This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with our historical financial statements and related notes included elsewhere in this Form 10-K. Actual results and the timing of events may differ significantly from those expressed or implied in any forward-looking statements due to a number of factors, including those set forth in the sections entitled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" and elsewhere in this Form 10-K. For discussion related to changes in financial condition and the results of operations for fiscal year 2020-related items, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year 2021, which was filed with theSecurities and Exchange Commission onMay 21, 2021 .
Executive Overview
Established in 1972,Houlihan Lokey is a leading global independent investment bank with expertise in mergers and acquisitions, capital markets, financial restructurings, and financial and valuation advisory. With officesthe United States ,Europe , theMiddle East , and theAsia-Pacific region , the Company serves a diverse set of clients including corporations, financial sponsors and government agencies worldwide.Houlihan Lokey's financial professionals deliver meaningful and differentiated advice to clients on strategy and financial decisions employing a rigorous analytical approach coupled with deep product and industry expertise. We operate in three segments: Corporate Finance ("CF"); Financial Restructuring ("FR"); and Financial and Valuation Advisory ("FVA"). In our CF business segment, we believe we are an established leader in M&A and capital markets advisory services. Through our FR business segment, we advise on some of the largest and most complex restructurings around the world. Our FVA business segment is one of the largest and most respected valuation, financial opinion and financial consulting practices inthe United States . As ofMarch 31, 2022 , we served our clients globally with 1,686 financial professionals, including 289 Managing Directors. We plan to continue to grow our firm across industry sectors, geographies and products to deliver quality advice and innovative solutions to our clients, both organically and through acquisitions. Acquisitions over the last several years include:Leonardo & Co. NV inNovember 2015 inGermany ,the Netherlands andSpain , and Leonardo's investment banking operations inItaly inJune 2019 (collectively, "Leonardo"), which enable us to provide a much greater breadth of services and coverage to our clients both in continentalEurope and across the globe;Fidentiis Capital inNovember 2019 , an independent advisory business providing independent corporate finance advisory services relating to mergers and acquisitions, capital raising, and financing;Freeman & Co. inDecember 2019 , an independent advisory business providing mergers and acquisitions advisory, capital raising, and other investment banking advisory services for the financial services sector;MVP Capital, LLC , inAugust 2020 , an independent advisory firm that provides a range of financial advisory services to clients in the technology, media, and telecommunications sectors; and inOctober 2021 ,GCA Corporation ("GCA"), a global technology-focused investment bank providing M&A advisory and capital markets advisory services inEurope ,Japan /Asia , andthe United States . The addition of GCA significantly increases the Company's position in the technology sector, which is critical to meeting the needs of our clients as technology increasingly touches every business sector. We generate revenues primarily from providing advisory services on transactions that are subject to individually negotiated engagement letters that set forth our fees. A significant portion of our engagements include Progress Fees (as defined herein) consisting of both periodic and milestone-related payments. The occurrence and timing of milestone-related payments, such as upon the closing of a transaction, are generally not within our control. Accordingly, revenue and net income in any period may not be indicative of full year results or the results of any other period and may vary significantly from year to year and quarter to quarter.
Corporate expenses represent expenses that are not allocated to individual business segments such as office of the executives, accounting, information technology, compliance and legal, marketing, human capital, including related compensation expense for corporate employees.
Business Environment and Outlook
Economic and global financial conditions can materially affect our operational and financial performance. See "Risk Factors" for a discussion of some of the factors that can affect our performance. Our fiscal year ends onMarch 31 of each year. For the fiscal year endedMarch 31, 2022 , we earned revenues of$2.27 billion , an increase of 49% from the$1.53 billion earned during the fiscal year endedMarch 31, 2021 . For our fiscal year endedMarch 31, 2021 , revenues increased 32% over our fiscal year endedMarch 31, 2020 revenues of$1.16 billion .
