|
|
|
—
|
|
|
1,229
|
|
Property
and equipment
|
|
|
39,803
|
|
|
21,228
|
|
Accumulated
depreciation and amortization
|
|
|
(12,446
|
)
|
|
(8,066
|
)
|
Property
and equipment, net
|
|
$
|
27,357
|
|
$
|
13,162
|
|
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Tabular
amounts in thousands, except per share amounts)
Basic
earnings per share excludes dilution and is computed by dividing net income
by
the weighted average number of common shares outstanding for the period,
excluding unvested restricted common stock. Diluted earnings per share reflects
the potential reduction in earnings per share that could occur if securities
or
other contracts to issue common stock were exercised or converted into common
stock under the treasury stock method. Earnings per share under the basic and
diluted computations are as follows:
|
|
Three
Months Ended
September 30,
|
|
Nine
Months Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
income
|
|
$
|
6,785
|
|
$
|
3,766
|
|
$
|
18,661
|
|
$
|
13,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - basic
|
|
|
16,424
|
|
|
15,777
|
|
|
16,272
|
|
|
15,657
|
|
Weighted
average common stock equivalents
|
|
|
991
|
|
|
1,173
|
|
|
948
|
|
|
1,144
|
|
Weighted
average common shares outstanding - diluted
|
|
|
17,415
|
|
|
16,950
|
|
|
17,220
|
|
|
16,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.41
|
|
$
|
0.24
|
|
$
|
1.15
|
|
$
|
0.85
|
|
Diluted
earnings per share
|
|
$
|
0.39
|
|
$
|
0.22
|
|
$
|
1.08
|
|
$
|
0.79
|
|
There
were no anti-dilutive securities for the three and nine months ended
September 30, 2006 and 2005.
The
Company had a bank credit agreement that originally expired on February 10,
2006. On January 17, 2006, the Company extended the credit agreement for
ninety days to May 10, 2006. On March 28, 2006, the Company further
extended the credit agreement for another sixty days to July 10, 2006, and
also amended certain terms of the original agreement.
On
June 7, 2006, the Company entered into a new credit agreement with various
financial institutions. Under the terms of this new unsecured revolving credit
facility, the Company may borrow up to $75.0 million. Additionally, the
Company may elect to increase the revolver by $25.0 million. Fees and
interest on borrowings vary based on the Company’s total debt to earnings before
interest, taxes, depreciation and amortization (“EBITDA”) ratio as set forth in
the credit agreement and will be based on a spread over LIBOR or a spread over
the base rate, which is the greater of the Federal Funds Rate plus 0.5% or
the
Prime Rate, as selected by the Company. All outstanding principal is due upon
expiration of the credit agreement on May 31, 2011. The credit agreement
includes financial covenants that require the Company to maintain certain
interest coverage ratio, total debt to EBITDA ratio and net worth levels. In
addition, certain acquisitions and similar transactions will need to be approved
by the lenders. The amount outstanding under this credit facility at
September 30, 2006 was $22.0 million and bears interest at 6.0%. The
Company had no borrowings outstanding under the bank credit agreement at
December 31, 2005. At both September 30, 2006 and December 31, 2005,
the Company was in compliance with its debt covenants.
10. |
Commitments
and Contingencies
|
Litigation
From
time
to time, the Company is involved in various legal matters arising out of the
ordinary course of business. Although the outcome of these matters cannot
presently be determined, in the opinion of management, disposition of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Tabular
amounts in thousands, except per share amounts)
Guarantees
Guarantees
in the form of letters of credit totaling $6.2 million and
$6.5 million were outstanding at September 30, 2006 and
December 31, 2005, respectively, to support certain office lease
obligations.
To
the
extent permitted by law, the Company’s by-laws and articles of incorporation
require that the Company indemnify its officers and directors against judgments,
fines, and amounts paid in settlement, including attorneys’ fees, incurred in
connection with civil or criminal action or proceedings, as it relates to their
services to the Company if such person acted in good faith. Although there
is no
limit on the amount of indemnification, the Company may have recourse against
its insurance carrier for certain payments made.
Segments
are defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and
Related Information,” as components of a company in which separate financial
information is available and is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance.
The
Company provides services through two segments: Financial Consulting and
Operational Consulting. The Financial Consulting segment provides services
that
help clients effectively address complex challenges that arise from litigation,
disputes, investigations, regulation, financial distress and other sources
of
significant conflict or change. The Operational Consulting segment provides
services that help clients improve the overall efficiency and effectiveness
of
their operations by enhancing revenue, reducing costs, managing regulatory
compliance and maximizing procurement efficiency.
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, all office facility costs,
costs relating to accounting and finance, human resources, legal, marketing,
information technology and company-wide business development functions, as
well
as costs related to overall corporate management.
The
following table presents information about reported segments along with the
items necessary to reconcile the segment information to the totals reported
in
the accompanying consolidated financial statements:
HURON
CONSULTING GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Tabular
amounts in thousands, except per share amounts)
|
|
Three
Months Ended
September 30,
|
|
Nine
Months Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Financial
Consulting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
34,645
|
|
$
|
33,259
|
|
$
|
101,274
|
|
$
|
87,702
|
|
Operating
income
|
|
$
|
14,222
|
|
$
|
13,400
|
|
$
|
40,316
|
|
$
|
35,844
|
|
Segment
operating income as a percent of segment
revenues
|
|
|
41.1
|
%
|
|
40.3
|
%
|
|
39.8
|
%
|
|
40.9
|
%
|
Operational
Consulting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
40,549
|
|
$
|
21,050
|
|
$
|
103,876
|
|
$
|
63,884
|
|
Operating
income
|
|
$
|
14,678
|
|
$
|
6,511
|
|
$
|
37,408
|
|
$
|
22,499
|
|
Segment
operating income as a percent of segment
revenues
|
|
|
36.2
|
%
|
|
30.9
|
%
|
|
36.0
|
%
|
|
35.2
|
%
|
Total
Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
75,194
|
|
$
|
54,309
|
|
$
|
205,150
|
|
$
|
151,586
|
|
Reimbursable
expenses
|
|
|
7,921
|
|
|
4,840
|
|
|
20,051
|
|
|
13,901
|
|
Total
revenues and reimbursable expenses
|
|
$
|
83,115
|
|
$
|
59,149
|
|
$
|
225,201
|
|
$
|
165,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of operations reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating income
|
|
$
|
28,900
|
|
$
|
19,911
|
|
$
|
77,724
|
|
$
|
58,343
|
|
Charges
not allocated at the segment level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
selling, general and administrative expenses
|
|
|
13,856
|
|
|
10,788
|
|
|
38,623
|
|
|
30,885
|
|
Depreciation
and amortization
|
|
|
2,921
|
|
|
1,905
|
|
|
5,998
|
|
|
3,861
|
|
Other
expense (income)
|
|
|
404
|
|
|
(47
|
)
|
|
365
|
|
|
(277
|
)
|
Income
before provision for income taxes
|
|
$
|
11,719
|
|
$
|
7,265
|
|
$
|
32,738
|
|
$
|
23,874
|
|
During
the three months ended September 30, 2006, one client generated 12.2%, or
$9.2 million, of the Company's consolidated revenues. Of the
$9.2 million, $7.9 million was generated by the Financial Consulting
segment and $1.3 million was generated by the Operational Consulting
segment. This client’s total receivables and unbilled services balance at
September 30, 2006 represented less than 10.0% of the Company’s total
receivables and unbilled services balance.
