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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10–K

(Mark

    (Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

2017

OR

¨o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission file number: 000-50976

HURON CONSULTINGGROUP INC.

NC.

(Exact name of registrant as specified in its charter)

Delaware
01-0666114

(State or other jurisdiction of

incorporation or organization)

 

01-0666114
(I.R.S. Employer

Identification Number)

550 West Van Buren Street

Chicago, Illinois 60607

(Address of principal executive offices and zip code)

(312) 583-8700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  x    No  ¨o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨o    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No  ¨o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. ¨x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x
 
Accelerated filer ¨o
 
Non-accelerated filer  ¨o
 
Smaller reporting company  ¨o
Emerging growth companyo

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨o    No  x

The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 20142017 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $1,632,800,000.

$934,900,000.

As of February 16, 2015, 22,899,31721, 2018, 22,180,119 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

Documents Incorporated By Reference

Portions of the registrant’s definitive Proxy Statement to be filed with Securities and Exchange Commission within 120 days after the end of its fiscal year are incorporated by reference into Part III.


Table of Contents


HURON CONSULTING GROUP INC.

ANNUAL REPORT ON FORM 10-K

FOR FISCAL YEAR ENDED DECEMBER 31, 2014

2017

TABLE OF CONTENTS

  Page
Page
PART I
 
Item 1.
Business
1

PART I

Item 1A.
Risk Factors
5

Item 1.

1B.
Unresolved Staff Comments
Business16
Item 2.
Properties
16
Item 3.1
Legal Proceedings
17
Item 4.
Mine Safety Disclosures
17
 

    Item 1A.

Risk FactorsPART II
8 

    Item 1B.

Unresolved Staff Comments21

    Item 2.

Properties21

    Item 3.

Legal Proceedings21

    Item 4.

Mine Safety Disclosures22

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
23
17

Item 6.

Selected Financial Data
25
19

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
21

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk
56
47

Item 8.

Financial Statements and Supplementary Data
57
48

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
48
Item 9A.
Controls and Procedures
57
48
Item 9B.
Other Information
49
 

    Item 9A.

Controls and ProceduresPART III
57 

    Item 9B.

Other Information58

PART III

Item 10.

Directors, Executive Officers and Corporate Governance
59
49

Item 11.

Executive Compensation
59
49

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
60
50

Item 13.

Certain Relationships and Related Transactions, and Director Independence
60
50

Item 14.

Principal Accounting Fees and Services
50
 60 

PART IV

 

Item 15.

Exhibits and Financial Statement Schedules
61
51

Item 16.

Form 10-K Summary
54
SIGNATURES

66
55


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FORWARD-LOOKING STATEMENTS

In this Annual Report on Form 10-K, unless the context otherwise requires, the terms “Huron,” “company,“Company,” “we,” “us” and “our” refer to Huron Consulting Group Inc. and its subsidiaries.

Statements in this Annual Report on Form 10-K that are not historical in nature, including those concerning the Company’s current expectations about its future requirements and needs, are “forward-looking” statements as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by words such as “may,” “should,” “expects,” “provides,” “anticipates,” “assumes,” “can,” “will,” “meets,” “could,” “likely,” “intends,” “might,” “predicts,” “seeks,” “would,” “believes,” “estimates,” “plans”“plans,” “continues,” or “continues.“outlook,” or similar expressions. These forward-looking statements reflect our current expectationexpectations about our future requirements and needs, results, levels of activity, performance, or achievements. Some of the factors that could cause actual results to differ materially from the forward-looking statements contained herein include, without limitation: failure to achieve expected utilization rates, billing rates, and the number of revenue-generating professionals; inability to expand or adjust our service offerings in response to market demands; our dependence on renewal of client-based services; dependence on new business and retention of current clients and qualified personnel; failure to maintain third-party provider relationships and strategic alliances; inability to license technology to and from third parties; the impairment of goodwill; various factors related to income and other taxes; difficulties in successfully integrating the businesses we acquire and achieving expected benefits from such acquisitions; risks relating to privacy, information security, and related laws and standards; and a general downturn in market conditions. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, including, among others, those described under “ItemItem 1A. Risk"Risk Factors,”" that may cause actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. We disclaim any obligation to update or revise any forward-looking statements as a result of new information or future events, or for any other reason.

PART I

ITEM 1.BUSINESS.

OVERVIEW

Huron is a global professional services firm committed to achieving sustainable results in partnership with its clients. We arebring a leading providerdepth of operational and financial consulting services. We help clients in diverse industries improve performance, transform the enterprise, reduce costs, leverage technology, process and review large amounts of complex data, address regulatory changes, recover from distress, and stimulate growth. Our professionals employ their expertise in finance,strategy, technology, operations, strategy,advisory services, and analytics and technology to provide our clients with specialized analyses and customized advice and solutions that are tailored to address each client’s particular challenges and opportunities to deliver sustainabledrive lasting and measurable results. We provide consulting services to a wide varietyresults in the healthcare, higher education, life sciences and commercial sectors.
Huron is headquartered in Chicago, Illinois, with additional locations in the United States in California, Colorado, the District of both financially soundColumbia, Florida, Massachusetts, New York, Oregon, Texas, and distressed organizations, including healthcare organizations, leading academic institutions, Fortune 500 companies, governmental entities,Wisconsin and law firms. We have worked with more than 450 health systems, hospitals,abroad in Canada, India, Saudi Arabia, Singapore, Switzerland, the United Arab Emirates, and academic medical centers; more than 400 corporate general counsel;the United Kingdom.
2017 Acquisitions
Pope Woodhead and more than 400 universities and research institutions.

Huron was formed in March 2002 and commenced operations in May 2002. We were founded by a core group of experienced financial and operational consultants. In October 2004,Associates Limited

On January 9, 2017, we completed our initial public offeringacquisition of Pope Woodhead and becameAssociates Limited ("Pope Woodhead"), a publicly traded company. WeU.K.-based consulting firm providing market access capabilities to assist clients in developing value propositions for innovative medicines and technologies. The acquisition expands our life sciences strategy expertise and strengthens our ability to lead clients through complex payer and regulatory environments. Pope Woodhead's results of operations have grown significantly since we commencedbeen included in our consolidated financial statements and results of operations increasing the number of our full-time employeesBusiness Advisory segment from 249 asthe date of May 31, 2002acquisition.
Innosight Holdings, LLC
On March 1, 2017, we completed our acquisition of Innosight Holdings, LLC ("Innosight"), a growth strategy firm focused on helping companies navigate disruptive change, enable innovation, and manage strategic transformation. Together with Innosight, we use our strategic, operational, and technology capabilities to 2,870 ashelp clients across multiple industries develop pioneering solutions to address disruption and achieve sustained growth. Innosight's results of December 31, 2014, through hiringoperations have been included in our consolidated financial statements and acquisitionsresults of complementary businesses. Our acquisitions have included Vonlay, LLCoperations of our Business Advisory segment from the date of acquisition.
ADI Strategies, Inc. (International)
On April 1, 2017, we completed our acquisition of the international assets of ADI Strategies, Inc. ("ADI Strategies") in May 2014; The Frankel Group Associates LLC in January 2014; Blue Stone International in October 2013; Stockamp & Associates, Inc. in July 2008; Wellspring Partners, LLC in January 2007;Dubai and Glass & Associates, Inc. in January 2007.

India. We have hired experienced professionals from a varietyacquired the U.S. assets of organizations, including the four largest public accounting firms, referred to as the Big Four, other consulting firms, and experienced professionals who are subject matter experts

across the healthcare, education, legal, and financial industries. As of December 31, 2014, we had 133 client-serving managing directors. These individuals have an average of 26 years of business experience. We have a roster of project consultants and contractors who supplement our full-time client-serving employees on an as-needed basis.

Our headquarters are located in Chicago, Illinois, and we have other domestic and international offices, including those locatedADI Strategies in the following major metropolitan areas: Atlanta, Georgia; Boston, Massachusetts; Dallas, Texas; Houston, Texas; London, United Kingdom; Madison, Wisconsin; New York, New York; Portland, Oregon; Toronto, Canada;second quarter of 2016. ADI Strategies is a leading enterprise performance management, risk management and Washington, D.C. We alsobusiness intelligence firm. The acquisition strengthens our technology and analytics competencies and expands our


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global reach. The international results of operations of ADI Strategies have ten discovery centers locatedbeen included in Charlotte, North Carolina; Chicago, Illinois; Gurgaon, India; Houston, Texas; London, United Kingdom; Miramar, Florida; Morrisville, North Carolina; New York, New York; San Francisco, California;our consolidated financial statements and Washington, D.C.results of operations of our Business Advisory segment from the date of acquisition.
Refer to Note 4 "Acquisitions" within our consolidated financial statements for further information on our recent acquisitions.
2017 Divestiture
Life Sciences Compliance and Operations
During the second quarter of 2017, we divested our Life Sciences Compliance and Operations practice ("Life Sciences C&O"), totaling approximately 1,600 workstations.

which was part of our broader Life Sciences practice within the Business Advisory segment. The sale of Life Sciences C&O did not meet the criteria for reporting separately as discontinued operations. Refer to Note 5 "Goodwill and Intangible Assets" within our consolidated financial statements for further information on the sale.

OUR SERVICES

We provide ourprofessional services through fivethree operating segments: Huron Healthcare, Huron Legal, Huron Education, and Life Sciences, Huron Business Advisory and All Other.Advisory. For the year ended December 31, 2014,2017, we derived 51%49%, 23%, 18%, and 8%28% of our revenues from Huron Healthcare, Huron Legal, HuronEducation, and Business Advisory, respectively.
During the second quarter of 2017, we reorganized our internal financial reporting structure, which management uses to assess performance and allocate resources, by moving our Life Sciences practice from the Education and Life Sciences and Huronsegment to the Business Advisory respectively.

segment. The remaining Education and Life Sciences segment is now referred to as the Education segment. While our consolidated results have not been impacted, we have reclassified our historical segment information for consistent presentation.

For further financial information on our segment results, see “Partrefer to Part II—Item 7. Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1618 “Segment Information” within the notes to our consolidated financial statements.

Huron

Healthcare

Our Huron Healthcare segment provides consulting services tohas a depth of expertise in strategy and innovation, care transformation, financial and operational excellence, technology and analytics, and leadership development. We serve national and regional hospitals and integrated health systems, academic medical centers, community hospitals, and physician practices. We delivermedical groups. Our solutions to enhance the ability of ourhelp clients evolve and adapt to address challenges in the rapidly evolvingchanging healthcare environment and achieve growth, optimize performance, enhance profitability, improve quality increase revenue, reduce expenses, and enhanceclinical outcomes, and drive physician, patient, and employee satisfactionengagement across the healthcare enterprise.
We help organizations transform and innovate the delivery model to focus on patient wellness by improving quality outcomes, minimizing care variation and fundamentally improving patient and population health. Our people provide a depth of expertise acrossconsultants partner with clients to help build and sustain today’s business to invest in the future by reducing complexity, improving operational efficiency and growing market share. We enable the healthcare industry,of the future by identifying, integrating and our cultureoptimizing technology investments to collect data that transforms care delivery and improves patient outcomes. We also develop future leaders capable of collaboration extends to our client engagements, enabling teams to effectively implement successful client projects.

This segment’s primary service lines include:

—

Clinical solutions. Our Clinical solutions focus on optimizing clinical performance, minimizing unnecessary variation, improving quality and outcomes, and achieving successful physician alignment. We help clients improve clinical operations and resource management processes across inpatient, perioperative, emergency, and outpatient settings. Our Physician solutions, a specialized area of Clinical solutions, help clients make the most of their physician group in order to excel in an uncertain healthcare environment. By fully aligning goals and incentives, we help clients drive efficiency and quality across the clinical enterprise in order to obtain improved quality outcomes, reduced costs, and improved patient satisfaction.

—

Revenue solutions. Our Revenue solutions are designed to optimize performance and deliver sustainable revenue cycle improvement and a predictable revenue gain, while increasing patient, physician, and staff satisfaction. We work with our clients to improve clinical documentation so that it fully and accurately reflects the severity of illness, complexity of care, and resources consumed. Improved physician documentation results in greater coding specificity, improved case mix index, and appropriate reimbursement for utilized resources.

—

Expense solutions. Our Expense solutions provide a systematic and comprehensive approach to help clients reduce workforce expense by addressing such areas as productivity, benefits, and compensation practices, and lead management through a process designed to assess current workforce performance, identify improvement opportunities, and implement solutions. Huron’s approach to non-labor cost reductions goes beyond the standard

supply chain focus to encompass clinical utilization and standardization as well as all purchased services expenses. We work through a results-oriented process to identify, assess, and implement improvements in an organization’s management of its human capital.

—

Advisory solutions. Our Advisory solutions provide strategic input to help governing boards and executive leadership establish the empirical basis for evaluating multiple options and setting priorities needed to establish clinical, financial, and mission sustainability. We help clients establish operational and data-enabled revenue transition, clinical transformation, scale and integration improvements, and operational excellence.

—

Technology solutions. Our Technology solutions help our clients optimize investments in clinical, financial and support systems, and integrate information with work flow to enable high performance organizations. We have expertise in implementing and optimizing Epic software, IT Strategy, and PeopleSoft technology, enabling our clients to remain at the forefront of IT innovation and efficiencies.

Huron Legal

driving meaningful operational and organizational change and who transform the patient experience.

Education
Our Huron Legal segment provides advisory and business services to assist law departments of major global corporations and their associated law firms with cost and risk reduction, organizational design and development, and operational efficiency. These services add value to organizations by helping them enhance client service and reduce the amount spent on legal services. Our expertise focuses on strategic and management consulting, cost management, and information governance, including matter management, records management, contract management, document review, and discovery services. Included in this segment’s offerings is our Integrated Analytics solution, which is designed to deliver an innovative, comprehensive process resulting in more affordable and predictable discovery costs.

This segment’s primary service lines include:

—

Discovery Services. We work with corporations and law firms to provide solutions to enhance their discovery process management. We provide a full array of digital evidence and discovery services that include discovery process execution, electronic discovery services, computer forensics, data management, document processing, advanced analytics, and document review, in order to help the client reduce costs, coordinate matters and people, streamline processes, and reduce risks. With our Integrated Analytics offering, we provide a comprehensive e-discovery process with a high degree of accuracy, increased transparency, and a capped-cost pricing model. Our facilities, including a data analytics center and ten discovery centers, blend technology and an integrated process. We also help clients choose and implement technology solutions that improve law department operations, including litigation preparedness and litigation holds.

—

Law Department Management. Our legal advisory practice helps in-house law departments enhance the quality of legal services while reducing costs by more efficiently aligning strategy, people, processes, and technology. We provide strategic advice to help law departments improve their organizational design and business processes, and maximize their relationships with law firms and other vendors. We also help clients select, customize, and implement matter management systems and electronic billing systems that help law departments track and manage lawsuits and other legal matters.

—

Information Governance/Compliance. We work with corporations to provide a comprehensive approach to the design, development, and implementation of all aspects of enterprise-wide records and information management programs. Our approach takes into consideration information governance, enabling technologies and business process improvements. In addition, our contract management offering works to systematically and efficiently manage contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk. Our contract creation application, K-CREATE™, gives organizations the power to create contracts faster, smarter and at far less expense.

Huron Education and Life Sciences

Our Huron Education and Life Sciences segment provides management consulting services and softwaretechnology solutions to the higher education institutions and academic medical center, pharmaceutical and medical device, and research industries. We work with our clientscenters to develop and implement performance improvement, technology, and research enterprise solutions to help them address challenges relating to business and technology strategy, financial management, strategy, operational and organizational effectiveness, research administration, and regulatory compliance.

This segment’s primary

Our institutional strategy, market research, budgeting and financial management, business operations and student lifecycle management solutions align missions with business priorities, improve quality and reduce costs institution-wide. Our technology strategy, enterprise applications, and analytic solutions transform and optimize operations, deliver time and cost savings, and enhance the student experience. Our research enterprise solutions assist clients in identifying and implementing institutional research strategy, optimizing clinical research operations, improving financial management and cost reimbursement, improving service lines include:

—

Higher Education. Our higher education professionals have extensive experience working with colleges and universities on strategic, financial, operational, and technology challenges. We assist institutions of higher education develop and implement performance improvement solutions to help them continue to thrive in this fast-changing industry. We offer a comprehensive range of services to the business functions supporting colleges and universities, academic medical centers, research institutions, and international organizations. Our primary service areas include: budgeting, enrollment management, facilities, finance, human resources, information technology, procurement, research administration, and student services.

—

Life Sciences. Our Life Sciences practice provides strategic, financial, and operational compliance solutions to global, mid-sized and newly formed pharmaceutical and medical device companies. Our solutions help pharmaceutical and medical device companies optimize value in a highly regulated, international environment with services such as scenario planning, organizational capability alignment, operational compliance and litigation support, and business model evolution. In the area of research and development, the practice provides portfolio prioritization, process transformation, and lifecycle management to help clients optimize the flow and success of the product pipeline. For regulatory business areas, our services include product planning and launch, channel strategies, pricing, commercial contracting, and fair market value analysis.

—

Technology. Our technology professionals provide services in enterprise systems planning, design and implementation, enterprise performance management, business intelligence, IT strategy, and governance and research software products and implementation services. Huron is a Platinum level member of the Oracle PartnerNetwork (OPN) and a Workday Services Partner.

to faculty, and mitigating risk compliance. Huron is a Platinum level member of the Oracle PartnerNetwork (OPN), a Workday Services Partner and a Gold level consulting partner with Salesforce.com.

Business Advisory

Our Huron Business Advisory segment provides services to the C-suite oflarge and middle market and largeorganizations, not-for-profit organizations, lending institutions, law firms, investment banks and private equity firms. We assist clients in a broad range of industries and across the spectrum from healthy, well-capitalized companies to organizations in transition as well as creditors, equity owners and other key constituents. Effective March 31, 2014, Enterprise Performance Management and Analytics became a reporting segment within Huron Business Advisory.


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This segment’s primary service lines include:

—

Business Advisory. Our Business Advisory practice resolves complex business issues and enhances value through a suite of services including forensic investigations, transaction advisory, restructuring and turnaround, interim management, capital raising, operational improvement, and valuation. We assess the short-term and long-term prospects of potential acquisition targets and divestiture opportunities, improve operations or capital structures for businesses performing at less than optimal levels, and provide independent valuation and consulting services to assist clients in making informed decisions for transaction, tax, or litigation purposes. In April 2014, Huron announced the formation of Huron Transaction Advisory LLC, a broker-dealer, to provide broker-dealer, corporate finance and investment banking services to new and existing clients. Our senior-level team members have vast experience in a range of industries, with many serving as C-level executives who apply flexible staffing models to drive improvement

at middle-market companies and larger businesses. Our professionals consist of certified public accountants, certified insolvency and restructuring advisors, certified turnaround professionals, MBAs, JDs, and chartered financial analysts as well as former chief restructuring officers, chief executive officers, chief financial officers, and professionals with significant board governance experience.

—

Enterprise Performance Management & Analytics. Our Enterprise Performance Management and Analytics practice delivers solutions that enable organizations to manage and optimize their financial performance, operational efficiency, and client experience. With expertise in full-service enterprise performance management (EPM), business analytics, customer relationship management (CRM), and big data professional services, Huron helps global clients across industries drive results and gain competitive advantage. Our comprehensive offerings include organizational improvements and software consulting leveraging both cloud and on-premise configurations. Huron is a Platinum level member of the Oracle PartnerNetwork (OPN) and a Silver level partner of the Salesforce.com partner network.

All OtherEnterprise Solutions and Analytics.

Our All Other segment consistsEnterprise Solutions and Analytics professionals deliver technology and analytic solutions that enable organizations to manage and optimize their financial performance, operational efficiency, and client or stakeholder experience. Our expertise in full-service enterprise performance management (EPM), enterprise resource planning (ERP), business intelligence and analytics, customer relationship management (CRM), and data management services helps clients identify and execute on business and technology strategies to drive results and gain a competitive advantage. Huron is a Platinum level member of any linethe Oracle PartnerNetwork (OPN), a Workday Services Partner, and a Gold level consulting partner with Salesforce.com.

Business Advisory. Our Business Advisory professionals resolve complex business issues and enhance client enterprise value through a suite of business not managedservices including capital advisory, transaction advisory, operational improvement, restructuring and turnaround, valuation, and dispute advisory. We improve operations or capital structures for businesses performing at less than optimal levels, assess the short-term and long-term prospects of potential acquisition and divestiture opportunities, and provide independent valuation and advisory services to assist clients in making informed decisions for transaction, tax or litigation purposes. Securities transactions are handled by our other four operating segments. These businesses include our public sector consulting practiceregistered broker-dealer, Huron Transaction Advisory LLC, a member of FINRA.
Strategy and our foreign healthcareInnovation. Our Strategy and Innovation professionals collaborate with clients across a range of industries to achieve repeatable business growth and innovation. We help organizations identify new growth opportunities, build new ventures and capabilities, and accelerate organizational change.
Life Sciences. Our Life Sciences professionals providestrategic consulting operations basedsolutions to help pharmaceutical, medical device, and biotechnology companies deliver more value to patients, payers, and providers and comply with regulations. We advise clients in the Middle East.

areas of corporate and financial strategy, compliance and operations, reimbursement and access strategy, commercial contracting strategy, R&D and product strategy commercial segmentation, fair market value analysis, lifecycle management, litigation and investigations, government pricing and transparency reporting, auditing and monitoring, and overall business process improvement.

OUR CLIENTS AND INDUSTRIES

We provide consultingprofessional services to a wide variety of both financially sound and distressed organizations, including healthcare organizations, leading academic institutions, Fortune 500 companies, governmental entities, and law firms. We have worked with more than 450 health systems, hospitals, and academic medical centers; more than 400 corporate general counsel; and more than 400 universities and research institutions.institutions, large and mid-sized companies, and governmental entities. In 2014,2017, we served over 1,0001,300 clients, including over 250300 new clients. Our top ten clients represented approximately 27.3%, 35.2%, and 34.0% of our revenues in the years ended December 31, 2014, 2013, and 2012, respectively, with no single client accounting for more than 10% of our revenues during those years.

Our clients are in a broad array of industries, including healthcare, education, professional services, pharmaceutical technology, transportation services, telecommunications,and medical device, financial services, electronics,energy and utilities, retail, aerospace, automotive, technology, telecommunications, consumer products, governmental, retail,metals and mining, oilengineering and gas, energyconstruction, hospitality and utilities,gaming, logistics, and industrial manufacturing. We believe organizations will continue to face complex challenges in the current economic environment. Many organizations are finding themselves in financial distress and are responding to these challenges by restructuring and reorganizing their businesses and capital structures, while financially healthy organizations are striving to maintain their market positions and capitalize on opportunities by improving operations, reducing costs, and enhancing revenues. In addition, organizations have limited dedicated resources to respond effectively to the challenges and opportunities that exist today. Consequently, we believe these organizations will increasingly seek to augment their internal resources with experienced independent consultants with a deep technical skill set similar to the professionals at Huron. Our expertise in assessing, evaluating, and refining business performance management processes and then enhancing processes with technology differentiates us in the market.

EMPLOYEES

Our success depends on our ability to attract, retain,engage, and develop highly talented professionals by creating a work environment where both employees and teams thrive and individuals are rewarded not only for their own contributions but also for the success of our organization as a whole.organization. To accomplish these goals, we focus on every facet of the employee lifecycle beginning with the recruiting process through post-employment or retirement to ensure the employee experience is engaging and recognize high performance, weimpactful. We have developed comprehensive employee programs incorporating training and development opportunities beginning with the onboarding process and continuing through one’s career journey. We provide a competitive compensation, performance management,total rewards package including benefits and wellness, as well asthat tailor to the needs of our employee population. Our commitment to corporate social responsibility is facilitated through our Huron Helping Hands program and the diversity & inclusionDiversity and Inclusion council.

Our employee population is divided into two groups;groups: client-serving and service and support. As of December 31, 2014,2017, we had 2,8703,083 full-time employees. Of those, 133 areemployees, including 142 client-serving managing directors. Our client-serving employees serve our clients as critical business advisors in support of transformingcollaborating with clients to help solve their business.most complex business problems. Our managing directors are the key drivers of growth in our business.business, generating new revenue streams from existing and new clients. They work externally to serveenhance our market reputation by partnering with clients as advisors and engagement team leaders, originate revenue by developing new and existing client relationships, and enhance our reputation.leaders. Internally, they create our intellectual capital, and develop our people.people, and foster our culture. Our senior directors, directors, and managers manage day-to-day client relationships, develop our people, and oversee the delivery and quality of our work product. Our associates and analysts gather and organize data, conduct detailed analyses, and prepare presentations that synthesize and distill information to support recommendations we deliver to clients. Our service and support employees include our senior management team as well as professionals thatwho provide sales support, methodology creation, software development, and the corporate functions consisting of our facilities, finance and accounting, human resources, information technology, legal, and marketing teams. These employees provide strategic direction and support that enables the success of our client-serving employees. This population contains 25At December 31, 2017, our support team was led by 23 managing directors, executives and corporate vice presidents.


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In addition to our full-time client-serving employees, we engage project consultants and contractors who supplement our full-time client-serving employees on an as-needed basis by providing highlyto provide unique skill sets that are not required to be staffed on a full-time basis. These individuals, many of whom have legal or financial credentials along with prior corporate experience, work variable schedules and are readily available to meet our clients’ needs. Utilizing these project consultants and contractors allows us to maintain a pool of talent with a variable cost structure that enables us to adapt quickly to market demands.

Supporting our employees’professionals' career progression is critical to our employee retention success. We provide this support through establishedand engagement. As part of our onboarding process, our learning and organizational effectiveness team facilitates a robust and structured training and development programs. We provide structured orientation and training programscurriculum for new campus hires and experiencednewly hired employees to enable ahelp develop and integrate them more effective assimilationeffectively into the Company. “Milestone”company. Leadership development programs are year-long development programs offered to recently promoted employees to support their transition to and success in a new role with greaterbroader responsibility. In addition to these milestone programs, we offer a variety of leadership development programs for those we deem capable of taking on broader roles in the organization at the senior director and managing director level.organization. We also provide a variety of continuing education opportunities to all of our employees, including formal classroom environments, on-lineonline courses, and webinars to further develop employees’ capabilities including technical knowledge, people skills, team dynamics and ability to work cooperativelycoaching and coachdeveloping others. We encourage our employees to enhance their professional skills through outside courses that certify their technical skills and to pursue certain advanced degrees. Employees are assigned internal performance coaches to help them establish expectations that are reviewed quarterly,regularly, including identifying opportunities for professional development, formal training and technical skill certifications.

Our compensationtotal rewards philosophy focuses on rewarding and retaining our high performing employees. To accomplish this, we offer employees a competitive base salary, performance incentives and competitive benefits.

Our incentive compensation plan is designed to recognize and reward performance of both the organization and individuals and to ensure we properly recognize and retain our top performers. We take both practice and Companycompany financial performance into consideration in the determination of bonus pool funding. At the practice level, the annual bonus pool is funded based on achievement of its annual financial goals. The board of directors then reviews and approves the total incentive compensation pool for all practices in the context of the Company’scompany’s overall financial performance. Individual bonus awards are based on the practice’s financial performance, individual bonus targets, and the individual’s performance as evaluated through our performance management process. The intent of the incentive compensation plan is to differentiate rewards based on individual performance, ensuring that our top performers for the year receive incentives that are commensurate with their contributions, enabling us to retain them and continue to provide our clients with exceptional service. The incentive compensation plan for our named executive officers is funded based on a blend of achievement of financial goals and strategic initiatives.

Managing directors’ individual compensation levels, including base salary and target incentive awards, are set to align with the value of their expected contributions to the organization. As the key drivers of the organization’s success, their compensation is designed to include equity awards as a core component. The use of equity is intended to encourage

retention, align the interests of our managing directors with shareholders, and help managing directors build wealth over theira managing director's career at Huron through annual grants as well as stock price appreciation.

Our benefit and wellness programs are designed to be both comprehensive and tailored to the needs of our employee population. One specific benefit we have created ispopulation, such as a paid time off policy that allows for flexibility and a travel reward to recognizeprogram which recognizes the significant travel commitment of our client-serving workforce. Our wellness benefits are aimed at supporting ourencouraging employees in maintaining a healthy lifestyle which is beneficial to the employeebe aware of their current state of health and the Company,providing various tools and resources given the demanding nature of the work. Through these unique benefits, as well as our health and welfare plans, retirement benefits, stock purchase plan, and other standard benefit programs, we provide a core sense of security to our employees.

Our corporate social responsibility efforts are designed to support an individual’s charitable interests while also providing a venue for our employees to come together to make an impact in the communities in which we live and work. In addition, the diversity & inclusionDiversity and Inclusion council supports the needs of our growing employee population through employee resource groups andthat provide corporate-wide educational efforts toopportunities, build awareness, celebrate our differences, develop mentoring relationships, and ensure we are fostering a welcoming and nurturingengaging environment for all employees.

BUSINESS DEVELOPMENT AND MARKETING

Our business development and marketing activities are aimed at cultivating relationships, generating leads, and building a strong brand reputation with key sources of business and referrals, especially hospital, health system, and university administrators, top-tier law firms, and theadministrators; offices of the chief executive officer, chief financial officer,C-suite; and general counselsenior level influencers and decision makers of middle market and large corporate organizations. We believe that excellent service delivery to clients is critical to building and maintaining relationships and our brand reputation, and we emphasize the importance of client service to all of our employees.

We

Currently, we generate most of our new business opportunities through the combination of relationships that our managing directors have with individuals working in hospitalshealthcare organizations, academic and health systems, academicresearch institutions, and corporations, and top-tier law firms.marketing lead generation activities. We also view cross-selling as a key component in building our business. Often, the client relationship of a managing director in one area of our business leads to opportunities in another area. All of our managing directors understand their roleroles in ongoing relationship and business development, which is reinforced through our compensation and incentive programs. We actively seek to identify new business opportunities and frequently receive referrals and repeat business from past and current clients and from the law firms with which we have worked.clients. In addition, to complement the business development efforts of our managing directors, we have experienceddedicated business developersdevelopment professionals who are focused exclusively on developing client relationships and generating new business through their extensive networkbusiness.

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We also host, participate in, and sponsor conferences that facilitate client development opportunities, promote brand recognition, and showcase our industry expertise. For example, during 2014, we hosted events such as the fifth annual CEO Forum—Leading the Journey: Cultivating Success in Healthcare; a webinar on Thriving in the New Healthcare Environment—3 Key Strategies; E-Discovery Briefings produced through Contents



COMPETITION
The Huron Legal Institute; and numerous other industry webinars and client events. Additionally, we participated in or sponsored numerous conferences for organizations such as National Council of University Research Administrators (NCURA), Oracle OpenWorld 2014, Workday Rising 2014, Dreamforce 2014, Association of Corporate Counsel (ACC), Turnaround Management Association (TMA), National Association of College and University Business Officers (NACUBO), ALM (ALM Media Properties, LLC), Center for Business Intelligence (CBI), American Health Lawyers Association (AHLA), American Hospital Association (AHA), American College of Healthcare Executives (ACHE), ARMA International, CBI’s 10th Annual Pharmaceutical Compliance Congress, The Health Management Academy, The Academy Huron Institute, The Healthcare Roundtable, Association of Insolvency and Restructuring Advisors (AIRA), The Estes Park Institute, Children’s Hospital Association, and the Catholic Health Assembly. These events provide a forum to build and strengthen client relationships, as well as to stay abreast of industry trends and developments.

We have a centralized marketing department with marketing professionals assigned to each of our practices. These professionals coordinate traditional marketing programs, such as participation in industry events, sponsorship of

conferences, development and management of advertising campaigns, development of case studies, and creation and publication of articles in industry publications and newsletters to actively promote our brand and capabilities. The marketing department also manages the content delivery on Huron’s website, develops collateral materials, performs research, and provides ‘request for proposal’ support as well as database management to support sales efforts.

COMPETITION

The consultingprofessional services industry is extremely competitive, highly fragmented, and subject to rapid change.constantly evolving. The industry includes a large number of participants with a variety of skills and industry expertise, including other strategy, business operations, technology, and financial consulting firms,firms; general management consulting firms,firms; the consulting practices of major accounting firms,firms; technical and economic advisory firms,firms; regional and specialty consulting firms,firms; and the internal professional resources of organizations. We compete with a large number of service and technology providers in all of our segments. Our competitors often vary, depending on the particular practice area. In addition,area, and we also expect to continue to face competition from new entrants because the barriers to entry into consulting services are relatively low.

market entrants.

We believe the principal competitive factors in our market include firm and consultant reputations,reputation, the ability to attract and retain top professionals, clienttalent, and law firm referrals, the abilitycapacity to manage engagements effectively and the ability to be responsive and providedrive high quality services.value to clients. There is also competition on price, although to a lesser extent due to the critical nature of manycriticality of the issues that our service offerings address. Manymany of our services address. Some competitors have a greater geographic footprint, including a broader international presence, and name recognition, as well as a significantly greater number of personnel, financial, technical, and marketingmore resources than we do. Wedo, but we believe that our experience, reputation industry focus, range, and ability to deliver high-value, quality service and measurable results to our clients across a balanced portfolio of service offeringsservices and attract and retain employees with broad capabilities and deep industry expertise enable us to compete favorably and effectively in the consultingprofessional services marketplace.

AVAILABLE INFORMATION

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on the investor relations page of our website,www.huronconsultinggroup.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The content posted on our website is not incorporated by reference into this report or any other reports filed with, or furnished to, the SEC. Any materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DCD.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

ITEM 1A.RISK FACTORS.

The following discussion of risk factors may be important to understanding the statements in this Annual Report on Form 10-K or elsewhere. The following information should be read in conjunction with “PartPart II—Item 7. Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes in this Annual Report on Form 10-K. Discussions about the important operational risks that our business encounters can be found in “PartPart II—Item 7. Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

An inability to retain our senior management team and other managing directors would be detrimental to the success of our business.

We rely heavily on our senior management team, our practice leaders, and other managing directors; our ability to retain them is particularly important to our future success. Given the highly specialized nature of our services, the senior management team must have a thorough understanding of our service offerings as well as the skills and experience necessary to manage an organization consisting of a diverse group of professionals. In addition, we rely on our senior

management team and other managing directors to generate and market our business. Further, our senior management’s and other managing directors’ personal reputations and relationships with our clients are a critical element in obtaining and maintaining client engagements. Although we enter into non-solicitation agreements with our senior management team and other managing directors, we generally do not enter into non-competition agreements. Accordingly, members of our senior management team and our other managing directors are not contractually prohibited from leaving or joining one of our competitors, and some of our clients could choose to use the services of that competitor instead of our services. If one or more members of our senior management team or our other managing directors leave and we cannot replace them with a suitable candidate quickly, we could experience difficulty in securing and successfully completing engagements and managing our business properly, which could harm our business prospects and results of operations.

Our inability to hire and retain talented people in an industry where there is great competition for talent could have a serious negative effect on our prospects and results of operations.

Our business involves the delivery of professional services and is highly labor-intensive. Our success depends largely on our general ability to attract, develop, motivate, and retain highly skilled professionals. Further, we must successfully maintain the right mix of professionals with relevant experience and skill sets as we continue to grow, as we expand into new service offerings, and as the market evolves. The loss of a significant number of our professionals, the inability to attract, hire, develop, train, and retain additional skilled personnel, or failure to maintain the right mix of professionals could have a serious negative effect on us, including our ability to manage, staff, and successfully complete our existing engagements and obtain new engagements. Qualified professionals are in great demand, and we face significant

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competition for both senior and junior professionals with the requisite credentials and experience. Our principal competition for talent comes from other consulting firms and accounting firms, as well as from organizations seeking to staff their internal professional positions. Many of these competitors may be able to offer significantly greater compensation and benefits or more attractive lifestyle choices, career paths, or geographic locations than we do. Therefore, we may not be successful in attracting and retaining the skilled consultants we require to conduct and expand our operations successfully. Increasing competition for these revenue-generating professionals may also significantly increase our labor costs, which could negatively affect our margins and results of operations.

Additional hiring, departures, business acquisitions and dispositions could disrupt our operations, increase our costs or otherwise harm our business.

Our business strategy is dependent in part upon our ability to grow by hiring individuals or groups of individuals and by acquiring complementary businesses. However, we may be unable to identify, hire, acquire, or successfully integrate new employees and acquired businesses without substantial expense, delay, or other operational or financial obstacles. From time to time, we will evaluate the total mix of services we provide and we may conclude that businesses may not achieve the results we previously expected. Competition for future hiring and acquisition opportunities in our markets could increase the compensation we offer to potential employees or the prices we pay for businesses we wish to acquire. In addition, we may be unable to achieve the financial, operational, and other benefits we anticipate from any hiring or acquisition, as well as any disposition, including those we have completed so far. New acquisitions could also negatively impact existing practices and cause current employees to depart. Hiring additional employees or acquiring businesses could also involve a number of additional risks, including:

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the diversion of management’s time, attention, and resources from managing and marketing our Company;

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the failure to retain key acquired personnel or existing personnel who may view the acquisition unfavorably;

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the potential loss of clients of acquired businesses;

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the need to compensate new employees while they wait for their restrictive covenants with other institutions to expire;

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the potential need to raise significant amounts of capital to finance a transaction or the potential issuance of equity securities that could be dilutive to our existing stockholders;

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increased costs to improve, coordinate, or integrate managerial, operational, financial, and administrative systems;

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the potential assumption of liabilities of an acquired business;

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the inability to attain the expected synergies with an acquired business;

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the usage of earn-outs based on the future performance of our business acquisitions may deter the acquired company from fully integrating into our existing business;

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the perception of inequalities if different groups of employees are eligible for different benefits and incentives or are subject to different policies and programs; and

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difficulties in integrating diverse backgrounds and experiences of consultants, including if we experience a transition period for newly hired consultants that results in a temporary drop in our utilization rates or margins.

the diversion of management’s time, attention, and resources from managing and marketing our Company;
the failure to retain key acquired personnel or existing personnel who may view the acquisition unfavorably;
the potential loss of clients of acquired businesses;
the need to compensate new employees while they wait for their restrictive covenants with other institutions to expire;
the potential need to raise significant amounts of capital to finance a transaction or the potential issuance of equity securities that could be dilutive to our existing stockholders;
increased costs to improve, coordinate, or integrate managerial, operational, financial, and administrative systems;
the potential assumption of liabilities of an acquired business;
the inability to attain the expected synergies with an acquired business;
the usage of earn-outs based on the future performance of our business acquisitions may deter the acquired company from fully integrating into our existing business;
the perception of inequalities if different groups of employees are eligible for different benefits and incentives or are subject to different policies and programs; and
difficulties in integrating diverse backgrounds and experiences of consultants, including if we experience a transition period for newly hired consultants that results in a temporary drop in our utilization rates or margins.
All of our prior acquisitions werehave been accounted for as purchases, some of which involved purchase prices well in excess of tangible asset values, resulting in the creation of a significant amount of goodwill and other intangible assets. Under generally accepted accounting principles, we do not amortize goodwill or intangible assets acquired in a business combination that are determined to have indefinite useful lives, but instead review them annually (or more frequently if impairment indicators arise) for impairment. To the extent that we determine that such an asset has been impaired, we will write down its carrying value on our balance sheet and book ana non-cash impairment charge in our statement of operations. In 2012, we took a goodwill impairment charge of $13.1 million relating to our Huron Business Advisory segment.earnings. If, as a result of acquisitions or otherwise, the amount of intangible assets being amortized increases, so will our amortization charges in future periods.

Also, selling practices and shutting down operations present similar challenges in a service business. DivestituresDispositions not only require management’s time, but they can impair existing relationships with clients or otherwise affect client satisfaction, particularly in situations where the divestiture eliminates only part of the complement of consulting services provided to a client. Dispositions may also involve continued financial involvement, as we may be required to retain responsibility for, or agree to indemnify buyers against, liabilities related to a business sold. For example, in connection with the sale of our Huron Legal segment to Consilio, Inc., which was completed on December 31, 2015, we have contractually agreed to indemnify the buyer against certain liabilities. If we fail to successfully address these risks, our ability to compete may be impaired and our results of operations may be adversely affected.


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Our goodwill and other intangible assets represent a substantial amount of our total assets, and we may be required to recognize a non-cash impairment charge for these assets if the performance of one or more of our reporting units falls below our expectations.
Our total assets reflect a substantial amount of intangible assets, primarily goodwill. At December 31, 2017, goodwill and other intangible assets totaled $718.1 million, or 69%, of our total assets. Goodwill results from our acquisitions, representing the excess of the fair value of consideration transferred over the fair value of the net assets acquired. We test goodwill for impairment at the reporting unit level, annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. Intangible assets other than goodwill represent purchased assets that lack physical substance but can be distinguished from goodwill. Our intangible assets primarily consist of customer relationships, trade names, customer contracts, technology and software, non-competition agreements, and publishing content, all of which were acquired through business combinations. We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. No impairment charges for intangible assets were recorded in 2017.
During 2017, we recorded $253.1 million of non-cash goodwill impairment charges. As further explained in the following paragraphs, of the $253.1 million, $208.1 million related to our Healthcare reporting unit and $45.0 million related to our Enterprise Solutions and Analytics reporting unit which is included in our Business Advisory segment.
During the second quarter of 2017, we performed a goodwill impairment analysis for our Healthcare reporting unit as our Healthcare business had experienced a prolonged period of declining revenues, primarily driven by softness in our revenue cycle offering within our performance improvement solution. This softness was attributable to decreased demand for our services, the winding down of some of our larger projects, and a trend toward smaller projects, as well as fewer large integrated projects. In light of these challenges, several initiatives have been undertaken to improve the segment's financial performance, including repositioning our solutions to address the most critical needs of our clients, the expansion of our existing services such as those in our Studer Group, strategy, physician and technology offerings, and workforce reductions to better align resources with market demand. While the initiatives undertaken to improve the financial performance of our Healthcare segment began yielding some positive impacts, hospitals and health systems continued to face regulatory and funding uncertainty; therefore, we remained cautious about near-term growth. As we had previously disclosed in prior quarters, if the financial performance of our Healthcare segment continued to decline and did not meet our expectations, we could be required to perform an interim impairment analysis with respect to our carrying value of goodwill for the Healthcare reporting unit prior to our usual annual test. Based on forecasts prepared in the second quarter of 2017 in connection with our quarterly forecasting cycle, we determined that the likely time frame to improve the financial results of this segment would take longer than originally anticipated. As such, we concluded, during the second quarter of 2017, that the fair value of the Healthcare reporting unit may have no longer exceeded its carrying value. In connection with the preparation of our financial statements for the quarter ended June 30, 2017, we performed an interim impairment test on the Healthcare reporting unit. Based on the estimated fair value of the Healthcare reporting unit, we recorded a $208.1 million non-cash pretax goodwill impairment charge to reduce the carrying value of goodwill in our Healthcare reporting unit.
Our Enterprise Solutions and Analytics reporting unit was established with the acquisition of Blue Stone International, LLC in 2013. Since that time, we completed five additional business acquisitions within the reporting unit, most recently the acquisitions of the U.S. assets and international assets of ADI Strategies in May 2016 and April 2017, respectively. We record the assets acquired and liabilities assumed in business combinations, including identifiable intangible assets, at their estimated fair values as of the acquisition date, and goodwill is recorded as the excess of the fair value of consideration transferred, including any contingent consideration, over the fair value of the net assets acquired. Therefore, the initial accounting for an acquisition results in its fair value equaling its carrying value. As we have previously disclosed in prior quarters, due to this reporting unit’s relatively low headroom, in the event that the financial performance of the reporting unit did not meet our expectations during 2017, we could be required to take a non-cash impairment charge as a result of any goodwill impairment test. During the first three quarters of 2017, the performance of Enterprise Solutions and Analytics continued to reasonably meet our expectations. However, both revenues and operating margin during the fourth quarter of 2017 fell short of our expectations resulting in a reduction in workforce within the reporting unit during that quarter. Further, in connection with our annual budget process for 2018, which coincided with our annual goodwill impairment test during the fourth quarter of 2017, we determined that the reporting unit's expected future revenue growth rates and operating margin would be lower than previously anticipated for this reporting unit. As a result, our goodwill impairment test indicated that the fair value of the Enterprise Solutions and Analytics reporting unit no longer exceeded its carrying value, and we recorded a $45.0 million non-cash pretax charge to write-off the entire carrying value of this reporting unit's goodwill during the fourth quarter of 2017.
The Life Sciences reporting unit has also been established primarily through recent business acquisitions: The Frankel Group Associates LLC in January 2014 and Pope Woodhead in January 2017. As discussed above, goodwill is recorded for such business acquisitions as the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, resulting in the fair value equaling the carrying value at the acquisition date. Based on the results of our annual goodwill impairment test as of November 30, 2017, the Life Sciences reporting unit's fair value exceeded its carrying value by 14%. We will monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.

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Determining the fair value of a reporting unit requires us to make significant judgments, estimates, and assumptions. While we believe that the estimates and assumptions underlying our valuation methodology are reasonable, these estimates and assumptions could have a significant impact on whether or not a non-cash goodwill impairment charge is recognized and also the magnitude of any such charge. The results of an impairment analysis are as of a point in time. There is no assurance that the actual future earnings or cash flows of our reporting units will be consistent with our projections. We will monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods. Any significant decline in our operations could result in additional non-cash goodwill impairment charges.
Refer to “Critical Accounting Policies” within Part I - Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for further discussion of our business combinations, goodwill, intangible assets, and impairment tests performed in 2017.
Changes in capital markets, legal or regulatory requirements, and general economic or other factors beyond our control could reduce demand for our services, in which case our revenues and profitability could decline.

A number of factors outside of our control affect demand for our services. These include:

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fluctuations in U.S. and global economies;

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the U.S. or global financial markets and the availability, costs, and terms of credit;

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changes in laws and regulations; and

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other economic factors and general business conditions.

fluctuations in U.S. and global economies;
the U.S. or global financial markets and the availability, costs, and terms of credit;
changes in laws and regulations; and
other economic factors and general business conditions.
We are not able to predict the positive or negative effects that future events or changes to the U.S. or global economy, financial markets, or regulatory and business environment could have on our operations.

Changes in U.S. tax laws could have a material adverse effect on our business, cash flow, results of operations and financial conditions.
We are subject to income and other taxes in the U.S. at the state and federal level and also in foreign jurisdictions. Changes in applicable U.S. state, federal or foreign tax laws and regulations, or their interpretation and application, could materially affect our tax expense and profitability.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“2017 Tax Reform”), a tax reform bill which contains significant changes to corporate taxation, including a reduction in the current corporate federal income tax rate from 35% to 21%, additional limitations on the tax deductibility of interest, substantial changes to the taxation of foreign earnings, and modification or repeal of many business deductions and credits. The changes included in the 2017 Tax Reform are broad and complex. The final transition impact of the 2017 Tax Reform may differ materially from our current estimates due to, among other things, additional regulatory and interpretive guidance, as well as any statutory technical corrections that are subsequently enacted.
The 2017 Tax Reform, or any related, similar or amended legislation or other changes in U.S. federal income tax laws, could adversely affect the U.S. federal income taxation of our ongoing operations. Any such changes and related consequences could have a material adverse impact on our financial results.
If we are unable to manage fluctuations in our business successfully, we may not be able to sustain profitability.

We have grown significantly since we commenced operations increasingand have increased the number of our full-time professionals from 249 as of May 31,in 2002 to 2,8703,083 as of December 31, 2014.2017. Additionally, our considerable growth has placed

demands on our management and our internal systems, procedures, and controls and will continue to do so in the near future. To successfully manage growth, we must periodically adjust and strengthen our operating, financial, accounting, and other systems, procedures, and controls, which could increase our costs and may adversely affect our gross profits and our ability to sustain profitability if we do not generate increased revenues to offset the costs. As a public company, our information and control systems must enable us to prepare accurate and timely financial information and other required disclosures. If we discover deficiencies in our existing information and control systems that impede our ability to satisfy our reporting requirements, we must successfully implement improvements to those systems in an efficient and timely manner.

Although we have generated positive earnings since we became a public company, we may not sustain profitability in the future. Additionally, the nature of our services and the general economic environment make it difficult to predict our future operating results. To sustain profitability, we must:

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attract, integrate, retain, and motivate highly qualified professionals;

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achieve and maintain adequate utilization and suitable billing rates for our revenue-generating professionals;

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expand our existing relationships with our clients and identify new clients in need of our services;

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successfully resell engagements and secure new engagements every year;

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maintain and enhance our brand recognition; and

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adapt quickly to meet changes in our markets, our business mix, the economic environment, the credit markets, and competitive developments.

attract, integrate, retain, and motivate highly qualified professionals;
achieve and maintain adequate utilization and suitable billing rates for our revenue-generating professionals;

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expand our existing relationships with our clients and identify new clients in need of our services;
successfully resell engagements and secure new engagements every year;
maintain and enhance our brand recognition; and
adapt quickly to meet changes in our markets, our business mix, the economic environment, the credit markets, and competitive developments.
Our financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our consultants.
Our profitability depends to a large extent on the utilization and billing rates of our professionals. Utilization of our professionals is affected by a number of factors, including:
the number and size of client engagements;
the timing of the commencement, completion and termination of engagements, which in many cases is unpredictable;
our ability to transition our consultants efficiently from completed engagements to new engagements;
the hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary drop in our utilization rate;
unanticipated changes in the scope of client engagements;
our ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and
conditions affecting the industries in which we practice as well as general economic conditions.
The billing rates of our consultants that we are able to charge are also affected by a number of factors, including:
our clients’ perception of our ability to add value through our services;
the market demand for the services we provide;
an increase in the number of engagements in the government sector, which are subject to federal contracting regulations;
introduction of new services by us or our competitors;
our competition and the pricing policies of our competitors; and
current economic conditions.
If we are unable to achieve and maintain adequate overall utilization as well as maintain or increase the billing rates for our consultants, our financial results could materially suffer. In addition, our consultants oftentimes perform services at the physical locations of our clients. If there are natural disasters, disruptions to travel and transportation or problems with communications systems, our ability to perform services for, and interact with, our clients at their physical locations may be negatively impacted which could have an adverse effect on our business and results of operations.
Our quarterly results of operations have fluctuated in the past and may continue to fluctuate in the future as a result of certain factors, some of which may be outside of our control.
A key element of our strategy is to market our products and services directly to certain large organizations, such as health systems and acute care hospitals, and to increase the number of our products and services utilized by existing clients. The sales cycle for some of our products and services is often lengthy and may involve significant commitment of client personnel. As a consequence, the commencement date of a client engagement often cannot be accurately forecasted. As discussed below, certain of our client contracts contain terms that result in revenue that is deferred and cannot be recognized until the occurrence of certain events. As a result, the period of time between contract signing and recognition of associated revenue may be lengthy, and we are not able to predict with certainty the period in which revenue will be recognized.
Certain of our contracts provide that some portion or all of our fees are at risk if our services do not result in the achievement of certain performance targets. To the extent that any revenue is contingent upon the achievement of a performance target, we only recognize revenue

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upon client confirmation that the performance targets have been achieved. If a client fails to provide such confirmation in a timely manner, our ability to recognize revenue will be delayed.
Fee discounts, pressure to not increase or even decrease our rates, and less advantageous contract terms could result in the loss of clients, lower revenues and operating income, higher costs, and less profitable engagements. More discounts or write-offs than we expect in any period would have a negative impact on our results of operations.
Other fluctuations in our quarterly results of operations may be due to a number of other factors, some of which are not within our control, including:
the timing and volume of client invoices processed and payments received, which may affect the fees payable to us under certain of our engagements;
client decisions regarding renewal or termination of their contracts;
the amount and timing of costs related to the development or acquisition of technologies or businesses; and
unforeseen legal expenses, including litigation and other settlement gains or losses.
We base our annual employee bonus expense upon our expected annual adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for that year. If we experience lower adjusted EBITDA in a quarter without a corresponding change to our full-year adjusted EBITDA expectation, our estimated bonus expense will not be reduced, which will have a negative impact on our quarterly results of operations for that quarter. Our quarterly results of operations may vary significantly and period-to-period comparisons of our results of operations may not be meaningful. The results of one quarter should not be relied upon as an indication of future performance. If our quarterly results of operations fall below the expectations of securities analysts or investors, the price of our common stock could decline substantially.
Revenues from our performance-based engagements are difficult to predict, and the timing and extent of recovery of our costs is uncertain.
We have engagement agreements under which our fees include a significant performance-based component. Performance-based fees are contingent on the achievement of specific measures, such as our clients meeting cost-saving or other contractually-defined goals. The achievement of these contractually-defined goals may be subject to acknowledgment by the client and is often impacted by factors outside of our control, such as the actions of the client or other third parties. Because performance-based fees are contingent, revenues on such engagements, which are recognized when all revenue recognition criteria are met, are not certain and the timing of receipt is difficult to predict and may not occur evenly throughout the year. The percentage of our revenues derived from performance-based fees for the years ended December 31, 2017, 2016, and 2015, was 4.9%, 8.9%, and 8.7%, respectively. A greater number of performance-based fee arrangements may result in increased volatility in our working capital requirements and greater variations in our quarter-to-quarter results, which could affect the price of our common stock. In addition, an increase in the proportion of performance-based fee arrangements may temporarily offset the positive effect on our operating results from an increase in our utilization rate until the related revenues are recognized.
The profitability of our fixed-fee engagements with clients may not meet our expectations if we underestimate the cost of these engagements.
When making proposals for fixed-fee engagements, we estimate the costs and timing for completing the engagements. These estimates reflect our best judgment regarding the efficiencies of our methodologies and consultants as we plan to deploy them on engagements. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-fee engagements, including delays caused by factors outside our control, could make these contracts less profitable or unprofitable, which would have an adverse effect on our profit margin. For the years ended December 31, 2017, 2016, and 2015, fixed-fee engagements represented 46.7%, 47.4%, and 58.0% of our revenues, respectively.
Our business is becoming increasingly dependent on information technology and will require additional investments in order to grow and meet the demands of our clients.

We depend on the use of sophisticated technologies and systems. Some of our practices provide services that are increasingly dependent on the use of software applications and systems that we do not own and could become unavailable. Moreover, our technology platforms will require continuing investments by us in order to expand existing service offerings and develop complementary services. A portion of our business, in which we utilize third-party software technology, has grown over the last few years and now represents a substantial portion of our total revenues. If third-party software technology that is important to our business does not continue to be available to us, or does not continue to be available to us on commercially reasonable terms, we may be unable to provide certain services to clients on a cost-efficient and timely basis, which may harm our financial condition and operating results. Our future success depends on our ability to adapt our services and infrastructure while continuing to improve the performance, features, and reliability of our services in response to the evolving demands of the marketplace.


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Adverse changes to our relationships with key third-party vendors, or in the business of our key third-party vendors, could unfavorably impact our business.
A portion of our services and solutions depend on technology or software provided by third-party vendors. Some of these third-party vendors refer potential clients to us, and others require that we obtain their permission prior to accessing their software while performing services for our clients. These third-party vendors could terminate their relationship with us without cause and with little or no notice, which could limit our service offerings and harm our financial condition and operating results. In addition, if a third-party vendor’s business changes or is reduced, that could adversely affect our business. Moreover, if third-party technology or software that is important to our business does not continue to be available or utilized within the marketplace, or if the services that we provide to clients is no longer relevant in the marketplace, our business may be unfavorably impacted.
We could experience system failures, service interruptions, or security breaches that could negatively impact our business.

Our organization is comprised of employees who work on matters throughout the United States and overseas. Our technology platform is a “virtual office” from which we all operate. We may be subject to disruption to our operating systems from technology events that are beyond our control, including the possibility of failures at third-party data centers, disruptions to the Internet, natural disasters, power losses, and malicious attacks. In addition, despite the implementation of security measures, our infrastructure and operating systems, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks, or other attacks by third parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security. While we have taken and are taking reasonable steps to prevent and

mitigate the damage of such events, including implementation of system security measures, information backup, and disaster recovery processes, those steps may not be effective and there can be no assurance that any such steps can be effective against all possible risks. We will need to continue to invest in technology in order to achieve redundancies necessary to prevent service interruptions. Access to our systems as a result of a security breach, the failure of our systems, or the loss of data could result in legal claims or proceedings, liability, or regulatory penalties and disrupt operations, which could adversely affect our business and financial results.

Our reputation could be damaged and we could incur additional liabilities if we fail to protect client and employee data through our own accord or if our information systems are breached.

We rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations around the world and with our clients, partners, and employees. The breadth and complexity of this infrastructure increases the potential risk of security breaches which could lead to potential unauthorized disclosure of confidential information.

In providing services to clients, we may manage, utilize, and store sensitive or confidential client or employee data, including personal data.data and protected health information. As a result, we are subject to numerous laws and regulations designed to protect this information, such as the U.S. federal and state laws governing the protection of health or other personally identifiable information, including the Health Insurance Portability and Accountability Act (HIPAA), and international laws such as the European Union Directive on Data Protection.

In addition, many states, U.S. federal governmental authorities and non-U.S. jurisdictions have adopted, proposed or are considering adopting or proposing, additional data security and/or data privacy statutes or regulations. Continued governmental focus on data security and privacy may lead to additional legislative and regulatory action, which could increase the complexity of doing business. The increased emphasis on information security and the requirements to comply with applicable U.S. and foreign data security and privacy laws and regulations may increase our costs of doing business and negatively impact our results of operations.

These laws and regulations are increasing in complexity and number. If any person, including any of our employees, negligently disregards or intentionally breaches our established controls with respect to client or employee data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines, and/or criminal prosecution.
In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through systems failure, employee negligence, fraud, or misappropriation, could damage our reputation and cause us to lose clients and their related revenue in the future.

Our international expansion could result in additional risks.

We operate both domestically and internationally, including in Canada, Europe, Asia, and the Middle East, Europe and Asia.East. Although historically our international operations have been limited, we intend to continue to expand internationally. Such expansion may result in additional risks that are not present domestically and which could adversely affect our business or our results of operations, including:

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compliance with additional U.S. regulations and those of other nations applicable to international operations;

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cultural and language differences;

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employment laws and rules and related social and cultural factors;

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losses related to start-up costs, lack of revenue, higher costs due to low utilization, and delays in purchase decisions by prospective clients;

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currency fluctuations between the U.S. dollar and foreign currencies, which are harder to predict in the current adverse global economic climate;

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restrictions on the repatriation of earnings;

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potentially adverse tax consequences and limitations on our ability to utilize losses generated in our foreign operations;

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different regulatory requirements and other barriers to conducting business;

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different or less stable political and economic environments;

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greater personal security risks for employees traveling to or located in unstable locations; and

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civil disturbances or other catastrophic events.

compliance with additional U.S. regulations and those of other nations applicable to international operations;
cultural and language differences;
employment laws and rules and related social and cultural factors;

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losses related to start-up costs, lack of revenue, higher costs due to low utilization, and delays in purchase decisions by prospective clients;
currency fluctuations between the U.S. dollar and foreign currencies, which are harder to predict in the current adverse global economic climate;
restrictions on the repatriation of earnings;
potentially adverse tax consequences and limitations on our ability to utilize losses generated in our foreign operations;
different regulatory requirements and other barriers to conducting business;
different or less stable political and economic environments;
greater personal security risks for employees traveling to or located in unstable locations; and
civil disturbances or other catastrophic events.
Further, conducting business abroad subjects us to increased regulatory compliance and oversight. For example, in connection with our international operations, we are subject to laws prohibiting certain payments to governmental officials, such as the Foreign Corrupt Practices Act and the U.K. Bribery Act. The provisions of the U.K. Bribery Act may apply outside of the U.K. and due to our U.K. based subsidiaries, we and our employees could be subject to liability for alleged activities involving bribery even if such activities were to take place outside of the U.K. A failure to comply with applicable regulations could result in regulatory enforcement actions as well as substantial civil and criminal penalties assessed against us and our employees.