For the fiscal years ended
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Based on historical experience, we believe current economic conditions provide a stable environment for M&A and capital markets activities, but the continued threat from inflation and the war inUkraine provide a measure of uncertainty in the coming quarters. Inthe United States , our dialogue with clients who are evaluating strategic alternatives remains measured as we continue to see good activity in M&A as a result of the availability of capital in the mid-cap space, but concerns remain around the macro-economic factors mentioned above. Our Financial Restructuring activity has moderately improved as a result of the factors mentioned above (inflation and the war inUkraine ). It is too early to tell if and when this improvement will result in revenues, be we continue to remain optimistic about the current restructuring outlook over the medium and long term due to record levels of company leverage, inflation, supply-chain issues, recent geopolitical events, and contracting monetary policy. We are poised to address any increase in market activity if and when markets shift. Key Financial Measures Revenues Revenues include fee revenues and reimbursements of expenses (see Note 2 and Note 3 included in Part II, Item 8 of this Form 10-K). Revenues reflect revenues from our CF, FR, and FVA business segments that substantially consist of fees for advisory services. Revenues for all three business segments are recognized upon satisfaction of the performance obligation and may be satisfied over time or at a point in time. The amount and timing of the fees paid vary by the type of engagement. In general, advisory fees are paid at the time an engagement letter is signed ("Retainer Fees"), during the course of the engagement ("Progress Fees"), or upon the successful completion of a transaction or engagement ("Completion Fees"). CF provides general financial advisory services in addition to advice on mergers and acquisitions and capital markets offerings. We advise public and private institutions on a wide variety of situations, including buy-side and sell-side transactions, as well as leveraged loans, private mezzanine debt, high-yield debt, initial public offerings, follow-ons, convertibles, equity private placements, private equity, and liability management transactions, and advise financial sponsors on all types of transactions. The majority of our CF revenues consists of Completion Fees. A CF transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to Retainer Fees and in some cases Progress Fees that may have been received. FR provides advice to debtors, creditors and other parties-in-interest in connection with recapitalization/deleveraging transactions implemented both through bankruptcy proceedings and through out-of-court exchanges, consent solicitations or other mechanisms, as well as in distressed mergers and acquisitions and capital markets activities. As part of these engagements, our FR business segment offers a wide range of advisory services to our clients, including: the structuring, negotiation, and confirmation of plans of reorganization; structuring and analysis of exchange offers; corporate viability assessment; dispute resolution and expert testimony; and procuring debtor-in-possession financing. Although atypical, FR transactions can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to the Retainer Fees and/or Progress Fees. FVA primarily provides valuations of various assets, including: companies; illiquid debt and equity securities; and intellectual property (among other assets and liabilities). These valuations are used for financial reporting, tax reporting, and other purposes. In addition, our FVA business segment renders fairness opinions in connection with mergers and acquisitions and other transactions, and solvency opinions in connection with corporate spin-offs and dividend recapitalizations, and other types of financial opinions in connection with other transactions. Also, our FVA business segment provides dispute resolution services to clients where fees are usually based on the hourly rates of our financial professionals. Unlike our CF or FR segments, the fees generated in our FVA segment are generally not contingent on the successful completion of a transaction. Operating Expenses Our operating expenses are classified as employee compensation and benefits expense and non-compensation expense; revenue and headcount are the primary drivers of our operating expenses. Reimbursements of certain out-of-pocket deal expenses are recorded on a gross basis and are therefore included in both Revenues and Operating expenses on the Consolidated Statements of Comprehensive Income. 28
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Employee Compensation and Benefits Expense. Our employee compensation and benefits expense, which accounts for the majority of our operating expenses, is determined by management based on revenues earned, headcount, the competitiveness of the prevailing labor market, and anticipated compensation expectations of our employees. These factors may fluctuate, and as a result, our employee compensation and benefits expense may fluctuate materially in any particular period. Accordingly, the amount of employee compensation and benefits expense recognized in any particular period may not be consistent with prior periods or indicative of future periods. Our employee compensation and benefits expense consists of base salary, payroll taxes, benefits, annual incentive compensation payable as cash bonus awards, deferred cash bonus awards, and the amortization of equity-based bonus awards. Base salary and benefits are paid ratably throughout the year. Our annual equity-based bonus awards include fixed share compensation awards and liability classified fixed dollar awards as a component of the annual bonus awards for certain employees. These equity awards are generally subject to annual vesting requirements over a four-year period beginning at the date of grant, which typically occurs in the first quarter of each fiscal year; accordingly, expenses are amortized over the stated vesting period. In most circumstances, the unvested portion of these awards is subject to forfeiture should the employee depart from the Company, and in certain cases if certain financial metrics are not met. Cash bonuses, which are accrued monthly, are discretionary and dependent upon a number of factors including the Company's performance and are generally paid in the first quarter of each fiscal year with respect to prior year performance. Generally, a portion of the cash bonus is deferred and paid in the third quarter of the fiscal year in which the bonus is awarded. We refer to the ratio of our employee compensation and benefits expenses to our revenues as our "Compensation Ratio." Non-Compensation Expense. The balance of our operating expenses includes costs for travel, meals and entertainment, rent, depreciation and amortization, information technology and communications, professional fees, and other operating expenses. We refer to all of these expenses as non-compensation expenses. A portion of our non-compensation expenses fluctuates in response to changes in headcount. Other (Income)/Expense, Net Other (income)/expense, net includes (i) interest income earned on non-marketable and investment securities, cash and cash equivalents, loans receivable from affiliates, employee loans, and commercial paper, (ii) interest expense and fees on our 2019 Line of Credit (defined herein), (iii) interest expense on the loan payable to affiliate, loans payable to former shareholders, and the loan payable to non-affiliates, (iv) equity income and/or gains or losses from funds and partnership interests where we have more than a minor ownership interest or more than minor influence over operations, but do not have a controlling interest and are not the primary beneficiary, and (v) gains and/or losses associated with the reduction/increase of earnout liabilities.
