SOURCE: LECG Corporation

LECG Corporation

November 08, 2010 16:21 ET

LECG Corporation Reports Third Quarter 2010 Results

DEVON, PA--(Marketwire - November 8, 2010) - LECG (NASDAQ: XPRT), a global expert, financial and business advisory services firm, today reported financial results for the third quarter ended September 30, 2010.

Revenues for the third quarter decreased 7.8 percent, compared with $83.6 million in the second quarter of 2010. On a year over year basis, revenues increased 22.9 percent to $77.1 million compared with the third quarter of 2009. 2009 results do not include the operations of the Consulting and Governance segment added in 2010 as a result of the March 2010 merger with SMART and the July 2010 acquisition of Bourne Business Consulting.

"Despite the uncertain economy and significant turbulence in the industry, third quarter revenues were in line with our internal expectations," said Steve Samek, President and CEO of LECG. "We effectively executed on our strategic plan during the quarter, reducing general and administrative expenses on an annual run-rate basis and adding new revenue generating MD experts. We also made significant progress in our refinancing efforts, securing a commitment letter for a revolving credit facility that we expect will be the basis for refinancing our existing bank debt and provide sufficient liquidity by year-end. Our efforts to drive growth and return the Company to profitability remain our priority as we capitalize on the unique capabilities of our global, multidisciplinary, integrated professional services firm."

Select highlights of LECG's third quarter include:

--  Securing a commitment letter for a revolving credit facility expected
    to be the basis for refinancing our existing bank debt by year-end
--  Reducing general and administrative expenses on a run-rate basis by
    over $9 million year-to-date, with a total goal of over $12 million by
    the beginning of 2011
--  Since our Q2 earnings release, hiring three full-time managing director
    experts, while losing only one to voluntary attrition; 19 full-time MD
    experts hired year-to-date, the highest level since 2007
--  Relocating corporate headquarters to Devon, Pennsylvania
--  Securing several important new client engagements and experiencing
    year-over-year increases in fees generated by full-time MD experts

Operating results for the third quarter of 2010 reflect pre-tax charges of $4.1 million in restructuring charges, goodwill and other impairments, $1.5 million in integration costs, a $0.5 million divestiture charge, and $0.1 million in acquisition and other costs. Including these charges, the third quarter net loss attributable to common stockholders was $15.3 million or $0.41 per share. This compares to a net loss of $11.3 million or $0.31 per share in the second quarter of 2010, and a net loss of $64.7 million or $2.52 per share in the third quarter of 2009. Excluding these charges, adjusted net loss attributable to common stockholders was $9.1 million or $0.25 per share for the third quarter of 2010.

Adjusted EBITDA for the third quarter of 2010 was a loss of $3.8 million, compared to a loss of $2.0 million for the second quarter of 2010, and a loss of $3.8 million for the third quarter of 2009.

Adjusted EBITDA and adjusted net loss attributable to common stockholders (which appear in the accompanying tables) are non-GAAP measures and are described in further detail below.

Headcount of billable professionals as of September 30, 2010 was 921, compared with 979 as of June 30, 2010, and 686 as of September 30, 2009.

Third Quarter 2010 Segment Results

Litigation, Forensics and Finance (formerly FAS)

This segment consists of the Company's electronic discovery, financial services, forensic accounting, healthcare, higher education, intellectual property, and international finance and accounting services sectors. Net fee-based revenues for the segment were $30.8 million in the quarter, down $1.2 million from the second quarter. This decrease was primarily attributable to reductions in headcount due to voluntary and involuntary terminations and restructuring activities. Gross profit was $7.6 million in the quarter and direct profit margin was 24.9 percent, up from 22.1 percent in the second quarter of 2010. The increase in direct profit margin was due mostly to higher average billable rates and staffing mix.

