Edgar Filing: FTI CONSULTING INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-14875

FTI CONSULTING, INC.

(Exact Name of Registrant as Specified in its Charter)


Maryland		52-1261113
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

777 South Flagler Drive, Suite 1500 West Tower, West Palm Beach, Florida		33401
(Address of Principal Executive Offices)		(Zip Code)

(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):


Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

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.


Class		Outstanding at November 1, 2012
Common stock, par value $0.01 per share		41,470,784

FTI CONSULTING, INC. AND SUBSIDIARIES

INDEX


		Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets—September 30, 2012 and December 31, 2011		3

	Condensed Consolidated Statements of Comprehensive Income—Three and Nine months ended September 30, 2012 and 2011		4

	Condensed Consolidated Statement of Stockholders’ Equity—Nine months ended September 30, 2012		5

	Condensed Consolidated Statements of Cash Flows—Nine months ended September 30, 2012 and 2011		6

	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		44

Item 4.	Controls and Procedures		45

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings		46

Item 1A.	Risk Factors		46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		46

Item 3.	Defaults Upon Senior Securities		47

Item 4.	Mine Safety Disclosures		47

Item 5.	Other Information		47

Item 6.	Exhibits		47

SIGNATURES			49

PART I—FINANCIAL INFORMATION

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

Item 1.

Financial Statements


	September 30, 2012			December 31, 2011
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	126,928		$	264,423
Restricted cash		1,192			10,213
Accounts receivable:
Billed receivables		363,486			335,758
Unbilled receivables		215,456			173,440
Allowance for doubtful accounts and unbilled services		(93,885	)		(80,096	)

Accounts receivable, net		485,057			429,102
Current portion of notes receivable		32,735			26,687
Prepaid expenses and other current assets		35,327			30,448
Income taxes receivable		11,562			10,081

Total current assets		692,801			770,954
Property and equipment, net of accumulated depreciation		66,933			74,448
Goodwill		1,327,041			1,309,358
Other intangible assets, net of amortization		104,068			118,889
Notes receivable, net of current portion		97,141			81,748
Other assets		61,964			55,687

Total assets	$	2,349,948		$	2,411,084

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable, accrued expenses and other	$	99,536		$	132,773
Accrued compensation		154,773			180,366
Current portion of long-term debt and capital lease obligations		81,021			153,381
Billings in excess of services provided		25,519			19,063
Deferred income taxes		6,215			12,254

Total current liabilities		367,064			497,837
Long-term debt and capital lease obligations, net of current portion		636,821			643,579
Deferred income taxes		99,373			88,071
Other liabilities		72,970			75,395

Total liabilities		1,176,228			1,304,882

Commitments and contingent liabilities (notes 8, 10 and 11)
Stockholders’ equity
Preferred stock, $0.01 par value; shares authorized—5,000; none outstanding		—			—
Common stock, $0.01 par value; shares authorized—75,000; shares issued and outstanding—41,355 (2012) and 41,484 (2011)		414			415
Additional paid-in capital		387,986			383,978
Retained earnings		827,092			778,201
Accumulated other comprehensive loss		(41,772	)		(56,392	)

Total stockholders’ equity		1,173,720			1,106,202

Total liabilities and stockholders’ equity	$	2,349,948		$	2,411,084

See accompanying notes to the condensed consolidated financial statements

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands, except per share data)

Unaudited


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	386,055		$	413,802		$	1,177,526		$	1,176,055

Operating expenses
Direct cost of revenues		241,614			249,975			735,452			723,903
Selling, general and administrative expense		88,909			97,618			283,958			280,364
Special charges		2,775			—			29,557			15,212
Acquisition-related contingent consideration		403			944			(2,581	)		2,538
Amortization of other intangible assets		5,766			5,843			16,773			16,795

		339,467			354,380			1,063,159			1,038,812

Operating income		46,588			59,422			114,367			137,243

Other income (expense)
Interest income and other		1,584			486			4,503			5,409
Interest expense		(13,208	)		(14,319	)		(43,607	)		(44,129	)

		(11,624	)		(13,833	)		(39,104	)		(38,720	)

Income before income tax provision		34,964			45,589			75,263			98,523
Income tax provision		12,251			16,150			26,372			34,501

Net income	$	22,713		$	29,439		$	48,891		$	64,022

Earnings per common share—basic	$	0.56		$	0.73		$	1.21		$	1.54

Earnings per common share—diluted	$	0.55		$	0.70		$	1.17		$	1.47


Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax expense (benefit) of $0 for the three and nine months ended September 30, 2012, and $500 and ($1,568) for the three and nine months ended September 30, 2011, respectively	$	12,731		$	(15,873	)	$	14,620		$	782

Other comprehensive income (loss), net of tax		12,731			(15,873	)		14,620			782

Comprehensive income	$	35,444		$	13,566		$	63,511		$	64,804

See accompanying notes to the condensed consolidated financial statements

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands)

Unaudited


	Common Stock						Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Total
	Shares			Amount			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Total
Balance December 31, 2011		41,484		$	415		$	383,978		$	778,201	$	(56,392	)	$	1,106,202
Net income		—			—			—			48,891		—			48,891
Other comprehensive income:
Cumulative translation adjustment		—			—			—			—		14,620			14,620
Issuance of common stock in connection with:
Exercise of options, net of income tax expense from share-based awards of $270		206			2			5,110			—		—			5,112
Restricted share grants, less net settled shares of 129		423			4			(4,885	)		—		—			(4,881	)
Stock units issued under incentive compensation plan		—			—			3,079			—		—			3,079
Business combinations		—			—			(3,647	)		—		—			(3,647	)
Reacquisition of equity component of convertible debt		—			—			(108	)		—		—			(108	)
Purchase and retirement of common stock		(758	)		(7	)		(20,006	)		—		—			(20,013	)
Share-based compensation		—			—			24,465			—		—			24,465

Balance September 30, 2012		41,355		$	414		$	387,986		$	827,092	$	(41,772	)	$	1,173,720

See accompanying notes to the condensed consolidated financial statements

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

Unaudited


	Nine Months Ended September 30,
	2012			2011
Operating activities
Net income	$	48,891		$	64,022
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		26,475			21,508
Amortization of other intangible assets		16,948			16,795
Acquisition-related contingent consideration		(2,581	)		2,538
Provision for doubtful accounts		9,387			9,483
Non-cash share-based compensation		24,465			29,043
Excess tax benefits from share-based compensation		(98	)		(198	)
Non-cash interest expense		4,505			6,322
Other		108			(559	)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, billed and unbilled		(62,466	)		(130,132	)
Notes receivable		(20,732	)		(4,914	)
Prepaid expenses and other assets		(3,701	)		(3,670	)
Accounts payable, accrued expenses and other		5,608			14,489
Income taxes		(5,595	)		1,061
Accrued compensation		(33,734	)		21,098
Billings in excess of services provided		6,144			(38	)

Net cash provided by operating activities		13,624			46,848

Investing activities
Payments for acquisition of businesses, net of cash received		(26,453	)		(62,346	)
Purchases of property and equipment		(20,534	)		(24,595	)
Other		(1,105	)		(127	)

Net cash used in investing activities		(48,092	)		(87,068	)

Financing activities
Borrowings under revolving line of credit		75,000			25,000
Payments of revolving line of credit		—			(25,000	)
Payments of long-term debt and capital lease obligations		(156,487	)		(6,967	)
Purchase and retirement of common stock		(20,013	)		(209,400	)
Net issuance of common stock under equity compensation plans		523			797
Excess tax benefits from share-based compensation		98			198
Other		(2,080	)		(1	)

Net cash used in financing activities		(102,959	)		(215,373	)

Effect of exchange rate changes on cash and cash equivalents		(68	)		(747	)

Net decrease in cash and cash equivalents		(137,495	)		(256,340	)
Cash and cash equivalents, beginning of period		264,423			384,570

Cash and cash equivalents, end of period	$	126,928		$	128,230

Supplemental cash flow disclosures
Cash paid for interest	$	31,343		$	31,725
Cash paid for income taxes, net of refunds		31,968			33,443
Non-cash investing and financing activities:
Issuance of stock units under incentive compensation plans		3,079			4,241

See accompanying notes to the condensed consolidated financial statements

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

The unaudited condensed consolidated financial statements of FTI Consulting, Inc. and its wholly owned subsidiaries (“FTI Consulting,” the “Company,” “we,” or “our”) presented herein 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. Certain prior period amounts have been reclassified to conform to the current period presentation. 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. 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, 2011.

2. 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 the potential conversion of our 3³/₄% senior subordinated convertible notes due 2012 (“Convertible Notes”) prior to their maturity on July 15, 2012 and payment in full on July 16, 2012 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 three months ended September 30, 2011 and the nine months ended September 30, 2012 and 2011, respectively, 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.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Numerator—basic and diluted
Net income	$	22,713	$	29,439	$	48,891	$	64,022

Denominator
Weighted average number of common shares outstanding—basic		40,387		40,182		40,446		41,535
Effect of dilutive stock options		160		884		590		895
Effect of dilutive convertible notes		—		647		224		722
Effect of dilutive restricted shares		555		554		622		519

Weighted average number of common shares outstanding—diluted		41,102		42,267		41,882		43,671

Earnings per common share—basic	$	0.56	$	0.73	$	1.21	$	1.54

Earnings per common share—diluted	$	0.55	$	0.70	$	1.17	$	1.47

Antidilutive stock options and restricted shares		5,421		2,612		3,678		2,330

3. New Accounting Standards Not yet Adopted

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite—Lived Intangible Assets for Impairment (“ASU 2012-02”). ASU 2012-02 permits an entity to make a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. If the entity determines, on the basis of all relevant qualitative factors, that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it will not be required to perform a quantitative impairment test for that asset. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this ASU will not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

4. Special Charges

During the quarter ended June 30, 2011, we recorded special charges of $15.2 million. The charges reflect actions we took to reduce overhead in connection with the realignment of certain senior management on a global basis and to align our workforce with expected market trends, primarily in our Corporate Finance/Restructuring segment.