Results of Consolidated Operations
The following is a discussion of our results of operations for the years endedMarch 31, 2022 and 2021. For a more detailed discussion of the factors that affected the revenues and the operating expenses of our CF, FR, and FVA business segments in these periods, see "Business Segments" below. Year Ended March 31, Change ($ in thousands) 2022 2021 '21-'22 Revenues$ 2,269,958 $ 1,525,452 49 % Operating expenses: Employee compensation and benefits 1,408,634 971,195 45 % Non-compensation expenses 248,460 146,100 70 % Total operating expenses 1,657,094 1,117,295 48 % Operating income 612,864 408,157 50 % Other (income)/expense, net 8,926 (1,071) (933) % Income before provision for income taxes 603,938 409,228 48 % Provision for income taxes 165,614 96,457 72 % Net income 438,324 312,771 40 % Net income attributable to noncontrolling interest (573) - 100 % Net income attributable to Houlihan Lokey, Inc.$ 437,751 $ 312,771 40 % 29
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Year Ended
Revenues were$2,270 million for the year endedMarch 31, 2022 , compared with$1,525 million for the year endedMarch 31, 2021 , representing an increase of 49%. For the year endedMarch 31, 2022 , CF revenues increased 98%, FR revenues decreased (27)%, and FVA revenues increased 51% when compared with the year endedMarch 31, 2021 . Operating expenses were$1,657 million for the year endedMarch 31, 2022 , compared with$1,117 million for the year endedMarch 31, 2021 , an increase of 48%. Employee compensation and benefits expense, as a component of operating expenses, was$1,409 million for the year endedMarch 31, 2022 , compared with$971 million for the year endedMarch 31, 2021 , an increase of 45%. The increase in employee compensation and benefits expense was primarily due to the increase in revenues for the fiscal year. The Compensation Ratio was 62% and 64% for the years endedMarch 31, 2022 and 2021, respectively. Non-compensation expenses, as a component of operating expenses, were$248 million for the year endedMarch 31, 2022 , compared with$146 million for the year endedMarch 31, 2021 , an increase of 70%. The increase in non-compensation expenses was primarily a result of non-compensation expenses attributable to GCA, amortization of intangible assets recognized in connection with the acquisition of GCA, integration and acquisition related costs associated with our acquisition of GCA and an increase in other operating expenses. Other (income)/expense, net increased to an expense of$8.9 million for the year endedMarch 31, 2022 , compared with income of$(1.1) million for the year endedMarch 31, 2021 . The increase in other (income)/expense, net was primarily due to a loss recognized in connection with the increase in the fair value of an earnout liability associated with one of our previous acquisitions, with no comparable increase for the year endedMarch 31, 2021 . The provision for income taxes for the year endedMarch 31, 2022 was$165.6 million , which reflected an effective tax rate of 27%. The provision for income taxes for the year endedMarch 31, 2021 was$96.5 million , which reflected an effective tax rate of 24%. The increase in the Company's tax rate during the year endedMarch 31, 2022 relative to the year endedMarch 31, 2021 was primarily a result of increased state taxes, increased foreign taxes and decreased stock compensation deductions. 30
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Business Segments
The following table presents revenues, expenses, and contributions from our continuing operations by business segment. The revenues by segment represents each segment's revenues, and the profit by segment represents profit for each segment before corporate expenses, Other (income)/expense, net, and income taxes. Year Ended March 31, Change ($ in thousands) 2022 2021 21-'22 Revenues by segment Corporate Finance$ 1,593,083 $ 802,853 98 % Financial Restructuring 392,818 534,747 (27) % Financial and Valuation Advisory 284,057 187,852 51 % Revenues$ 2,269,958 $ 1,525,452 49 % Segment profit (1) Corporate Finance$ 606,268 $ 250,513 142 % Financial Restructuring 100,882 224,215 (55) % Financial and Valuation Advisory 88,136 46,642 89 % Total segment profit 795,286 521,370 53 % Corporate expenses (2) 182,422 113,213 61 % Other (income)/expense, net 8,926 (1,071) (933) %
Income before provision for income taxes