Economics and Dispute Resolution (formerly Economics)

This segment consists of the Company's energy and environment, global competition, labor and employment, regulated industries, and securities sectors. Net fee-based revenues for this segment were $17.6 million for the quarter versus $25.1 million in the second quarter of 2010. This decrease was primarily attributable to reductions in headcount due to voluntary attrition and restructuring activities and decreased staff utilization, partially offset by increases in average billable rates. Economics and Dispute Resolution gross profit was $1.8 million in the quarter and direct profit margin was 10.0 percent, down from 22.7 percent in the second quarter of 2010. The decrease in direct profit margin was due to lower paid utilization, which was 65.8 percent compared to 76.1 percent in the second quarter, and the fixed cost component of direct costs. The lower utilization in the quarter was primarily a result of the lag effect of the loss of full-time MD expert headcount in prior quarters in advance of associated non-expert staff reductions.

Consulting and Governance

This segment consists of the consulting and business advisory and the governance, assurance, and tax sectors. Net fee-based revenues for this segment were $25.2 million versus $22.6 million in the second quarter of 2010. This increase was primarily attributable to seasonality in the U.S. tax compliance business and the inclusion of Bourne for most of the quarter. Gross profit was $8.7 million in the quarter and direct profit margin was 34.9 percent, up from 30.2 percent in the second quarter of 2010. The increase in direct profit margin was due primarily to the inclusion of Bourne for most of the quarter and modest increases in billable rates.

Nine Month Financial Results

Revenues for the nine months ended September 30, 2010 increased 17.2 percent to $230.7 million, including $56.9 million from the operations of the Consulting and Governance segment added in 2010 as a result of the acquisitions of SMART and Bourne, compared with $196.9 million in the nine months ended September 30, 2009. Excluding the Consulting and Governance segment, revenues for the nine months ended September 30, 2010 declined 11.7 percent compared to the same period in 2009.

Net loss attributable to common stockholders for the nine months ended September 30, 2010 was $39.8 million or $1.17 per share. This compares to a net loss of $74.9 million or $2.94 per share for the nine months ended September 30, 2009. Adjusted net loss attributable to common stockholders per share was $0.50 for the nine months ended September 30, 2010 compared to a net loss attributable to common stockholders per share of $0.45 for the same period of 2009.

Adjusted EBITDA for the nine months ended September 30, 2010 was a loss of $5.4 million, compared to a loss of $10.3 million of adjusted EBITDA for the same period of 2009.

Conference Call Webcast Information

LECG Corporation will host a conference call and live webcast to discuss these results at 5:00 p.m. Eastern time today. Domestic callers may access this conference call by dialing (800) 938-1339. International callers may access the call by dialing (970) 315-0264. For a replay of this teleconference, please call (800) 642-1687 or (706) 645-9291, and enter the passcode 21307382. The replay will be available through November 10, 2010. The webcast will be accessible through the investor relations section of the Company's website, www.lecg.com.

About LECG

LECG is a global litigation; economics; consulting and business advisory; and governance, assurance, and tax expert services firm with approximately 1,200 employees in 33 offices. We provide independent expert testimony, original authoritative studies, strategic financial advisory services, and innovative business consulting solutions. Attest services are provided through Smart and Associates, LLP, pursuant to an alternative practice structure. LECG is not a licensed CPA firm. For more information, visit www.lecg.com.

Forward-Looking Statements

Forward-Looking Statements concerning future business, operating and financial condition of the Company and statements using the terms "believes," "expects," "will," "could," "plans," "anticipates," "estimates," "predicts," "intends," "potential," "continue," "should," "may," or the negative of these terms or similar expressions are "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expectations. Risks that may affect actual performance include the ongoing economic downturn and adverse economic conditions, the availability and terms of bank credit facilities, dependence on key personnel, the Company's ability to integrate new experts and practice areas successfully, intense competition, and potential professional liability, the Company's ability to integrate the operations of SMART, the failure to achieve the costs savings and other synergies LECG expects to result from its corporate transactions, the outcome of any legal proceedings instituted against the Company, SMART and others in connection with the transactions, the amount of the costs, fees, expenses and charges relating to the transactions, the effect of war, terrorism or catastrophic events, stock price, foreign currency exchange and interest rate volatility. Further information on these and other potential risk factors that could affect the Company's financial results is included in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any of its forward-looking statements after the date of this press release.