During the quarter ended June 30, 2012, we recorded special charges totaling $26.8 million, of which $4.6 million was non-cash. The charges reflect actions we took to realign our workforce to address current business demands and global macro-economic conditions impacting our Forensic and Litigation Consulting, Strategic Communications and Technology segments, to address certain targeted practices within our Corporate Finance/Restructuring and Economic Consulting segments, and to reduce excess real estate capacity. These actions include the termination of 116 employees, the consolidation of leased office space within six office locations and certain other actions. The special charges consisted of:

•

$18.4 million of salary continuance and other contractual employee related costs, including loan forgiveness and accelerated recognition of compensation cost of share-based awards, associated with the reduction in workforce of 116 employees; and

•

$8.4 million of expense associated with lease costs related to the consolidation of leased office space in six office locations.

During the quarter ended September 30, 2012, we recorded special charges totaling $2.8 million, of which $0.4 million was non-cash. The charges reflect further actions to reduce excess real estate capacity by consolidating leased office space in three additional locations.

The following table details the special charges by segment for the three months ended September 30, 2012 and nine months ended September 30, 2012 and 2011.There were no special charges for the three months ended September 30, 2011.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2012		2012		2011
Corporate Finance/Restructuring	$	820	$	11,936	$	9,440
Forensic and Litigation Consulting		419		7,672		839
Economic Consulting		173		991		2,093
Technology		148		3,114		—
Strategic Communications		201		4,712		—

		1,761		28,425		12,372
Unallocated Corporate		1,014		1,132		2,840

Total	$	2,775	$	29,557	$	15,212

The total cash outflow associated with the 2012 special charges is expected to be $24.6 million, of which $7.5 million has been paid as of September 30, 2012, $3.5 million is expected to be paid during the remainder of 2012, $5.9 million is expected to be paid in 2013, $2.6 million is expected to be paid in 2014, and the remaining balance of $5.1 million related to lease costs will be paid from 2015 to 2025. In addition, the remaining balance of $0.3 million related to the 2011 special charges is expected to be paid during the remainder of 2012. A liability for the current and noncurrent portions of the amounts to be paid is included in “Accounts payable, accrued expenses and other” and “Other liabilities,” respectively, on the Condensed Consolidated Balance Sheets. Activity related to the liability for these costs for the nine months ended September 30, 2012 is as follows:


	Employee Termination Costs			Lease Costs			Total
Balance at December 31, 2011	$	4,758			—		$	4,758
Additions		14,276			10,274			24,550
Payments		(10,582	)		(1,032	)		(11,614	)
Foreign currency translation adjustment and other		(295	)		—			(295	)

Balance at September 30, 2012	$	8,157		$	9,242		$	17,399

5. 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 Comprehensive Income. The provision for doubtful accounts totaled $2.4 million and $9.4 million for the three and nine months ended September 30, 2012, respectively, and $3.7 million and $9.5 million for the three and nine months ended September 30, 2011, respectively.

6. Research and Development Costs

Research and development costs related to software development totaled $4.2 million and $16.1 million for the three and nine months ended September 30, 2012, respectively, and $5.1 million and $16.9 million for the three and nine months ended September 30, 2011, respectively. Research and development costs are included in “Selling, general and administrative expense” on the Condensed Consolidated Statements of Comprehensive Income.

7. Financial Instruments

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 we designated as fair value hedges of our 7³/₄% senior notes due 2016 (“2016 Notes”). Under the terms of the interest rate swaps, we received interest on the $215.0 million notional amount at a fixed rate of 7³/₄% and paid a variable rate of interest, which varied between 5.43% and 5.56% for the year ended December 31, 2011. The variable rate was based on the London Interbank Offered Rate (“LIBOR”) as the benchmark interest rate. The maturity, payment dates and other critical terms of these swaps exactly matched those of the hedged 2016 Notes. These interest rate swaps qualified for hedge accounting using the short-cut method under ASC 815-20-25, Derivatives and Hedging, which assumes no hedge ineffectiveness. As a result, the changes in the fair value of the interest rate swaps and the changes in fair value of the hedged debt were assumed to be equal and offsetting.

On December 16, 2011, we negotiated the right to terminate the interest rate swap agreements. Upon termination of these interest rate swap agreements we received cash proceeds of approximately $6.6 million, including $1.0 million of accrued interest. The net proceeds of $5.6 million have been recorded in “Long-term debt and capital lease obligations” on the Condensed Consolidated Balance Sheets and will be amortized as a reduction to interest expense over the remaining term of the 2016 Notes, resulting in an effective interest rate of 7.1% per annum. For the nine months ended September 30, 2012, $0.8 million of the net proceeds have been amortized as a reduction of interest expense, with a remaining balance of $4.8 million at September 30, 2012. At September 30, 2012, we had no derivative 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, 2012 and December 31, 2011, based on the short-term nature of the assets and liabilities. The fair value of our long-term debt at September 30, 2012 was $747 million compared to a carrying value of $718 million. At December 31, 2011, the fair value of our long-term debt was $882 million compared to a carrying value of $815 million. We determine the fair value of our long-term debt primarily based on quoted market prices for our 2016 Notes, 6³/₄% senior notes due 2020 and Convertible Notes. The fair value of our long-term debt is classified within Level 2 of the fair value hierarchy, because it is traded in less active markets. At December 31, 2011, 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. Our Convertible Notes matured on July 15, 2012 and were paid in full on July 16, 2012.

For business combinations consummated on or after January 1, 2009, we estimate the fair value of acquisition-related contingent consideration using a probability-weighted discounted cash flow model. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Fair value measurements characterized within Level 3 of the fair value hierarchy are measured based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value.

The significant unobservable inputs used in the fair value measurements of our acquisition-related contingent consideration are our measures of the future profitability and related cash flows and discount rates. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is accompanied by a directionally opposite change in the fair value measurement and a change in the assumptions used for the future cash flows is accompanied by a directionally similar change in the fair value measurement.

During the second quarter of 2012, management determined that the fair value of the acquisition-related contingent consideration liability had declined. This remeasurement of the contingent consideration was based on management’s probability-adjusted present value of the consideration expected to be transferred during the remainder of the earnout period, based on the acquired operations’ forecasted results. The resulting reduction in the liability of $4.1 million is recorded as income and is included within “Acquisition-related contingent consideration” in the Condensed Consolidated Statements of Comprehensive Income. There were no remeasurement gains or losses for the quarter ended September 30, 2012.

Accretion expense for acquisition-related contingent consideration totaled $0.4 million and $1.5 million for the three and nine months ended September 30, 2012, respectively, and $0.9 million and $2.5 million for the three and nine months ended September 30, 2011, respectively.

The following table represents the change in the acquisition-related contingent consideration liability during the three and nine months ended September 30, 2012 and 2011:


	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2012		2011			2012			2011
Beginning balance	$	8,237	$	23,882		$	14,990		$	19,864
Acquisition date fair value measurement		1,150		—			1,150			3,000
Adjustments to fair value recorded in earnings^(a)		404		944			(2,581	)		2,538
Payments		—		—			(1,287	)		(577	)
Elimination of contingency^(b)		—		—			(2,534	)		—
Unrealized gains (losses) related to currency translation in other comprehensive income		59		(95	)		112			(94	)

Ending balance	$	9,850	$	24,731		$	9,850		$	24,731

^(a)	Adjustments to fair value related to accretion and remeasurement of contingent consideration are recorded in “Acquisition-related contingent consideration” on the Condensed Consolidated Statements of Comprehensive Income.

^(b)

During the three months ended June 30, 2012, we fixed an acquisition-related contingent consideration liability in the amount of $2.5 million. The non-contingent consideration liability is no longer required to be remeasured to fair value and, accordingly, is not classified as a Level 3 measurement.

The following table presents financial liabilities measured at fair value:


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of September 30, 2012
Liabilities:
Acquisition-related contingent consideration, including current portion	$	—	$	—	$	9,850	$	9,850
As of December 31, 2011
Liabilities:
Acquisition-related contingent consideration, including current portion	$	—	$	—	$	14,990	$	14,990

8. Acquisitions

In October 2012, we completed an acquisition in Australia for our Corporate Finance/Restructuring segment. In advance of the acquisition closing, we transferred a portion of the purchase price in the amount of $1.2 million in cash to a third party in September 2012. This purchase price advance is included in the Condensed Consolidated Balance Sheets in “Other assets” and is reflected in the Condensed Consolidated Statements of Cash Flows within “Other investing activities.” The purchase price includes initial consideration with an approximate value of $25 million plus acquisition-related contingent consideration, which is payable annually through December 31, 2017 if the acquired business meets certain performance measures, and is subject to an approximate $16 million aggregate cap. The results of the acquired business will be included in our consolidated results of operations beginning on October 2, 2012, the date of the completion of the acquisition, and therefore are not included in our consolidated results of operations for the three and nine months ended September 30, 2012. We are currently evaluating the fair values of the consideration transferred, assets acquired and liabilities assumed.

In March 2012, we completed an acquisition in the United States for our Corporate Finance/Restructuring segment. The acquisition price of $3.1 million consisted of $2.0 million in cash and contingent consideration

with an estimated fair value of $1.1 million. The fair value of the acquisition related contingent consideration is recorded in “Other liabilities” on the Condensed Consolidated Balance Sheets. As part of the purchase price allocation, we recorded $0.9 million in identifiable intangible assets and $2.2 million in goodwill.

In March 2011, we completed acquisitions of certain practices of LECG Corporation (“LECG”) 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 $27.1 million of cash paid at the closings of these acquisitions and contingent consideration with an estimated fair value of $2.9 million. As part of the purchase price allocation, we recorded an aggregate of $24.2 million of accounts receivable, $6.3 million of identifiable intangible assets, $20.6 million of assumed liabilities and $14.8 million of goodwill. The identifiable intangible assets consisted of customer relationships with a weighted average amortization period of 12.4 years. Aggregate acquisition-related costs of approximately $1.5 million have been recognized in earnings in 2011.

