FCN 10-Q Quarter ended Sept. 30, 2011

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2011

OR

For the transition period from                      to

Commission file number 001-14875

FTI CONSULTING, INC.

(Exact Name of Registrant as Specified in its Charter)

(561) 515-1900

(Registrant’s telephone number, including area code)

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 ¨

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 Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.    Yes x No ¨

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”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

FTI CONSULTING, INC. AND SUBSIDIARIES

INDEX

FTI Consulting, Inc. and Subsidiaries

(in thousands, except per share amounts)

Unaudited

See accompanying notes to the condensed consolidated financial statements

3

FTI Consulting, Inc. and Subsidiaries

(in thousands, except per share data)

Unaudited

See accompanying notes to the condensed consolidated financial statements

4

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income

(in thousands)

Unaudited

See accompanying notes to the condensed consolidated financial statements

5

FTI Consulting, Inc. and Subsidiaries

(in thousands)

Unaudited

See accompanying notes to the condensed consolidated financial statements

6

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(dollar and share amounts in tables expressed in thousands, except per share data)

Unaudited

1. Basis of Presentation and Significant Accounting Policies

Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Some of the information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. In management’s opinion, the interim financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All adjustments made were normal recurring accruals, except as otherwise disclosed. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes contained in our Annual Report on Form 10-K for the year ended December 31, 2010.

2. Revision to Previously Reported Financial Information

During the third quarter of 2011, we conducted a re-examination of our accounting related to our Senior Managing Director Incentive Compensation Program and related agreements (“ICP”). As a result of this review, we revised our accounting to reflect an acceleration of expense related to certain forgivable loans and/or share-based awards and corrected an immaterial error in our previously reported results for the six-months ended June 30, 2011 and for the annual reporting periods 2006 through 2010. As previously disclosed in the Current Report on Form 8-K that we filed with the SEC on November 2, 2011, we are revising our previously reported financial information in the third quarter 2011 filing to reflect the impact of the correction of the immaterial error. We intend to revise our previously reported consolidated financial statements for certain comparative quarterly and annual periods through subsequent periodic filings.

The ICP is a program designed to compensate and retain the Company’s top senior managing directors. There are currently 82 employees who participate in this program. Employees who are invited to participate in the program are eligible to receive share-based awards and forgivable loans on a discretionary and periodic basis. As a result of a re-examination of the ICP provisions related to retirement and non-renewal or resignation by the employee, and the corresponding non-compete periods, the Company determined that it should have recorded compensation expense for certain forgivable loans and/or share-based awards over a shorter period.

We assessed the materiality of these errors in accordance with SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), and determined the error was immaterial to the previously reported amounts contained in our periodic filings. Although the error was immaterial to prior periods, recording the cumulative impact of the out-of-period correction in the third quarter of 2011 would be material. Therefore, we applied the guidance for accounting changes and error corrections and revised our prior period financial statements presented per SAB 108. The impact of the correction of the immaterial error was a decrease to net income of $4.1 million in the six months ended June 30, 2011 and $5.9 million, $3.2 million, $2.0 million, $1.6 million and $0.5 million in the annual reporting periods 2010, 2009, 2008, 2007 and 2006, respectively.

7

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(dollar and share amounts in tables expressed in thousands, except per share data)

Unaudited

The effect of recording the correction of the immaterial error on impacted line items of the consolidated statements of income for the three and nine months ended September 30, 2010 is presented below:

The effect of recording the correction of the immaterial error on impacted line items of the consolidated balance sheet at December 31, 2010 is presented below:

3. New Accounting Standards Not Yet Adopted

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income , which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, an entity must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. This guidance will be effective for us beginning in the first quarter of 2012. We do not expect the guidance to impact our consolidated financial statements, as it only requires a change in the format of presentation.

8

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(dollar and share amounts in tables expressed in thousands, except per share data)

Unaudited

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment . This accounting update is intended to simplify goodwill impairment testing by adding a qualitative review step to assess whether the required quantitative impairment analysis that exists today is necessary. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amended goodwill impairment guidance does not affect the manner in which a company estimates fair value. The new standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company plans to adopt this update early. The value of the Company’s goodwill will not be affected by the adoption of this standard.

