2009 Annual Report (PDF) - FTI Consulting

clients. Margins for the year declined compared to a year ago due to the lower revenues. In addition, the segmentwas the most impacted by foreign exchange fluctuations, which reduced revenue by 6.0% and EBITDA by 7.7%for the year.Critical Accounting PoliciesGeneral. Our discussion and analysis of our financial condition and results of operations are based on ourconsolidated financial statements, which we have prepared in accordance with accounting principles generallyaccepted in the United States. The preparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities. We evaluate our estimates, including those related to bad debts, goodwill,income taxes and contingencies on an ongoing basis. We base our estimates on historical experience and onvarious other assumptions that we believe are reasonable under the circumstances. These results form the basisfor making judgments about the carrying values of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates under different assumptions or conditions.We believe that the following critical accounting policies reflect our more significant judgments andestimates used in the preparation of our consolidated financial statements.Revenue Recognition. Revenue is recognized when persuasive evidence of an arrangement exists, therelated services are provided, the price is fixed or determinable and collectability is reasonably assured. Wegenerate the majority of our revenues from providing professional services under four types of billingarrangements: time-and-expense, fixed-fee, performance-based and unit-based.Time-and-expense billing arrangements require the client to pay based on the number of hours worked byour revenue-generating professionals at contractually agreed-upon rates. We recognize revenues for ourprofessional services rendered under time-and-expense engagements based on the hours incurred at agreed-uponrates as work is performed.In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a pre-determined set ofprofessional services. Generally, the client agrees to pay a fixed fee every month over the specified contract term.These contracts are for varying periods and generally permit the client to cancel the contract before the end of theterm. We recognize revenues for our professional services rendered under these fixed-fee billing arrangementsmonthly over the specified contract term.In performance-based or contingent billing arrangements, fees are tied to the attainment of contractuallydefined objectives. Often this type of arrangement supplements a time-and-expense or fixed-fee engagement,where payment of a performance-based fee is deferred until the conclusion of the matter or upon the achievementof performance-based criteria. We do not recognize revenues under performance-based billing arrangements untilall related performance criteria are met and collection of the fee is reasonably assured.In our Technology segment, unit-based revenues are based on either the amount of data stored or processed,the number of concurrent users accessing the information, or the number of pages or images processed for aclient. We recognize revenues for our professional services rendered under unit-based engagements as theservices are provided based on agreed-upon rates. We also generate certain revenue from software licenses andmaintenance. We have vendor-specific objective evidence of fair value for support and maintenance separatefrom software for the majority of our products. Accordingly, when licenses of certain offerings are included in anarrangement with support and maintenance, we recognize the license revenue upon delivery of the license andrecognize the support and maintenance revenue over the term of the maintenance service period. Substantially allof our software license agreements do not include any acceptance provisions. If an arrangement allows for43