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, 2012, we paid $3.6 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 on the Condensed Consolidated Balance Sheets. We did not make any stock price guarantee payments during the three months ended September 30, 2012. Our remaining common stock price guarantee provisions have stock floor prices that range from $54.33 to $69.48 per share and have determination dates through 2013.

9. Goodwill and Other Intangible Assets

The changes in the carrying amounts of goodwill by operating segment for the nine months ended September 30, 2012, are as follows:


	Corporate Finance/ Restructuring		Forensic and Litigation Consulting		Economic Consulting		Technology		Strategic Communications		Total
Balances at December 31, 2011	$	436,043	$	198,047	$	229,487	$	117,958	$	327,823	$	1,309,358
Goodwill acquired during the period		2,195		—		—		—		—		2,195
Contingent Consideration^(a)		—		23		4,852		—		—		4,875
Foreign currency translation adjustment and other		348		945		456		79		8,785		10,613

Balances at September 30, 2012	$	438,586	$	199,015	$	234,795	$	118,037	$	336,608	$	1,327,041

^(a)	Contingent consideration related to business combinations consummated prior to January 1, 2009.

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 $16.9 million for the three and nine months ended September 30, 2012, respectively, and $5.8 million and $16.8 million for the three and nine months ended September 30, 2011, respectively. Based solely on the amortizable intangible assets recorded as of September 30, 2012, we estimate amortization expense to be $5.6 million during the remainder of 2012, $20.4 million in 2013, $11.9 million in 2014, $10.9 million in 2015, $9.3 million in 2016, $8.6 million in 2017, and $31.8 million in years after 2017. 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, change in value due to foreign currency translation, or other factors.


	Useful Life in Years	September 30, 2012				December 31, 2011
	Useful Life in Years	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Finite lived intangible assets
Customer relationships	1 to 15	$	146,872	$	60,494	$	144,696	$	49,381
Non-competition agreements	1 to 10		14,470		10,619		14,601		8,965
Software	2 to 6		33,979		25,867		33,549		21,211
Tradenames	2		180		53		—		—

			195,501		97,033		192,846		79,557
Indefinite-lived intangible assets
Tradenames	Indefinite		5,600		—		5,600		—

		$	201,101	$	97,033	$	198,446	$	79,557

We test our goodwill and other indefinite-lived intangible assets for impairment annually as of the first day of the fourth quarter. We also consider factors that could trigger an interim impairment review. Through our assessment, we determined that there were no events or circumstances that more likely than not would reduce the fair value of any of our reporting units below their carrying value. Accordingly, we did not perform an interim impairment test.

10. Long-term Debt and Capital Lease Obligations

The components of long-term debt and capital lease obligations are presented in the table below:


	September 30, 2012		December 31, 2011
7³/₄% senior notes due 2016^(a)	$	219,797	$	220,555
6³/₄% senior notes due 2020		400,000		400,000
3³/₄% senior subordinated convertible notes due 2012^(b)		—		146,867
Revolving line of credit		75,000		—
Notes payable to former shareholders of acquired business		23,000		29,445

Total debt		717,797		796,867
Less current portion		81,000		153,312

Long-term debt, net of current portion		636,797		643,555

Total capital lease obligations		45		94
Less current portion		21		70

Capital lease obligations, net of current portion		24		24

Long-term debt and capital lease obligations, net of current portion	$	636,821	$	643,579

^(a)	Balance includes $215.0 million principal amount of 2016 Notes and a premium of $4.8 million at September 30, 2012 and $5.6 million at December 31, 2011.

^(b)	Balance includes $149.9 million principal amount of Convertible Notes, net of discount of $3.1 million at December 31, 2011.

Convertible Notes

The Convertible Notes matured on July 15, 2012. On July 16, 2012, we repaid all amounts due on our outstanding Convertible Notes. The total repayment of approximately $151.3 million, including $2.8 million of accrued interest, was made using cash on hand and the proceeds of a $75.0 million borrowing under our senior secured bank credit facility.

11. Commitments and Contingencies

Contingencies

We are subject to legal actions arising in the ordinary course of business. In management’s opinion, we believe we have adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions. We do not believe any potential settlement or judgment would materially affect our financial position or results of operations.

12. Share-Based Compensation

Share-based Awards and Share-based Compensation Expense

Our officers, employees, non-employee directors and certain individual service providers are eligible to participate in the Company’s equity compensation plans, subject to the discretion of the administrator of the plans. During the nine months ended September 30, 2012, we granted an aggregate of 1,373,113 share-based awards, consisting primarily of restricted stock awards and stock options.

Total share-based compensation expense for the three and nine months ended September 30, 2012 and 2011 is detailed in the following table:


	Three Months Ended September 30,				Nine Months Ended September 30,
Comprehensive Income Statement Classification	2012		2011		2012		2011
Direct cost of revenues	$	3,475	$	4,111	$	12,883	$	19,932
Selling, general and administrative expense		3,179		3,029		10,338		8,667
Special charges		—		—		814		833

Total share-based compensation expense	$	6,654	$	7,140	$	24,035	$	29,432

13. Stockholders’ Equity

On June 6, 2012, our Board of Directors authorized a two-year stock repurchase program of up to $250 million (the “Repurchase Program”). During the three months ended September 30, 2012, we repurchased and retired 757,650 shares of our common stock for an average price per share of $26.40, using cash on hand, with a value equivalent to approximately $20 million. As of September 30, 2012, a balance of approximately $230 million remained available under the Repurchase Program.

14. Segment Reporting

We manage our business in five reportable operating segments: Corporate Finance/Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology and Strategic Communications.

Our Corporate Finance/Restructuring segment focuses on strategic, operational, financial and capital needs of businesses around the world and provides consulting and advisory services on a wide range of areas, such as restructuring (including bankruptcy), interim management, financings, mergers and acquisitions (“M&A”), post-acquisition integration, valuations, tax issues and performance improvement.

Our Forensic and Litigation Consulting segment provides law firms, companies, government clients and other interested parties with dispute advisory, investigations, forensic accounting, business intelligence assessments, data analytics and risk mitigation services.

Our Economic Consulting segment provides law firms, companies, government entities and other interested parties with analysis of complex economic issues for use in legal, regulatory, and international arbitration proceedings, strategic decision making and public policy debates in the United States and around the world.

Our Technology segment provides electronic discovery (“e-discovery”) and information management consulting, software and services to its clients. It provides products, services and consulting to companies, law firms, courts and government agencies worldwide. Its comprehensive suite of software and services help clients locate, review and produce electronically stored information (“ESI”), including e-mail, computer files, voicemail, instant messaging, and financial and transactional data.

Our Strategic Communications segment provides advice and consulting services relating to financial and corporate communications and investor relations, reputation management and brand communications, public affairs, business consulting and digital design and marketing.

We evaluate the performance of our operating segments based on Adjusted Segment EBITDA. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets and special charges. Although Adjusted Segment EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, we use Adjusted Segment EBITDA to evaluate and compare the operating performance of our segments.

The table below presents revenues and Adjusted Segment EBITDA for our reportable segments for the three and nine months ended September 30, 2012 and 2011:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenues
Corporate Finance/Restructuring	$	110,217	$	110,311	$	336,031	$	319,461
Forensic and Litigation Consulting		83,366		99,064		260,504		275,345
Economic Consulting		96,375		95,662		295,882		264,401
Technology		50,286		56,972		147,643		165,137
Strategic Communications		45,811		51,793		137,466		151,711

Revenues	$	386,055	$	413,802	$	1,177,526	$	1,176,055


Adjusted Segment EBITDA
Corporate Finance/Restructuring	$	25,029	$	27,495	$	81,003	$	59,173
Forensic and Litigation Consulting		13,211		19,113		42,916		53,016
Economic Consulting		19,087		18,650		56,002		50,635
Technology		15,675		19,619		41,739		58,362
Strategic Communications		6,778		7,429		16,277		19,267

Total Adjusted Segment EBITDA	$	79,780	$	92,306	$	237,937	$	240,453

The table below reconciles Total Adjusted Segment EBITDA to income before income tax provision:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Total Adjusted Segment EBITDA⁽¹⁾	$	79,780		$	92,306		$	237,937		$	240,453
Segment depreciation expense		(6,038	)		(6,115	)		(18,646	)		(17,729	)
Amortization of other intangible assets		(5,766	)		(5,843	)		(16,773	)		(16,795	)
Special Charges		(2,775	)		—			(29,557	)		(15,212	)
Unallocated corporate expenses, excluding special charges		(18,613	)		(20,926	)		(58,594	)		(53,474	)
Interest income and other		1,584			486			4,503			5,409
Interest expense		(13,208	)		(14,319	)		(43,607	)		(44,129	)

Income before income tax provision	$	34,964		$	45,589		$	75,263		$	98,523

⁽¹⁾	Total Adjusted Segment EBITDA is the total of Adjusted Segment EBITDA for all segments.

15. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information

Substantially all of our domestic subsidiaries are guarantors of borrowings under our senior bank credit facility, senior notes and our Convertible Notes. The Convertible Notes matured on July 15, 2012. The guarantees are full and unconditional and joint and several. All of our guarantors are wholly-owned, direct or indirect, subsidiaries. The following financial information presents condensed consolidating balance sheets, statements of comprehensive income and statements of cash flows for FTI Consulting, all the guarantor subsidiaries, all the non-guarantor subsidiaries and the eliminations necessary to arrive at the consolidated information for FTI Consulting and its subsidiaries. For purposes of this presentation, we have accounted for our investments in our subsidiaries using the equity method of accounting. The principal eliminating entries eliminate investment in subsidiary and intercompany balances and transactions.