During
the three months ended September 30, 2005, one client generated 10.3%, or
$5.6 million, of the Company's consolidated revenues. Of the
$5.6 million, $4.2 million was generated by the Financial Consulting
segment and $1.4 million was generated by the Operational Consulting
segment. This client’s total receivables and unbilled services balance at
September 30, 2005 represented 12.1% of the Company’s total receivables and
unbilled services balance.
During
the three months ended September 30, 2005, another client generated 9.9%,
or $5.4 million, of the Company's consolidated revenues. Of the
$5.4 million, $4.6 million was generated by the Financial Consulting
segment and $0.8 million was generated by the Operational Consulting
segment. During the nine months ended September 30, 2005, this client
generated 11.6%, or $17.6 million, of the Company's consolidated revenues.
Of the $17.6 million, $14.9 million was generated by the Financial
Consulting segment and $2.7 million was generated by the Operational
Consulting segment. This client’s total receivables and unbilled services
balance at September 30, 2005 represented 10.2% of the Company’s total
receivables and unbilled services balance.
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 indirect operating subsidiaries, Huron Consulting Services LLC
and
Speltz & Weis LLC.
This
Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are identified
by
words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” or “continues.” These forward-looking statements reflect our
current expectation about our future results, levels of activity, performance
or
achievements, including without limitation, that our business continues to
grow
at the current expectations; that we are able to expand our service offerings
through our existing consultants and new hires; that
we
successfully integrate the businesses we acquire;
and that
existing market conditions do not change from current expectations. These
statements involve known and unknown risks, uncertainties and other factors
that
may cause actual results, levels of activity, performance or achievements
to be
materially different from any future results, levels of activity, performance
or
achievements expressed or implied by these forward-looking statements. Please
see “Risk Factors” in our 2005 annual report on Form 10-K for a complete
description of the material risks we face.
OVERVIEW
Our
History
Huron
was
formed in March 2002 and commenced operations in May 2002. We were founded
by a
core group of experienced financial and operational consultants that consisted
primarily of former Arthur Andersen LLP partners and professionals, with
equity
sponsorship from a group of investors led by Lake Capital Management LLC.
For
purposes of holding their investment in us, these investors formed HCG Holdings
LLC, a Delaware limited liability company. On October 18, 2004, we completed
our
initial public offering (“IPO”) and became a publicly traded company. During the
first quarter of 2006, HCG Holdings LLC sold 7,245,000 shares of our common
stock in a secondary offering.
On
May 9, 2005, we acquired Speltz & Weis LLC (“S&W”), a specialized
consulting firm that consisted of 26 consultants. With the acquisition of
S&W, the Company provides interim management, organizational renewal and
turnaround services, and other crisis management services to distressed
hospitals and other healthcare facilities. The results of operations of S&W
have been included within the Financial Consulting segment since the date
of
acquisition.
On
April 3, 2006, the Company acquired substantially all of the assets of
MSGalt & Company, LLC (“Galt”), a specialized advisory firm consisting of 25
consultants that designs and implements corporate-wide programs to improve
shareholder returns. The results of operations of Galt have been included
within
the Operational Consulting segment since the date of acquisition.
On
July 31, 2006, the Company acquired Document Review Consulting Services LLC
(“DRCS”) and Aaxis Technologies Inc. (“Aaxis”) in two separate transactions. The
results of operations of DRCS and Aaxis have been included within the
Operational Consulting segment since the date of acquisition. The acquisitions
of DRCS and Aaxis enhance the Company’s service offerings to the office of the
general counsel and law firms by helping them manage information in a
comprehensive manner during litigation, investigations, mergers and
acquisitions, and other major transactions. Aaxis provides full-service
electronic data discovery support to litigation teams and corporate counsel
with
a focus on forensics and data gathering, end-to-end data processing, and
information consulting. DRCS provides comprehensive document review using
experienced contract reviewers. The
utilization of experienced contract reviewers allows for cost-effective and
flexible solutions to meet client needs.
Our
Business
Huron
is
an independent provider of financial and operational consulting services,
with
clients that include Fortune 500 companies, medium-sized businesses, leading
academic institutions, healthcare organizations and the law firms that represent
these various organizations.
We
provide our services through two segments: Financial Consulting and Operational
Consulting. Our Financial Consulting segment provides services that help
clients
effectively address complex challenges that arise from litigation, disputes,
investigations, regulation, financial distress and other sources of significant
conflict or change. Our Operational Consulting segment provides services
that
help clients improve the overall efficiency and effectiveness of their
operations, reduce costs, manage regulatory compliance and maximize procurement
efficiency.
The
majority of our revenues are generated by our billable consultants who provide
consulting services to our clients. A smaller portion of our revenues is
generated by our other revenue-generating employees, consisting of our document
review and electronic data discovery groups, whom we acquired in the third
quarter this year as discussed above. We refer to our billable consultants
and
other revenue-generating employees collectively as revenue-generating
professionals.
Consulting
services revenues are primarily driven by the number of billable consultants
we
employ and their utilization rates, as well as the billing rates we charge
our
clients. Revenues generated by our document review and electronic data discovery
groups are largely dependent on the number of professionals and independent
contractors we employ, their utilization and billing rates charged, as well
as
the number of pages reviewed and amount of data processed.
We
also
bill our clients for reimbursable expenses such as travel and out-of-pocket
costs incurred in connection with engagements. We manage our business on
the
basis of revenues before reimbursable expenses. We believe this is the most
accurate reflection of our services because it eliminates the effect of these
reimbursable expenses that we bill to our clients at cost.
Most
of
our revenues are generated based on either the number of hours incurred
by
our
revenue-generating professionals and independent contractors, the number
of
pages reviewed by our document review group, or the amount of data processed
by
our electronic data discovery group
at
agreed upon rates. We refer to these types of arrangements collectively as
time
and expense engagements. Time and expense engagements represented 84.9% and
83.6% of our revenues in the three and nine months ended September 30, 2006,
respectively.
In
fixed
fee engagements, we agree to a pre-established fee in exchange for a
pre-determined set of consulting services. We set the fees based on our
estimates of the costs and timing for completing the fixed fee engagements.
It
is the client’s expectation in these engagements that the pre-established fee
will not be exceeded except in mutually agreed upon circumstances. For the
three
and nine months ended September 30, 2006, fixed fee engagements represented
13.4% and 13.7% of our revenues, respectively.