Our obligations under the Amended Credit Agreement are secured by a pledge of certain of the equity interests in our subsidiaries and a lien on substantially all of our assets and those of our subsidiary grantors. If we default on these obligations, our lenders may foreclose on our assets, including our pledged equity interest in our subsidiaries.

On April 14, 2011,March 31, 2015, we entered into a second amended and restated security agreement with Bank of America (the “Security Agreement”) and a second amended and restated pledge agreement (the “Pledge Agreement”) in connection with our entry into the Second Amended and Restated Credit Agreement, dated as of April 14, 2011March 31, 2015 (as amended and modified,restated, the “2011“Amended Credit Agreement”). Pursuant to the Security Agreement and to secure our obligations under the 2011Amended Credit Agreement, we granted our lenders a first-priority lien, subject to permitted liens, on substantially all of the personal property assets that we and the subsidiary grantors own. This first-priority lien is in additionPursuant to the existing pledge (the “Equity Pledge”) thatPledge Agreement, we previously granted to our lenders of 100% of the voting stock or other equity interests in our domestic subsidiaries and 65% of the voting stock or other equity interests in certain of our foreign subsidiaries. If we default on our obligations under the 2011Amended Credit Agreement, our lenders could accelerate our indebtedness and may be able to exercise their liens on the equity interests subject to the Equity Pledge Agreement and their liens on substantially all of our assets and the assets of our subsidiary grantors, which would have a material adverse effect on our business, operations, financial condition, and liquidity. In addition, the covenants contained in the 2011Amended Credit Agreement impose restrictions on our ability to engage in certain activities, such as the incurrence of additional indebtedness, certain investments, certain acquisitions and dispositions, and the payment of dividends.

Our indebtedness could adversely affect our ability to raise additional capital to fund our operations and obligations, expose us to interest rate risk to the extent of our variable-rate debt, and adversely affect our financial results.

At December 31, 2014,2017, we had outstanding indebtedness totaling $393.8 million, includingof $250 million principal amount of our 1.25% convertible senior notes.notes due October 1, 2019, $105.0 million on our revolving line of credit that becomes due and payable in full upon maturity on March 31, 2020, and $4.9 million principal amount of our promissory note due March 1, 2024. Our ability to make scheduled payments of the principal, of, to pay interest, on,to make payments upon conversion, or to refinance our indebtedness, depends on our future performance. Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our obligations under our current indebtedness and any future indebtedness we may incur and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing, or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our current indebtedness or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on the current indebtedness or future indebtedness.

In addition, our indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:

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expose us to the risk of increased interest rates because some of our borrowings are at variable interest rates;

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make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation;

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limit our ability to obtain additional financing and flexibility in planning for, or reacting to, changes in our business and our industry;

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place us at a disadvantage compared to our competitors who have less debt or have better access to capital resources; and

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require us to dedicate a larger portion of our cash from operations to service our indebtedness and thus reduce the level of cash for other purposes such as funding working capital, strategic acquisitions, capital expenditures, and other general corporate purposes.

expose us to the risk of increased interest rates because some of our borrowings are at variable interest rates;
make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation;

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limit our ability to obtain additional financing and flexibility in planning for, or reacting to, changes in our business and our industry;
place us at a disadvantage compared to our competitors who have less debt or have better access to capital resources; and
require us to dedicate a larger portion of our cash from operations to service our indebtedness and thus reduce the level of cash for other purposes such as funding working capital, strategic acquisitions, capital expenditures, and other general corporate purposes.
Any of these factors could materially and adversely affect our business, financial condition, and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.

The accounting method for convertible debt securities that may be settled in cash, such as our convertible notes, could have a material effect on our reported financial results.

Under GAAP, an entity must separately account for the debt component and the embedded conversion option of convertible debt instruments that may be settled entirely or partially in cash upon conversion, such as our convertible notes, in a manner that reflects a company’s economic interest cost. The effect of the accounting treatment for such instruments is that the value of such embedded conversion option would be treated as an original issue discount for purposes of accounting for the debt component of the notes and that original issue discount is amortized into interest expense over the term of the notes using an effective yield method. As a result, over the term of our convertible notes, we will initially be required to record a greater amount of noncashnon-cash interest expense. Accordingly, we will report lower net income in our financial results because of the recognition of both the current period’s amortization of the debt discount and our convertible notes’ coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock, and the trading price of our convertible notes.

Under certain circumstances, the shares of common stock underlying convertible debt instruments (such as our convertible notes) that may be settled entirely or partially in cash are reflected in earnings per share utilizing the treasury stock method, the effect of which is that such shares of common stock are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal amount at the end of the reporting period. Under the treasury stock method, for diluted earnings per share purposes, our convertible notes are accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares of common stock, are issued. The accounting standards in the future may not continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares of common stock issuable upon conversion of our convertible notes, then our diluted earnings per share could be adversely affected.

In addition, if the conditional conversion feature of our convertible notes is triggered, even if holders do not elect to convert their convertible notes, we could be required under applicable accounting rules to reclassify all of the outstanding principal of our convertible notes as a current, rather than long-term, liability, which would result in a material reduction of our net working capital.

We may not have the ability to raise the funds necessary to pay the amount of cash due upon conversion of our convertible notes, if relevant, or the fundamental change repurchase price due when a holder submits its convertible notes for repurchase upon the occurrence of a fundamental change, and our debt may contain limitations on our ability to pay cash upon conversion or required repurchase of our convertible notes.

Upon the occurrence of a fundamental change as defined in the indenture governing our convertible notes, holders of our convertible notes may require us to repurchase, for cash, all or a portion of their convertible notes at a repurchase

price equal to 100% of their principal amount, plus accrued and unpaid interest, if any. In addition, upon conversion of our convertible notes, we will be required to make cash payments in respect of our convertible notes being converted, including if the conditional conversion feature of our convertible notes is triggered, unless we elect to deliver solely shares of our common stock to settle such conversion.

We may not have sufficient financial resources, or may be unable to arrange financing, to pay the fundamental change repurchase price if holders of our convertible notes submit their convertible notes for purchase by us upon the occurrence of a fundamental change or to pay the amount of cash (if any) due if holders of our convertible notes surrender their convertible notes for conversion. In addition, the occurrence of a fundamental change may cause an event of default under agreements governing our or our subsidiaries’ indebtedness. Agreements governing any of our future debt may restrict our ability to make each of the required cash payments even if we have sufficient funds to make them. Furthermore, our ability to purchase our convertible notes or to pay cash (if any) due upon the conversion of our convertible notes may be limited by law or regulatory authorities. In addition, if we fail to repurchase our convertible notes or to pay the amount of cash (if any) due upon conversion of our convertible notes, we will be in default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which in turn may result in the acceleration of such other indebtedness we may then have outstanding. If the repayment of the other indebtedness were to be accelerated, we may not have sufficient funds to repay that indebtedness and to repurchase our convertible notes or to pay the amount of cash (if any) due upon conversion.


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The fundamental change provisions associated with our convertible notes may delay or prevent an otherwise beneficial takeover attempt of us.

The fundamental change purchase rights, which will allow holders of our convertible notes to require us to repurchase all or a portion of their convertible notes upon the occurrence of a fundamental change, and the provisions requiring an increase to the conversion rate for conversions in connection with certain other circumstances may delay or prevent a takeover of us that might otherwise be beneficial to investors.

The convertible note hedge transactions and the warrant transactions may affect the value of our convertible notes and our common stock.

In connection with the pricing of our convertible notes, we entered into privately negotiated convertible note hedge transactions with affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities as hedge counterparties. The convertible note hedge transactions collectively cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie our convertible notes. We also entered into separate privately negotiated warrant transactions with the hedge counterparties relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments.

We expect that the hedge counterparties and/or their affiliates may modify their hedge positions with respect to the convertible note hedge transactions and the warrant transactions from time to time by purchasing and/or selling shares of our common stock and/or our convertible notes in privately negotiated transactions and/or open market transactions or by entering into and/or unwinding various over-the-counter derivative transactions with respect to our common stock. This activity could also cause or prevent an increase or decrease in the market value of our common stock. In addition, the hedge counterparties and/or their affiliates may choose to engage in, or to discontinue engaging in, any of these transactions with or without notice at any time, and their decisions will be in their sole discretion and not within our control.

The hedge counterparties are financial institutions which will be subject to the risk that one or both of the hedge counterparties might default under their respective convertible note hedge transactions. Upon a default by any hedge counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the hedge counterparties.

Our intellectual property rights in our “Huron Consulting Group” name are important, and any inability to use that name could negatively impact our ability to build brand identity.

We believe that establishing, maintaining, and enhancing the “Huron Consulting Group” name and "Huron" brand is important to our business. We are, however, aware of a number of other companies that use names containing “Huron.” There could be potential trade name or service mark infringement claims brought against us by the users of these similar names and marks and those users may have trade name or service mark rights that are senior to ours. If another company were to successfully challenge our right to use our name, or if we were unable to prevent a competitor from using a name that is similar to our name, our ability to build brand identity could be negatively impacted.

Our financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our consultants.

Our profitability depends to a large extent on the utilization and billing rates of our professionals. Utilization of our professionals is affected by a number of factors, including:

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the number and size of client engagements;

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the timing of the commencement, completion and termination of engagements, which in many cases is unpredictable;

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our ability to transition our consultants efficiently from completed engagements to new engagements;

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the hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary drop in our utilization rate;

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unanticipated changes in the scope of client engagements;

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our ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and

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conditions affecting the industries in which we practice as well as general economic conditions.

The billing rates of our consultants that we are able to charge are also affected by a number of factors, including:

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our clients’ perception of our ability to add value through our services;

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the market demand for the services we provide;

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an increase in the number of clients in the government sector;

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introduction of new services by us or our competitors;

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our competition and the pricing policies of our competitors; and

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current economic conditions.

If we are unable to achieve and maintain adequate overall utilization as well as maintain or increase the billing rates for our consultants, our financial results could materially suffer. In addition, our consultants oftentimes perform services at the physical locations of our clients. If there are natural disasters, disruptions to travel and transportation or problems with communications systems, our ability to perform services for, and interact with, our clients at their physical locations may be negatively impacted which could have an adverse effect on our business and results of operations.

Our quarterly results of operations have fluctuated in the past and may continue to fluctuate in the future as a result of certain factors, some of which may be outside of our control.

A key element of our strategy is to market our products and services directly to certain large organizations, such as health systems and acute care hospitals, and to increase the number of our products and services utilized by existing clients. The sales cycle for some of our products and services is often lengthy and may involve significant commitment of client personnel. As a consequence, the commencement date of a client engagement often cannot be accurately forecasted. As discussed below, certain of our client contracts contain terms that result in revenue that is deferred and cannot be recognized until the occurrence of certain events. As a result, the period of time between contract signing and recognition of associated revenue may be lengthy, and we are not able to predict with certainty the period in which revenue will be recognized.

Certain of our contracts provide that some portion or all of our fees are at risk if our services do not result in the achievement of certain financial performance targets. To the extent that any revenue is contingent upon the achievement of a performance target, we only recognize revenue upon client confirmation that the performance targets have been achieved. If a client fails to provide such confirmation in a timely manner, our ability to recognize revenue will be delayed.

Other fluctuations in our quarterly results of operations may be due to a number of other factors, some of which are not within our control, including:

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the timing and volume of client invoices processed and payments received, which may affect the fees payable to us under certain of our engagements;

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client decisions regarding renewal or termination of their contracts;

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the amount and timing of costs related to the development or acquisition of technologies or businesses; and

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unforeseen legal expenses, including litigation and other settlement gains or losses.

We base our annual employee bonus expense upon our expected annual adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for that year. If we experience lower adjusted EBITDA in a quarter without a corresponding change to our full-year adjusted EBITDA expectation, our estimated bonus expense will not be reduced, which will have a negative impact on our quarterly results of operations for that quarter. Our quarterly results of operations may vary significantly and period-to-period comparisons of our results of operations may not be meaningful. The results of one quarter should not be relied upon as an indication of future performance. If our quarterly results of operations fall below the expectations of securities analysts or investors, the price of our common stock could decline substantially.

Revenues from our performance-based engagements are difficult to predict, and the timing and extent of recovery of our costs is uncertain.

We have engagement agreements under which our fees include a significant performance-based component. Performance-based fees are contingent on the achievement of specific measures, such as our clients meeting cost-saving or other contractually defined goals. The achievement of these contractually-defined goals may be subject to acknowledgement by the client and is often impacted by factors outside of our control, such as the actions of the client or other third parties. Because performance-based fees are contingent, revenues on such engagements, which are recognized when all revenue recognition criteria are met, are not certain and the timing of receipt is difficult to predict and may not occur evenly throughout the year. The percentage of our revenues derived from performance-based fees for the years ended December 31, 2014, 2013, and 2012, was 13.6%, 14.6%, and 14.2%, respectively. A greater number of performance-based fee arrangements may result in increased volatility in our working capital requirements and greater variations in our quarter-to-quarter results, which could affect the price of our common stock. In addition, an increase in the proportion of performance-based fee arrangements may temporarily offset the positive effect on our operating results from an increase in our utilization rate until the related revenues are recognized.

The profitability of our fixed-fee engagements with clients may not meet our expectations if we underestimate the cost of these engagements.

When making proposals for fixed-fee engagements, we estimate the costs and timing for completing the engagements. These estimates reflect our best judgment regarding the efficiencies of our methodologies and consultants as we plan to deploy them on engagements. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-fee engagements, including delays caused by factors outside our control, could make these contracts less profitable or unprofitable, which would have an adverse effect on our profit margin. For the years ended December 31, 2014, 2013, and 2012, fixed-fee engagements represented 39.6%, 37.2%, and 34.7% of our revenues, respectively.

Our business performance might not be sufficient for us to meet the full-year financial guidance that we provide publicly.

We provide full-year financial guidance to the public based upon our expectations regarding our financial performance. While we believe that our annual financial guidance provides investors and analysts with insight to our view of the Company’s future performance, such financial guidance is based on assumptions that may not always prove to be accurate and may vary from actual results. If we fail to meet the full-year financial guidance that we provide, or if we find it necessary to revise such guidance during the year, the market value of our common stock could be adversely affected.

Expanding our service offerings or number of offices may not be profitable.

We may choose to develop new service offerings, open new offices, or eliminate service offerings because of market opportunities or client demands. Developing new service offerings involves inherent risks, including:

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our inability to estimate demand for the new service offerings;

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competition from more established market participants;

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a lack of market understanding; and

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unanticipated expenses to recruit and hire qualified consultants and to market our new service offerings.

our inability to estimate demand for the new service offerings;
competition from more established market participants;
a lack of market understanding; and
unanticipated expenses to recruit and hire qualified consultants and to market our new service offerings.
In addition, expanding into new geographic areas and expanding current service offerings is challenging and may require integrating new employees into our culture as well as assessing the demand in the applicable market. If we cannot manage the risks associated with new

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service offerings or new locations effectively, we are unlikely to be successful in these efforts, which could harm our ability to sustain profitability and our business prospects.

The healthcare industry is an area of significant focus for our business, and factors that adversely affect the financial condition of the healthcare industry could consequently affect our business.

We derive a significant portion of our revenue from clients in the healthcare industry. As a result, our financial condition and results of operations could be adversely affected by conditions affecting the healthcare industry generally and hospitals and health systems particularly. The healthcare industry is highly regulated and is subject to changing political, legislative, regulatory, and other influences. Uncertainty in any of these areas could cause our clients to delay or postpone decisions to use our services. Existing and new federal and state laws and regulations affecting the healthcare industry could create unexpected liabilities for us, could cause us or our clients to incur additional costs, and could restrict our or our clients’ operations. Many healthcare laws are complex and their application to us, our clients, or the specific services and relationships we have with our clients are not always clear. In addition, federal and state legislatures have periodically introduced programs to reform or amend the U.S. healthcare system at both the federal and state level, such as the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of

2010. 2010, and continue to consider further significant reforms. Due to the significant implementation issues arising under these laws and potential new legislation, it is unclear what long-term effects they will have on the healthcare industry and in turn on our business, financial condition, and results of operations. Our failure to accurately anticipate the application of thesenew laws and regulations, or our failure to comply with such laws and regulations, could create liability for us, result in adverse publicity and negatively affect our business.

There are many factors that could affect the purchasing practices, operations, and, ultimately, the operating funds of healthcare organizations, such as reimbursement policies for healthcare expenses, federal and state budgetary considerations, consolidation in the healthcare industry, and regulation, litigation, and general economic conditions. In particular, we could be required to make unplanned modifications of our products and services (which would require additional time and investment) or we could suffer reductions in demand for our products and services as a result of changes in regulations affecting the healthcare industry, such as changes in the way that healthcare organizations are paid for their services (e.g., based on patient outcomes instead of services provided).

Furthermore, as a result of the 2016 election and the new presidential administration, there is an increased uncertainty surrounding the future of the Affordable Care Act and the regulation of the healthcare industry, and therefore healthcare organizations may wait to buy services such as ours until the regulatory environment is more certain.

In addition, state tax authorities have challenged the tax-exempt status of some hospitals and other healthcare facilities claiming such status on the basis that they are operating as charitable and/or religious organizations. If the tax-exempt status of any of our clients is revoked or compromised by new legislation or interpretation of existing legislation, that client’s financial health could be adversely affected, which could adversely impact demand for our services, our sales, revenue, financial condition, and results of operations.

Our ability to maintain and attract new business and talented personnel depends upon our reputation, the professional reputation of our revenue-generating employees, and the quality of our services.

As a professional services firm, our ability to secure new engagements and retain and attract talented personnel depends heavily upon our reputation and the individual reputations of our professionals. Any factor that diminishes our reputation or that of our employees, including not meeting client expectations or misconduct by our employees, could make it substantially more difficult for us to attract new engagements, clients, and employees. Similarly, because we obtain many of our new engagements from former or current clients or from referrals by those clients or by law firms that we have worked with in the past, any client that questions the quality of our work or that of our consultants could impair our ability to secure additional new engagements and clients.

A significant portion of our revenues is derived from a limited number of clients, and our engagement agreements, including those related to our largest clients, can be terminated by our clients with little or no notice and without penalty, which may cause our operating results to be unpredictable.

unpredictable and may result in unexpected declines in our utilization and revenues.

As a consulting firm, we have derived, and expect to continue to derive, a significant portion of our revenues from a limited number of clients. Our ten10 largest clients accounted for approximately 27.3%19.5%, 35.2%28.8%, and 34.0%29.9% of our revenues for the years ended December 31, 2014, 2013,2017, 2016, and 2012,2015, respectively. No single client accounted for more than 10% of our revenues in 2014, 2013,2017, 2016, or 2012.2015. Our clients typically retain us on an engagement-by-engagement basis, rather than under fixed-term contracts; thecontracts. The volume of work performed for any particular client is likely to vary from year to year, and a major client in one fiscal period may not require or may decide not to use our services in any subsequent fiscal period. Moreover, a large portion of our new engagements comes from existing clients. Accordingly, the failure to obtain new large engagements or multiple engagements from existing or new clients could have a material adverse effect on the amount of revenues we generate.

In addition, almost all of our engagement agreements can be terminated by our clients with little or no notice and without penalty. For example, in engagements related to litigation, if the litigation were to be settled, our engagement for those services would no longer be necessary and, therefore, would be terminated. In client engagements that involve multiple engagements or stages, there is a risk that a client may choose not to retain us for additional stages of an engagement or that a client will cancel or delay additional planned engagements. For clients in bankruptcy, a bankruptcy court could elect not

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to retain our interim management consultants, terminate our retention, require us to reduce our fees for the duration of an engagement, or elect not to approve claims against fees earned by us prior to or after the bankruptcy filing.

Terminations of engagements, cancellations of portions of the project plan, delays in the work schedule, or reductions in fees could result from factors unrelated to our services. When engagements are terminated or reduced, we lose the associated future revenues, and we may not be able to recover associated costs or redeploy the affected employees in a timely manner to minimize the negative impact. In addition, our clients’ ability to terminate engagements with little or no notice and without penalty makes it difficult to predict our operating results in any particular fiscal period.

Our engagements could result in professional liability, which could be very costly and hurt our reputation.

Our engagements typically involve complex analyses and the exercise of professional judgment. As a result, we are subject to the risk of professional liability. From time to time, lawsuits with respect to our work are pending. Litigation alleging that we performed negligently or breached any other obligations could expose us to significant legal liabilities and, regardless of outcome, is often very costly, could distract our management, could damage our reputation, and could harm our financial condition and operating results. In addition, certain of our engagements, including interim management engagements and corporate restructurings, involve greater risks than other consulting engagements. We are not always able to include provisions in our engagement agreements that are designed to limit our exposure to legal claims relating to our services. While we attempt to identify and mitigate our exposure with respect to liability arising out of our consulting engagements, these efforts may be ineffective and an actual or alleged error or omission on our part or the part of our client or other third parties in one or more of our engagements could have an adverse impact on our financial condition and results of operations. In addition, we carry professional liability insurance to cover many of these types of claims, but the policy limits and the breadth of coverage may be inadequate to cover any particular claim or all claims plus the cost of legal defense. For example, we provide services on engagements in which the impact on a client may substantially exceed the limits of our errors and omissions insurance coverage. If we are found to have professional liability with respect to work performed on such an engagement, we may not have sufficient insurance to cover the entire liability.

The consulting services industry is highly competitive and we may not be able to compete effectively.

The consulting services industry in which we operate includes a large number of participants and is intensely competitive. We face competition from other business operations and financial consulting firms, general management consulting firms, the consulting practices of major accounting firms, regional and specialty consulting firms, and the internal professional resources of organizations, and legal services providers.organizations. In addition, because there are relatively low barriers to entry, we expect to continue to face additional competition from new entrants into the business operations and financial consulting industries. Competition in several of the sectors in which we operate is particularly intense as many of our competitors are seeking to expand their market share in these sectors. Many of our competitors have a greater national and international presence, as well as have a significantly greater number of personnel, financial, technical, and marketing resources. In addition, these competitors may generate greater revenues and have greater name recognition than we do. Some of our competitors may also have lower overhead and other costs and, therefore, may be able to more effectively compete through lower cost service offerings. Our ability to compete also depends in part on the ability of our competitors to hire, retain, and motivate skilled professionals, the price at which others offer comparable services, the ability of our competitors to offer new and valuable products and services to clients, and our competitors’ responsiveness to their clients. If we are unable to compete successfully with our existing competitors or with any new competitors, our financial results will be adversely affected.

Conflicts of interest could preclude us from accepting engagements thereby causing decreased utilization and revenues.

We provide services in connection with bankruptcy litigation, and other proceedings that usually involve sensitive client information and frequently are adversarial. In connection with bankruptcy proceedings, we are required by law to be “disinterested”"disinterested" and may not be able to provide multiple services to a particular client. In litigation, we would generally be prohibited from performing services in the same litigation for the party adverse to our client. In addition, our engagement agreement with a client or other business reasons may preclude us from accepting engagements from time to time with

our clients’ the client's competitors or adversaries. As we adjust the size of our operations and the complement of consulting services, the number of conflict situations may continue to increase. Moreover, in many industries in which we provide services, there has been a continuing trend toward business consolidations and strategic alliances. These consolidations and alliances reduce the number of companies that may seek our services and increase the chances that we will be unable to accept new engagements as a result of conflicts of interest. If we are unable to accept new engagements for any reason, our consultants may become underutilized, which would adversely affect our revenues and results of operations in future periods.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.PROPERTIES.

As of December 31, 2014,2017, our principal executive offices in Chicago, Illinois, consisted of approximately 160,000134,000 square feet of office space, under a lease expiring September 2024. We have one five-year renewal option that will allow us to continue to occupy this office space until September 2029. This facility accommodates our executive team and corporate departments, as well as professionals in eachour practices.

16
Table of our practices. Contents


Additionally, we occupy leased facilities for our other domestic and international offices, including those located in the following major metropolitan areas: Atlanta, Georgia;cities: Boston, Massachusetts; Buffalo, New York; Dallas, Texas; Denver, Colorado; Houston, Texas; London, United Kingdom; Madison, Wisconsin; New York City, New York; Pensacola, Florida; Portland, Oregon; Toronto, Canada; andSan Francisco, California; Washington, D.C. We also occupy leased facilities for our ten discovery centers located in Charlotte, North Carolina; Chicago, Illinois; Gurgaon,; Bangalore, India; Houston, Texas;Dubai, United Arab Emirates; London, United Kingdom; Miramar, Florida; Morrisville, North Carolina; New York City, New York; San Francisco, California;Luasanne, Switzerland; Riyadh, Saudi Arabia; Singapore; St. Ives, United Kingdom; and Washington, D.C., totaling approximately 1,600 workstations.Toronto, Canada. We do not own any real property. We believe that our leased facilities are adequate to meet our current needs and that additional facilities are available for lease to meet future needs.

ITEM 3.LEGAL PROCEEDINGS.

Tamalluk Business Development LLC v. Huron Consulting Services LLC (Abu Dhabi Court of First Instance)

On August 22, 2013, we learned that Tamalluk Business Development LLC, who was Huron’s agent in Abu Dhabi, and its principal, Mubarak Ahmad Bin Hamouda Al Dhaheri, filed a claim against Huron Consulting Services LLC in the Abu Dhabi Court of First Instance. The lawsuit alleges that under the agency agreement, Tamalluk was entitled to a commission on certain amounts that Huron collected from Abu Dhabi clients, and that Huron breached the agreement with Tamalluk and caused damages by declining to enter into a client engagement in Abu Dhabi and subsequently terminating the agency agreement with Tamalluk. Claimants allege they are entitled to $50 million for damage to reputation and defamation and another $50 million for breach of contract. Huron submitted its written response on September 25, 2013. The response states that Huron had the right to terminate the agency agreement with Tamalluk, and Huron had the sole discretion whether to accept or reject an engagement. Huron also filed a counterclaim on October 10, 2013 seeking a judicial order to permit the cancellation of Huron’s commercial license to allow Huron to cease doing business in Abu Dhabi. On December 17, 2013, the Abu Dhabi court ruled in Huron’s favor on all claims and held that Huron permissibly terminated the contract with Tamalluk and Huron does not owe Tamalluk any compensation related to Tamalluk’s claims. In addition, the court terminated the Local Sponsorship Agreement as requested by Huron in its counterclaim. Tamalluk appealed the decision, and on March 18, 2014, the appellate court upheld the decision in Huron’s favor. Tamalluk filed an appeal on May 18, 2014 to the Court of Cassation, which is the highest court in Abu Dhabi. On October 21, 2014, the Court of Cassation referred the case back to the appellate court for consideration of Claimants’ allegations relating to damage to reputation and defamation, which the appellate court had not previously addressed. The Court of Cassation ruled in Huron’s favor on the other claims and on Huron’s counterclaim. We continue to believe that the remaining claims are without merit and intend to vigorously defend ourselves in this matter.

Physiotherapy Associates

In 2011, Huron was engaged to design and implement new processes, software, tools, and techniques to assist Physiotherapy Associates, Inc. (“PA”) in reducing older accounts receivable levels and optimizing cash flow. The engagement agreement specifically provides that Huron will not be auditing financial statements and that Huron’s services are not designed, and should not be relied on, to disclose weaknesses in internal controls, financial statement errors, irregularities, illegal acts, or disclosure deficiencies.

In November 2013, Physiotherapy Holdings, Inc., and certain subsidiaries and affiliates (including PA) filed a voluntary petition for bankruptcy pursuant to Chapter 11 of the Bankruptcy Code, which resulted in part from claims related to an alleged overstatement of PA’s revenues and profitability in connection with the sale of PA in 2012. The Joint Prepackaged Plan of Reorganization (the “Plan”), which was confirmed by the Bankruptcy Court in December 2013, establishes and funds a Litigation Trust to pursue certain claims on behalf of certain beneficiaries. The Plan discloses a lengthy list of potential defendants and witnesses regarding these claims, including but not limited to the debtors’ officers, directors, certain employees, former owners, investment bankers, auditors, and various consultants. This list of potential defendants and witnesses includes Huron, as well as three of Huron’s current or former employees.

The Plan suggests that Huron, among others, was involved in “actively marketing PA” for sale and provided opinions to unnamed parties “defending the quality of PA’s earnings.” The Plan further states that the damages to be sought by the Litigation Trust will exceed $300 million. The Litigation Trust has not specified against which potential defendants it will bring claims, if any. We believe the Litigation Trust’s allegations with respect to Huron are without merit and will vigorously defend ourselves should any claim arising out of these alleged facts and circumstances be asserted against us by the Litigation Trust.

From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. As of the date of this Annual Report on Form 10-K, we are not a party to any other litigation or legal proceeding that, in the current opinion of management, could have a material adverse effect on our financial position or results of operations. However, due to the risks and uncertainties inherent in legal proceedings, actual results could differ from current expected results.

ITEM
ITEM 4.MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is traded on The NASDAQ Global Select Market under the symbol “HURN.” The following table sets forth, on a per share basis and for the periods indicated, the high and low sale prices for our common stock as reported by The NASDAQ Stock Market.

   High   Low 

2013:

    

First Quarter

  $41.01    $31.55  

Second Quarter

  $46.48    $38.53  

Third Quarter

  $59.39    $44.20  

Fourth Quarter

  $65.28    $52.43  

2014:

    

First Quarter

  $70.41    $59.27  

Second Quarter

  $72.07    $57.18  

Third Quarter

  $72.66    $59.67  

Fourth Quarter

  $72.80    $59.54  

 High Low
2016   
First Quarter$60.00
 $46.00
Second Quarter$62.34
 $54.14
Third Quarter$65.00
 $57.23
Fourth Quarter$60.64
 $41.20
2017   
First Quarter$49.25
 $39.15
Second Quarter$46.85
 $40.50
Third Quarter$43.70
 $29.53
Fourth Quarter$42.50
 $32.40
Holders

As of February 16, 2015,21, 2018, there were 776486 registered holders of record of Huron’s common stock. A number of the Company’sHuron’s stockholders havehold their shares in street name; therefore, the Company believes that there are substantially more beneficial owners of its common stock.

Dividends

We have not declared or paid dividends on our common stock since we became a public company. Our board of directors re-evaluates this policy periodically. Any determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our results of operations, financial condition, capital requirements, terms of our financing arrangements, and such other factors as the board of directors deems relevant. In addition, the amount of dividends we may pay is subject to the restricted payment provisions of our 2011 Credit Agreement restricts dividends to an amount up to $50 million plus 50%senior secured credit facility. See the Liquidity and Capital Resources section under Part II—Item 7. "Management's Discussion and Analysis of cumulative consolidated net income fromFinancial Condition and Results of Operations" for further information on the closing daterestricted payment provisions of the 2011 Credit Agreement plus 50%our senior secured credit facility.

17
Table of the net cash proceeds from equity issuances.

Contents



Securities Authorized for Issuance Under Equity Compensation Plans

The information required by this item appears under “ItemItem 12. Security"Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters” included elsewhere in this Annual Report on Form 10-K.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Our Stock Ownership Participation Program, 2012 Omnibus Incentive Plan, and our 2004 Omnibus Stock Plan, which was replaced by the 2012 Omnibus Incentive Plan, on a prospective basis, permit the netting of common stock upon vesting of restricted stock awards to

satisfy individual tax withholding requirements. During the quarter ended December 31, 2014,2017, we reacquired 2,7539,832 shares of common stock with a weighted average fair market value of $69.71$40.28 as a result of such tax withholdings.

In FebruaryOctober 2014, our board of directors authorized a share repurchase program permitting the Companypursuant to which we may, from time to time, repurchase up to $50$125 million of itsour common stock through February 28, 2015 (the “February 2014 Share Repurchase Program”). In October 2014, we completed the February 2014 Share Repurchase Program.

In October 2014, our board of directors authorized an additional share repurchase program permitting the Company to repurchase up to $50 million of its common stock throughand which expires on October 31, 20152018 (the “October 2014 Share"Share Repurchase Program”Program"). The amount and timing of the repurchases will be determined by management and will depend on a variety of factors, including the trading price of the Company’sour common stock, capacity under our line of credit, general market and business conditions, and applicable legal requirements.

Period

  Total Number of
Shares
Purchased(1)		   Average Price
Paid Per Share		   Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs		   Dollar Value of
Shares that May
Yet Be Purchased
under the Plans or
Programs(2)		 

October 1, 2014 – October 31, 2014

   79,752    $61.52     79,752    $50,000,000  

November 1, 2014 – November 30, 2014

   69    $69.61     —      $50,000,000  

December 1, 2014 – December 31, 2014

   2,684    $69.71     —      $50,000,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   82,505    $61.79     79,752    $50,000,000  
  

 

 

   

 

 

   

 

 

   

 

 

 


The following table provides information with respect to purchases we made of our common stock during the fourth quarter of 2017.
Period 
Total Number 
of Shares Purchased (1)
 
Average Price
Paid Per Share
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 
Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (2)
October 1, 2017 – October 31, 2017 354
 $35.85
 —
 $35,143,546
November 1, 2017 – November 30, 2017 —
 $—
 —
 $35,143,546
December 1, 2017 – December 31, 2017 9,478
 $40.45
 —
 $35,143,546
Total 9,832
 $40.28
 —
  
(1)The number of shares repurchased includes 69for each period represents shares in November 2014 and 2,684 shares in December 2014 to satisfy employee tax withholding requirements. These shares do not reduce the repurchase authority under the February 2014 or October 2014 Share Repurchase Programs.Program.

(2)As of the end of the period.


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Table of Contents


ITEM 6.SELECTED FINANCIAL DATA.

We have derived the following selected consolidated financial data as of and for the years ended December 31, 20102013 through 20142017 from our Consolidated Financial Statements.consolidated financial statements. The following data reflects the business acquisitions that we have completed through December 31, 2014.2017. The results of operations for acquired businesses have been included in our results of operations since the date of their acquisitions. See Note 4 "Acquisitions" within the notes to our consolidated financial statements for additional information regarding our acquisitions. The following data also reflects the classification of discontinued operations as of December 31, 2014.operations. See Note 3 "Discontinued Operations" within the notes to our consolidated financial statements for additional information regarding our discontinued operations. The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with “ItemItem 7. Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K.

Consolidated Statements of Operations Data

(in thousands, except per share data):

 Year Ended December 31, 
 2014  2013  2012  2011  2010 

Revenues and reimbursable expenses:

     

Revenues

 $811,332   $720,522   $625,961   $606,314   $515,668  

Reimbursable expenses

  77,875    67,267    55,764    51,580    43,350  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenues and reimbursable expenses

  889,207    787,789    681,725    657,894    559,018  

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses) (1):

     

Direct costs

  500,171    443,539    384,884    376,084    317,025  

Amortization of intangible assets and software development costs

  4,888    3,091    3,809    5,364    4,125  

Reimbursable expenses

  77,856    67,320    55,772    51,673    43,223  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total direct costs and reimbursable expenses

  582,915    513,950    444,465    433,121    364,373  

Operating expenses and other operating gains:

     

Selling, general and administrative expenses

  155,434    138,538    125,266    119,325    111,530  

Restructuring charges

  3,438    761    4,004    3,829    4,062  

Restatement related expenses

  —      —      1,785    4,579    8,666  

Litigation and other (gains) losses

  (590)   (5,875)   1,150    1,096    17,316  

Depreciation and amortization(1)

  25,014    20,510    18,529    18,524    18,372  

Goodwill impairment charges

  —      —      13,083    21,973    —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses and other operating gains

  183,296    153,934    163,817    169,326    159,946  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

  122,996    119,905    73,443    55,447    34,699  

Other income (expense), net:

     

Interest expense, net of interest income

  (8,741)   (6,518)   (8,223)   (12,259)   (14,402) 

Other income (expense), net

  353    252    428    (78)   262  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total other expense, net

  (8,388)   (6,266)   (7,795)   (12,337)   (14,140) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Income from continuing operations before income tax expense

  114,608    113,639    65,648    43,110    20,559  

Income tax expense

  35,557    47,176    29,695    21,629    13,132  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income from continuing operations

  79,051    66,463    35,953    21,481    7,427  

Income (loss) from discontinued operations (including (loss) gain on disposal of ($1.9) million and $1.2 million in 2011 and 2010, respectively), net of tax

  —      (30)   475    (962)   1,098  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

 $79,051   $66,433   $36,428   $20,519   $8,525  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated Statements of Operations Data

(in thousands, except per share data):

 Year Ended December 31, 
 2014  2013  2012  2011  2010 

Net earnings per basic share:

     

Net income from continuing operations

 $3.52   $2.98   $1.64   $1.01   $0.36  

Income (loss) from discontinued operations, net of tax

  —      —      0.02    (0.05)   0.05  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

 $3.52   $2.98   $1.66   $0.96   $0.41  

Net earnings per diluted share:

     

Net income from continuing operations

 $3.45   $2.92   $1.61   $0.99   $0.36  

Income (loss) from discontinued operations, net of tax

  —      —     $0.02   $(0.04)  $0.05  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

 $3.45   $2.92   $1.63   $0.95   $0.41  

Weighted average shares used in calculating net earnings per share:

     

Basic

  22,431    22,322    21,905    21,324    20,546  

Diluted

  22,925    22,777    22,285    21,676    20,774  

Consolidated Balance Sheet Data (in thousands):

 As of December 31, 
 2014  2013  2012  2011  2010 

Cash and cash equivalents(2)

 $256,872   $58,131   $25,162   $5,080   $6,347  

Working capital

 $309,783   $99,130   $83,647   $41,822   $34,455  

Total assets

 $1,155,914   $885,600   $787,900   $786,644   $788,983  

Long-term debt(3)

 $327,852   $143,798   $192,500   $193,500   $257,000  

Total stockholders’ equity(4)

 $600,634   $530,264   $445,321   $396,789   $348,372  

Consolidated Statements of Operations
(in thousands, except per share data):
 Year Ended December 31,
 2017 2016 2015 2014 2013
Revenues and reimbursable expenses:          
Revenues $732,570
 $726,272
 $699,010
 $627,686
 $538,128
Reimbursable expenses 75,175
 71,712
 70,013
 73,847
 64,623
Total revenues and reimbursable expenses 807,745
 797,984
 769,023
 701,533
 602,751
Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses) (1):
          
Direct costs 454,806
 437,556
 401,915
 384,277
 323,398
Amortization of intangible assets and software development costs 10,932
 15,140
 16,788
 4,590
 2,660
Reimbursable expenses 75,436
 71,749
 69,932
 73,855
 64,665
Total direct costs and reimbursable expenses 541,174
 524,445
 488,635
 462,722
 390,723
Operating expenses and other losses (gains), net:          
Selling, general and administrative expenses 175,364
 160,204
 157,902
 132,799
 116,976
Restructuring charges 6,246
 9,592
 3,329
 2,811
 305
Litigation and other (gains) losses, net 1,111
 (1,990) (9,476) (590) (5,875)
Depreciation and amortization (1)
 38,213
 31,499
 25,135
 15,451
 10,723
Goodwill impairment charges 253,093
 —
 —
 —
 —
Total operating expenses and other losses (gains), net 474,027
 199,305
 176,890
 150,471
 122,129
Operating income (loss) (207,456) 74,234
 103,498
 88,340
 89,899
Other income (expense), net:          
Interest expense, net of interest income (18,613) (16,274) (18,136) (8,679) (6,475)
Other income (expense), net 3,565
 1,197
 (1,797) 400
 353
Total other expense, net (15,048) (15,077) (19,933) (8,279) (6,122)
Income (loss) from continuing operations before taxes (222,504) 59,157
 83,565
 80,061
 83,777
Income tax expense (benefit) (51,999) 19,677
 21,670
 33,059
 32,200
Net income (loss) from continuing operations (170,505) 39,480
 61,895
 47,002
 51,577
Income (loss) from discontinued operations, net of tax 388
 (1,863) (2,843) 32,049
 14,856
Net income (loss) $(170,117) $37,617
 $59,052
 $79,051
 $66,433


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Consolidated Statements of Operations
(in thousands, except per share data):
 Year Ended December 31,
 2017 2016 2015 2014 2013
Net earnings (loss) per basic share:          
Net income (loss) from continuing operations $(7.95) $1.87
 $2.80
 $2.10
 $2.31
Income (loss) from discontinued operations, net of tax 0.02
 (0.09) (0.13) 1.42
 0.67
Net income (loss) $(7.93) $1.78
 $2.67
 $3.52
 $2.98
Net earnings (loss) per diluted share:          
Net income (loss) from continuing operations $(7.95) $1.84
 $2.74
 $2.05
 $2.26
Income (loss) from discontinued operations, net of tax 0.02
 (0.08) (0.13) 1.40
 0.66
Net income (loss) $(7.93) $1.76
 $2.61
 $3.45
 $2.92
Weighted average shares used in calculating net earnings (loss) per share:          
Basic 21,439
 21,084
 22,136
 22,431
 22,322
Diluted 21,439
 21,424
 22,600
 22,925
 22,777
Consolidated Balance Sheet Data
(in thousands):
 As of December 31,
 2017 2016 2015 2014 2013
Cash and cash equivalents $16,909
 $17,027
 $58,437
 $256,872
 $58,131
Working capital $51,828
 $44,314
 $96,966
 $307,978
 $98,394
Total assets $1,036,928
 $1,153,215
 $1,159,543
 $1,148,475
 $883,223
Long-term debt, net of current portion $342,507
 $292,065
 $307,376
 $320,413
 $141,421
Total stockholders’ equity (2)
 $503,316
 $648,033
 $652,325
 $600,634
 $530,264
(1)Intangible assetsasset amortization relating to customer contracts, certain client relationships, software, and the document reviewer databasesoftware and amortization of software development costs isare presented as a component of total direct costs. Depreciation amortization of leasehold improvements, and amortization of other intangible assets amortization not classified as direct costs are presented as a component of operating expenses.

(2)Includes cash from discontinued operations of $76 thousand as of December 31, 2010.

(3)Consists of bank borrowings, convertible senior notes, and capital lease obligations, net of current portions.

(4)(2)We have not declared or paid dividends on our common stock in the periods presented above. See “ItemItem 5. Market"Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividends.”"


20
Table of Contents


ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read the following discussion and analysis of our financial condition and results of operations togetherin conjunction with the information under “PartPart II—Item 6. Selected"Selected Financial Data,”" and our historical audited Consolidated Financial Statements and related notes appearing under “PartPart II—Item 8. Financial"Financial Statements and Supplementary Data.”" The following discussion and analysis of our financial condition and results of operationsMD&A contains forward-looking statements and involves numerous risks and uncertainties, including, without limitation, those described under “PartPart I—Item 1A. Risk Factors”"Risk Factors" and “Forward-Looking Statements”"Forward-Looking Statements" of this Annual Report on Form 10-K. Actual results may differ materially from those contained in any forward-looking statements.

OVERVIEW

We are a leading providerglobal professional services firm committed to achieving sustainable results in partnership with its clients. We bring a depth of operational and financial consulting services. We help clients in diverse industries improve performance, transform the enterprise, reduce costs, leverage technology, process and review large amounts of complex data, address regulatory changes, recover from distress, and stimulate growth. Our professionals employ their expertise in finance,strategy, technology, operations, strategy,advisory services, and analytics and technology to provide our clients with specialized analyses and

customized advice and solutions that are tailored to address each client’s particular challenges and opportunities to deliver sustainabledrive lasting and measurable results. We provide consulting services to a wide variety of both financially soundresults in the healthcare, higher education, life sciences and distressed organizations, including healthcare organizations, leading academic institutions, Fortune 500 companies, governmental entities, and law firms.

commercial sectors.

We provide our services and manage our business under fivethree operating segments: Huron Healthcare, Huron Legal, Huron Education, and Life Sciences, Huron Business Advisory, and All Other.

During the first quarter of 2014, we reorganized our internal operating structure to better align our service offerings and moved our Enterprise Performance Management (“EPM”) practice (formerly referred to as Blue Stone International, a business that we acquired during the fourth quarter of 2013) from the Huron Education and Life Sciences segment to the Huron Business Advisory segment.

Advisory. See “PartPart I—Item 1. Business—"Business—Overview—Our Services” and Note 1618 “Segment Information” within the notes to our consolidated financial statements for a detailed discussion of our fivethree segments.

How We Generate Revenues

A large portion of our revenues is generated by our full-time consultants who provide consulting services to our clients and are billable to our clients based on the number of hours worked. A smaller portion of our revenues is generated by our other professionals, also referred to as full-time equivalents, allsome of whom work variable schedules as needed by our clients. OtherFull-time equivalent professionals consist of our cultural transformation consultants from our Studer Group solution, which include coaches and their support staff, specialized finance and operational consultants, and our document review and electronic data discovery groups, as well as full-time employees who provide software support and maintenance services to our clients. Our document review and electronic data discovery groups generate revenues primarily based on number of hours worked and units produced, such as pages reviewed or amount of data processed. We translate the hours that these other professionals work on client engagements into a full-time equivalent measure that we use to manage our business. We refer to our full-time consultants and other professionals collectively as revenue-generating professionals.

Revenues generated by our full-time consultants are primarily driven by the number of consultants we employ and their utilization rates, as well as the billing rates we charge our clients. Revenues generated by our other professionals, or full-time equivalents, are largely dependent on the number of consultants we employ, their hours worked, and billing rates charged, as well ascharged. Revenues generated by our coaches are largely dependent on the number of pages reviewedcoaches we employ and amountthe total value, scope, and terms of data processed in the case of our document review and electronic data discovery groups, respectively.

consulting contracts under which they provide services, which are primarily fixed-fee contracts.

We generate the majority of our revenues from providing professional services under four types of billing arrangements: time-and-expense, fixed-fee (including software license revenue), time-and-expense, performance-based, and software support and maintenance for the software we deploy.

Time-and-expense billing arrangements require the client to pay based on either the number of hours worked, the number of pages reviewed, or the amount of data processed by our revenue-generating professionals at agreed upon rates. We recognize revenues under time-and-expense billing arrangements as the related services are rendered. Time-and-expense engagements represented 43.6%, 44.9%, and 47.7% of our revenues in 2014, 2013, and 2012, respectively.

subscriptions.

In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for completing the engagements. It is the client’s expectation in these engagements that the pre-established fee will not be exceeded except in mutually agreed upon circumstances. We generally recognize revenues under fixed-fee billing arrangements using a proportionate performance approach, which is based on work completed to-date versus our estimates of the total services to be provided under the engagement.

We generate Contracts within our Studer Group solution are fixed-fee partner contracts with multiple deliverables, which primarily consist of coaching services, as well as seminars, materials and software products (“Partner Contracts”). Revenues for coaching services and software products are generally recognized on a straight-line basis over the length of the contract. All other revenues from licensing two types of proprietaryunder Partner Contracts are recognized at the time the service is provided.

Fixed-fee arrangements also include software to clients:licenses for our revenue cycle management software and research administration and compliance software. Licenses for our revenue cycle management software are

sold only as a component of our consulting projects, and the services we provide are essential to the functionality of the software. Therefore, revenues from these software licenses are recognized over the term of the related consulting services contract, which are typically fixed-fee.contract. License revenue from our research administration and compliance software is generally recognized in the month in which the software is delivered.

For

Fixed-fee engagements represented 46.7%, 47.4%, and 58.0% of our revenues for the years ended December 31, 2014, 2013,2017, 2016, and 2012, fixed-fee2015, respectively.
Time-and-expense billing arrangements require the client to pay based on the number of hours worked by our revenue-generating professionals at agreed upon rates. Time-and-expense arrangements also include certain speaking engagements, (including software license revenue)conferences, and publications purchased by our clients outside of Partner Contracts within our Studer Group solution. We recognize revenues under time-and-expense billing arrangements as the related services or publications are provided. Time-and-expense engagements represented approximately 39.6%43.0%, 37.2%38.7%, and 34.7%28.7% of our revenues in 2017, 2016, and 2015, respectively.


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In performance-based fee billing arrangements, fees are tied to the attainment of contractually defined objectives. We enter into performance-based engagements in essentially two forms. First, we generally earn fees that are directly related to the savings formally acknowledged by the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review. Second, we have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur. Often, performance-based fees supplement our time-and-expense or fixed-fee engagements. We do not recognize revenues under performance-based billing arrangements until all related performance criteria are met. Performance-based fee revenues represented 13.5%4.9%, 14.6%8.9%, and 14.2%8.7% of our revenues in 2014, 2013,2017, 2016, and 2012,2015, respectively. The level of performance-based fees earned may vary based on our clients’ risk sharing preferences and the mix of services we provide. Performance-based fee engagementsarrangements may cause significant variations in quarterly revenues, and operating results, depending onand average billing rates due to our level of execution and the timing of achievingachievement of the performance-based criteria.

Clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance. AnnualWe also generate subscription revenue from our cloud-based analytic tools and solutions. Software support and maintenance fee revenue isand subscription revenues are recognized ratably over the support or subscription period, which is generallyranges from one year.to three years. These fees are typically billed in advance and included in deferred revenues until recognized. SupportSoftware support and maintenance and subscription-based revenues represented 3.3%5.4%, 3.3%5.0%, and 3.4%4.6% of our revenues in 2014, 2013,2017, 2016, and 2012,2015, respectively.

Refer to Note 2 “Summary of Significant Policies” for anticipated changes to our revenue recognition accounting policy upon adoption of Accounting Standards Update 2014-09 Revenue from Contracts with Customers effective January 1, 2018.
Our quarterly results are impacted principally by our full-time consultants’ utilization rate, the billing rates we charge our clients, the number of our revenue-generating professionals who are available to work, and the amount of performance-based fees recognized, which often vary significantly between quarters. Our utilization rate can be negatively affected by increased hiring because there is generally a transition period for new professionals that results in a temporary drop in our utilization rate. Our utilization rate can also be affected by seasonal variations in the demand for our services from our clients. For example, during the third and fourth quarters of the year, vacations taken by our clients can result in the deferral of activity on existing and new engagements, which would negatively affect our utilization rate. The number of business work days is also affected by the number of vacation days taken by our consultants and holidays in each quarter. We typically have fewer business work days available in the fourth quarter of the year, which can impact revenues during that period.

Time-and-expense engagements do not provide us with a high degree of predictability as to performance in future periods. Unexpected changes in the demand for our services can result in significant variations in utilization and revenues and present a challenge to optimal hiring and staffing. Moreover, our clients typically retain us on an engagement-by-engagement basis, rather than under long-term recurring contracts. The volume of work performed for any particular client can vary widely from period to period.

Reimbursable expenses

Expenses

Reimbursable expenses that are billed to clients, primarily relating to travel and out-of-pocket expenses incurred in connection with engagements, are included in total revenues and reimbursable expenses, and typically an equivalent amount of these expenses are included in total direct costs and reimbursable expenses. Reimbursable expenses also include those subcontractors who are billed to our clients at cost. When billings do not specifically identify reimbursable expenses, we allocate the portion of the billings equivalent to these expenses to reimbursable expenses. We manage our business on the basis of revenues before reimbursable expenses. Weexpenses, which we believe this is the most accurate reflection of our services because it eliminates the effect of reimbursable expenses that we bill to our clients at cost.

Total direct costs

Direct Costs

Our most significant expenses are costs classified as total direct costs. These total direct costs primarily include salaries, performance bonuses, signing and retention bonuses, payroll taxes, and benefits for revenue-generating professionals, legal consulting facilities,

andas well as commissions, technology costs, as well asproduct and event costs, and fees paid to independent contractors that we retain to supplement our revenue-generating professionals, typically on an as-needed basis for specific client engagements. Direct costs also include share-based compensation, which represents the cost of restricted stock and performance-based share awards granted to our revenue-generating professionals. Compensation expense for restricted stock awards and performance-based share awards is recognized ratably using either the graded vestingstraight-line attribution method or the straight-linegraded vesting attribution method, as appropriate, over the requisite service period, which is generally three to four years. As a result of the granting of restricted stock awards, performance-based share awards, and anticipated future awards, share-based compensation expense may increase in the future. Total direct costs also include amortization of intangible assets, primarily relating to customer contracts, certain customer relationships, and technology and software acquired in business combinations, and a document reviewer database, as well as internally developed software costs.

Operating expensesExpenses and other operating gains

Other Losses (Gains), Net

Our operating expenses include selling, general and administrative expenses, which consist primarily of salaries, performance bonuses, payroll taxes, benefits, and share-based compensation for our support personnel. As a result of the granting of restricted stock awards and performance-based share awards and anticipated future awards, share-based compensation expense may increase in the future. Also included in this categoryoperating expenses are sales and marketing related expenses, rent and other office related expenses, professional fees, recruiting and training expenses, restructuring

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charges, and litigation and other gains and losses, and goodwill impairment charges.losses. Other operating expenses include depreciation and certain amortization expenses not included in total direct costs.

Segment results

Results

Segment operating income consists of the revenues generated by a segment, less the direct costs of revenue and selling, general and administrative costs that are incurred directly by the segment. Unallocated corporate costs include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment. These administrative function costs include corporate office support costs, certain office facility costs, costs relating to accounting and finance, human resources, legal, marketing, information technology, and Company-widecompany-wide business development functions, as well as costs related to overall corporate management.


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RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected segment and consolidated operating results and other operating data. Certain amounts reportedThe results of operations for acquired businesses have been included in our results of operations since the date of their respective acquisition.
During the second quarter of 2017, we reorganized our internal financial reporting structure by moving our Life Sciences practice from the Education and Life Sciences segment to the Business Advisory segment. The remaining Education and Life Sciences segment is now referred to as the Education segment. While our consolidated results have not been impacted, we have reclassified our historical segment information for consistent presentation.
During 2015, we wound down the businesses within our All Other operating segment, which consisted of our public sector consulting practice and our foreign consulting operations based in the prior year have been reclassified to conform to the newMiddle East. We did not generate any revenues from our All Other segment structure that was established in the first quarterduring 2016 and 2017.
 Year Ended December 31,
 2017 2016 2015
Segment and Consolidated Operating Results (in thousands):     
Healthcare:     
Revenues$356,909
 $424,912
 $446,887
Operating income$118,761
 $147,903
 $169,560
Segment operating income as a percentage of segment revenues33.3% 34.8% 37.9%
Education:     
Revenues$167,908
 $149,817
 $134,009
Operating income$40,318
 $38,310
 $32,246
Segment operating income as a percentage of segment revenues24.0% 25.6% 24.1%
Business Advisory:     
Revenues$207,753
 $151,543
 $116,892
Operating income$46,600
 $29,382
 $31,233
Segment operating income as a percentage of segment revenues22.4% 19.4% 26.7%
All Other:     
Revenues$—
 $—
 $1,222
Operating loss$—
 $—
 $(1,718)
Segment operating loss as a percentage of segment revenuesN/A
 N/A
 N/M
Total Company:     
Revenues$732,570
 $726,272
 $699,010
Reimbursable expenses75,175
 71,712
 70,013
Total revenues and reimbursable expenses$807,745
 $797,984
 $769,023
Statements of Operations reconciliation:     
Segment operating income$205,679
 $215,595
 $231,321
Items not allocated at the segment level:     
Other operating expenses120,718
 111,852
 112,164
Litigation and other losses (gains), net1,111
 (1,990) (9,476)
Depreciation and amortization38,213
 31,499
 25,135
Goodwill impairment charges (1)
253,093
 —
 —
Total operating income (loss)(207,456) 74,234
 103,498
Other expense, net15,048
 15,077
 19,933
Income (loss) from continuing operations before taxes(222,504) 59,157
 83,565
Income tax expense (benefit)(51,999) 19,677
 21,670
Net income (loss) from continuing operations$(170,505) $39,480
 $61,895
Earnings (loss) per share from continuing operations     
Basic$(7.95) $1.87
 $2.80
Diluted$(7.95) $1.84
 $2.74

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Table of 2014 as a result of the reorganization of our internal operating structure. For further information on our segments and the reorganization of our internal operating structure, see Note 16 “Segment Information” within the notes to our consolidated financial statements.

Segment and Consolidated Operating Results

(in thousands):

  Year Ended December 31, 
  2014  2013  2012 

Revenues and reimbursable expenses:

    

Huron Healthcare

  $415,803   $358,766   $288,762  

Huron Legal

   183,646    182,394    184,918  

Huron Education and Life Sciences

   145,962    143,609    129,427  

Huron Business Advisory

   62,840    34,669    22,019  

All Other

   3,081    1,084    835  
  

 

 

  

 

 

  

 

 

 

Total revenues

   811,332    720,522    625,961  

Total reimbursable expenses

   77,875    67,267    55,764  
  

 

 

  

 

 

  

 

 

 

Total revenues and reimbursable expenses

  $889,207   $787,789   $681,725  
  

 

 

  

 

 

  

 

 

 

Operating income (loss):

    

Huron Healthcare

  $159,015   $141,870   $110,864  

Huron Legal

   46,164    41,964    44,317  

Huron Education and Life Sciences

   36,131    35,966    38,283  

Huron Business Advisory

   14,035    7,211    1,888  

All Other

   (2,466)   (1,256)   (2,285) 
  

 

 

  

 

 

  

 

 

 

Total segment operating income

   252,879    225,755    193,067  

Operating expenses and gains not allocated to segments(1)

   129,883    105,850    119,624  
  

 

 

  

 

 

  

 

 

 

Total operating income

  $122,996   $119,905   $73,443  
  

 

 

  

 

 

  

 

 

 

Other Operating Data (excluding All Other):

  Year Ended December 31, 
  2014   2013   2012 

Number of full-time billable consultants (at period end)(2):

      

Huron Healthcare

   1,099     966     856  

Huron Legal

   119     141     139  

Huron Education and Life Sciences

   418     413     413  

Huron Business Advisory

   205     155     62  
  

 

 

   

 

 

   

 

 

 

Total

   1,841     1,675     1,470  

Average number of full-time billable consultants (for the period)(2):

      

Huron Healthcare

   1,070     907     819  

Huron Legal

   130     146     126  

Huron Education and Life Sciences

   417     427     368  

Huron Business Advisory

   180     85     67  
  

 

 

   

 

 

   

 

 

 

Total

   1,797     1,565     1,380  

Other Operating Data (excluding All Other):

  Year Ended December 31, 
  2014  2013  2012 

Full-time billable consultant utilization rate(3):

    

Huron Healthcare

   78.3%   83.0%   79.5% 

Huron Legal

   63.5%   60.8%   67.4% 

Huron Education and Life Sciences

   71.3%   66.6%   73.1% 

Huron Business Advisory

   68.0%   72.7%   56.3% 

Total

   74.6%   75.9%   75.6% 

Full-time billable consultant average billing rate per hour(4):

    

Huron Healthcare

  $248   $233   $224  

Huron Legal(6)

  $242   $231   $240  

Huron Education and Life Sciences

  $219   $216   $212  

Huron Business Advisory

  $255   $285   $302  

Total(6)

  $242   $232   $225  

Revenue per full-time billable consultant (in thousands):

    

Huron Healthcare

  $363   $369   $325  

Huron Legal(6)

  $280   $254   $299  

Huron Education and Life Sciences

  $292   $272   $295  

Huron Business Advisory

  $330   $392   $318  

Total(6)

  $337   $333   $314  

Average number of full-time equivalents (for the period)(5):

    

Huron Healthcare

   60    53    57  

Huron Legal

   1,051    1,062    1,054  

Huron Education and Life Sciences

   43    44    33  

Huron Business Advisory

   9    2    2  
  

 

 

  

 

 

  

 

 

 

Total

   1,163    1,161    1,146  

Revenue per full-time equivalent (in thousands):

    

Huron Healthcare

  $461   $449   $396  

Huron Legal(6)

  $140   $137   $140  

Huron Education and Life Sciences

  $558   $620   $643  

Huron Business Advisory

  $390   $530   $350  

Total(6)

  $174   $170   $168  

Contents


 Year Ended December 31,
 2017 2016 2015
Other Operating Data (excluding All Other):     
Number of full-time billable consultants (at period end) (2):
     
Healthcare778
 888
 1,037
Education549
 468
 387
Business Advisory809
 547
 397
Total2,136
 1,903
 1,821
Average number of full-time billable consultants (for the period) (2):
     
Healthcare796
 998
 1,085
Education509
 437
 351
Business Advisory740
 486
 334
Total2,045
 1,921
 1,770
Full-time billable consultant utilization rate (3):
     
Healthcare78.4% 77.1% 77.9%
Education72.8% 70.6% 74.6%
Business Advisory71.7% 73.1% 76.2%
Total74.5% 74.6% 76.9%
Full-time billable consultant average billing rate per hour (4):
     
Healthcare$206
 $210
 $217
Education$213
 $219
 $216
Business Advisory (5)
$193
 $208
 $245
Total$203
 $212
 $222
Revenue per full-time billable consultant (in thousands):     
Healthcare$295
 $300
 $313
Education$291
 $293
 $317
Business Advisory$268
 $293
 $335
Total$284
 $297
 $318
Average number of full-time equivalents (for the period) (6):
     
Healthcare213
 203
 179
Education35
 38
 39
Business Advisory20
 20
 12
Total268
 261
 230
Revenue per full-time equivalent (in thousands):     
Healthcare$576
 $614
 $604
Education$564
 $572
 $587
Business Advisory$464
 $453
 $418
Total$566
 $596
 $591
(1)Operating expenses not allocated to the segments include the goodwill impairment charges, among others. The non-cash goodwill impairment charges are not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment performance.