                    LECG CORPORATION AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (in thousands, except per share data)
                               (unaudited)

                                 Three months ended     Nine months ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
Fee-based revenues, net         $  73,471  $  60,192  $ 220,439  $ 189,578
Reimbursable revenues               3,626      2,531     10,274      7,319
                                ---------  ---------  ---------  ---------
    Revenues                       77,097     62,723    230,713    196,897
                                ---------  ---------  ---------  ---------
Direct costs                       55,262     45,116    165,027    142,844
Reimbursable costs                  3,714      2,512     10,244      7,703
                                ---------  ---------  ---------  ---------
    Cost of services               58,976     47,628    175,271    150,547
                                ---------  ---------  ---------  ---------
Gross profit                       18,121     15,095     55,442     46,350
Operating expenses:
  General and administrative       23,756     17,518     67,161     55,125
  Depreciation and amortization     1,474      1,239      4,102      3,849
  Restructuring charges             1,916      4,019      9,024      5,479
  Goodwill impairment               1,800          -      1,800          -
  Other impairments                   417      8,719      3,417      9,939
  Divestiture charges                 533        124        533      1,863
                                ---------  ---------  ---------  ---------
Operating loss                    (11,775)   (16,524)   (30,595)   (29,905)
Interest income                        15         32         80        122
Interest expense                   (1,082)      (659)    (5,182)    (1,617)
Other income (expense), net           304       (135)       104       (581)
                                ---------  ---------  ---------  ---------
Loss before income taxes          (12,538)   (17,286)   (35,593)   (31,981)
Income tax expense                  2,310     47,393      3,199     42,948
                                ---------  ---------  ---------  ---------
Net loss                          (14,848)   (64,679)   (38,792)   (74,929)
                                ---------  ---------  ---------  ---------

Series A convertible redeemable
 preferred dividends                  480          -      1,055          -
                                ---------  ---------  ---------  ---------

Net loss attributable to common
 stockholders                   $ (15,328) $ (64,679) $ (39,847) $ (74,929)
                                =========  =========  =========  =========

Earnings per common share:
    Basic                       $   (0.41) $   (2.52) $   (1.17) $   (2.94)
    Diluted                     $   (0.41) $   (2.52) $   (1.17) $   (2.94)

Shares used in calculating
 earnings per share:
    Basic                          37,070     25,654     34,136     25,515
    Diluted                        37,070     25,654     34,136     25,515






                    LECG CORPORATION AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
             (in thousands, except share and per share data)

                                                September 30, December 31,
                                                    2010          2009
                                                ------------  ------------
Assets                                          (unaudited)
Current assets:
  Cash and cash equivalents                     $      7,029  $     13,044
  Accounts receivable, net                           109,333        85,451
  Prepaid expenses                                     4,374         4,981
  Signing, retention and performance bonuses -
   current portion                                    11,133        14,046
  Income taxes receivable                                  -        13,498
  Other current assets                                 4,537         2,207
                                                ------------  ------------
    Total current assets                             136,406       133,227
Property and equipment, net                            9,939         7,814
Goodwill                                              51,474         1,800
Other intangible assets, net                           9,221         3,078
Signing, retention and performance bonuses            18,422        20,293
Deferred compensation plan assets                      8,940        10,017
Deferred tax assets, net                               5,981         5,731
Other long-term assets                                 7,640         8,851
                                                ------------  ------------
Total assets                                    $    248,023  $    190,811
                                                ============  ============

Liabilities and stockholders' equity
Current liabilities:
  Accrued compensation                          $     41,859  $     45,363
  Accounts payable and other accrued
   liabilities                                        15,935         8,823
  Payable for business acquisitions - current
   portion                                             5,643         1,055
  Deferred revenue                                     4,820         3,052
  Debt                                                33,088        12,000
  Deferred tax liabilities, net - current
   portion                                             6,313         5,731
                                                ------------  ------------
    Total current liabilities                        107,658        76,024
Payable for business acquisitions                      1,159           100
Deferred compensation plan obligations                 9,215        10,163
Deferred rent                                          4,812         6,156
Other long-term liabilities                            3,861           252
                                                ------------  ------------
    Total liabilities                                126,705        92,695
                                                ------------  ------------