Performance-based
fee engagements generally tie fees to the attainment of contractually defined
objectives. We enter into performance-based engagements in essentially two
forms. First, we generally earn fees that are directly related to the savings
formally acknowledged by the client as a result of adopting our recommendations
for improving cost effectiveness in the procurement area. Second, we have
performance-based engagements in which we earn a success fee when and if
certain
pre-defined outcomes occur. Often this type of success fee supplements time
and
expense or fixed fee engagements. While performance-based fee revenues
represented only 1.7% and 2.7% of our revenues for the three and nine months
ended September 30, 2006, such revenues in the future may cause significant
variations in quarterly revenues and operating results due to the timing
of
achieving the performance-based criteria.
Business
Strategy, Opportunities and Challenges
Our
primary strategy is to meet the needs of our financial consulting and
operational consulting clients by providing a balanced portfolio of service
offerings and capabilities, so that we can adapt quickly and effectively
to
emerging opportunities in the marketplace. To achieve this, we have entered
into
select acquisitions of complementary businesses and continue to hire highly
qualified revenue-generating professionals. Since we commenced operations,
we
have nearly quadrupled the number of these professionals from 213 on May
31,
2002 to 810 as of September 30, 2006. To expand our business, we will
remain focused on growing our existing relationships and developing new
relationships, continue to promote and provide an integrated approach to
service
delivery, broaden the scope of our existing services, and continue to acquire
complementary businesses. Additionally, we intend to enhance our visibility
in
the marketplace by continuing to build our brand.
CRITICAL
ACCOUNTING POLICIES
Management’s
discussion and analysis of financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America, or GAAP. The preparation of financial statements in conformity with
GAAP requires management to make assessments, estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements,
as
well as the reported amounts of revenues and expenses during the reporting
period. Critical accounting policies are those policies that we believe present
the most complex or subjective measurements and have the most potential to
impact our financial position and operating results. While all decisions
regarding accounting policies are important, we believe that there are five
accounting policies that could be considered critical. These critical accounting
policies include revenue recognition, the allowances for doubtful accounts
and
unbilled services, carrying value of goodwill and other intangible assets,
valuation of net deferred tax assets, and share-based compensation.
Revenue
Recognition
We
recognize revenues in accordance with Staff Accounting Bulletin, or SAB,
No.
101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104,
“Revenue Recognition.” Revenue is recognized when persuasive evidence of an
arrangement exists, the related services are provided, the price is fixed
and
determinable and collectibility is reasonably assured. Our services are
primarily rendered under arrangements that require the client to pay based
on
the hours incurred by our revenue-generating professionals, the number of
pages
reviewed by our document review group, or the amount of data processed by
our
electronic data discovery group at agreed-upon rates and recognized as services
are provided. Revenues related to fixed fee engagements are recognized based
on
estimates of services provided versus the total services to be provided under
the engagement. Losses, if any, on fixed fee engagements are recognized in
the
period in which the loss first becomes probable and reasonably estimable.
To
date, such losses have not been significant. Revenues related to
performance-based engagements are recognized when all performance-based criteria
are met. We also have contracts with clients to deliver multiple services
that
are covered under both individual and separate engagement letters. These
arrangements allow for our services to be valued and accounted for on a separate
basis. Reimbursable expenses related to time and expense and fixed fee
engagements are recognized as revenue in the period in which the expense
is
incurred. Reimbursable expenses subject to performance-based criteria are
recognized as revenue when all performance criteria are met. Direct costs
incurred on all types of engagements, including performance-based engagements,
are recognized in the period in which incurred.
Differences
between the timing of billings and the recognition of revenue are recorded
as
either unbilled services or deferred revenue. Revenues recognized for services
performed but not yet billed to clients are recorded as unbilled services.
Amounts billed to clients but not yet recognized as revenues are recorded
as
deferred revenue. Client prepayments and retainers that are unearned are
also
classified as deferred revenue and recognized over future periods as earned
in
accordance with the applicable engagement agreement.
Allowances
for Doubtful Accounts and Unbilled Services
We
maintain allowances for doubtful accounts and for services performed but
not yet
billed for estimated losses based on several factors, including the historical
percentages of fee adjustments and write-offs by service group, an assessment
of
a client’s ability to make required payments and the estimated cash realization
from amounts due from clients. The allowances are assessed by management
on a
regular basis. If the financial condition of a client deteriorates in the
future, impacting the client’s ability to make payments, an increase to our
allowance might be required or our allowance may not be sufficient to cover
actual write-offs.
The
provision for doubtful accounts and unbilled services is recorded as a reduction
in revenue to the extent the provision relates to fee adjustments and other
discretionary pricing adjustments. To the extent the provision relates to
a
client’s inability to make required payments, the provision is recorded in
operating expenses.
Carrying
Value of Goodwill and Other Intangible Assets
Goodwill
represents the excess of the cost of an acquired entity over the net of the
amounts assigned to assets acquired and liabilities assumed. Our goodwill
balance as of September 30, 2006 was $50.1 million, which resulted
from our acquisitions. Pursuant to the provisions of SFAS No. 142,
“Goodwill and Other Intangible Assets,” we test goodwill for impairment annually
or whenever indications of impairment arise, such as loss of key
personnel,
unanticipated
competition, or other unforeseen developments. Impairment exists when the
carrying amount of goodwill exceeds its implied fair value, resulting in
an
impairment charge for this excess. An impairment test involves considerable
management judgment and estimates regarding future operating results and
cash
flows. Pursuant to our policy, we performed the annual goodwill assessment
as of
April 30, 2006 and determined that no impairment of goodwill existed as of
that date.
Intangible
assets represent purchased assets that lack physical substance but can be
distinguished from goodwill. Our intangible assets balances, net of accumulated
amortization, totaled $5.3 million at September 30, 2006 and consist
of customer relationships, customer contracts, non-competition agreements,
as
well as technology and software. We use valuation techniques in estimating
the
initial fair value of acquired intangible assets. These valuations are primarily
based on the present value of the estimated net cash flows expected to be
derived from the client contracts and relationships, discounted for assumptions
about future customer attrition. We evaluate our intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. Therefore, higher or
earlier-than-expected customer attrition may result in higher future
amortization charges or an impairment charge for customer-related intangible
assets.
Valuation
of Net Deferred Tax Assets
We
have
recorded net deferred tax assets as we expect to realize future tax benefits
related to the utilization of these assets. Although we experienced net losses
early in our history, no valuation allowance has been recorded relating to
these
deferred tax assets because we believe that it is more likely than not that
future taxable income will be sufficient to allow us to utilize these assets.
Should we determine in the future that we will not be able to fully utilize
all
or part of these deferred tax assets, we would need to establish a valuation
allowance, which would be recorded as a charge to income in the period the
determination was made. While utilization of these deferred tax assets will
provide future cash flow benefits, they will not have an effect on future
income
tax provisions.
Share-based
Compensation
Effective
January 1, 2006, we adopted Statement of Financial Accounting Standards No.
123 (revised 2004), “Share-Based Payment,” which requires that companies
recognize compensation expense for grants of stock, stock options and other
equity instruments based on fair value.
Given
the lack of a public market for our common stock prior to our IPO, we
established an estimated fair value of the common stock as well as the exercise
price for the options to purchase this stock. We estimated the fair value
of our
common stock by evaluating our results of business activities and projections
of
our future results of operations.