(2)Consists of our full-time professionals who provide consulting services and generate revenues based on the number of hours worked.

(3)Utilization rate for our full-time billable consultants is calculated by dividing the number of hours all of our full-time billable consultants worked on client assignments during a period by the total available working hours for all of these consultants during the same period, assuming a forty-hour work week, less paid holidays and vacation days.

(4)Average billing rate per hour for our full-time billable consultants is calculated by dividing revenues for a period by the number of hours worked on client assignments during the same period.

(5)
The Business Advisory segment includes our India Enterprise Solutions and Analytics practice, formerly known as Rittman Mead Consulting Private Limited, a business that we acquired in July 2015. The average billing rate per hour for this practice is lower than our overall average billing rate per hour for the Business Advisory segment. Absent the impact of our India Enterprise Solutions and Analytics practice, the average billing rate per hour for Business Advisory for the years ended December 31, 2017, 2016, and 2015 would have been $233, $235, and $267, respectively.
(6)Consists of projectcultural transformation consultants within our Studer Group solution, which include coaches and contractorstheir support staff, consultants who work variable schedules as needed by our clients, and generate revenues primarily based on number of hours worked and units produced, such as pages reviewed and data processed. Also includes full-time employees who provide software support and maintenance services to our clients.

(6)During the second quarter of 2014, we revised our methodology for allocating revenue between our billable consultants and our full-time equivalents in our Huron Legal segment to better reflect the nature of the work being provided. Operating data for the year ended December 31, 2014 and 2013, as presented above, reflects this change. Operating data for the year ended December 31, 2012 was not impacted.

N/M - Not meaningful
N/A - Not applicable

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Non-GAAP Measures

We also assess our results of operations using certain non-GAAP financial measures. These non-GAAP financial measures differ from GAAP because the non-GAAP financial measures we calculate to measure Adjusted earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”("EBITDA"), Adjustedadjusted EBITDA, adjusted EBITDA as a percentage of revenues, adjusted net income from continuing operations, and Adjustedadjusted diluted earnings per share from continuing operations exclude a number of items required by GAAP, each discussed below. These non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flows, or liquidity prepared in accordance with GAAP. Our non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how we define our non-GAAP financial measures.

Our management uses the non-GAAP financial measures to gain an understanding of our comparative operating performance, for example when comparing such results with previous periods or forecasts. These non-GAAP financial measures are used by management in their financial and operating decision making because management believes they reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons. Management also uses these non-GAAP financial measures when publicly providing our business outlook, for internal management purposes, and as a basis for evaluating potential acquisitions and dispositions. We believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating Huron’s current operating performance and future prospects in the same manner as management does and in comparing in a consistent manner Huron’s current financial results with Huron’s past financial results.

The reconciliations of these financial measures from GAAP to non-GAAP are as follows (in thousands)thousands, except per share amounts):

   Year Ended December 31, 
   2014  2013  2012 

Revenues

  $811,332   $720,522   $625,961  
  

 

 

  

 

 

  

 

 

 

Net income from continuing operations

  $79,051   $66,463   $35,953  

Add back:

    

Income tax expense

   35,557    47,176    29,695  

Interest and other expenses

   8,388    6,266    7,795  

Depreciation and amortization

   29,902    23,601    22,338  
  

 

 

  

 

 

  

 

 

 

Earnings before interest, taxes, depreciation and amortization (EBITDA)

   152,898    143,506    95,781  

Add back:

    

Restructuring charges

   3,438    761    4,004  

Restatement related expenses

   —      —      1,785  

Litigation and other (gains) losses

   (590)   (5,875)   1,150  

Goodwill impairment charge

   —      —      13,083  
  

 

 

  

 

 

  

 

 

 

Adjusted EBITDA

  $155,746   $138,392   $115,803  
  

 

 

  

 

 

  

 

 

 

Adjusted EBITDA as a percentage of revenues

   19.2%   19.2%   18.5% 
  

 

 

  

 

 

  

 

 

 

   Year Ended December 31, 
   2014  2013  2012 

Net income from continuing operations

  $79,051   $66,463   $35,953  
  

 

 

  

 

 

  

 

 

 

Weighted average shares—diluted

   22,925    22,777    22,285  

Diluted earnings per share from continuing operations

  $3.45   $2.92   $1.61  
  

 

 

  

 

 

  

 

 

 

Add back:

    

Amortization of intangible assets

   11,101    6,798    6,987  

Restructuring charges

   3,438    761    4,004  

Restatement related expenses

   —      —      1,785  

Litigation and other (gains) losses

   (590)   (5,875)   1,150  

Non-cash interest on convertible notes

   2,139    —      —    

Goodwill impairment charges

   —      —      13,083  

Tax effect

   (6,435)   (674)   (10,737) 

Net tax benefit related to “check-the-box” election

   (10,244)   —      —    
  

 

 

  

 

 

  

 

 

 

Total adjustments, net of tax

   (591)   1,010    16,272  
  

 

 

  

 

 

  

 

 

 

Adjusted net income from continuing operations

  $78,460   $67,473   $52,225  
  

 

 

  

 

 

  

 

 

 

Adjusted diluted earnings per share from continuing operations

  $3.42   $2.96   $2.34  
  

 

 

  

 

 

  

 

 

 

 Year Ended December 31,
 2017 2016 2015
Revenues$732,570
 $726,272
 $699,010
Net income (loss) from continuing operations$(170,505) $39,480
 $61,895
Add back:     
Income tax expense (benefit)(51,999) 19,677
 21,670
Interest expense, net of interest income18,613
 16,274
 18,136
Depreciation and amortization49,145
 46,639
 41,923
Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)(154,746) 122,070
 143,624
Add back:     
Restructuring charges6,246
 9,592
 3,329
Litigation and other losses (gains), net1,111
 (1,990) (9,476)
Goodwill impairment charges253,093
 —
 —
Other non-operating expense (income)(696) —
 —
Foreign currency transaction losses (gains), net(434) (11) 1,640
Adjusted EBITDA$104,574
 $129,661
 $139,117
Adjusted EBITDA as a percentage of revenues14.3% 17.9% 19.9%

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 Year Ended December 31,
 2017 2016 2015
Net income (loss) from continuing operations$(170,505) $39,480
 $61,895
Weighted average shares - diluted21,439
 21,424
 22,600
Diluted earnings (loss) per share from continuing operations$(7.95) $1.84
 $2.74
Add back:     
Amortization of intangible assets35,027
 33,108
 28,696
Restructuring charges6,246
 9,592
 3,329
Litigation and other losses (gains), net1,111
 (1,990) (9,476)
Goodwill impairment charges253,093
 —
 —
Non-cash interest on convertible notes7,851
 7,488
 7,141
Other non-operating income, net(696) —
 —
Tax effect(91,557) (18,942) (11,698)
Tax expense related to the enactment of Tax Cuts and Jobs Act of 20178,762
 —
 —
Tax benefit related to "check-the-box" election(2,728) —
 (12,336)
Total adjustments, net of tax217,109
 29,256
 5,656
Adjusted net income from continuing operations$46,604
 $68,736
 $67,551
Adjusted weighted average shares - diluted21,627
 21,424
 22,600
Adjusted diluted earnings per share from continuing operations$2.15
 $3.21
 $2.99
These non-GAAP financial measures include adjustments for the following items:

Amortization of intangible assets: We have excluded the effect of amortization of intangible assets from the calculation of adjusted net income from continuing operations presented above. Amortization of intangibles is inconsistent in its amount and frequency and is significantly affected by the timing and size of our acquisitions.
Restructuring charges: We have incurred charges due to the restructuring of various parts of our business. These restructuring charges have primarily consisted of costs associated with office space consolidations, including the accelerated depreciation of certain leasehold improvements, and severance charges. We have excluded the effect of the restructuring charges from our non-GAAP measures because the amount of each restructuring charge is significantly affected by the timing and size of the restructured business or component of a business.

Restatement related expenses:    We incurred significant expenses related to our 2009 financial statement restatement. We have excluded the effect of these restatement related expenses from our non-GAAP measures as a means to provide comparability with periods that were not impacted by the restatement related expenses.

Litigation and other losses (gains) losses:, net: We have excluded the effects of the remeasurement losses and gains related to contingent acquisition liabilities and a litigation gain recorded in 2014 related to a contingent acquisition liability, the litigation gains and other loss recorded in 2013, and the litigation loss recorded in 20122015 to permit comparability with periods that were not impacted by these items.

Goodwill impairment charge:    Goodwill impairment charges are inconsistent in their amount and frequency.charges: We have excluded the effect of this charge to permitthe goodwill impairment charges that occurred in 2017 as these are infrequent events and their exclusion permits comparability with periods that were not impacted by such charges.

Amortization of intangible assets:    We have excluded the effect of amortization of intangible assets from the calculation of Adjusted net income from continuing operations presented above. Amortization of intangibles is inconsistent in its amount and frequency and is significantly affected by the timing and size of our acquisitions.

Non-cash interest on convertible notes:We incur non-cash interest expense relating to the implied value of the equity conversion component of our $250 million principal amount of 1.25% convertible senior notes due 2019 (the “Convertible Notes”).Convertible Notes. The value of the equity conversion component is treated as a debt discount and amortized to interest expense over the life of the Convertible Notes using the effective interest rate method. We exclude this non-cash interest expense that does not represent cash interest payments made tofrom the calculation of adjusted net income from continuing operations as management believes that this non-cash expense is not indicative of the ongoing performance of our note holders.business.

Tax effect:    The non-GAAPOther non-operating income, tax adjustment reflects the incremental tax rate applicable to the non-GAAP adjustments.net:

Net tax benefit related to “check-the-box” election:We have excluded the effect of other non-operating income and expense items as they are infrequent, management believes that these items are not indicative of the net tax benefit from our “check-the-box” election to treat oneongoing performance of our wholly-owned foreign subsidiaries as a disregarded entity for U.S. federal income tax purposes during the first quarter of 2014 because itsbusiness, and their exclusion permits comparability with periods that were not impacted by this item.such items. The other non-operating income, net for 2017 is primarily attributable to a $0.9 million gain on the sale of Life Sciences C&O, partially offset by a $0.3 million remeasurement loss recorded on a promissory note that was amended in the fourth quarter of 2017.

Foreign currency transaction losses (gains), net: We have excluded the effect of foreign currency transaction losses and gains from the calculation of adjusted EBITDA because the amount of each loss or gain is significantly affected by timing and changes in foreign exchange rates.
Tax effect: The non-GAAP income tax adjustment reflects the incremental tax impact applicable to the non-GAAP adjustments.
Tax expense related to the enactment of Tax Cuts and Jobs Act of 2017 ("2017 Tax Reform"): We have excluded the impact of the 2017 Tax Reform, which was enacted in the fourth quarter of 2017, and is primarily due to the remeasurement of net deferred tax balances at the lower federal income tax rate, additional one-time income tax expense related to the transition tax on accumulated foreign earnings, and

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withholding tax on outside basis differences due to our change in assertion for permanent reinvestment. The exclusion of the 2017 Tax Reform permits comparability with prior periods. Refer to Note 16 "Income Taxes" within the notes to the consolidated financial statements for additional information on the impact of the 2017 Tax Reform.
Tax benefit related to "check-the-box" election: We have excluded the effects of our "check-the-box" elections to treat certain wholly-owned foreign subsidiaries as disregarded entities for U.S. federal income tax purposes. In 2017, we recognized a previously unrecognized tax benefit from our "check-the-box" election made in 2014 due to the expiration of statute of limitations. In 2015, we made a "check-the-box" election to treat two of our wholly-owned foreign subsidiaries as disregarded entities for U.S. federal income tax purposes. The exclusion of these discrete tax benefits permits comparability with periods that were not impacted by these items. Refer to Note 16 “Income Taxes” within the notes to the consolidated financial statements for additional information on our "check-the-box" elections.
Income tax expense, Interest and other expenses,expense, net of interest income, Depreciation and amortization:We have excluded the effects of income tax expense, interest and other expenses,expense, net of interest income, and depreciation and amortization in the calculation of EBITDA as these are customary exclusions as defined by the calculation of EBITDA to arrive at meaningful earnings from core operations excluding the effect of such items.

Adjusted weighted average shares - diluted: As we reported a net loss for the year ended December 31, 2017, GAAP diluted weighted average shares outstanding equals the basic weighted average shares outstanding for that period. For the year ended December 31, 2017, the non-GAAP adjustments described above resulted in adjusted net income from continuing operations. Therefore, we included the dilutive common stock equivalents in the calculation of adjusted diluted weighted average shares outstanding for that period.
Year Ended December 31, 20142017 Compared to Year Ended December 31, 20132016

Revenues

Revenues increased $90.8$6.3 million, or 12.6%0.9%, to $811.3$732.6 million for the year ended December 31, 2014,2017, from $720.5$726.3 million for the year ended December 31, 2013. Included2016. Revenues for 2017 included $43.9 million from our acquisitions of Innosight and Pope Woodhead, which were completed in the $90.8first quarter of 2017, and $13.9 million of incremental revenues due to the full year impact of our acquisitions of MyRounding and HSM Consulting, which were completed in the first and third quarters of 2016, respectively. Revenues for 2017 also included a full period impact of our acquisition of the U.S. assets of ADI Strategies and revenues from our acquisition of the international assets of ADI Strategies. These acquisitions were completed in May 2016 and April 2017, respectively, and have since been fully integrated into the Business Advisory segment.
Of the overall $6.3 million increase in revenues, was a $63.0 million increase in revenues attributable to acquisitions completed during 2013 and 2014.

Of the overall $90.8 million increase in revenues, $86.3$10.6 million was attributable to our full-time billable consultants, while $4.5partially offset by a $4.3 million wasdecrease in revenues attributable to our full-time equivalents.

The $86.3 million increase in full-time billable consultant revenues was driven by increasesan increase in the average number of full-time billable consultants, partially offset by decreases in the average billing rate and consultant utilization rate. As discussed below in Segment Results, this increase in full-time billable consultant revenues reflected our acquisitions of Innosight and Pope Woodhead, as well as strengthened demand for services in our Business Advisory and Education segments, partially offset by decreased demand for services in our Healthcare segment.
The decrease in full-time equivalent revenues was primarily attributable to a decrease in the revenue from our Studer Group solution within our Healthcare segment as discussed below in Segment Results.
Total Direct Costs
Our total direct costs, including amortization of intangible assets and software development costs, increased $13.0 million, or 2.9%, to $465.7 million for the year ended December 31, 2017 from $452.7 million for the year ended December 31, 2016. The overall $13.0 million increase in direct costs primarily related to a $17.5 million increase in salaries and related expenses for our revenue-generating professionals, which was largely driven by increased headcount from acquisitions and our continued investment in revenue-generating consultants in our cloud-based enterprise resource planning (ERP) implementation practices, partially offset by a decrease in salaries and related expenses in our Healthcare segment as a result of headcount reductions. Additional increases in direct costs included a $3.3 million increase in contractor expense and a $2.7 million increase in signing and retention bonus expense for our revenue-generating professionals. All of these increases were partially offset by a $5.6 million decrease in performance bonus expense for our revenue-generating professionals, a $4.0 million decrease in intangible asset amortization expense, and a $1.2 million decrease in share-based compensation expense for our revenue-generating professionals. As a percentage of revenues, our total direct costs increased to 63.6% during 2017 compared to 62.3% during 2016, primarily due to the items described above.
Total direct costs for the year ended December 31, 2017 included $10.9 million of amortization expense for intangible assets, primarily representing customer contracts and software acquired in business combinations, and internal software development costs, compared to $15.1 million of amortization expense in 2016. The $4.2 million decrease in amortization expense was primarily attributable to the decreasing amortization expense of customer contracts acquired in our Studer Group acquisition, due to the accelerated basis of amortization, and the customer contracts acquired as part of our acquisition of the U.S. assets of ADI Strategies which were fully amortized in 2016, partially offset

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by the amortization of intangible assets acquired in the acquisitions of Innosight and HSM Consulting. See Note 4 "Acquisitions" and Note 5 "Goodwill and Intangible Assets" within the notes to our consolidated financial statements for additional information about our intangible assets.
Operating Expenses and Other Gains, Net
Selling, general and administrative expenses increased $15.2 million, or 9.5%, to $175.4 million for the year ended December 31, 2017, compared to $160.2 million for the year ended December 31, 2016. Selling, general and administrative expenses for 2017 included $14.5 million from Innosight and Pope Woodhead. The overall increase of $15.2 million was primarily related to a $10.4 million increase in salaries and related expenses for our support personnel; a $2.7 million increase in facilities and other office-related expenses; a $2.0 million increase in travel related costs, largely related to the operations of our aircraft purchased in connection with our Innosight acquisition; a $1.4 million increase in third-party consulting expenses; a $1.0 million increase in promotion and sponsorship expenses; and a $0.9 million increase in signing and retention bonus expense for our support personnel. These increases were partially offset by a $2.6 million decrease in performance bonus expenses for our support personnel, a $1.1 million decrease in legal expenses, and a $1.0 million decrease in share-based compensation expense for our support personnel. As a percentage of revenues, selling, general and administrative expenses increased to 23.9% during 2017 compared to 22.1% during 2016, primarily due to the items described above.
Restructuring charges for the year ended December 31, 2017 totaled $6.2 million, compared to $9.6 million for the year ended December 31, 2016. The $6.2 million of restructuring charges in 2017 included $3.7 million related to workforce reductions to better align resources with market demand, of which $2.1 million related to our Healthcare segment, $1.1 million related to our Business Advisory segment, and $0.4 million related to our corporate operations. The overall $6.2 million of restructuring charges also included $2.4 million of office space reductions, which primarily consisted of the accrual of remaining lease obligations, net of estimated sublease income, due to relocating our San Francisco office to a smaller space and consolidating our Chicago and New York offices, and accelerated depreciation on leasehold improvements in our San Francisco office. The $9.6 million of restructuring charges in 2016 primarily consisted of $7.3 million related to workforce reductions, of which $5.8 million related to our Healthcare segment and $0.6 million related to our Business Advisory segment, both to better align resources with market demand, and $0.9 million related to our corporate operations primarily to adjust our infrastructure to align with our Legal divestiture. The $9.6 million of restructuring charges also included $1.5 million related to updated lease accrual assumptions, primarily for our Washington, D.C. space vacated in the fourth quarter of 2014, and $0.8 million related to the wind down of our foreign operations based in the Middle East and other exit costs. See Note 10 “Restructuring Charges” within the notes to our consolidated financial statements for further discussion of our restructuring expenses.
Other gains (losses), net totaled a net loss of $1.1 million for the year ended December 31, 2017, compared to a net gain of $2.0 million for the year ended December 31, 2016. The net loss in 2017 and the net gain in 2016 represent the changes in the estimated fair values of our liabilities for contingent consideration related to business acquisitions. In connection with certain business acquisitions, we may be required to pay post-closing consideration to the sellers if specific financial performance targets are met over a number of years as specified in the related purchase agreements. See Note 12 "Fair Value of Financial Instruments" within the notes to our consolidated financial statements for additional information on the fair value of contingent consideration liabilities.
Depreciation and amortization expense increased $6.7 million, or 21.3%, to $38.2 million for the year ended December 31, 2017, from $31.5 million for the year ended December 31, 2016. The increase was primarily attributable to amortization expense for intangible assets acquired in the Innosight, Pope Woodhead, and ADI Strategies acquisitions, and an increase in amortization expense for a customer-related intangible asset acquired in the Studer Group acquisition. Intangible asset amortization included within operating expenses primarily relates to certain customer relationships, trade names, and non-competition agreements acquired in connection with our business acquisitions. See Note 4 "Acquisitions" and Note 5 "Goodwill and Intangible Assets" within the notes to our consolidated financial statements for additional information about our intangible assets.
During 2017, we recorded $253.1 million of non-cash goodwill impairment charges. Of the $253.1 million, $208.1 million related to our Healthcare reporting unit and $45.0 million related to our Enterprise Solutions and Analytics reporting unit which is included in our Business Advisory segment. These charges are non-cash in nature and do not affect our liquidity or debt covenants. See the "Critical Accounting Policies" section below and Note 5 "Goodwill and Intangible Assets" within the notes to our consolidated financial statements for further discussion of these charges.
Operating Income (Loss)
Operating income decreased $281.7 million, to a loss of $207.5 million for the year ended December 31, 2017, from income of $74.2 million for the year ended December 31, 2016. The decrease is primarily attributable to the $253.1 million non-cash pretax goodwill impairment charges recorded in 2017. See the "Critical Accounting Policies" section below and Note 5 "Goodwill and Intangible Assets" within the notes to our consolidated financial statements for additional information about the non-cash goodwill impairment charges. Operating margin, which is defined as operating income (loss) expressed as a percentage of revenues, decreased to (28.3)% in 2017 compared to 10.2% in 2016. The decrease in operating margin was primarily attributable to the goodwill impairment charges, as well as increases in salaries and related expenses for both our revenue-generating professionals and support personnel.

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Other Expense, Net
Total other expense, net decreased slightly to $15.0 million for the year ended December 31, 2017, from $15.1 million for the year ended December 31, 2016. The decrease was primarily attributable to a $2.4 million gain on the market value of our investments that are used to fund our deferred compensation liability, compared to a $1.2 million gain in 2016, as well as a $0.9 million gain on the sale of our Life Sciences Compliance and Operations solution ("LS C&O") within our Business Advisory segment in the second quarter of 2017, and a $0.4 million increase in foreign currency transaction gains. These decreases were largely offset by a $2.3 million increase in interest expense, net of interest income due to higher levels of borrowings and higher interest rates under our credit facility during 2017 compared to 2016. See Note 5 "Goodwill and Intangible Assets" within the notes to our consolidated financial statements for additional information on the sale of LS C&O.
Income Tax Expense
For the year ended December 31, 2017, our effective tax rate was 23.4% as we recognized income tax benefit from continuing operations of $52.0 million on a loss from continuing operations of $222.5 million. For the year ended December 31, 2016, our effective tax rate was 33.3% as we recognized income tax expense from continuing operations of $19.7 million on income from continuing operations of $59.2 million. The effective tax rate for 2017 was less favorable than the statutory rate, inclusive of state income taxes, primarily due to the $65.0 million non-deductible portion of the goodwill impairment charges related to the Healthcare and Enterprise Solutions and Analytics reporting units recorded in 2017; $8.8 million of discrete income tax expense related to the enactment of the 2017 Tax Reform in the fourth quarter of 2017; and $1.8 million of discrete tax expense for share-based compensation related to the adoption of ASU 2016-09 Improvements to Employee Share-Based Payment Accounting. Refer to Note 2 "Summary of Significant Accounting Policies" for additional information on the adoption of ASU 2016-09. These unfavorable discrete items were partially offset by a $2.7 million tax benefit recorded in the third quarter of 2017 related to a previously unrecognized tax benefit from our 2014 "check-the-box" election.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“2017 Tax Reform”), a tax reform bill which, among other items, reduces the current corporate federal income tax rate from 35% to 21% and moves from a worldwide tax system to a territorial system. The rate reduction is effective January 1, 2018. As a result of the enactment of the legislation in 2017, we have estimated the remeasurement of our net deferred taxes based on the new lower tax rate, as well as provided for additional one-time income tax expense estimates primarily related to the transition tax on accumulated foreign earnings and elimination of foreign tax credits for dividends that are subject to the 100 percent exemption in our consolidated financial statements as of and for the year ended December 31, 2017. Our provisional analysis resulted in $8.8 million of additional income tax expense for the year ended December 31, 2017. Of the $8.8 million, $7.9 million related to the remeasurement of our deferred tax balances at the lower federal income tax rate; $0.6 million related to the transition tax on accumulated foreign earnings, net of applicable foreign tax credits; and $0.3 million related to withholding tax on outside basis differences due to our change in assertion for permanent reinvestment. The impacts on our financial statements as a result of 2017 Tax Reform are considered preliminary and are based on the information that is currently available. These provisional results may be subject to future adjustments as additional analysis is anticipated based on technical corrections and regulatory interpretations to come. We expect to finalize the analysis as soon as practicable, but, in accordance with Staff Accounting Bulletin (“SAB”) No. 118, which was issued as a result of 2017 Tax Reform, not later than one year from the enactment date. Any changes to our provisional analysis will be included as an adjustment to tax expense or benefit in the period the amounts are determined.
As a result of the 2017 Tax Reform, and barring any unfavorable discrete items, we expect our 2018 effective tax rate to be lower than our historical effective tax rate, comprised of the lower 21% corporate federal income tax rate, a state blended tax rate, net of federal benefit, estimated to be between 4-8% depending on where we provide services, and any unfavorable impact due to limitations on the deductibility of executive compensation and meals and entertainment.
The effective tax rate for 2016 was lower than the statutory rate, inclusive of state income taxes, primarily due to valuation allowance reductions, certain credits and deductions, non-taxable income, and a discrete tax benefit related to share-based compensation, partially offset by non-deductible business expenses. In 2016, we released certain valuation allowances primarily related to foreign tax credits, as we expect to have sufficient foreign source income to utilize these credits before their expiration.
Net Income (Loss) from Continuing Operations
Net income from continuing operations decreased by $210.0 million, to a net loss from continuing operations of $170.5 million for the year ended December 31, 2017, compared to net income from continuing operations of $39.5 million for the year ended December 31, 2016. The decrease was primarily attributable to the $253.1 million non-cash pretax goodwill impairment charges recorded in 2017. As a result of the decrease in net income from continuing operations, diluted loss per share from continuing operations for the year ended December 31, 2017 was $7.95 compared to diluted earnings per share from continuing operations of $1.84 for 2016. The non-cash goodwill impairment charges had an $8.40 unfavorable impact on diluted earnings per share from continuing operations in 2017.

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Discontinued Operations
Net income from discontinued operations for the year ended December 31, 2017 was $0.4 million and primarily related to updated lease assumptions for vacated office spaces directly related to the sale of the Huron Legal segment. Net loss from discontinued operations for the year ended December 31, 2016 was $1.9 million and primarily related to obligations for former employees, legal fees, and updated lease assumptions for vacated office spaces directly related to the sale of the Huron Legal segment. See Note 3 "Discontinued Operations" within the notes to our consolidated financial statements for additional information on our discontinued operations.
EBITDA and Adjusted EBITDA
EBITDA decreased $276.8 million, to a loss of $154.7 million for the year ended December 31, 2017, from earnings of $122.1 million for the year ended December 31, 2016. Adjusted EBITDA decreased $25.1 million, or 19.3%, to $104.6 million in 2017 from $129.7 million in 2016. The decrease in EBITDA was primarily attributable to the non-cash goodwill impairment charges of $253.1 million recorded in 2017. The decrease in adjusted EBITDA was primarily due to the decrease in segment operating income, as discussed below in Segment Results, as well as an increase in corporate expenses primarily due to our acquisitions of Innosight and Pope Woodhead.
Adjusted Net Income from Continuing Operations
Adjusted net income from continuing operations decreased $22.1 million, or 32.2%, to $46.6 million for the year ended December 31, 2017, compared to $68.7 million for the year ended December 31, 2016. As a result of the decrease in adjusted net income from continuing operations, adjusted diluted earnings per share from continuing operations for 2017 was $2.15, compared to $3.21 for 2016.
Segment Results
Healthcare
Revenues
Healthcare segment revenues decreased $68.0 million, or 16.0%, to $356.9 million for the year ended December 31, 2017, from $424.9 million for the year ended December 31, 2016. Revenues for 2017 included $13.9 million of incremental revenues due to the full year impact of our acquisitions of MyRounding and HSM Consulting, which were completed in the first and third quarters of 2016, respectively.
For the year ended December 31, 2017, revenues from fixed-fee engagements, time-and-expense engagements, performance-based arrangements, and software support and maintenance and subscription arrangements represented 67.7%, 16.1%, 8.7%, and 7.5% of this segment’s revenues, respectively, compared to 68.9%, 11.6%, 13.5%, and 6.0%, respectively, in 2016.
Of the overall $68.0 million decrease in revenues, $65.5 million was attributable to a decrease in revenue from our full-time billable consultants, and $2.5 million was attributable to a decrease in revenue generated by our full-time equivalents.
The decrease in revenue attributable to our full-time billable consultants was primarily driven by decreased demand for our performance improvement solution and reflected decreases in the average number of full-time billable consultants and the average billing rate, partially offset by a decreasean increase in ourthe consultant utilization rate. This increase primarily reflected strengthened demand for our services in the Huron Healthcare, Huron Business Advisory, and Huron Education and Life Sciences segments. Performance-based fee revenue was $110.3$30.9 million for the year ended December 31, 2014,in 2017 compared to $105.5$57.2 million for the year ended December 31, 2013.in 2016. The level of performance-based fees earned may vary based on our clients’clients' risk sharing preferences and the mix of services we provide. Performance-based fee engagementsarrangements may also cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria.

The $4.5 million increasedecrease in full-time equivalent revenues was primarily driven by an increasea decreased demand for our Studer Group solution and reflected a decrease in revenue per full-time equivalent. Revenue attributable to full-time equivalents reflected increased use of contractors in the Huron Healthcare and Huron Business Advisory segments, and increased demand for our discovery services in the Huron Legal segment,equivalent, partially offset by a decreased use of contractorsan increase in the Huron Education and Life Sciences segment.

Total Direct Costs

Our total direct costs increased $58.4average number of full-time equivalents in 2017 compared to 2016.

Operating Income
Healthcare segment operating income decreased $29.1 million, or 13.1%19.7%, to $505.1$118.8 million for the year ended December 31, 20142017, from $446.6$147.9 million for the year ended December 31, 2013.2016. The increaseHealthcare segment operating margin, defined as segment operating income expressed as a percentage of segment revenues, decreased to 33.3% in 2017 from 34.8% in 2016. The decrease in this segment’s operating margin was primarily relatedattributable to an increase, as a $49.4 million increasepercentage of revenues, in salaries and related expenses for both our support personnel and revenue-generating professionals, a $4.9 millionas well as an increase in contractor expense, a $3.7 million increaseexpenses, partially offset by decreases in restructuring charges, performance bonus expense for our revenue-generating professionals, and a $1.8 million increase inintangible asset amortization expense, for intangible assets and software development costs, partially offset by a $1.7 million decrease in technology expense. As a percentage of revenues, our total direct costs increased slightly to 62.3% during 2014 compared to 62.0% during 2013. This primarily reflected an increase in salaries and related expenses for our revenue-generating professionalsall as a percentage of revenues, largely offset by revenue growth that outpaced the increases in bonus expense for our revenue-generating professionals and contractor expense and the decrease in technology expense. The increase in salaries and related expenses for our revenue-generating professionals as a percentage of revenues was largely driven by the businesses acquired during 2014 and the fourth quarter of 2013 within our Healthcare, Education and Life Sciences, and Business Advisory segments.

Total direct costs for the year ended December 31, 2014 included $15.0 million of share-based compensation expense for our revenue-generating professionals2017 compared to $14.1 million in 2013. 2016.

The increase in share-based

compensation expense was primarily attributable to an increase in the amount of restricted stock awards granted to employees in 2014 and an increase in the amount of performance-based stock awards earned in 2014 based on 2014 performance compared to the amount of performance-based stock awards that were earned in 2013 based on 2013 performance.

Total direct costs for the year ended December 31, 2014 also included $4.9 million of amortization expense for intangible assets and software development costs, primarily representing customer-related assets and software acquired in business combinations, compared to $3.1 million of amortization expense in 2013. The increase in amortization expense was primarily related to the amortization of intangible assets from businesses we acquired during 2014 and the fourth quarter of 2013, as well as an increase in amortization expense for certain software development costs.

Operating Expenses and Other Operating Gains

Selling, general and administrative expenses increased $16.9 million, or 12.2%, to $155.4 million for the year ended December 31, 2014, compared to $138.5 million for the year ended December 31, 2013. This increase was primarily related to an $8.9 million increase in salaries and related expenses for our support personnel, a $2.5 million increase in promotion and sponsorship expenses, a $2.3 million increase in facilities and other office related expenses, a $1.1 million increase in outside professional service expenses, a $0.9 million increase in legal expenses, and a $0.8 million increase in accounting, tax, and audit fees. These increases were partially offset by a $1.5 million decrease in bonus expense. As a percentage of revenues, selling, general and administrative expenses totaled 19.2% during both 2014 and 2013. Also included in selling, general and administrative expenses is share-based compensation expense for our non-revenue-generating professionals, which totaled $5.1 million in 2014, compared to $4.3 million in 2013.

Restructuring charges for the year ended December 31, 2014 totaled $3.4 million, compared to $0.8 million for the year ended December 31, 2013. The charges in 2014 primarily consisted of $3.3 million in pretax charges related to the consolidation of office spaces in Washington, D.C., Chicago, London, and New York, and closure of our office in San Diego. Of the total $3.3 million charge for office space reduction, $2.0 million is related to the accrual of our remaining lease obligations at vacated spaces, net of estimated sublease income, and $1.1 million is related to accelerated depreciation of assets disposed of as a result of the exit of space. The vacated locations in Chicago and New York were acquired as part of business acquisitions during 2013 and 2014. Also included in the total $3.4 million restructuring charge is a $0.2 million pretaxnon-cash goodwill impairment charge related to workforce reductionsour Healthcare segment discussed above within the consolidated results is not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments. We do not include the impact of goodwill impairment charges in our London office to better align our resources with market demand in our Huron Legal segment. The restructuring expense in 2013 primarily consistedevaluation of a $0.6 million charge forsegment performance. See the consolidation"Critical Accounting Policies" section below and


31
Table of office space in the Washington, D.C. area that was acquired in the Adams Grayson acquisition that occurred in the second half of 2012. See Contents


Note 8 “Restructuring Charges”5 "Goodwill and Intangibles Assets" within the notes to our consolidated financial statements for further discussion of this charge and our restructuring expenses.

Duringmost recent goodwill impairment test performed as of November 30, 2017. We will continue to evaluate goodwill for impairment during future periods. Any future significant decline in the year ended December 31, 2014, we recorded remeasurement gains totaling $0.6performance of the Healthcare segment compared to our internal forecasts could result in another non-cash goodwill impairment charge.

Education
Revenues
Education segment revenues increased $18.1 million, relatedor 12.1%, to the contingent consideration liability incurred in connection with a business acquisition during the first quarter of 2014. The initial acquisition date fair value of this liability was $0.6 million. There was no remeasurement gain or loss for the comparable period last year.

Net litigation and other gains totaled $5.9$167.9 million for the year ended December 31, 2013. These gains primarily consisted of a $5.3 million gain that was recorded as a result of reaching a settlement agreement to resolve a lawsuit brought by Huron.

Depreciation and amortization expense increased $4.5 million, or 22.0%, to $25.02017, from $149.8 million for the year ended December 31, 2014,2016.

For the year ended December 31, 2017, revenues from $20.5fixed-fee engagements, time-and-expense engagements, performance-based arrangements, and software support and maintenance and subscription arrangements represented 16.6%, 77.5%, 0.2%, and 5.7% of this segment’s revenues, respectively, compared to 14.4%, 78.9%, 0.7%, and 6.0%, respectively, during 2016.
Of the overall $18.1 million increase in revenues, $20.0 million was attributable to an increase in revenue generated by our full-time billable consultants, partially offset by a $1.9 million decrease in revenue generated by our full-time equivalents. The increase in revenues from our full-time billable consultants reflected an increase in the average number of full-time billable consultants and the consultant utilization rate, partially offset by a decrease in the average billing rate. The decrease in revenue from our full-time equivalents reflected decreases in the average number of full-time equivalents and revenue per full-time equivalent in 2017 compared to 2016.
Operating Income
Education segment operating income increased $2.0 million, or 5.2%, to $40.3 million for the year ended December 31, 2013. The increase primarily related to the amortization of intangible assets2017, from businesses acquired during 2014 and the fourth quarter of 2013, as well as the depreciation of network equipment and leasehold improvements that were placed into service during the second half of 2013 and first half of 2014. Intangible asset amortization included within operating expenses relates to customer relationships, non-competition agreements, trade names, and licenses acquired in connection with our acquisitions.

Operating Income

Operating income increased $3.1 million, or 2.6%, to $123.0$38.3 million for the year ended December 31, 2014, from $119.9 million for the year ended December 31, 2013. Operating2016. The Education segment operating margin which is defined as operating income expressed as a percentage of revenues, decreased to 15.2% in 2014 compared to 16.6% in 2013.24.0% for 2017 from 25.6% for 2016. The decrease in this segment’s operating margin was primarily attributable to thean increase in salaries and related expenses for our revenue-generating professionals, which was largely driven by our continued investment in revenue-generating consultants in our cloud-based enterprise resource planning (ERP) implementation practices, and performance bonus expenses for our revenue-generating professionals, all as a percentage of revenues, and the decrease in litigation and other gains, partially offset by revenue growth that outpaced the increasea decrease in bonus expense for our revenue-generating professionals.

Other Expense, Net

Other expense, netproject costs.

Business Advisory
Revenues
Business Advisory segment revenues increased $2.1$56.2 million, or 33.9%37.1%, to $8.4$207.8 million for the year ended December 31, 2014,2017, from $6.3$151.5 million for the year ended December 31, 2013. Interest expense, net2016. Revenues for 2017 included $43.9 million from our acquisitions of interest income increased by $2.2 million, primarily from interest expense recordedInnosight and Pope Woodhead, which were completed in the first quarter of 2017. Revenues for 2017 also included a full period impact of our Convertible Notes issued in September 2014, partially offset by a decrease in our borrowing levels under our senior secured credit facility. For 2014, interest expense related to the Convertible Notes totaled $3.5 million, consisting of $1.0 million for the stated couponacquisition of the Convertible NotesU.S. assets of ADI Strategies and $2.5 million for the amortization of debt discount and debt issuance costs. For the year ending December 31, 2015, we expect interest expense related to the couponrevenues from our acquisition of the Convertible Notes to be $3.1 millioninternational assets of ADI Strategies. These acquisitions were completed in May 2016 and interest expense forApril 2017, respectively, and have since been fully integrated into the amortization of debt discount and debt issuance costs related to the Convertible Notes to be $8.3 million.

Income Tax Expense

Business Advisory segment.

For the year ended December 31, 2014, we recognized income tax expense2017, revenues from continuing operations of $35.6 million on income from continuing operations of $114.6 million, for an effective tax rate of 31.0%. For the year ended December 31, 2013, we recognized income tax expense from continuing operations of $47.2 million on income from continuing operations of $113.6 million, for an effective tax rate of 41.5%. Our effective tax rate for 2014 was lower than the statutory rate, inclusive of state income taxes, primarily due to the impact of a tax election made in the first quarter of 2014 to classify one of our wholly-owned foreign subsidiaries as a disregarded entity for U.S. federal income tax purposes (commonly referred to as a “check-the-box” election). As a resultfixed-fee engagements, time-and-expense engagements, performance-based engagements, and software support and maintenance and subscription arrangements represented 34.8%, 61.4%, 2.1%, and 1.7% of this election, we expectsegment's revenues, respectively, compared to realize an income tax benefit of $13.8 million, of which $2.4 million is unrecognized, resulting19.8%, 74.6%, 4.1%, and 1.5%, respectively, in a net recognized tax benefit of $11.4 million. This recognized benefit was partially offset by $1.2 million in expenses related to the establishment of a valuation allowance for certain foreign tax credits and increased deferred tax liabilities as a result of the aforementioned election. Our effective tax rate for 2013 was higher than the statutory rate, inclusive of state income taxes, primarily due to the impact of foreign losses with no tax benefit and certain non-deductible business expenses, partially offset by the impact of certain credits and deductions.

Net Income from Continuing Operations

Net income from continuing operations was $79.1 million2016. Performance-based fee revenue for the year ended December 31, 2014,2017 was $4.5 million compared to $66.5 million for the year ended December 31, 2013. The $12.6 million increase in net income from continuing operations was primarily due to the increase in operating income, as well as the decrease in income tax expense, as discussed above. As a result of the increase in net income from continuing operations, diluted earnings per share from continuing operations for the year ended December 31, 2014 was $3.45 compared to $2.92 for 2013.

EBITDA and Adjusted EBITDA

EBITDA increased $9.4 million, or 6.5%, to $152.9 million for the year ended December 31, 2014, from $143.5 million for the year ended December 31, 2013. Adjusted EBITDA increased $17.4 million, or 12.5%, to $155.7$6.2 million in 2014 from $138.4 million in 2013. The increase in EBITDA was primarily due to the increase in the segment operating income, as discussed below in Segment Results, partially offset by an increase in corporate expenses and a decrease in litigation and other gains. The increase in Adjusted EBITDA was primarily due to the increase in segment operating income, partially offset by an increase in corporate expenses, excluding the impact of the restructuring charges and litigation and other gains.

Adjusted Net Income from Continuing Operations

Adjusted net income from continuing operations increased $11.0 million, or 16.3%, to $78.5 million for the year ended December 31, 2014, compared to $67.5 million for the year ended December 31, 2013. The increase was primarily attributable to the increase in segment operating income and a decrease in tax expense when excluding the tax benefit related to our “check-the-box” election, partially offset by an increase in corporate expenses.

Segment Results

Huron Healthcare

Revenues

Huron Healthcare segment revenues increased $57.0 million, or 15.9%, to $415.8 million for the year ended December 31, 2014, from $358.8 million for the year ended December 31, 2013. Revenues for the year ended December 31, 2014 included $20.0 million from Vonlay, a business we acquired in the second quarter of 2014. During 2014, revenues from time-and-expense engagements, fixed-fee engagements, performance-based arrangements, and software support and maintenance arrangements represented 5.4%, 65.0%, 24.8%, and 4.8% of this segment’s revenues, respectively, compared to 1.6%, 64.6%, 29.1%, and 4.7%, respectively, in 2013.

Of the overall $57.0 million increase in revenues, $53.2 million was attributable to our full-time billable consultants and $3.8 million was attributable to our full-time equivalents. The increase in demand for our services in the Huron Healthcare segment reflected the continued pressures our clients face as the result of evolving business models, rising costs, and declining reimbursements from government and commercial payers. The increase in full-time billable consultant revenues reflected increases in the average number of full-time billable consultants and the average billing rate, partially offset by a decrease in consultant utilization rate. Performance-based fee revenue was $103.4 million during 2014 compared to $104.5 million during 2013.2016. The level of performance-based fees earned may vary based on our clients’ preferences and the mix of services we provide. Performance-based fee arrangements may cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria. With regard

The overall $56.2 million increase in revenues was primarily attributable to an increase in revenue generated by our full-time billable consultants. The increase in revenue from our full-time billable consultants was primarily driven by our acquisitions of Innosight, ADI Strategies, and Pope Woodhead, and reflected an increase in the average number of full-time billable consultants, partially offset by decreases in the average billing rate and consultant utilization rate.
Operating Income
Business Advisory segment operating income increased by $17.2 million, or 58.6%, to $46.6 million for the year ended December 31, 2017, compared to $29.4 million for the year ended December 31, 2016. Segment operating margin increased to 22.4% for 2017 from 19.4% for 2016. The increase in this segment’s operating margin was primarily attributable to decreases in performance bonus expense and share-based compensation for our revenue-generating professionals, as well as a decrease in contractor expense. These increases to operating margin were partially offset by increases in salaries and related expenses for our revenue-generating professionals; travel related costs,

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largely related to the operations of our aircraft purchased in connection with our Innosight acquisition; third-party consulting expenses; and signing and retention bonus expense for our revenue-generating professionals, all as a percentage of revenues.
While the Business Advisory segment's revenues and operating income increased year-over-year, the Enterprise Solutions and Analytics practice within this segment experienced a decline in revenues and operating income in the fourth quarter of 2017 compared to the third quarter of 2017. During the first three quarters of 2017, the performance of Enterprise Solutions and Analytics continued to reasonably meet our expectations. However, both revenues and operating margin during the fourth quarter of 2017 fell short of our expectations resulting in a reduction in workforce within the reporting unit during that quarter. As a result, our goodwill impairment test conducted as of November 30, 2017, indicated that the fair value of the Enterprise Solutions and Analytics reporting unit no longer exceeded its carrying value, and we recorded a $45.0 million non-cash pretax goodwill impairment charge to write off the entire carrying value of this reporting unit's goodwill.
This non-cash goodwill impairment charge is not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment performance. See the "Critical Accounting Policies" section below and Note 5 "Goodwill and Intangibles Assets" within the notes to our consolidated financial statements for further discussion of this charge.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenues
Revenues increased $27.3 million, or 3.9%, to $726.3 million for the year ended December 31, 2016, from $699.0 million for the year ended December 31, 2015. Revenues for 2016 included $34.5 million from our acquisitions of MyRounding, ADI Strategies, and HSM Consulting, all of which were completed during 2016, and $19.3 million of incremental revenues due to the full year impact in 2016 of our acquisitions of Studer Group, which was completed mid-first quarter 2015, Rittman Mead India, which was completed at the beginning of the third quarter of 2015, and Cloud62, Inc. ("Cloud62"), which was completed at the beginning of the fourth quarter of 2015.
Of the overall $27.3 million increase in revenues, $20.6 million was attributable to our full-time equivalents and $6.7 million was attributable to our full-time billable consultants.
The increase in full-time equivalent revenues was primarily attributable to the Huronfull year impact of our acquisition of Studer Group, as well as overall growth of the Studer Group practice, and increased use of contractors and subscription revenue in the Business Advisory segment, largely due to our acquisition of ADI Strategies, and reflected an increase in the average number of full-time equivalents.
The increase in full-time billable consultant revenues was driven by an increase in the average number of full-time billable consultants, partially offset by decreases in the average billing rate and consultant utilization rate. As discussed below in Segment Results, this increase in revenue reflected our acquisitions and strengthened demand for our services in the Education and Business Advisory segments. These increases to revenue were partially offset by lower revenues from full-time billable consultants in our Healthcare segment, experiencedwhich was largely driven by decreases in revenue in our revenue cycle and cost and clinical solutions.
Total Direct Costs
Our total direct costs, including amortization of intangible assets and software development costs, increased $34.0 million, or 8.1%, to $452.7 million for the year ended December 31, 2016 from $418.7 million for the year ended December 31, 2015. The overall $34.0 million increase in direct costs primarily related to a $36.7 million increase in salaries and related expenses for our revenue-generating professionals, which was primarily driven by increased headcount from acquisitions and our ongoing cloud-based ERP investment, and a $1.6 million increase in technology expenses, partially offset by a $2.6 million decrease in share-based compensation expense for our revenue-generating professionals and a $1.7 million decrease in intangible asset amortization expense. As a percentage of revenues, our total direct costs increased to 62.3% during 2016 compared to 59.9% during 2015, primarily due to the items described above.
Total direct costs for the year ended December 31, 2016 included $15.1 million of amortization expense for intangible assets, primarily representing customer contracts and software acquired in business combinations, and internal software development costs, compared to $16.8 million of amortization expense in 2015. See Note 4 "Acquisitions" and Note 5 "Goodwill and Intangible Assets" within the notes to our consolidated financial statements for additional information about our intangible assets.
Operating Expenses and Other Operating Gains
Selling, general and administrative expenses increased $2.3 million, or 1.5%, to $160.2 million for the year ended December 31, 2016, compared to $157.9 million for the year ended December 31, 2015. This overall increase was primarily related to a $4.8 million increase in salaries and related expenses for our support personnel and a $1.3 million increase in share-based compensation expense for our support personnel, partially offset by a $1.4 million decrease in facilities and other office related expenses, a $1.1 million decrease in recruiting expenses, a $0.5 million decrease in severance expense, and a $0.8 million decrease in performance bonus expense for our support

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personnel. As a percentage of revenues, selling, general and administrative expenses decreased to 22.1% during 2016 compared to 22.6% during 2015, primarily due to the items described above.
Restructuring charges for the year ended December 31, 2016 totaled $9.6 million, compared to $3.3 million for the year ended December 31, 2015. The $9.6 million of restructuring charges in 2016 primarily consisted of $7.3 million related to workforce reductions, of which $5.8 million related to our Healthcare segment and $0.6 million related to our Business Advisory segment, both to better align resources with market demand, and $0.9 million related to our corporate operations primarily to adjust our infrastructure to align with our Legal divestiture. The $9.6 million of restructuring charges also included $1.5 million related to updated lease accrual assumptions, primarily for our Washington, D.C. space vacated in the fourth quarter of 2014, and $0.3 million related to the wind down of our foreign operations based in the Middle East. The charges in 2015 consisted of $2.8 million related to workforce reductions to better align our resources with market demand and $0.5 million related to office exit costs primarily related to updated assumptions for the lease accrual of the Washington, D.C. space vacated in the fourth quarter of 2014. Of the overall $3.3 million pretax charge for 2015, $1.2 million related to our Healthcare segment, $1.1 million related to our All Other segment as we wound down our public sector consulting practice and our foreign consulting operations based in the Middle East, and $1.0 million related to our corporate operations. See Note 10 “Restructuring Charges” within the notes to our consolidated financial statements for further discussion of our restructuring expenses.
Litigation and other gains, net totaled $2.0 million for the year ended December 31, 2016, compared to $9.5 million for the year ended December 31, 2015. The total gain of $2.0 million in 2016 represented net remeasurement gains related to changes in the fair value of contingent consideration liabilities incurred in connection with business acquisitions. The total gain of $9.5 million in 2015 consisted of a $9.2 million net gain from litigation settlements and a $0.3 million remeasurement gain related to a decrease in the fair value of a contingent consideration liability incurred in connection with a business acquisition. During the fourth quarter of 2015, we settled two lawsuits brought by Huron, resulting in a gain of $10.0 million being recorded. We collected the $10.0 million in January 2016. During the second quarter of 2015, we recorded a net litigation accrual of $0.8 million related to the settlement of a legal claim.
Depreciation and amortization expense increased $6.4 million, or 25.3%, to $31.5 million for the year ended December 31, 2016, from $25.1 million for the year ended December 31, 2015. The increase was primarily attributable to amortization expense for intangible assets acquired in the Studer Group acquisition, as well as amortization expense for intangible assets acquired in the Cloud62, ADI Strategies, and HSM Consulting acquisitions. Intangible asset amortization included within operating expenses primarily relates to customer relationships, non-competition agreements, and trade names acquired in connection with our business acquisitions.
Operating Income
Operating income decreased $29.3 million, or 28.3%, to $74.2 million for the year ended December 31, 2016, from $103.5 million for the year ended December 31, 2015. Operating margin, which is defined as operating income expressed as a percentage of revenues, decreased to 10.2% in 2016 compared to 14.8% in 2015. The decrease in operating margin was primarily attributable to the increase in salaries and related expenses for our revenue-generating professionals as a percentage of revenues, the decrease in litigation and other gains, net, and the increase in restructuring charges as a percentage of revenues, partially offset by the decrease in share-based compensation expense for our revenue-generating professionals in 2016 compared to 2015.
Other Expense, Net
Total other expense, net decreased $4.9 million to $15.1 million for the year ended December 31, 2016, from $19.9 million for the year ended December 31, 2015. The decrease was primarily attributable to a $1.9 million decrease in interest expense, net, a $1.7 million decrease in foreign currency transaction losses, and a $1.2 million gain during 2016 from an increase in the market value of our investments that are used to fund our deferred compensation liability compared to a $0.2 million loss during 2015. The decrease in interest expense was due to lower levels of borrowings under our credit facility during 2016 compared to 2015.
Income Tax Expense
For the year ended December 31, 2016, our effective tax rate was 33.3% as we recognized income tax expense from continuing operations of $19.7 million on income from continuing operations of $59.2 million. For the year ended December 31, 2015, our effective tax rate was 25.9% as we recognized income tax expense from continuing operations of $21.7 million on income from continuing operations of $83.6 million. Our effective tax rate for 2016 was lower than the statutory rate, inclusive of state income taxes, primarily due to valuation allowance reductions, certain credits and deductions, non-taxable income, and a discrete tax benefit related to share-based compensation, partially offset by non-deductible business expenses. In 2016, we released certain valuation allowances primarily related to foreign tax credits, as we expect to have sufficient foreign source income to utilize these credits before their expiration. Our effective tax rate for 2015 was lower than the statutory rate, inclusive of state income taxes, primarily due to the impact of a tax election made in the fourth quarter of 2015 to classify two of our wholly-owned foreign subsidiaries as disregarded entities for U.S. federal income tax purposes (commonly referred to as a “check-the-box” election). As a result of this election, we realized an income tax benefit of $13.0 million, of which $0.7 million is unrecognized, resulting in a net recognized tax benefit of $12.3 million. See Note 16 "Income Taxes" within the notes to our consolidated financial statements for additional information related to our income tax expense.

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Net Income from Continuing Operations
Net income from continuing operations was $39.5 million for the year ended December 31, 2016, compared to $61.9 million for the year ended December 31, 2015. The $22.4 million decrease in net income from continuing operations was primarily due to the decrease in operating income, partially offset by the decrease in other expense, net, as discussed above. As a result of the decrease in net income from continuing operations, partially offset by the reduction in diluted shares outstanding due to the share repurchases in the fourth quarter of 2015 and first quarter of 2016, diluted earnings per share from continuing operations for the year ended December 31, 2016 was $1.84 compared to $2.74 for 2015.
Discontinued Operations
Net loss from discontinued operations for the year ended December 31, 2016 was $1.9 million and primarily related to obligations for former employees, legal fees, and updated lease assumptions for vacated office space directly related to the sale of the Legal segment. Net loss from discontinued operations for the year ended December 31, 2015 was $2.8 million. See Note 3 "Discontinued Operations" within the notes to our consolidated financial statements for additional information about our discontinued operations.
EBITDA and Adjusted EBITDA
EBITDA decreased $21.6 million, or 15.0%, to $122.1 million for the year ended December 31, 2016, from $143.6 million for the year ended December 31, 2015. Adjusted EBITDA decreased $9.5 million, or 6.8%, to $129.7 million in 2016 from $139.1 million in 2015. The decrease in EBITDA was primarily due to the decrease in segment operating income, as discussed below in Segment Results, and the decrease in litigation and other gains. The decrease in Adjusted EBITDA was primarily due to the decrease in segment operating income, exclusive of restructuring charges.
Adjusted Net Income from Continuing Operations
Adjusted net income from continuing operations increased $1.2 million, or 1.8%, to $68.7 million for the year ended December 31, 2016, compared to $67.6 million for the year ended December 31, 2015. As a result of the increase in adjusted net income from continuing operations, coupled with the reduction in diluted shares outstanding due to the share repurchases in the fourth quarter of 2015 and first quarter of 2016, adjusted diluted earnings per share from continuing operations for 2016 was $3.21, compared to $2.99 for 2015.
Segment Results
Healthcare
Revenues
Healthcare segment revenues decreased $22.0 million, or 4.9%, to $424.9 million for the year ended December 31, 2016, from $446.9 million for the year ended December 31, 2015. Revenues for 2016 included $10.3 million from our acquisitions of MyRounding and HSM Consulting, both of which were completed during 2016, and $10.7 million of incremental revenues due to the full year impact in 2016 of our acquisition of Studer Group, which was completed mid-first quarter 2015.
For the year ended December 31, 2016, revenues from fixed-fee engagements, time-and-expense engagements, performance-based arrangements, and software support and maintenance and subscription arrangements represented 68.9%, 11.6%, 13.5%, and 6.0% of this segment’s revenues, respectively, compared to 75.7%, 7.2%, 11.7%, and 5.4%, respectively, in 2015.
Of the overall $22.0 million decrease in revenues, $39.2 million was attributable to a decrease in revenue from our full-time billable consultants, partially offset by a $17.2 million increase in revenue generated by our full-time equivalents.
The decrease in revenue attributable to our full-time billable consultants reflected decreases in the average number of full-time billable consultants, the average billing rate, and consultant utilization rate. This decrease in revenue was largely driven by a decrease in revenue in our revenue cycle and cost and clinical solutions compared to the prior year. Performance-based fee revenue was $57.2 million in 2016 compared to $52.3 million in 2015. Performance-based fee arrangements may cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria.
The increase in full-time equivalent revenues was primarily attributable to the full period impact of our acquisition of Studer Group, as well as overall growth of the Studer Group practice, and reflected increases in both the average number of full-time equivalents and revenue per full-time equivalent during the year ended December 31, 2014in 2016 compared to the same period last year.

2015.


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Operating Income

Huron

Healthcare segment operating income increased $17.1decreased $21.7 million, or 12.1%12.8%, to $159.0$147.9 million for the year ended December 31, 2014,2016, from $141.9$169.6 million for the year ended December 31, 2013.2015. The Huron Healthcare segment operating margin, defined as segment operating income expressed as a percentage of segment revenues, decreased to 38.2%34.8% in 20142016 from 39.5%37.9% in 2013.2015. The decrease in this segment’s operating margin was primarily attributable to an increase in salaries and related expenses for our revenue-generating professionals as a percentage of revenues, as well as increases in contractor expensesalaries and intangible asset amortization expense as percentages of revenues,related expenses for our support personnel and restructuring charges, partially offset by revenue growth that outpaced the increasea decrease in bonusshare-based compensation expense for our revenue-generating professionals during 2014as a percentage of revenues in 2016 compared to 2013.