Commitments and contingencies                             -             -

Series A 7.5% convertible redeemable preferred
 stock, $0.01 par value, 15,000,000 shares
 authorized; 6,313,131 and 0 shares
 outstanding at September 30, 2010 and
 December 31, 2009, respectively (liquidation
 preference and redemption values at September
 30, 2010 and December 31, 2009 of $26,055 and
 $0, including cumulative dividends of $1,055
 and $0, respectively)                                26,055             -
                                                ------------  ------------

Stockholders' equity
Common stock, $.001 par value, 200,000,000
 shares authorized, 38,215,579 and
 25,895,679 shares outstanding at September
 30, 2010 and December 31, 2009, respectively             38            26
Additional paid-in capital                           212,567       174,917
Accumulated other comprehensive loss                  (1,358)         (690)
Accumulated deficit                                 (115,984)      (76,137)
                                                ------------  ------------
    Total stockholders' equity                        95,263        98,116
                                                ------------  ------------
Total liabilities and stockholders' equity      $    248,023  $    190,811
                                                ============  ============






                    LECG CORPORATION AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (in thousands)
                               (unaudited)

                                                        Nine months ended
                                                          September 30,
                                                      --------------------
                                                        2010       2009
                                                      ---------  ---------
Cash flows from operating activities:
  Net loss                                            $ (38,792) $ (74,929)
  Adjustments to reconcile net loss to net cash used
   in operating activities:
    Bad debt expense                                      2,191         99
    Depreciation and amortization of property and
     equipment                                            3,075      3,315
    Amortization of intangible assets                     1,027        534
    Amortization of signing, retention and performance
     bonuses                                             11,958     13,338
    Deferred taxes                                          332     53,008
    Equity-based compensation                             4,298      2,463
    Restructuring charges                                 9,024      1,234
    Goodwill and other impairments                        5,217      9,939
    Amortization of debt issuance costs and discounted
     obligations                                          2,476          -
    Divestiture charges                                     533      1,739
  Changes in assets and liabilities, net of effects of
   business acquisitions:
    Accounts receivable, net of deferred revenue         (5,129)    (1,334)
    Signing, retention and performance bonuses paid     (12,006)    (9,804)
    Prepaid and other current assets                      1,296      1,809
    Income taxes receivable                              13,549     (6,380)
    Accounts payable and other accrued liabilities       (5,896)    (1,682)
    Accrued compensation                                 (6,906)   (11,890)
    Deferred compensation plan assets, net of
     liabilities                                            129        241
    Other assets                                           (142)      (730)
    Other liabilities                                       729        (97)
                                                      ---------  ---------
      Net cash used in operating activities             (13,037)   (19,127)
                                                      ---------  ---------
Cash flows from investing activities:
  Cash acquired from the Smart merger                     9,242          -
  Payments for business acquisitions and intangible
   assets                                                (1,109)    (3,885)
  Divestiture payments                                     (640)    (3,210)
  Purchases of property and equipment                    (1,924)    (1,053)
  Proceeds from note receivable                             446        422
  Proceeds from disposals of assets                         100        619
  Decrease (increase) in restricted cash and other       (1,666)         8
                                                      ---------  ---------
      Net cash provided by (used in) investing
       activities                                         4,449     (7,099)
                                                      ---------  ---------
Cash flows from financing activities:
  Borrowings under revolving credit facility              7,000     43,000
  Repayments under revolving credit facility            (19,000)   (27,000)
  Repayments of term debt                                (9,961)         -
  Payment of loan fees                                     (202)    (2,243)
  Proceeds from issuance of series A convertible
   redeemable preferred stock                            25,000          -
  Proceeds from option exercises or issuances of stock
   to employees and other                                    34         30
                                                      ---------  ---------
      Net cash provided by financing activities           2,871     13,787
                                                      ---------  ---------
Effect of exchange rates on changes in cash                (298)       175
                                                      ---------  ---------
Decrease in cash and cash equivalents                    (6,015)   (12,264)
Cash and cash equivalents, beginning of period           13,044     19,510
                                                      ---------  ---------
Cash and cash equivalents, end of period              $   7,029  $   7,246
                                                      =========  =========