RESULTS
OF OPERATIONS
The
following table sets forth selected segment and consolidated operating results
and other operating data for the periods indicated. 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.
|
|
Three
Months Ended
September 30,
|
|
Nine
Months Ended
September 30,
|
|
Segment
and Consolidated Operating Results (in
thousands):
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenues
and reimbursable expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Consulting
|
|
$
|
34,645
|
|
$
|
33,259
|
|
$
|
101,274
|
|
$
|
87,702
|
|
Operational
Consulting
|
|
|
40,549
|
|
|
21,050
|
|
|
103,876
|
|
|
63,884
|
|
Total
revenues
|
|
|
75,194
|
|
|
54,309
|
|
|
205,150
|
|
|
151,586
|
|
Total
reimbursable expenses
|
|
|
7,921
|
|
|
4,840
|
|
|
20,051
|
|
|
13,901
|
|
Total
revenues and reimbursable expenses
|
|
$
|
83,115
|
|
$
|
59,149
|
|
$
|
225,201
|
|
$
|
165,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Consulting
|
|
$
|
14,222
|
|
$
|
13,400
|
|
$
|
40,316
|
|
$
|
35,844
|
|
Operational
Consulting
|
|
|
14,678
|
|
|
6,511
|
|
|
37,408
|
|
|
22,499
|
|
Total
segment operating income
|
|
|
28,900
|
|
|
19,911
|
|
|
77,724
|
|
|
58,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
corporate costs
|
|
|
13,856
|
|
|
10,788
|
|
|
38,623
|
|
|
30,885
|
|
Depreciation
and amortization expense
|
|
|
2,921
|
|
|
1,905
|
|
|
5,998
|
|
|
3,861
|
|
Total
operating expenses
|
|
|
16,777
|
|
|
12,693
|
|
|
44,621
|
|
|
34,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$
|
12,123
|
|
$
|
7,218
|
|
$
|
33,103
|
|
$
|
23,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of revenue-generating professionals
(at period end) (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Consulting - Billable Consultants
|
|
|
336
|
|
|
308
|
|
|
|
|
|
|
|
Operational
Consulting - Billable Consultants
|
|
|
428
|
|
|
318
|
|
|
|
|
|
|
|
Operational
Consulting - Other Professionals
|
|
|
46
|
|
|
—
|
|
|
|
|
|
|
|
Total
|
|
|
810
|
|
|
626
|
|
|
|
|
|
|
|
Average
number of revenue-generating professionals
(for the period) (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Consulting - Billable Consultants
|
|
|
319
|
|
|
297
|
|
|
310
|
|
|
280
|
|
Operational
Consulting - Billable Consultants
|
|
|
400
|
|
|
298
|
|
|
364
|
|
|
263
|
|
Operational
Consulting - Other Professionals
|
|
|
22
|
|
|
—
|
|
|
9
|
|
|
—
|
|
Total
|
|
|
741
|
|
|
595
|
|
|
683
|
|
|
543
|
|
Billable
consultant utilization rate (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Consulting
|
|
|
80.7
|
%
|
|
82.9
|
%
|
|
79.5
|
%
|
|
79.4
|
%
|
Operational
Consulting
|
|
|
77.4
|
%
|
|
69.6
|
%
|
|
76.2
|
%
|
|
72.9
|
%
|
Total
|
|
|
78.9
|
%
|
|
76.2
|
%
|
|
77.7
|
%
|
|
76.2
|
%
|
Average
billing rate per hour (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Consulting
|
|
$
|
278
|
|
$
|
274
|
|
$
|
282
|
|
$
|
277
|
|
Operational
Consulting
|
|
$
|
240
|
|
$
|
209
|
|
$
|
240
|
|
$
|
220
|
|
Total
|
|
$
|
257
|
|
$
|
244
|
|
$
|
260
|
|
$
|
249
|
|
(1) |
Revenue-generating
professionals consist of our billable consultants and other professionals.
Billable consultants generate revenues primarily based on number
of hours
worked while our other professionals generate revenues based on
number of
hours worked and units produced, such as pages reviewed and data
processed. Revenue-generating professionals exclude interns and
independent contractors.
|
(2) |
We
calculate the utilization rate for our billable consultants by
dividing
the number of hours all our consultants worked on client assignments
during a period by the total available working hours for all of
our
consultants during the same period, assuming a forty-hour work
week, less
paid holidays and vacation days.
|
(3) |
For
engagements where revenues are based on number of hours worked by
our
billable consultants, average billing rate per hour is calculated
by
dividing revenues for a period by the number of hours worked on client
assignments during the same period. |
Three
Months Ended September 30, 2006 Compared to Three Months Ended
September 30, 2005
Revenues
Revenues
increased $20.9 million, or 38.5%, to $75.2 million for the three months
ended
September 30, 2006 from $54.3 million for the three months ended
September 30, 2005. Revenues for the three months ended September 30,
2006 included revenues generated by Galt and revenues generated by DRCS
and
Aaxis since July 31, 2006. Revenues from time and expense engagements
increased $15.9 million, or 33.2%, to $63.8 million for the third quarter
of 2006 from $47.9 million for the third quarter of 2005. Revenues from
fixed fee engagements increased $5.6 million, or 124.4%, to $10.1 million
for the three months ended September 30, 2006 from $4.5 million for the
three months ended September 30, 2005. Revenues from performance-based
engagements decreased $0.6 million, or 31.6%, to $1.3 million for the three
months ended September 30, 2006 from $1.9 million for the three months
ended September 30, 2005.
Of
the
overall $20.9 million increase in revenues, $15.5 million was attributable
to an
increase in the number of revenue-generating professionals and usage of
independent contractors, $3.5 million was attributable to an increase in
the average billing rate per hour, and $1.9 million was attributable to an
increase in the utilization rate of our billable consultants.
The
increases were reflective of growing demand for our services from new and
existing clients and our acquisitions. The average number of revenue-generating
professionals increased to 741 for the three months ended September 30,
2006 from 595 for the three months ended September 30, 2005, as we added a
significant number of billable consultants in our Operational Consulting
segment. The increase was also reflective of our acquisitions. Our average
billing rate per hour for engagements where revenues are based on number
of
hours worked by our billable consultants increased 5.3% to $257 for the
three
months ended September, 2006 from $244 for the three months ended
September 30, 2005. Average billing rate per hour for any given period is
calculated by dividing revenues for the period by the number of hours worked
on
client assignments during the same period. Our billable consultant utilization
rate increased to 78.9% for the three months ended September 30, 2006 from
76.2% for the three months ended September 30, 2005. The utilization rate
for any given period is calculated by dividing the number of hours all
our
billable consultants worked on client assignments during the period by
the total
available working hours for all of our billable consultants during the
same
period, assuming a 40-hour work week, less paid holidays and vacation
days.