Huron Legal

2015.

Education
Revenues

Huron Legal

Education segment revenues increased $1.2$15.8 million, or 0.7%11.8%, to $183.6$149.8 million for the year ended December 31, 2014,2016, from $182.4$134.0 million for the year ended December 31, 2013. During 2014, revenues2015. Revenues from time-and-expense

fixed-fee engagements, fixed-feetime-and-expense engagements, performance-based arrangements, and software support and maintenance and subscription arrangements represented 95.9%14.4%, 2.8%78.9%, 1.2%0.7%, and 0.1% of this segment’s revenues, respectively. During 2013, revenues from time-and-expense engagements, fixed-fee engagements, and software support and maintenance arrangements represented 95.6%, 3.8%, and 0.6% of this segment’s revenues, respectively.

Of the overall $1.2 million increase in revenues, $1.9 million was attributable to an increase in revenue generated by our full-time equivalents, partially offset by a $0.7 million decrease in revenue generated by our full-time billable consultants. The increase in revenue attributable to full-time equivalents was driven by an increase in revenue per full-time equivalent, partially offset by a decrease in the average number of full-time equivalents. The increase in full-time equivalent revenues reflected an increased demand for our discovery services. The $0.7 million decrease in full-time billable consultant revenue was driven by a decrease in the average number of full-time billable consultants, partially offset by increases in the consultant utilization rate and average billing rate during 2014 compared to 2013.

Operating Income

Huron Legal segment operating income increased $4.2 million, or 10.0%, to $46.2 million for the year ended December 31, 2014, from $42.0 million for the year ended December 31, 2013. Segment operating margin increased to 25.1% in 2014 from 23.0% in 2013. The increase in this segment’s operating margin was primarily attributable to a decrease in bonus expense and salaries and related expenses for our revenue-generating professionals, as well as a decrease in technology expense. These increases to operating margin were partially offset by increases in contractor expense and salaries and related expenses for our support personnel as a percentage of revenue.

Although Huron Legal full year revenues and operating income for 2014 increased compared to 2013, the fourth quarter of 2014 was significantly lower than each of the first three quarters of 2014 and did not meet management’s expectations, stemming largely from a more sudden than anticipated downturn in business resulting from the settlement of government investigations related to the credit crisis. The Huron Legal segment leadership team is currently executing several initiatives to improve the segment’s financial performance and increase sales of their service offerings. We believe that the services provided by the Huron Legal segment remain relevant in the marketplace and expect performance to improve during 2015 compared to the fourth quarter of 2014. In the event that the segment’s performance does not improve in line with our expectations during the first half of 2015, we may be required to perform an interim impairment analysis with respect to the carrying value of goodwill for this reporting unit prior to our annual test, and based on the outcome of that analysis, could be required to take an impairment charge as a result of any such test. For further discussion of our 2014 annual goodwill impairment test, see “Critical Accounting Policies—Carrying Values of Goodwill and Other Intangible Assets” below and Note 3 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements.

Huron Education and Life Sciences

Revenues

Huron Education and Life Sciences segment revenues increased $2.4 million, or 1.6%, to $146.0 million for the year ended December 31, 2014, from $143.6 million for the year ended December 31, 2013. Revenues for 2014 included $15.5 million from The Frankel Group Associates, a business that we acquired in the first quarter of 2014. Revenues from time-and-expense engagements, fixed-fee engagements, and software support and maintenance arrangements represented 71.2%, 24.3%, and 4.5%6.0% of this segment’s revenues, respectively, during 2014,2016, compared to 81.0%24.8%, 15.0%68.9%, 0.4%, and 4.0%,5.9% of this segment's revenues, respectively, in 2013.

during 2015.

Of the overall $2.4$15.8 million increase in revenues, $5.4$16.8 million was attributable to an increase in revenue generated by our full-time billable consultants, partially offset by a $3.0$1.0 million decrease in revenue generated byattributable to our full-time equivalents. The overall increase in revenues was driven by strong demand across all practices within this segment. The increase in revenues from our full-time billable consultants was driven byreflected increases in the consultant utilization rateaverage number of full-time billable consultants and the average billing rate, partially offset by a decrease in the average number of full-time billable consultantsconsultant utilization rate in 20142016 compared to 2013.2015. The decrease in revenue attributable tofrom our full-time equivalents was attributable toreflected decreases in both revenue per full-time equivalent and the average number of full-time equivalents and revenue per full-time equivalent in 20142016 compared to 2013.

2015.

Operating Income

Huron

Education and Life Sciences segment operating income increased $0.2$6.1 million, or 18.8%, to $36.1$38.3 million for the year ended December 31, 2014,2016, from $36.0$32.2 million for the year ended December 31, 2013.2015. The Huron Education and Life Sciences segment operating margin decreased slightlyincreased to 24.8%25.6% for 20142016 from 25.0%24.1% for 2013.2015. The decreaseincrease in this segment’s operating margin was primarily attributable to increasesdecreases in salaries and related expenses for both our revenue-generating professionals and support personnelproject costs, contractor expense, and bonus expense for our revenue-generating professionals, all as a percentage of revenues, partially offset by decreasesan increase in contractor expensesalaries and practice administration and meetings expense.

Huron related expenses for our revenue-generating professionals.

Business Advisory

Revenues

Huron

Business Advisory segment revenues increased $28.2$34.7 million, or 81.3%29.6%, to $62.8$151.5 million for the year ended December 31, 2014,2016, from $34.7$116.9 million for the year ended December 31, 2013.2015. Revenues for 20142016 included $30.0$24.2 million from our EPM practice (formerly referred to as Blue Stone International, a business that we acquiredacquisitions of ADI Strategies, which was completed during the fourth quarter of 2013), compared to revenues of $4.7 million during 2013. Included in the $30.02016, and $8.6 million of incremental revenues fromdue to the full year impact in 2016 of our EPM practiceacquisitions of Cloud62 and Rittman Mead India, which were completed in 2014 is $0.6 million from Threshold Consulting, Inc., a business that we acquired in the fourth quarter of 2014. 2015.
Revenues from fixed-fee engagements, time-and-expense engagements, fixed-feeperformance-based engagements, and performance-based engagementssoftware support and maintenance and subscription arrangements represented 79.5%19.8%, 13.8%74.6%, 4.1%, and 6.7%1.5% of this segment’ssegment's revenues, respectively, during 2014,2016 compared to 78.8%28.2%, 18.4%64.6%, 6.9%, and 2.8% of this segment’s revenues,0.3%, respectively, in 2013.2015. Performance-based fee revenue was $4.2 million for the year ended December 31, 2014,2016 was $6.2 million, of which $2.5$5.3 million was generated by Huron Transaction Advisory LLC, our registered broker-dealer established in the first quarter of 2014.broker-dealer. Performance-based fee revenue was $1.0 million for the year ended December 31, 2013.2015 was $8.0 million, of which $5.2 million was generated by Huron Transaction Advisory LLC. The level of performance-based fees earned may vary based on our clients’ preferences and the mix of services we provide. Performance-based fee arrangements may cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria.

Of the overall $28.2$34.7 million increase in revenues, $26.2$30.5 million was attributable to an increase in revenue generated by our full-time billable consultants and $2.0$4.2 million was attributable to our full-time equivalents. The increase in revenuesrevenue from our full-time billable consultants reflected an increase in the average number of full-time billable consultants, partially offset by decreases in ourthe average billing rate and consultant utilization rate and average billing rate when comparing 2014in 2016 compared to 2013.2015. The increase in revenue attributable to our full-time equivalents was driven by an increase in the average number of full-time equivalents, partially offset by a decrease in revenue per full-time equivalent. The increases in the average number of full-time billable consultants was primarily the result of our acquisitions of ADI Strategies and Cloud62. The increase in revenue from our full-time equivalents and the decreasesreflected increases in both the average billing ratenumber of full-time equivalents and revenue per full-time equivalent are largely the resultin 2016 compared to 2015.

36
Table of our acquisition of Blue Stone International.

Contents



Operating Income

Huron

Business Advisory segment operating income increaseddecreased by $6.8$1.9 million, or 94.6%5.9%, to $14.0$29.4 million for the year ended December 31, 2014,2016, compared to $7.2$31.2 million for the year ended December 31, 2013. Segment operating margin increased to 22.3% for 2014 from 20.8% for 2013. The increase in this segment’s operating margin was primarily attributable to revenue growth that outpaced the increases in bonus expense for our revenue-generating professionals and salaries and related expenses for both our revenue-generating professionals and support personnel. Decreases in restructuring expense, severance expense, and bonus expense for our support personnel also contributed to the increase in the operating margin, partially offset by increases in contractor expense, practice administration and meetings expense, and promotion and sponsorship expense as percentages of revenue.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenues

Revenues increased $94.5 million, or 15.1%, to $720.5 million for the year ended December 31, 2013, from $626.0 million for the year ended December 31, 2012. Of the overall $94.5 million increase in revenues, $87.9 million was attributable to our full-time consultants, while $6.6 million was attributable to our full-time equivalents.

The $87.9 million increase in full-time billable consultant revenues was driven by increases in the average number of billable consultants, our average bill rate, and our consultant utilization rate. This increase primarily reflected strengthened demand for our services in the Huron Healthcare, Huron Education and Life Sciences, and Huron Business Advisory segments. Revenue attributable to full-time consultants included an increase of $16.3 million in performance-based revenue, which was primarily generated by our Huron Healthcare segment. The level of performance-based fees earned may vary based on our clients’ preferences and the mix of services we provide. Performance-based fee engagements may cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria.

The $6.6 million increase in full-time equivalent revenues was driven by increases in revenue per full-time equivalent and the average number of full-time equivalents. Revenue attributable to full-time equivalents reflected increased use of contractors in the Huron Education and Life Sciences, Huron Healthcare, and Huron Business Advisory segments, partially offset by decreased demand for our document review services in the Huron Legal segment.

Total Direct Costs

Our total direct costs increased $57.9 million, or 14.9%, to $446.6 million for the year ended December 31, 2013 from $388.7 million for the year ended December 31, 2012. The increase was primarily related to a $64.3 million increase in salaries, bonuses, and related expenses for our revenue-generating professionals, partially offset by a $5.1 million decrease in contractor expense, a $1.0 million decrease in intangible asset amortization expense, and a $0.5 million decrease in technology expense. As a percentage of revenues, our total direct costs slightly decreased to 62.0% during 2013 compared to 62.1% during 2012. This primarily reflected the decreases in contractor expense, technology expense, and intangible asset amortization expense, as well as revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals, largely offset by an increase in bonus expense for our revenue-generating professionals as a percentage of revenues during 2013.

Total direct costs for the year ended December 31, 2013 included $14.1 million of share-based compensation expense for our revenue-generating professionals compared to $11.6 million in 2012. The increase in share-based compensation expense was primarily driven by an increase in the number of awards earned in 2013 based on 2013 performance compared to the number that were earned in 2012 based on 2012 performance. In the fourth quarter of 2013, the Compensation Committee of the board of directors amended certain share-based awards outstanding under our 2012 Omnibus Incentive Plan and our 2004 Omnibus Stock Plan to provide for a retirement eligibility provision. Under this provision, eligible employees who have reached 62 years of age and have completed seven years of employment with the Company will continue vesting in their share-based awards after retirement, subject to certain conditions. In connection with this new provision, we recorded a one-time charge of $0.7 million in the fourth quarter of 2013 for additional share-based compensation expense.

As previously disclosed in our second quarter 2013 Form 10-Q, and as discussed in Note 2 “Summary of Significant Accounting Policies” within the notes to our consolidated financial statements, in the second quarter of 2013, we identified a $1.1 million error in share-based compensation expense resulting from the incorrect use of the straight-line attribution method, rather than the graded vesting attribution method, for performance awards with graded vesting features granted in prior periods. The $1.1 million pretax adjustment, which represented the cumulative error related to all prior period financial statements beginning with the first quarter of 2010 through the first quarter of 2013, resulted in a $0.9 million

increase in Direct costs and a $0.2 million increase in Selling, general and administrative expenses. After consideration of both quantitative and qualitative factors, we concluded that our previously issued annual and quarterly financial statements for the years 2010, 2011, and 2012 and the first quarter of 2013 were not materially misstated, and the effect of recognizing this adjustment during the second quarter of 2013 was not material for the period then ended and is not material for the full year 2013 results.

Total direct costs for the year ended December 31, 2013 also included $3.1 million of amortization expense for intangible assets and software development costs, primarily representing customer-related assets and software acquired in business combinations, compared to $3.8 million of intangible asset amortization expense in 2012. The decrease in intangible asset amortization expense was primarily attributable to an intangible asset that became fully amortized during the third quarter of 2012, partially offset by the amortization of intangible assets acquired in connection with our business acquisitions during 2013 and 2012.

Operating Expenses and Other Operating Gains

Selling, general and administrative expenses increased $13.3 million, or 10.6%, to $138.5 million for the year ended December 31, 2013, compared to $125.3 million for the year ended December 31, 2012. This increase was primarily related to a $12.2 million increase in salaries, bonuses, and related expenses for our support personnel, a $1.7 million increase in practice administration and meetings expenses, a $1.4 million increase in promotion and sponsorship expenses, a $1.0 million increase in computer equipment and software license expenses, and a $0.9 million increase in accounting, tax, and audit fees. These increases were partially offset by a $2.8 million decrease in facilities and other office related expenses and a $0.8 million decrease in training costs. As a percentage of revenues, selling, general and administrative expenses decreased to 19.2% during 2013 compared to 20.0% during 2012. This decrease primarily reflected the decreases in facilities and other office related expenses, training costs, and legal expenses, as well as our revenue growth that outpaced the growth in promotion and sponsorship expenses during 2013, partially offset by an increase in salaries, bonuses, and related expenses for our support personnel as a percentage of revenues. Also included in selling, general and administrative expenses is share-based compensation expense for our non-revenue-generating professionals, which totaled $4.3 million in 2013, compared to $4.0 million in 2012.

Restructuring expense for the year ended December 31, 2013 was $0.8 million compared to $4.0 million for the year ended December 31, 2012. The expense in 2013 primarily related to a $0.6 million restructuring charge related to the consolidation of office space in the Washington, D.C. area. This office space was acquired in the Adams Grayson acquisition that occurred in the second half of 2012. See Note 8 “Restructuring Charges” within the notes to our consolidated financial statements for further discussion of our restructuring expenses.

We did not incur restatement related expenses during the year ended December 31, 2013. During 2012, expenses incurred in connection with our 2009 restatement totaled $1.8 million and consisted primarily of legal fees. As a result of the 2012 settlement with the SEC, we do not expect to incur any additional restatement related expenses.

Net litigation and other gains totaled $5.9 million for the year ended December 31, 2013, compared to a litigation settlement loss of $1.2 million during 2012. During the third quarter of 2013, we reached a settlement agreement to resolve a lawsuit brought by Huron, resulting in a gain of $5.3 million being recorded. During the second quarter of 2012, we conducted preliminary settlement discussions in another litigation matter, and as a result, we recorded a charge of $1.2 million. In the first quarter of 2013, we were granted our motion for summary judgment and the complaint was dismissed in its entirety with prejudice. As a result, during the first quarter of 2013, we reversed the charge of $1.2 million taken during 2012. During the fourth quarter of 2013, we settled a dispute with a former client, and as a result recorded a charge of $0.6 million.

Depreciation expense increased $1.2 million, or 7.8%, to $16.5 million for the year ended December 31, 2013, from $15.3 million for the year ended December 31, 2012. The increase was primarily related to the depreciation of servers and network equipment placed into service in the fourth quarter of 2012 and first half of 2013. Non-direct intangible assets

amortization expense increased $0.8 million, or 24.5%, to $4.0 million in 2013 from $3.2 million in 2012. The increase in amortization expense reflected amortization related to certain intangible assets acquired as the result of business combinations during 2012 and 2013, partially offset by certain intangible assets from prior acquisitions that became fully amortized during the second half of 2012. Non-direct intangible assets amortization relates to customer relationships, non-competition agreements, trade names, and licenses acquired in connection with our acquisitions.

Goodwill impairment charge expense was $13.1 million during 2012 and was related to our Huron Business Advisory segment. See Note 3 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for further discussion of this charge.

Operating Income

Operating income increased $46.5 million, or 63.3%, to $119.9 million for the year ended December 31, 2013, from $73.4 million for the year ended December 31, 2012. Operating margin, which is defined as operating income expressed as a percentage of revenues, increased to 16.6% in 2013 compared to 11.7% in 2012. The increase in operating margin was primarily attributable to revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals and contractor expense, as well as the decreases in facilities and other office related expenses, restructuring expenses, and restatement expenses. These increases to the operating margin were partially offset by an increase in bonus expense for both our revenue-generating professionals and support personnel as a percentage of revenues when comparing 2013 to 2012. The operating margin in 2013 was also favorably impacted by the net litigation and other settlement gain in the period, while the operating margin in 2012 was negatively impacted by the goodwill impairment charge and litigation settlement loss in that period.

Other Expense, Net

Other expense, net decreased $1.5 million, or 19.6%, to $6.3 million for the year ended December 31, 2013, from $7.8 million for the year ended December 31, 2012. The decrease was attributable to a $1.7 million, or 20.7%, decrease in interest expense in 2013, which was the result of a decrease in our borrowing levels combined with lower interest rates during the period.

Income Tax Expense

For the year ended December 31, 2013, we recognized income tax expense from continuing operations of $47.2 million on income from continuing operations of $113.6 million, for an effective tax rate of 41.5%. For the year ended December 31, 2012, we recognized income tax expense from continuing operations of $29.7 million on income from continuing operations of $65.6 million, for an effective tax rate of 45.2%. Our effective tax rate for 2013 was higher than the statutory rate, inclusive of state income taxes, primarily due to the impact of foreign losses with no tax benefit and certain non-deductible business expenses, partially offset by the impact of certain credits and deductions. Our effective tax rate for 2012 was higher than the statutory rate, inclusive of state taxes, primarily due to the impact of foreign losses with no tax benefit, partially offset by the release of reserves for uncertain tax positions. The foreign losses with no tax benefit and the non-deductible expenses had a larger impact on our effective tax rate in 2012 compared to 2013 due to the lower pretax income from continuing operations in 2012.

Net Income from Continuing Operations

Net income from continuing operations was $66.5 million for the year ended December 31, 2013, compared to $36.0 million for the year ended December 31, 2012. The $30.5 million increase in net income from continuing operations was primarily due to the increase in operating income, as discussed above, partially offset by the corresponding increase in income tax expense. The offsetting increase in income tax expense was partially mitigated by a lower effective tax rate in 2013 compared to 2012. As a result of the increase in net income from continuing operations, diluted earnings per share from continuing operations for the year ended December 31, 2013 was $2.92 compared to $1.61 for 2012.

EBITDA and Adjusted EBITDA

EBITDA increased $47.7 million to $143.5 million for the year ended December 31, 2013, from $95.8 million for the year ended December 31, 2012. Adjusted EBITDA increased $22.6 million to $138.4 million in 2013 from $115.8 million in 2012. The increase in EBITDA was primarily driven by increases in the segment operating income of our Huron Healthcare and Huron Business Advisory segments, partially offset by decreases in the segment operating income of our Huron Education and Life Sciences and Huron Legal segments, as discussed below in Segment Results. The increase in EBITDA was also due to decreases in the goodwill impairment charge, restructuring expenses, and restatement related expenses in 2013 compared to 2012. The increase in Adjusted EBITDA was primarily due to the increase in segment operating income in 2013.

Adjusted Net Income from Continuing Operations

Adjusted net income from continuing operations was $67.5 million for the year ended December 31, 2013, compared to $52.2 million for the year ended December 31, 2012. The increase was primarily attributable to the increase in segment operating income.

Segment Results

Huron Healthcare

Revenues

Huron Healthcare segment revenues increased $70.0 million, or 24.2%, to $358.8 million for the year ended December 31, 2013, from $288.8 million for the year ended December 31, 2012. Revenues from time-and-expense engagements, fixed-fee engagements, performance-based arrangements, and software support and maintenance arrangements represented 1.6%, 64.6%, 29.1%, and 4.7% of this segment’s revenues in 2013, respectively, compared to 1.3%, 62.4%, 30.7%, and 5.6% in 2012, respectively.

Of the overall $70.0 million increase in revenues, $68.5 million was attributable to our full-time billable consultants and $1.5 million was attributable to our full-time equivalents. The increase in demand for our services in the Huron Healthcare segment reflects the increased pressures our clients face as the result of evolving business models, rising costs, and declining reimbursements from government and commercial payers. The increase in full-time billable consultant revenues reflected increases in the average number of full-time billable consultants, consultant utilization rate, and average billing rate. Performance-based fee revenue was $104.5 million during 2013 compared to $88.6 million during 2012. This increase in performance-based fee revenue reflected our execution of favorable results at certain healthcare clients during the fourth quarter of 2013. The level of performance-based fees earned may vary based on our clients’ preferences and the mix of services we provide. Performance-based fee arrangements may cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria. With regard to our full-time equivalents, the Huron Healthcare segment experienced an increase in revenue per full-time equivalent, partially offset by a decrease in the average number of full-time equivalents during 2013 compared to 2012.

Operating Income

Huron Healthcare segment operating income increased $31.0 million, or 28.0%, to $141.9 million for the year ended December 31, 2013, from $110.9 million for the year ended December 31, 2012. The Huron Healthcare segment operating margin, defined as segment operating income expressed as a percentage of segment revenues, increased to 39.5% in 2013 from 38.4% in 2012. The increase in this segment’s operating margin was primarily attributable to revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals, as well as decreases in technology expense, contractor expense, intangible asset amortization expense, legal expenses, and severance expense, partially offset by an increase in the bonus expense for our revenue-generating professionals as a percentage of revenues during 2013 compared to 2012.

Huron Legal

Revenues

Huron Legal segment revenues decreased $2.5 million, or 1.4%, to $182.4 million for the year ended December 31, 2013, from $184.9 million for the year ended December 31, 2012. Revenues from time-and-expense engagements, fixed-fee engagements, and software support and maintenance arrangements represented 95.6%, 3.8%, and 0.6% of this segment’s revenues during 2013, respectively, compared to 95.5%, 4.3%, and 0.2% in 2012, respectively.

Of the overall $2.5 million decrease in revenues, $1.9 million was attributable to a decrease in revenue generated by our full-time equivalents, while $0.6 million was attributable to a decrease in revenue generated by our full-time billable consultants. The decrease in revenue attributable to full-time equivalents was driven by a decrease in revenue per full-time equivalent, partially offset by an increase in the average number of full-time equivalents. The decrease in full-time equivalent revenues reflected a decreased demand for our document review services. The $0.6 million decrease in full-time billable consultant revenue was driven by decreases in the consultant utilization rate and average bill rate, partially offset by an increase in the average number of full-time billable consultants.

Operating Income

Huron Legal segment operating income decreased $2.3 million, or 5.3%, to $42.0 million for the year ended December 31, 2013, from $44.3 million for the year ended December 31, 2012.2015. Segment operating margin decreased to 23.0% in 201319.4% for 2016 from 24.0% in 2012.26.7% for 2015. The decrease in this segment’s operating margin was primarily attributable to increases in salaries and related expenses for both our revenue-generating professionals and support personnel,as a percentage of revenues, as well as increases in technologycontractor expenses and intangible asset amortization expense and promotion and sponsorship expenses, largely offset byas a percentage of revenues. These decreases in contractor expense, bonus expense for our revenue-generating professionals, and restructuring expense as percentages of revenues.

Huron Education and Life Sciences

Revenues

Huron Education and Life Sciences segment revenues increased $14.2 million, or 11.0%, to $143.6 million for the year ended December 31, 2013, from $129.4 million for the year ended December 31, 2012. Revenues from time-and-expense engagements, fixed-fee engagements, and software support and maintenance arrangements represented 81.0%, 15.0%, and 4.0% of this segment’s revenues during 2013, respectively, compared to 78.2%, 17.9%, and 3.9% in 2012, respectively.

Of the overall $14.2 million increase in revenues, $8.4 million was attributable to our full-time billable consultants and $5.8 million was related to our full-time equivalents. The overall increase in demand for our services in the Huron Education and Life Sciences segment reflected the increased competitive pressures faced by our clients as the result of increased regulation, rising costs, and declining funding. The increase in revenues from our full-time billable consultants was driven by increases in the average number of full-time billable consultants and the average billing rate in 2013 compared to 2012,margin were partially offset by a decrease in the consultant utilization rate. The increase in revenue attributable to our full-time equivalents was driven by an increase in the average number of full-time equivalents in 2013 compared to 2012, partially offset by a decrease in revenue per full-time equivalent during the same period.

Operating Income

Huron Education and Life Sciences segment operating income decreased $2.3 million, or 6.1%, to $36.0 million for the year ended December 31, 2013, from $38.3 million for the year ended December 31, 2012. The Huron Education and Life Sciences segment operating margin decreased to 25.0% for 2013 from 29.6% for 2012. The decrease in this

segment’s operating margin was primarily attributable to increases in contractor expense, salaries and related expenses for both our revenue-generating professionals and support personnel, and practice administration and meetings expenses, all as percentages of revenues, partially offset by a decrease in bonus expense for our revenue-generating professionals.

Huron Business Advisory

Revenues

Huron Business Advisory segment revenues increased $12.7 million, or 57.5%, to $34.7 million for the year ended December 31, 2013, from $22.0 million for the year ended December 31, 2012. Revenues for 2013 included $4.7 million from our EPM practice (formerly referred to as Blue Stone International, a business that we acquired during the fourth quarter of 2013). Revenues from time-and-expense engagements, fixed-fee engagements, and performance-based engagements represented 78.8%, 18.4%, and 2.8% of this segment’s revenues during 2013, respectively, compared to 74.1%, 23.6%, and 2.3% of this segment’s revenues in 2012, respectively.

Of the overall $12.7 million increase in revenues, $12.1 million was attributable to our full-time billable consultants and $0.6 million was attributable to our full-time equivalents. The increase in revenues from our full-time billable consultants reflected an increase in our consultant utilization rate and the average number of full-time billable consultants, partially offset by a decrease in average bill rate when comparing 2013 to 2012. The increase in revenue attributable to our full-time equivalents was driven by an increase in revenue per full-time equivalent in 2013 compared to 2012. Performance-based fee revenues were $1.0 million in 2013 compared to $0.5 million in 2012. The overall increase in revenues is also partly attributable to an increase in demand for our restructuring and turnaround and operational improvement consulting services. The increased demand within this segment is partially the result of the initiatives we undertook during 2012, which included, among other things, broadening our service offerings, hiring additional managing directors, and increasing collaboration with our other practices, all of which were intended to increase demand for our services and improve the segment’s financial performance.

Operating Income

Huron Business Advisory segment operating income increased by $5.3 million to $7.2 million for the year ended December 31, 2013, compared to $1.9 million for the year ended December 31, 2012. Segment operating margin increased to 20.8% for 2013 from 8.6% for 2012. The increase in this segment’s operating margin was primarily attributable to revenue growth that outpaced the increase in salaries and related expensesperformance bonus expense for both our revenue-generating professionals and support personnel and decreasesprofessionals. The overall decrease in promotion and sponsorship expense and practice administration and meetings expenses, partially offset bythis segment's operating margin reflects an increase in bonus expense for both our revenue-generating professionalsthe Enterprise Solutions and support personnelAnalytics practice revenue as a percentage of revenues.

this segment's total revenue, as the recent growth of this practice, which has lower operating margins, outpaced the growth of the legacy Business Advisory and Life Sciences practices.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $256.9$16.9 million, $58.1$17.0 million, and $25.2$58.4 million at December 31, 2014, 2013,2017, 2016, and 2012,2015, respectively. As of December 31, 2014,2017, our primary sources of liquidity are cash on hand, cash flows from our U.S. operations, and borrowing capacity available under our credit facility.

Cash Flows

(in thousands):

  Year Ended December 31, 
  2014  2013  2012 

Net cash provided by operating activities

  $146,453   $115,258   $102,364  

Net cash used in investing activities

  $(93,831)  $(52,658)  $(74,239) 

Net cash provided by (used in) financing activities

  $146,170   $(29,648)  $(8,071) 

Cash Flows (in thousands): Year Ended December 31,
 2017 2016 2015
Net cash provided by operating activities $99,795
 $129,243
 $167,855
Net cash used in investing activities (128,948) (86,636) (272,158)
Net cash provided by (used in) financing activities 28,821
 (84,095) (93,543)
Effect of exchange rate changes on cash 214
 78
 (589)
Net decrease in cash and cash equivalents $(118) $(41,410) $(198,435)
Operating Activities

Net cash provided by operating activities totaled $146.5$99.8 million, $115.3$129.2 million, and $102.4$167.9 million for the years ended December 31, 2014, 2013,2017, 2016, and 2012,2015, respectively. Our operating assets and liabilities consist primarily of receivables from billed and unbilled services, accounts payable and accrued expenses, accrued payroll and related benefits, and deferred revenues. The volume of services rendered and the related billings and timing of collections on those billings, as well as payments of our accounts payable and salaries, bonuses, and related benefits to employees affect these account balances.

The increasedecrease in cash provided by operations in 20142017 compared to 20132016 was primarily attributable to increasedlower net income, the collection of a $10.0 million settlement receivable in the first quarter of 2016, and a decrease in cash collections from clients, driven by our growth in revenues, as well as lower tax payments, and higher net income, partially offset by decreased vendor and tax payments in 2017 compared to 2016.
The decrease in cash provided by operations in 2016 compared to 2015 was primarily attributable to lower net income, a decrease in cash collections from clients, and an increase in accounts payable payments to vendors, largely offset by a decrease in the amount paid for annual performance bonuses and an increase in unbilled services from clients. The increase in the unbilled services from clients was driven by several large healthcare implementation projects where the services provided and corresponding revenue recognized as of December 31, 2014 has exceeded the amount billed to the client in accordance with the contractual billing terms. We expect to bill and collect these unbilled services in 2015. The increase in unbilled services is largely offset by the improved collections on billed services.

The increase in cash provided by operations in 2013 when compared to 2012 was primarily attributable to higher net income and lower bonus payments in 2013, partially offset by an increase in receivables of billed and unbilled services from clients and increased tax payments during 2013 compared to 2012. The increase in receivables of billed services from clients was primarily driven by several large performance-based fee engagements where the revenue recognized as of December 31, 2013 was not collected until the first quarter of 2014.

2016 compared to the first quarter of 2015 and the collection of a settlement receivable in the first quarter of 2016.

Investing Activities

Net cash used in investing activities was $93.8$128.9 million, $52.7$86.6 million, and $74.2$272.2 million for the years ended December 31, 2014, 2013,2017, 2016, and 2012,2015, respectively.

The use of cash in 20142017 primarily consisted of $54.0$106.9 million for purchases of businesses $25.9and $24.4 million for purchases of property and equipment, primarily related to leasehold improvements and purchase of furniture and fixtures for new office spaces in certain locations.
The use of cash in 2016 primarily consisted of $69.1 million for purchases of businesses and $13.9 million for purchases of property and equipment.
The use of cash in 2015 primarily consisted of $340.0 million for purchases of businesses, $18.6 million for purchases of property and equipment, and $12.5$15.4 million for the purchase of a convertible debt investmentinvestments in Shorelight Holdings, LLC (“Shorelight”). Shorelight, the parent company of Shorelight Education, is a U.S.-based company that partners with leading nonprofit universities to increase access and retention of international students, boost institutional growth, and enhance an institution’s global footprint. The zero coupon convertible notes will mature on July 1, 2020, unless converted earlier.

The use of cash in 2013 primarily consisted2015 was partially offset by the net proceeds received of $30.3$108.5 million for purchasesthe sale of businesses and $20.2 millionthe Huron Legal segment in December 2015. See Note 3 "Discontinued Operations" within the notes to our consolidated financial statements for purchasesinformation about the sale of property and equipment.

The usethe Huron Legal segment.


37
Table of cash in 2012 primarily consisted of $32.2 million of additional purchase consideration earned by the selling shareholders of businesses that we acquired in previous years based on 2011 performance, $22.1 million for business acquisitions in 2012, and $17.5 million for purchases of property and equipment.

Contents



We estimate that the cash utilized for purchases of property and equipment and software in 20152018 will be approximately $30.0$15 million, primarily consisting of information technology related equipment and leasehold improvements to support our corporate infrastructure, software development costs, and our document review and processing services.

leasehold improvements.

Financing Activities

Net cash provided by financing activities was $146.2$28.8 million for the year ended December 31, 2014, while net2017. During 2017, we borrowed $277.5 million under our credit facility, primarily to fund our acquisitions of Innosight and Pope Woodhead and our annual performance bonus payment, and made repayments on our credit facility of $240.7 million.
Net cash used in financing activities was $29.6 million and $8.1$84.1 million for the yearsyear ended December 31, 2013 and 2012, respectively. In September 2014,2016. During 2016, we issued $250borrowed $200.0 million principal amount of the Convertible Notes, which provided proceeds of $242.7 million, net of issuance costs. In connection with the issuance of the Convertible Notes, we paid

$42.1 million for the convertible note hedge transactions and received $23.6 million for the sale of warrants. Borrowings made under our credit facility, primarily to fund operations during 2014 totaled $129.0 million, withthe acquisitions of HSM Consulting and ADI Strategies and our annual performance bonus payment, and we made repayments during the period totaling $154.0on our credit facility of $224.0 million. During 2014, weWe also repurchased and retired $50.0$55.3 million of our common stock under the February 2014our Share Repurchase Program, which completedas discussed below.

Net cash used in financing activities was $93.5 million for the repurchase program. In October 2014,year ended December 31, 2015. During 2015, we borrowed $314.0 million under our boardcredit facility, including $102.0 million for the Studer Group acquisition, made repayments on our credit facility of directors authorized an additional$365.8 million, and repurchased and retired $34.6 million of our common stock under our Share Repurchase Program.
Share Repurchase Program
We currently have a share repurchase program pursuantpermitting us to which we may, from time to time, repurchase up to $50.0$125 million of our common stock through October 31, 2015.2018 (the "Share Repurchase Program"). The amount and timing of the repurchases will be determined by management and will depend on a variety of factors, including the trading price of our common stock, capacity under our credit facility, general market and business conditions, and applicable legal requirements. In 2015, we repurchased and retired 583,880 shares for $34.6 million, and in 2016, we repurchased and retired 982,192 shares for $55.3 million. No shares were repurchased under this program in 2017. As of December 31, 2014, $50.02017, $35.1 million remainedremains available for share repurchases under the October 2014 Share Repurchase Program.

During 2013, our financing activities primarily consisted of $119.8 million of repayments on our credit facility, mostly offset by $96.0 million of borrowings made under our credit facility. Our financing activities during 2013 also included $5.4 million of deferred acquisition payments related to prior year acquisitions and $1.2 million for debt issuance costs.

During 2012, repayments on our credit facility totaled $274.0 million, while borrowings made under our credit facility totaled $273.0 million. Our cash used in financing activities during 2012 also included $4.4 million of cash paid for employees’ tax withholding obligations as part of a net-share settlement of share-based awards, $2.5 million of cash paid for debt issuance costs, and $2.0 million for deferred acquisition payments.

repurchases.

Financing Arrangements

At December 31, 2014,2017, we had $250 million principal amount of our 1.25% convertible senior notes outstanding, and $143.8$105.0 million outstanding under our term loan,senior secured credit facility, and $4.9 million outstanding under a promissory note, as discussed below.

1.25% Convertible Senior Notes

In September 2014, we issued $250$250.0 million principal amount of the Convertible Notes in a private offering. The Convertible Notes are senior unsecured obligations of the Company and will pay interest semi-annually on April 1 and October 1 of each year at an annual rate of 1.25%. The Convertible Notes will mature on October 1, 2019, unless earlier repurchased by the Company or converted in accordance with their terms.

Upon conversion, the Convertible Notes will be settled, at our election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amount of the Convertible Notes paid in cash, in accordance with the settlement provisions of the Indenture.

The initial conversion rate for the Convertible Notes is 12.5170 shares of our common stock per $1,000 principal amount of the Convertible Notes, which is equal to an initial conversion price of approximately $79.89 per share of our common stock.

In connection with the issuance of the Convertible Notes, we entered into convertible note hedge transactions and warrant transactions. The convertible note hedge transactions are intended to reduce the potential future economic dilution associated with the conversion of the Convertible Notes and, combined with the warrants, effectively raise the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share.

For further information, see Note 57 “Financing Arrangements” within the notes to our consolidated financial statements. For a discussion of certain risks and uncertainties related to the Convertible Notes, see “PartPart I—Item 1A. Risk"Risk Factors.”

Senior Secured Credit Facility

During 2011,

The Company has a $500 million senior secured revolving credit facility, subject to the Company and certainterms of the Company’s subsidiaries as guarantors entered into ana Second Amended and Restated Credit Agreement dated as of March 31, 2015, as amended with various financial institutionsto date (as amended and modified the “2011"Amended Credit Agreement”Facility")., that becomes due and payable in full upon maturity on March 31, 2020. The 2011Amended Credit Agreement consists of a senior secured credit facility in an aggregate principal amount of $450.0 million comprised of a five-year revolving credit facility (“Revolver”) under which the Company may borrow from time to time up to $247.5 million and a $202.5 million five-year term loan facility (“Term Loan”) that was funded in a single advance on the closing date of the first amendment. The 2011 Credit Agreement provides for the option to increase the revolving credit facility or establish term loan facilities in an aggregate amount of up to $50$100 million, subject to certain requirements as definedcustomary conditions and the approval of any lender whose commitment would be increased, resulting in a maximum available principal amount under the 2011Amended Credit Agreement.Agreement of

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$600 million. The proceeds ofinitial borrowings under the senior secured credit facilityAmended Credit Agreement were used to refinance existing indebtednessborrowings outstanding under a prior credit agreement, and will continue tofuture borrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, acquisitions of businesses, share repurchases, and othergeneral corporate purposes.

The principal balance of the Term Loan is subject to scheduled quarterly principal payments. As of December 31, 2014, the quarterly principal payments are $6.3 million

Fees and increase to $7.5 million beginning June 30, 2015 until the maturity date of September 25, 2018, at which time a final payment of $40 million, plus any accrued and unpaid interest will be due, as set forthon borrowings vary based on our Consolidated Leverage Ratio (as defined in the 2011Amended Credit Agreement. Any outstandingAgreement). At our option, borrowings under the Revolver, as amended,Amended Credit Agreement will bear interest at one, two, three or six-month LIBOR or an alternate base rate, in each case plus the applicable margin. The applicable margin will fluctuate between 1.25% per annum and 2.00% per annum, in the case of LIBOR borrowings, or between 0.25% per annum and 1.00% per annum, in the case of base rate loans, based upon our Consolidated Leverage Ratio at such time.
Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty. We are required to prepay the amounts outstanding under the Amended Credit Agreement in certain circumstances, including a requirement to pay all amounts outstanding 90 days prior to the Convertible Indebtedness Maturity Date (as defined in the Amended Credit Agreement) unless (1) the Convertible Indebtedness Maturity Date is waived or extended to a later date, (2) the Company can demonstrate (a) Liquidity (as defined in the Amended Credit Agreement) in an amount at least equal to the principal amount due upon expirationon the Convertible Indebtedness Maturity Date, and (b) financial covenant compliance after giving effect to such payments and any additional indebtedness incurred on a pro forma basis, or (3) this requirement is waived by the Required Lenders (as defined in the Amended Credit Agreement). In addition, we have the right to permanently reduce or terminate the unused portion of the 2011commitments provided under the Amended Credit Agreement on September 25, 2018.

Under the 2011at any time.

The Amended Credit Agreement contains usual and customary representations and warranties; affirmative and negative covenants, which include limitations on liens, investments, additional indebtedness, and restricted payments; and two quarterly financial covenants as follows: (i) a maximum Consolidated Leverage Ratio (defined as the ratio of debt to consolidated EBITDA) ranging from 3.25 to 1.00 to 3.75 to 1.00, depending on the measurement period, and (ii) a minimum Consolidated Interest Coverage Ratio (defined as the ratio of consolidated EBITDA to interest) of 3.50 to 1.00. Consolidated EBITDA for purposes of the financial covenants is calculated on a continuing operations basis and includes adjustments to add back, among other items, share-based compensation costs, non-cash goodwill impairment charges, non-cash restructuring charges, and pro forma historical EBITDA for businesses acquired. At December 31, 2017, we were in compliance with these financial covenants with a Consolidated Leverage Ratio of 3.02 to 1.00 and a Consolidated Interest Coverage Ratio of 12.43 to 1.00.
The Amended Credit Agreement contains restricted payment provisions, including a potential limit on the amount of dividends are restrictedand share repurchases we may make. Pursuant to the terms of the Amended Credit Agreement, if our Consolidated Leverage Ratio is greater than 3.00, the amount of dividends, share repurchases, and other Restricted Payments (as defined in the Amended Credit Agreement) we may make is limited to an amount up to $50 million plus 50% of cumulative consolidated net income (as defined in the Amended Credit Agreement) from the closing date of the 2011Amended Credit Agreement plus 50% of the net cash proceeds from equity issuances.

issuances after the closing date of the Amended Credit Agreement.

Borrowings outstanding under the senior secured credit facilityAmended Credit Agreement at December 31, 20142017 totaled $143.8 million, all of which was under the Term Loan.$105.0 million. These borrowings carried a weighted average interest rate of 2.3%3.7%, including the effectimpact of the interest rate swapsswap in effect as of December 31, 2017 and described below in “Item 7A. QuantitativeNote 11 “Derivative Instruments and Qualitative Disclosures About Market Risk.”Hedging Activity" within the notes to the consolidated financial statements. Borrowings outstanding under the Amended Credit Agreement at December 31, 2016 were $68.0 million and carried a weighted average interest rate of 2.5%, including the impact of the interest rate swap in effect as of December 31, 2016. The borrowing capacity under the Revolverrevolving credit facility is reduced by any outstanding borrowings under the Revolverrevolving credit facility and outstanding letters of credit. At December 31, 2014,2017, we had no borrowings outstanding under the Revolver, and outstanding letters of credit totaled $5.1totaling $1.9 million, which are primarily used as security deposits for our office facilities. As of December 31, 2014,2017, the unused borrowing capacity under the 2011 Credit Agreement was $242.4 million. The average daily outstanding balance under ourrevolving credit facility was $165.2 million during the year ended December 31, 2014.

Borrowings outstanding under this credit facility at December 31, 2013 were $168.8 million and carried a weighted average interest rate of 2.0% including the effect of the interest rate swaps.

$393.1 million.

For further information, see Note 57 “Financing Arrangements” within the notes to ourthe consolidated financial statements. For a discussion of certain risks and uncertainties related to the 2011Amended Credit AgreementFacility, see “PartPart I—Item 1A. Risk"Risk Factors.”

Promissory Note due 2024
On June 30, 2017, in conjunction with our purchase of an aircraft related to the acquisition of Innosight, we assumed, from the sellers of the aircraft, a promissory note with an outstanding principal balance of $5.1 million. The principal balance of the promissory note is subject to scheduled monthly principal payments until the maturity date of March 1, 2024, at which time a final payment of $1.5 million, plus any accrued and unpaid interest, will be due. Under the terms of the promissory note, we will pay interest on the outstanding principal amount at a rate of one-month LIBOR plus 1.97% per annum. The obligations under the promissory note are secured pursuant to a Loan and Aircraft Security Agreement with Banc of America Leasing & Capital, LLC, which grants the lender a first priority security interest in the aircraft. At December 31, 2017, the outstanding principal amount of the promissory note was $4.9 million. As of December 31, 2017, the aircraft had a carrying amount of $6.5 million.
For further information, see Note 7 “Financing Arrangements” within the notes to the consolidated financial statements.

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Future Needs

Our primary financing need has been to fund our growth. Our growth strategy is to expand our service offerings, which may require investments in new hires, acquisitions of complementary businesses, possible expansion into other geographic areas, and related capital expenditures. We believe our internally generated liquidity, together with our available cash, on hand, the borrowing capacity available under our revolving credit facility, and access to external capital resources will be adequate to fund our long-term growth and capital needs arising from cash commitments and debt service obligations. Our ability to secure short-term and long-term financing in the future will depend on several factors, including our future profitability, the quality of our accounts receivable and unbilled services, our relative levels of debt and equity, and the overall condition of the credit markets.


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CONTRACTUAL OBLIGATIONS

The following table represents our significant obligations and commitments as of December 31, 20142017 and the scheduled years of payments (in thousands).

       Payments Due by Period 
   Total   Less than
1 Year		   1-3 Years   3-5 Years   More than
5 Years		 

Long-term bank borrowings—principal and interest(1)

  $149,535   $30,977   $62,963    $55,595    $—   

Convertible senior notes—principal and interest(2)

   265,807     3,307     6,250     256,250     —   

Capital lease obligations(3)

   49     49     —       —  ��    —   

Operating lease obligations(3)

   79,882     14,577     23,267     15,245     26,793  

Purchase obligations(4)

   19,961     13,665     5,607     689    —   

Uncertain tax positions(5)

   2,488          

Deferred compensation(6)

   7,452          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $525,174    $62,575    $98,087    $327,779    $26,793  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

   Payments Due by Period
 Total 
Less than
1 Year
 1-3 Years 3-5 Years 
More than
5 Years
Convertible senior notes—principal and interest (1)
$256,250
 $3,125
 $253,125
 $—
 $—
Long-term bank borrowings—principal and interest (2)
113,335
 3,704
 109,631
 —
 —
Promissory note—principal and interest (3)
5,548
 656
 1,302
 1,290
 2,300
Operating lease obligations (4)
99,960
 14,739
 25,710
 21,707
 37,804
Contingent consideration (5)
22,828
 8,515
 12,513
 1,800
 —
Purchase obligations (6)
12,533
 10,442
 2,091
 —
 —
Transition tax on accumulated foreign earnings (7)
604
 48
 97
 97
 362
Deferred compensation (8)
17,678
        
Uncertain tax positions (9)
813
        
Total contractual obligations$529,549
 $41,229
 $404,469
 $24,894
 $40,466
(1)The interest payments on long-term bank borrowings are estimated in the table above based on the principal amount outstanding as of December 31, 2014, the scheduled quarterly principal payments, and the interest rate in effect as of December 31, 2014. The actual interest payments may differ in the future based on changes in our borrowings outstanding. Actual interest payments may also differ as the interest rate varies based on fluctuations in the variable base rates provided for in the 2011 Credit Agreement and the spread we pay over those base rates. Refer to “Liquidity and Capital Resources” and Note 5 “Financing Arrangements” within the notes to our consolidated financial statements for more information on our outstanding borrowings.

(2)(1)In September 2014, we issued $250 million principal of 1.25% convertible senior notes due 2019. We will pay cash interest on the outstanding notes at an annual rate of 1.25% semi-annually on April 1 and October 1 of each year until October 1, 2019, at which time we will repay any accrued and unpaid interest and the principal amount of all outstanding notes.

(2)The interest payments on long-term bank borrowings are estimated based on the principal amount outstanding and the interest rate in effect as of December 31, 2017. Actual future interest payments will differ due to changes in our borrowings outstanding and the interest rate on those borrowings, as the interest rate varies based on the fluctuations in the variable base rates and the spread we pay over those base rates pursuant to the Amended Credit Agreement. Refer to “Liquidity and Capital Resources” and Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for more information on our outstanding borrowings.
(3)The interest payments on the promissory note are estimated based on the principal amount outstanding, scheduled principal payments, and the interest rate in effect as of December 31, 2017. Actual future interest payments may differ due to changes in the principal amount outstanding and the interest rate on that principal amount, as the interest rate varies based on the fluctuations in the one-month LIBOR rate. Refer to “Liquidity and Capital Resources” and Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for more information on the promissory note.
(4)We lease our facilities and equipment under operating and capital lease arrangements expiring on various dates through 2024,2028, with various renewal options. We lease office facilities under non-cancelable operating leases that include fixed or minimum payments plus, in some cases, scheduled base rent increases over the term of the lease. Certain leases provide for monthly payments of real estate taxes, insurance and other operating expense applicable
(5)In connection with certain business acquisitions, we may be required to pay post-closing consideration to the property. Somesellers if specific financial performance targets are met over a number of years as specified in the related purchase agreements. As of December 31, 2017, the estimated fair value of the leases contain provisions whereby the future rental paymentscontingent consideration liability was $22.8 million. The maximum amount that may be adjusted for increases in operating expense above the specified amount.paid under contingent consideration liabilities existing as of December 31, 2017 is $56.2 million.

(4)
(6)Purchase obligations include sponsorships, subscriptions to research tools, information technology, and other commitmentsagreements to purchase goods or services wherethat are enforceable, are legally binding, and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include agreements that are cancelable without penalty.
(7)As a result of the 2017 Tax Reform, we cannot cancel or would beare required to pay a termination feeone-time transition tax on our accumulated foreign earnings as of December 31, 2017, which were primarily generated by our operations in Canada. We have the event of cancellation.

(5)Our liabilities for uncertain tax positions are classifiedoption to pay this liability in installments over the next eight years as non-current. As we are unable to reasonably estimate the timing of future payments as it depends on examinations by taxing authorities, the related balance has not been reflected in the “Payments Due by Period” section oftable above, and the table.payments may be offset with certain foreign tax credits.

(6)
(8)Included in Deferreddeferred compensation and other liabilities on our Consolidated Balance Sheetconsolidated balance sheet as of December 31, 20142017 is a $7.5$17.7 million obligation for deferred compensation. As theThe specific payment dates for the deferred compensation are unknown,unknown; therefore, the related balances have not been reflected in the “Payments Due by Period” section of the table. This deferred compensation liability is fully funded by corresponding deferred compensation plan assets. Refer to Note 1214 “Employee Benefit and Deferred Compensation Plans” within the notes to our consolidated financial statements for more information on our deferred compensation plan.

(9)Our liabilities for uncertain tax positions are classified as non-current. We are unable to reasonably estimate the timing of future payments as it depends on examinations by taxing authorities; as such, the related balance has not been reflected in the “Payments Due by Period” section of the table.


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OFF-BALANCE SHEET ARRANGEMENTS

We haveare not entered intoa party to any material off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our significant accounting policies are discussed in Note 2 “Summary of Significant Accounting Policies,” within the notes to our consolidated financial statements. We regularly review our financial reporting and disclosure practices and accounting policies to ensure that our financial reporting and disclosures provide accurate information relative to the current economic and business environment. The preparation of financial statements in conformity with GAAP requires management to make assessments, estimates, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those policies that we believe present the most complex or subjective measurements and have the most potential to impact our financial position and operating results. While all decisions regarding accounting policies are important, we believe that there are fourfive accounting policies that could be considered critical: revenue recognition, allowances for doubtful accounts and unbilled services, business combinations, carrying values of goodwill and other intangible assets, and accounting for income taxes.

Revenue Recognition

We recognize revenues in accordance with Account Standards Codification (“ASC”) 605, “Revenue Recognition.” Under ASC 605, revenue

Revenue is recognized when persuasive evidence of an arrangement exists, the related services are provided, the price is fixed or determinable, and collectability is reasonably assured. We generate the majority of our revenues from providing professional services under four types of billing arrangements: time-and-expense, fixed-fee (including software license revenue), time-and-expense, performance-based, and software support and maintenance for the software we deploy.

Time-and-expense billing arrangements require the client to pay based on the number of hours worked, the number of pages reviewed, or the amount of data processed by our revenue-generating professionals at agreed upon rates. We recognize revenues under time-and-expense arrangements as the related services are rendered.

and subscriptions.

In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for completing the engagements. We generally recognize revenues under fixed-fee billing arrangements using a proportionate performance approach, which is based on work completed to-date versus our estimates of the total services to be provided under the engagement. Contracts within our Studer Group solution are fixed-fee partner contracts with multiple deliverables, which primarily consist of coaching services, as well as seminars, materials and software products (“Partner Contracts”). Revenues for coaching services and software products are generally recognized on a straight-line basis over the length of the contract. All other revenues under Partner Contracts are recognized at the time the service is provided. Estimates of total engagement revenues and cost of services are monitored regularly during the term of the engagement. If our estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable.

In performance-based billing arrangements, fees are tied to the attainment of contractually defined objectives. We do not recognize revenues under performance-based billing arrangements until all related performance criteria are met.

We also generate revenues from licensing two types of proprietary software to clients.licenses for our revenue cycle management software and research administration and compliance software. Licenses for our revenue cycle management software are sold only as a component of our consulting projects, and the services we provide are essential to the functionality of the software. Therefore, revenues from these software licenses are recognized over the term of the related consulting services contract in accordance with ASC 605.contract. License revenue from our research administration and compliance software is generally recognized in accordance with ASC 985-605, generally in the month in which the software is delivered.

Time-and-expense billing arrangements require the client to pay based on the number of hours worked by our revenue-generating professionals at agreed upon rates. Time-and-expense arrangements also include certain speaking engagements, conferences, and publications purchased by our clients outside of Partner Contracts within our Studer Group solution. We recognize revenues under time-and-expense arrangements as the related services or publications are provided.
In performance-based billing arrangements, fees are tied to the attainment of contractually defined objectives. We enter into performance-based engagements in essentially two forms. First, we generally earn fees that are directly related to the savings formally acknowledged by the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review. Second, we have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur. We do not recognize revenues under performance-based billing arrangements until all related performance criteria are met.
Clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance. AnnualWe also generate subscription revenue from our cloud-based analytic tools and solutions. Software support and maintenance fee revenue isand subscription-based revenues are recognized ratably over the support or subscription period, which is generallyranges from one year.to three years. These fees are billed in advance and included in deferred revenues until recognized.

We have arrangements with clients in which we provide multiple elements of services under one engagement contract. Revenues under these types of arrangements are allocated to each element based on the element’s fair value in accordance with ASC 605 and recognized pursuant to the criteria described above.


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Provisions are recorded for the estimated realization adjustments on all engagements, including engagements for which fees are subject to review by the bankruptcy courts. Expense reimbursements that are billable to clients are included in total revenues and reimbursable expenses, and typically an equivalent amount of reimbursable expenses are included in total direct costs and reimbursable expenses. Reimbursable expenses are primarily recognized as revenue in the period in which the expense is incurred. Subcontractors that are billed to clients at cost are also included in reimbursable expenses.

When billings do not specifically identify reimbursable expenses, we allocate the portion of the billings equivalent to these expenses to reimbursable expenses.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenues in the accompanying consolidated balance sheets. Revenues recognized for services performed but not yet billed to clients are recorded as unbilled services. Client prepayments and retainers are classified as deferred revenues and recognized over future periods as earned in accordance with the applicable engagement agreement.

Refer to Note 2 “Summary of Significant Policies” for anticipated changes to our revenue recognition accounting policy upon adoption of Accounting Standards Update 2014-09 Revenue from Contracts with Customers effective January 1, 2018.
Allowances for Doubtful Accounts and Unbilled Services

We maintain allowances for doubtful accounts and for services performed but not yet billed based on several factors, including the estimated cash realization from amounts due from clients, an assessment of a client’s ability to make required payments, and the historical percentages of fee adjustments and write-offs by age of receivables and unbilled services. The allowances are assessed by management on a regular basis. These estimates may differ from actual results. If the financial condition of a client deteriorates in the future, impacting the client’s ability to make payments, an increase to our allowance might be required or our allowance may not be sufficient to cover actual write-offs.

We record the provision for doubtful accounts and unbilled services as a reduction in revenue to the extent the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client’s inability to make required payments on accounts receivables, we record the provision to selling, general and administrative expenses.

Carrying Values of Goodwill

Business Combinations
The assets acquired and Other Intangibles Assets

For acquisitions accounted for asliabilities assumed in a business combination, goodwill representsincluding identifiable intangible assets, are recorded at their estimated fair values as of the acquisition date. Goodwill is recorded as the excess of the costfair value of consideration transferred, including any contingent consideration, over the fair value of the net assets acquired. We are requiredbase the fair values of identifiable intangible assets on detailed valuations that require management to make significant judgments, estimates, and assumptions, such as the expected future cash flows to be derived from the intangible assets, discount rates that reflect the risk factors associated with future cash flows, and estimates of useful lives.

We measure and recognize contingent consideration at fair value as of the acquisition date. We estimate the fair value of contingent consideration based on either a probability-weighted assessment of the specific financial performance targets being achieved or a Monte Carlo simulation model, as appropriate. These fair value measurements require the use of significant judgments, estimates, and assumptions, including financial performance projections and discount rates. The fair value of the contingent consideration is reassessed quarterly based on assumptions used in our latest financial projections and input provided by practice leaders and management, with any change in the fair value estimate recorded in earnings in that period. Increases or decreases in the fair value of contingent consideration liabilities resulting from changes in the estimates or assumptions could materially impact the financial statements. See Note 4 "Acquisitions" within the notes to our consolidated financial statements for additional information regarding our acquisitions.
Carrying Values of Goodwill and Other Intangibles Assets
We test goodwill for impairment, at the reporting unit level, annually and whenwhenever events or circumstances indicate the fair valuemake it more likely than not that an impairment may have occurred. We perform our annual goodwill impairment test as of a reporting unit may be below its carrying value.November 30 and monitor for interim triggering events on an ongoing basis. A reporting unit is an operating segment or one level below an operating segment (referred to as a component) to which goodwill is assigned when initially recorded. We assign goodwill to reporting units based on our integration plans and the expected synergies resulting from the acquisition. We haveAt the time of our November 30, 2017 annual goodwill impairment test, we had six reporting units which consist of our Huronwith goodwill balances: Healthcare, Huron Legal, Huron Education, Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences. The Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences and All Other operating segments, and our Financial Advisory practice and Enterprise Performance Management (“EPM”) practice, whichreporting units make up our Huron Business Advisory operating segment.

We test goodwill for impairment annually and whenever

Under GAAP, we have the option to first assess qualitative factors to determine whether the existence of current events or circumstances makewould lead to a determination that it is more likely than not that an impairment may have occurred. We performthe fair value of one of our annual goodwill impairment test as of November 30 and monitor for interim triggering events on an ongoing basis.

Goodwillreporting units is reviewed for impairment utilizing a qualitative assessment or a two-step process. We have an option to make a qualitative assessment of a reporting unit’s goodwill for impairment.greater than its carrying value. If we choose to perform a qualitative assessment and determine the fair valueit is more likely than not exceedsthat the fair value of a reporting unit is greater than its carrying value, no further evaluationtesting is necessary. However, if we conclude otherwise, then we are required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying value of the reporting unit. If the fair value of the reporting unit is less than its


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carrying value, a non-cash impairment charge is recorded in an amount equal to that difference with the loss not to exceed the total amount of goodwill allocated to the reporting unit.
We have the option to bypass the qualitative assessment for any reporting unit and proceed directly to performing the quantitative goodwill impairment test.
For reporting units where we perform the two-step process, the first step requires us to comparequantitative test, we determine the fair value of each reporting unit, which we determine using a combination of the income approach and the market approach, toapproach. For a company such as ours, the respective carrying value, which includes goodwill. For companies providing services similar to those provided by us, the

income and market approaches will generally provide the most reliable indications of fair value because the value of such companies is dependent on their ability to generate earnings. If the fair value

The following is a discussion of the reporting unit exceeds its carrying value, theour goodwill is not considered impaired. If the carrying value is higher than the fair value, there is an indication that an impairment may exist andtests performed during 2017.
Second Quarter 2017 Goodwill Reallocation
In the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.

