This excerpt taken from the FCN 10-K filed Mar 15, 2005.
Trends Affecting Our Business
Escalating Public Scrutiny and Regulatory Complexity. We believe that factors driving our business include the increased awareness of the potential for corporate mismanagement or fraud, the heightened scrutiny that often uncovers alleged frauds and spawns investigations and litigation, the continuing trend in high-stakes litigation and the effect of increased regulation. For example, the Sarbanes-Oxley legislation has added a layer of complex regulatory requirements for public companies. Faced with recent enhanced scrutiny by investors and government agencies of financial reporting and corporate governance, in part as a result of this legislation, companies have begun to hire outside professionals to review and analyze their accounting records, internal controls and financial reporting. We believe that recent mandates arising from the Sarbanes-Oxley legislation, and the emerging trend toward hiring consulting firms unaffiliated with company auditors, represent a fundamental shift in corporate and governmental policy. We also anticipate that ever increasing litigation costs will require businesses to focus on better managing risks and the litigation process, particularly in large, complex, multi-jurisdiction cases and mass tort claims. These trends should directly benefit independent financial consulting service providers.
Increasing Need for Independent Expertise. We believe that businesses, their creditors and other institutional stakeholders are increasingly engaging consulting firms to provide objective, independent expertise for highly critical business processes, especially in those areas that are complex, unique and incident-driven. Businesses and financial institutions facing adverse circumstances have a need to access world-class expertise to assist them in implementing tactical operating plans to solve significant business dilemmas. This is particularly true in highly complex and sophisticated areas such as restructurings, bankruptcies, economic consulting, forensic accounting and high-stakes legal proceedings.
Trends in Continuing Use of Corporate Debt and Debt Default Rates. We believe that corporate debt levels and related default levels are important indicators of the potential need for restructuring, turnaround, bankruptcy and related consulting services. U.S. and international companies have increasingly relied on debt, including bank debt, to finance acquisitions, growth initiatives and working capital requirements, and therefore, we believe that debt levels will remain high. The size of the public and private debt market, as measured by the amount of aggregate U.S. corporate debt outstanding, has consistently expanded over the past 30 years, regardless of economic cycles. Although debt default rates tend to decline during periods of economic expansion, we believe that economic expansion also facilitates new issuances of speculative grade debt, as investors are generally willing to tolerate higher levels of risk during these periods. Notwithstanding increases in debt, in 2004, we have seen a decline of the mega bankruptcy cases, resulting in a greater portion of our business being comprised of engagements relating to bankruptcy and restructuring matters involving mid-size companies.