Total
Direct Costs
Our
direct costs increased $12.4 million, or 40.5%, to $43.0 million in the
three months ended September 30, 2006 from $30.6 million in the three
months ended September 30, 2005. Approximately $8.9 million of the
increase was attributable to the increase in the average number of
revenue-generating professionals described above, the promotion of our
billable
consultants during the year, including nine to the managing director level
effective January 1, 2006, and their related compensation and benefit
costs. Additionally, $2.3 million of the increase in direct costs was
attributable to an increased usage of independent contractors, particularly
in
our document review group. We expect to continue to hire additional managing
directors, as well as hire additional managers, associates and analysts
to
expand support for our existing practices and better leverage our managing
directors and directors. As such, we expect direct costs will continue
to
increase in the near term.
Total
direct costs for the three months ended September 30, 2006 and 2005
included $0.5 million and $0.7 million, respectively, of intangible
assets amortization expense.
Operating
Expenses
Selling,
general and administrative expenses increased $2.9 million, or 21.4%, to
$16.7
million in the three months ended September 30, 2006 from $13.8 million in
the three months ended September 30, 2005. Of the $2.9 million
increase, $2.3 million was due to higher salaries and share-based
compensation associated with our non-revenue-generating professionals,
$0.8 million was attributable to increased facilities costs, and
$0.5 million resulted from an increase in training and recruiting costs.
These increases were offset by lower marketing spending and the absence
of
secondary offering costs. During the third quarter of 2005 in connection
with a
proposed secondary offering, we incurred costs totaling $0.4 million after
tax, or $0.02 per diluted share.
Depreciation
expense increased $0.7 million, or 58.3%, to $1.9 million in the three
months ended September 30, 2006 from $1.2 million in the three months ended
September 30, 2005 as computers, network equipment, furniture and fixtures,
and leasehold improvements were added to support our increase in employees.
Non-direct intangible
assets
amortization expense for the three months ended September 30, 2006 and 2005
was $1.0 million and $0.7 million, respectively. Included in
intangible assets amortization expense in the three months ended
September 30, 2005 is a $0.6 million charge relating to the write off
of a customer contract.
Operating
Income
Operating
income increased $4.9 million, or 68.0%, to $12.1 million for the
three months ended September 30, 2006 from $7.2 million for the three
months ended September 30, 2005. The increase in operating income was
primarily due to the increase in revenues, partially offset by the increases
in
direct costs and selling, general and administrative expense as discussed
above.
Operating margin, which is defined as operating income expressed as a percentage
of revenues, increased to 16.1% in the three months ended September 30,
2006 from 13.3% in the three months ended September 30, 2005 as our
selling, general and administrative expense as a percentage of revenues
decreased in 2006 compared to 2005.
Net
Income
Net
income increased $3.0 million, or 80.2%, to $6.8 million for the three
months ended September 30, 2006 from $3.8 million for the three months
ended September 30, 2005. Diluted earnings per share increased to $0.39 for
the three months ended September 30, 2006 from $0.22 for the comparable
period last year.
Segment
Results
Financial
Consulting
Revenues
Financial
Consulting segment revenues increased $1.3 million, or 4.2%, to $34.6 million
for the three months ended September 30, 2006 from $33.3 million for the
three months ended September 30, 2005. Revenues from time and expense
engagements increased $1.9 million, or 5.9%, to $34.1 million for the three
months ended September 30, 2006 from $32.2 million for the three
months ended September 30, 2005. Revenues from fixed fee engagements
decreased $0.6 million, or 54.5%, to $0.5 million for the three months
ended September 30, 2006 from $1.1 million for the three months ended
September 30, 2005. There were no revenues from performance-based
engagements in the third quarter of 2006 and were immaterial in the third
quarter of 2005.
Of
the
overall $1.3 million increase in revenues, $1.7 million was attributable to
an increase in the number of billable consultants, $0.5 million was
attributable to an increase in the average billing rate per hour, partially
offset by a decrease of $0.9 million in revenues attributable to a decrease
in the utilization rate of our billable consultants. The average number
of
billable consultants increased to 319 for the three months ended
September 30, 2006 from 297 for the three months ended September 30,
2005. The average billing rate per hour increased to $278 for the third
quarter
of 2006 from $274 for the third quarter of 2005. The utilization rate for
the
Financial Consulting segment decreased to 80.7% for the three months ended
September 30, 2006 from 82.9% for the comparable period last
year.
Operating
Income
Financial
Consulting segment operating income increased $0.8 million, or 6.1%, to
$14.2 million in the three months ended September 30, 2006 from $13.4
million in the three months ended September 30, 2005. Segment operating
margin, defined as segment operating income expressed as a percentage of
segment
revenues, increased to 41.1% for the third quarter of 2006 from 40.3% in
the
same period last year, primarily due to the increase in revenues as described
above, coupled with a decrease in general and administrative costs.
Operational
Consulting
Revenues
Operational
Consulting segment revenues increased $19.4 million, or 92.6%, to $40.5
million
for the three months ended September 30, 2006 from $21.1 million for the
three months ended September 30, 2005. Revenues for the three months ended
September 30, 2006 included revenues generated by Galt and revenues
generated by DRCS and Aaxis since July 31, 2006. Revenues from time and
expense engagements increased $13.9 million, or 88.5%, to $29.6 million
for the
three months ended September 30, 2006 from $15.7 million for the
comparable period last year. Revenues from fixed fee engagements increased
$6.1 million, or 174.3%, to $9.6 million for the three months ended
September 30, 2006 from $3.5 million for the three months ended
September 30, 2005. Revenues from
performance-based
engagements decreased $0.6 million, or 31.6%, to $1.3 million for the three
months ended September 30, 2006 from $1.9 million for the three months
ended September 30, 2005.
Of
the
overall $19.4 million increase in revenues, $13.6 million was attributable
to an
increase in the number of revenue-generating professionals and usage of
independent contractors, $3.0 million was attributable to an increase in
the average billing rate per hour, and $2.8 million was attributable to
an
increase in the utilization rate of our billable consultants. These
increases were reflective of growing demand for our services from new and
existing clients and our acquisitions.
The
average number of revenue-generating professionals increased to 422 for
the
three months ended September 30, 2006 from 298 for the three months ended
September 30, 2005, as we added a significant number of billable consultants
over the past year. The increase was also reflective of our acquisitions.
The
average billing rate per hour for engagements where revenues are based
on number
of hours worked by our billable consultants increased 14.8% to $240 for
the
third quarter of 2006 from $209 for the comparable period last year. The
billable consultant utilization rate for our Operational Consulting segment
increased to 77.4% for the three months ended September 30, 2006 from 69.6%
for the three months ended September 30, 2005.
Operating
Income
Operational
Consulting segment operating income increased $8.2 million, or 125.4%, to
$14.7 million for the three months ended September 30, 2006 from
$6.5 million for the three months ended September 30, 2005. Segment
operating margin increased to 36.2% for the third quarter of 2006 from
30.9% in
the same period last year primarily due to the increase in revenues as
described
above.