We tested our goodwill for impairment twice during 2014, as discussed below.

First Quarter 2014 Goodwill Reassignment.    During the first quarter of 2014,2017, we reorganized our internal operatingfinancial reporting structure, which management uses to better alignassess performance and allocate resources, by moving our service offerings and moved our EPMLife Sciences practice (formerly referred to as Blue Stone International, a business which we acquired during the fourth quarter of 2013) from the HuronEducation and Life Sciences reporting unit and segment to its own reporting unit within the Business Advisory segment. The remaining Education and Life Sciences segment is now referred to as the Huron Business AdvisoryEducation segment.

As a result of this change,the reorganization, we reassignedreallocated $10.8 million of the goodwill balance ofassociated with the EPM practice, which totaled $16.7 million as of March 31, 2014, from the Huronprevious Education and Life Sciences reporting unit to the EPMnew Life Sciences reporting unit which is partbased on the relative fair values of the Huron Business Advisory segment.

Life Sciences reporting unit and the remaining Education reporting unit. The estimated fair values were determined using a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting.

In conjunction with the goodwill reassignment,reallocation, we performed an interima goodwill impairment test for the goodwill balances within our Huron Education reporting unit and Life Sciences and EPM reporting unitsunit as of March 31, 2014. OurJune 1, 2017. Based on the results of the goodwill impairment test, we determined that the fair values of our Education reporting unit and Life Sciences reporting unit exceeded their carrying values. As such, we concluded there was no indication of goodwill impairment for either reporting unit at that time.
Second Quarter 2017 Goodwill Impairment Analysis
During the second quarter of 2017, we performed usinga goodwill impairment analysis for our Healthcare reporting unit as our Healthcare business had experienced a prolonged period of declining revenues, primarily driven by softness in our revenue cycle offering within our performance improvement solution. This softness was attributable to decreased demand for our services, the winding down of some of our larger projects, and a trend toward smaller projects, as well as fewer large integrated projects. In light of these challenges, several initiatives have been undertaken to improve the segment's financial performance, including repositioning our solutions to address the most critical needs of our clients, the expansion of our existing services such as those in our Studer Group, strategy, physician and technology offerings, and workforce reductions to better align resources with market demand. While the initiatives undertaken to improve the financial performance of our Healthcare segment began yielding some positive impacts, hospitals and health systems continued to face regulatory and funding uncertainty; therefore, we remained cautious about near-term growth. As we had previously disclosed in prior quarters, if the financial performance of our Healthcare segment continued to decline and did not meet our expectations, we could be required to perform an interim impairment analysis with respect to our carrying value of goodwill for the Healthcare reporting unit prior to our usual annual test. Based on forecasts prepared in the second quarter of 2017 in connection with our quarterly forecasting cycle, we determined that the likely time frame to improve the financial results of this segment would take longer than originally anticipated. As such, we concluded, during the second quarter of 2017, that the fair value of the Healthcare reporting unit may have no longer exceeded its carrying value. In connection with the preparation of our financial statements for the quarter ended June 30, 2017, we performed an interim impairment test on the Healthcare reporting unit.
Our interim goodwill impairment test indicated that the fair value of the Healthcare reporting was lower than its carrying value, which resulted in an impairment charge for the difference. To estimate the fair value of the Healthcare reporting unit, we relied on a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. Based on the estimated fair value of the Healthcare reporting unit, we recorded a $208.1 million non-cash pretax goodwill impairment charge to reduce the carrying value of goodwill in our Healthcare reporting unit. Refer to Note 5 “Goodwill and Intangible Assets" within the notes to the consolidated financial statements for additional information on our interim goodwill impairment analysis.
2017 Annual Goodwill Impairment Analysis 
Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2017 on our six reporting units with goodwill balances: Healthcare, Education, Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences. We elected to bypass the qualitative assessment and proceeded directly to the quantitative two-step process.goodwill impairment test.

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For each reporting unit, we reviewed goodwill for impairment by comparing the fair value of the reporting unit to its carrying value, including goodwill. In estimating the fair value of these twoeach reporting units,unit, we relied on a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. Based on the results of the first step of the goodwill impairment test, we determined that the fair valuesvalue of our Huronthe Healthcare, Education, Business Advisory, Strategy and Innovation, and Life Sciences and EPM reporting units exceeded their carrying valuesvalue by 46%40%, 120%, 115%, 33%, and 12%14%, respectively. SinceAs such, we concluded that there was no indication of goodwill impairment for these five reporting units. However, the results of the quantitative impairment test indicated that the fair value of eachthe Enterprise Solutions and Analytics reporting unit exceededdid not exceed its carrying value,value. Based on the second stepestimated fair value of the Enterprise Solutions and Analytics reporting unit, we recorded a $45.0 million non-cash pretax charge to reduce the carrying value of this reporting unit's goodwill to zero.
Our Enterprise Solutions and Analytics reporting unit was established with the acquisition of Blue Stone International, LLC in 2013. Since that time, we completed five additional business acquisitions within the reporting unit, most recently the acquisitions of the U.S. assets and international assets of ADI Strategies in May 2016 and April 2017, respectively. We record the assets acquired and liabilities assumed in business combinations, including identifiable intangible assets, at their estimated fair values as of the acquisition date, and goodwill is recorded as the excess of the fair value of consideration transferred, including any contingent consideration, over the fair value of the net assets acquired. Therefore, the initial accounting for an acquisition results in its fair value equaling its carrying value. As we have previously disclosed in prior quarters, due to this reporting unit’s relatively low headroom, in the event that the financial performance of the reporting unit did not meet our expectations during 2017, we could be required to take a non-cash impairment charge as a result of any goodwill impairment test was not necessary.

2014 Annual Goodwill Impairment Analysis.    Pursuanttest. During the first three quarters of 2017, the performance of Enterprise Solutions and Analytics continued to reasonably meet our policy, we performedexpectations. However, both revenues and operating margin during the fourth quarter of 2017 fell short of our expectations resulting in a reduction in workforce within the reporting unit during that quarter. Further, in connection with our annual budget process for 2018, which coincided with our annual goodwill impairment test asduring the fourth quarter of November 30, 2014 on our five reporting units with goodwill balances: Huron Healthcare, Huron Legal, Huron Education and Life Sciences, Financial Advisory and EPM. Our All Other reporting unit does not have a goodwill balance.

For the Huron Healthcare, Huron Education and Life Sciences, and Financial Advisory reporting units,2017, we first qualitatively assessed whether it was more likely than notdetermined that the respective fair values of these reporting units were lessunit's expected future revenue growth rates and operating margin would be lower than their carrying amounts, including goodwill. We considered various qualitative factors, including macroeconomic conditions, relevant industry and market trendspreviously anticipated for eachthis reporting unit, and other entity-specific eventsunit. As a result, our goodwill impairment test indicated that could indicate a potential change in the fair value of our reporting units or the composition of their carrying values. We considered the specific outlooks for eachEnterprise Solutions and Analytics reporting unit based on our most recent financial projections. We also consideredno longer exceeded its carrying value, and we recorded a $45.0 million non-cash pretax charge to write off the fact that mostentire carrying value of this reporting unit's goodwill.

In the valuation multiplesincome approach used in the market approach, which are derived from guideline companies, increased over the past year. In addition, we considered the most recent quantitative analysis performed for each reporting unit, which indicated the fair values of these reporting units significantly exceeded their carrying amounts. Based on our assessments, we determined that the fair values for the Huron Healthcare, Huron Education and Life Sciences, and Financial Advisory reporting units were more likely than not greater than their respective carrying amounts. As such, performing the first step of the two-step impairment test for these reporting units was unnecessary.

For the Huron Legal and EPM reporting units, we performed the first step of the quantitative two-step impairment test by comparingto calculate the fair value of eachall reporting unit to the respective carrying amount, including goodwill. Based on the results of the first step of the goodwill impairment test, we determined that the fair values of the Huron Legal and EPM reporting units, exceeded their carrying values by 28% and 14%, respectively. Since the fair value of each reporting unit exceeded its respective carrying value, the second step of the goodwill impairment test was not necessary.

In estimating the fair value of our Huron Legal and EPM reporting units, we relied on a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting.

In the income approach, we utilized a discounted cash flow analysis, which involves estimating the expected after-tax cash flows that will be generated by the reporting unit and then discounting those cash flows to present value reflecting the relevant risks associated with the reporting unit and the time value of money. This approach requires the use of significant estimates and assumptions, including long-term projections of future cash flows, market conditions, tax rates reflecting anticipated tax reform, and discount rates reflecting the risk inherent in future cash flows revenue growth, perpetual growth rates, and profitability, among others.for each reporting unit. In estimating future cash flows, we relied on an internally generated seven-year forecast. For periods after the seven-year forecast, we assumed a long-term annual revenue growth rate of 3.5%forecasts for botheach reporting units. Our forecast isunit based on historical experience, current backlog, expected market demand, and other industry information.information, and assumed a long-term annual revenue growth rate of 3.5% for all reporting units. Our discounted cash flow analysis assumed a 13.0% weighted average cost of capital (“WACC”) discount rate of 10.5% for boththe Healthcare, Education, and Life Sciences reporting units.

units, 14.5% for the Business Advisory reporting unit, 13.0% for the Enterprise Solutions and Analytics reporting unit, and 15.0% for the Strategy and Innovation reporting unit.

In the market approach, we utilized the guideline company method, which involved calculating valuation multiples based on operating data from guideline publicly traded companies. Multiples derived from guideline companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. TheseFor each reporting unit, these multiples are evaluated and adjusted based on our specific characteristics of the reporting unit relative to the selected guideline companies and applied to the reporting unit's operating data for the reporting units to arrive at an indication of value.

Determining the fair value of a reporting unit requires us to make significant judgments, estimates, and assumptions. While we believe that the estimates and assumptions underlying our valuation methodology are reasonable, these estimates and assumptions could have a significant impact on whether or not ana non-cash goodwill impairment charge is recognized and also the magnitude of any such charge. The results of an impairment analysis are as of a point in time. There is no assurance that the actual future earnings or cash flows of our reporting units will not differ significantly frombe consistent with our projections. We will monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods. Any significant decline in our operations could result in additional non-cash goodwill impairment charges.

While

The Life Sciences reporting unit has also been established primarily through recent business acquisitions: The Frankel Group Associates LLC in January 2014 and Pope Woodhead in January 2017. As discussed above, goodwill is recorded for such business acquisitions as the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, resulting in the fair value equaling the carrying value at the acquisition date. Based on the results of the first step of the Huron Legalour annual goodwill impairment analysis indicated itstest as of November 30, 2017, the Life Sciences reporting unit's fair value exceeded its carrying value includingby 14%. We will monitor any changes to our assumptions and will evaluate goodwill by 28%, or $28.7 million, this represents a decrease compared to the prior quantitative impairment analysis performed as of November 30, 2012, which, at that time, indicated its fair value exceeded its then carrying value by 60%, or $74.6 million. The decrease is primarily a result of a decrease in expected after-tax cash flows that will be generated by the reporting unit, which was driven by the decline in revenue and operating incomedeemed warranted during the second half of 2014, and especially the fourth quarter of 2014. Although Huron Legal full year revenues and operating income for 2014 increased compared to 2013, the fourth quarter 2014 results were significantly lower than each of the first three quarters of 2014 and did not meet management’s expectations, stemming largely from a more sudden than anticipated downturn in business resulting from the settlement of government investigations related to the credit crisis. The Huron Legal segment leadership team is currently executing several initiatives to improve the segment’s financial performance and increase sales of their service offerings. We believe that the services provided by the Huron Legal segment remain relevant in the marketplace and expect performance to improve during 2015 compared to the fourth quarter of 2014.future periods. In the event that the segment’sfinancial performance of the reporting unit does not improve in line withmeet our expectations during the first half of 2015,2018, we may be required to perform an interim impairment analysis with respect to the carrying value of goodwill for this reporting unit prior to our annual test, and based on the outcome of that analysis, could be required to take ana non-cash goodwill impairment charge as a result of any such test.


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The table below presents, based on the goodwill impairment test performed as of November 30, 2014,2017, the decrease in the fair value of our Huron Legal and EPM reporting units given a 100 basis point increase in the assumed discount rate or a 100 basis point decrease in the assumed long-term annual revenue growth rate.

   Huron Legal  Enterprise
Performance Management		 
   Decrease in
Fair Value of
the Reporting
Unit
(in thousands)		   Percentage by
which Fair
Value Exceeds
Carrying
Amount		  Decrease in
Fair Value of
the Reporting
Unit
(in thousands)		   Percentage by
which Fair
Value Exceeds
Carrying
Amount		 

Discount rate—increase by 100 bps

  $5,300     23%  $1,500     9% 

Long-term growth rate—decrease by 100 bps

  $2,500     26%  $800     11% 

The table below excludes the Enterprise Solutions and Analytics reporting unit as its carrying value of goodwill was reduced to zero as a result of our 2017 annual goodwill impairment test and an increase in the assumed discount rate or a decrease in the assumed long-term growth rate would not result in a change to the non-cash impairment charge.

  
Discount rate increased by
100 bps
 
Long-term growth rate decreased by
100 bps
Healthcare:    
Decrease in fair value $(46,700) $(32,600)
Percentage by which fair value exceeds carrying value 31% 33%
Education:    
Decrease in fair value $(16,900) $(12,600)
Percentage by which fair value exceeds carrying value 106% 110%
Business Advisory:    
Decrease in fair value $(2,200) $(1,400)
Percentage by which fair value exceeds carrying value 107% 110%
Strategy and Innovation:    
Decrease in fair value $(5,500) $(3,100)
Percentage by which fair value exceeds carrying value 27% 30%
Life Sciences    
Decrease in fair value $(2,100) $(1,400)
Percentage by which fair value exceeds carrying value 4% 7%
The carrying values of goodwill for each of our reporting units as of December 31, 20142017 are as follows (in thousands):

Reporting Unit

  Carrying Value
of Goodwill		 

Huron Healthcare

  $377,588  

Huron Legal

   52,555  

Huron Education and Life Sciences

   102,906  

Financial Advisory

   16,094  

Enterprise Performance Management

   18,003  
  

 

 

 

Total

  $567,146  
  

 

 

 

Reporting Unit 
Carrying Value
of Goodwill
Healthcare $428,729
Education 102,829
Business Advisory 16,094
Enterprise Solutions and Analytics —
Strategy and Innovation 87,411
Life Sciences 10,687
Total $645,750
Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill. Our intangible assets, net of accumulated amortization, totaled $24.7$72.3 million at December 31, 20142017 and primarily consist of customer contracts,relationships, trade names, customer relationships, non-competition agreements, trade names,contracts, technology and software, non-competition agreements, and a document reviewer database. We use valuation techniques in estimating the initial fair valuepublishing content, all of which were acquired intangible assets. These valuations are primarily based on the present value of the estimated net cash flows expected to be derived from the intangible assets, discounted for assumptions such as future customer attrition.through business combinations. We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. For example, higher or earlier-than-expected customer attrition may resultNo impairment charges for intangible assets were recorded in an increase in future amortization charges or an impairment charge for customer-related intangible assets.

2017.

Income Taxes

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. In determining our provision for income taxes on an interim basis, we estimate our annual effective tax rate based on information available at each interim period.

Deferred tax assets and liabilities are recorded for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in our management’s opinion, it is more likely than not that some portion or the entire deferred tax asset will not be realized.

Our tax positions are subject to income tax audits by federal, state, local, and foreign tax authorities. A tax benefit from an uncertain position may be recognized in the financial statements only if it is more likely than not that the position is sustainable, based on its technical merits.

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We measure the tax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time.

NEW ACCOUNTING PRONOUNCEMENTS

In August 2014,

Refer to Note 2 “Summary of Significant Accounting Policies" within the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15,Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Abilitynotes to Continue as a Going Concern. This ASU requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related footnote disclosures. The guidance will be effective for the Company for the fiscal year ending December 31, 2016, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This guidance requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718,Compensation—Stock Compensation, as it relates to such awards. This guidance is effective for the Company beginning in the first quarter of 2016, with early adoption permitted. The amendments of ASU 2014-12 may be applied either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying the amendments as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers, as a new Topic, ASC 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should 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. This guidance is effective for the Company beginning in the first quarter of 2017 and is to be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted. We are currently evaluating the potential effect of adopting this guidance on our consolidated financial statements as well as the transition methods.

In April 2014, the FASB issued ASU 2014-08,Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This guidance includes amendments that change the requirements for reporting discontinued operations and require additional disclosures about discontinued operations. Under theinformation on new guidance, only disposals representing a strategic shift in operations that has (or will have) a major effect on the entity’s operations and financial results should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, a major equity method investment, or other major parts of an entity. Additionally, the revised guidance requires expanded disclosures in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. This guidance is effective for the Company beginning in the first quarter of 2015. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11,Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as either a reduction to a deferred tax asset or separately as a liability depending on the existence, availability and/or use of an operating loss carryforward, a similar tax loss, or a tax credit carryforward. The Company adopted ASU 2013-11 effective January 1, 2014. The adoption of this guidance did not have any effect on the Company’s consolidated financial statements.

In March 2013, the FASB issued ASU No. 2013-05,Parent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity, which amends current accounting guidance on foreign currency matters. This guidance requires that the entire amount of a cumulative translation adjustment related to an entity’s investment in a foreign entity should be released when there has been a: (i) sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, (ii) loss of a controlling financial interest in an investment in a foreign entity, and (iii) step acquisition for a foreign entity. The Company adopted ASU 2013-05 effective January 1, 2014. The adoption of this guidance did not have any effect on the Company’s consolidated financial statements.

SUBSEQUENT EVENTS

Effective January 1, 2015, we completed our acquisition of Sky Analytics, Inc., a Massachusetts-based provider of legal spend management software for corporate law departments. Sky Analytics provides in-house legal departments with a web-based platform to access on-demand legal spend information and analytics. The results of operations of Sky Analytics will be included within the Huron Legal segment.

On February 12, 2015, we completed our acquisition of Studer Holdings, Inc. (“Studer Group”). Studer Group and its subsidiaries are primarily engaged in the healthcare and education consulting, coaching, and publishing business. Under the terms of the merger agreement, we acquired Studer Group for the base purchase price of $325 million, consisting of $323 million in cash and $2 million in Huron common stock. The cash component of the transaction was financed with cash on hand and borrowings under our senior secured credit facility. The results of operations of Studer Group will be included within the Huron Healthcare segment. Supplemental pro forma information of Studer Group is not available as of the date of these financial statements.

We have not yet completed a valuation of the assets acquired and liabilities assumed in either acquisition.

pronouncements.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to market risks primarily from changes in interest rates and changes in the market value of our investments.

Market Risk and Interest Rate Risk

The value of theour Convertible Notes is exposed to interest rate risk. Generally, the fair value of our fixed interest rate Convertible Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of our Convertible Notes is affected by our stock price. The remaining carrying value of our Convertible Notes was $212.9$233.1 million as of December 31, 2014,2017, which represents the liability component of the $250 million principal balance. The total estimated fair value of our Convertible Notes at December 31, 20142017 was $261.9$232.6 million, and was determined based on the quoted bid price of the Convertible Notes in an over-the-counter market as of the last day of trading for the year ended December 31, 2014,2017, which was $104.761$93.031 per $100 principal amount.

At December 31, 2016, the carrying value of our Convertible Notes was $224.1 million, and the estimated fair value of our Convertible Notes was $245.0 million, which was determined based on the quoted bid price of the Convertible Notes in an over-the-counter market as of the last day of trading for the year ended December 31, 2016, which was $98.007 per $100 principal amount.

Concurrent with the issuance of the Convertible Notes, we entered into separate convertible note hedge and warrant transactions. The convertible note hedge transactions are intended to reduce the potential future economic dilution associated with the conversion of the Convertible Notes and, combined with the warrants, effectively raise the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share. Under the convertible note hedge transactions, we have the option to purchase a total of approximately 3.1 million shares of our common stock, which is the number of shares initially issuable upon conversion of the Convertible Notes in full, at a price of approximately $79.89, which corresponds to the initial conversion price of the Convertible Notes, subject to customary anti-dilution adjustments substantially similar to those in the Convertible Notes. Under the warrant transactions, the holders of the warrants have the option to purchase a total of approximately 3.1 million shares of our common stock at a price of approximately $97.12. If the average market value per share of our common stock for the reporting period exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share.

We have exposure to changes in interest rates associated with borrowings under our bank credit facility, which has variable interest rates tied to the LIBOR Federal Funds Rate, Prime Rate, or Eurodollar Rate.an alternate base rate, at our option. At December 31, 2014,2017, we had borrowings outstanding under the credit facility totaling $143.8$105.0 million that carried a weighted average interest rate of 2.3%3.7% including the effectimpact of the interest rate swapsswap described below. A hypothetical 100 basis point change in this interest rate would have a $0.3$0.6 million effect on our pretax income, on an annualized basis, including the effect of the interest rate swaps.

swap. At December 31, 2016, our borrowings outstanding under the credit facility totaled $68.0 million and carried a weighted average interest rate of 2.5%, including the effect of the interest rate swap described below. The outstanding borrowings at December 31, 2016 were fully hedged against changes in interest rates by our interest rate swap, which had a notional amount of $68.0 million at December 31, 2016.

On December 8, 2011,April 4, 2013, we entered into a forward amortizing interest rate swap agreement effective on February 29, 2012March 31, 2014 and ending on April 14, 2016.August 31, 2017. We entered into this derivative instrument to hedge against the interest rate risks of

our variable-rate borrowings described above.borrowings. The swap had an initial notional amount of $56.6$60.0 million and amortizes throughoutamortized quarterly until April 2016. In April 2016, the term.notional amount of this interest rate swap increased to $86.0 million and continued to amortize quarterly until it expired in August 2017. Under the terms of the interest rate swap agreement, we received from the counterparty interest on the notional amount based on one-month LIBOR and we paid to the counterparty a fixed rate of 0.985%.

On June 22, 2017, we entered into a forward interest rate swap agreement effective August 31, 2017 and ending August 31, 2022, with a notional amount of $50.0 million. We entered into this derivative instrument to continue to hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one-month LIBOR and we pay to the counterparty a fixed rate of 0.9875%1.900%.

On May

We also have exposure to changes in interest rates associated with the promissory note assumed on June 30, 2012, we entered into an amortizing interest rate swap agreement effective on May 31, 2012 and ending on April 14, 2016. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings described above. The swap had an initial notional amount of $37.0 million and amortizes throughout the term. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one-month LIBOR and we pay to the counterparty a fixed rate of 0.70%.

On April 4, 2013, we entered into a forward amortizing interest rate swap agreement effective on March 31, 2014 and ending on August 31, 2017. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings described above. The swap has an initial notional amount of $60.0 million and amortizes such that, collectively2017 in connection with our other twopurchase of an aircraft, which has variable interest rate swaps, we are effectively fixingrates tied to LIBOR. At December 31, 2017, the interest rate on 80% of our Term Loan borrowings throughout the term of the swap agreement. Under the terms of the interest rate swap agreement, we will receive from the counterparty interest on the notional amount based on one-month LIBOR and we will pay to the counterparty a fixed rate of 0.985%.

Including the impact of the above swap agreements, the effective interest rate on $115.0 million of our variable-rate debt, which equals the notionaloutstanding principal amount of the swap agreementspromissory note was $4.9 million and carried an interest rate of 3.2%. A hypothetical 100 basis point change in effect at December 31, 2014, was 2.4%.

Wethis interest rate would have a non-interest bearing convertible debt investment in a privately-held company, which we accountde minimis effect on our pretax income.


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We do not use derivative instruments for as an available-for-sale security. As such, the investment is carried at fair value with unrealized holding gains and losses excluded from earnings and reported intrading or other comprehensive income. As of December 31, 2014, the fair value of the investment was $12.3 million, with a total cost basis of $12.5 million.

speculative purposes. From time to time, we invest excess cash in short-term marketable securities. These investments principally consist of overnight sweep accounts. Due to the short maturity of these investments, we have concluded that we do not have material market risk exposure.

We have a non-interest bearing convertible debt investment in a privately-held company, which we account for as an available-for-sale debt security. As such, the investment is carried at fair value with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income. As of December 31, 2017, the fair value of the investment was $39.9 million, with a total cost basis of $27.9 million. At December 31, 2016, the fair value of the investment was $34.7 million, with a total cost basis of $27.9 million.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company’s Consolidated Financial Statements and supplementary data begin on page F-1 of this Annual Report on Form 10-K.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2014.2017. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2014,2017, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports we file or submit under the Exchange Act, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company. Internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, and effected by the Company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

(i)Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii)Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii)Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of this report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 20142017 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control – Integrated Framework (2013). As a result of that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2014. 2017.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20142017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on page F-2 of this Annual Report on Form 10-K.


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Table of Contents


Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.OTHER INFORMATION.

None.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors, Executive Officers, Promoters and Control Persons

The information required by this item is incorporated by reference from portions of our definitive proxy statement for our annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A by April 30, 20152018 (the “Proxy Statement”) under “Nominees to Board of Directors,” “Directors Not Standing For Election” and “Executive Officers.”

Compliance with Section 16(a) of the Exchange Act

The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Section 16(a) Beneficial Ownership Reporting Compliance.”

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics (the “Code”) that is applicable to all of our employees, officers and directors. The Code is available on the Corporate Governance page of our investor relations website atwww.huronconsultinggroup.comir.huronconsultinggroup.com. If we make any amendments to or grant any waivers from the Code which are required to be disclosed pursuant to the Securities Exchange Act of 1934, we will make such disclosures on our website.

Corporate Governance

The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Board Meetings and Committees.”

ITEM 11.EXECUTIVE COMPENSATION.

Executive Compensation

The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Executive Compensation.”

Compensation Committee Interlocks and Insider Participation

The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Compensation Committee Interlocks and Insider Participation.”

Compensation Committee Report

The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Compensation Committee Report.”


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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes information as of December 31, 2014 with respect to equity compensation plans approved by shareholders.shareholders as of December 31, 2017. We do not have equity compensation plans that have not been approved by shareholders.

Plan Category

  Number of Shares
to be Issued Upon
Exercise of
Outstanding Options		   Weighted Average
Exercise Price of
Outstanding Options		   Number of Shares
Remaining Available
for Future Issuance
(excluding shares in
1st column)		 

Equity compensation plans approved by shareholders(1):

      

2004 Omnibus Stock Plan

   162,386    $26.69     —  (2) 

2012 Omnibus Incentive Plan

   36,617    $39.19     1,198,275  

Equity compensation plans not approved by shareholders

   N/A     N/A     N/A  
  

 

 

   

 

 

   

 

 

 

Total

   199,003    $28.99     1,198,275  
  

 

 

   

 

 

   

 

 

 

Plan Category
Number of Shares
to be Issued Upon
Exercise of
Outstanding Options
 
Weighted Average
Exercise Price of
Outstanding Options
 
Number of Shares
Remaining Available
for Future Issuance
(excluding shares in
1st column)
 
Equity compensation plans approved by shareholders:      
2004 Omnibus Stock Plan (1)
157,680
 $26.70
 —
 
2012 Omnibus Incentive Plan (2)
36,617
 $39.19
 1,273,361
 
Stock Ownership Participation Program (3)
—
 $—
 141,153
 
Equity compensation plans not approved by shareholdersN/A
 N/A
 N/A
 
Total194,297
 $29.06
 1,414,514
 
(1)Our 20122004 Omnibus IncentiveStock Plan was approved by our shareholders at our annual meeting held on May 1, 2012, and an amendment to the 2012 Omnibus Incentive Plan to increase the number of shares reserved for issuance thereunder by 850,000 shares was approved by our shareholders at our annual meeting held on May 2, 2014. Our previous equity compensation plans were approved by the existing shareholders prior to our initial public offering.

(2)Upon adoption of the 2012 Omnibus Incentive Plan, we terminated the 2004 Omnibus Stock Plan with respect to future awards and no further awards will be granted under this plan.

(2)Our 2012 Omnibus Incentive Plan was approved by our shareholders at our annual meeting held on May 1, 2012. At our annual meeting held on May 2, 2014, our shareholders approved an amendment to the 2012 Omnibus Incentive Plan to increase the number of shares reserved for issuance thereunder by 850,000 shares. At our annual meeting held on May 5, 2017, our shareholders approved an amended and restated 2012 Omnibus Incentive Plan which increased the number of shares authorized for issuance by 804,000 shares.
(3)Our Stock Ownership Participation Program was approved by our shareholders at our annual meeting held on May 1, 2015.

Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Stock Ownership of Certain Beneficial Owners and Management.”

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Certain Relationships and Related Transactions

The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Certain Relationships and Related Transactions.”

Director Independence

The information required by this item is incorporated by reference from portions of the Proxy Statement under “Nominees to Board of Directors,” “Directors Not Standing For Election,” and “Board Meetings and Committees.”

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Audit and Non-Audit Fees.”


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PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Documents filed as part of this Annual Report on Form 10-K.

1.Financial Statements—Our independent registered public accounting firm’s report and our Consolidated Financial Statements are listed below and begin on page F-1 of this Form 10-K.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of EarningsOperations and Other Comprehensive Income

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements


2.Financial Statement Schedules—The financial statement schedules required by this item are included in the Consolidated Financial Statements and accompanying notes.

3.Exhibit Index

Exhibit
Number

 Exhibit Description Filed
herewith		 Furnished
herewith		 Incorporated by Reference
    Form Period
Ending		  Exhibit  Filing Date

  2.1

 Agreement and Plan of Merger, dated as of January 26, 2015, by and among Huron Consulting Group Inc., Texas Acquisition Inc., Studer Holdings, Inc. and Fortis Advisors LLC, solely in the capacity as stockholders’ and optionholders’ representative thereunder.   8-K  2.1  2/13/15

  3.1

 Third Amended and Restated Certificate of Incorporation of Huron Consulting Group Inc.   10-K  12/31/04   3.1  2/16/05

  3.2

 Amended and Restated Bylaws of Huron Consulting Group Inc.   8-K  3.1  4/14/11

  4.1

 Specimen Stock Certificate.   S-1
(File No. 333-
115434)		  4.1  10/5/04

  4.2

 Indenture (including Form of Note) with respect to the Company’s 1.25% Convertible Senior Notes due 2019, dated as of September 10, 2014, between Huron Consulting Group Inc. and U.S. Bank National Association, as trustee.   8-K  10.1  9/16/14

10.1

 Office Lease, dated December 2003, between Union Tower, LLC and Huron Consulting Services LLC (formerly known as Huron Consulting Group LLC).   S-1

(File No. 333-
115434)

  10.1  10/5/04

10.2*

 Amended and Restated Huron Consulting Group Inc. 2004 Omnibus Stock Plan.   S-8  10.1  5/5/10

Exhibit
Number

 Exhibit Description Filed
herewith		 Furnished
herewith		 Incorporated by Reference
    Form Period
Ending		 Exhibit  Filing Date

10.3

 Amended and Restated Credit Agreement, dated as of April 14, 2011, among Huron Consulting Group Inc., as the Company, certain subsidiaries as Guarantors, the Lenders Party Hereto and Bank of America, N.A., as Administrative Agent and Collateral Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, PNC Bank, Harris Bank and Key Bank National Association as Co-Documentation Agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as Joint Lead Arrangers and Joint Book Managers.   8-K  10.1  4/19/11

10.4*

 Huron Consulting Group Inc. Deferred Compensation Plan as Amended and Restated effective January 1, 2009.   10-K 12/31/08 10.12  2/24/09

10.5*

 Amended and Restated Senior Management Agreement by and between Huron Consulting Group Inc. and James H. Roth.   8-K  10.1  1/14/10

10.6*

 Senior Management Agreement by and between Huron Consulting Group Inc. and Diane Ratekin.   8-K  10.1  3/22/11

10.7*

 Senior Management Agreement by and between Huron Consulting Group Inc. and C. Mark Hussey.   8-K  10.1  7/19/11

10.8

 Amended and Restated Security Agreement, dated as of April 14, 2011.   8-K  10.2  4/19/11

10.9

 Amended and Restated Pledge Agreement, dated as of April 14, 2011.   8-K  10.3  4/19/11

10.10*

 Huron Consulting Group Inc. 2012 Omnibus Incentive Plan, as amended and restated.   DEF 14A  Appendix A  3/24/14

10.11

 Amendment No. 1 to the Credit Agreement, dated as of August 31, 2012, by and among Huron Consulting Group Inc., as the Borrower, certain subsidiaries as Guarantors, the Lenders identified on the signature pages thereto, and Bank of America, N.A., as Administrative Agent for and on behalf of the Lenders.   8-K  10.1  9/4/12

10.12

 Joinder Agreement, dated as of August 20, 2012, by and between LegalSource LLC and Bank of America, N.A., as Administrative Agent and Collateral Agent under the Amended and Restated Credit Agreement dated as of April 14, 2011 among Huron Consulting Group Inc., as Borrower, the Guarantors identified therein, the Lenders identified therein and Bank of America, N.A. as Administrative Agent and Collateral Agent.   8-K  10.2  9/4/12

Exhibit
Number

 Exhibit Description Filed
herewith		 Furnished
herewith		 Incorporated by Reference
    Form Period
Ending		 Exhibit  Filing Date

10.13

 First Amendment to Lease by and between Huron Consulting Services LLC and Union Tower, LLC, dated August 23, 2004.   10-K 12/31/12 10.17  2/21/13

10.14

 Second Amendment to Lease by and between Huron Consulting Services LLC and Union Tower, LLC, dated March 14, 2007.   10-K 12/31/12 10.18  2/21/13

10.15

 Third Amendment to Lease by and between Huron Consulting Services LLC and Union Tower, LLC, dated April 2, 2010.   10-K 12/31/12 10.19  2/21/13

10.16

 Fourth Amendment to Lease by and between Huron Consulting Services LLC and Union Tower, LLC, dated December 31, 2012.   8-K  10.1  1/4/13

10.17*

 Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan Restricted Stock Agreement.   10-K 12/31/12 10.20  2/21/13

10.18

 Amendment No. 2 to the Credit Agreement, dated as of September 25, 2013, by and among Huron Consulting Group Inc., as the Borrower, certain subsidiaries as Guarantors, the Lenders identified on the signature pages thereto, and Bank of America, N.A., as Administrative Agent for and on behalf of the Lenders.   8-K  10.1  09/26/13

10.19

 Amendment No. 3 to the Credit Agreement, dated as of February 14, 2014, by and among Huron Consulting Group Inc., as the Borrower, certain subsidiaries as Guarantors, and Bank of America, N.A., as Administrative Agent for and on behalf of the Lenders.   10-K 12/31/13 10.20  2/26/14

10.20

 Amendment No. 4 to the Credit Agreement, dated as of June 27, 2014, by and among Huron Consulting Group Inc., as the Borrower, certain subsidiaries as Guarantors, and Bank of America, N.A., as Administrative Agent for and on behalf of the Lenders.   10-Q 6/30/13 10.1  7/30/14

10.21

 Amendment No. 5 to the Credit Agreement, dated as of September 3, 2014, by and among Huron Consulting Group Inc., as the Borrower, certain subsidiaries as Guarantors, and Bank of America, N.A., as Administrative Agent for and on behalf of the Lenders.   8-K  10.1  9/3/14

10.22

 Purchase Agreement, dated as of September 4, 2014, between Huron Consulting Group Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as Representatives of the several Initial Purchasers.   8-K  10.1  9/5/14

Exhibit
Number

 Exhibit Description Filed
herewith		 Furnished
herewith		 Incorporated by Reference
    Form Period
Ending		 Exhibit  Filing Date

10.23

 Base Convertible Bond Hedge Transaction Confirmation, dated as of September 4, 2014, by and between Huron Consulting Group Inc. and Bank of America, N.A.   8-K  10.2  9/5/14

10.24

 Base Convertible Bond Hedge Transaction Confirmation, dated as of September 4, 2014, by and between Huron Consulting Group Inc. and J.P. Morgan Securities LLC, as an agent for JPMorgan Chase Bank, National Association, London Branch.   8-K  10.3  9/5/14

10.25

 Base Issuer Warrant Transaction Confirmation, dated as of September 4, 2014, by and between Huron Consulting Group Inc. and Bank of America, N.A.   8-K  10.4  9/5/14

10.26

 Base Issuer Warrant Transaction Confirmation, dated as of September 4, 2014, by and between Huron Consulting Group Inc. and J.P. Morgan Securities LLC, as an agent for JPMorgan Chase Bank, National Association, London Branch.   8-K  10.5  9/5/14

10.27

 Additional Convertible Bond Hedge Transaction Confirmation, dated as of September 10, 2014, by and between Huron Consulting Group Inc. and Bank of America, N.A.   8-K  10.1  9/16/14

10.28

 Additional Convertible Bond Hedge Transaction Confirmation, dated as of September 10, 2014, by and between Huron Consulting Group Inc. and J.P. Morgan Securities LLC, as an agent for JPMorgan Chase Bank, National Association, London Branch.   8-K  10.2  9/16/14

10.29

 Additional Issuer Warrant Transaction Confirmation, dated as of September 10, 2014, by and between Huron Consulting Group Inc. and Bank of America, N.A.   8-K  10.3  9/16/14

10.30

 Additional Issuer Warrant Transaction Confirmation, dated as of September 10, 2014, by and between Huron Consulting Group Inc. and J.P. Morgan Securities LLC, as an agent for JPMorgan Chase Bank, National Association, London Branch.   8-K  10.4  9/16/14

10.31*

 Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan Restricted Stock Agreement (Stock Ownership Participation Program). X      

10.32*

 Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan Performance Stock Unit Agreement. X      

Exhibit
Number
Exhibit Description
Filed
herewith
Furnished
herewith
Incorporated by Reference
Form
Period
Ending
ExhibitFiling Date
2.1
Purchase Agreement, dated as of December 10, 2015, by and among Huron Consulting Group Inc., Huron Consulting Services LLC, Huron Consulting Group Holdings LLC, and Consilio, Inc.
  8-K 2.11/7/2016
3.1
Third Amended and Restated Certificate of Incorporation of Huron Consulting Group Inc.
  10-K12/31/20043.12/16/2005
3.2
Amended and Restated Bylaws of Huron Consulting Group Inc.
  8-K 3.110/28/2015
4.1
Specimen Stock Certificate.
  
S-1
(File No. 333-
115434)
 4.110/5/2004
4.2
Indenture (including Form of Note) with respect to the Company’s 1.25% Convertible Senior Notes due 2019, dated as of September 10, 2014, between Huron Consulting Group Inc. and U.S. Bank National Association, as trustee.
  8-K 4.19/16/2014
10.1
Office Lease, dated December 2003, between Union Tower, LLC and Huron Consulting Services LLC (formerly known as Huron Consulting Group LLC).
  
S-1
(File No. 333-
115434)
 10.110/5/2004
10.2*
Amended and Restated Huron Consulting Group Inc. 2004 Omnibus Stock Plan.
  S-8 10.15/5/2010
10.3*
Huron Consulting Group Inc. Deferred Compensation Plan as Amended and Restated effective January 1, 2009.
  10-K12/31/200810.122/24/2009
10.4*
Senior Management Agreement by and between Huron Consulting Group Inc. and John D. Kelly.
  8-K 10.11/6/2017
10.5*
Amended and Restated Senior Management Agreement by and between Huron Consulting Group Inc. and James H. Roth.
  8-K 10.21/6/2017
10.6*
Senior Management Agreement by and between Huron Consulting Group Inc. and C. Mark Hussey.
  8-K 10.31/6/2017

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Table of Contents


Exhibit
Number
Exhibit Description
Filed
herewith
Furnished
herewith
Incorporated by Reference
Form
Period
Ending
ExhibitFiling Date
10.7*
Senior Management Agreement by and between Huron Consulting Group Inc. and Diane E. Ratekin.
  8-K 10.41/6/2017
10.8
First Amendment to Lease by and between Huron Consulting Services LLC and Union Tower, LLC, dated August 23, 2004.
  10-K12/31/201210.172/21/2013
10.9
Second Amendment to Lease by and between Huron Consulting Services LLC and Union Tower, LLC, dated March 14, 2007.
  10-K12/31/201210.182/21/2013
10.10
Third Amendment to Lease by and between Huron Consulting Services LLC and Union Tower, LLC, dated April 2, 2010.
  10-K12/31/201210.192/21/2013
10.11
Fourth Amendment to Lease by and between Huron Consulting Services LLC and Union Tower, LLC, dated December 31, 2012.
  8-K 10.11/4/2013
10.12*
Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan Restricted Stock Agreement.
  10-K12/31/201210.202/21/2013
10.13
Purchase Agreement, dated as of September 4, 2014, between Huron Consulting Group Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as Representatives of the several Initial Purchasers.
  8-K 10.19/5/2014
10.14
Base Convertible Bond Hedge Transaction Confirmation, dated as of September 4, 2014, by and between Huron Consulting Group Inc. and Bank of America, N.A.
  8-K 10.29/5/2014
10.15
Base Convertible Bond Hedge Transaction Confirmation, dated as of September 4, 2014, by and between Huron Consulting Group Inc. and J.P. Morgan Securities LLC, as an agent for JPMorgan Chase Bank, National Association, London Branch.
  8-K 10.39/5/2014
10.16
Base Issuer Warrant Transaction Confirmation, dated as of September 4, 2014, by and between Huron Consulting Group Inc. and Bank of America, N.A.
  8-K 10.49/5/2014
10.17
Base Issuer Warrant Transaction Confirmation, dated as of September 4, 2014, by and between Huron Consulting Group Inc. and J.P. Morgan Securities LLC, as an agent for JPMorgan Chase Bank, National Association, London Branch.
  8-K 10.59/5/2014
10.18
Additional Convertible Bond Hedge Transaction Confirmation, dated as of September 10, 2014, by and between Huron Consulting Group Inc. and Bank of America, N.A.
  8-K 10.19/16/2014
10.19
Additional Convertible Bond Hedge Transaction Confirmation, dated as of September 10, 2014, by and between Huron Consulting Group Inc. and J.P. Morgan Securities LLC, as an agent for JPMorgan Chase Bank, National Association, London Branch.
  8-K 10.29/16/2014
10.20
Additional Issuer Warrant Transaction Confirmation, dated as of September 10, 2014, by and between Huron Consulting Group Inc. and Bank of America, N.A.
  8-K 10.39/16/2014

52
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Exhibit
Number
Exhibit Description
Filed
herewith
Furnished
herewith
Incorporated by Reference
Form
Period
Ending
ExhibitFiling Date
10.21
Additional Issuer Warrant Transaction Confirmation, dated as of September 10, 2014, by and between Huron Consulting Group Inc. and J.P. Morgan Securities LLC, as an agent for JPMorgan Chase Bank, National Association, London Branch.
  8-K 10.49/16/2014
10.22*
Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan Restricted Stock Agreement (Stock Ownership Participation Program).
  10-K12/31/201410.312/24/2015
10.23*
Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan Performance Stock Unit Agreement.
  10-K12/31/201410.322/24/2015
10.24*
Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan Stock Option Agreement.
  10-K12/31/201410.332/24/2015
10.25*
Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan NEO Performance Stock Unit Agreement.
  10-K12/31/201410.342/24/2015
10.26
Second Amended and Restated Credit Agreement, dated as of March 31, 2015, among Huron Consulting Group Inc., as Borrower, certain subsidiaries as Guarantors, the Lenders Party Hereto and Bank of America, N.A., as Administrative Agent and Collateral Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, PNC Bank, Bank of Montreal and Key Bank National Association as Co-Documentation Agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as Joint Lead Arrangers and Joint Book Managers.
  8-K 10.14/2/2015
10.27
Second Amended and Restated Security Agreement, dated as of March 31, 2015.
  8-K 10.24/2/2015
10.28
Second Amended and Restated Pledge Agreement, dated as of March 31, 2015.
  8-K 10.34/2/2015
10.29*
Huron Consulting Group Inc. Stock Ownership Participation Program.
  DEF 14A Appendix A3/20/2015
10.30*
Huron Consulting Group Inc. 2012 Omnibus Incentive Plan, as amended and restated effective May 1, 2017.

  DEF 14A Appendix A3/27/2017
10.31
Amendment No. 1 of the Second Amended and Restated Credit Agreement, dated as of February 28, 2017, by and among Huron Consulting Group Inc., as Borrower, certain subsidiaries, as Guarantors, and Bank of America, N.A., as Administrative Agent for and on behalf of the Lenders.

  8-K 10.13/6/2017
10.32
Amendment No. 2 of the Second Amended and Restated Credit Agreement, dated as of October 24, 2017, by and among Huron Consulting Group Inc., as Borrower, certain subsidiaries, as Guarantors, and Bank of America, N.A., as Administrative Agent for and on behalf of the Lenders.
  10-Q9/30/201710.111/1/2017
21.1
List of Subsidiaries of Huron Consulting Group Inc.
X     
23.1
Consent of PricewaterhouseCoopers LLP.
X     

53
Table of Contents


Exhibit
Number

Exhibit Description
Filed
herewith
Filed
Furnished
herewith
Furnished
herewith		Incorporated by Reference
Form
Period
Ending
ExhibitFiling Date

10.33*

31.1		Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan Stock Option Agreement.X

10.34*

Form of the Huron Consulting Group Inc. 2012 Omnibus Incentive Plan NEO Performance Stock Unit Agreement.X

21.1

List of Subsidiaries of Huron Consulting Group Inc.X

23.1

Consent of PricewaterhouseCoopers LLP.X

31.1

Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X   

31.2

Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X   

32.1

Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 X  

32.2

Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 X  

101.INS

XBRL Instance Document.X   

101.SCH

XBRL Taxonomy Extension Schema Document.X   

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.X   

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.X   

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.X   

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.X   

*Indicates the exhibit is a management contract or compensatory plan or arrangement.

ITEM 16.FORM 10-K SUMMARY
Not applicable.


54
Table of Contents


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Huron Consulting Group Inc.

   
(Registrant)   

Signature

  

Title

 

Date

/s/    James H. Roth

  President, Chief Executive Officer and Director February 24, 20152/28/2018
James H. Roth   

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Roth, C. Mark Hussey,John D. Kelly, and Diane Ratekin, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all and any other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

Signature

  

Title

 

Date

/s/    JAMES H. ROTH        

James H. Roth

 

/s/    JAMES H. ROTH    
President, Chief Executive Officer and Director

(Principal Executive Officer)

 February 24, 20152/28/2018
    James H. Roth

/s/    JOHNJOHN F. MCCARTNEY        

John F. McCartney

MCCARTNEY        		  Non-Executive Chairman of the Board February 24, 20152/28/2018
John F. McCartney

/s/    GEORGEGEORGE E. MASSARO        

George E. Massaro

MASSARO       		 Vice Chairman of the Board February 24, 20152/28/2018

/s/    C. MARK HUSSEY        

C. Mark Hussey

George E. Massaro		  

/s/    JOHN D. KELLY  
Executive Vice President, Chief Operating Officer,

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

 February 24, 20152/28/2018

/s/    JOHN D. KELLY        

John D. Kelly

  

Chief Accounting Officer and Assistant Treasurer

(Principal Accounting Officer)

 February 24, 2015

/s/    DUBOSE AUSLEY        

DuBose Ausley

JAMES D. EDWARDS  		 Director February 24, 20152/28/2018

/s/    JAMES D. EDWARDS        

James D. Edwards

/s/    H. EUGENE LOCKHART  Director February 24, 20152/28/2018

/s/    H. EUGENE LOCKHART        

H. Eugene Lockhart

/s/    JOHN S. MOODY  Director February 24, 20152/28/2018

/s/    JOHN S. MOODY        

John S. Moody

/s/   HUGH E. SAWYER Director February 24, 20152/28/2018
Hugh E. Sawyer

/s/    DEBRA ZUMWALT      

Debra Zumwalt

DEBRA ZUMWALT		 Director February 24, 20152/28/2018
Debra Zumwalt



55
Table of Contents


HURON CONSULTING GROUP INC.

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

INDEX
 Page

Report of Independent Registered Public Accounting Firm

F-2
F-2

Consolidated Balance Sheets at December 31, 20142017 and 2013

2016		F-3
F-3

Consolidated Statements of EarningsOperations and Other Comprehensive Income for the years ended December 31, 2014, 20132017, 2016, and 2012

2015		F-4
F-4

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 20132017, 2016, and 20122015

F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2014, 20132017, 2016, and 20122015

F-6

Notes to Consolidated Financial Statements

F-7


F-1
Table of Contents


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Huron Consulting Group Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting
In our opinion,We have audited the accompanying consolidated balance sheets of Huron Consulting Group Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statementsstatement of earningsoperations and other comprehensive income (loss), statement of stockholders’ equity and statement of cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Huron Consulting Group Inc. and its subsidiaries atthe Company as of December 31, 20142017 and December 31, 2013,2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20142017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2017, based on criteria established inInternal Control—Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.
Basis for Opinions
The Company’sCompany's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’sManagement's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ PricewaterhouseCoopers LLP

Chicago, IL

Illinois

February 24, 2015

28, 2018


We have served as the Company's auditor since 2002.

F-2
Table of Contents


HURON CONSULTING GROUP INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

   December 31,
2014		  December 31,
2013		 

Assets

   

Current assets:

   

Cash and cash equivalents

  $256,872   $58,131  

Receivables from clients, net

   98,640    123,750  

Unbilled services, net

   91,392    55,125  

Income tax receivable

   8,125    270  

Deferred income taxes, net

   14,772    15,498  

Prepaid expenses and other current assets

   16,358    19,740  
  

 

 

  

 

 

 

Total current assets

   486,159    272,514  

Property and equipment, net

   44,677    38,742  

Long-term investment

   12,250    —    

Other non-current assets

   20,998    16,485  

Intangible assets, net

   24,684    21,222  

Goodwill

   567,146    536,637  
  

 

 

  

 

 

 

Total assets

  $1,155,914   $885,600  
  

 

 

  

 

 

 

Liabilities and stockholders’ equity

   

Current liabilities:

   

Accounts payable

  $11,085   $8,185  

Accrued expenses

   17,089    19,180  

Accrued payroll and related benefits

   106,488    97,677  

Current maturities of long-term debt

   28,750    25,000  

Accrued consideration for business acquisitions

   226    5,177  

Income tax payable

   —      2,917  

Deferred revenues

   12,738    15,248  
  

 

 

  

 

 

 

Total current liabilities

   176,376    173,384  

Non-current liabilities:

   

Deferred compensation and other liabilities

   10,838    5,360  

Long-term debt, net of current portion

   327,852    143,750  

Deferred lease incentives

   13,359    12,355  

Deferred income taxes, net

   26,855    20,487  
  

 

 

  

 

 

 

Total non-current liabilities

   378,904    181,952  

Commitments and Contingencies

   

Stockholders’ equity

   

Common stock; $0.01 par value; 500,000,000 shares authorized; 24,976,395 and 25,246,565 shares issued at December 31, 2014 and December 31, 2013, respectively

   241    245  

Treasury stock, at cost, 2,097,173 and 1,993,769 shares at December 31, 2014 and December 31, 2013, respectively

   (94,074)   (88,091) 

Additional paid-in capital

   442,308    443,144  

Retained earnings

   254,814    175,763  

Accumulated other comprehensive loss

   (2,655)   (797) 
  

 

 

  

 

 

 

Total stockholders’ equity

   600,634    530,264  
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

  $1,155,914   $885,600  
  

 

 

  

 

 

 

 December 31, 2017 December 31, 2016
Assets   
Current assets:   
Cash and cash equivalents$16,909
 $17,027
Receivables from clients, net101,778
 94,246
Unbilled services, net57,618
 51,290
Income tax receivable4,039
 4,211
Prepaid expenses and other current assets10,951
 13,308
Total current assets191,295
 180,082
Property and equipment, net45,541
 32,434
Deferred income taxes, net16,752
 —
Long-term investment39,904
 34,675
Other non-current assets25,375
 24,814
Intangible assets, net72,311
 81,348
Goodwill645,750
 799,862
Total assets$1,036,928
 $1,153,215
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$9,194
 $7,273
Accrued expenses and other current liabilities20,144
 19,788
Accrued payroll and related benefits73,698
 82,669
Accrued contingent consideration for business acquisitions8,515
 1,985
Deferred revenues27,916
 24,053
Total current liabilities139,467
 135,768
Non-current liabilities:   
Deferred compensation and other liabilities20,895
 24,171
Accrued contingent consideration for business acquisitions, net of current portion14,313
 6,842
Long-term debt, net of current portion342,507
 292,065
Deferred lease incentives15,333
 10,703
Deferred income taxes, net1,097
 35,633
Total non-current liabilities394,145
 369,414
Commitments and contingencies
 
Stockholders’ equity   
Common stock; $0.01 par value; 500,000,000 shares authorized; 24,560,468 and 24,126,118 shares issued at December 31, 2017 and December 31, 2016, respectively241
 235
Treasury stock, at cost, 2,443,577 and 2,408,343 shares at December 31, 2017 and December 31, 2016, respectively(121,994) (113,195)
Additional paid-in capital434,256
 405,895
Retained earnings180,443
 351,483
Accumulated other comprehensive income10,370
 3,615
Total stockholders’ equity503,316
 648,033
Total liabilities and stockholders’ equity$1,036,928
 $1,153,215
The accompanying notes are an integral part of the consolidated financial statements.



F-3
Table of Contents


HURON CONSULTING GROUP INC.

CONSOLIDATED STATEMENTS OF EARNINGSOPERATIONS AND OTHER COMPREHENSIVE INCOME

(LOSS)

(In thousands, except per share amounts)

  Year Ended December 31, 
  2014  2013  2012 

Revenues and reimbursable expenses:

   

Revenues

 $811,332   $720,522   $625,961  

Reimbursable expenses

  77,875    67,267    55,764  
 

 

 

  

 

 

  

 

 

 

Total revenues and reimbursable expenses

  889,207    787,789    681,725  

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):

   

Direct costs

  500,171    443,539    384,884  

Amortization of intangible assets and software development costs

  4,888    3,091    3,809  

Reimbursable expenses

  77,856    67,320    55,772  
 

 

 

  

 

 

  

 

 

 

Total direct costs and reimbursable expenses

  582,915    513,950    444,465  
 

 

 

  

 

 

  

 

 

 

Operating expenses and other operating gains:

   

Selling, general and administrative expenses

  155,434    138,538    125,266  

Restructuring charges

  3,438    761    4,004  

Restatement related expenses

  —      —      1,785  

Litigation and other (gains) losses

  (590)   (5,875)   1,150  

Depreciation and amortization

  25,014    20,510    18,529  

Goodwill impairment charge

  —      —      13,083  
 

 

 

  

 

 

  

 

 

 

Total operating expenses and other operating gains

  183,296    153,934    163,817  
 

 

 

  

 

 

  

 

 

 

Operating income

  122,996    119,905    73,443  

Other income (expense), net:

   

Interest expense, net of interest income

  (8,741)   (6,518)   (8,223) 

Other income, net

  353    252    428  
 

 

 

  

 

 

  

 

 

 

Total other expense, net

  (8,388)   (6,266)   (7,795) 
 

 

 

  

 

 

  

 

 

 

Income from continuing operations before income tax expense

  114,608    113,639    65,648  

Income tax expense

  35,557    47,176    29,695  
 

 

 

  

 

 

  

 

 

 

Net income from continuing operations

  79,051    66,463    35,953  

Income (loss) from discontinued operations, net of tax

  —      (30)   475  
 

 

 

  

 

 

  

 

 

 

Net income

 $79,051   $66,433   $36,428  
 

 

 

  

 

 

  

 

 

 

Net earnings per basic share:

   

Net income from continuing operations

 $3.52   $2.98   $1.64  

Income (loss) from discontinued operations, net of tax

  —      —      0.02  
 

 

 

  

 

 

  

 

 

 

Net income

 $3.52   $2.98   $1.66  
 

 

 

  

 

 

  

 

 

 

Net earnings per diluted share:

   

Net income from continuing operations

 $3.45   $2.92   $1.61  

Income (loss) from discontinued operations, net of tax

  —      —      0.02  
 

 

 

  

 

 

  

 

 

 

Net income

 $3.45   $2.92   $1.63  
 

 

 

  

 

 

  

 

 

 

Weighted average shares used in calculating earnings per share:

   

Basic

  22,431    22,322    21,905  

Diluted

  22,925    22,777    22,285  

Comprehensive income:

   

Net income

 $79,051   $66,433   $36,428  

Foreign currency translation gain (loss), net of tax

  (1,618)   89    129  

Unrealized loss on investment, net of tax

  (250)   —      —    

Unrealized gain (loss) on cash flow hedging instruments, net of tax

  10    473    (279) 
 

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss)

  (1,858)   562    (150) 
 

 

 

  

 

 

  

 

 

 

Comprehensive income

 $77,193   $66,995   $36,278  
 

 

 

  

 

 

  

 

 

 

 Year Ended December 31,
 2017 2016 2015
Revenues and reimbursable expenses:     
Revenues$732,570
 $726,272
 $699,010
Reimbursable expenses75,175
 71,712
 70,013
Total revenues and reimbursable expenses807,745
 797,984
 769,023
Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
     
Direct costs454,806
 437,556
 401,915
Amortization of intangible assets and software development costs10,932
 15,140
 16,788
Reimbursable expenses75,436
 71,749
 69,932
Total direct costs and reimbursable expenses541,174
 524,445
 488,635
Operating expenses and other losses (gains), net:     
Selling, general and administrative expenses175,364
 160,204
 157,902
Restructuring charges6,246
 9,592
 3,329
Litigation and other losses (gains), net1,111
 (1,990) (9,476)
Depreciation and amortization38,213
 31,499
 25,135
Goodwill impairment charges253,093
 —
 —
Total operating expenses and other losses (gains), net474,027
 199,305
 176,890
Operating income (loss)(207,456) 74,234
 103,498
Other income (expense), net:     
Interest expense, net of interest income(18,613) (16,274) (18,136)
Other income (expense), net3,565
 1,197
 (1,797)
Total other expense, net(15,048) (15,077) (19,933)
Income (loss) from continuing operations before taxes(222,504) 59,157
 83,565
Income tax expense (benefit)(51,999) 19,677
 21,670
Net income (loss) from continuing operations(170,505) 39,480
 61,895
Income (loss) from discontinued operations, net of tax388
 (1,863) (2,843)
Net income (loss)$(170,117) $37,617
 $59,052
Net earnings (loss) per basic share:     
Net income (loss) from continuing operations$(7.95) $1.87
 $2.80
Income (loss) from discontinued operations, net of tax0.02
 (0.09) (0.13)
Net income (loss)$(7.93) $1.78
 $2.67
Net earnings (loss) per diluted share:     
Net income (loss) from continuing operations$(7.95) $1.84
 $2.74
Income (loss) from discontinued operations, net of tax0.02
 (0.08) (0.13)
Net income (loss)$(7.93) $1.76
 $2.61
Weighted average shares used in calculating earnings per share:     
Basic21,439
 21,084
 22,136
Diluted21,439
 21,424
 22,600
Comprehensive income (loss):     
Net income (loss)$(170,117) $37,617
 $59,052
Foreign currency translation adjustments, net of tax1,602
 64
 1,817
Unrealized gain (loss) on investment, net of tax4,724
 (97) 4,435
Unrealized gain (loss) on cash flow hedging instruments, net of tax429
 63
 (12)
Other comprehensive income6,755
 30
 6,240
Comprehensive income (loss)$(163,362) $37,647
 $65,292
The accompanying notes are an integral part of the consolidated financial statements.