4. Earnings Per Common Share

Basic earnings per common share are calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share adjust basic earnings per share for the effects of potentially dilutive common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our equity compensation plans, including stock options and restricted stock, and shares issuable upon conversion of our 3 ³ / 4 % senior subordinated convertible notes due 2012 (“Convertible Notes”) assuming the conversion premium was converted into common stock based on the average closing price per share of our stock during the period, each using the treasury stock method. The conversion feature of our Convertible Notes had a dilutive effect on our earnings per share for the periods presented below because the average closing price per share of our common stock for such periods was above the conversion price of the Convertible Notes of $31.25 per share.

5. Special Charges

During the year ended December 31, 2010, we recorded special charges of $51.1 million, of which $31.4 million was non-cash. The non-cash charges primarily included trade name impairment charges related to our global FTI Consulting branding strategy and other strategic branding decisions. The remaining charges related to

9

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(dollar and share amounts in tables expressed in thousands, except per share data)

Unaudited

a realignment of our workforce and a consolidation of four office locations. The charges reflect actions we took to support our corporate positioning, as well as actions taken to better align capacity with expected demand, to eliminate certain redundancies resulting from acquisitions and to provide for appropriate levels of administrative support.

During the nine months ended September 30, 2011, we recorded special charges of $15.2 million, of which $4.8 million was non-cash. The charges reflect actions we took to reduce senior management related overhead in connection with our realignment of our segment management on a global basis and to align our workforce with expected market trends. These actions included a reduction in workforce totaling 37 employees. The special charges consisted of:

The following table details the special charges by segment for the nine months ended September 30, 2011:

The total cash outflow associated with the 2010 special charges is expected to be $19.7 million, of which $19.2 million has been paid as of September 30, 2011. The total cash outflow associated with the 2011 special charges is expected to be $10.4 million, of which $3.8 million has been paid as of September 30, 2011. Of the remaining liability of $7.1 million at September 30, 2011, $2.7 million is expected to be paid during the remainder of 2011 and the balance of approximately $4.4 million is expected to be paid during 2012. A liability for the amounts to be paid is included in “Accounts payable, accrued expenses and other” on the Condensed Consolidated Balance Sheets. Activity related to the liability for these costs for the nine months ended September 30, 2011 is as follows:

10

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(dollar and share amounts in tables expressed in thousands, except per share data)

Unaudited

6. Provision for Doubtful Accounts

The provision for doubtful accounts is recorded after the related work has been billed to the client and we determine that full collectability is not reasonably assured. It is classified in “Selling, general and administrative expense” on the Condensed Consolidated Statements of Income. The provision for doubtful accounts totaled $3.7 million and $9.5 million for the three and nine months ended September 30, 2011, respectively, and $2.6 million and $7.2 million for the three and nine months ended September 30, 2010, respectively.

7. Research and Development Costs

Research and development costs related to software development totaled $5.1 million and $16.9 million for the three and nine months ended September 30, 2011, respectively, and $8.1 million and $18.8 million for the three and nine months ended September 30, 2010, respectively. Research and development costs are included in “Selling, general and administrative expense” on the Condensed Consolidated Statements of Income.

8. Financial Instruments

Fair Value of Financial Instruments

We consider the recorded value of certain of our financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at September 30, 2011, based on the short-term nature of the assets and liabilities. The fair value of our long-term debt at September 30, 2011 was $816.1 million compared to a carrying value of $815.4 million. At December 31, 2010, the fair value of our long-term debt was $847.2 million compared to a carrying value of $810.8 million. We determine the fair value of our long-term debt primarily based on quoted market prices for our 7 ³ / 4 % senior notes due 2016 (“7 ³ / 4 % Senior Notes”), 6 ³ / 4 % senior notes due 2020 (“6 ³ / 4 % Senior Notes”) and Convertible Notes. The carrying value of long-term debt includes the $18.0 million equity component of our Convertible Notes which is recorded in “Additional paid-in capital” on the Condensed Consolidated Balance Sheets.

Derivative Financial Instruments

From time to time, we hedge the cash flows and fair values of some of our long-term debt using interest rate swaps. We enter into these derivative contracts to manage our exposure to interest rate changes by achieving a desired proportion of fixed rate versus variable rate debt.