Condensed Consolidating Balance Sheet Information as of September 30, 2012


	FTI Consulting, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	31,267	$	547	$	95,114	$	—		$	126,928
Restricted cash		—		—		1,192		—			1,192
Accounts receivable, net		175,934		183,820		125,303		—			485,057
Intercompany receivables		—		596,880		57,826		(654,706	)		—
Other current assets		25,744		23,383		30,497		—			79,624

Total current assets		232,945		804,630		309,932		(654,706	)		692,801
Property and equipment, net		37,247		15,463		14,223		—			66,933
Goodwill		549,567		443,920		333,554		—			1,327,041
Other intangible assets, net		35,648		26,464		74,377		(32,421	)		104,068
Investments in subsidiaries		1,668,949		551,607		—		(2,220,556	)		—
Other assets		77,984		103,196		24,477		(46,552	)		159,105

Total assets	$	2,602,340	$	1,945,280	$	756,563	$	(2,954,235	)	$	2,349,948

Liabilities
Intercompany payables	$	482,622	$	105,751	$	66,333	$	(654,706	)	$	—
Other current liabilities		204,466		91,399		71,199		—			367,064

Total current liabilities		687,088		197,150		137,532		(654,706	)		367,064
Long-term debt, net		619,821		17,000		—		—			636,821
Other liabilities		121,711		36,970		60,214		(46,552	)		172,343

Total liabilities		1,428,620		251,120		197,746		(701,258	)		1,176,228
Stockholders’ equity		1,173,720		1,694,160		558,817		(2,252,977	)		1,173,720

Total liabilities and stockholders’ equity	$	2,602,340	$	1,945,280	$	756,563	$	(2,954,235	)	$	2,349,948

Condensed Consolidating Balance Sheet Information as of December 31, 2011


	FTI Consulting, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	161,180	$	197	$	103,046	$	—		$	264,423
Restricted cash		8,632		—		1,581		—			10,213
Accounts receivable, net		148,698		165,871		114,533		—			429,102
Intercompany receivables		—		557,846		59,857		(617,703	)		—
Other current assets		22,599		15,694		28,923		—			67,216

Total current assets		341,109		739,608		307,940		(617,703	)		770,954
Property and equipment, net		44,233		14,240		15,975		—			74,448
Goodwill		547,667		439,068		322,623		—			1,309,358
Other intangible assets, net		38,913		34,692		45,284		—			118,889
Investments in subsidiaries		1,538,883		532,091		—		(2,070,974	)		—
Other assets		70,551		48,529		18,355		—			137,435

Total assets	$	2,581,356	$	1,808,228	$	710,177	$	(2,688,677	)	$	2,411,084

Liabilities
Intercompany payables	$	433,284	$	93,947	$	90,472	$	(617,703	)	$	—
Other current liabilities		316,559		109,651		71,627		—			497,837

Total current liabilities		749,843		203,598		162,099		(617,703	)		497,837
Long-term debt, net		620,579		23,000		—		—			643,579
Other liabilities		104,732		43,297		15,437		—			163,466

Total liabilities		1,475,154		269,895		177,536		(617,703	)		1,304,882
Stockholders’ equity		1,106,202		1,538,333		532,641		(2,070,974	)		1,106,202

Total liabilities and stockholders’ equity	$	2,581,356	$	1,808,228	$	710,177	$	(2,688,677	)	$	2,411,084

Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended September 30, 2012


	FTI Consulting, Inc.			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	145,198		$	233,300	$	99,963		$	(92,406	)	$	386,055
Operating expenses
Direct cost of revenues		93,428			175,160		65,052			(92,026	)		241,614
Selling, general and administrative expense		36,915			28,226		24,148			(380	)		88,909
Special Charges		2,295			451		29			—			2,775
Acquisition-related contingent consideration		63			—		340			—			403
Amortization of other intangible assets		1,590			2,488		2,512			(824	)		5,766

Operating income		10,907			26,975		7,882			824			46,588
Other (expense) income		(15,921	)		5,514		(1,217	)		—			(11,624	)

Income (loss) before income tax provision		(5,014	)		32,489		6,665			824			34,964
Income tax (benefit) provision		(675	)		10,598		2,328			—			12,251
Equity in net earnings of subsidiaries		27,052			4,710		—			(31,762	)		—

Net income		22,713			26,601		4,337			(30,938	)		22,713

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments including tax benefit of $0		—			—		12,731			—			12,731

Other comprehensive income (loss), net of tax		—			—		12,731			—			12,731

Comprehensive income	$	22,713		$	26,601	$	17,068		$	(30,938	)	$	35,444

Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended September 30, 2011


	FTI Consulting, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	157,053		$	253,165		$	103,795		$	(100,211	)	$	413,802
Operating expenses
Direct cost of revenues		99,635			181,359			66,111			(97,130	)		249,975
Selling, general and administrative expense		43,053			31,347			26,299			(3,081	)		97,618
Acquisition-related contingent consideration		—			—			944			—			944
Amortization of other intangible assets		1,467			2,667			1,709			—			5,843

Operating income		12,898			37,792			8,732			—			59,422
Other (expense) income		(14,067	)		(1,890	)		2,124			—			(13,833	)

Income (loss) before income tax provision		(1,169	)		35,902			10,856			—			45,589
Income tax provision		209			15,082			859			—			16,150
Equity in net earnings of subsidiaries		30,817			(8,498	)		—			(22,319	)		—

Net income	$	29,439		$	12,322		$	9,997		$	(22,319	)	$	29,439

Other comprehensive loss, net of tax:
Foreign currency translation adjustments including tax expense of $500		(503	)		—			(15,370	)		—			(15,873	)

Other comprehensive loss, net of tax		(503	)		—			(15,370	)		—			(15,873	)

Comprehensive income (loss)	$	28,936		$	12,322		$	(5,373	)	$	(22,319	)	$	13,566

Condensed Consolidating Statement of Comprehensive Income for the Nine months ended September 30, 2012


	FTI Consulting, Inc.			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	450,221		$	716,049	$	303,472		$	(292,216	)	$	1,177,526
Operating expenses
Direct cost of revenues		291,053			537,897		194,051			(287,549	)		735,452
Selling, general and administrative expense		123,350			85,785		79,490			(4,667	)		283,958
Special charges		19,026			4,738		5,793			—			29,557
Acquisition-related contingent consideration		63			—		(2,644	)		—			(2,581	)
Amortization of other intangible assets		4,190			7,438		7,609			(2,464	)		16,773

Operating income		12,539			80,191		19,173			2,464			114,367
Other (expense) income		(46,377	)		41,501		657			(34,885	)		(39,104	)

Income before income tax provision		(33,838	)		121,692		19,830			(32,421	)		75,263
Income tax (benefit) provision		(29,055	)		51,322		4,105			—			26,372
Equity in net earnings of subsidiaries		53,674			18,093		—			(71,767	)		—

Net income		48,891			88,463		15,725			(104,188	)		48,891

Other comprehensive income, net of tax:
Foreign currency translation adjustments net of tax benefit of $0		—			—		14,620			—			14,620

Other comprehensive income, net of tax		—			—		14,620			—			14,620

Comprehensive income	$	48,891		$	88,463	$	30,345		$	(104,188	)	$	63,511

Condensed Consolidating Statement of Comprehensive Income for the Nine Months Ended September 30, 2011


	FTI Consulting, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	427,804		$	760,553		$	284,186		$	(296,488	)	$	1,176,055
Operating expenses
Direct cost of revenues		281,576			545,080			185,699			(288,452	)		723,903
Selling, general and administrative expense		119,639			96,038			72,723			(8,036	)		280,364
Special charges		8,561			228			6,423			—			15,212
Acquisition-related contingent consideration		—			—			2,538			—			2,538
Amortization of other intangible assets		2,346			9,526			4,923			—			16,795

Operating income		15,682			109,681			11,880			—			137,243
Other (expense) income		(39,747	)		(1,333	)		2,360			—			(38,720	)

Income before income tax provision		(24,065	)		108,348			14,240			—			98,523
Income tax (benefit) provision		(9,998	)		45,216			(717	)		—			34,501
Equity in net earnings of subsidiaries		78,089			(4,121	)		—			(73,968	)		—

Net income	$	64,022		$	59,011		$	14,957		$	(73,968	)	$	64,022

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments net of tax benefit of $1,568		1,565			—			(783	)		—			782

Other comprehensive income (loss), net of tax		1,565			—			(783	)		—			782

Comprehensive income	$	65,587		$	59,011		$	14,174		$	(73,968	)	$	64,804

Condensed Consolidating Statement of Cash Flow for the Nine months ended September 30, 2012


	FTI Consulting, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Operating activities
Net cash (used in) provided by operating activities	$	(47,163	)	$	36,366		$	24,421		$	13,624
Investing activities
Payments for acquisition of businesses, net of cash received		(26,089	)		—			(364	)		(26,453	)
Purchases of property and equipment		(6,016	)		(11,689	)		(2,829	)		(20,534	)
Other		(1,105	)		—			—			(1,105	)

Net cash used in investing activities		(33,210	)		(11,689	)		(3,193	)		(48,092	)

Financing activities
Borrowings under revolving line of credit		75,000			—			—			75,000
Payments of long-term debt and capital lease obligations		(156,438	)		(49	)		—			(156,487	)
Purchase and retirement of common stock		(20,013	)		—						(20,013	)
Net issuance of common stock and other		415			—			(1,972	)		(1,557	)
Excess tax benefits from share-based compensation		98			—			—			98
Intercompany transfers		51,398			(24,278	)		(27,120	)		—

Net cash used in financing activities		(49,540	)		(24,327	)		(29,092	)		(102,959	)

Effect of exchange rate changes on cash and cash equivalents		—			—			(68	)		(68	)

Net increase (decrease) in cash and cash equivalents		(129,913	)		350			(7,932	)		(137,495	)
Cash and cash equivalents, beginning of period		161,180			197			103,046			264,423

Cash and cash equivalents, end of period	$	31,267		$	547		$	95,114		$	126,928

Condensed Consolidating Statement of Cash Flow for the Nine months ended September 30, 2011


	FTI Consulting, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Operating activities
Net cash (used in) provided by operating activities	$	(18,645	)	$	77,208		$	(11,715	)	$	46,848
Investing activities
Payments for acquisition of businesses, including contingent payments, net of cash received		(33,735	)		—			(28,611	)		(62,346	)
Purchases of property and equipment		(7,644	)		(10,210	)		(6,741	)		(24,595	)
Other		(127	)		—			—			(127	)

Net cash used in investing activities		(41,506	)		(10,210	)		(35,352	)		(87,068	)

Financing activities
Borrowings under revolving line of credit		25,000			—			—			25,000
Payments of revolving line of credit		(25,000	)		—			—			(25,000	)
Payments of long-term debt and capital lease obligations		(6,806	)		(161	)		—			(6,967	)
Net issuance of common stock and other		796			—			—			796
Purchase and retirement of common stock		(209,400	)		—			—			(209,400	)
Excess tax benefits from share-based compensation		198			—			—			198
Intercompany transfers		40,555			(67,857	)		27,302			—

Net cash (used in) provided by financing activities		(174,657	)		(68,018	)		27,302			(215,373	)

Effect of exchange rate changes on cash and cash equivalents		—			—			(747	)		(747	)

Net decrease in cash and cash equivalents		(234,808	)		(1,020	)		(20,512	)		(256,340	)
Cash and cash equivalents, beginning of period		292,738			1,430			90,402			384,570

Cash and cash equivalents, end of period	$	57,930		$	410		$	69,890		$	128,230

Item 2.