F-4
Table of Contents


HURON CONSULTING GROUP INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

        Additional
Paid-In
Capital		     Accumulated
Other
Comprehensive
Income (Loss)		    
  Common Stock  Treasury Stock   Retained
Earnings		   Stockholders’
Equity		 
  Shares  Amount  Shares  Amount     

Balance at December 31, 2011

  23,362,828   $234    (1,679,033)  $(75,735)  $400,597   $72,902   $(1,209)  $396,789  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income

       36,428    (150)   36,278  

Issuance of common stock in connection with:

        

Restricted stock awards, net of cancellations

  497,028    5    (91,304)   (3,542)   3,537      —    

Exercise of stock options

  44,269    1      275      276  

Share-based compensation

      15,490      15,490  

Shares redeemed for employee tax withholdings

    (119,128)   (4,438)      (4,438) 

Income tax benefit on share-based compensation

      926      926  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2012

  23,904,125   $240    (1,889,465)  $(83,715)  $420,825   $109,330   $(1,359)  $445,321  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income

       66,433    562    66,995  

Issuance of common stock in connection with:

        

Restricted stock awards, net of cancellations

  508,477    5    (82,674)   (2,927)   2,922      —    

Exercise of stock options

  40,859    —        198      198  

Share-based compensation

      17,084      17,084  

Shares redeemed for employee tax withholdings

    (31,565)   (1,449)      (1,449) 

Income tax benefit on share-based compensation

      2,115      2,115  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2013

  24,453,461   $245    (2,003,704)  $(88,091)  $443,144   $175,763   $(797)  $530,264  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income

       79,051    (1,858)   77,193  

Issuance of common stock in connection with:

        

Restricted stock awards, net of cancellations

  429,482    4    (50,276)   (2,330)   2,326      —    

Exercise of stock options

  38,042    —        857      857  

Share-based compensation

      20,118      20,118  

Shares redeemed for employee tax withholdings

    (55,336)   (3,653)      (3,653) 

Income tax benefit on share-based compensation

      5,103      5,103  

Equity component of convertible senior notes, net of tax and issuance costs

      22,739      22,739  

Purchase of convertible senior note hedges, net of tax

      (25,612)     (25,612) 

Issuance of warrants

      23,625      23,625  

Share repurchases

  (805,392)   (8)     (49,992)     (50,000) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2014

  24,115,593   $241    (2,109,316)  $(94,074)  $442,308   $254,814   $(2,655)  $600,634  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 


 Common Stock Treasury Stock 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Stockholders'
Equity
 Shares Amount Shares Amount  
Balance at December 31, 201424,115,593
 $241
 (2,109,316) $(94,074) $442,308
 $254,814
 $(2,655) $600,634
Comprehensive income          59,052
 6,240
 65,292
Issuance of common stock in connection with:               
Restricted stock awards, net of cancellations504,955
 5
 (42,797) (2,506) 2,501
     —
Business acquisition28,486
 —
     2,204
     2,204
Share-based compensation        22,484
     22,484
Shares redeemed for employee tax withholdings    (109,967) (7,154)       (7,154)
Income tax benefit on share-based compensation        3,456
     3,456
Share repurchases(583,880) (5)     (34,586)     (34,591)
Balance at December 31, 201524,065,154
 $241
 (2,262,080) $(103,734) $438,367
 $313,866
 $3,585
 $652,325
Comprehensive income          37,617
 30
 37,647
Issuance of common stock in connection with:               
Restricted stock awards, net of cancellations390,348
 4
 (70,419) (4,508) 4,504
     —
Exercise of stock options4,706
 —
     123
     123
Share-based compensation        17,929
     17,929
Shares redeemed for employee tax withholdings    (88,414) (4,953)       (4,953)
Income tax benefit on share-based compensation        227
     227
Share repurchases(982,192) (10)     (55,255)     (55,265)
Balance at December 31, 201623,478,016
 $235
 (2,420,913) $(113,195) $405,895
 $351,483
 $3,615
 $648,033
Comprehensive income          (170,117) 6,755
 (163,362)
Issuance of common stock in connection with:               
Restricted stock awards, net of cancellations399,248
 4
 (58,211) (3,953) 3,949
     —
Business acquisition221,558
 2
     9,558
     9,560
Share-based compensation        14,419
     14,419
Shares redeemed for employee tax withholdings    (112,011) (4,846)       (4,846)
Cumulative-effect adjustment from adoption of ASU 2016-09        435
 (435)   —
Cumulative-effect adjustment from adoption of ASU 2018-02          (488)   (488)
Balance at December 31, 201724,098,822
 $241
 (2,591,135) $(121,994) $434,256
 $180,443
 $10,370
 $503,316
The accompanying notes are an integral part of the consolidated financial statements.


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HURON CONSULTING GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

   Year Ended December 31, 
   2014  2013  2012 

Cash flows from operating activities:

    

Net income

  $79,051   $66,433   $36,428  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

   30,989    23,609    25,251  

Share-based compensation

   20,130    18,347    15,651  

Amortization of debt discount and issuance costs

   3,832    1,363    1,116  

Allowances for doubtful accounts and unbilled services

   5,918    4,411    (4,935) 

Deferred income taxes

   8,096    4,683    (521) 

Goodwill impairment charge

   —      —      13,083  

Changes in operating assets and liabilities, net of acquisitions:

    

(Increase) decrease in receivables from clients

   30,072    (21,731)   19,713  

(Increase) decrease in unbilled services

   (38,211)   (11,932)   4,333  

(Increase) decrease in current income tax receivable / payable, net

   (10,773)   (5,027)   27,078  

(Increase) decrease in other assets

   2,324    (174)   1,499  

Increase (decrease) in accounts payable and accrued liabilities

   9,164    1,514    (10,226) 

Increase (decrease) in accrued payroll and related benefits

   8,835    34,724    (5,676) 

Increase (decrease) in deferred revenues

   (2,974)   (962)   (20,430) 
  

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

   146,453    115,258    102,364  
  

 

 

  

 

 

  

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

   (25,913)   (20,225)   (17,521) 

Investment in life insurance policies

   (1,775)   (1,002)   (600) 

Purchases of businesses, net of cash acquired

   (53,971)   (30,297)   (55,223) 

Purchases of convertible debt investment

   (12,500)   —      —    

Capitalization of internally developed software

   —      (1,572)   (895) 

Proceeds from note receivable

   328    438    —    
  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

   (93,831)   (52,658)   (74,239) 
  

 

 

  

 

 

  

 

 

 

Cash flows from financing activities:

    

Proceeds from exercise of stock options

   857    198    276  

Shares redeemed for employee tax withholdings

   (3,653)   (1,449)   (4,438) 

Tax benefit from share-based compensation

   5,107    2,354    1,585  

Share repurchases

   (50,000)   —      —    

Proceeds from borrowings under credit facility

   129,000    96,000    273,000  

Repayments on credit facility

   (154,000)   (119,750)   (274,000) 

Proceeds from convertible senior notes issuance

   250,000    —      —    

Proceeds from sale of warrants

   23,625    —      —    

Payments for convertible senior note hedges

   (42,125)   —      —    

Payments for debt issuance costs

   (7,346)   (1,155)   (2,482) 

Payments of capital lease obligations

   (79)   (19)   (12) 

Deferred payments for purchase of property and equipment

   (471)   (471)   —    

Deferred acquisition payments

   (4,745)   (5,356)   (2,000) 
  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

   146,170    (29,648)   (8,071) 
  

 

 

  

 

 

  

 

 

 

Effect of exchange rate changes on cash

   (51)   17    28  

Net increase in cash and cash equivalents

   198,741    32,969    20,082  

Cash and cash equivalents at beginning of the period

   58,131    25,162    5,080  
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of the period

  $256,872   $58,131   $25,162  
  

 

 

  

 

 

  

 

 

 

Supplemental disclosure of cash flow information:

    

Non-cash investing and financing activities:

    

Property and equipment expenditures included in accounts payable and accrued expenses

  $3,533   $4,548   $4,376  

Deferred payments related to business combinations

  $—     $—     $10,113  

Contingent consideration related to business acquisitions

  $816   $—     $—    

Cash paid during the year for:

    

Interest

  $4,006   $4,912   $7,211  

Income taxes

  $31,815   $45,658   $14,370  

 Year Ended December 31,
 2017 2016 2015
Cash flows from operating activities:     
Net income (loss)$(170,117) $37,617
 $59,052
Adjustments to reconcile net income (loss) to net cash provided by operating activities:     
Depreciation and amortization50,089
 46,816
 58,053
Share-based compensation14,838
 16,577
 21,487
Amortization of debt discount and issuance costs10,203
 9,609
 9,329
Goodwill impairment charge253,093
 —
 —
Allowances for doubtful accounts and unbilled services3,217
 4,250
 1,025
Deferred income taxes(53,753) 1,189
 6,353
(Gain) loss on sale of businesses(931) —
 2,303
Change in fair value of contingent consideration liabilities1,111
 (1,990) (1,126)
Changes in operating assets and liabilities, net of acquisitions and divestitures:     
(Increase) decrease in receivables from clients1,650
 1,440
 (2,836)
(Increase) decrease in unbilled services(4,332) 2,443
 31,696
(Increase) decrease in current income tax receivable / payable, net210
 (4,410) 8,818
(Increase) decrease in other assets(366) 11,904
 (14,742)
Increase (decrease) in accounts payable and accrued liabilities3,732
 (3,144) 8,805
Increase (decrease) in accrued payroll and related benefits(10,966) 3,044
 (25,221)
Increase (decrease) in deferred revenues2,117
 3,898
 4,859
Net cash provided by operating activities99,795
 129,243
 167,855
Cash flows from investing activities:     
Purchases of property and equipment, net(24,402) (13,936) (18,571)
Investment in life insurance policies(1,826) (2,035) (5,804)
Distributions from life insurance policies2,889
 —
 —
Purchases of businesses, net of cash acquired(106,915) (69,133) (339,966)
Purchases of convertible debt investment—
 —
 (15,438)
Capitalization of internally developed software(1,370) (1,086) (866)
Proceeds from note receivable1,177
 —
 —
Proceeds from sale of businesses, net of cash sold1,499
 (446) 108,487
Net cash used in investing activities(128,948) (86,636) (272,158)
Cash flows from financing activities:     
Proceeds from exercises of stock options—
 123
 —
Shares redeemed for employee tax withholdings(4,846) (4,953) (7,154)
Share repurchases—
 (55,265) (34,591)
Proceeds from borrowings under credit facility277,500
 200,000
 314,000
Repayments of debt(240,745) (224,000) (365,750)
Payments for debt issuance costs(408) —
 —
Payments for capital lease obligations—
 —
 (48)
Deferred acquisition payments(2,680) —
 —
Net cash provided by (used in) financing activities28,821
 (84,095) (93,543)
Effect of exchange rate changes on cash214
 78
 (589)
Net decrease in cash and cash equivalents(118) (41,410) (198,435)
Cash and cash equivalents at beginning of the period17,027
 58,437
 256,872
Cash and cash equivalents at end of the period$16,909
 $17,027
 $58,437
Supplemental disclosure of cash flow information:     
Non-cash investing and financing activities:     
Property and equipment expenditures included in accounts payable and accrued expenses$1,567
 $4,461
 $2,089
Promissory note assumed for purchase of property and equipment$5,113
 $—
 $—
Contingent consideration related to business acquisitions$15,489
 $8,754
 $2,963
Common stock issued related to business acquisitions$9,560
 $—
 $2,204
Cash paid during the year for:     
Interest$9,068
 $6,470
 $9,274
Income taxes$5,399
 $24,584
 $10,955
The accompanying notes are an integral part of the consolidated financial statements.


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HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share amounts)



1. Description of Business

Huron Consulting Group is a leading providerglobal professional services firm committed to achieving sustainable results in partnership with its clients. We bring a depth of operational and financial consulting services. We help clients in diverse industries improve performance, transform the enterprise, reduce costs, leverage technology, process and review large amounts of complex data, address regulatory changes, recover from distress, and stimulate growth. Our professionals employ their expertise in finance,strategy, technology, operations, strategy,advisory services, and analytics and technology to provide our clients with specialized analyses and customized advice and solutions that are tailored to address each client’s particular challenges and opportunities to deliver sustainabledrive lasting and measurable results. We provide consulting services to a wide variety of both financially soundresults in the healthcare, higher education, life sciences and distressed organizations, including healthcare organizations, leading academic institutions, Fortune 500 companies, governmental entities, and law firms.

commercial sectors.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying Consolidated Financial Statementsconsolidated financial statements reflect the financial position at December 31, 20142017 and 2013,2016, and the results of operations and cash flows for the years ended December 31, 2014, 2013,2017, 2016, and 2012.

Certain amounts reported in the previous years have been reclassified to conform to the 2014 presentation. 2015.

The Consolidated Financial Statementsconsolidated financial statements include the accounts of Huron Consulting Group Inc. and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation.

During the second quarter of 2017, we recorded a non-cash pretax goodwill impairment charge of $209.6 million related to our Healthcare reporting unit. During the fourth quarter of 2017, we identified that our calculation of the non-deductible portion of this goodwill impairment charge erroneously excluded a portion of goodwill that was related to an acquisition completed in 2008 that has since been divested. To correct this error, in the fourth quarter of 2017, we recorded a $1.5 million decrease to our non-cash pretax goodwill impairment charge with an offsetting $1.5 million increase to our goodwill balance. We also recorded a $1.5 million decrease to our income tax benefit with an offsetting $1.5 million increase to our deferred tax asset balance. This error had no impact on our consolidated net loss from continuing operations, and we concluded that the impact of the error was not material for the second, third, or fourth quarter financial statements, or the financial statements for the year ended December 31, 2017.
During the fourth quarter of 2017, we identified an error on our previously reported consolidated balance sheets as of June 30, 2017 and September 30, 2017 related to the classification of deferred tax assets and liabilities. We incorrectly netted $1.5 million of deferred tax liabilities related to certain jurisdictions with the deferred tax assets of unrelated jurisdictions as of June 30, 2017 and September 30, 2017. This error has been corrected as of December 31, 2017. This error had no impact on our statement of operations, and we concluded that the impact of the error was not material to the second and third quarter financial statements or the financial statements for the year ended December 31, 2017.
On December 31, 2015, we sold our Huron Legal segment to a third party. The operations of our Huron Legal segment have been classified as discontinued operations in our consolidated statements of operations for all periods presented. As of December 31, 2017 and 2016, no assets or liabilities of the disposed business remained on our consolidated balance sheet. See Note 3 "Discontinued Operations" for additional information on the divestiture of our Huron Legal segment.
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”)GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the Consolidated Financial Statementsconsolidated financial statements and accompanying disclosures. Actual results may differ from these estimates and assumptions.

Revenue Recognition

We recognize revenues in accordance with ASC 605, “Revenue Recognition.” Under ASC 605, revenue

Revenue is recognized when persuasive evidence of an arrangement exists, the related services are provided, the price is fixed or determinable, and collectability is reasonably assured. We generate the majority of our revenues from providing professional services under four types of billing arrangements: time-and-expense, fixed-fee (including software license revenue), time-and-expense, performance-based, and software support and maintenance for the software we deploy.

Time-and-expense billing arrangements require the client to pay based on either the number of hours worked, the number of pages reviewed, or the amount of data processed by our revenue-generating professionals at agreed upon rates. We recognize revenues under time-and-expense arrangements as the related services are rendered.

and subscriptions.

In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for completing the engagements. We generally recognize revenues under fixed-fee billing arrangements using a proportionate performance approach, which is based on work completed to-date versus our estimates of the total services to be provided under the engagement. Contracts within our Studer Group solution are fixed-fee partner contracts with multiple deliverables, which primarily consist of coaching services, as well as seminars, materials and software products (“Partner Contracts”). Revenues for coaching services and software products are generally recognized on a straight-line basis over the length of the contract. All other revenues under Partner Contracts are recognized at the time the service is provided. Estimates of total engagement revenues and cost

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

of services are monitored regularly during the term of the engagement. If our estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

In performance-based billing arrangements, fees are tied to the attainment of contractually defined objectives. We do not recognize revenues under performance-based billing arrangements until all related performance criteria are met.

We also generate revenues from licensing two types of proprietary software to clients.licenses for our revenue cycle management software and research administration and compliance software. Licenses fromfor our revenue cycle management software are sold only as a component of our consulting projects, and the services we provide are essential to the functionality of the software. Therefore, revenues from these software licenses are recognized over the term of the related consulting services contract in accordance with ASC 605.contract. License revenue from our research administration and compliance software is generally recognized in accordance with ASC 985-605, generally in the month in which the software is delivered.

Time-and-expense billing arrangements require the client to pay based on the number of hours worked by our revenue-generating professionals at agreed upon rates. Time-and-expense arrangements also include certain speaking engagements, conferences, and publication orders purchased by our clients outside of Partner Contracts within our Studer Group solution. We recognize revenues under time-and-expense arrangements as the related services or publications are provided.
In performance-based billing arrangements, fees are tied to the attainment of contractually defined objectives. We enter into performance-based engagements in essentially two forms. First, we generally earn fees that are directly related to the savings formally acknowledged by the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review. Second, we have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur. We do not recognize revenues under performance-based billing arrangements until all related performance criteria are met.
Clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance. AnnualWe also generate subscription revenue from our cloud-based analytic tools and solutions. Software support and maintenance fee revenue isand subscription-based revenues are recognized ratably over the support or subscription period, which is generallyranges from one year.to three years. These fees are billed in advance and included in deferred revenues until recognized.

We have arrangements with clients in which we provide multiple elements of services under one engagement contract. Revenues under these types of arrangements are allocated to each element based on the element’s fair value in accordance with ASC 605 and recognized pursuant to the criteria described above.

Provisions are recorded for the estimated realization adjustments on all engagements, including engagements for which fees are subject to review by the bankruptcy courts. Expense reimbursements that are billable to clients are included in total revenues and reimbursable expenses, and typically an equivalent amount of reimbursable expenses are included in total direct costs and reimbursable expenses. Reimbursable expenses are primarily recognized as revenue in the period in which the expense is incurred. Subcontractors that are billed to clients at cost are also included in reimbursable expenses.

When billings do not specifically identify reimbursable expenses, we allocate the portion of the billings equivalent to these expenses to reimbursable expenses.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenues in the accompanying consolidated balance sheets. Revenues recognized for services performed but not yet billed to clients are recorded as unbilled services. Client prepayments and retainers are classified as deferred revenues and recognized over future periods as earned in accordance with the applicable engagement agreement.

Allowances for Doubtful Accounts and Unbilled Services

We maintain allowances for doubtful accounts and for services performed but not yet billed based on several factors, including the estimated cash realization from amounts due from clients, an assessment of a client’s ability to make required payments, and the historical percentages of fee adjustments and write-offs by age of receivables and unbilled services. The allowances are assessed by management on a regular basis.

These estimates may differ from actual results. If the financial condition of a client deteriorates in the future, impacting the client’s ability to make payments, an increase to our allowance might be required or our allowance may not be sufficient to cover actual write-offs.

We record the provision for doubtful accounts and unbilled services as a reduction in revenue to the extent the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client’s inability to make required payments on accounts receivables, we record the provision to Selling,selling, general and administrative expenses.

Direct Costs and Reimbursable Expenses

Direct costs and reimbursable expenses consist primarily of revenue-generating employee compensation and their related benefitbenefits and share-based compensation costs, as well as commissions, the cost of outside consultants or subcontractors assigned to

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

revenue-generating activities, technology costs, other third-party costs directly attributable to our revenue-generating activities, and direct expenses to be reimbursed by clients. Direct costs and reimbursable expenses incurred on engagements are expensed in the period incurred.


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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

Cash and Cash Equivalents

We consider all highly liquid investments, including overnight investments and commercial paper, with original maturities of three months or less to be cash equivalents.

Concentrations of Credit Risk

To the extent receivables from clients become delinquent, collection activities commence. No single client balance is considered large enough to pose a material credit risk. The allowances for doubtful accounts and unbilled services are based upon the expected ability to collect accounts receivable and bill and collect unbilled services. Management does not anticipate incurring losses on accounts receivable in excess of established allowances. See Note 1618 “Segment Information” for concentration of accounts receivable and unbilled services.

We hold our cash in accounts at multiple third-party financial institutions. These deposits, at times, may exceed federally insured limits. We review the credit ratings of these financial institutions, regularly monitor the cash balances in these accounts, and adjust the balances as appropriate. However, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.

Investments

Long-term Investment
Our long-term investment consists of our convertible debt investment in Shorelight Holdings, LLC. We classified the investment as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. The investment is carried at fair value with unrealized holding gains and losses reported in other comprehensive income (loss). Whenincome. If the investment is in an unrealized loss position, we assess whether the investment is other than temporarily impaired. We consider impairments to be other than temporary if they are related to significant credit deterioration or if it is likely we will sell the security before the recovery of its cost basis. We have not identified any other than temporary impairments for our convertible debt investment. In the event there are realized gains and losses or declines in value judged to be other than temporary, we will record the amount in earnings. See Note 1012 “Fair Value of Financial Instruments” for further information on our convertible debt investment.

Fair Value of Financial Instruments

Cash and cash equivalents are stated at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled services, accounts payable, deferred revenues, and other accrued liabilities reasonably approximate fair market value due to the nature of the financial instrument and the short-term maturity of these items.

See Note 1012 “Fair Value of Financial Instruments” for the accounting policies used to measure the fair value of our financial assets and liabilities that are measured at fair value on a recurring basis.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation. Depreciation of property and equipment is computed on a straight-line basis over the estimated useful lives of the assets. Software, computers, and related

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

equipment are depreciated over an estimated useful life of two to four years. Furniture and fixtures are depreciated over five years. Aircraft are depreciated over ten years. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the initial term of the lease.

Software Development Costs

We expenseincur internal and external software development costs related to our cloud computing applications and software for internal use. We capitalize these software development costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Once the project is substantially complete and ready for its intended use these costs are amortized on a straight-line basis over the technology's estimated useful life. Acquired technology assets are initially recorded at fair value and amortized on a straight-line basis over the estimated useful life.
We also incur internal and external software development costs related to our software products that will be sold, leased, or otherwise marketedmarketed. We expense these software development costs until technological feasibility has been established. Similarly, we expense all development costs afterThereafter and until the software is available for general release to customers. During the period between the establishment of technological feasibility and availability for general release to customers, these software development costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. CapitalizedThese capitalized development costs are amortized in proportion to current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product.
We classify capitalized software development costs for software products to be sold, leased, or otherwise marketed as “Otherother non-current assets”assets on our Consolidated Balance Sheets.consolidated balance sheet. Unamortized capitalized software development costs were $1.4$2.0 million and $2.2$1.4 million at December 31, 20142017 and 2013,2016, respectively. During the yearyears ended December 31, 20142017, 2016, and 2013,2015, we amortized $0.8 million, $1.1 million, and $0.2$1.0 million, respectively, of capitalized software development costs.

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

Intangible Assets Other Than Goodwill
Identifiable intangible assets are amortized over their expected useful lives using a method that reflects the economic benefit expected to be derived from the assets or on a straight-line basis. We did not amortize anyevaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the capitalized software development costs in 2012 as the products were not yet available for general release to customers.

asset may be impaired.

Impairment of Long-Lived Assets

Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360, “Property, Plant and Equipment.”recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a significant decline in forecasted operating results over an extended period of time. The Company evaluatesWe evaluate the recoverability of long-lived assets based uponon forecasted undiscounted cash flows.
In connection with the goodwill impairment tests performed for the Healthcare and Enterprise Solutions and Analytics reporting units in 2017, which resulted in non-cash goodwill impairment charges, we performed impairment tests on the long-lived assets allocated to the asset groups within the Healthcare and Enterprise Solutions and Analytics reporting units. Based on the impairment tests performed, we concluded that the long-lived assets allocated to the asset groups were not impaired. No impairment charges for long-lived assets were recorded in 2014, 2013,2017, 2016, or 2012.

Intangible Assets Other Than 2015.

Goodwill

We account for intangible assets in accordance with ASC 350, “Intangibles—Goodwill and Other.” This Topic requires that certain identifiable intangible assets be amortized over their expected useful lives using a method that reflects the economic benefit expected to be derived from the assets or on a straight-line basis. Intangible assets are reviewed for impairment in a similar manner to our long-lived assets described above. No impairment charges for intangible assets were recorded in 2014, 2013, or 2012.

Goodwill

For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets acquired. We are required to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate the fair value of a reporting unit may be below its carrying value. A reporting unit is an operating segment or one level below an operating segment (referred to as a component) to which goodwill is assigned when initially recorded. We assign goodwill to reporting units based on our integration plans and the expected synergies resulting from the acquisition. We have six reporting units, which consist of our Huronunits: Healthcare, Huron Legal, Huron Education, Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences. The Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences and All Other operating segments, and our Financial Advisory practice and Enterprise Performance Management (“EPM”) practice, whichreporting units make up our Huron Business Advisory operating segment.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. We perform our annual goodwill impairment test as of November 30 and monitor for interim triggering events on an ongoing basis.

Pursuant to our policy,

In 2017, we performed three goodwill impairment tests: an interim impairment test on our Healthcare reporting unit in the second quarter of 2017; an interim impairment test on our Education and Life Sciences reporting units as a result of our segment reorganization in the second quarter of 2017; and the annual impairment test on all reporting units in the fourth quarter of 2017. As a result of these tests, we recorded total non-cash pretax goodwill impairment test ascharges of November 30, 2014 and determined that no impairment of goodwill existed as of that date. Further, we evaluated whether any events have occurred or any circumstances have changed since November 30, 2014 that would indicate goodwill may have become impaired since our annual impairment test. Based on our evaluation as of December 31, 2014, we determined that no indications of impairment have arisen since our annual$253.1 million. No goodwill impairment test.

charges were recorded in 2016 or 2015. See Note 3 “Goodwill5 "Goodwill and Intangible Assets”Assets" for additional information regarding our recentinterim and annual goodwill impairment tests, and our 2012the non-cash goodwill impairment charge.

charges recorded in 2017.

Business Combinations

We use the acquisition method of accounting in accordance with ASC 805,Business Combinations.for business combinations.Each acquired company’s operating results are included in our consolidated financial statements starting on the date of acquisition. The purchase price is equivalent to the fair value of consideration transferred. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. Goodwill is recognized for the excess of purchase price over the net fair value of tangible and intangible assets acquired and liabilities assumed. Contingent consideration, which is primarily based on the business achieving certain performance targets, is recognized at its fair value on the acquisition date, and changes in fair value are recognized in earnings until settled. Refer to Note 1012 “Fair Value of Financial Instruments” for further information regarding our contingent acquisition liability balances.

Deferred Lease Incentives

We record as non-current the portion of the deferred lease incentive liability that we expect to recognize over a period greater than one year.year as a non-current liability. The non-current portion of the deferred lease incentive liability totaled $13.4$15.3 million and $12.4$10.7 million at December 31, 20142017 and 2013,2016, respectively, and was primarily generated from tenant improvement allowances and rent abatement. Deferred lease incentives are amortized on a straight-line basis over the life of the lease. The portion of the deferred lease incentive corresponding to the rent payments that will be paid within 12 months of the balance sheet date is classified as a current liabilities.liability. We monitor the classification of such liabilities based on the expectation of their utilization periods.


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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

Income Taxes

We account for income taxes in accordance with ASC 740,Income Taxes.

Current tax liabilities and assets are recognized for the estimated taxes payable or refundable, respectively, on the tax returns for the current year. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. To the extent that deferred tax assets will not likely be recovered from future taxable income, a valuation allowance is established against such deferred tax assets.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts

Refer to Note 16 "Income Taxes" for information on the impact of the Tax Cuts and Jobs Act of 2017 ("2017 Tax Reform") enacted in thousands, except per share amounts)

the fourth quarter on our consolidated financial statements.

Share-Based Compensation

We account for share-based compensation in accordance with ASC 718,Compensation—Stock Compensation.

Share-based compensation cost is measured based on the grant date fair value of the respective awards. We generally recognize share-based compensation ratably using the straight-line attribution method; however, for those awards with performance criteria and graded vesting features, we use the graded vesting attribution method. We net share-based compensation expense withIt is our estimated amount of expected forfeitures.

policy to account for forfeitures as they occur.

Sponsorship and Advertising Costs

Sponsorship and advertising costs are expensed as incurred. Such expenses for 2014, 2013,the years ended December 31, 2017, 2016, and 20122015 totaled $8.7 million, $6.6 million, $7.1 million, and $6.1$6.4 million, respectively, and are a component of Selling,selling, general and administrative expenses on our consolidated statement of earnings.

Convertible Senior Notes

In September 2014, we issued $250 million principal amount of 1.25% convertible senior notes due 2019 (the “Convertible Notes”) in a private offering. In accordance with ASC 470,Debt, weWe have separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying value of the equity component representing the conversion option, which is recognized as a debt discount, was determined by deducting the fair value of the liability component from the proceeds of the Convertible Notes. The debt discount is amortized to interest expense using the effective interest method over the term of the Convertible Notes. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification. Refer to Note 57 “Financing Arrangements” for further information regarding the Convertible Notes.

Debt Issuance Costs

We amortize the costs we incur to obtain debt financing over the contractual life of the related debt using the effective interest method for non-revolving debt and the straight-line method for revolving debt. The amortization expense is included in Interestinterest expense, net of interest income in our statementsstatement of earnings. Unamortized debt issuance costs attributable to our revolving credit facility are included as a component of Prepaid expenses and other current assets and Other non-current assets.

Unamortized debt issuance costs attributable to our Convertible Notes are recorded as a deduction from the carrying amount of the debt liability.

Foreign Currency

Assets and liabilities of foreign subsidiaries whose functional currency is not the United States Dollar (USD) are translated into the USD using the exchange rates in effect at period end. Revenue and expense items are translated using the average exchange rates for the period. Foreign currency translation adjustments are included in accumulated other comprehensive loss,income, which is a component of stockholders’ equity.

Foreign currency transaction gains and losses are included in Otherother income, net on the statementsstatement of earnings. We recognized immaterial$0.4 million of foreign currency transaction gains in 2017, de minimis foreign currency transaction gains in 2016, and $1.6 million of foreign currency transaction losses in 2014 and 2013, and immaterial foreign currency transaction gains in 2012.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

2015.

Segment Reporting

ASC 280,Segment Reporting establishes annual and interim reporting standards for an enterprise’s business segments and related disclosures about its products, services, geographic areas, and major customers.

Segments are defined as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision makingdecision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker manages the business under fivethree operating segments, which are reportable segments: Huron Healthcare, Huron Legal, HuronEducation, and Business Advisory. During the second quarter of 2017, we reorganized our internal financial reporting structure, which management uses to assess performance and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

allocate resources, by moving our Life Sciences practice from the Education and Life Sciences Huronsegment to the Business Advisory segment. The remaining Education and All Other.

DuringLife Sciences segment is now referred to as the first quarterEducation segment. While our consolidated results have not been impacted, we have reclassified our historical segment information for consistent presentation.

New Accounting Pronouncements
Recently Adopted
In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of 2014, we renamedCertain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows entities to reclassify stranded tax effects resulting from the Huron Financial segment to Huron Business Advisory. The structureenactment of the segment did not change.2017 Tax Cuts and Jobs Act ("2017 Tax Reform") from accumulated other comprehensive income to retained earnings. We adopted ASU 2018-02 upon issuance and reclassified $0.5 million of stranded tax effects, primarily related to our convertible debt investment, from accumulated other comprehensive income to retained earnings as of December 31, 2017. Refer to Note 316 "Income Taxes" for additional information on the 2017 Tax Reform.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which required us to determine the implied fair value of goodwill by allocating the reporting unit's fair value to each of its assets and liabilities as if the reporting unit was acquired in a business acquisition. Instead, the updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit's fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. We adopted this ASU in the second quarter of 2017 on a prospective basis and applied the new guidance to our interim goodwill impairment tests performed in the second quarter of 2017 and our annual impairment test performed as of November 30, 2017. Refer to Note 5 “Goodwill and Intangible Assets” for a description of the internal reporting reorganizations completed in 2013additional information on our interim and 2014.

New Accounting Pronouncementsannual goodwill impairment tests performed.

In August 2014,March 2016, the FASB issued ASU No. 2014-15,Presentation2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of Financial Statements—Going Concern (Subtopic 205-40): Disclosurethe accounting for share-based payment transactions, including the accounting for income taxes, classification of Uncertainties about an Entity’s Ability to Continueexcess tax benefits on the statement of cash flows, and forfeitures. We adopted this guidance in the first quarter of 2017, at which time we began recognizing excess tax benefits and deficiencies as income tax benefit or expense in our consolidated statements of operations on a Going Concern. This ASU requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about an entity’s ability to continueprospective basis. We recognized $1.8 million of net excess tax deficiencies as a going concern within one year after the date the financial statements are issued and provide related footnote disclosures. The guidance will be effectiveincome tax expense in our consolidated statement of operations for the Companyyear ended December 31, 2017. Additionally, upon adoption, we began classifying excess tax benefits as an operating activity on the statement of cash flows on a retrospective basis. As a result, we reclassified $0.9 million and $3.6 million of excess tax benefits for the fiscal year endingyears ended December 31, 2016 with earlyand 2015, respectively, from cash flows from financing activities to cash flows from operating activities on our statement of cash flows. We elected to account for share-based award forfeitures as they occur, and applied this accounting change on a modified retrospective basis as a cumulative-effect adjustment to retained earnings of $0.4 million during the first quarter of 2017.
In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments. ASU 2016-06 clarifies that in assessing whether an embedded contingent put or call option is clearly and closely related to the debt host, an entity is required to perform only the four-step decision sequence in ASC 815-15-25-42 (as amended by the ASU). The entity does not have to separately assess whether the event that triggers its ability to exercise the contingent option is itself indexed only to interest rates or credit risk. We adopted these amendments in the first quarter of 2017 on a modified retrospective basis. The adoption permitted.of these amendments did not have any impact on our consolidated financial statements.
Not Yet Adopted
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments to the guidance improve and simplify accounting rules for hedge accounting to better present the economic results of an entity’s risk management activities in its financial statements and improve the disclosures of hedging arrangements. Additionally, ASU 2017-12 simplifies the hedge documentation and effectiveness assessment requirements. The updated guidance is effective for us beginning January 1, 2019. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In June 2014,March 2016, the FASB issued ASU No. 2014-12, Accounting2016-02, Leases, which supersedes ASC Topic 840, Leases, and sets forth the principles for Share-Based Payments When the Termsrecognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record on the balance sheet a right-of-use asset and a lease liability, equal to the present value of the remaining lease payments, for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an Award Provide Thateffective interest rate method or a Performance Target Could Be Achieved afterstraight-line basis over the Requisite Service Periodterm of the lease. ASU 2016-02 will be effective for us beginning January 1, 2019, with early adoption permitted. Entities are required to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

use a modified retrospective transition method for existing leases. We are currently evaluating the potential impact this guidance will have on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ThisThe amendments to the guidance requires that a performance target that affects vestingenhance the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation, and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation—Stock Compensation, as it relates to such awards. Thisdisclosure. The updated guidance is effective for the Companyus beginning in the first quarter of 2016, with early adoption permitted. The amendments of ASU 2014-12 may be applied either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying the amendments as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements.January 1, 2018. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers, as a new Topic, ASC 606.606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should 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. ThisIn accordance with the new standard, we will adopt ASU 2014-09 on January 1, 2018 using the modified retrospective transition method, under which the new guidance is effective forwill be applied to the Company beginningcurrent period presented in the first quarter of 2017financial statements and is to be applied retrospectively to each period presented or as a cumulative-effect adjustment will be recorded as of the date of adoption. Early adoption is not permitted. We are currently evaluatingcompleting our analysis to determine the potential effectimpact of adopting this guidanceASC 606 on our consolidated financial statements, and expect the more impactful aspect of ASC 606 will relate to how we recognize revenue under performance-based fee billing arrangements. Currently, we recognize revenue under these arrangements once all related performance criteria are met and the amount to be recognized is fixed or determinable. However, upon adoption of the new standard, we will estimate these amounts and recognize the estimated amounts as wellservices are performed over the contractual term of the engagements. The cumulative-effect adjustment will capture the amount of revenue we would have recognized on all outstanding performance-based fee billing arrangements under ASC 606 as of the transition methods.

In April 2014,adoption date, and record the FASB issued ASU 2014-08,Presentationdifference as a cumulative-effect adjustment to retained earnings. Further, ASC 606 provides for certain practical expedients that we intend to use, including the option to expense contract acquisition costs as incurred if the contract term is one year or shorter. We also intend to use the as-invoiced practical expedient, which permits us to recognize revenue in the amount to which we have the right to invoice a customer if that amount corresponds to the value of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosuresthe performance completed to date.


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Table of Disposals of Components of an Entity. This guidance includes amendments that change the requirements for reporting discontinued operations and require

Contents

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)

additional disclosures about discontinued operations. Under


3. Discontinued Operations
During 2015, we began evaluating strategic alternatives related to our Huron Legal segment, including the new guidance, only disposals representingpotential divestiture of the practice. On December 10, 2015, we entered into an agreement to sell Huron Legal to Consilio, Inc. ("Consilio"). Pursuant to this agreement, Consilio acquired substantially all of the assets and assumed certain liabilities of Huron Legal, and acquired all issued and outstanding equity interests in certain entities wholly owned by Huron. Huron Legal provided eDiscovery services, consulting services and contract management services related to law department management, information governance and compliance, legal discovery, litigation management, and legal analytics.
The sale closed on December 31, 2015, at which time we received proceeds of $110.1 million and recognized a pretax disposal loss of $2.3 million. The divestiture of the Huron Legal segment represented a strategic shift in operations that has (or will have)had a major effect on the entity’sour operations and financial results should be presentedresults. As such, the operations of our Huron Legal segment have been classified as discontinued operations. Examples include a disposaloperations in our consolidated statements of a major geographic area, a major lineoperations for all periods presented. As of December 31, 2017 and 2016, no assets or liabilities of the disposed business a major equity method investment, or other major parts of an entity. Additionally, the revised guidance requires expanded disclosures in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. This guidance is effective for the Company beginning in the first quarter of 2015. We do not expect the adoption of this guidance to have a material impactremained on our consolidated financial statements.

balance sheets.

In July 2013,For the FASB issued ASU No. 2013-11,Presentationyear ended December 31, 2017, we recognized income from discontinued operations, net of an Unrecognized Tax Benefit Whentax, of $0.4 million primarily related to updated lease assumptions for vacated office space directly related to the sale of the Huron Legal segment. For the year ended December 31, 2016, we recognized a Net Operating Loss Carryforward,loss from discontinued operations, net of tax, of $1.9 million, primarily related to obligations for former employees, legal fees, and updated lease assumptions for vacated office space directly related to the sale of the Huron Legal segment. The table below summarizes the operating results of Huron Legal for the year ended December 31, 2015.
 Year Ended
December 31, 2015
Revenues and reimbursable expenses: 
Revenues$139,430
Reimbursable expenses3,148
Total revenues and reimbursable expenses142,578
Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
 
Direct costs95,247
Amortization of intangible assets and software development costs233
Reimbursable expenses3,153
Total direct costs and reimbursable expenses98,633
Operating expenses and other operating gain: 
Selling, general and administrative expenses20,640
Restructuring charges (1)
13,341
Other gain(900)
Depreciation and amortization9,605
Total operating expenses and other operating gain42,686
Operating income1,259
Other expense, net(13)
Income from discontinued operations before taxes1,246
Loss on disposal(2,303)
Total loss from discontinued operations before taxes(1,057)
Income tax benefit (2)
1,786
Net loss from discontinued operations$(2,843)
(1) During 2015, the Huron Legal segment incurred a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance requires that an unrecognized tax benefit, or a portion$13.3 million restructuring charge. Of the $13.3 million, $6.1 million related to accelerated depreciation on assets disposed of an unrecognized tax benefit, be presented in the financial statements as either a reduction to a deferred tax asset or separately as a liability depending onresult of the existence, availability and/or use of an operating loss carryforward, a similar tax loss, or a tax credit carryforward. The Company adopted ASU 2013-11 effective January 1, 2014. The adoption of this guidance did not have any effect on the Company’s consolidated financial statements.

In March 2013, the FASB issued ASU No. 2013-05,Parent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity, which amends current accounting guidance on foreign currency matters. This guidance requires that the entire amount of a cumulative translation adjustmentsale, $5.1 million related to an entity’s investmentemployee costs incurred in a foreign entity should be released when there has been a: (i) sale of a subsidiary or group of net assets within a foreign entity andconnection with the sale, represents$1.1 million related to the substantially complete liquidationaccrual of the investment in the foreign entity, (ii) lossour remaining lease obligations for vacated spaces, net of a controlling financial interest in an investment in a foreign entity,estimated sublease income, and (iii) step acquisition for a foreign entity. The Company adopted ASU 2013-05 effective January 1, 2014. The adoption$1.0 million related to severance costs incurred from prior workforce reductions.

(2)Refer to Note 16 "Income Taxes" for additional detail on the income tax benefit recognized for discontinued operations.

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Table of this guidance did not have any effect on the Company’s consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)


3.The table below summarizes the amounts reflected in our consolidated statements of cash flows that relate to the discontinued operations for the year ended December 31, 2015.
 Year Ended
December 31, 2015
Depreciation and amortization$15,974
Share-based compensation$2,215
Purchases of property and equipment$6,234
Significant non-cash investing items of discontinued operations: 
Contingent consideration related to a business acquisition$900
In connection with the sale of Huron Legal, we entered into a transition services agreement ("TSA") with Consilio, under which we provided certain post-closing services, support, and facilities to Consilio to facilitate an orderly transfer of the Huron Legal business operations. Billings under the TSA, which we did not consider to be significant, were recorded as a reduction of the costs to provide the respective services, primarily in selling, general and administrative expenses in the consolidated statements of operations. Services under the TSA ended as of June 30, 2017. We have no continuing involvement with the Huron Legal segment.
4. Acquisitions
2017
Pope Woodhead and Associates Limited
On January 9, 2017, we completed our acquisition of Pope Woodhead and Associates Limited ("Pope Woodhead"), a U.K.-based consulting firm providing market access capabilities to assist clients in developing value propositions for innovative medicines and technologies. The acquisition expands our life sciences strategy expertise and strengthens our ability to lead clients through complex payer and regulatory environments. Pope Woodhead's results of operations have been included in our consolidated financial statements and the results of operations of our Business Advisory segment from the date of acquisition.
ADI Strategies, Inc.
On April 1, 2017, we completed our acquisition of the international assets of ADI Strategies, Inc. ("ADI Strategies") in Dubai and India. We acquired the U.S. assets of ADI Strategies in the second quarter of 2016. ADI Strategies is a leading enterprise performance management, risk management and business intelligence firm. The acquisition strengthens our technology and analytics competencies and expands our global reach. The international results of operations of ADI Strategies have been included in our consolidated financial statements and results of operations of the Business Advisory segment from the date of acquisition.
The acquisitions of ADI Strategies and Pope Woodhead are not significant to our consolidated financial statements individually or in the aggregate as of and for the twelve months ended December 31, 2017.
Innosight Holdings, LLC
On March 1, 2017, we acquired 100% of the membership interests of Innosight Holdings, LLC ("Innosight"). Innosight is a growth strategy firm focused on helping companies navigate disruptive change and manage strategic transformation. Together with Innosight, we use our strategic, operational, and technology capabilities to help clients across multiple industries develop pioneering solutions to address disruption and achieve sustained growth.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

The acquisition was accounted for using the acquisition method of accounting. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The current fair values of assets acquired and liabilities assumed are considered preliminary and are based on the information that is currently available. We believe that the information provides a reasonable basis for estimating the preliminary fair values of assets acquired and liabilities assumed, but certain items, such as working capital amounts, may be subject to change as additional information is received. Thus, the provisional measurements of fair value and goodwill are subject to change. We will finalize the valuation in the first quarter of 2018.
The acquisition date fair value of the consideration transferred for Innosight was $113.6 million, which consisted of the following:
Fair value of consideration transferred 
Cash$90,725
Common stock9,560
Contingent consideration liability12,050
Net working capital adjustment1,272
Total consideration transferred$113,607
We funded the cash component of the purchase price with cash on hand and borrowings of $89.0 million under our senior secured credit facility. We issued 221,558 shares of our common stock as part of the consideration transferred, with an acquisition date fair value of $9.6 million based on our common stock's closing price of $43.15 on the date of acquisition. The contingent consideration liability of $12.1 million represents the acquisition date fair value of the contingent consideration arrangement, pursuant to which we may be required to pay additional consideration to the sellers if specific financial performance targets are met over a four-year term. The maximum amount of contingent consideration that may be paid is $35.0 million. See Note 12 "Fair Value of Financial Instruments" for additional information on the valuation of contingent consideration liabilities.
The following table summarizes the preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed as of the acquisition date.
 March 1, 2017
Assets acquired: 
Accounts receivable$7,752
Unbilled services1,881
Prepaid expenses and other current assets468
Property and equipment419
Intangible assets18,015
Liabilities assumed: 
Accounts payable531
Accrued expenses and other current liabilities894
Accrued payroll and related benefits883
Deferred revenues30
Total identifiable net assets26,197
Goodwill87,410
Total purchase price$113,607

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the acquisition date.
 Fair Value 
Useful Life in
Years
Customer relationships$9,500
 6
Trade name6,000
 6
Customer contracts1,000
 1
Non-compete agreements1,300
 5
Favorable lease contract215
 1
Total intangible assets subject to amortization$18,015
  
The weighted average amortization period for the identifiable intangible assets shown above is 5.6 years. Customer relationships and customer contracts represent the fair values of the underlying relationships and agreements with Innosight customers. The trade name represents the fair value of the brand and name recognition associated with the marketing of Innosight's service offerings. Non-compete agreements represent the value derived from preventing certain Innosight executives from entering into or starting a similar, competing business. The favorable lease contract represents the difference between the fair value and minimum lease obligations under the current outstanding lease. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed, and largely reflects the expanded market opportunities expected from combining the service offerings of Huron and Innosight, as well as the assembled workforce of Innosight. Goodwill recognized in conjunction with the acquisition of Innosight was recorded in the Business Advisory segment. Goodwill of $87.4 million is expected to be deductible for income tax purposes.
Innosight’s results of operations have been included in our unaudited consolidated statements of operations and results of operations of our Business Advisory segment from the date of acquisition. For the year ended December 31, 2017, revenues from Innosight were $34.3 million and operating loss was $0.9 million, which included $3.4 million of amortization expense for intangible assets acquired. In connection with the acquisition of Innosight, we incurred $1.7 million of transaction and acquisition-related expenses. Of the $1.7 million of expense, $1.4 million was incurred in the first quarter of 2017 and $0.3 million was incurred in the second quarter in 2017. These costs are recorded in selling, general and administrative expenses.
The following unaudited supplemental pro forma information summarizes the combined results of operations of Huron and Innosight as though the companies were combined on January 1, 2016.
 
Year Ended
December 31,
 2017 2016
Revenues$741,695
 $769,114
Net income (loss) from continuing operations$(167,346) $42,760
Net income (loss) from continuing operations per share - basic$(7.79) $2.01
Net income (loss) from continuing operations per share - diluted$(7.79) $1.98
The historical financial information has been adjusted to give effect to pro forma adjustments consisting of intangible asset amortization expense, acquisition-related costs, interest expense, and the related income tax effects. The unaudited pro forma information above includes adjustments to include additional expense of $0.6 million and $11.4 million for the years ended December 31, 2017 and 2016, respectively. Additionally, the historical financial information has been adjusted to give effect to the shares issued as consideration. All of these adjustments are based upon currently available information and certain assumptions. Therefore, the pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition on January 1, 2016. The historical results included in the pro forma consolidated results do not purport to project future results of operations of the combined companies nor do they reflect the expected realization of any cost savings or revenue synergies associated with the acquisition.
2016
MyRounding Solutions, LLC
On February 1, 2016, we completed the acquisition of MyRounding Solutions, LLC ("MyRounding"), a Denver, Colorado-based firm specializing in digital health solutions to improve patient care. The MyRounding application is designed to standardize, automate, and track rounding activity, allowing nurses and staff to improve the care and experience of patients in real time. The addition of MyRounding expands

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

the integration of our software and consulting solutions and strengthens our transformation services for healthcare providers. The results of operations of MyRounding have been included in our consolidated financial statements and the results of operations of our Healthcare segment from the date of acquisition.
ADI Strategies, Inc.
On May 1, 2016, we completed the acquisition of the U.S. assets of ADI Strategies, Inc. ("ADI Strategies"), a leading enterprise performance management, risk management, and business intelligence firm focused on implementing the Oracle enterprise application suite. The results of operations of ADI Strategies have been included in our consolidated financial statements and the results of operations of our Business Advisory segment from the date of acquisition.
Healthcare Services Management, Inc.
On August 1, 2016, we completed the acquisition of Healthcare Services Management, Inc. ("HSM Consulting"), a firm specializing in healthcare information technology and management consulting. The results of operations of HSM Consulting have been included in our consolidated financial statements and results of operations of our Healthcare segment from the date of acquisition.
The acquisitions of MyRounding, ADI Strategies, and HSM Consulting are not significant to our consolidated financial statements individually or in the aggregate as of and for the twelve months ended December 31, 2016.
2015
Studer Holdings, Inc.
On February 12, 2015, we acquired 100% of the outstanding stock of Studer Holdings, Inc. (“Studer Group”) from the existing shareholders in accordance with an Agreement and Plan of Merger dated January 26, 2015 (the “Merger Agreement”). Studer Group is a professional services firm that assists healthcare providers achieve cultural transformation to deliver and sustain improvement in clinical outcomes and financial results. The acquisition combines Healthcare’s performance improvement and clinical transformation capabilities with Studer Group’s Evidence-Based LeadershipSM framework to provide leadership and cultural transformation expertise for healthcare provider clients.
The acquisition date fair value of the consideration transferred for Studer Group was approximately $325.2 million, which consisted of the following: 
Fair value of consideration transferred
Cash$323,237
Common stock2,204
Net working capital adjustment(255)
Total consideration transferred$325,186
We funded the cash component of the purchase price with cash on hand and borrowings of $102.0 million under our senior secured credit facility. We issued 28,486 shares of our common stock as part of the consideration transferred, with an acquisition date fair value of $2.2 million based on the closing price of our stock of $77.35 on the date of acquisition.

F-18
Table of Contents
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

The acquisition was accounted for using the acquisition method of accounting. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The following table summarizes the allocation of the purchase price to the fair value of assets acquired and liabilities assumed as of the acquisition date.
 February 12, 2015
Assets acquired: 
Accounts receivable$14,906
Prepaid expenses and other current assets1,385
Deferred income tax asset4,335
Property and equipment4,509
Intangible assets97,500
Liabilities assumed: 
Accounts payable760
Accrued expenses and other current liabilities2,868
Accrued payroll and related benefits1,574
Deferred revenues2,449
Deferred income tax liability21,263
Other non-current liabilities1,211
Total identifiable net assets92,510
Goodwill232,676
Total purchase price$325,186
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the acquisition date. 
 Fair Value 
Useful Life in
Years
Customer relationships$42,400
 9
Customer contracts25,100
 4
Trade name22,800
 5
Technology and software3,900
 3
Publishing content3,300
 3
Total intangible assets subject to amortization$97,500
  
The weighted average amortization period for the identifiable intangible assets shown above is 6.3 years. Customer relationships and customer contracts represent the fair values of the underlying relationships and agreements with Studer Group customers. The trade name represents the fair value of the brand and name recognition associated with the marketing of Studer Group’s service offerings. Technology and software and publishing content represent the estimated fair values of Studer Group’s software and books that are sold to customers. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed, and largely reflects the expanded market opportunities expected from combining the service offerings of Huron and Studer Group, as well as the assembled workforce of Studer Group. Goodwill recognized in conjunction with the acquisition of Studer Group was recorded in the Healthcare segment. Goodwill of $119.5 million is expected to be deductible for income tax purposes.
Studer Group’s results of operations have been included in our consolidated statements of operations and other comprehensive income and results of operations of our Healthcare segment from the date of acquisition. For the year ended December 31, 2015, revenues from Studer Group were $79.9 million and operating income was $5.1 million, which included $21.3 million of amortization expense for intangible assets acquired. In connection with the acquisition of Studer Group, we incurred $2.1 million of transaction and acquisition-related expenses, $0.9 million of which were incurred in 2014, and $1.2 million of which were incurred in 2015. These costs are recorded in selling, general and administrative expenses in the period in which they were incurred.

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Table of Contents
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

The following unaudited supplemental pro forma information summarizes the combined results of operations for Huron and Studer Group for the twelve months ended December 31, 2015 as though the companies were combined on January 1, 2014.
  
Year Ended
December 31, 2015
Revenues $709,813
Net income from continuing operations $63,600
Net income from continuing operations per share - basic $2.87
Net income from continuing operations per share - diluted $2.81
The historical financial information shown above has been adjusted to give effect to pro forma adjustments totaling $2.4 million of additional expense, which consist of intangible assets amortization expense, acquisition-related costs, interest expense, and the related income tax effects. The historical per share information has been adjusted to give effect to the shares issued as consideration. These adjustments are based upon currently available information and certain assumptions. Therefore, the pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition on January 1, 2014. The historical results included in the pro forma consolidated results do not purport to project future results of operations of the combined companies, nor do they reflect the expected realization of any cost savings or revenue synergies associated with the acquisition.
Sky Analytics, Inc.
Effective January 1, 2015, we completed the acquisition of Sky Analytics, Inc. ("Sky Analytics"), a Massachusetts-based provider of legal spend management software for corporate law departments. Sky Analytics' results of operations were included in the results of operations of our Huron Legal segment from the date of acquisition, and classified as discontinued operations upon the sale of the Huron Legal segment in the fourth quarter of 2015. Refer to Note 3 "Discontinued Operations" for additional detail on the sale of the Huron Legal segment.
Rittman Mead India
Effective July 1, 2015, we completed the acquisition of Rittman Mead Consulting Private Limited ("Rittman Mead India"), the India affiliate of Rittman Mead Consulting Ltd. Rittman Mead India is a data and analytics consulting firm that specializes in the implementation of enterprise performance management and analytics systems. Rittman Mead India's results of operations have been included in our consolidated financial statements and results of operations of our Business Advisory segment from the date of acquisition.
Cloud62, Inc.
Effective October 1, 2015, we completed the acquisition of Cloud62, Inc. ("Cloud62"), a New York-based consulting firm specializing in Salesforce.com implementations and related cloud-based applications. Cloud62's results of operations have been included in our consolidated financial statements and results of operations of our Business Advisory segment from the date of acquisition.
The acquisitions of Sky Analytics, Rittman Mead India, and Cloud62 were not significant to our consolidated financial statements individually or in the aggregate as of and for the twelve months ended December 31, 2015.

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Table of Contents
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

5. Goodwill and Intangible Assets

The table below sets forth the changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 20142017 and 2013.

   Health and
Education
Consulting		  Huron
Healthcare		   Huron
Legal		  Huron
Education
and Life
Sciences		  Huron
Business
Advisory		  Total 

Balance as of December 31, 2012:

        

Goodwill

  $450,481   $—     $52,947   $—    $159,077   $662,505  

Accumulated impairment losses

   —     —      —     —     (142,983)   (142,983) 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Goodwill, net as of December 31, 2012

   450,481    —      52,947    —     16,094    519,522  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Goodwill reallocation

   (450,481)   355,880     —     94,601    —     —   

Total new alignment as of January 1, 2013

  $—    $355,880    $52,947   $94,601   $16,094   $519,522  

Goodwill recorded in connection with business combinations

   —     —      —     17,085    —     17,085  

Foreign currency translation

   —     —      212    (182)   —     30  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2013:

        

Goodwill

   —     355,880     53,159    111,504    159,077    679,620  

Accumulated impairment losses

   —     —      —     —     (142,983)   (142,983) 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Goodwill, net as of December 31, 2013

  $—    $355,880    $53,159   $111,504   $16,094   $536,637  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Goodwill recorded in connection with business combinations

   —     21,708    —     8,308    1,489   31,505  

Goodwill reallocation

   —     —      —     (16,744)  16,744   —   

Foreign currency translation

   —     —      (604)   (162)   (230)   (996) 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2014:

        

Goodwill

   —     377,588     52,555    102,906    177,080    710,129  

Accumulated impairment losses

   —     —      —     —     (142,983)   (142,983) 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Goodwill, net as of December 31, 2014

  $—    $377,588    $52,555   $102,906   $34,097   $567,146  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

First2016. 

  Healthcare Education 
Business
Advisory
 Total
Balance as of December 31, 2015:        
Goodwill $610,264
 $102,906
 $181,213
 $894,383
Accumulated impairment losses —
 —
 (142,983) (142,983)
Goodwill, net as of December 31, 2015 $610,264
 $102,906
 $38,230
 $751,400
Goodwill recorded in connection with business combinations (1)
 26,538
 —
 21,824
 48,362
Foreign currency translation —
 —
 100
 100
Balance as of December 31, 2016:       
Goodwill 636,802
 102,906
 203,137
 942,845
Accumulated impairment losses —
 —
 (142,983) (142,983)
Goodwill, net as of December 31, 2016 $636,802
 $102,906
 $60,154
 $799,862
Goodwill recorded in connection with business combinations (1)
 8
 10,252
 88,183
 98,443
Goodwill impairment charge (208,081) —
 (45,012) (253,093)
Goodwill reallocation (2)
 —
 (10,794) 10,794
 —
Goodwill allocated to disposal of business (3)
 —
 —
 (568) (568)
Foreign currency translation —
 465
 641
 1,106
Balance as of December 31, 2017:       
Goodwill 636,810
 102,829
 302,187
 1,041,826
Accumulated impairment losses (208,081) —
 (187,995) (396,076)
Goodwill, net as of December 31, 2017: $428,729
 $102,829
 $114,192
 $645,750
(1)Refer to Note 4 "Acquisitions" for additional information on the goodwill recorded in connection with business combinations.
(2)In the second quarter of 2017, we reorganized our internal financial reporting structure, which management uses to assess performance and allocate resources, by moving our Life Sciences practice from the Education and Life Sciences segment to the Business Advisory segment. The remaining Education and Life Sciences segment is now referred to as the Education segment. The Life Sciences practice is a separate reporting unit for purposes of goodwill impairment testing. See Note 18 "Segment Information" for additional information on our reportable segments.
(3)On June 16, 2017, we sold our Life Sciences Compliance and Operations practice ("Life Sciences C&O") to a third-party, and allocated a portion of goodwill within the Life Sciences reporting unit to the disposed business based on the relative fair values of Life Sciences C&O and the remaining reporting unit. The allocated goodwill of $0.6 million was written off and included in the gain on sale of Life Sciences C&O. The sale of Life Sciences C&O did not meet the criteria for reporting separately as discontinued operations. In connection with the sale, we recorded a $0.9 million gain which is included in other income, net in our consolidated statements of operations.
Second Quarter 20142017 Goodwill Reallocation

Impairment Charge

During the firstsecond quarter of 2014,2017, we reorganizedperformed a goodwill impairment analysis for our internal operating structureHealthcare reporting unit as our Healthcare business had experienced a prolonged period of declining revenues, primarily driven by softness in our revenue cycle offering within our performance improvement solution. This softness was attributable to decreased demand for our services, the winding down of some of our larger projects, and a trend toward smaller projects, as well as fewer large integrated projects. In light of these challenges, several initiatives were undertaken to improve the segment's financial performance, including repositioning our solutions to address the most critical needs of our clients, the expansion of our existing services such as those in our Studer Group, strategy, physician and technology offerings, and workforce reductions to better align our service offeringsresources with market demand. While these initiatives have yielded some positive impacts, hospitals and moved our Enterprise Performance Management (“EPM”) practice (formerly referredhealth systems continue to as Blue Stone International, a business whichface regulatory and funding uncertainty; therefore, we acquired during the fourth quarterremain cautious about near-term growth. As we had previously

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Table of 2013) from the Huron Education and Life Sciences segment to the Huron Business Advisory segment. As a result of this change, we reassigned the goodwill balance of the EPM practice, which totaled $16.7 million as of March 31, 2014, from the Huron Education and Life Sciences reporting unit to the EPM reporting unit, which is part of the Huron Business Advisory segment.