Supplemental disclosures of cash flow information:
  Cash paid for interest                              $   2,596  $   1,014
                                                      =========  =========
  Cash paid for income taxes                          $   1,815  $   1,900
                                                      =========  =========

Supplemental disclosures of non-cash investing and
 financing activities:
  Note received for assets sold                       $     417  $       -
                                                      =========  =========
  Fair value of common stock issued in connection
   with Smart merger                                  $  33,330  $       -
                                                      =========  =========
  Series A convertible redeemable preferred dividends $   1,055  $       -
                                                      =========  =========






                    LECG CORPORATION AND SUBSIDIARIES
                        SEGMENT OPERATING RESULTS
                  ($ in thousands, except rate amounts)
                               (unaudited)

                              Three months ended September 30,
             --------------------------------------------------------------
                            2010                           2009
             ----------------------------------- --------------------------
                      Economics
            Litigation,  and   Consulting      Litigation,Economics
             Forensics Dispute    and           Forensics   and
                and    Resolu- Governance         and     Dispute
              Finance   tion      (1)    Total   Finance Resolution Total
             -------- -------- -------- -------- -------- -------- --------
 Fee-based
  revenues,
  net        $ 30,751 $ 17,551 $ 25,169 $ 73,471 $ 35,384 $ 24,808 $ 60,192
 Reimburs-
  able
  revenues      1,556      978    1,092    3,626    1,766      765    2,531
             -------- -------- -------- -------- -------- -------- --------
  Revenues   $ 32,307 $ 18,529 $ 26,261 $ 77,097 $ 37,150 $ 25,573 $ 62,723

 Direct
  costs      $ 23,082 $ 15,790 $ 16,390 $ 55,262 $ 26,518 $ 18,598 $ 45,116
 Reimburs-
  able costs    1,586      927    1,201    3,714    1,760      752    2,512
             -------- -------- -------- -------- -------- -------- --------
  Gross
   profit    $  7,639 $  1,812 $  8,670 $ 18,121 $  8,872 $  6,223 $ 15,095

Direct
 profit
 margin (2)     24.9%    10.0%    34.9%    24.8%    25.1%    25.0%    25.0%
Gross margin    23.6%     9.8%    33.0%    23.5%    23.9%    24.3%    24.1%

Operating
 statistics
Paid days          66       66       66       66       66       66       66
Billable
 headcount,
 period-end       310      164      447      921      447      239      686
Average
 billable
 rate        $    311 $    384 $    176 $    261 $    280 $    349 $    305
Paid
 utilization
 rate of
 billable
 FTEs (3)(4)    65.5%    65.8%    60.9%    66.0%    65.5%    67.4%    66.2%

Expert
 headcount,
 period-end       126       76       53      255      200      105      305



                              Nine months ended September 30,
             --------------------------------------------------------------
                            2010                           2009
             ----------------------------------- --------------------------
                      Economics
            Litigation,  and   Consulting      Litigation,Economics
             Forensics Dispute    and           Forensics   and
                and    Resolu- Governance         and     Dispute
              Finance   tion      (1)    Total   Finance Resolution Total
             -------- -------- -------- -------- -------- -------- --------
 Fee-based
  revenues,
  net        $100,559 $ 65,794 $ 54,086 $220,439 $108,478 $ 81,100 $189,578
 Reimburs-
  able
  revenues      4,721    2,730    2,823   10,274    4,940    2,379    7,319
             -------- -------- -------- -------- -------- -------- --------
  Revenues   $105,280 $ 68,524 $ 56,909 $230,713 $113,418 $ 83,479 $196,897