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

The following is a discussion and analysis of our consolidated financial condition and results of operations for the three and nine month ended September 30, 2012 and 2011 and significant factors that could affect our prospective financial condition and results of operations. This discussion should be read together with the accompanying unaudited condensed consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended December 31, 2011. Historical results and any discussion of prospective results may not indicate our future performance. See “Forward Looking Statements.”

BUSINESS OVERVIEW

We are a leading global business advisory firm dedicated to helping organizations protect and enhance their enterprise value. We work closely with our clients to help them anticipate, understand, manage and overcome complex business matters arising from such factors as the economy, financial and credit markets, governmental regulation, legislation and litigation. We assist clients in addressing a broad range of business challenges, such as restructuring (including bankruptcy), financing and credit issues and indebtedness, interim business management, forensic accounting and litigation matters, international arbitrations, M&A, antitrust and competition matters, e-discovery, management and retrieval of ESI, reputation management and strategic communications. We also provide services to help our clients take advantage of economic, regulatory, financial and other business opportunities. Our experienced teams of professionals include many individuals who are widely recognized as experts in their respective fields. We believe clients retain us because of our recognized expertise and capabilities in highly specialized areas as well as our reputation for satisfying client needs.

We report financial results for the following five operating segments:

Our Corporate Finance/Restructuring segment focuses on strategic, operational, financial and capital needs of businesses around the world and provides consulting and advisory services on a wide range of areas, such as restructuring (including bankruptcy), interim management, financings, M&A, post-acquisition integration, valuations, tax issues and performance improvement.

Our Forensic and Litigation Consulting segment provides law firms, companies, government clients and other interested parties with dispute advisory, investigations, forensic accounting, business intelligence assessments, data analytics and risk mitigation services.

Our Economic Consulting segment provides law firms, companies, government entities and other interested parties with analysis of complex economic issues for use in legal, regulatory and international arbitration proceedings, strategic decision making and public policy debates in the United States (“U.S.”) and around the world.

Our Technology segment provides e-discovery and information management consulting, software and services to its clients. It provides products, services and consulting to companies, law firms, courts and government agencies worldwide. Its comprehensive suite of software and services help clients locate, review and produce ESI, including e-mail, computer files, voicemail, instant messaging and financial and transactional data.

Our Strategic Communications segment provides advice and consulting services relating to financial and corporate communications and investor relations, reputation management and brand communications, public affairs, business consulting and digital design and marketing.

We derive substantially all of our revenues from providing professional services to both U.S. and global clients. Most of our services are rendered under time and expense arrangements that obligate the client to pay us a fee for the hours that we incur at agreed upon rates. Under this arrangement, we typically bill our clients for reimbursable expenses, which may include the cost of producing our work product and other direct expenses that we incur on behalf of the client, such as travel costs. We also render services for which certain clients may be

required to pay us a fixed-fee or recurring retainer. These arrangements are generally cancellable at any time. Some of our engagements contain performance-based arrangements in which we earn a success fee when and if certain predefined outcomes occur. This type of success fee may supplement a time-and-expense or fixed-fee arrangement. Success fee revenues may cause variations in our revenues and operating results due to the timing of achieving the performance-based criteria.

In our Technology segment, certain clients are billed based on the amount of data stored on our electronic systems, the volume of information processed and the number of users licensing our Ringtail^® software products for installation within their own environments. We license these products directly to end users as well as indirectly through our channel partner relationships. Unit-based revenue is defined as revenue billed on a per-item, per-page, or some other unit-based method and includes revenue from data processing and hosting, software usage and software licensing. Unit-based revenue includes revenue associated with our proprietary software that is made available to customers, either via a web browser (“on-demand”) or installed at our customer or partner locations (“on-premise”). On-demand revenue is charged on a unit or monthly basis and includes, but is not limited to, processing and review related functions. On-premise revenue is comprised of up-front license fees, with recurring support and maintenance.

Over the past several years the growth in our revenues has resulted from our ability to attract new and recurring engagements and from the acquisitions we have completed. Seasonal factors, such as the timing of our employees’ and clients’ vacations and holidays, impact the timing of our revenues.

Our financial results are primarily driven by:

•

the number, size and type of engagements we secure;

•

the rate per hour or fixed charges we charge our clients for services;

•

the utilization of the revenue-generating professionals we employ;

•

the number and experience mix of revenue-generating professionals;

•

fees from clients on a retained basis or other;

•

licensing of our software products and other technology services;

•

the types of assignments we are working on at different times;

•

the length of the billing and collection cycles; and

•

the geographic locations of our clients or locations in which services are rendered.

We define Adjusted EBITDA as net income before income tax provision, other income (expense), depreciation, amortization of intangible assets and special charges. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets and special charges. We define Total Adjusted Segment EBITDA as the total of Adjusted Segment EBITDA for all segments. We define Adjusted Net Income and Adjusted EPS as net income and earnings per diluted share, respectively, excluding the net impact of any special charges and any loss on early extinguishment of debt that were incurred in that period. Adjusted EBITDA, Adjusted Segment EBITDA, Total Adjusted Segment EBITDA, Adjusted EPS and Adjusted Net Income are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. These non-GAAP measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Condensed Consolidated Statements of Comprehensive Income. We believe that these measures can be useful for evaluating our results of operations as compared from period-to-period and as compared to our competitors. EBITDA is a common alternative measure of operating performance used by investors, financial analysts and rating agencies to value and compare the financial performance of companies in our industry.

We define acquisition revenue growth as the revenue of acquired companies in the first twelve months following the effective date of an acquisition. Our definition of organic revenue growth is the change in revenue excluding the impact of all such acquisitions.

EXECUTIVE HIGHLIGHTS


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(dollars in thousands, except per share amounts)				(dollars in thousands, except per share amounts)
Revenues	$	386,055	$	413,802	$	1,177,526	$	1,176,055
Special charges	$	2,775	$	—	$	29,557	$	15,212
Adjusted EBITDA	$	62,281	$	72,684	$	182,857	$	190,757
Net income	$	22,713	$	29,439	$	48,891	$	64,022
Earnings per common share—diluted	$	0.55	$	0.70	$	1.17	$	1.47
Adjusted EPS	$	0.60	$	0.70	$	1.62	$	1.68
Cash provided by operating activities	$	70,912	$	59,672	$	13,624	$	46,848
Total number of employees at September 30,		3,819		3,824		3,819		3,824

Third Quarter 2012 Executive Highlights

Revenues

Revenues for the quarter ended September 30, 2012 decreased $27.7 million, or 6.7%, to $386.1 million, compared to $413.8 million in the same prior year period. Revenue declined in our Forensic and Litigation Consulting segment due to a slowdown in regulatory cases. Revenues in our Technology segment were impacted by unit-based service price declines relative to our mix of clients. Additionally, revenue from our Strategic Communications segment declined with fewer M&A engagements and pricing pressure on portions of our retained business.

Special charges

We recorded a $2.8 million special charge in the three months ended September 30, 2012, which reduced our fully diluted earnings per share by $0.05. This charge relates to net curtailment costs related to three real estate leases in North America as we continue our efforts to make more efficient use of office space.

Adjusted EBITDA

Adjusted EBITDA decreased $10.4 million, or 14.3%, to $62.3 million, or 16.1% of revenues, compared to $72.7 million, or 17.6% of revenues, in the prior year period. Adjusted EBITDA decreased primarily as a result of underutilization in our Forensic and Litigation Consulting and Corporate Finance/Restructuring segments coupled with pricing pressures in our Technology segment. These impacts were partially offset by reduced unallocated corporate and regional infrastructure expense.

Net income

Net income decreased $6.7 million, or 22.8%, to $22.7 million, compared to $29.4 million in the prior year period. The decrease was primarily attributable to the decrease in revenues described above and the special charge recorded in the three months ended September 30, 2012 partially offset by reduced interest expense.

Earnings per common share and Adjusted EPS

Earnings per diluted share for the three months ended September 30, 2012 were $0.55, which included $2.8 million of special charges, compared to $0.70 in the prior year period. Adjusted earnings per diluted share, which exclude the impact of the special charge, were $0.60, compared to $0.70 in the prior year period due to the impact of the operating results described above.

Cash provided by operating activities

Cash provided by operating activities for the three months ended September 30, 2012 was $70.9 million compared to $59.7 million for the three months ended September 30, 2011. The increase was the result of lower income tax and employee loan payments and a reduction of overhead spending. Cash collections for the quarter were comparable to the prior year period; however, our collection experience continues to be affected by the mix of business largely related to the payment conditions of key matters, such as, receivables that are subject to court approval.

Headcount

Headcount of 3,819 at September 30, 2012 decreased slightly from the prior year, as the Company continues to manage growth against commercial demand on a segment by segment basis. Non-billable headcount decreased as Corporate infrastructure staff is realigned to support international expansion. Billable headcount increased in the Economic Consulting and Corporate Finance/Restructuring segments to support growing operations.

Other strategic activities

On June 6, 2012, our Board of Directors authorized a $250 million stock repurchase program (the “Repurchase Program”) to be executed over a two year period. During the three months ended September 30, 2012 we repurchased and retired 757,650 shares of our common stock for an average price per share of $26.40, with a value equivalent to approximately $20.0 million. At September 30, 2012, a balance of approximately $230 million remained available under the Repurchase Program.