In conjunction with the goodwill reassignment, we performed an interim impairment test for the goodwill balances within our Huron Education and Life Sciences and EPM reporting units as of March 31, 2014. Our goodwill impairment test

Contents

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)

was performed using


disclosed in prior quarters, if the quantitative two-step process.financial performance of our Healthcare segment continued to decline and did not meet our expectations, we could be required to perform an interim impairment analysis with respect to our carrying value of goodwill for the Healthcare reporting unit prior to our usual annual test. Based on the results of the first step of the goodwill impairment test, we determined that the fair values of our Huron Education and Life Sciences and EPM reporting units exceeded their carrying values, including goodwill. As the fair value of each reporting unit exceeded its carrying value, including goodwill, the second step of the goodwill impairment test was not necessary.

2014 Annual Goodwill Impairment Test

Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2014 on our five reporting units that carry a goodwill balance: Huron Healthcare, Huron Legal, Huron Education and Life Sciences operating segments, and the Financial Advisory and EPM practices that make up the Huron Business Advisory operating segment. For the Huron Healthcare, Huron Education and Life Sciences, and Financial Advisory reporting units, we qualitatively assessed whether it is more likely than not that the respective fair values of these reporting units are less than their carrying amounts, including goodwill. Based on that assessment, we determined that it was more likely than not that the fair values of these three reporting units exceed their respective carrying values. As such, performing the first step of the two-step impairment test for these reporting units was unnecessary.

For the Huron Legal and EPM reporting units, we performed the first step of the quantitative two-step impairment test by comparing the fair value of the reporting units to their carrying amounts, inclusive of assigned goodwill. In estimating the fair value of the Huron Legal and EPM reporting units, we relied on a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. Significant assumptions inherentforecasts prepared in the valuation methodologies for goodwill are utilized and include, but are not limited to, prospective financial information, growth rates, discount rates, and comparable multiples from publicly traded companies in our industry. Based on the result of the first step of this goodwill impairment analysis, we determined that the fair value of the Huron Legal and EPM reporting units exceeded their carrying values by 28% and 14%, respectively, and, therefore, step two of the two-step goodwill impairment test was unnecessary.

After completing our annual goodwill impairment tests for each reporting unit as of November 30, 2014, we concluded that goodwill was not impaired.

First Quarter 2013 Goodwill Reallocation

During the first quarter of 2013, we changed our internal financial reporting structure. Under the new structure, our former Health and Education Consulting segment became two separate segments: Huron Healthcare and Huron Education and Life Sciences. In addition, certain immaterial practices which were historically part of our Health and Education Consulting segment were combined and disclosed in our All Other segment. The Legal Consulting segment is now referred to as Huron Legal and the Financial Consulting segment is now referred to as Huron Business Advisory. The structure of the Legal Consulting and Financial Consulting segments did not change. As a result of these changes, we now have five reportable segments, which are the same as our operating segments.

In accordance with ASC 350, we reassigned the goodwill balance of the Health and Education Consulting segment using the relative fair value approach based on an evaluation of expected future discounted cash flows. Based on this relative fair value analysis, we reassigned $355.9 million of goodwill to Huron Healthcare and $94.6 million of goodwill to Huron Education and Life Sciences.

In conjunction with the goodwill reassignment, we performed the first step of the goodwill impairment test for the goodwill balances within our Huron Healthcare and Huron Education and Life Sciences reporting units as of January 2,

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

2013. Based on the result of the first step of the goodwill impairment test, we determined that the fair values of our Huron Healthcare and Huron Education and Life Sciences reporting units exceeded their carrying values. Since the fair values of both reporting units exceeded their carrying values, the second step of the goodwill impairment test was not necessary.

Third Quarter 2012 Goodwill Impairment Charge

In the second quarter of 2012, our Huron Business Advisory segment leadership undertook several initiatives intended to improve the reporting unit’s financial performance. While the reporting unit’s third quarter financial results improved over the second quarter results, the progress of the financial, operational, and business development improvements was not2017 in lineconnection with our expectations, causing us to believequarterly forecasting cycle, we determined that the likely time frame to improve the reporting unit’s performancefinancial results of this segment would betake longer than originally anticipated. Therefore,As such, we concluded, during the second quarter of 2017, that the carryingfair value of the Healthcare reporting unit likelymay have no longer exceeded its fair value and, incarrying value. In connection with the preparation of our financial statements for the quarter ended SeptemberJune 30, 2012,2017, we performed an interim impairment test.

test on the Healthcare reporting unit.

Our goodwill impairment test was performed using the quantitative two-step process. In the first step, we comparedby comparing the fair value of the Huron Business AdvisoryHealthcare reporting unit with its net bookcarrying value (orand, in accordance with ASU 2017-04, which we adopted in the second quarter of 2017, recognizing an impairment charge for the amount by which the carrying amount), including goodwill. In estimatingvalue exceeded the fair value. To estimate the fair value of the Huron Business AdvisoryHealthcare reporting unit, we relied on a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. Based on the result of the first step, we determined that the fair value of our Huron Business Advisory reporting unit was less than its carrying value as of September 30, 2012 and, as such, we applied the second step of the goodwill impairment test to this reporting unit. The second step compared the impliedestimated fair value of the Huron Business AdvisoryHealthcare reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit, is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. Based on the result of the second step of the goodwill impairment analysis, we recorded a $13.1$209.6 million non-cash pretax charge in the thirdsecond quarter of 20122017 to reduce the carrying value of goodwill in our Huron Business AdvisoryHealthcare reporting unit.

Acquisitions

During As discussed in Note 2 "Summary of Significant Accounting," during the firstfourth quarter of 2014,2017, we identified that our calculation of the Companynon-deductible portion of our goodwill impairment charge recorded in the second quarter of 2017 erroneously excluded a portion of goodwill that was related to an acquisition completed in 2008 and has since been divested. To correct this error, in the acquisitionfourth quarter of 2017, we recorded a $1.5 million decrease to our non-cash pretax goodwill impairment charge related to our Healthcare reporting unit. The Frankel Group Associates LLC, a New York-based life sciences consulting firm,total non-cash pretax goodwill impairment charge recorded in 2017 related to our Healthcare reporting unit, including the adjustment in the fourth quarter of 2017, was $208.1 million.

In connection with the goodwill impairment test performed on the Healthcare reporting unit, we performed an impairment test on the long-lived assets allocated to the asset groups within the HuronHealthcare reporting unit. Based on the impairment test performed, we concluded that the long-lived assets allocated to the asset groups within the Healthcare reporting unit were not impaired as of June 30, 2017.
Second Quarter 2017 Goodwill Reallocation
As a result of the segment reorganization in the second quarter of 2017, we reallocated $10.8 million of the goodwill balance associated with the previous Education and Life Sciences segment.reporting unit to the new Life Sciences reporting unit based on the relative fair values of the Life Sciences reporting unit and the remaining Education reporting unit. The acquisition dateestimated fair values were determined using a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting.

In conjunction with the goodwill reallocation, we performed a goodwill impairment test for the goodwill balances within our Education reporting unit and Life Sciences reporting unit as of June 1, 2017. Based on the results of the goodwill impairment test, we determined that the fair values of our Education reporting unit and Life Sciences reporting unit exceeded their carrying values. As such, we concluded that there was no indication of goodwill impairment for either reporting unit at that time.
2017 Annual Goodwill Impairment Test
Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2017 for our six reporting units with goodwill balances: Healthcare, Education, Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences. We elected to bypass the qualitative assessment and proceeded directly to the quantitative goodwill impairment test.
For each reporting unit, we reviewed goodwill for impairment by comparing the fair value of the consideration transferred totaled $18.0 million, which includedreporting unit to its carrying value, including goodwill. In estimating the fair value of contingent consideration of $0.6 million. As parteach reporting unit, we relied on a combination of the purchase price allocation,income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. Based on the results of the goodwill impairment test, we recorded $5.7 million of intangible assets and $8.3 million of goodwill.

Duringdetermined that the second quarter of 2014, the Company completed the acquisition of Vonlay, LLC, a healthcare technology consulting firm, within the Huron Healthcare segment. The fair value of the consideration transferred totaled $34.5 million.Healthcare, Education, Business Advisory, Strategy and Innovation, and Life Sciences reporting units exceeded its carrying value by 40%, 120%, 115%, 33%, and 14%, respectively. As partsuch, we concluded that there was no indication of goodwill impairment for these five reporting units. However, the results of the purchase price allocation, we recorded $8.3 million of intangible assets and $21.7 million of goodwill.

Duringquantitative impairment test indicated that the fourth quarter of 2014, the Company completed the acquisition of Threshold Consulting, Inc., a provider of cloud-based Software as a Service applications, data warehousing and business intelligence solutions, as well as customer relationship management consulting services, within the Huron Business Advisory segment. The fair value of the consideration transferred totaled $2.1Enterprise Solutions and Analytics reporting unit did not exceed its carrying value. Based on the estimated fair value of the Enterprise Solutions and Analytics reporting unit, we recorded a $45.0 million which includednon-cash pretax charge to reduce the carrying value of this reporting unit's goodwill to zero.

Our Enterprise Solutions and Analytics reporting unit was established with the acquisition of Blue Stone International, LLC in 2013. Since that time, we completed five additional business acquisitions within the reporting unit, most recently the acquisitions of the U.S. assets and international assets of ADI Strategies in May 2016 and April 2017, respectively. We record the assets acquired and liabilities assumed in business combinations, including identifiable intangible assets, at their estimated fair values as of the acquisition date, and goodwill is recorded as the excess of the fair value of consideration transferred, including any contingent consideration, of $0.2 million. As partover the fair value of the purchase price allocation,net assets acquired. Therefore, the initial accounting for an acquisition results in its fair value equaling its carrying value. As we recorded $0.6 millionhave previously disclosed in prior quarters, due to this reporting unit’s relatively low headroom, in the event that the financial performance of intangible assets and $1.5 millionthe reporting unit

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Table of goodwill.

Contents

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)


did not meet our expectations during 2017, we could be required to take a non-cash impairment charge as a result of any goodwill impairment test. During 2013, the Company completedfirst three quarters of 2017, the acquisitionperformance of Blue Stone International, LLC,Enterprise Solutions and Analytics continued to reasonably meet our expectations. However, both revenues and operating margin during the fourth quarter of 2017 fell short of our expectations resulting in a Chicago-based provider of professional services supporting Oracle enterprise performance management, information management and business intelligence solutions,reduction in workforce within the Huron Educationreporting unit during that quarter. Further, in connection with our annual budget process for 2018, which coincided with our annual goodwill impairment test during the fourth quarter of 2017, we determined that the reporting unit's expected future revenue growth rates and Life Sciences segment. The aggregateoperating margin would be lower than previously anticipated for this reporting unit. As a result, our goodwill impairment test indicated that the fair value of the consideration transferred totaled $30.0 million.Enterprise Solutions and Analytics reporting unit no longer exceeded its carrying value, and we recorded a $45.0 million non-cash pretax charge to write off the entire carrying value of this reporting unit's goodwill.
In connection with the goodwill impairment test performed on the Enterprise Solutions and Analytics reporting unit, we performed an impairment test on the long-lived assets allocated to the asset groups within the Enterprise Solutions and Analytics reporting unit. Based on the impairment test performed, we concluded that the long-lived assets allocated to the asset groups within the Enterprise Solutions and Analytics reporting unit were not impaired as of November 30, 2017.
Further, we evaluated whether any events have occurred or any circumstances have changed since November 30, 2017 that would indicate any additional goodwill may have become impaired since our annual impairment test. Based on our evaluation as of December 31, 2017, which included the impact of the 2017 Tax Reform on our deferred tax balances and forecasted tax rates, we determined that no indications of impairment have arisen since our annual goodwill impairment test. The results of an impairment analysis are as of a point in time. There is no assurance that the actual future earnings or cash flows of our reporting units will be consistent with our projections. We recorded $8.8 million of intangible assetswill monitor any changes to our assumptions and $17.1 million ofwill evaluate goodwill related to this acquisition.

as deemed warranted during future periods. Any significant decline in our operations could result in additional non-cash goodwill impairment charges.

Intangible Assets

Intangible assets as of December 31, 20142017 and 20132016 consisted of the following:

      December 31, 
      2014   2013 
   Useful Life
in Years		  Gross
Carrying
Amount		   Accumulated
Amortization		   Gross
Carrying
Amount		   Accumulated
Amortization		 

Customer contracts

  1  $243    $71    $689    $226 

Customer relationships

  3 to 13   42,345     21,228     31,946     14,814  

Non-competition agreements

  5 to 6   3,495     1,072     5,480     3,655  

Trade names

  1 to 8   160     67     120     24  

Technology and software

  3 to 5   4,321     3,461     4,041     2,559  

Document reviewer database

  3   —      —       450     270  

License

  2   50     31     50     6  
    

 

 

   

 

 

   

 

 

   

 

 

 

Total

    $50,614    $25,930    $42,776    $21,554  
    

 

 

   

 

 

   

 

 

   

 

 

 

   As of December 31,
   2017 2016
 
Useful Life
in Years
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Customer relationships4 to 13 $106,195
 $51,588
 $89,279
 $34,827
Trade names2 to 6 29,016
 18,915
 22,930
 11,652
Customer contracts1 to 4 25,154
 24,751
 26,497
 21,295
Technology and software3 to 5 9,340
 5,098
 8,970
 2,667
Non-competition agreements3 to 5 5,163
 2,637
 3,685
 1,697
Publishing content3 3,300
 3,163
 3,300
 2,062
Favorable lease contract3 720
 425
 720
 203
In-process technologyIndefinite —
 —
 370
 —
Total  $178,888
 $106,577
 $155,751
 $74,403
Identifiable intangible assets with finite lives are amortized over their estimated useful lives. The majority of theCustomer relationships and customer relationshipscontracts, as well as certain trade names and technology and software, are amortized on an accelerated basis to correspond to the cash flows expected to be derived from the relationships.assets. All other intangible assets with finite lives are amortized on a straight-line basis.

In connection with the acquisition of MyRounding, we acquired in-process technology which was accounted for as an indefinite-lived intangible asset until the development of the technology was complete, which occurred in the first quarter of 2017. Upon completion, we reclassified the technology to definite-lived technology and software, and began amortizing the asset over a five-year useful life on a straight-line basis.


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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

Intangible assets amortization expense was $35.0 million, $33.1 million, and $28.7 million for the years ended December 31, 2014, 2013,2017, 2016, and 2012 was $11.1 million, $6.8 million, and $7.0 million,2015, respectively. EstimatedThe table below sets forth the estimated annual amortization expense for each of the five succeeding years for the intangible assets amortization expense is $8.6 million for 2015, $6.2 million for 2016, $4.4 million for 2017, $3.1 million for 2018, and $1.4 million for 2019. recorded as of December 31, 2017.
Year Ending December 31, 
Estimated
Amortization Expense
2018 $23,936
2019 $17,279
2020 $12,116
2021 $8,070
2022 $6,092
Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions, dispositions, and other factors.

6. Property and Equipment, Net
Depreciation expense for property and equipment was $13.3 million, $12.5 million, and $12.3 million for the years ended December 31, 2017, 2016, and 2015, respectively. Property and equipment, net at December 31, 2017 and 2016 consisted of the following:
 As of December 31,
 2017 2016
Computers, related equipment, and software$46,216
 $48,607
Leasehold improvements45,244
 38,502
Furniture and fixtures16,434
 12,545
Aircraft7,541
 —
Assets under construction250
 294
Property and equipment115,685
 99,948
Accumulated depreciation and amortization(70,144) (67,514)
Property and equipment, net$45,541
 $32,434

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HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)

4. Property and Equipment, Net

Depreciation expense for property and equipment was $18.0 million, $16.6 million, and $15.3 million for 2014, 2013, and 2012, respectively. Property and equipment at December 31, 2014 and 2013 are detailed below:

   December 31, 
   2014  2013 

Computers, related equipment, and software

  $86,769   $69,979  

Leasehold improvements

   43,742    39,343  

Furniture and fixtures

   20,003    19,442  

Assets under capital lease

   925    1,022  

Assets under construction

   594    612  
  

 

 

  

 

 

 

Property and equipment

   152,033    130,398  

Accumulated depreciation and amortization

   (107,356)   (91,656) 
  

 

 

  

 

 

 

Property and equipment, net

  $44,677   $38,742  
  

 

 

  

 

 

 

5.


7. Financing Arrangements

A summary of the carrying amounts of our debt follows:
 As of December 31,
 2017 2016
1.25% convertible senior notes due 2019$233,140
 $224,065
Senior secured credit facility105,000
 68,000
Promissory note due 20244,868
 —
Total long-term debt$343,008
 $292,065
Current maturities of debt (1)
(501) —
Long-term debt, net of current portion$342,507
 $292,065
(1)The current maturities of debt are included as a component of accrued expenses and other current liabilities on our consolidated balance sheets.
Below is a summary of the scheduled remaining principal payments of our debt as follows (in thousands):

   December 31, 
   2014  2013 

1.25% convertible senior notes due 2019

  $212,852   $—    

Senior secured credit facility

   143,750    168,750  
  

 

 

  

 

 

 

Total debt

   356,602    168,750  

Current maturities of debt

   (28,750)   (25,000) 
  

 

 

  

 

 

 

Long-term debt, net of current portion

  $327,852   $143,750  
  

 

 

  

 

 

 

of December 31, 2017.

 Principal Payments of Long-Term Debt
2018$501
2019$250,515
2020$105,529
2021$544
2022$559
Thereafter$2,221
Convertible Notes

In September 2014, the Company issued $250 million principal amount of 1.25% convertible senior notes due 2019 (the “Convertible Notes”) in a private offering. The Convertible Notes are governed by the terms of an indenture between the Company and U.S. Bank National Association, as Trustee (the “Indenture”). The Convertible Notes are senior unsecured obligations of the Company and will pay interest semi-annually on April 1 and October 1 of each year at an annual rate of 1.25%. The Convertible Notes will mature on October 1, 2019, unless earlier repurchased by the Company or converted in accordance with their terms.

Upon conversion, the Convertible Notes will be settled, at our election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amount of the Convertible Notes paid in cash, in accordance with the settlement provisions of the Indenture.

The initial conversion rate for the Convertible Notes is 12.5170 shares of our common stock per $1,000 principal amount of the Convertible Notes, which is equal to an initial conversion price of approximately $79.89 per share of our

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

common stock. The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest, except in certain limited circumstances described in the Indenture. Upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture) the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change. Additionally, if the Company undergoes a “fundamental change” (as defined in the Indenture), a holder will have the option to require the Company to repurchase all or a portion of its Convertible Notes for cash at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest. As discussed below, the convertible note hedge transactions and warrants, which were entered into in connection with the Convertible Notes, effectively raise the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share.

Holders of the Convertible Notes may convert their Convertible Notes at their option at any time prior to July 1, 2019, only under the following circumstances:

—

during any calendar quarter (and only during such calendar quarter) commencing after December 31, 2014 if, for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter, the last reported sale price of the Company’s common stock for such trading day is equal to or greater than 130% of the applicable conversion price on such trading day;

—

during the five consecutive business day period immediately following any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which, for each trading day of the measurement period, the “trading price” (as defined in the Indenture) per $1,000 principal amount of the Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock for such trading day and the applicable conversion rate on such trading day; or

—

upon the occurrence of specified corporate transactions described in the Indenture.


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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

during any calendar quarter (and only during such calendar quarter) commencing after December 31, 2014 if, for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter, the last reported sale price of the Company’s common stock for such trading day is equal to or greater than 130% of the applicable conversion price on such trading day;
during the five consecutive business day period immediately following any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which, for each trading day of the measurement period, the “trading price” (as defined in the Indenture) per $1,000 principal amount of the Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock for such trading day and the applicable conversion rate on such trading day; or
upon the occurrence of specified corporate transactions described in the Indenture.
On or after July 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or a portion of its Convertible Notes, regardless of the foregoing circumstances.

In accordance with ASC 470, Debt, we

We have separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated convertible feature, assuming our non-convertible debt borrowing rate. The carrying value of the equity component representing the conversion option, which is recognized as a debt discount, was determined by deducting the fair value of the liability component from the proceeds of the Convertible Notes. The debt discount is amortized to interest expense using an effective interest rate of 4.837%4.751% over the term of the Convertible Notes. As of December 31, 2014,2017, the remaining life of the Convertible Notes is 4.81.8 years. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

As of December 31, 2014, the Convertible Notes consisted of the following (in thousands):

Liability component:

  

Proceeds

  $250,000  

Less: debt discount, net of amortization

   (37,148) 
  

 

 

 

Net carrying amount

  $212,852  
  

 

 

 

Equity component (1)

  $39,287  
  

 

 

 

(1)

Included in Additional paid-in capital on the consolidated balance sheet as of December 31, 2014.

The transaction costs related to the issuance of the Convertible Notes were separated into liability and equity components based on their relative values, as determined above. Transaction costs attributable to the liability component are capitalizedrecorded as a deduction to the carrying amount of the liability and amortized to interest expense over the term of the Convertible Notes,Notes; and transaction costs attributable to the equity component wereare netted with the equity component of the Convertible Notes in stockholders’ equity. Total debt issuance costs were approximately $7.3 million, of which $6.2 million was allocated to liability issuance costs and $1.1 million was allocated to equity issuance costs.

As of December 31, 2017 and 2016, the Convertible Notes consisted of the following: 
 As of December 31,
 2017 2016
Liability component:   
Proceeds$250,000
 $250,000
Less: debt discount, net of amortization(14,668) (22,520)
Less: debt issuance costs, net of amortization(2,192) (3,415)
Net carrying amount$233,140
 $224,065
Equity component (1)
$39,287
 $39,287
(1)Included in additional paid-in capital on the consolidated balance sheet.
The following table presents the amount of interest expense recognized related to the Convertible Notes (in thousands):

   Year Ended
December 31,
2014		 

Contractual interest coupon

  $964  

Amortization of debt issuance costs

   360  

Amortization of debt discount

   2,139  
  

 

 

 

Total interest expense recognized

  $3,463  
  

 

 

 

for the periods presented. 

 Year Ended December 31,
 2017 2016 2015
Contractual interest coupon$3,125
 $3,125
 $3,125
Amortization of debt discount7,851
 7,488
 7,141
Amortization of debt issuance costs1,224
 1,201
 1,180
Total interest expense$12,200
 $11,814
 $11,446
In connection with the issuance of the Convertible Notes, we entered into convertible note hedge transactions and warrant transactions. The convertible note hedge transactions are intended to reduce the potential future economic dilution associated with the conversion of the

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

Convertible Notes and, combined with the warrants, effectively raise the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share. For purposes of the computation of diluted earnings per share in accordance with U.S. GAAP, dilution will occur when the average share price of our common stock for a given period exceeds the conversion price of the Convertible Notes, which initially is equal to approximately $79.89 per share. The convertible note hedge transactions and warrant transactions are discussed separately below.

Convertible Note Hedge Transactions—

Convertible Note Hedge Transactions. In connection with the issuance of the Convertible Notes, the Company entered into the convertible note hedge transactions whereby the Company has call options to purchase a total of approximately 3.1 million shares of the Company’s common stock, which is the number of shares initially issuable upon conversion of the Convertible Notes in full, at a price of approximately $79.89, which corresponds to the initial conversion price of the Convertible Notes, subject to customary anti-dilution adjustments substantially similar to those in the Convertible Notes. The convertible note hedge transactions are exercisable upon conversion of the Convertible Notes and will expire in 2019 if not earlier exercised. We paid an aggregate amount of $42.1 million for the convertible note hedge transactions, which was recorded as additional paid-in capital in the consolidated balance sheets. The convertible note hedge transactions are separate transactions and are not part of the terms of the Convertible Notes.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, exceptfull, at a price of approximately $79.89, which corresponds to the initial conversion price of the Convertible Notes, subject to customary anti-dilution adjustments substantially similar to those in the Convertible Notes. The convertible note hedge transactions are exercisable upon conversion of the Convertible Notes and will expire in 2019 if not earlier exercised. We paid an aggregate amount of $42.1 million for the convertible note hedge transactions, which was recorded as additional paid-in capital on the consolidated balance sheets. The convertible note hedge transactions are separate transactions and are not part of the terms of the Convertible Notes.

Warrants. In connection with the issuance of the Convertible Notes, the Company sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 3.1 million shares of the Company’s common stock at a strike price of approximately $97.12. The warrants will expire incrementally on 100 different dates from January 6, 2020 to May 28, 2020 and are exercisable at each such expiry date. If the average market value per share amounts)

—

Warrants.    In connection with the issuance of the Convertible Notes, the Company sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 3.1 million shares of the Company’s common stock at a strike price of approximately $97.12. The warrants will expire incrementally on 100 different dates from January 6, 2020 to May 28, 2020 and are exercisable at each such expiry date. If the average market value per share of our common stock for the reporting period exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share. We received aggregate proceeds of $23.6 million from the sale of the warrants, which was recorded as additional paid-in capital in the consolidated balance sheets. The warrants are separate transactions and are not part of the terms of the Convertible Notes or the convertible note hedge transactions.

of our common stock for the reporting period exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share. We received aggregate proceeds of $23.6 million from the sale of the warrants, which was recorded as additional paid-in capital on the consolidated balance sheets. The warrants are separate transactions and are not part of the terms of the Convertible Notes or the convertible note hedge transactions.

The Company recorded aan initial deferred tax liability of $15.4 million in connection with the debt discount associated with the Convertible Notes and recorded aan initial deferred tax asset of $16.5 million in connection with the convertible note hedge transactions. The deferred tax liability and deferred tax asset are included in non-current deferred tax liabilitiesincome taxes, net on the consolidated balance sheets.

Senior Secured Credit Facility

During 2011,

The Company has a $500 million five-year senior secured revolving credit facility, subject to the Company and certainterms of the Company’s subsidiaries as guarantors entered into ana Second Amended and Restated Credit Agreement with various financial institutionsdated as of March 31, 2015, as amended to date (as amended and modified the “2011"Amended Credit Agreement”Facility")., that becomes due and payable in full upon maturity on March 31, 2020. The 2011Amended Credit Agreement consists of a senior secured credit facility in an aggregate principal amount of $450.0 million comprised of a five-year revolving credit facility (“Revolver”) under which the Company may borrow from time to time up to $247.5 million and a $202.5 million five-year term loan facility (“Term Loan”) that was funded in a single advance on the closing date of the first amendment. The 2011 Credit Agreement provides for the option to increase the revolving credit facility or establish term loan facilities in an aggregate amount of up to $50$100 million, subject to certain requirements as definedcustomary conditions and the approval of any lender whose commitment would be increased, resulting in a maximum available principal amount under the 2011Amended Credit Agreement.Agreement of $600 million. The proceeds ofinitial borrowings under the senior secured credit facilityAmended Credit Agreement were used to refinance existing indebtednessborrowings outstanding under a prior credit agreement, and will continue tofuture borrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, acquisitions of businesses, share repurchases, and othergeneral corporate purposes.

Fees and interest on borrowings vary based on our Consolidated Leverage Ratio (as defined in the Amended Credit Agreement). At our option, borrowings under the Amended Credit Agreement will bear interest at one, two, three or six-month LIBOR or an alternate base rate, in each case plus the applicable margin. The applicable margin will fluctuate between 1.25% per annum and 2.00% per annum, in the case of LIBOR borrowings, or between 0.25% per annum and 1.00% per annum, in the case of base rate loans, based upon our Consolidated Leverage Ratio at such time.
Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty. We are required to prepay the amounts outstanding under the Amended Credit Agreement in certain circumstances, including a requirement to pay all amounts outstanding 90 days prior to the Convertible Indebtedness Maturity Date (as defined in the Amended Credit Agreement) unless (1) the Convertible Indebtedness Maturity Date is waived or extended to a later date, (2) the Company can demonstrate (a) Liquidity (as defined in the Amended Credit Agreement) in an amount at least equal to the principal amount due on the Convertible Indebtedness Maturity Date, and (b) financial covenant compliance after giving effect to such payments and any additional indebtedness incurred on a pro forma basis, or (3) this requirement is waived by the Required Lenders (as defined in the Amended Credit Agreement). In addition, we have the right to permanently reduce or terminate the unused portion of the commitments provided under the Amended Credit Agreement at any time.
The loans and obligations under the 2011Amended Credit Agreement are secured pursuant to a Second Amended and Restated Security Agreement and a Second Amended and Restated Pledge Agreement (the “Pledge Agreement”) with Bank of America, N.A. as Collateral Agent. The Security Agreement grantscollateral agent, pursuant to which the Company and the subsidiary guarantors grant Bank of America, N.A., for the ratable benefit of the lenders under

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Table of Contents
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

the 2011Amended Credit Agreement, a first-priority lien, subject to permitted liens, on substantially all of the personal property assets of the Company and the subsidiary guarantors. The Revolverguarantors, and Term Loan are also secured by a pledge of 100% of the voting stock or other equity interests in ourall domestic subsidiaries and 65% of the voting stock or other equity interests in oureach “material first-tier foreign subsidiaries.

Fees and interest on borrowings vary based on our total debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio as set forthsubsidiary” (as defined in the 2011 Credit Agreement. Interest is based on a spread over the London Interbank Offered Rate (“LIBOR”) or a spread over the base rate, as selected by the Company. Pledge Agreement).

The base rate is the greater of (a) the Federal Funds Rate plus 0.5%, (b) the Prime Rate and (c) except during a Eurodollar Unavailability Period, the Eurodollar Rate plus 1.0%.

As of December 31, 2014, the Term Loan had a principal amount outstanding of $143.8 million, which is subject to scheduled quarterly principal payments. The current quarterly principal payments are $6.3 million and increase to $7.5 million beginning June 30, 2015 until the maturity date of September 25, 2018, at which time a final payment of $40 million, plus any accrued and unpaid interest, will be due, as set forth in the 2011 Credit Agreement. All outstanding borrowings under the Revolver, as amended, will be due upon expiration of the 2011 Credit Agreement on September 25, 2018. As of December 31, 2014, the Company has made all scheduled quarterly amortization payments as they have come due in accordance with the Term Loan.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

Under the 2011 Credit Agreement, dividends are restricted to an amount up to $50 million plus 50% of cumulative consolidated net income from the closing date of the 2011 Credit Agreement plus 50% of the net cash proceeds from equity issuances.

The 2011Amended Credit Agreement contains usual and customary representations and warranties; affirmative and negative covenants, which include limitations on liens, investments, additional indebtedness, and restricted payments; and two quarterly financial covenants that require usas follows: (i) a maximum Consolidated Leverage Ratio (defined as the ratio of debt to maintainconsolidated EBITDA) ranging from 3.25 to 1.00 to 3.75 to 1.00, depending on the measurement period, and (ii) a minimum fixed charge coverageConsolidated Interest Coverage Ratio (defined as the ratio of 2.25consolidated EBITDA to 1.00interest) of 3.50 to 1.00. Consolidated EBITDA for purposes of the financial covenants is calculated on a continuing operations basis and a maximum leverage ratio of 3.00includes adjustments to 1.00, as those ratios are defined therein, as well as a minimum net worth greater than $150 million.add back, among other items, share-based compensation costs, non-cash goodwill impairment charges, non-cash restructuring charges, and pro forma historical EBITDA for businesses acquired. At December 31, 2014,2017, we were in compliance with these financial covenants with a fixed charge coverage ratioConsolidated Leverage Ratio of 4.50 to 1.00, a leverage ratio of 0.983.02 to 1.00 and net worth greater than $150 million.

a Consolidated Interest Coverage Ratio of 12.43 to 1.00.

Borrowings outstanding under the senior secured credit facilityAmended Credit Agreement at December 31, 20142017 totaled $143.8 million, all of which was under the Term Loan.$105.0 million. These borrowings carried a weighted average interest rate of 2.3%3.7%, including the effectimpact of the interest rate swapsswap described below in Note 911 “Derivative Instruments and Hedging Activity.” Borrowings outstandingActivity" that was in effect at December 31, 20132017. Borrowings outstanding under the Amended Credit Agreement at December 31, 2016 were $168.8$68.0 million and carried a weighted average interest rate of 2.0%.2.5%, including the impact of the interest rate swap that was in effect at December 31, 2016. The borrowing capacity under the Revolverrevolving credit facility is reduced by any outstanding borrowings under the Revolverrevolving credit facility and outstanding letters of credit. At December 31, 2014,2017, we had no borrowings outstanding under the Revolver, and outstanding letters of credit totaled $5.1totaling $1.9 million, which are primarily used as security deposits for our office facilities. As of December 31, 2014,2017, the unused borrowing capacity under the 2011 Creditrevolving credit facility was $393.1 million.
Promissory Note due 2024
On June 30, 2017, in conjunction with our purchase of an aircraft related to the acquisition of Innosight, we assumed, from the sellers of the aircraft, a promissory note with an outstanding principal balance of $5.1 million. The principal balance of the promissory note is subject to scheduled monthly principal payments until the maturity date of March 1, 2024, at which time a final payment of $1.5 million, plus any accrued and unpaid interest, will be due. Under the terms of the promissory note, we will pay interest on the outstanding principal amount at a rate of one-month LIBOR plus 1.97% per annum. The obligations under the promissory note are secured pursuant to a Loan and Aircraft Security Agreement with Banc of America Leasing & Capital, LLC, which grants the lender a first priority security interest in the aircraft. At December 31, 2017, the outstanding principal amount of the promissory note was $242.4$4.9 million.

6. As of December 31, 2017, the aircraft had a carrying amount of $6.5 million.

8. Capital Structure

Preferred Stock

We are authorized to issue up to 50,000,000 shares of preferred stock. Our certificate of incorporation authorizes our board of directors, without any further stockholder action or approval, to issue these shares in one or more classes or series, to establish from time to time the number of shares to be included in each class or series, and to fix the rights, preferences and privileges of the shares of each wholly unissued class or series and any of its qualifications, limitations or restrictions. As of December 31, 20142017 and 2013,2016, no such preferred stock has been approved or issued.

Common Stock

We are authorized to issue up to 500,000,000 shares of common stock, par value $.01 per share. The holders of common stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders. Subject to the rights and preferences of the holders of any series of preferred stock that may at the time be outstanding, holders of common stock are entitled to such dividends as our board of directors may declare. In the event of any liquidation, dissolution or winding-up of our affairs, after payment of all of our debts and liabilities and subject to the rights and preferences of the holders of any series of preferred stock that may at the time be outstanding, holders of common stock will be entitled to receive the distribution of any of our remaining assets.

7.


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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

9. Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period, excluding unvested restricted common stock. Diluted earnings per share reflects the potential reduction in earnings per share that could occur if securities or other contracts to issue common stock were exercised or converted into common stock under the treasury stock method. Such securities or other contracts

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

include unvested restricted stock awards, outstanding common stock options, convertible senior notes, and outstanding warrants, to the extent dilutive. In periods for which we report a net loss from continuing operations, diluted weighted average common shares outstanding excludes all potential common stock equivalents as their impact on diluted net loss from continuing operations per share would be anti-dilutive.

Earnings (loss) per share under the basic and diluted computations are as follows:

   Year Ended December 31, 
   2014   2013  2012 

Net income from continuing operations

  $79,051    $66,463   $35,953  

Income (loss) from discontinued operations, net of tax

   —      (30)   475  
  

 

 

   

 

 

  

 

 

 

Net income

  $79,051    $66,433   $36,428  
  

 

 

   

 

 

  

 

 

 

Weighted average common shares outstanding—basic

   22,431     22,322    21,905  

Weighted average common stock equivalents

   494     455    380  
  

 

 

   

 

 

  

 

 

 

Weighted average common shares outstanding—diluted

   22,925     22,777    22,285  
  

 

 

   

 

 

  

 

 

 

Net earnings per basic share:

     

Net income from continuing operations

  $3.52    $2.98   $1.64  

Income (loss) from discontinued operations, net of tax

   —      —     0.02  
  

 

 

   

 

 

  

 

 

 

Net income

  $3.52    $2.98   $1.66  
  

 

 

   

 

 

  

 

 

 

Net earnings per diluted share:

     

Net income from continuing operations

  $3.45    $2.92   $1.61  

Income (loss) from discontinued operations, net of tax

   —      —     0.02  
  

 

 

   

 

 

  

 

 

 

Net income

  $3.45    $2.92   $1.63  
  

 

 

   

 

 

  

 

 

 

 Year Ended December 31,
 2017 2016 2015
Net income (loss) from continuing operations$(170,505) $39,480
 $61,895
Income (loss) from discontinued operations, net of tax388
 (1,863) (2,843)
Net income (loss)$(170,117) $37,617
 $59,052
Weighted average common shares outstanding—basic21,439
 21,084
 22,136
Weighted average common stock equivalents—
 340
 464
Weighted average common shares outstanding—diluted21,439
 21,424
 22,600
Net earnings (loss) per basic share:     
Net income (loss) from continuing operations$(7.95) $1.87
 $2.80
Income (loss) from discontinued operations, net of tax0.02
 (0.09) (0.13)
Net income (loss)$(7.93) $1.78
 $2.67
Net earnings (loss) per diluted share:     
Net income (loss) from continuing operations$(7.95) $1.84
 $2.74
Income (loss) from discontinued operations, net of tax0.02
 (0.08) (0.13)
Net income (loss)$(7.93) $1.76
 $2.61
The number of anti-dilutive securities excluded from the computation of the weighted average common stock equivalents presented above were as follows (in thousands):

   As of December 31, 
   2014   2013   2012 

Unvested restricted stock awards

   17     —       43  

Outstanding common stock options

   —       76     42  

Convertible senior notes

   3,129     —       —    

Warrants related to the issuance of convertible senior notes

   3,129     —       —    
  

 

 

   

 

 

   

 

 

 

Total anti-dilutive securities

   6,275     76     85  
  

 

 

   

 

 

   

 

 

 

follows:

 As of December 31,
 2017 2016 2015
Unvested restricted stock awards636
 2
 21
Outstanding common stock options194
 —
 —
Convertible senior notes3,129
 3,129
 3,129
Warrants related to the issuance of convertible senior notes3,129
 3,129
 3,129
Total anti-dilutive securities7,088
 6,260
 6,279
See Note 57 “Financing Arrangements” for further information on the convertible senior notes and warrants related to the issuance of convertible notes.

In February 2014, our board of directors authorized

We currently have a share repurchase program allowingpermitting us to repurchase up to $50 million of our common stock through February 28, 2015 (the “February 2014 Share Repurchase Program”). During the twelve months ended December 31, 2014, we completed the February 2014 Share Repurchase Program by repurchasing 805,392 shares at an average cost of $62.08 per share. In October 2014, our board of directors authorized a second share repurchase program pursuant to which we may, from time to time, repurchase up to $50$125 million of our common stock through October 31, 20152018 (the “October 2014 Share"Share Repurchase Program”Program"). We have not repurchased any shares under

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

the October 2014 Shares Repurchase Program. The amount and timing of the repurchases will be determined by management and will depend on a variety of factors, including the trading price of our common stock, capacity under our credit facility, general market and business conditions, and applicable legal requirements.

8. No shares were repurchased under this program in 2017. In 2016, we repurchased and retired 982,192 shares for $55.3 million, and in 2015, we repurchased and retired 583,880 shares for $34.6 million. As of December 31, 2017, $35.1 million remains available for share repurchases.



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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

10. Restructuring Charges

During 2014,

In 2017, we incurred $3.4$6.2 million of pretax restructuring expense. This expense primarily consisted of the following charges:

Office exit costs—In 2014, weSeverance - We incurred charges totaling $2.0$3.7 million of severance expense as a result of workforce reductions to better align resources with market demand. Of the $3.7 million, $2.1 million related to the consolidationour Healthcare segment, $1.1 million related to our Business Advisory segment, and $0.4 million related to our corporate operations.
Office exit costs - We incurred $2.4 million of office space in Washington, D.C., Chicago, London, New York, and the closure of our office in San Diego. The chargesexit costs primarily consisted ofrelated to the accrual of remaining lease obligations, at vacated spaces, net of estimated sublease income. The vacated locations inincome, due to relocating our San Francisco office to a smaller space and consolidating our Chicago and New York were acquired as part of business acquisitions during 2013offices, and 2014.

Accelerated depreciation—We incurred $1.1 million of accelerated depreciation expense on leasehold improvements atfor our vacated offices discussed above.San Francisco office.

Of the $6.2 million pretax restructuring charge, $2.1 million was related to our Healthcare segment, $1.1 million was related to our Business Advisory segment, and $2.9 million was related to our corporate operations.
In 2016, we incurred $9.6 million of pretax restructuring expense. This expense consisted of the following charges:
Severance— - We incurred $7.3 million of severance expense as a $0.2result of workforce reductions, of which $6.4 million restructuring chargewas related to workforce reductions in our London officeHealthcare and Business Advisory segments to better align our resources with market demand inand $0.9 million was related to our corporate infrastructure as a result of our Huron Legal segment.divestiture.

Contract termination costs—InOffice exit costs - We incurred $1.5 million of office exit costs primarily related to our Washington, D.C. space that we vacated in the fourth quarter of 2014,2014. During the third quarter of 2016, we paid $0.1entered into a sublease agreement and adjusted our Washington, D.C. lease accrual to reflect the terms specified in the sublease agreement.
Other - We also incurred $0.8 million for the early termination of certain telecom contractsrestructuring expense related to the wind down of our foreign consulting operations based in the Middle East and other exit costs.
Of the $9.6 million pretax restructuring charge, $5.8 million was related to our Healthcare segment, $3.2 million was related to our corporate operations, and $0.6 million was related to our Business Advisory segment.
In 2015, we incurred $3.3 million of pretax restructuring expense. This expense primarily consisted of the following charges:
Severance - We incurred $2.8 million of severance expense as a result of workforce reductions to better align our resources with market demand.
Office exit costs - We incurred $0.5 million of office exit costs primarily related to updated assumptions for the lease accrual of the Washington, D.C. space vacated office space in San Diego.the fourth quarter of 2014.

Of the $3.3 million pretax restructuring expense, $1.2 million was related to our Healthcare segment, $1.1 million was related to our All Other segment as we wound down our public sector consulting practice and our foreign consulting operations based in the Middle East, and $1.0 million was related to our corporate operations.

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

The table below sets forth the changes in the carrying amount of our restructuring charge liability by restructuring type for the years ended December 31, 2017 and 2016.
 Employee Costs Office Space Reductions Other Total
Balance as of December 31, 2015$2,323
 $6,379
 $—
 $8,702
Additions (1)
9,082
 57
 585
 9,724
Payments(5,906) (2,424) (482) (8,812)
Adjustments (1)
(317) 1,765
 245
 1,693
Non-cash items—
 (4) (324) (328)
Balance as of December 31, 20165,182
 5,773
 24
 10,979
Additions (1)
3,859
 2,426
 110
 6,395
Payments(7,611) (2,860) 5
 (10,466)
Adjustments (1)
(117) (973) (78) (1,168)
Non-cash items(46) (119) (61) (226)
Balance as of December 31, 2017$1,267
 $4,247
 $—
 $5,514
(1)Additions and adjustments for the years ended December 31, 2017 and 2016 include a gain of $1.0 million and a charge of $2.0 million, respectively, related to updated lease assumptions for vacated offices spaces directly related to discontinued operations. Refer to Note 3 "Discontinued Operations" for additional information on our discontinued operations.
As of December 31, 2014,2017, our restructuring charge liability was $1.2related to office space reductions of $4.2 million and primarily consists ofrepresented the present value of remaining lease payments, net of estimated sublease income, primarily for our vacated office spaces in Washington, D.C., Houston, Chicago, and New York. TheSan Francisco. This restructuring charge liability is included as a component of Accruedaccrued expenses and Deferredother current liabilities and deferred compensation and other liabilities.

During 2013, we incurred a $0.8 million pretax restructuring expense. This expense primarily consisted All of the following charges:

Office exit costs—In the second quarter of 2013, we recorded a $0.6$1.3 million restructuring charge liability related to the consolidation of office space in Washington, D.C. The charge primarily consisted of the accrual of remaining lease payments.

Contract termination costs—In the fourth quarter of 2013, we incurred a $0.2 million charge for the early termination of certain computer lease contracts related to the integration of our Blue Stone acquisition.

During 2012, we incurred a $4.0 million pretax restructuring expense. This expense primarily consisted of the following charges:

Severance—As the result of workforce reductions to better align our resources with market demand we incurred severance expense of $0.4 million relating to the wind-down of certain operations in the Middle East in our Huron Education and Life Sciences and All Other segments.

Office exitemployee costs—During 2012, we consolidated our Washington, D.C. office space and relocated one of our New York City offices. In conjunction with the Washington, D.C. office space consolidation, we recorded a $0.7 million charge related to the present value of the remaining lease payments through 2015 for our old office space, net of estimated sublease

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

income. We relocated the New York City office during the fourth quarter of 2012 and incurred a $0.7 million charge for brokerage fees related to the execution of a sublease agreement for the space we exited. We did not incur a lease charge related to the relocation of our New York City office space as income from our subtenant at December 31, 2017 is expected to more than offset our remaining lease obligations through 2016, net of our deferred lease liability. These charges were partially offset by a $0.9 million net favorable impactbe paid in 2018. The restructuring charge liability related to updated assumptions for certain lease accrualsemployee costs is included as a component of accrued payroll and related to previously vacated office spaces and a release from our obligation for certain vacated space at our Chicago headquarters in connection with the lease amendment entered into during the fourth quarter.

Accelerated depreciation—We incurred $2.5 million of accelerated depreciation expense on leasehold improvements at our New York City office location, which we vacated during the fourth quarter of 2012, as discussed above. We also incurred $0.4 million of accelerated depreciation expense on leasehold improvements at one of our Washington, D.C. office locations and our Amman, Jordan office location, which we vacated during 2012.

9.benefits.

11. Derivative Instruments and Hedging Activity

On December 8, 2011,April 4, 2013, we entered into a forward amortizing interest rate swap agreement effective on February 29, 2012 and ending on April 14, 2016.March 31, 2014 which ended August 31, 2017. We entered into this derivative instrument to hedge against the interest rate risks of our variable-rate borrowings described in Note 5 “Financing Arrangements.”borrowings. The swap had an initial notional amount of $56.6$60.0 million and amortizes throughoutamortized quarterly until April 2016. In April 2016, the term.notional amount of this interest rate swap increased to $86.0 million and continued to amortize quarterly until it expired in August 2017. Under the terms of the interest rate swap agreement, we received from the counterparty interest on the notional amount based on one-month LIBOR and we paid to the counterparty a fixed rate of 0.985%.
On June 22, 2017, we entered into a forward interest rate swap agreement effective August 31, 2017 and ending August 31, 2022, with a notional amount of $50.0 million. We entered into this derivative instrument to continue to hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one-month LIBOR and we pay to the counterparty a fixed rate of 0.9875%1.900%.

On May 30, 2012, we entered into an amortizing interest rate swap agreement effective on May 31, 2012 and ending on April 14, 2016.

We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings. The swap had an initial notional amount of $37.0 million and amortizes throughout the term. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one-month LIBOR and we pay to the counterparty a fixed rate of 0.70%.

On April 4, 2013, we entered into a forward amortizing interest rate swap agreement effective on March 31, 2014 and ending on August 31, 2017. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings. The swap has an initial notional amount of $60.0 million and amortizes such that, collectively with our other two interest rate swaps, we are effectively fixing the interest rate on 80% of our Term Loan borrowings throughout the term of the swap agreement. Under the terms of the interest rate swap agreement, we will receive from the counterparty interest on the notional amount based on one-month LIBOR and we will pay to the counterparty a fixed rate of 0.985%.

ASC 815,Derivatives and Hedging, requires companies to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. In accordance with ASC 815, weWe have designated these derivative instruments as cash flow hedges. As such,Therefore, changes in the fair value of the derivative instruments are recorded as a component ofto other comprehensive income (“OCI”) to the extent of effectivenesseffective and reclassified into interest expense upon settlement. The ineffective portion of the change in fair value of the derivative instruments is recognized in interest expense. Our interest rate swap agreement was effective during the year ended December 31, 2017. As of December 31, 2014,2017, it was anticipated that $0.4less than $0.1 million of the losses,accumulated other comprehensive income, net of tax, currently recorded in accumulated other comprehensive losson our consolidated balance sheet will be reclassified into earnings within the next 12 months. Our interest rate swap agreements were effective during the twelve months ended December 31, 2014, 2013, and 2012.


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HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)


The table below sets forth additional information relating to theseour interest rate swaps designated as cash flow hedging instruments as of December 31, 20142017 and December 31, 2013.

   Fair Value (Derivative Asset and Liability) 
Balance Sheet Location  December 31,
2014		   December 31,
2013		 

Other non-current assets

  $516    $752  

Accrued expenses

  $643    $765  

Deferred compensation and other liabilities

  $10    $140  

2016. 

 
Fair Value (Derivative Asset and Liability)
As of December 31,
Balance Sheet Location2017 2016
Other non-current assets$581
 $—
Accrued expenses$48
 $54
All of the Company’sour derivative instruments are transacted under the International Swaps and Derivatives Association (ISDA) master agreements. These agreements permit the net settlement of amounts owed in the event of default and certain other termination events. Although netting is permitted, it is the Company’sour policy to record all derivative assets and liabilities on a gross basis on the Consolidated Balance Sheets. All of the Company’s derivative instruments as of December 31, 2014 and December 31, 2013 were held with the same counterparty.

our consolidated balance sheet.

We do not use derivative instruments for trading or other speculative purposes. Refer to Note 1113 “Other Comprehensive Income (Loss)” for additional information on our derivative instruments.

10.instrument.


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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

12. Fair Value of Financial Instruments

Certain of our assets and liabilities are measured at fair value. ASC 820,Fair Value Measurements and Disclosures, defines fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820GAAP establishes a fair value hierarchy for inputs used in measuring fair value and requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy consists of three levels based on the objectivity of the inputs as follows:

Level 1 Inputs

  Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs

  Quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Inputs

  Unobservable inputs for the asset or liability, and include situations in which there is little, if any, market activity for the asset or liability.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)


The table below sets forth theour fair value hierarchy for our remaining financial assets and liabilities measured at fair value on a recurring basis as of December 31, 20142017 and December 31, 2013.

   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total 

December 31, 2014

        

Assets:

        

Promissory note

  $—     $—     $2,137   $2,137 

Interest rate swaps

   —      172    —      172 

Convertible debt investment

   —      —      12,250    12,250 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $     —     $     172   $14,387    $14,559 
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

        

Interest rate swaps

  $—     $309   $—     $309 

Contingent acquisition liability

   —      —      226    226 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

  $—     $309   $226   $535 
  

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2013

        

Assets:

        

Promissory note

  $—     $—     $2,726   $2,726 

Interest rate swaps

   —      430    —      430 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $—     $430   $2,726   $3,156 
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

        

Interest rate swaps

  $—     $583   $—     $583 

Deferred acquisition payment

   —      —      5,177    5,177 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

  $—     $583   $5,177    $5,760 
  

 

 

   

 

 

   

 

 

   

 

 

 

2016.

 Level 1 Level 2 Level 3 Total
December 31, 2017       
Assets:       
Interest rate swaps$—
 $533
 $—
 $533
Promissory note—
 —
 1,078
 1,078
Convertible debt investment—
 —
 39,904
 39,904
Deferred compensation assets—
 17,786
 —
 17,786
Total assets$—
 $18,319
 $40,982
 $59,301
Liabilities:       
Contingent consideration for business acquisitions$—
 $—
 $22,828
 $22,828
Total liabilities$—
 $—
 $22,828
 $22,828
December 31, 2016       
Assets:       
Promissory note$—
 $—
 $2,325
 $2,325
Convertible debt investment—
 —
 34,675
 34,675
Deferred compensation assets—
 16,408
 —
 16,408
Total assets$—
 $16,408
 $37,000
 $53,408
Liabilities:       
Interest rate swaps$—
 $54
 $—
 $54
Contingent consideration for business acquisitions—
 —
 8,827
 8,827
Total liabilities$—
 $54
 $8,827
 $8,881
Promissory note:    As part of the consideration received for the sale of our Accounting Advisory practice on December 30, 2011, the Company received a $3.5 million promissory note payable over four years. During the first quarter of 2014, we agreed to restructure the note to temporarily decrease the quarterly payment amounts, increase the interest rate and extend the term of the note to mature on October 31, 2017. During the second quarter of 2014, we agreed to amend and restate the note such that principal payments will be paid to the Company annually based on the amount of excess cash flows earned each year by the maker of the note until the maturity date of December 31, 2018, at which time the remaining principal balance and any accrued interest is due. The fair value of the note is based on the net present value of the projected cash flows using a discount rate of 17%, which accounts for the risks associated with the note. The decrease in the fair value of the note during 2014 reflects principal payments received, the amendment of terms, and the increased discount rate of 17%, less the accretion of interest income in excess of interest payments received. The portion of the note expected to be received in the next twelve months is recorded as a receivable in Prepaid expenses and other current assets. The remaining portion of the note is recorded in Other non-current assets.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

Interest rate swaps:The fair valuevalues of theour interest rate swaps waswere derived using estimates to settle the interest rate swap agreements, which are based on the net present value of expected future cash flows on each leg of the swaps utilizing market-based inputs and discount rates reflecting the risks involved.

Promissory note: As part of the consideration received for the sale of our Accounting Advisory practice on December 30, 2011, we received a $3.5 million promissory note payable over four years. During the fourth quarter of 2017, we amended and restated the note which established

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

scheduled annual principal payments, increased the interest rate, reduced the outstanding principal amount by $0.5 million, and extended the maturity date to September 30, 2020. Additionally, at the closing of this amended promissory note, we received a $1.0 million principal payment. As a result of the amendment, we recorded a $0.3 million fair value remeasurement loss on the promissory note which is recorded in other income (expense), net in the consolidated statement of operations. The scheduled principal payments will be paid to us annually until the maturity date of September 30, 2020, at which time the remaining principal balance and any accrued interest is due. The fair value of the note is based on the net present value of the projected cash flows using a discount rate of 10%, which accounts for the risks associated with the amended note. This fair value measurement is based on significant inputs not observable in the market and thus represent Level 3 inputs. As of December 31, 2017, $0.5 million is recorded in prepaid expenses and other current assets and represents the present value of the payments expected to be received in the next 12 months, and the remaining $0.6 million is recorded in other non-current assets. As of December 31, 2017, there was $1.0 million principal amount outstanding under the promissory note.
The table below sets forth the changes in the balance of the promissory note for the years ended December 31, 2017 and 2016.
  Promissory Note
Balance as of December 31, 2015 $2,309
Interest payments received (191)
Change in fair value of promissory note 207
Balance as of December 31, 2016 2,325
Interest payments received (185)
Principal payments received (1,177)
Change in fair value of promissory note 115
Balance as of December 31, 2017 $1,078
Convertible debt investment:In July 2014 and 2015, we made a $10invested $27.9 million, investment, in the form of zero coupon convertible debt, in Shorelight Holdings, LLC (“Shorelight”), the parent company of Shorelight Education, a U.S.-based company that partners with leading nonprofit universities to increase access to and retention of international students, boost institutional growth, and enhance an institution’s global footprint. In August 2014, we purchased an additional $2.5 million convertible note of Shorelight, increasing the cost basis of our investment to $12.5 million. The notes will mature on July 1, 2020, unless converted earlier.

To determine the appropriate accounting treatment for our investment, we performed a variable interest entity (“VIE”) analysis and concluded that Shorelight does not meet the definition of a VIE. We also reviewed the characteristics of our investment to confirm that the convertible notes are not in-substance common stock that would warrant equity method accounting. After we reviewed all of the terms of the investment, we concluded the appropriate accounting treatment to be that of an available-for-sale security in accordance with ASC 320,Investments—Debt and Equity Securities.

debt security.

The investment is carried at fair value with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income. We estimated the fair value of our investment using a Monte Carlo simulation model, cash flow projections discounted at a risk-adjusted rate, and certain assumptions related to equity volatility, default probability, and recovery rate, all of which are Level 3 inputs. In arriving atThe use of alternative estimates and assumptions could increase or decrease the estimated fair value we also considered the probability-weighted likelihood of conversion of the notes,investment, which would result in accordance with the various conversion features of the notes. An unrealized loss of $0.3 million was recorded in Otherdifferent impacts to our consolidated balance sheet and comprehensive income for the twelve months ended December 31, 2014. As of December 31, 2014, we concluded that the unrealized loss was not other than temporary as we have the intent and ability to hold the investment for a period of time sufficient to recover the loss.income. Actual results may differ from our estimates. The fair value of the convertible debt investment is recorded in Long-termlong-term investment.

The table below sets forth the changes in the balance of the convertible debt investment for the years ended December 31, 2017 and 2016.
  Convertible Debt Investment
Balance as of December 31, 2015 $34,831
Change in fair value of convertible debt investment (156)
Balance as of December 31, 2016 34,675
Change in fair value of convertible debt investment 5,229
Balance as of December 31, 2017 $39,904
Deferred acquisition payment:    Deferred acquisition paymentscompensation assets: We have a non-qualified deferred compensation plan (the "Plan") for the members of our board of directors and a select group of our employees. The deferred compensation liability is funded by the Plan assets, which consist of life insurance policies maintained within a trust. The cash surrender value of the life insurance policies approximates fair value, and is based on third-party broker statements which provide the fair value of the life insurance policies' underlying investments, which are Level 2 inputs. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The Plan assets are included in other non-current assets on our

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

consolidated balance sheet. Realized and unrealized gains (losses) from the total purchasedeferred compensation assets are recorded to other income (expense), net in our consolidated statements of operations.
Contingent consideration for certain business acquisitions made by the Company and represent fixed future payments owed to the sellers of those businesses. The fair value of our liability as of December 31, 2013 was based on the net present value of one final payment related to a 2012 acquisition. The payment of $5.3 million, which consisted of the remaining principal and accrued interest, was made in July 2014.acquisitions:

Contingent acquisition liability:We estimate the fair value of acquisition-related contingent consideration using either a probability-weighted discounted cash flow model. Thisassessment of the specific financial performance targets being achieved or a Monte Carlo simulation model, as appropriate. These fair value measure ismeasurements are based on significant inputs not observedobservable in the market and thus represents arepresent Level 3 measurement.inputs. The significant unobservable inputs used in the fair value measurements of our contingent consideration are our measures of the estimated payouts based on internally generated financial projections on a probability-weighted basis and discount rates.rates, which typically reflect a risk-free rate. The fair value of the contingent consideration is reassessed on a quarterly basis based on assumptions used in our latest projections and input provided by practice leaders and management. Any change in the fair value estimate is recorded in the earningsour consolidated statement of operations for that period. DuringThe use of alternative estimates and assumptions could increase or decrease the year ended December 31, 2014, we recorded $0.8 million in contingent consideration liabilities for acquisitions completed during the year. In addition, we determined that theestimated fair value of oneour contingent consideration liability, had declinedwhich would result in different impacts to zeroour consolidated balance sheets and recorded a remeasurement gainconsolidated statements of $0.6 million.operations. Actual results may differ from our estimates. Refer to Note 3 “Goodwill and Intangible Assets”4 “Acquisitions” for information on the acquisitions completed in 2014. 2017, 2016, and 2015.