48 % Segment Metrics: Number of Managing Directors Corporate Finance 202 120 68 % Financial Restructuring 53 47 13 % Financial and Valuation Advisory 34 31 10 % Number of closed transactions/Fee Events (3) Corporate Finance 600 360 67 % Financial Restructuring 90 138 (35) % Financial and Valuation Advisory 2,183 1,540 42 % (1)We adjust the compensation expense for a business segment in situations where an employee residing in one business segment is performing work in another business segment where the revenues are accrued. Segment Profit may vary significantly between periods depending on the levels of collaboration among the different segments. (2)Corporate expenses represent expenses that are not allocated to individual business segments such as office of the executives, accounting, information technology, compliance, legal, marketing, and human capital. (3)Fee Events applicable to FVA only; a Fee Event includes any engagement that involves revenue activity during the measurement period with a revenue minimum ofone thousand dollars . References to closed transactions should be understood to be the same as transactions that are "effectively closed" as described in Note 2 of our Consolidated Financial Statements.
Corporate Finance
Year Ended
Revenues for CF were$1,593 million for the year endedMarch 31, 2022 , compared with$803 million for the year endedMarch 31, 2021 , representing an increase of 98%. The increase in revenues was primarily a result of (i) the completion of our acquisition of GCA during the third quarter endedDecember 31, 2021 , resulting in the consolidation of their revenues into our CF business segment, (ii) a significant increase in the number of transactions that closed, and (iii) an increase in the average transaction fee on closed transactions for the year endedMarch 31, 2022 , compared with the year endedMarch 31, 2021 . Segment profit for CF was$606 million for the year endedMarch 31, 2022 , compared with$251 million for the year endedMarch 31, 2021 , representing an increase of 142%. The increase in segment profit was primarily a result of higher revenues and lower compensation and non-compensation expenses as a percentage of revenues for the year endedMarch 31, 2022 , compared with the year endedMarch 31, 2021 . 31
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Financial Restructuring
Year Ended
Revenues for FR were$393 million for the year endedMarch 31, 2022 , compared with$535 million for the year endedMarch 31, 2021 , representing a decrease of (27)%. The decrease in revenues was primarily due to a decrease in the number of closed transactions, partially offset by an increase in the average transaction fee for the year endedMarch 31, 2022 , compared with the year endedMarch 31, 2021 . Segment profit for FR was$101 million for the year endedMarch 31, 2022 , compared with$224 million for the year endedMarch 31, 2021 , a decrease of (55)%. The decrease in segment profit was primarily a result of a decrease in revenues and increased compensation expenses as a percentage of revenues for the year endedMarch 31, 2022 , compared with the year endedMarch 31, 2021 .
Financial and Valuation Advisory
Year Ended
Revenues for FVA were$284 million for the year endedMarch 31, 2022 , compared with$188 million for the year endedMarch 31, 2021 , representing an increase of 51%. The increase in revenues was primarily due to an increase in the number of fee events for the year endedMarch 31, 2022 , compared with the year endedMarch 31, 2021 . Segment profit for FVA was$88 million for the year endedMarch 31, 2022 , compared with$47 million for the year endedMarch 31, 2021 , representing an increase of 89%. The increase in segment profit was primarily a result of the increase in revenues and lower compensation expenses as a percentage of revenues for the year endedMarch 31, 2022 , compared with the year endedMarch 31, 2021 .
Corporate Expenses
Year Ended
Corporate expenses were$182 million for the year endedMarch 31, 2022 , compared with$113 million for the year endedMarch 31, 2021 , representing an increase of 61%. The increase in corporate expenses was primarily a result of non-compensation expenses attributable to GCA, amortization of intangible assets recognized in connection with the acquisition of GCA and integration and acquisition related costs associated with the acquisition of GCA.