Accordingly, to achieve the desired mix of fixed and floating interest rate debt, we entered into four interest rate swap agreements in March 2011, which qualify and have been designated as fair value hedges. The interest rate swaps mature on October 1, 2016. Under the terms of the interest rate swaps, we receive interest on the $215.0 million notional amount of the 7 ³ / 4 % Senior Notes at a fixed rate of 7 ³ / 4 % and pay a variable rate of interest, based on LIBOR as the benchmark interest rate. For the three months ended September 30, 2011, our variable interest rate was 5.43%. The maturity, payment dates and other critical terms of these swaps exactly match those of the hedged 7 ³ / 4 % Senior Notes. These interest rate swaps qualified for hedge accounting using the short-cut method under ASC 815-20-25, Derivatives and Hedging (formerly SFAS No. 133), which assumes no hedge ineffectiveness. As a result, changes in the fair value of the interest rate swaps and changes in the fair value of the hedged debt were assumed to be equal and offsetting. As of September 30, 2011, the fair value of our interest rate swaps was an asset of $7.5 million, which is recorded in “Other assets” on the Condensed

11

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(dollar and share amounts in tables expressed in thousands, except per share data)

Unaudited

Consolidated Balance Sheets. The impact of effectively converting the interest rate of the 7 ³ / 4 % Senior Notes from fixed rate to variable rate decreased interest expense by $2.6 million for the nine months ended September 30, 2011 and $1.2 million for the three months ended September 30, 2011.

9. Acquisitions

In March 2011, we completed acquisitions of certain practices of LECG Corporation in Europe, the United States and Latin America with services relating to those provided through our Economic Consulting, Forensic and Litigation Consulting, and Corporate Finance/Restructuring segments. The acquisition-date fair value of the total consideration transferred is approximately $30.0 million, which consisted of $27.0 million of cash paid at the closings of these acquisitions, a portion of which is subject to certain working capital and other adjustments, and contingent consideration with an estimated fair value of $3.0 million. As part of the preliminary purchase price allocation, we recorded an aggregate of $24.1 million in accounts receivable, $6.3 million in identifiable intangible assets, $20.7 million of assumed liabilities and $15.0 million in goodwill. Aggregate acquisition-related costs of approximately $1.5 million have been recognized in earnings in 2011. Pro forma results of operations have not been presented because the acquisitions were not material in relation to our consolidated financial position or results of operations for the periods presented.

Certain acquisition-related restricted stock agreements entered into prior to January 1, 2009 contain stock price guarantees that may result in cash payments in the future if our share price falls below a specified per share market value on the date that the applicable stock restrictions lapse (the “determination date”). For those acquisitions, the future settlement of any contingency related to our common stock price will be recorded as a reduction to additional paid-in capital. During the nine months ended September 30, 2011, we paid $6.2 million in cash in relation to the stock price guarantees on certain shares of common stock that became unrestricted, which was recorded as a reduction to additional paid-in capital. We did not make any stock price guarantee payments during the three months ended September 30, 2011. Our remaining common stock price guarantee provisions have stock floor prices that range from $28.47 to $69.48 per share and have determination dates that range from 2012 to 2013.

10. Goodwill and Other Intangible Assets

The changes in the carrying amounts of goodwill by business segment for the nine months ended September 30, 2011, are as follows:

12

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(dollar and share amounts in tables expressed in thousands, except per share data)

Unaudited

Other intangible assets with finite lives are amortized over their estimated useful lives. For intangible assets with finite lives, we recorded amortization expense of $5.8 million and $16.8 million for the three and nine months ended September 30, 2011, respectively, and $6.3 million and $18.2 million for the three and nine months ended September 30, 2010, respectively. Based solely on the amortizable intangible assets recorded as of September 30, 2011, we estimate amortization expense to be $5.5 million during the remainder of 2011, $21.8 million in 2012, $20.1 million in 2013, $11.6 million in 2014, $10.7 million in 2015, $9.2 million in 2016 and $40.1 million in years after 2016. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, finalization of asset valuations for newly acquired assets, changes in useful lives, changes in value due to foreign currency translation or other factors. During the nine months ended September 30, 2011, we wrote-off $26.5 million of fully amortized intangible assets related to our customer relationships, non-competition agreements, tradenames and contract backlog with a net book value of zero.