 Direct
  costs      $ 76,641 $ 52,695 $ 35,691 $165,027 $ 84,451 $ 58,393 $142,844
 Reimburs-
  able costs    4,707    2,546    2,991   10,244    5,096    2,607    7,703
             -------- -------- -------- -------- -------- -------- --------
  Gross
   profit    $ 23,932 $ 13,283 $ 18,227 $ 55,442 $ 23,871 $ 22,479 $ 46,350

Direct
 profit
 margin (2)     23.8%    19.9%    34.0%    25.1%    22.1%    28.0%    24.7%
Gross margin    22.7%    19.4%    32.0%    24.0%    21.0%    26.9%    23.5%

Operating
 statistics
Paid days         195      195      146      195      195      195      195
Billable
 headcount,
 period-end       310      164      447      921      447      239      686
Average
 billable
 rate        $    311 $    369 $    176 $    289 $    283 $    354 $    310
Paid
 utilization
 rate of
 billable
 FTEs (3)(4)    66.8%    73.1%    60.9%    66.4%    64.6%    69.4%    66.3%

Expert
 headcount,
 period-end       126       76       53      255      200      105      305







                     LECG CORPORATION AND SUBSIDIARIES
                    RECONCILIATION OF NON-GAAP MEASURES
                   (in thousands, except per share data)

                                 Three months             Nine months
                              ended September 30,     ended September 30,
                            ----------------------  ----------------------
                               2010        2009        2010        2009
                            ----------  ----------  ----------  ----------

Fee-based revenues, net     $   73,471  $   60,192  $  220,439  $  189,578

  Direct costs                  55,262      45,116     165,027     142,844
                            ----------  ----------  ----------  ----------

Direct profit               $   18,209  $   15,076  $   55,412  $   46,734
                            ==========  ==========  ==========  ==========
Direct profit margin (2)          24.8%       25.0%       25.1%       24.7%



                                 Three months             Nine months
                              ended September 30,     ended September 30,
                            ----------------------  ----------------------
                               2010        2009        2010        2009
                            ----------  ----------  ----------  ----------

Net loss                    $  (14,848) $  (64,679) $  (38,792) $  (74,929)

Adjustments to net loss
  Restructuring charges          1,916       4,019       9,024       5,479
  Goodwill impairment            1,800           -       1,800           -
  Other impairments                417       8,719       3,417       9,939
  Divestiture charges              533         124         533       1,863
  Acquisition costs                 47         942       2,500         942
  Equity-based compensation
   benefit (9)                       -      (2,210)          -      (2,210)
  Integration costs              1,501           -       3,664           -
  Deferred compensation plan        20          41         100         319
  Loan fees impairment               -           -       1,584           -
  Deferred tax valuation
   allowance                         -      51,775           -      51,775
  Income tax benefit (5)             -      (3,743)          -      (4,734)
                            ----------  ----------  ----------  ----------

Adjusted net loss (6)       $   (8,614) $   (5,012) $  (16,170) $  (11,556)
                            ==========  ==========  ==========  ==========

Series A convertible
 redeemable preferred
 dividends                         480           -       1,055           -
                            ----------  ----------  ----------  ----------

Adjusted net loss
 attributable to common
 stockholders               $   (9,094) $   (5,012) $  (17,225) $  (11,556)
                            ==========  ==========  ==========  ==========

  Adjusted net loss per
   diluted share (6)(8)     $    (0.25) $    (0.20) $    (0.50) $    (0.45)

Shares used in calculating
 earnings per share (8)
  Diluted                       37,070      25,654      34,136      25,515



                                 Three months             Nine months
                              ended September 30,     ended September 30,
                            ----------------------  ----------------------
                               2010        2009        2010        2009
                            ----------  ----------  ----------  ----------

Net loss                    $  (14,848) $  (64,679) $  (38,792) $  (74,929)
Income tax expense               2,310      47,393       3,199      42,948
Interest expense, net            1,067         627       5,102       1,495
Depreciation and
 amortization                    1,474       1,239       4,102       3,849
                            ----------  ----------  ----------  ----------
EBITDA (7)                      (9,997)    (15,420)    (26,389)    (26,637)