Liquidity and Capital Resources
Our current assets comprise cash and cash equivalents, investment securities, receivables from affiliates, accounts receivable, and unbilled work in progress related to fees earned from providing advisory services. Our current liabilities include deferred income, accounts payable and accrued expenses, accrued salaries and bonuses, income taxes payable, and current portion of loan obligations. Our cash and cash equivalents include cash held at banks. We maintain moderate levels of cash on hand in support of regulatory requirements for our registered broker-dealer. As ofMarch 31, 2022 and 2021, we had$477 million and$283 million of cash in foreign subsidiaries, respectively. Our excess cash may be invested in short term investments, including treasury securities, commercial paper, certificates of deposit, investment grade corporate debt securities, and special purpose acquisition companies. Please refer to Note 6 for further detail.
As of
(In thousands) March 31, 2022 March 31, 2021 Cash and cash equivalents$ 833,697 $ 846,851 Investment securities 109,143 208,618
Total unrestricted cash and cash equivalents, including investment securities
942,840 1,055,469 Restricted cash (1) 373 373
Total cash, cash equivalents, and restricted cash, including investment securities
$
943,213
(1)Represents a deposit in support of a letter of credit issued for our
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As of each fiscal year end, a material portion of our Cash and cash equivalents is reserved to cover accrued, but unpaid bonuses, that are paid the following May and November. Our liquidity is highly dependent upon cash receipts from clients that are generally dependent upon the successful completion of transactions as well as the timing of receivables collections, which typically occur within 60 days of billing. As ofMarch 31, 2022 and 2021, we had$144 million and$108 million of Accounts receivable, net of credit losses, respectively. As ofMarch 31, 2022 and 2021, we had$105 million and$118 million of Unbilled work in progress, net of credit losses, respectively.
Subsequent to the end of fiscal 2022, our Board of Directors declared a
quarterly cash dividend of
OnAugust 23, 2019 , the Company entered into a new syndicated revolving line of credit with theBank of America, N.A . and certain other financial institutions party thereto, which allows for borrowings of up to$100 million (and, subject to certain conditions, provides the Company with an expansion option, which, if exercised in full, would provide for a total credit facility of$200 million ) and matures onAugust 23, 2022 (the "2019 Line of Credit"). As ofMarch 31, 2022 , no principal was outstanding under the 2019 Line of Credit. The agreement governing this facility provides that borrowings bear interest at an annual rate of LIBOR plus 1.00%, commitment fees apply to unused amounts, and contains debt covenants which require that the Company maintain certain financial ratios. The loan agreement requires compliance with certain loan covenants including but not limited to the maintenance of minimum consolidated earnings before interest, taxes, depreciation and amortization of no less than$150 million as of the end of any quarterly 12-month period and certain leverage ratios including a consolidated leverage ratio of less than 2.00 to 1.00. As ofMarch 31, 2022 , we were, and expect to continue to be, in compliance with such covenants. The majority of the Company's payment obligations and commitments pertain to routine operating leases. The Company also has various obligations relating to notes payable and contingent consideration issued in connection with businesses previously acquired (see Note 10 included in Part II, Item 8 of this Form 10-K). In connection with certain acquisitions, certain employees may be entitled to deferred consideration, primarily in the form of retention payments, should certain service and/or performance conditions be met in the future. As a result of these conditions, such deferred consideration would be expensed as compensation in current and future periods and has been accrued as liabilities on the Consolidated Balance Sheets as ofMarch 31, 2022 and 2021. 33
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Cash Flows
Our operating cash flows are primarily influenced by the amount and timing of receipt of advisory fees and the payment of operating expenses, including payments of incentive compensation to our employees. We pay a significant portion of our incentive compensation during the first and third quarters of each fiscal year. A summary of our operating, investing, and financing cash flows is as follows: Year Ended March 31, (In thousands) March 31, 2022 March 31, 2021 Operating activities: Net income$ 438,324 $ 312,771 Non-cash charges 115,902 86,837 Other operating activities 182,378 180,229 Net cash provided by operating activities 736,604 579,837 Net cash used in investing activities (273,914) (99,748) Net cash used in financing activities (459,060) (26,823) Effects of exchange rate changes on cash and cash equivalents (16,784) 13,212
Net increase/(decrease) in cash, cash equivalents, and restricted cash
(13,154) 466,478 Cash, cash equivalents and restricted cash - beginning of period 847,224 380,746 Cash, cash equivalents and restricted cash - end of period$ 834,070 $ 847,224 Year EndedMarch 31, 2022 Operating activities resulted in a net inflow of$736.6 million for the year endedMarch 31, 2022 , primarily due to increased net income. Investing activities resulted in a net outflow of$(273.9) million for the year endedMarch 31, 2022 , primarily due to cash consideration used for the acquisition of GCA. Financing activities resulted in a net outflow of$(459.1) million primarily due to share repurchases completed during the year endedMarch 31, 2022 . Year EndedMarch 31, 2021 Operating activities resulted in a net inflow of$579.8 million for fiscal 2021, which was greater than the prior year due primarily to higher net income for the year and an increase in accrued salaries and bonuses. Investing activities resulted in a net outflow of$(99.7) million for fiscal 2021, primarily due to purchases of new investment securities, partially offset by the sale or maturity of investment securities and acquisitions of property and equipment. Financing activities resulted in a net outflow of$(26.8) million primarily related to (i) dividend distributions, (ii) share repurchases, and (iii) payments to settle employee tax obligations on share-based awards, partially offset by the proceeds from the Company'sMay 2020 offering.