The fair valuetable below sets forth the changes in the balance of the contingent acquisition liability is recorded in Accrued consideration for business acquisitions.acquisitions for the years ended December 31, 2017 and 2016.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

  Contingent Consideration for Business Acquisitions
Balance as of December 31, 2015 $2,063
Acquisitions 8,754
Remeasurement of contingent consideration for business acquisitions (1,990)
Balance as of December 31, 2016 8,827
Acquisitions 15,489
Payments (2,938)
Remeasurement of contingent consideration for business acquisitions 1,111
Unrealized loss due to foreign currency translation 339
Balance as of December 31, 2017 $22,828
Financial assets and liabilities not recorded at fair value are as follows:

Senior secured credit facility

Secured Credit Facility

The carrying value of our borrowings outstanding under our senior secured credit facility is stated at cost. Our carrying value approximates fair value, using Level 2 inputs, as the senior secured credit facility bears interest at variable rates based on current market rates as set forth in the 2011Amended Credit Agreement. Refer to Note 57 “Financing Arrangements.”

Arrangements” for additional information on our senior secured credit facility.

Promissory Note due 2024
The carrying value of our promissory note due 2024 is stated at cost. Our carrying value approximates fair value, using Level 2 inputs, as the promissory note bears interest at rates based on current market rates as set forth in the terms of the promissory note. Refer to Note 7 “Financing Arrangements” for additional information on our promissory note due 2024.
Convertible Notes

The carrying amount and estimated fair value of the Convertible Notes are as follows (in thousands):

   December 31, 2014 
   Carrying
Amount		   Estimated
Fair Value		 

1.25% convertible senior notes due 2019

  $212,852    $261,903  

follows: 

 December 31, 2017 December 31, 2016
 
Carrying
Amount
 
Estimated
Fair Value
 Carrying
Amount		 Estimated
Fair Value
1.25% convertible senior notes due 2019$233,140
 $232,578
 $224,065
 $245,018
The differencedifferences between the $250 million principal amount of the Convertible Notes and the carrying amount representsamounts shown above represent the unamortized debt discount.discount and issuance costs. As of December 31, 2014,2017 and 2016, the carrying value of the equity component of $39.3

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

million was unchanged from the date of issuance. Refer to Note 57 “Financing Arrangements” for additional details ofinformation on our Convertible Notes. The estimated fair value of the Convertible Notes was determined based on the quoted bid price of the Convertible Notes in an over-the-counter market, on December 31, 2014, which is a Level 2 input.

input, on the last day of trading for the quarters ended December 31, 2017 and 2016.

Based on the closing price of our common stock of $68.39$40.45 on December 31, 2014,2017, the if-converted value of the Convertible Notes was less than the principal amount.

Cash and cash equivalents are stated at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled services, accounts payable, deferred revenues andof all other accrued liabilitiesfinancial instruments not described above reasonably approximate fair market value due to the nature of the financial instrumentinstruments and the short-term maturity of these items.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

11.

13. Other Comprehensive Income (Loss)

The table below sets forth the components of accumulated other comprehensive loss,income (loss), net of tax for the years ended December 31, 2014, 2013,2017, 2016, and 2012.

   Foreign
Currency
Translation		  Available-for-
Sale Investments		  Cash Flow
Hedges		  Total 

Balance as of December 31, 2011

  $(934)  $—    $(275)  $(1,209) 

Foreign currency translation adjustment, net of tax of $(106)

   129    —     —      129  

Unrealized gain (loss) on cash flow hedges:

     

Change in fair value, net of tax of $454

   —     —     (679)   (679) 

Reclassification adjustment into earnings, net of tax of $(267)

   —     —     400    400  
  

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2012

   (805)  —     (554)   (1,359) 

Foreign currency translation adjustment, net of tax of $48

   89    —     —      89  

Unrealized gain (loss) on cash flow hedges:

     

Change in fair value, net of tax of $(83)

   —      —     139    139  

Reclassification adjustment into earnings, net of tax of $(223)

   —      —     334    334  
  

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2013

   (716)  —     (81)   (797) 

Foreign currency translation adjustment, net of tax of $111

   (1,618)   —     —      (1,618) 

Unrealized loss on investments, net of tax of $0

   —      (250)   —      (250) 

Unrealized gain (loss) on cash flow hedges:

     

Change in fair value, net of tax of $341

   —      —     (510)   (510) 

Reclassification adjustment into earnings, net of tax of $(347)

   —      —     520    520  
  

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2014

  $(2,334)  $(250)  $(71)  $(2,655) 
  

 

 

  

 

 

  

 

 

  

 

 

 

2015. 

 
Foreign
Currency
Translation
 
Available-for-
Sale 
Investments
 
Cash Flow
Hedges (1)
 Total
Balance as of December 31, 2014$(2,334) $(250) $(71) $(2,655)
Foreign currency translation adjustment, net of tax of $0(403) —
 —
 (403)
Reclassification adjustment into earnings, net of tax of $0 (2)
2,220
 —
 —
 2,220
Unrealized gain on investments, net of tax of $(2,709)—
 4,435
 —
 4,435
Unrealized gain (loss) on cash flow hedges:       
Change in fair value, net of tax of $327—
 —
 (492) (492)
Reclassification adjustment into earnings, net of tax of $(320)—
 —
 480
 480
Balance as of December 31, 2015(517) 4,185
 (83) 3,585
Foreign currency translation adjustment, net of tax of $064
 —
 —
 64
Unrealized loss on investments, net of tax of $59—
 (97) —
 (97)
Unrealized gain (loss) on cash flow hedges:       
Change in fair value, net of tax of $122—
 —
 (179) (179)
Reclassification adjustment into earnings, net of tax of $(161)—
 —
 242
 242
Balance as of December 31, 2016(453) 4,088
 (20) 3,615
Foreign currency translation adjustment, net of tax of $01,602
 —
 —
 1,602
Unrealized gain on investments:       
Change in fair value, net of tax of $(998)—
 4,231
 —
 4,231
Reclassification adjustment into retained earnings (3)
—
 493
 —
 493
Unrealized gain (loss) on cash flow hedges:       
Change in fair value, net of tax of $(106)—
 —
 366
 366
Reclassification adjustment into earnings, net of tax of $(46)—
 —
 69
 69
Reclassification adjustment into retained earnings (3)
—
 —
 (6) (6)
Balance as of December 31, 2017$1,149
 $8,812
 $409
 $10,370
(1)The before tax amounts reclassified from accumulated other comprehensive income (loss) related to our cash flow hedges are recorded to interest expense, net of interest income.
(2)In connection with the divestiture of Huron Legal, which included the sale of certain wholly-owned foreign subsidiaries, we reclassified $2.2 million of accumulated translation losses to net income from discontinued operations.

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts reclassified from accumulated other comprehensive loss related to our cash flow hedges are recorded to Interest expense, net of interest income.

12.in thousands, except per share amounts)


(3)
Upon adoption of ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, we reclassified $0.5 million of stranded tax effects, which resulted from the enactment of the 2017 Tax Reform, from accumulated other comprehensive income to retained earnings. Refer to Note 2 "Summary of Significant Accounting Policies" for additional information on the adoption of ASU 2018-02.
14. Employee Benefit and Deferred Compensation Plans

We sponsor a qualified defined contribution 401(k) plan covering substantially all of our employees. Under the plan, employees are entitled to make pretax contributions.contributions and/or Roth post-tax contributions up to the annual maximums established by the Internal Revenue Service. We match an amount equal to the employees’ contributions up to 6% of the employees’ salaries. Our matching contributions, including those related to our discontinued operations, for the years ended December 31, 2014, 2013,2017, 2016, and 20122015 were $16.2$20.0 million, $13.8$19.4 million, and $12.0$17.6 million, respectively.

We have a non-qualified deferred compensation plan (the “Plan”) that is administered by our board of directors or a committee designated by the board of directors. Under the Plan, members of the board of directors and a select group of our employees may elect to defer the receipt of their director retainers and meeting fees or base salary and bonus, as applicable. Additionally, we may credit amounts to a participant’s deferred compensation account in accordance with employment or other agreements entered into between us and the participant. At our sole discretion, we may, but are not required to, credit any additional amount we desire to any participant’s deferred compensation account. Amounts credited are subject to vesting schedules set forth in the Plan, employment agreement, or any other agreement entered into between us and the participant. The deferred compensation liability at December 31, 20142017 and 20132016 was $7.5$17.7 million and $4.3$16.4 million, respectively.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

13. This deferred compensation liability is funded by the Plan assets.

15. Equity Incentive Plans

In 2012, Huron adopted the 2012 Omnibus Incentive Plan (the “2012 Plan”), in order to increase the number of shares of common stock available as equity compensation to employees, non-employee directors, and independent contractors, and to make certain updates to reflect changes in market practices since our last plan, the 2004 Omnibus Stock Plan (the “2004 Plan”) was adopted. The 2012 Plan permits the grant of stock options, stock appreciation rights, restricted stock, performance shares and other share-based or cash-based awards valued in whole or in part by reference to, or otherwise based on, our common stock.

practices. The 2012 Plan replaced, on a prospective basis, our 2004 Omnibus Stock Plan (the "2004 Plan") such that all future grants will be granted under the 2012 Plan and any outstanding awards granted under the 2004 Plan that are cancelled, expired, forfeited, settled in cash, or otherwise terminated without a delivery of shares to the participant will not become available for grant under the 2012 Plan. Under theThe 2012 Plan as originally adopted, 850,000permits the grant of stock options, stock appreciation rights, restricted stock, performance shares plus 548,204 shares ofand other share-based or cash-based awards valued in whole or in part by reference to, or otherwise based on, our common stock available for issuance under the 2004 Plan were reserved for issuance to eligible participants, for a total of 1,398,204 shares available for issuance as of the adoption date.stock. The 2012 Plan was amended on May 2, 2014 to increase the number of shares authorized for issuance by 850,000 shares. On May 5, 2017, an amendment and restatement of the 2012 Plan was approved by shareholders to increase the number of shares authorized for issuance by 804,000 shares. As of December 31, 2014,2017, approximately 1,198,2751.3 million shares remain available for issuance. issuance under the 2012 Plan.

On May 1, 2015, we adopted the Stock Ownership Participation Program (the “SOPP”), which is available to Huron employees below the managing director level who do not receive equity-based awards as part of their normal compensation plan. Under the SOPP, eligible employees may elect to use after-tax payroll deductions, or cash contributions, to purchase shares of the Company’s common stock on certain designated purchase dates. Employees who purchase stock under the SOPP are granted restricted stock equal to 25% of their purchased shares. Vesting of the restricted stock is subject to both a time-based vesting schedule and a requirement that the purchased shares be held for a specified holding period. The initial number of shares available for issuance under the SOPP was 300,000. Prior to adopting the SOPP, the matching share grants and the employee purchased shares under the stock ownership participation program were governed by the 2012 Plan. As of December 31, 2017, approximately 0.1 million shares remain available for issuance under the SOPP.
It has been our practice to issue shares of common stock upon exercise of stock options and granting of restricted stock from authorized but unissued shares, except in limited circumstances when theywith the exception of the SOPP under which shares are issued from treasury stock.

Certain grants of restricted stock under the 2012 Plan may be issued from treasury stock at the direction of the Compensation Committee.

The Compensation Committee of the board of directors has the responsibility of interpreting the 2012 Plan and SOPP and determining all of the terms and conditions of awards made under the 2012 Plan,plans, including when the awards will become exercisable or otherwise vest. In the fourth quarter of 2013, the Compensation Committee amended certain share-based awards outstanding under our 2012 Plan and our 2004 Plan to provide for a retirement eligibility provision. Under this provision, eligible employees who have reached 62 years of age and have completed seven years of employment with the CompanyHuron will continue vesting in their share-based awards after retirement, subject to certain conditions. This retirement eligibility provision will also apply to future awards granted to eligible employees under the 2012 Plan.

Total share-based compensation cost recognized for the years ended December 31, 2014, 2013,2017, 2016, and 20122015 was $20.1$14.8 million, $18.3$16.6 million, and $15.7$19.2 million, respectively, with related income tax benefits of $7.9$5.8 million, $7.1$6.4 million, and $6.0$7.6 million, respectively. As of

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

December 31, 2014,2017, there was $28.2$17.6 million of total unrecognized compensation cost related to nonvested share-based awards. This cost is expected to be recognized over a weighted average period of 2.52.2 years.

Stock Options

During 2013 and 2012, the Company granted stock option awards to certain named executive officers. No stock option awards were granted in 2014. The exercise prices of stock options are equal to the fair value of a share of common stock on the date of grant. Subject to acceleration under certain conditions, the majority of our stock options vest annually over four years. All stock options have a ten-year contractual term.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

The fair value of the options granted during 2013 and 2012 were calculated using the Black-Scholes option-pricing model using the following assumptions:

       2013          2012    

Black-Scholes option-pricing model:

    

Expected dividend yield

  0.0%  0.0%

Expected volatility

  45.0%  45.0%

Risk-free rate

  1.1%  1.2%

Expected option life (in years)

  6.25  6.25

Expected volatility was based on our historical stock prices, the historical volatility of comparable companies, and implied volatilities from traded options in our stock. The risk-free interest rates were based on the rate of U.S. Treasury bills with equivalent expected terms of the stock options at the time of the option grant. The expected option life for the 2013 and 2012 option grants was estimated using the simplified method. The simplified method was used due to the lack of sufficient historical data available to provide a reasonable basis upon which to estimate the expected term.

Stock option activity for the year ended December 31, 2014 was as follows:

   Number
of
Options
(in thousands)		  Weighted
Average
Exercise
Price
(in dollars)		   Weighted
Average
Remaining
Contractual
Term
(in years)		   Aggregate
Intrinsic
Value
(in millions)		 

Outstanding at December 31, 2013

   237   $27.95     6.2    $8.2  

Granted

   —         

Exercised

   (38)  $22.54      

Forfeited or expired

   —         
  

 

 

      

Outstanding at December 31, 2014

   199   $28.99     6.3    $7.8  
  

 

 

      

Exercisable at December 31, 2014

   149   $26.35     5.8    $6.3  
  

 

 

      

The weighted average grant date fair value of stock options granted during the years ended December 31, 2013 and 2012 was $17.46 and $17.09, respectively. No stock options were granted in 2014. The aggregate intrinsic value of options exercised during 2014, 2013, and 2012 was $1.6 million, $1.7 million, and $1.2 million, respectively.

Restricted Stock Awards

The grant date fair values of our restricted stock awards are measured pursuant to ASC 718based on the fair value of our common stock at grant date and amortized into expense over the service period. Subject to acceleration under certain conditions, the majority of our restricted stock vests annually over four years.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

Restricted

The table below summarizes the restricted stock activity for the year ended December 31, 2014 was as follows:

   Number of
Shares
(in thousands)		  Weighted
Average
Grant Date
Fair Value
(in dollars)		 

Nonvested restricted stock at December 31, 2013

   757   $35.53  

Granted

   385   $66.21  

Vested

   (302)  $33.31  

Forfeited

   (60)  $47.45  
  

 

 

  

Nonvested restricted stock at December 31, 2014

   780   $50.61  
  

 

 

  

2017.

 Number of Shares 
Weighted
Average
Grant Date
Fair Value
(in dollars)
 2012 Omnibus Incentive Plan Stock Ownership Participation Program Total 
Nonvested restricted stock at December 31, 2016610
 12
 622
 $59.77
Granted270
 14
 284
 $42.11
Vested(247) (9) (256) $57.80
Forfeited(72) (4) (76) $59.18
Nonvested restricted stock at December 31, 2017561
 13
 574
 $51.97
The aggregate fair value of restricted stock that vested during the years ended December 31, 2014, 2013,2017, 2016, and 20122015 was $19.8$11.1 million, $14.3$14.9 million, and $12.2$23.9 million, respectively. The weighted average grant date fair value per share of restricted stock granted during 20132016 and 20122015 was $39.76$56.28 and $37.46,$66.21, respectively.

Performance-based Share Awards

During 2014, 2013,2017, 2016, and 2012,2015, the Company granted performance-based share awards to certainour named executive officers and certain managing directors. The total number of shares earned by recipients of these awards is contingent upon meeting practice specific and company-wideCompany-wide performance goals. Following the performance period, the awards are subject to the completion of a service period, which is generally an additional twoone to three years. The earned awards vest on a graded vesting schedule over the service period. For certain performance awards, the recipients may earn additional shares of stock for performance achieved above the stated target. The grant date fair values of our performance-based share awards are measured based on the fair value of our common stock at grant date. Compensation cost is amortized into expense over the service period, including the performance period.

Performance-based

The table below summarizes the performance-based stock activity for the year ended December 31, 20142017. All nonvested performance-based stock outstanding at December 31, 2016 and 2017 was as follows:

   Number of
Shares
(in thousands)		  Weighted
Average
Grant Date
Fair Value
(in dollars)		 

Nonvested performance-based stock at December 31, 2013

   248   $38.07  

Granted(1)

   154   $64.52  

Vested

   (78)  $35.76  

Forfeited(2)

   (88)  $39.65  
  

 

 

  

Nonvested performance-based stock at December 31, 2014(3)

   236   $55.55  
  

 

 

  

granted under the 2012 Omnibus Incentive Plan.
 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
(in dollars)
Nonvested performance-based stock at December 31, 2016239
 $58.47
Granted (1)
328
 $42.75
Vested(85) $61.66
Forfeited (2)
(129) $54.85
Nonvested performance-based stock at December 31, 2017 (3)
353
 $44.45
(1)Shares granted in 20142017 are presented at the stated target, level, which represents the base number of shares that could be earned. Actual shares earned may be below or, for certain grants, above the target level based on the achievement of specific financial goals. Included in the granted shares amount are 9,500 shares earned above the target for awards granted in 2013.

(2)Forfeited shares include shares forfeited as a result of not meeting the performance criteria of the award as well as shares forfeited upon termination.


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HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)


(3)Of the 236,000353,000 nonvested performance-based shares outstanding as of December 31, 2014, 143,5002017, approximately 316,000 shares were unearned and subject to achievement of specific financial goals. The actual number of shares earned will be determined after the completion of the performance period based on the achievement of the specific financial goals. Once earned, the awards will be subject to time-based vesting according to the terms of the award. Based on 2017 financial results, approximately 235,000 of the 316,000 unearned shares will be forfeited in the first quarter of 2018.

The aggregate fair value of performance-based stock that vested during the years ended December 31, 2014, 2013,2017, 2016, and 20122015 was $5.2$3.6 million $3.6, $3.0 million, and $2.9$6.5 million, respectively. The weighted average grant date fair value per share of performance-based stock granted during 20132016 and 20122015 was $39.19$55.52 and $38.18,$66.63, respectively.

Stock Options
Prior to 2014, the Company granted stock option awards to certain named executive officers. No stock option awards were granted in 2017, 2016, or 2015. The exercise prices of stock options are equal to the fair value of a share of common stock on the date of grant. Subject to acceleration under certain conditions, our stock options vest annually over four years. All stock options have a 10-year contractual term.
14.Stock option activity for the year ended December 31, 2017 was as follows:
 
Number
of
Options
(in thousands)
 
Weighted
Average
Exercise
Price
(in dollars)
 
Weighted
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding at December 31, 2016194
 $29.06
 4.3 $4.2
Granted—
      
Exercised—
      
Forfeited or expired—
      
Outstanding at December 31, 2017 (1)
194
 $29.06
 3.3 $2.2
Exercisable at December 31, 2017194
 $29.06
 3.3 $2.2
(1)Of the 194,000 outstanding options, approximately 157,000 were granted under the 2004 Omnibus Stock Plan, and the remaining 37,000 options were granted under the 2012 Omnibus Incentive Plan.
No options were exercised in 2017. The aggregate intrinsic value of options exercised during 2016 was $0.1 million. No options were exercised in 2015.

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Table of Contents
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

16. Income Taxes

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“2017 Tax Reform”), a tax reform bill which, among other items, reduces the current corporate federal income tax rate from 35% to 21% and moves from a worldwide tax system to a territorial system. The rate reduction is effective January 1, 2018. As a result of the enactment of the legislation in 2017, we have estimated the remeasurement of our net deferred taxes based on the new lower tax rate, as well as provided for additional one-time income tax expense estimates primarily related to the transition tax on accumulated foreign earnings and elimination of foreign tax credits for dividends that are subject to the 100 percent exemption in our consolidated financial statements as of and for the year ended December 31, 2017. Our provisional analysis resulted in $8.8 million of additional income tax expense for the year ended December 31, 2017. Of the $8.8 million, $7.9 million related to the remeasurement of our deferred tax balances at the lower federal income tax rate; $0.6 million related to the transition tax on accumulated foreign earnings, net of applicable foreign tax credits; and $0.3 million related to withholding tax on outside basis differences due to our change in assertion for permanent reinvestment. The impacts on our financial statements as a result of 2017 Tax Reform are considered provisional and are based on the information that is currently available. These provisional results may be subject to future adjustments as additional analysis is anticipated based on technical corrections and regulatory interpretations to come. We expect to finalize the analysis as soon as practicable, but, in accordance with Staff Accounting Bulletin (“SAB”) No. 118, which was issued as a result of 2017 Tax Reform, not later than one year from the enactment date. Any changes to our provisional analysis will be included as an adjustment to tax expense or benefit in the period the amounts are determined.
The income tax expense for continuing operations for the years ended December 31, 2014, 2013,2017, 2016, and 20122015 consists of the following:

   Year ended December 31, 
   2014  2013  2012 

Current:

    

Federal

  $17,325   $33,718   $23,511  

State

   5,002    6,358    5,033  

Foreign

   (266)   27    59  
  

 

 

  

 

 

  

 

 

 

Total current

   22,061    40,103    28,603  
  

 

 

  

 

 

  

 

 

 

Deferred:

    

Federal

   11,989    6,181    878  

State

   1,340    900    289  

Foreign

   167    (8)   (75) 
  

 

 

  

 

 

  

 

 

 

Total deferred

   13,496    7,073    1,092  
  

 

 

  

 

 

  

 

 

 

Income tax expense for continuing operations

  $35,557   $47,176   $29,695  
  

 

 

  

 

 

  

 

 

 

 Year Ended December 31,
 2017 2016 2015
Current:     
Federal$(635) $15,726
 $4,806
State545
 1,623
 2,380
Foreign2,040
 1,021
 350
Total current1,950
 18,370
 7,536
Deferred:     
Federal(46,103) 1,662
 12,450
State(6,576) (274) 1,482
Foreign(1,270) (81) 202
Total deferred(53,949) 1,307
 14,134
Income tax expense for continuing operations$(51,999) $19,677
 $21,670
The components of income from continuing operations before income tax expensetaxes were as follows:

   Year ended December 31, 
   2014  2013  2012 

U.S.

  $121,691   $125,140   $76,750  

Foreign

   (7,083)   (11,501)   (11,102) 
  

 

 

  

 

 

  

 

 

 

Total

  $114,608   $113,639   $65,648  
  

 

 

  

 

 

  

 

 

 

 Year Ended December 31,
 2017 2016 2015
U.S.$(221,137) $56,141
 $85,164
Foreign(1,367) 3,016
 (1,599)
Total$(222,504) $59,157
 $83,565

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Table of Contents
HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)


A reconciliation of the U.S. statutory income tax rate to our effective tax rate for continuing operations is as follows:

   Year ended December 31, 
       2014          2013          2012     

Percent of pretax income from continuing operations:

    

At U.S. statutory tax rate

   35.0%   35.0%   35.0% 

State income taxes, net of federal benefit

   4.6    4.3    5.4  

Meals and entertainment

   0.6    0.5    0.8  

Valuation allowance

   1.0    2.0    2.0  

Disallowed executive compensation

   —     —     0.3  

Foreign source income

   0.8    1.0    2.5  

Tax credits / Section 199 Deduction

   (0.6)   (0.8)   —   

Net tax benefit related to “check-the-box” election

   (9.7)   —     —   

Other

   (0.7)   (0.5)   (0.8) 
  

 

 

  

 

 

  

 

 

 

Effective income tax expense rate for continuing operations

   31.0%   41.5%   45.2% 
  

 

 

  

 

 

  

 

 

 

In the first quarter of 2014, we made a tax election to classify one of our wholly-owned foreign subsidiaries as a disregarded entity for U.S. federal income tax purposes (commonly referred to as a “check-the-box” election). As a result of this election, we expect to realize an income tax benefit of $13.8 million, of which $2.4 million is unrecognized, resulting in a net recognized tax benefit of $11.4 million. This recognized benefit was partially offset by $1.2 million in expenses in the first quarter of 2014 related to the establishment of a valuation allowance for certain foreign tax credits and increased deferred tax liabilities as a result of the aforementioned election.

 Year Ended December 31,
 2017 2016 2015
Percent of pretax income from continuing operations:     
At U.S. statutory tax rate35.0 % 35.0 % 35.0 %
State income taxes, net of federal benefit2.7
 1.7
 4.6
Goodwill impairment charges(10.2) —
 —
U.S. federal rate change(3.4) —
 —
Transition tax on accumulated foreign earnings, net of credits(0.3) —
 —
Stock-based compensation(0.8) —
 —
Meals and entertainment(0.3) 1.1
 0.6
Valuation allowance(0.2) (3.2) 0.5
Foreign source income0.1
 (0.5) 0.5
Tax credits / Section 199 Deduction0.2
 (1.1) (1.0)
Net tax benefit related to “check-the-box” election (1)
1.2
 —
 (14.7)
Other(0.6) 0.3
 0.4
Effective income tax rate for continuing operations23.4 % 33.3 % 25.9 %
(1)In the fourth quarter of 2015, we made a tax election to classify two of our wholly-owned foreign subsidiaries as disregarded entities for U.S. federal income tax purposes (commonly referred to as a “check-the-box” election). As a result of this election, we realized an income tax benefit of $13.0 million, of which $0.7 million is unrecognized, resulting in a net recognized tax benefit of $12.3 million. Due to the expiration of statute of limitations, in the third quarter of 2017, we recognized a $2.7 million tax benefit, including the reversal of accrued interest and penalties, related to a previously unrecognized tax benefit from our "check-the-box" election made in 2014 to treat one of our wholly-owned foreign subsidiaries as a disregarded entity for U.S federal income tax purposes.
The effective tax rate for discontinued operations in 20132017 was 39.3%60.0%, based on a tax benefitexpense of less$0.6 million and pretax income from discontinued operations of $1.0 million, and was higher than $0.1 million.the statutory tax rate primarily due to the settlement of foreign tax audits. The effective tax rate for discontinued operations in 20122016 was 37.8%(33.4)%, based on tax benefits of $0.9 million and a pretax loss from discontinued operations of $2.8 million, and was lower than the statutory tax rate primarily due to an increase in the valuation allowance for foreign tax credits. The effective tax rate for discontinued operations in 2015 was 169.0%, based on tax expense of $0.3 million. There was no tax benefit or expense related to$1.8 million and a pretax loss from discontinued operations of $1.1 million, and was higher than the statutory tax rate primarily due to the tax expense recognized from the sale of the Huron Legal segment. Refer to Note 3 "Discontinued Operations" for further detail on the sale of the Huron Legal segment.


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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in 2014.

thousands, except per share amounts)


The Netnet deferred tax liabilities for continuing operations at December 31, 20142017 and 2013 consist2016 consisted of the following:

   December 31, 
   2014  2013 

Deferred tax assets:

   

Share-based compensation

  $10,234   $6,206  

Accrued payroll and other liabilities

   8,215    10,922  

Deferred lease incentives

   6,143    5,470  

Convertible note hedge transactions

   15,582    —    

Revenue recognition

   2,289    2,675  

Net operating loss carry-forwards

   6,373    5,813  

Tax credits

   1,182    1,002  

Other

   1,092    1,517  
  

 

 

  

 

 

 

Total deferred tax assets

   51,110    33,605  

Valuation allowance

   (7,152)   (5,746) 
  

 

 

  

 

 

 

Net deferred tax assets

   43,958    27,859  
  

 

 

  

 

 

 

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

   December 31, 
   2014  2013 

Deferred tax liabilities:

   

Prepaid expenses

   (3,316)   (2,950) 

Property and equipment

   (3,752)   (2,622) 

Intangibles and Goodwill

   (33,379)   (25,523) 

Convertible note discount

   (14,562)   —    

Other

   (926)   (1,748) 
  

 

 

  

 

 

 

Total deferred tax liabilities

   (55,935)   (32,843) 
  

 

 

  

 

 

 

Net deferred tax liability for continuing operations

  $(11,977)  $(4,984) 
  

 

 

  

 

 

 

 As of December 31,
 2017 2016
Deferred tax assets:   
Share-based compensation$5,674
 $10,151
Accrued payroll and other liabilities7,010
 10,004
Intangibles and goodwill2,137
 —
Deferred lease incentives4,352
 4,666
Convertible note hedge transactions250
 12,197
Revenue recognition1,586
 1,983
Restructuring charge liability1,104
 2,230
Net operating loss carry-forwards495
 92
Tax credits1,918
 1,804
Other882
 1,934
Total deferred tax assets25,408
 45,061
Valuation allowance(1,247) (626)
Net deferred tax assets24,161
 44,435
Deferred tax liabilities:   
Prepaid expenses(1,229) (2,500)
Property and equipment(4,031) (2,933)
Intangibles and goodwill—
 (60,411)
Convertible note discount(3) (11,586)
Convertible debt investment(3,110) (2,600)
Other(133) (38)
Total deferred tax liabilities(8,506) (80,068)
Net deferred tax asset (liability) for continuing operations$15,655
 $(35,633)
As of December 31, 20142017 and 2013,2016, we had valuation allowances of $7.2$1.2 million and $5.7$0.6 million, respectively, primarily due to uncertainties relating to the ability to utilize deferred tax assets recorded for foreign losses and foreign tax credits.

losses. The Company hasincrease in valuation allowances in 2017 primarily related to increases of net foreign operating losses of $30.1 million which carry forward indefinitely and statein jurisdictions where the net operating loss carry-forwards of $1.3 million which will expire between 2029credits cannot be benefited and 2030. The Company also hasvaluation allowances recorded on certain tax credits.

We have federal and state tax credit carry-forwards of $1.2$1.9 million which expire in 20212022 and 2019, respectively.

In accordance with ASC 740,Income Taxes, we We have no federal net operating losses or state net operating loss carry-forwards as of December 31, 2017.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

A reconciliation of our beginning and ending amount of unrecognized tax benefits is as follows:

Balance at January 1, 2012

  $798  

Additions based on tax positions related to the current year

   —   

Additions based on tax positions related to the prior years

   117  

Decrease due to lapse of statute of limitations

   (474) 
  

 

 

 

Balance at December 31, 2012

  $441  

Additions based on tax positions related to the current year

   —   

Additions based on tax positions related to the prior years

   40  

Decrease based on tax positions related to the prior year

   (51) 

Decrease based on settlements with taxing authorities

   (19) 
  

 

 

 

Balance at December 31, 2013

  $411  

Additions based on tax positions related to the current year

   2,410 

Additions based on tax positions related to the prior years

   —    

Decrease based on tax positions related to the prior year

   (333) 
  

 

 

 

Balance at December 31, 2014

  $2,488  
  

 

 

 

  Unrecognized Tax Benefits
Balance at January 1, 2015 $2,488
Additions based on tax positions related to the current year 735
Balance at December 31, 2015 3,223
Additions based on tax positions related to the current year 117
Balance at December 31, 2016 3,340
Decrease due to lapse of statute of limitations (2,410)
Decrease based on tax positions related to the prior year (117)
Balance at December 31, 2017 $813

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HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)

Of the $2.5


 As of December 31, 2017, we had $0.8 million of unrecognized tax benefits at December 31, 2014, $2.5 millionwhich would affect the effective tax rate of continuing operations if recognized. We do not expect that changes in the liability for unrecognized tax benefits during the next 12 months will have a significant impact on our financial position or results of operations.

As of December 31, 20142017 and 2013, an immaterial amount was2016, we had $0.1 million and $0.3 million accrued for the potential payment of interest and penalties. Accrued interest and penalties are recorded as a component of provision for income taxes on our consolidated statement of operations.

earnings.

We file income tax returns with federal, state, local and foreign jurisdictions. Tax years 2012 and 2013 through 2016 are subject to future examinations by federal tax authorities. Tax years 20092010 through 20132016 are subject to future examinations by state and local tax authorities. TheCurrently, the Company is currentlynot under audit by the states of Michigan and Florida.any tax authority. Our foreign income tax filings are subject to future examinations by the local foreign tax authorities for tax years 20072010 through 2013.

15.2016.

17. Commitments, Contingencies and Guarantees

Lease Commitments

We lease office space and certain equipment and software under non-cancelable operating and capital lease arrangements expiring on various dates through 2024,2028, with various renewal options. Our principal executive offices located in Chicago, Illinois are under a lease expiring in September 2024. We have a five-year renewal option that will allow us to continue to occupy this office space until September 2029. Office facilities under operating leases include fixed or minimum payments plus, in some cases, scheduled base rent increases over the term of the lease. Certain leases provide forrequire monthly payments of real estate taxes, insurance and other operating expenses applicable to the property. Some of the leases contain provisions whereby the future rental payments may be adjusted for increases in operating expenseexpenses above the specified amount. RentalRent expense, including operating costs and taxes, for the years ended December 31, 2014, 2013,2017, 2016, and 20122015 was $14.9$14.3 million, $13.3$11.5 million, and $16.8$12.3 million, respectively. Future minimum rental commitments under non-cancelable leases and sublease income as of December 31, 2014,2017, are as follows:

   Capital
Lease
Obligations		   Operating
Lease
Obligations		   Sublease
Income		 

2015

  $49    $14,577    $4,415  

2016

   —       13,322     3,133  

2017

   —       9,945     1,141  

2018

   —       8,381     945  

2019

   —       6,864     —    

Thereafter

   —       26,793     —    
  

 

 

   

 

 

   

 

 

 

Total

  $49    $79,882    $9,634  
  

 

 

   

 

 

   

 

 

 

  
Operating
Lease
Obligations
 
Sublease
Income
2018 $14,739
 $1,316
2019 13,444
 291
2020 12,266
 —
2021 11,298
 —
2022 10,409
 —
Thereafter 37,804
 —
Total $99,960
 $1,607
Litigation

Tamalluk Business Development LLC v. Huron Consulting Services LLC (Abu Dhabi Court of First Instance)

On August 22, 2013, we learned that Tamalluk Business Development LLC, who was Huron’s agent in Abu Dhabi, and its principal, Mubarak Ahmad Bin Hamouda Al Dhaheri, filed a claim against Huron Consulting Services LLC in the Abu Dhabi Court of First Instance. The lawsuit alleges that under the agency agreement, Tamalluk was entitled to a commission

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

on certain amounts that Huron collected from Abu Dhabi clients, and that Huron breached the agreement with Tamalluk and caused damages by declining to enter into a client engagement in Abu Dhabi and subsequently terminating the agency agreement with Tamalluk. Claimants allege they are entitled to $50 million for damage to reputation and defamation and another $50 million for breach of contract. Huron submitted its written response on September 25, 2013. The response states that Huron had the right to terminate the agency agreement with Tamalluk, and Huron had the sole discretion whether to accept or reject an engagement. Huron also filed a counterclaim on October 10, 2013 seeking a judicial order to permit the cancellation of Huron’s commercial license to allow Huron to cease doing business in Abu Dhabi. On December 17, 2013, the Abu Dhabi court ruled in Huron’s favor on all claims and held that Huron permissibly terminated the contract with Tamalluk and Huron does not owe Tamalluk any compensation related to Tamalluk’s claims. In addition, the court terminated the Local Sponsorship Agreement as requested by Huron in its counterclaim. Tamalluk appealed the decision, and on March 18, 2014, the appellate court upheld the decision in Huron’s favor. Tamalluk filed an appeal on May 18, 2014 to the Court of Cassation, which is the highest court in Abu Dhabi. On October 21, 2014, the Court of Cassation referred the case back to the appellate court for consideration of Claimants’ allegations relating to damage to reputation and defamation, which the appellate court had not previously addressed. The Court of Cassation ruled in Huron’s favor on the other claims and on Huron’s counterclaim. We continue to believe that the remaining claims are without merit and intend to vigorously defend ourselves in this matter.

Physiotherapy Associates

In 2011, Huron was engaged to design and implement new processes, software, tools, and techniques to assist Physiotherapy Associates, Inc. (“PA”) in reducing older accounts receivable levels and optimizing cash flow. The engagement agreement specifically provides that Huron will not be auditing financial statements and that Huron’s services are not designed, and should not be relied on, to disclose weaknesses in internal controls, financial statement errors, irregularities, illegal acts, or disclosure deficiencies.

In November 2013, Physiotherapy Holdings, Inc., and certain subsidiaries and affiliates (including PA) filed a voluntary petition for bankruptcy pursuant to Chapter 11 of the Bankruptcy Code, which resulted in part from claims related to an alleged overstatement of PA’s revenues and profitability in connection with the sale of PA in 2012. The Joint Prepackaged Plan of Reorganization (the “Plan”), which was confirmed by the Bankruptcy Court in December 2013, establishes and funds a Litigation Trust to pursue certain claims on behalf of certain beneficiaries. The Plan discloses a lengthy list of potential defendants and witnesses regarding these claims, including but not limited to the debtors’ officers, directors, certain employees, former owners, investment bankers, auditors, and various consultants. This list of potential defendants and witnesses includes Huron, as well as three of Huron’s current or former employees.

The Plan suggests that Huron, among others, was involved in “actively marketing PA” for sale and provided opinions to unnamed parties “defending the quality of PA’s earnings.” The Plan further states that the damages to be sought by the Litigation Trust will exceed $300 million. The Litigation Trust has not specified against which potential defendants it will bring claims, if any. We believe the Litigation Trust’s allegations with respect to Huron are without merit and will vigorously defend ourselves should any claim arising out of these alleged facts and circumstances be asserted against us by the Litigation Trust.

From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. As of the date of this Annual Report on Form 10-K, we are not a party to any other litigation or legal proceeding that, in the current opinion of management, could have a material adverse effect on our financial position or results of operations. However, due to the risks and uncertainties inherent in legal proceedings, actual results could differ from current expected results.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

Guarantees

Guarantees in the form of letters of credit totaling $5.1$1.9 million and $4.9$4.8 million were outstanding at December 31, 20142017 and December 31, 2013,2016, respectively, primarily to support certain office lease obligationsobligations.
In connection with certain business acquisitions, we may be required to pay post-closing consideration to the sellers if specific financial performance targets are met over a number of years as well as Middle East performancespecified in the related purchase agreements. As of December 31, 2017 and bid bonds.

2016, the total estimated fair value of our contingent consideration liabilities was $22.8 million and $8.8 million, respectively.

To the extent permitted by law, our bylaws and articles of incorporation require that we indemnify our officers and directors against judgments, fines and amounts paid in settlement, including attorneys’ fees, incurred in connection with civil or criminal action or proceedings, as it relates to their services to us if such person acted in good faith. Although there is no limit on the amount of indemnification, we may have recourse against our insurance carrier for certain payments made.

16.


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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

18. Segment Information

Segments are defined by ASC 280,Segment Reporting, as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker, who is our chief executive officer, manages the business under fivethree operating segments, which are our reportable segments: Huron Healthcare, Huron Legal, HuronEducation, and Business Advisory.
During the second quarter of 2017, we reorganized our internal financial reporting structure, which management uses to assess performance and allocate resources, by moving our Life Sciences practice from the Education and Life Sciences Huronsegment to the Business Advisory segment. The remaining Education and All Other.

Life Sciences segment is now referred to as the Education segment. While our consolidated results have not been impacted, we have reclassified our historical segment information for consistent presentation.
Huron Healthcare

Our Huron Healthcare segment provides consulting services tohas a depth of expertise in strategy and innovation, care transformation, financial and operational excellence, technology and analytics, and leadership development. We serve national and regional hospitals and integrated health systems, academic medical centers, community hospitals, and medical groups. Our solutions help clients evolve and adapt to the rapidly changing healthcare environment and achieve growth, optimize performance, enhance profitability, improve quality and clinical outcomes, and drive physician, practices. patient, and employee engagement across the enterprise.
We deliverhelp organizations transform and innovate the delivery model to focus on patient wellness by improving quality outcomes, minimizing care variation and fundamentally improving patient and population health. Our consultants partner with clients to help build and sustain today’s business to invest in the future by reducing complexity, improving operational efficiency and growing market share. We enable the healthcare of the future by identifying, integrating and optimizing technology investments to collect data that transforms care delivery and improves patient outcomes. We also develop future leaders capable of driving meaningful operational and organizational change and who transform the patient experience.
Education
Our Education segment provides management consulting and technology solutions to enhance the ability of ourhigher education institutions and academic medical centers. We partner with clients to address challenges in the rapidly evolving healthcare environment and improve quality, increase revenue, reduce expenses, and enhance physician, patient, and employee satisfaction across the healthcare enterprise. Our people provide a depth of expertise across the healthcare industry, and our culture of collaboration extends to our client engagements, enabling teams to effectively implement successful client projects.

Huron Legal

Our Huron Legal segment provides advisory and business services to assist law departments of major global corporations and their associated law firms with cost and risk reduction, organizational design and development, and operational efficiency. These services add value to organizations by helping them enhance client service and reduce the amount spent on legal services. Our expertise focuses on strategic and management consulting, cost management, and information governance, including matter management, records management, contract management, document review, and discovery services. Included in this segment’s offerings is our Integrated Analytics solution, which is designed to deliver an innovative, comprehensive process resulting in more affordable and predictable discovery costs.

Huron Education and Life Sciences

Our Huron Education and Life Sciences segment provides management consulting services and software solutions to the higher education, academic medical center, pharmaceutical and medical device, and research industries. We work with our clients to develop and implement performance improvement, technology, and research enterprise solutions to help them address challenges relating to business and technology strategy, financial management, strategy, operational and organizational effectiveness, research administration, and regulatory compliance.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts Our institutional strategy, market research, budgeting and financial management, business operations and student lifecycle management solutions align missions with business priorities, improve quality and reduce costs institution-wide. Our technology strategy, enterprise applications, and analytic solutions transform and optimize operations, deliver time and cost savings, and enhance the student experience. Our research enterprise solutions assist clients in thousands, except per share amounts)

identifying and implementing institutional research strategy, optimizing clinical research operations, improving financial management and cost reimbursement, improving service to faculty, and mitigating risk compliance.
Huron Business Advisory

Our Huron Business Advisory segment provides services to the C-suite oflarge and middle market, and largenot-for-profit organizations, lending institutions, law firms, investment banks, and private equity firms. We assist clients in a broad range of industries and across the spectrum from healthy, well-capitalized companies to organizations in transition as well as creditors, equity owners, and other key constituents.

All Other

Our All Other segment consistsBusiness Advisory professionals resolve complex business issues and enhance client enterprise value through a suite of any lineservices including capital advisory, transaction advisory, operational improvement, restructuring and turnaround, valuation, and dispute advisory. Our Enterprise Solutions and Analytics professionals deliver technology and analytic solutions that enable organizations to manage and optimize their financial performance, operational efficiency, and client or stakeholder experience. Our Strategy and Innovation professionals collaborate with clients across a range of business not managed by our other four operating segments. These businesses include our public sector consulting practiceindustries to identify new growth opportunities, build new ventures and our foreign healthcarecapabilities, and accelerate organizational change. Our Life Sciences professionals providestrategic consulting operations based in the Middle East.

solutions to help pharmaceutical, medical device, and biotechnology companies deliver more value to patients, payers, and providers, and comply with regulations.

Segment operating income consists of the revenues generated by a segment, less the direct costs of revenue and selling, general and administrative costsexpenses that are incurred directly by the segment. Unallocated corporate costs include costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment. These administrative function costs

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Table of Contents
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)

include costs for corporate office support, certain office facility costs, costs relating to accounting and finance, human resources, legal, marketing, information technology, and Company-widecompany-wide business development functions, as well as costs related to overall corporate management.

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

The tabletables below setsset forth information about our operating segments for the years ended December 31, 2017, 2016, and 2015, along with the items necessary to reconcile the segment information to the totals reported in the accompanying Consolidated Financial Statements.consolidated financial statements. We do not present financial information by geographic area because our international operations are immaterial. The historical information in the table below has been restated to conform to our current internal operating and reporting structure. Refer to Note 3 “Goodwill and Intangible Assets” for detail on the internal reporting reorganizations completed in 2013 and 2014.

   Year Ended December 31, 
   2014  2013  2012 

Huron Healthcare:

    

Revenues

  $415,803   $358,766   $288,762  

Operating income

  $159,015   $141,870   $110,864  

Segment operating income as a percentage of segment revenues

   38.2%   39.5%   38.4% 

Huron Legal:

    

Revenues

  $183,646   $182,394   $184,918  

Operating income

  $46,164   $41,964   $44,317  

Segment operating income as a percentage of segment revenues

   25.1%   23.0%   24.0% 

Huron Education and Life Sciences:

    

Revenues

  $145,962   $143,609   $129,427  

Operating income

  $36,131   $35,966   $38,283  

Segment operating income as a percentage of segment revenues

   24.8%   25.0%   29.6% 

Huron Business Advisory:

    

Revenues

  $62,840   $34,669   $22,019  

Operating income

  $14,035   $7,211   $1,888  

Segment operating income as a percentage of segment revenues

   22.3%   20.8%   8.6% 

All Other:

    

Revenues

  $3,081   $1,084   $835  

Operating loss

  $(2,466)  $(1,256)  $(2,285) 

Segment operating loss as a percentage of segment revenues

   N/M    N/M    N/M  

Total Company:

    

Revenues

  $811,332   $720,522   $625,961  

Reimbursable expenses

   77,875    67,267    55,764  
  

 

 

  

 

 

  

 

 

 

Total revenues and reimbursable expenses

  $889,207   $787,789   $681,725  
  

 

 

  

 

 

  

 

 

 

Statements of Earnings reconciliation:

    

Segment operating income

  $252,879   $225,755   $193,067  

Items not allocated at the segment level:

    

Other operating expenses and gains

   104,869    85,340    88,012  

Depreciation and amortization expense

   25,014    20,510    18,529  

Goodwill impairment charge(1)

   —      —      13,083  

Other expense, net

   8,388    6,266    7,795  
  

 

 

  

 

 

  

 

 

 

Income from continuing operations before income tax expense

  $114,608   $113,639   $65,648  
  

 

 

  

 

 

  

 

 

 

N/M – Not Meaningful

 Year Ended December 31,
 2017 2016 2015
Healthcare:     
Revenues$356,909
 $424,912
 $446,887
Operating income$118,761
 $147,903
 $169,560
Segment operating income as a percentage of segment revenues33.3% 34.8% 37.9%
Education:     
Revenues$167,908
 $149,817
 $134,009
Operating income$40,318
 $38,310
 $32,246
Segment operating income as a percentage of segment revenues24.0% 25.6% 24.1%
Business Advisory:     
Revenues$207,753
 $151,543
 $116,892
Operating income$46,600
 $29,382
 $31,233
Segment operating income as a percentage of segment revenues22.4% 19.4% 26.7%
All Other: (1)
     
Revenues$—
 $—
 $1,222
Operating loss$—
 $—
 $(1,718)
Segment operating loss as a percentage of segment revenuesN/A
 N/A
 N/M
Total Company:     
Revenues$732,570
 $726,272
 $699,010
Reimbursable expenses75,175
 71,712
 70,013
Total revenues and reimbursable expenses$807,745
 $797,984
 $769,023
      
Segment operating income$205,679
 $215,595
 $231,321
Items not allocated at the segment level:     
Other operating expenses120,718
 111,852
 112,164
Litigation and other losses (gains), net1,111
 (1,990) (9,476)
Depreciation and amortization38,213
 31,499
 25,135
Goodwill impairment charges (2)
253,093
 —
 —
Other expense, net15,048
 15,077
 19,933
Income (loss) from continuing operations before taxes$(222,504) $59,157
 $83,565
(1)During 2015, we wound down the businesses within our All Other operating segment, which consisted of our public sector consulting practice and our foreign consulting operations based in the Middle East. We did not generate any revenues from our All Other segment during 2016 and 2017.
(2)The goodwill impairment charges are not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment performance.

N/M – Not Meaningful
N/A – Not Applicable

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Table of Contents
HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)

   December 31, 
   2014   2013 

Segment Assets (1):

    

Huron Healthcare

  $112,190    $95,900  

Huron Legal

   29,336     42,190  

Huron Education and Life Sciences

   28,973     22,783  

Huron Business Advisory

   19,134     17,809  

All Other

   379     257  

Unallocated assets(2)

   965,902     706,661  
  

 

 

   

 

 

 

Total assets

  $1,155,914    $885,600  
  

 

 

   

 

 

 


  As of December 31,
Segment Assets: 2017 2016 2015
Healthcare $70,097
 $69,274
 $84,088
Education 31,367
 33,094
 28,192
Business Advisory 58,217
 43,151
 29,609
Unallocated assets (1)
 877,247
 1,007,696
 1,017,654
Total assets $1,036,928
 $1,153,215
 $1,159,543
(1)The December 31, 2013 segment asset balances have been reclassified to reflect the move of our EPM practice from the Huron Education and Life Sciences segment to the Huron Business Advisory segment.

(2)GoodwillUnallocated assets includes goodwill and intangible assets and our convertible debt investment, are included in unallocated assets, as management does not evaluate these items at the segment level when assessing segment performance or allocating resources. SeeRefer to Note 35 “Goodwill and Intangible Assets”Assets" and Note 10 “Fair12 "Fair Value of Financial Instruments”Instruments" for further information on these assets.

For the years ended December 31, 2014, 2013,2017, 2016, and 2012,2015, substantially all of our revenues and long-lived assets were attributed to or located in the United States.

No

At December 31, 2017 and 2016, no single client accounted for greater than 10% of our combined receivables and unbilled services balances. During the years ended December 31, 2017, 2016, and 2015, no single client generated greater than 10% of our consolidated revenues during the years ended December 31, 2014, 2013, and 2012. At December 31, 2013, one Huron Healthcare client’s total receivables and unbilled services balance represented 14% of our total receivables and unbilled services balance. No other client’s total receivables and unbilled services represented greater than 10% of our total receivables and unbilled services balance. At December 31, 2014, no single client’s total receivables and unbilled services balance represented greater than 10% of our total receivables and unbilled services balance.

17.revenues.

19. Valuation and Qualifying Accounts

The following table summarizesbelow sets forth the activitychanges in the carrying amount of theour allowances for doubtful accounts and unbilled services and the valuation allowance for deferred tax assets:

   Beginning
balance		   Additions (1)   Deductions   Ending
balance		 

Year ended December 31, 2012:

        

Allowances for doubtful accounts and unbilled services

  $10,682     44,613     48,253    $7,042  

Valuation allowance for deferred tax assets

  $2,540     1,564     —     $4,104  

Year ended December 31, 2013:

        

Allowances for doubtful accounts and unbilled services

  $7,042     44,123     39,258    $11,907  

Valuation allowance for deferred tax assets

  $4,104     1,642     —     $5,746  

Year ended December 31, 2014:

        

Allowances for doubtful accounts and unbilled services

  $11,907     50,523     44,426    $18,004  

Valuation allowance for deferred tax assets

  $5,746     1,406     —     $7,152  

assets for the years ended December 31, 2017, 2016, and 2015.
 
Beginning
balance
 
Additions (1)
 Deductions 
Ending
balance
Year ended December 31, 2015:       
Allowances for doubtful accounts and unbilled services$14,129
 40,003
 37,246
 $16,886
Valuation allowance for deferred tax assets$2,431
 1,212
 1,401
 $2,242
Year ended December 31, 2016:       
Allowances for doubtful accounts and unbilled services$16,886
 48,901
 44,528
 $21,259
Valuation allowance for deferred tax assets$2,242
 113
 1,729
 $626
Year ended December 31, 2017:       
Allowances for doubtful accounts and unbilled services$21,259
 43,888
 40,648
 $24,499
Valuation allowance for deferred tax assets$626
 793
 172
 $1,247
(1)Additions to allowances for doubtful accounts and unbilled services are charged to revenues to the extent the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client’s inability to make required payments on accounts receivables, the provision is charged to operating expenses. Additions also include allowances acquired in business acquisitions, which were not material in any period presented.



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Table of Contents
HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STATEMENTS

(Tabular amounts in thousands, except per share amounts)

18.


20. Selected Quarterly Financial Data (unaudited)

   Quarter Ended 

2014

  Mar. 31  Jun. 30  Sep. 30   Dec. 31 

Revenues

  $210,731   $209,405   $198,049    $193,147  

Reimbursable expenses

   19,103    21,141    18,679     18,952  

Total revenues and reimbursable expenses

   229,834    230,546    216,728     212,099  

Gross profit

   85,692    84,068    66,951     69,581  

Operating income

   41,819    34,023    21,277     25,877  

Net income from continuing operations

   34,126    19,913    12,219     12,793  

Income from discontinued operations, net of tax

   —     —      —       —    

Net income

   34,126    19,913    12,219     12,793  

Net earnings per basic share:

      

Net income from continuing operations

  $1.51   $0.88   $0.54    $0.58  

Income from discontinued operations, net of tax

   —     —     —      —   

Net income

  $1.51   $0.88   $0.54    $0.58  

Net earnings per diluted share:

      

Net income from continuing operations

  $1.48   $0.86   $0.53    $0.57  

Income from discontinued operations, net of tax

   —      —     —      —   

Net income

  $1.48   $0.86   $0.53    $0.57  

Weighted average shares used in calculating earnings per share:

      

Basic

   22,588    22,645    22,488     22,010  

Diluted

   23,086    23,098    22,975     22,548  
   Quarter Ended 

2013

  Mar. 31  Jun. 30  Sep. 30   Dec. 31 

Revenues

  $164,036   $170,407   $174,735    $211,344  

Reimbursable expenses

   15,336    18,123    17,542     16,266  

Total revenues and reimbursable expenses

   179,372    188,530    192,277     227,610  

Gross profit

   57,235    66,869    67,984     81,751  

Operating income

   21,343    30,549    31,119     36,894  

Net income from continuing operations

   11,369    15,814    17,161     22,119  

Income (loss) from discontinued operations, net of tax

   (32)   (9)   10     1  

Net income

   11,337    15,805    17,171     22,120  

Net earnings per basic share:

      

Net income from continuing operations

  $0.51   $0.71   $0.77    $0.99  

Income (loss) from discontinued operations, net of tax

   —     —     —      —   

Net income

  $0.51   $0.71   $0.77    $0.99  

Net earnings per diluted share:

      

Net income from continuing operations

  $0.51   $0.69   $0.75    $0.96  

Income (loss) from discontinued operations, net of tax

   (0.01)   —     —      —   

Net income

  $0.50   $0.69   $0.75    $0.96  

Weighted average shares used in calculating earnings per share:

      

Basic

   22,139    22,351    22,386     22,409  

Diluted

   22,487    22,760    22,873     22,973  

HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except per share amounts)

19. Subsequent Events

Effective January 1, 2015, we completed our acquisition of Sky Analytics, Inc., a Massachusetts-based provider of legal spend management software for corporate law departments. Sky Analytics provides in-house legal departments with a web-based platform to access on-demand legal spend information and analytics. The results of operations of Sky Analytics will be included within the Huron Legal segment.

On February 12, 2015, we completed our acquisition of Studer Holdings, Inc. (“Studer Group”). Studer Group and its subsidiaries are primarily engaged in the healthcare and education consulting, coaching, and publishing business. Under the terms of the merger agreement, we acquired Studer Group for the base purchase price of $325 million, consisting of $323 million in cash and $2 million in Huron common stock. The cash component of the transaction was financed with cash on hand and borrowings under our senior secured credit facility. The results of operations of Studer Group will be included within the Huron Healthcare segment. Supplemental pro forma information of Studer Group is not available as of the date of these financial statements.

We have not yet completed a valuation of the assets acquired and liabilities assumed in either acquisition.

F-45

(Unaudited)
 Quarter Ended
2017Mar. 31 Jun. 30 Sep. 30 Dec. 31
Revenues$188,849
 $181,418
 $176,376
 $185,927
Reimbursable expenses16,950
 20,930
 17,982
 19,313
Total revenues and reimbursable expenses205,799
 202,348
 194,358
 205,240
Gross profit70,203
 64,981
 59,847
 71,540
Operating income (loss)14,149
 (200,575) 6,098
 (27,128)
Net income (loss) from continuing operations5,155
 (150,482) 4,132
 (29,310)
Income (loss) from discontinued operations, net of tax143
 309
 238
 (302)
Net income (loss)5,298
 (150,173) 4,370
 (29,612)
Net earnings (loss) per basic share:       
Net income (loss) from continuing operations$0.24
 $(7.00) $0.19
 $(1.36)
Income (loss) from discontinued operations, net of tax0.01
 0.01
 0.01
 (0.02)
Net income (loss)$0.25
 $(6.99) $0.20
 $(1.38)
Net earnings (loss) per diluted share:       
Net income (loss) from continuing operations$0.24
 $(7.00) $0.19
 $(1.36)
Income (loss) from discontinued operations, net of tax0.01
 0.01
 0.01
 (0.02)
Net income (loss)$0.25
 $(6.99) $0.20
 $(1.38)
Weighted average shares used in calculating earnings per share:       
Basic21,239
 21,492
 21,505
 21,515
Diluted21,474
 21,492
 21,622
 21,515
 Quarter Ended
2016Mar. 31 Jun. 30 Sep. 30 Dec. 31
Revenues$180,489
 $184,259
 $183,400
 $178,124
Reimbursable expenses16,561
 18,982
 19,093
 17,076
Total revenues and reimbursable expenses197,050
 203,241
 202,493
 195,200
Gross profit65,180
 77,138
 71,131
 60,090
Operating income14,376
 28,209
 23,240
 8,409
Net income from continuing operations6,866
 16,139
 12,288
 4,187
Income (loss) from discontinued operations, net of tax(864) (970) 4
 (33)
Net income6,002
 15,169
 12,292
 4,154
Net earnings per basic share:       
Net income from continuing operations$0.33
 $0.77
 $0.58
 $0.20
Income (loss) from discontinued operations, net of tax(0.05) (0.05) —
 —
Net income$0.28
 $0.72
 $0.58
 $0.20
Net earnings per diluted share:       
Net income from continuing operations$0.32
 $0.76
 $0.57
 $0.19
Income (loss) from discontinued operations, net of tax(0.04) (0.05) —
 —
Net income$0.28
 $0.71
 $0.57
 $0.19
Weighted average shares used in calculating earnings per share:       
Basic21,114
 21,061
 21,076
 21,083
Diluted21,460
 21,376
 21,445
 21,473

F-47