CONSOLIDATED RESULTS OF OPERATIONS

Segment and Consolidated Operating Results:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands, except per share amounts)						(in thousands, except per share amounts)
Revenues
Corporate Finance/Restructuring	$	110,217		$	110,311		$	336,031		$	319,461
Forensic and Litigation Consulting		83,366			99,064			260,504			275,345
Economic Consulting		96,375			95,662			295,882			264,401
Technology		50,286			56,972			147,643			165,137
Strategic Communications		45,811			51,793			137,466			151,711

Revenues	$	386,055		$	413,802		$	1,177,526		$	1,176,055

Operating income
Corporate Finance/Restructuring	$	21,655		$	25,141		$	61,885		$	42,771
Forensic and Litigation Consulting		11,431			17,581			30,963			47,746
Economic Consulting		17,810			17,469			51,681			45,565
Technology		10,445			14,662			23,403			44,026
Strategic Communications		4,874			5,495			6,161			13,449

Segment operating income		66,215			80,348			174,093			193,557
Unallocated corporate expenses		(19,627	)		(20,926	)		(59,726	)		(56,314	)

Operating income		46,588			59,422			114,367			137,243

Other income (expense)
Interest income and other		1,584			486			4,503			5,409
Interest expense		(13,208	)		(14,319	)		(43,607	)		(44,129	)

		(11,624	)		(13,833	)		(39,104	)		(38,720	)

Income before income tax provision		34,964			45,589			75,263			98,523
Income tax provision		12,251			16,150			26,372			34,501

Net income	$	22,713		$	29,439		$	48,891		$	64,022

Earnings per common share—basic	$	0.56		$	0.73		$	1.21		$	1.54

Earnings per common share—diluted	$	0.55		$	0.70		$	1.17		$	1.47

Reconciliation of Net Income to Adjusted EBITDA:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)				(in thousands)
Net income	$	22,713	$	29,439	$	48,891	$	64,022
Add back:
Income tax provision		12,251		16,150		26,372		34,501
Other income (expense), net		11,624		13,833		39,104		38,720
Depreciation and amortization		7,152		7,419		22,160		21,507
Amortization of other intangible assets		5,766		5,843		16,773		16,795
Special charges		2,775		—		29,557		15,212

Adjusted EBITDA	$	62,281	$	72,684	$	182,857	$	190,757

Reconciliation of Net Income to Adjusted Net Income and Earnings Per Share to Adjusted Earnings Per Share


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Net income	$	22,713	$	29,439	$	48,891	$	64,022
Add back: Special charges, net of tax effect⁽¹⁾		1,794		—		19,115		9,285

Adjusted net income	$	24,507	$	29,439	$	68,006	$	73,307

Earnings per common share—diluted	$	0.55	$	0.70	$	1.17	$	1.47
Add back: Special charges, net of tax effect⁽¹⁾		0.05		—		0.45		0.21

Adjusted earnings per common share—diluted	$	0.60	$	0.70	$	1.62	$	1.68

Weighted average number of common shares outstanding—diluted		41,102		42,267		41,882		43,671

⁽¹⁾

The tax effect takes into account the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). As a result, the effective tax rates for the adjustments for both the three and nine months ended September 30, 2012 were 35.3% and 39% for the nine months ended September 30, 2011. The tax expense related to the adjustments for the three and nine months ended September 30, 2012 was $1.0 million or $0.02 impact on diluted earnings per share and $10.4 million or $0.25 impact on diluted earnings per share. The tax expense for the nine months ended September 30, 2011 was $5.9 million or $0.14 impact on diluted earnings per share.

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Revenues and operating income

See “Segment Results” for an expanded discussion of segment revenues and operating income.

Unallocated corporate expenses

Unallocated corporate expenses decreased $1.3 million, or 6.2%, to $19.6 million for the three months ended September 30, 2012, from $20.9 million for the three months ended September 30, 2011. Excluding the impact of unallocated corporate special charges of $1.0 million recorded in the three months ended September 30, 2012, unallocated corporate expenses decreased $2.3 million, or 11.1%. The decrease was due to lower marketing event spending in the current year and regional infrastructure investment in 2011, which did not occur during the three months ended September 30, 2012.

Interest income and other

Interest income and other, which includes foreign currency transaction gains and losses, increased by $1.1 million to $1.6 million for the three months ended September 30, 2012 from $0.5 million for the three months ended September 30, 2011. The increase is primarily due to net foreign currency transaction gains in the months ended September 30, 2012 as compared to net losses in the three months ended September 30, 2011. Transaction gains and losses, both realized and unrealized, occur as either payments are made or month end remeasurement occurs relative to the Company’s receivables and payables which have been or will be received or paid in a currency that is different from the entity’s functional currency.

Interest expense

Interest expense was $13.2 million for the three months ended September 30, 2012 as compared to $14.3 million for the three months ended September 30, 2011. Interest expense in 2012 was favorably impacted by the repayment, in full, of our outstanding Convertible Notes in July 2012.

Special charges

During the quarter ended September 30, 2012, we recorded a special charge of $2.8 million, of which $0.4 million was non-cash. The charge reflects actions we took to reduce excess real estate capacity, by consolidating leased office space in three office locations in the U.S.

The following table details the special charges by segment:


	Three Months Ended September 30,
	2012
Corporate Finance/Restructuring	$	820
Forensic and Litigation Consulting		419
Economic Consulting		173
Technology		148
Strategic Communications		201

		1,761
Unallocated Corporate		1,014

Total	$	2,775

We did not record any special charges in the three months ended September 30, 2011.

Income tax provision

Our provision for income taxes in interim periods is computed by applying our estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur or become known. The effective tax rate was 35.0% for the three months ended September 30, 2012 as compared to 35.4% for the three months ended September 30, 2011. For the three months ended September 30, 2012, the effective tax rate was favorably impacted by lower taxes on foreign earnings. For the three months ended September 30, 2011, the effective tax rate was favorably impacted by lower taxes on foreign earnings and a discrete item recorded in the quarter for a change in estimate related to the prior year tax provision.

Nine months ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Revenues and operating income

See “Segment Results” for an expanded discussion of segment revenues and operating income.

Unallocated corporate expenses

Unallocated corporate expenses increased $3.4 million, or 6.1%, to $59.7 million for the nine months ended September 30, 2012, from $56.3 million for the nine months ended September 30, 2011. Excluding the impact of unallocated corporate special charges of $1.1 million recorded in the nine months ended September 30, 2012 and $2.8 million recorded in the nine months ended September 30, 2011, unallocated corporate expenses increased $5.1 million, or 9.6% from the nine months ended September 30, 2011. The increase was due to a $3.4 million increase in global leadership costs, $1.1 million of strategic planning activities that took place in the three months ended March 31, 2012, $1.0 million of higher compensation and benefit costs and a $0.5 million decrease in allocations of certain system development and support costs. The increase was partially offset by $1.1 million of regional infrastructure investment in 2011, which did not occur during the nine months ended September 30, 2012.

Interest income and other

Interest income and other, which includes foreign currency transaction gains and losses, decreased by $0.9 million to $4.5 million for the nine months ended September 30, 2012 from $5.4 million for the nine months

ended September 30, 2011. The decrease is primarily due to reduced earnings of affiliates recognized in the nine months ended September 30, 2012. In addition, there was a positive impact on other non-operating income due to the write-off of certain liabilities related to unclaimed property, in the prior year period.

Interest expense

Interest expense was $43.6 million for the nine months ended September 30, 2012 as compared to $44.1 million for the nine months ended September 30, 2011. Interest expense in 2012 was favorably impacted by the repayment, in full, of our outstanding Convertible Notes in July 2012. This impact was offset by lower interest rates in 2011 due to an interest rate swap agreement which was entered into in March 2011 and terminated in December 2011.

Special charges

During the quarter ended June 30, 2011, we recorded special charges of $15.2 million. The charges reflect actions we took to reduce senior management overhead in connection with the realignment of certain senior management on a global basis and to align our workforce with expected market trends, primarily in our Corporate Finance/Restructuring segment.

During the quarter ended June 30, 2012, we recorded special charges totaling $26.8 million, of which $4.6 million was non-cash. The charges reflect actions we took to realign our workforce to address current business demands and global macro-economic conditions impacting our Forensic and Litigation Consulting, Strategic Communications and Technology segments and address certain targeted practices within our Corporate Finance/ Restructuring and Economic Consulting segments, and to reduce excess real estate capacity. These actions include the termination of 116 employees, the consolidation of leased office space within six office locations and certain other actions. The special charges consisted of:

•

$8.4 million of expense associated with lease costs related to the consolidation of leased office space in six office locations.

During the quarter ended September 30, 2012, we recorded special charges totaling $2.8 million, of which $0.4 million was non-cash. The charges reflect actions we took to reduce excess real estate capacity, including the consolidation of leased office space in three additional locations.

The following table details the special charges by segment and the decrease in total headcount:


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2012				2011
	Special Charges		Total Headcount		Special Charges		Total Headcount
Corporate Finance/Restructuring	$	11,936		6		9,440		22
Forensic and Litigation Consulting		7,672		41		839		7
Economic Consulting		991		8		2,093		6
Technology		3,114		42		—		—
Strategic Communications		4,712		15		—		—

		28,425		112		12,372		35
Unallocated Corporate		1,132		4		2,840		2

Total	$	29,557		116	$	15,212		37

Income tax provision

Our provision for income taxes in interim periods is computed by applying our estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur or become known. The effective tax rate was 35.0% for the nine months ended September 30, 2012 and 2011. For the nine months ended September 30, 2012, the effective tax rate was favorably impacted by lower taxes on foreign earnings and the benefit related to income from a reduction in the fair value of acquisition-related contingent consideration, which is not taxable. For the nine months ended September 30, 2011, the effective tax rate was favorably impacted by lower provisions for foreign income taxes and tax benefits recognized for discrete items primarily related to the reversal of previously recognized deferred tax liabilities which were no longer required.