Critical Accounting Policies and Estimates
We believe that the critical accounting policies and practices included below are both most important to the portrayal of the Company's financial condition and results, and require management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. For a discussion of these and other significant accounting policies and their impact on our consolidated financial statements, see Note 2 included in part II, Item 8 of this Form 10-K. The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period for which they are determined to be necessary.
Recognition of Revenue
The Company adopted ASU 2014-09, Revenue from Contracts with Customers, onApril 1, 2018 , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company used the modified retrospective method that resulted in the Company prospectively changing the presentation of reimbursements of certain out-of-pocket expenses from a net presentation within non-compensation expenses to a gross basis in revenues. 34
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CF provides general financial advisory services in addition to advice on mergers and acquisitions and capital markets offerings. We advise public and private institutions on a wide variety of situations, including buy-side and sell-side transactions, as well as leveraged loans, private mezzanine debt, high-yield debt, initial public offerings, follow-ons, convertibles, equity private placements, private equity, and liability management transactions, and advise financial sponsors on all types of transactions. The majority of our CF revenues consists of Completion Fees. A CF transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to Retainer Fees and in some cases Progress Fees that may have been received. FR provides advice to debtors, creditors and other parties-in-interest in connection with recapitalization/deleveraging transactions implemented both through bankruptcy proceedings and through out-of-court exchanges, consent solicitations or other mechanisms, as well as in distressed mergers and acquisitions and capital markets activities. As part of these engagements, our FR business segment offers a wide range of advisory services to our clients, including: the structuring, negotiation, and confirmation of plans of reorganization; structuring and analysis of exchange offers; corporate viability assessment; dispute resolution and expert testimony; and procuring debtor-in-possession financing. Although atypical, FR transactions can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to the Retainer Fees and/or Progress Fees. FVA primarily provides valuations of various assets, including: companies; illiquid debt and equity securities; and intellectual property (among other assets and liabilities). These valuations are used for financial reporting, tax reporting, and other purposes. In addition, our FVA business segment renders fairness opinions in connection with mergers and acquisitions and other transactions, and solvency opinions in connection with corporate spin-offs and dividend recapitalizations, and other types of financial opinions in connection with other transactions. Also, our FVA business segment provides dispute resolution services to clients where fees are usually based on the hourly rates of our financial professionals. Unlike our CF or FR segments, the fees generated in our FVA segment are generally not contingent on the successful completion of a transaction.
See Note 2 included in Part II, Item 8 of this Form 10-K for additional information.
Provision for Income Taxes
The Company files consolidated federal income tax returns, as well as consolidated and separate returns in state and local jurisdictions, and the Company reports income tax expense on this basis.
See Note 12 included in Part II, Item 8 of this Form 10-K for additional information.
Business Combinations
Accounting for business combinations requires management to make significant estimates and assumptions. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows, expected asset lives, geographic risk premiums, discount rates, and more. The amounts and useful lives assigned to acquisition-related intangible assets impact the amount and timing of future amortization expense.
Recent Accounting Developments
For additional information on recently issued accounting developments and their impact or potential impact on our consolidated financial statements, see Note 2 included in Part II, Item 8 of this Form 10-K. 35
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