- The Washington Times - Monday, February 9, 2004

The past two weeks have not been kind to FTI Consulting Inc.

Shares of the Annapolis firm, which assists corporations in restructuring plans, have fallen nearly 35 percent since the end of January, following the departure of 13 senior managing directors and as many as 57 other employees.

The loss of the managers prompted FTI yesterday to decrease its revenue estimate for 2004 by between 10 and 15 percent.

The company said it expects revenue for 2004 of between $422 million and $452 million, or $1.27 to $1.40 per share. It had previously said revenue would range from $475 million to $510 million.

Shares of FTI closed at $14.82 yesterday, rising $1.07 on the New York Stock Exchange. Analysts said the price increase came because of FTI’s announcement that earnings for the fourth quarter of 2003 would match estimates, and because the earnings estimate for 2004 was better than some investors expected. The company will announce official 2003 financial results on Feb. 19.

In a conference call yesterday, FTI executives said the 13 managing directors left the company partly because of a disagreement over how to best integrate a new recovery-services component into the company. The dispute centered on how the employees of the new unit should be compensated and how diversified the company should be.

All 13 directors worked for the company’s main Corporate Finance and Restructuring unit, and were former employees of Policano and Manzo, a company FTI acquired in 2000. Analysts said the directors probably have enough professional contacts to start their own business or join competing firms.

While many analysts said it was too early to blame FTI executives for the management departures, some wondered why the company did not ensure they were under contract.

“In hindsight, it would have been better if they could have locked in these people,” said Mayank Tandon, an analyst in the Boston office of Janney Montgomery Scott.

Executives said they were working on getting the managers under contract, and that all but 17 of the 112 remaining directors are bound to the company for the next two to six years.

“Everyone will have their own opinion about whether it was a management failure,” said Jack Dunn, FTI’s chairman and chief executive officer. “We think we were on our way to getting the contractual issues resolved. At the end of the day, they decided to go their own way.”

Michael Policano and Robert Manzo, who founded Policano and Manzo, will remain with FTI under one-year contracts and are also bound by a one-year noncompete agreement.

The loss of the directors is expected to be a blow to FTI, as evidenced by the change in the company’s 2004 earnings estimate. The Policano and Manzo acquisition has been credited with doubling FTI’s earning capacity.

Company executives said they are working on a plan to ensure business is not disrupted, and will announce specifics next week. But for the near future, analysts said the company’s stock price will continue to trade low.

“There’s a lot of uncertainty here, like can the company retain their other top people over time?” Mr. Tandon said.

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