SEGMENT RESULTS

Total Adjusted Segment EBITDA

The following table reconciles net income to Total Adjusted Segment EBITDA for the three and nine months ended September 30, 2012 and 2011.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)				(in thousands)
Net income	$	22,713	$	29,439	$	48,891	$	64,022
Add back:
Income tax provision		12,251		16,150		26,372		34,501
Other income (expense), net		11,624		13,833		39,104		38,720
Unallocated corporate expense		19,627		20,926		59,726		56,314

Segment operating income	$	66,215	$	80,348	$	174,093	$	193,557
Add back:
Segment depreciation expense		6,038		6,115		18,646		17,729
Amortization of other intangible assets		5,766		5,843		16,773		16,795
Special charges		1,761		—		28,425		12,372

Total Adjusted Segment EBITDA	$	79,780	$	92,306	$	237,937	$	240,453

Other Segment Operating Data


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Number of revenue-generating professionals (at period end):
Corporate Finance/Restructuring		751			711			751			711
Forensic and Litigation Consulting		809			872			809			872
Economic Consulting		467			424			467			424
Technology		283			284			283			284
Strategic Communications		597			590			597			590

Total revenue-generating professionals		2,907			2,881			2,907			2,881

Utilization rates of billable professionals:⁽¹⁾
Corporate Finance/Restructuring		70	%		75	%		73	%		70	%
Forensic and Litigation Consulting		62	%		69	%		67	%		69	%
Economic Consulting		79	%		85	%		82	%		86	%
Average billable rate per hour:⁽²⁾
Corporate Finance/Restructuring	$	391		$	406		$	397		$	422
Forensic and Litigation Consulting		345			331			333			331
Economic Consulting		495			487			493			486

⁽¹⁾

We calculate the utilization rate for our billable professionals by dividing the number of hours that all of our billable professionals worked on client assignments during a period by the total available working hours for all of our billable professionals during the same period. Available hours are determined by the standard hours worked by each employee, adjusted for part-time hours, local country standard work weeks and local country holidays. Available working hours include vacation and professional training days, but exclude holidays. Utilization rates are presented for our segments that primarily bill clients on an hourly basis. We have not presented a utilization rate for our Technology segment and Strategic Communications segment as most of the revenues of these segments are not generated on an hourly basis.

⁽²⁾

For engagements where revenues are based on number of hours worked by our billable professionals, average billable rate per hour is calculated by dividing revenues for a period by the number of hours worked on client assignments during the same period. We have not presented an average billable rate per hour for our Technology and Strategic Communications segments as most of the revenues of these segments are not based on billable hours.

CORPORATE FINANCE/RESTRUCTURING


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(dollars in thousands, except rate per hour)						(dollars in thousands, except rate per hour)
Revenues	$	110,217		$	110,311		$	336,031		$	319,461

Operating expenses:
Direct cost of revenues		69,343			65,862			208,205			206,730
Selling, general and administrative expenses		16,295			16,946			51,774			53,905
Special charges		820			—			11,936			9,440
Acquisition-related contingent consideration		355			855			(2,423	)		2,270
Amortization of other intangible assets		1,749			1,507			4,654			4,345

		88,562			85,170			274,146			276,690

Segment operating income		21,655			25,141			61,885			42,771
Add back:
Depreciation and amortization of intangible assets		2,554			2,354			7,182			6,962
Special charges		820			—			11,936			9,440

Adjusted Segment EBITDA	$	25,029		$	27,495		$	81,003		$	59,173

Gross profit⁽¹⁾	$	40,874		$	44,449		$	127,826		$	112,731
Gross profit margin⁽²⁾		37.1	%		40.3	%		38.0	%		35.3	%
Adjusted Segment EBITDA as a percent of revenues		22.7	%		24.9	%		24.1	%		18.5	%
Number of revenue generating professionals (at period end)		751			711			751			711
Utilization rates of billable professionals		70	%		75	%		73	%		70	%
Average realized billable rate per hour⁽³⁾	$	391		$	406		$	397		$	422

⁽¹⁾	Revenues less direct cost of revenues

⁽²⁾	Gross profit as a percent of revenues

⁽³⁾	Excludes impact of healthcare practice

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Revenues decreased $0.1 million, or 0.1%, to $110.2 million for the three months ended September 30, 2012 compared to $110.3 million for the three months ended September 30, 2011. Revenue was impacted by lower chargeable hours in our North America bankruptcy and restructuring and real estate consulting practices and pricing pressure in our UK restructuring practice, partially offset by higher success fees in our North America bankruptcy and restructuring practice and higher volume in our healthcare practice.

Gross profit decreased $3.6 million, or 8.0%, to $40.9 million for the three months ended September 30, 2012 compared to $44.4 million for the three months ended September 30, 2011. Gross profit margin decreased 3.2 percentage points to 37.1% for the three months ended September 30, 2012 compared to 40.3% for the three months ended September 30, 2011. The decrease in gross profit margin was impacted by lower utilization in both North America restructuring and real estate practices and increased fixed compensation costs largely in our European business.

SG&A expense decreased $0.6 million, or 3.8%, to $16.3 million for the three months ended September 30, 2012 compared to $16.9 million for the three months ended September 30, 2011. SG&A expense was 14.8% of revenue for the three months ended September 30, 2012, down from 15.4% for the three months ended September 30, 2011.

Amortization of other intangible assets increased to $1.7 million for the three months ended September 30, 2012 compared to $1.5 million for the three months ended September 30, 2011.

Adjusted segment EBITDA decreased $2.5 million, or 9.0%, to $25.0 million for the three months ended September 30, 2012 compared to $27.5 million for the three months ended September 30, 2011.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Revenues increased $16.6 million, or 5.2%, to $336.0 million for the nine months ended September 30, 2012 compared to $319.5 million for the nine months ended September 30, 2011. Acquisition-related revenue from LECG and Think First was $4.0 million, or 1.3% growth from the prior year. Revenue increased organically $12.6 million, or 3.9%, primarily due to greater demand for our bankruptcy and restructuring practice in North America and Europe, as well as higher revenues in our healthcare, transaction advisory and Asia practices, partially offset by lower average bill rates and volume for our real estate consulting practice.

Gross profit increased $15.1 million, or 13.4%, to $127.8 million for the nine months ended September 30, 2012 compared to $112.7 million for the nine months ended September 30, 2011. Gross profit margin increased 2.8 percentage points to 38.0% for the nine months ended September 30, 2012 compared to 35.3% for the nine months ended September 30, 2011 primarily due to higher staff utilization.

SG&A expense decreased $2.1 million, or 4.0%, to $51.8 million for the nine months ended September 30, 2012 compared to $53.9 million for the nine months ended September 30, 2011. SG&A expense was 15.4% of revenue for the nine months ended September 30, 2012, down from 16.9% for the nine months ended September 30, 2011. The decrease in SG&A expense was primarily due to lower personnel and non-billable travel and entertainment costs.

Amortization of other intangible assets increased to $4.7 million for the three months ended September 30, 2012 compared to $4.3 million the three months ended September 30, 2011.

Adjusted segment EBITDA increased $21.8 million, or 36.9%, to $81.0 million for the nine months ended September 30, 2012 compared to $59.2 million for the nine months ended September 30, 2011.

FORENSIC AND LITIGATION CONSULTING


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(dollars in thousands, except rate per hour)						(dollars in thousands, except rate per hour)
Revenues	$	83,366		$	99,064		$	260,504		$	275,345

Operating expenses:
Direct cost of revenues		54,658			63,249			168,803			173,738
Selling, general and administrative expenses		16,338			17,480			51,755			50,901
Special charges		419			—			7,672			839
Acquisition-related contingent consideration		48			89			(158	)		269
Amortization of other intangible assets		472			665			1,469			1,852

		71,935			81,483			229,541			227,599

Segment operating income		11,431			17,581			30,963			47,746
Add back:
Depreciation and amortization of intangible assets		1,361			1,532			4,281			4,431
Special charges		419			—			7,672			839

Adjusted Segment EBITDA	$	13,211		$	19,113		$	42,916		$	53,016

Gross profit⁽¹⁾	$	28,708		$	35,815		$	91,701		$	101,607
Gross profit margin⁽²⁾		34.4	%		36.2	%		35.2	%		36.9	%
Adjusted Segment EBITDA as a percent of revenues		15.8	%		19.3	%		16.5	%		19.3	%
Number of revenue generating professionals (at period end)		809			872			809			872
Utilization rates of billable professionals		62	%		69	%		67	%		69	%
Average realized billable rate per hour	$	345		$	331		$	333		$	331

⁽¹⁾	Revenues less direct cost of revenues

⁽²⁾	Gross profit as a percent of revenues

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Revenues decreased $15.7 million, or 15.8%, to $83.4 million for the three months ended September 30, 2012 from $99.1 million for the three months ended September 30, 2011. Revenue declined due to fewer chargeable hours in our North America and global financial and enterprise data analytics practices related to declines in significant regulatory matters compared to the prior year quarter, partially offset by strong growth in our global risk and investigations practice in the Latin America region.

Gross profit decreased $7.1 million, or 19.8%, to $28.7 million for the three months ended September 30, 2012 from $35.8 million for the three months ended September 30, 2011. Gross profit margin decreased 1.7 percentage points to 34.4% for the three months ended September 30, 2012 from 36.2% for the three months ended September 30, 2011. The decrease in gross profit related to lower utilization in our data analytics and North America practices, partially offset by lower personnel costs in our North America practice as a result of headcount reductions taken in the second quarter of 2012.

SG&A expense decreased $1.1 million, or 6.5 %, to $16.4 million for the three months ended September 30, 2012 from $17.5 million for the three months ended September 30, 2011. SG&A expense was 19.6% of revenue for the three months ended September 30, 2012, up from 17.6% for the three months ended September 30, 2011. The decrease in SG&A expense was due to lower personnel costs related to fewer non-billable personnel.

Amortization of other intangible assets decreased to $0.5 million for the three months ended September 30, 2012 from $0.7 million for the three months ended September 30, 2011.