Nine
Months Ended September 30, 2006 Compared to Nine Months Ended
September 30, 2005
Revenues
Revenues
increased $53.6 million, or 35.3%, to $205.2 million for the nine months
ended
September 30, 2006 from $151.6 million for the nine months ended
September 30, 2005. Revenues for the nine months ended September 30,
2006 included revenues generated by Galt since April 3, 2006 and revenues
generated by DRCS and Aaxis since July 31, 2006. Revenues from time and
expense engagements increased $42.2 million, or 32.7%, to $171.4 million
for the
first nine months of 2006 from $129.2 million for the first nine months of
2005. Revenues from fixed fee engagements increased $9.6 million, or 51.6%,
to $28.2 million for the nine months ended September 30, 2006 from $18.6
million for the same period last year. Revenues from performance-based
engagements increased $1.8 million, or 47.4%, to $5.6 million for the nine
months ended September 30, 2006 from $3.8 million for the nine months ended
September 30, 2005.
Of
the
overall $53.6 million increase in revenues, $42.8 million was attributable
to an
increase in the number of revenue-generating professionals and usage of
independent contractors, $7.8 million was attributable to an increase in
the average billing rate per hour, and $3.0 million was attributable to an
increase in the utilization rate of our billable consultants. These increases
were reflective of growing demand for our services from new and existing
clients
and our acquisitions. The average number of revenue-generating professionals
increased to 683 for the nine months ended September 30, 2006 from 543 for
the nine months ended September 30, 2005, as we added a significant number
of billable consultants in our Operational Consulting segment. The increase
in
revenue-generating professionals was also reflective of our acquisitions.
Our
average billing rate per hour for engagements where revenues are based
on number
of hours worked by our billable consultants increased to $260 for the nine
months ended September 30, 2006 from $249 for the nine months ended
September 30, 2005. Additionally, our billable consultant utilization rate
increased to 77.7% for the first nine months of 2006 from 76.2% for the
comparable period last year.
Total
Direct Costs
Our
direct costs increased $31.1 million, or 36.5%, to $116.4 million in the
nine months ended September 30, 2006 from $85.3 million in the nine
months ended September 30, 2005. Approximately $26.0 million of the
increase was attributable to the increase in the average number of
revenue-generating professionals described above, the promotion of our
billable
consultants during the year, including nine to the managing director level
effective January 1, 2006, and their related compensation and benefit
costs. Share-based compensation expense associated with our revenue-generating
professionals increased $1.4 million, or 38.9%, to $5.0 million in the
first nine months of 2006 from $3.6 million in the first nine months of
2005. Additionally, $2.6 million of the increase in direct costs was
attributable to an increased usage of independent contractors, particularly
in
our document review group.
Total
direct costs for the nine months ended September 30, 2006 and 2005 included
$2.2 million and $1.1 million, respectively, of intangible assets
amortization expense. The increase in 2006 was primarily attributable to
the
acquisition of Galt in the second quarter of 2006, in which customer contracts
with a value of $1.7 million were acquired and amortized over 3.2 months.
Operating
Expenses
Selling,
general and administrative expenses increased $9.7 million, or 25.7%, to
$47.3
million in the nine months ended September 30, 2006 from $37.6 million in
the nine months ended September 30, 2005. Approximately $2.9 million
of this increase was due to higher facilities costs attributable to two
new
leases that we entered into during the second half of 2005. The remaining
increase in selling, general and administrative costs in the nine months
ended
September 30, 2006 compared to the same period last year was due to a
$3.2 million increase in salaries and share-based compensation associated
with our non-revenue-generating professionals, a $1.2 million increase in
training and recruiting costs, and a $0.8 million increase in marketing
expenses. During the third quarter of 2005, we incurred costs associated
with a
proposed secondary offering. These costs totaled $0.4 million after tax, or
$0.02 per diluted share. During the first quarter of 2006, we completed
our
secondary offering and recorded related costs totaling $0.6 million after
tax, or $0.03 per diluted share. These costs were expensed in the period
incurred because we did not issue new securities in the offering.
Depreciation
expense increased $1.6 million, or 51.6%, to $4.7 million in the nine
months ended September 30, 2006 from $3.1 million in the nine months ended
September 30, 2005 as computers, network equipment, furniture and fixtures,
and leasehold improvements were added to support our increase in employees.
Non-direct intangible assets amortization expense for the nine months ended
September 30, 2006 and 2005 was $1.3 million and $0.8 million,
respectively. Included in intangible assets amortization expense in the
nine
months ended September 30, 2005 is a $0.6 million charge relating to
the write off of a customer contract.
Operating
Income
Operating
income increased $9.5 million, or 40.3%, to $33.1 million for the nine
months ended September 30, 2006 from $23.6 million for the nine months
ended September 30, 2005. The increase in operating income was primarily
due to the increase in revenues, partially offset by the increases in direct
costs, selling, general and administrative expense and intangible assets
amortization as discussed above. Operating margin increased slightly to
16.1% in
the nine months ended September 30, 2006 from 15.6% in the comparable
period last year as our selling, general and administrative expense as
a
percentage of revenues decreased in 2006 compared to 2005.
Net
Income
Net
income increased $5.4 million, or 40.8%, to $18.7 million for the nine
months ended September 30, 2006 from $13.3 million for the nine months
ended September 30, 2005. Diluted earnings per share increased to $1.08 for
the nine months ended September 30, 2006 from $0.79 for the comparable
period last year.
Segment
Results
Financial
Consulting
Revenues
Financial
Consulting segment revenues increased $13.6 million, or 15.5%, to $101.3
million
for the nine months ended September 30, 2006 from $87.7 million for the
nine months ended September 30, 2005. Revenues from time and expense
engagements increased $15.0 million, or 17.9%, to $98.9 million for the
nine
months ended September 30, 2006 from $83.9 million for the nine months
ended September 30, 2005. Revenues from fixed fee engagements decreased
$1.8 million, or 47.4%, to $2.0 million for the nine months ended
September 30, 2006 from $3.8 million for the nine months ended
September 30, 2005. Revenues from performance-based engagements for the
first nine months of 2006 totaled $0.4 million and were immaterial for the
comparable period last year.
Of
the
overall $13.6 million increase in revenues, $11.3 million was attributable
to an increase in the number of billable consultants, $2.1 million was
attributable to an increase in the average billing rate per hour, and
$0.2 million was attributable to an increase in the utilization rate of our
billable consultants. The average number of billable consultants increased
to
310 for the nine months ended September 30, 2006 from 280 for the nine
months ended
September 30,
2005. The average billing rate per hour increased to $282 for the first
nine
months of 2006 from $277 for the comparable period last year. The utilization
rate for the Financial Consulting segment remained steady at 79.5% for
the nine
months ended September 30, 2006 compared to 79.4% for the comparable period
last year.
Operating
Income
Financial
Consulting segment operating income increased $4.5 million, or 12.5%, to
$40.3 million in the nine months ended September 30, 2006 from $35.8
million in the nine months ended September 30, 2005. Segment operating
margin decreased to 39.8% for the first nine months of 2006 from 40.9%
in the
same period last year, primarily due to the increase in billable consultants,
particularly at the managing director level, and their related compensation
costs.