Adjustments to EBITDA
  Restructuring charges          1,916       4,019       9,024       5,479
  Goodwill impairment            1,800           -       1,800           -
  Other impairments                417       8,719       3,417       9,939
  Divestiture charges              533         124         533       1,863
  Acquisition costs                 47         942       2,500         942
  Equity-based compensation
   benefit (9)                       -      (2,210)          -      (2,210)
  Integration costs              1,501           -       3,664           -
  Deferred compensation
   plan                             20          41         100         319
                            ----------  ----------  ----------  ----------

Adjusted EBITDA (7)         $   (3,763) $   (3,785) $   (5,351) $  (10,305)
                            ==========  ==========  ==========  ==========


(1) Data for the Consulting and Governance segment during the nine months
    ended September 30, 2010 represents activity from March 11, 2010 to
    September 30, 2010. Also, since the merger with SMART was completed on
    March 10, 2010, no prior period data is presented for this segment.
(2) Fee-based revenues, net less direct costs as a percentage of fee-based
    revenues, net.
(3) Full Time Equivalents (FTEs) are calculated by dividing actual total
    paid hours in the period by the number of paid days in the period times
    eight hours per day, assuming a forty-hour work week or 2,080 paid
    hours per year.
(4) Paid utilization rate is calculated by dividing the actual number of
    billed hours in the period by the actual number of paid hours in the
    period, assuming a forty-hour work week or 2,080 paid hours per year.
(5) For the three and nine months ended September 30, 2010, the Company
    does not expect to realize a tax benefit from the net loss, due to a
    full valuation allowance recorded against its deferred tax assets.
    During the three and nine months ended September 30, 2009, dollar
    values assume a marginal tax rate of 35.0%, excluding non-deductible
    divestiture and merger-related charges.
(6) Adjusted net loss and adjusted net loss per diluted share are non-GAAP
    financial measures. Adjusted net loss excludes restructuring charges,
    goodwill impairment, other impairments, divestiture charges,
    acquisition costs, equity-based compensation benefit, integration
    costs, loan fees impairment, and charges related to market fluctuations
    in the value of deferred compensation plan investments. Adjusted net
    loss per diluted share is calculated using adjusted net loss divided by
    diluted shares. The Company regards adjusted net loss and adjusted net
    loss per diluted share as useful measures of financial performance of
    the business. Generally, a non-GAAP financial measure is a numerical
    measure of a company's performance, financial position or cash flow
    that either excludes or includes amounts that are not normally excluded
    or included in the most directly comparable measure calculated and
    presented in accordance with GAAP. This measure, however, should be
    considered in addition to, and not as a substitute or superior to,
    operating loss, cash flows, or other measures of financial performance
    prepared in accordance with GAAP.
(7) EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA is
    defined as earnings before provision for income tax, interest, and
    depreciation and amortization. Adjusted EBITDA excludes restructuring
    charges, goodwill impairment, other impairments, divestiture charges,
    acquisition costs, equity-based compensation benefit, integration
    costs, and charges related to market fluctuations in the value of
    deferred compensation plan investments. The Company regards EBITDA and
    Adjusted EBITDA as useful measures of financial performance of the
    business. Generally, a non-GAAP financial measure is a numerical
    measure of a company's performance, financial position or cash flow
    that either excludes or includes amounts that are not normally excluded
    or included in the most directly comparable measure calculated and
    presented in accordance with GAAP. This measure, however, should be
    considered in addition to, and not as a substitute or superior to,
    operating loss, cash flows, or other measures of financial performance
    prepared in accordance with GAAP.
(8) Adjusted net loss per diluted share and diluted shares are equal to
    basic earnings per share and basic shares, respectively, for all
    periods presented, as the effect on net loss would be anti-dilutive if
    common stock equivalent shares were included in the weighted average
    number of common shares outstanding during the period.
(9) Equity-based compensation benefit consists of approximately $2.8
    million of stock-based compensation expense recovery related to
    previously-recognized expense on the unvested portion of 7-year
    cliff-vesting options of a terminated employee, offset by approximately
    $.06 million of accelerated expense related to the voluntary surrender
    of approximately 192,000 shares of stock options previously granted.

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