Operational
Consulting
Revenues
Operational
Consulting segment revenues increased $40.0 million, or 62.6%, to $103.9
million
for the nine months ended September 30, 2006 from $63.9 million for the
nine months ended September 30, 2005. Revenues for the nine months ended
September 30, 2006 included revenues generated by Galt since April 3,
2006 and revenues generated by DRCS and Aaxis since July 31, 2006. Revenues
from time and expense engagements increased $27.2 million, or 60.0%, to
$72.5
million for the nine months ended September 30, 2006 from
$45.3 million for the comparable period last year. Revenues from fixed fee
engagements increased $11.4 million, or 77.0%, to $26.2 million for
the nine months ended September 30, 2006 from $14.8 million for the nine
months ended September 30, 2005. Revenues from performance-based
engagements increased $1.4 million, or 36.8%, to $5.2 million for the first
nine
months of 2006 from $3.8 million for the same period last
year.
Of
the
overall $40.0 million increase in revenues, $31.4 million was attributable
to an
increase in the number of revenue-generating professionals and usage of
independent contractors, $5.8 million was attributable to an increase in
the average billing rate per hour, and $2.8 million was attributable to an
increase in the utilization rate of our billable consultants. These increases
were reflective of growing demand for our services from new and existing
clients
and our acquisitions. The average number of revenue-generating professionals
increased to 373 for the nine months ended September 30, 2006 from 263
for the
nine months ended September 30, 2005, as we added a significant number
of
billable consultants over the past year. The increase was also reflective
of our
acquisitions. The average billing rate per hour for engagements where revenues
are based on number of hours worked by our billable consultants increased
9.1%
to $240 for the nine months ended September 30, 2006 from $220 for the
comparable period last year. The billable consultant utilization rate for
our
Operational Consulting segment increased to 76.2% for the nine months ended
September 30, 2006 from 72.9% for the nine months ended September 30,
2005.
Operating
Income
Operational
Consulting segment operating income increased $14.9 million, or 66.3%, to
$37.4 million for the nine months ended September 30, 2006 from
$22.5 million for the nine months ended September 30, 2005. Segment
operating margin increased to 36.0% for the first nine months of 2006 from
35.2%
in the same period last year, primarily due to the increase in revenues
as
described above, partially offset by intangible assets
amortization.
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary sources of liquidity are cash flows from operations, existing cash
and
cash equivalents and debt capacity available under our credit facility.
Cash and
cash equivalents, consisting of demand deposits and short-term commercial
paper,
decreased $30.9 million from $31.8 million at December 31, 2005
to $0.9 million at September 30, 2006 primarily due to the our
acquisitions and purchases of property and equipment.
Cash
flows generated by operating activities totaled $9.8 million for the nine
months ended September 30, 2006, compared to $12.1 million for the
same period last year. Our operating assets and liabilities consist primarily
of
receivables from billed and unbilled services, accounts payable and accrued
expenses, and accrued payroll and related benefits. The volume of billings
and
timing of collections and payments affect these account balances. The
$2.3 million decrease in cash provided by operations during the nine months
ended September 30, 2006 compared to
the
same
period last year was primarily attributable to a growth in our receivables.
This
was partially offset by an increase in revenues and improved financial
results.
Cash
used
in investing activities was $65.1 million for the nine months ended
September 30, 2006 and $18.4 million for the same period last year. The use
of cash in the first nine months of 2006 primarily related to the acquisitions
of Galt, DRCS and Aaxis, as well as leasehold improvements at our offices
in New
York City and Boston. The use of cash in the first nine months of 2005
primarily
related to the acquisition of S&W.
We
have a
bank credit agreement that originally expired on February 10, 2006. On
January 17, 2006, we extended the credit agreement for ninety days to
May 10, 2006. On March 28, 2006, we further extended the credit
agreement for another sixty days to July 10, 2006, and also amended certain
terms of the original agreement.
On
June 7, 2006, we entered into a new credit agreement with various financial
institutions. Under the terms of this new unsecured revolving credit facility,
we may borrow up to $75.0 million. Additionally, we may elect to increase
the revolver by $25.0 million. Fees and interest on borrowings vary based
on total debt to earnings before interest, taxes, depreciation and amortization
(“EBITDA”) ratio as set forth in the credit agreement and will be based on a
spread over LIBOR or a spread over the base rate, which is the greater
of the
Federal Funds Rate plus 0.5% or the Prime Rate, as selected by us. All
outstanding principal is due upon expiration of the credit agreement on
May 31, 2011. The credit agreement includes financial covenants that
require the maintenance of certain interest coverage ratio, total debt
to EBITDA
ratio and net worth levels. In addition, certain acquisitions and similar
transactions will need to be approved by the lenders.
During
the third quarter of 2006, we borrowed $22.0 million under the credit
facility to fund our acquisitions of Aaxis and DRCS. We also made borrowings
throughout the year to fund our operations. During the nine months ended
September 30, 2006, the average daily outstanding balance under our credit
facility was $9.8 million. The amount outstanding at September 30,
2006 was $22.0 million and bears interest at 6.0%. We had no borrowings
outstanding under the bank credit agreement at December 31, 2005. At both
September 30, 2006 and December 31, 2005, we were in compliance with
the debt covenants under the credit facilities.
Future
Needs
Our
primary financing need has been to fund our growth. Our growth strategy
includes
hiring additional revenue-generating professionals and expanding our service
offerings through existing professionals, new hires or acquisitions. We
intend
to fund such growth with cash generated from operations and borrowings
under our
credit agreement. Because we expect that our future annual growth rate
in
revenues and related percentage increases in working capital balances will
moderate, we believe cash generated from operations, supplemented as necessary
by borrowings under our credit facility, will be adequate to fund this
growth.
Our ability to secure short-term and long-term financing in the future
will
depend on several factors, including our future profitability, the quality
of
our accounts receivable and unbilled services, our relative levels of debt
and
equity and overall condition of the credit markets.
CONTRACTUAL
OBLIGATIONS
The
following table represents our obligations and commitments to make future
payments under contracts, such as lease agreements, and under contingent
commitments as of December 31, 2005 (in thousands).
|
|
Less
than
1
Year
|
|
1
to 3
Years
|
|
4
to 5
Years
|
|
After
5
Years
|
|
Total
|
|
Notes
payable
|
|
$
|
1,000
|
|
$
|
2,000
|
|
$
|
¾
|
|
$
|
¾
|
|
$
|
3,000
|
|
Interest
on notes payable
|
|
|
120
|
|
|
120
|
|
|
¾
|
|
|
¾
|
|
|
240
|
|
Capital
lease obligations
|
|
|
282
|
|
|
127
|
|
|
¾
|
|
|
¾
|
|
|
409
|
|
Operating
lease obligations
|
|
|
7,003
|
|
|
27,010
|
|
|
14,916
|
|
|
25,629
|
|
|
74,558
|
|
Purchase
obligations
|
|
|
997
|
|
|
322
|
|
|
¾
|
|
|
¾
|
|
|
1,319
|
|
Total
contractual obligations
|
|
$
|
9,402
|
|
$
|
29,579
|
|
$
|
14,916
|
|
$
|
25,629
|
|
$
|
79,526
|
|
During
the nine months ended September 30, 2006, we made borrowings under our
credit agreement to fund our business acquisitions. As of September 30,
2006, we had borrowings outstanding totaling $22.0 million, which is due
upon expiration of the credit agreement on May 31, 2011.
We
lease
our facilities and certain equipment under operating lease arrangements
expiring
on various dates through 2016, with various renewal options. We lease office
facilities under noncancelable operating leases that include fixed or minimum
payments plus, in some cases, scheduled base rent increases over the term
of the
lease. Certain leases provide for monthly payments of real estate taxes,
insurance and other operating expense applicable to the property. Some
of the
leases contain provisions whereby the future rental payments may be adjusted
for
increases in operating expense above the specified amount.
Purchase
obligations include sponsorships, subscriptions to research tools and other
commitments to purchase services where we cannot cancel or would be required
to
pay a termination fee in the event of cancellation.
OFF
BALANCE SHEET ARRANGEMENTS
We
have
not entered into any off-balance sheet arrangements.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued Financial
Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.”
FIN No. 48 provides a comprehensive model for the recognition, measurement,
and disclosure in the financial statements of uncertain tax positions taken
or
expected to be taken on a tax return. FIN No. 48 will be effective for us
beginning on January 1, 2007. The adoption of this interpretation is not
expected to have a material impact on our financial position, results of
operations, earnings per share, or cash flows.
In
September 2006, the Securities and Exchange Commission issued SAB No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements.” SAB No. 108 was issued
to address diversity in practice in quantifying financial statement
misstatements. Current practice allows for the evaluation of materiality
on the
basis of either (1) the error quantified as the amount by which the current
year
income statement was misstated (“rollover method”) or (2) the cumulative error
quantified as the cumulative amount by which the current year balance sheet
was
misstated (“iron curtain method”). The guidance provided in SAB 108 requires
both methods to be used in evaluating materiality (“dual approach”). SAB No. 108
permits companies to initially apply its provisions either by (1) restating
prior financial statements as if the dual approach had always been used
or (2)
recording the cumulative effect of initially applying the “dual approach” as
adjustments to the carrying values of assets and liabilities as of
January 1, 2006 with an offsetting adjustment recorded to the opening
balance of retained earnings. The provisions of SAB No. 108 is not expected
to have a material impact on our financial position, results of operations,
earnings per share, or cash flows.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (“GAAP”), and expands
disclosures about fair value measurements. SFAS No. 157 does not require
any new fair value measurements in financial statements, but standardizes
its
definition and guidance in GAAP. Thus, for some entities, the application
of
this statement may change current practice. SFAS No. 157 will be effective
for us beginning on January 1, 2008. We are currently evaluating the impact
that the adoption of this statement may have on our financial position
and
results of operations.
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
We
are
exposed to market risks related to changes in interest rates and changes
in the
market value of our investments. We do not enter into interest rate swaps,
caps
or collars or other hedging instruments.
Our
exposure to changes in interest rates is limited to borrowings under our
bank
credit agreement, which has variable interest rates tied to the LIBOR,
Federal
Funds rate or prime rate. At September 30, 2006, we had borrowings
outstanding totaling $22.0 million that bear interest at 6.0%. A one
percent change in this interest rate would not have a material effect on
our
financial position or operating results.
At
September 30, 2006, we had notes payable totaling $2.0 million that
are payable in $1.0 million installments in May 2007 and 2008. We are not
exposed to interest rate risks in respect to these notes as they bear a
fixed
interest rate at 4% per annum.
From
time
to time, we invest excess cash in marketable securities. These investments
principally consist of overnight sweep accounts and short-term commercial
paper.
Due to the short maturity of our investments, we have concluded that we
do not
have material market risk exposure.
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
Our
management, with the participation of the Company’s Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of September 30, 2006. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of
September 30, 2006, our disclosure controls and procedures were effective
in recording, processing, summarizing and reporting, on a timely basis,
information required to be disclosed by us in the reports we file or submit
under the Exchange Act and such information is accumulated and communicated
to
management as appropriate to allow timely decisions regarding required
disclosure.
There
has
been no change in our internal control over financial reporting (as such
term is
defined in Rules 13a-15(f) and 15d-15(f) under the “Exchange Act”) that occurred
during the quarter ended September 30, 2006 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
PART
II ¾
OTHER INFORMATION
ITEM
1.
|
LEGAL
PROCEEDINGS
|
From
time
to time, the Company is involved in various legal matters arising out of
the
ordinary course of business. Although the outcome of these matters cannot
presently be determined, in the opinion of management, disposition of these
matters will not have a material adverse effect on the financial position
or
results of operations of the Company.
See
“Risk
Factors” in the Company’s 2005 annual report on Form 10-K for a complete
description of the material risks it faces. There have been no material
changes
to our business risk factors since December 31, 2005.
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
Our
2004
Omnibus Stock Plan permits the netting of common stock upon vesting of
restricted stock awards to satisfy individual tax withholding requirements.
During the quarter ended September 30, 2006, the Company redeemed such
shares as presented in the table below.
Period
|
|
Total
Number of Shares Redeemed
to
Satisfy
Employee
Tax Withholding Requirements
|
|
Weighted-
Average
Fair
Market
Value
Per
Share
Redeemed
|
|
Total
Number of Shares Purchased
as
Part of Publicly Announced Plans
or
Programs
|
|
Maximum
Number
of Shares that May Yet Be Purchased Under
the
Plans or Programs
|
|
July 2006
|
|
|
10,907
|
|
$
|
35.09
|
|
|
N/A
|
|
|
N/A
|
|
N/A
- Not
applicable.
ITEM
3.
|
DEFAULTS
UPON SENIOR
SECURITIES
|
None.
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
ITEM
5.
|
OTHER
INFORMATION
|
None.
(a) The
following exhibits are filed as part of this Quarterly Report on
Form 10-Q.
Exhibit
Number
|
|
Exhibit
|
10.24
|
|
Executive
Officers’ Compensation for 2005 and 2006 Summary Sheet as of
September 30, 2006.
|
|
|
|
10.40
|
|
Amendment
No. 2 to the Huron Consulting Group Inc. 2002 Equity Incentive
Plan.
|
|
|
|
10.41
|
|
Amendment
No. 1 to the Amended and Restated Huron Consulting Group Inc.
2002 Equity
Incentive Plan (California).
|
|
|
|
10.42
|
|
Amendment
No. 1 to the Huron Consulting Group Inc. 2003 Equity Incentive
Plan.
|
|
|
|
31.1
|
|
Certification
of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a),
as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
31.2
|
|
Certification
of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a),
as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.1
|
|
Certification
of the Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
Certification
of the Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
Huron
Consulting Group Inc.
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
Date:
|
November 2,
2006
|
|
/s/
Gary L. Burge
|
|
|
|
Gary
L. Burge
|
|
|
|
Vice
President,
|
|
|
|
Chief
Financial Officer and
Treasurer
|