Adjusted segment EBITDA decreased by $5.9 million, or 30.9%, to $13.2 million for the three months ended September 30, 2012 from $19.1 million for the three months ended September 30, 2011.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Revenues decreased $14.8 million, or 5.4%, to $260.5 million for the nine months ended September 30, 2012 from $275.3 million for the nine months ended September 30, 2011. Revenue from the practices acquired from LECG in the first quarter of 2011 was $4.7 million, or 1.7% of segment revenue growth, primarily driven by the disputes and forensic accounting and environmental solution practices in North America. Revenue declined organically $19.6 million, or 7.1%, primarily due to fewer consulting hours in our North America and data analytics practices, partially offset by growth in our global risk and investigations practice in the Latin America region.

Gross profit decreased $9.9 million, or 9.7%, to $91.7 million for the nine months ended September 30, 2012 from $101.6 million for the nine months ended September 30, 2011. Gross profit margin decreased 1.7 percentage points to 35.2% for the nine months ended September 30, 2012 from 36.9% for the nine months ended September 30, 2011. The decrease in gross profit margin was due to lower utilization, partially offset by lower personnel costs in our North America practice as a result of headcount reductions taken in the second quarter of 2012.

SG&A expense increased $0.9 million, or 1.7%, to $51.8 million for the nine months ended September 30, 2012 from $50.9 million for the nine months ended September 30, 2011. SG&A expense was 19.9% of revenue for the nine months ended September 30, 2012, up from 18.5% for the nine months ended September 30, 2011. The increase in SG&A expense was due to higher facility and bad debt expenses. Bad debt expense was 1.2% of revenues for the nine months ended September 30, 2012 up from 0.9% the nine months ended September 30, 2011.

Amortization of other intangible assets decreased to $1.5 million for the nine months ended September 30, 2012 from $1.9 million for the nine months ended September 30, 2011.

Adjusted segment EBITDA decreased by $10.1 million, or 19.1%, to $42.9 million for the nine months ended September 30, 2012 from $53.0 million for the nine months ended September 30, 2011.

ECONOMIC CONSULTING


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(dollars in thousands, except rate per hour)						(dollars in thousands, except rate per hour)
Revenues	$	96,375		$	95,662		$	295,882		$	264,401

Operating expenses:
Direct cost of revenues		65,993			64,770			202,905			180,826
Selling, general and administrative expenses		11,997			12,922			39,106			34,823
Special charges		173			—			991			2,093
Acquisition-related contingent consideration		—			—			—			—
Amortization of other intangible assets		402			501			1,199			1,094

		78,565			78,193			244,201			218,836

Segment operating income		17,810			17,469			51,681			45,565
Add back:
Depreciation and amortization of intangible assets		1,104			1,181			3,330			2,977
Special charges		173			—			991			2,093

Adjusted Segment EBITDA	$	19,087		$	18,650		$	56,002		$	50,635

Gross profit⁽¹⁾	$	30,382		$	30,892		$	92,977		$	83,575
Gross profit margin⁽²⁾		31.5	%		32.3	%		31.4	%		31.6	%
Adjusted Segment EBITDA as a percent of revenues		19.8	%		19.5	%		18.9	%		19.2	%
Number of revenue generating professionals (at period end)		467			424			467			424
Utilization rates of billable professionals		79	%		85	%		82	%		86	%
Average realized billable rate per hour	$	495		$	487		$	493		$	486

⁽¹⁾	Revenues less direct cost of revenues

⁽²⁾	Gross profit as a percent of revenues

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Revenues increased $0.7 million, or 0.7%, to $96.4 million for the three months ended September 30, 2012 from $95.7 million for the three months ended September 30, 2011. Revenue grew, due to increased demand for antitrust litigation, financial economics, international arbitration and regulatory consulting engagements in the North America and EMEA regions, partially offset by a slow M&A market and pricing pressures in our EMEA international arbitration and valuation practices.

Gross profit decreased $0.5 million, or 1.6%, to $30.4 million for the three months ended September 30, 2012 from $30.9 million for the three months ended September 30, 2011. Gross profit margin decreased 0.8 percentage points to 31.5% for the three months ended September 30, 2012 from 32.3% for the three months ended September 30, 2011. The decline in gross profit margin was attributed to lower utilization with increased headcount and higher variable compensation for key employees.

SG&A expense decreased $0.9 million, or 7.2%, to $12.0 million for the three months ended September 30, 2012 from $12.9 million for the three months ended September 30, 2011. SG&A expense was 12.4% of revenue for the three months ended September 30, 2012 compared to 13.5% for the three months ended September 30, 2011. The decrease in SG&A expense was due to lower bad debt and outside services partially offset by higher facilities costs and corporate allocations in support of growing operations. Bad debt expense was 1.3% of revenue for the three months ended September 30, 2012 compared to 2.1% of revenue for the three months ended September 30, 2011.

Amortization of other intangible assets was $0.4 million for the three months ended September 30, 2012, compared to $0.5 million for the three months ended September 30, 2011.

Adjusted segment EBITDA increased $0.4 million, or 2.3%, to $19.1 million for the three months ended September 30, 2012, compared to $18.7 million for the three months ended September 30, 2011.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Revenues increased $31.5 million, or 11.9%, to $295.9 million for the nine months ended September 30, 2012 compared to $264.4 million for the nine months ended September 30, 2011. Acquisition-related revenue from the competition policy, financial advisory, international arbitration and electric power and airline competition practices acquired from LECG late in the first quarter of 2011 was $17.6 million, or 6.7 %, of segment revenue growth from the prior year period. Revenue grew organically $13.9 million, or 5.2%, primarily due to increased demand in our antitrust litigation, financial economics, international arbitration and regulatory consulting engagements in the North America and EMEA regions, partially offset by a slow M&A market and pricing pressures in our EMEA international arbitration and valuation practices compared to the nine months ended September 30, 2011.

Gross profit increased $9.4 million, or 11.3%, to $93.0 million for the nine months ended September 30, 2012 compared to $83.6 million for the nine months ended September 30, 2011. Gross profit margin decreased 0.2 percentage points to 31.4% for the nine months ended September 30, 2012 from 31.6% for the nine months ended September 30, 2011. The decrease in gross profit margin was due to lower utilization with increased headcount and higher variable compensation for key employees.

SG&A expense increased $4.3 million, or 12.3%, to $39.1 million for the nine months ended September 30, 2012 compared to $34.8 million for the nine months ended September 30, 2011. SG&A expense was 13.2% of revenue for the nine months ended September 30, 2012 and was unchanged compared to the nine months ended September 30, 2011. The increase in SG&A expense was due to higher corporate allocations in support of growing operations, facilities and bad debt. Bad debt expense was 1.7% of revenue for the nine months ended September 30, 2012 and was unchanged compared to the nine months ended September 30, 2011.

Amortization of other intangible assets was $1.2 million for the nine months ended September 30, 2012, compared to $1.1 million for the nine months ended September 30, 2011.

Adjusted segment EBITDA increased $5.4 million, or 10.6%, to $56.0 million for the nine months ended September 30, 2012, compared to $50.6 million for the nine months ended September 30, 2011.

TECHNOLOGY


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(dollars in thousands, except rate per hour)						(dollars in thousands, except rate per hour)
Revenues	$	50,286		$	56,972		$	147,643		$	165,137

Operating expenses:
Direct cost of revenues		23,165			23,678			67,342			66,192
Selling, general and administrative expenses		14,544			16,657			47,824			48,990
Special charges		148			—			3,114			—
Acquisition-related contingent consideration		—			—			—			—
Amortization of other intangible assets		1,984			1,975			5,960			5,929

		39,841			42,310			124,240			121,111

Segment operating income		10,445			14,662			23,403			44,026
Add back:
Depreciation and amortization of intangible assets		5,082			4,957			15,222			14,336
Special charges		148			—			3,114			—

Adjusted Segment EBITDA	$	15,675		$	19,619		$	41,739		$	58,362

Gross profit⁽¹⁾	$	27,121		$	33,294		$	80,301		$	98,945
Gross profit margin⁽²⁾		53.9	%		58.4	%		54.4	%		59.9	%
Adjusted Segment EBITDA as a percent of revenues		31.2	%		34.4	%		28.3	%		35.3	%
Number of revenue generating professionals (at period end)⁽³⁾		283			284			283			284

⁽¹⁾	Revenues less direct cost of revenues

⁽²⁾	Gross profit as a percent of revenues

⁽³⁾	Includes personnel involved in direct client assistance and revenue generating consultants

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Revenues decreased by $6.7 million, or 11.7%, to $50.3 million for the three months ended September 30, 2012 from $57.0 million for the three months ended September 30, 2011. Revenue declined primarily due to lower pricing due to competitive factors for processing and hosting, as well as the decline of a few large investigative and litigation related matters.

Gross profit decreased by $6.2 million, or 18.5%, to $27.1 million for the three months ended September 30, 2012 from $33.3 million for the three months ended September 30, 2011. Gross profit margin decreased 4.5 percentage points to 53.9% for the three months ended September 30, 2012 from 58.4% for the three months ended September 30, 2011 due to the related pricing declines in our high margin services.

SG&A expense decreased by $2.1 million, or 12.7%, to $14.5 million for the three months ended September 30, 2012 from $16.7 million for the three months ended September 30, 2011. SG&A expense was 28.9% of revenue for the three months ended September 30, 2012, down from 29.2% for the three months ended September 30, 2011. The decrease in SG&A expense was due to lower personnel costs for fewer headcount, and lower research and development expense. Research and development expense for the three months ended September 30, 2012 was $4.2 million, compared to $5.1 million in the three months ended September 30, 2011.

Amortization of other intangible assets remained flat at $2.0 million for the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

Adjusted segment EBITDA decreased $3.9 million, or 20.1%, to $15.7 million for the three months ended September 30, 2012 from $19.6 million for the three months ended September 30, 2011.

Nine Months ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Revenues decreased by $17.5 million, or 10.6%, to $147.6 million for the nine months ended September 30, 2012 from $165.1 million for the nine months ended September 30, 2011. Revenue declined due to lower pricing for processing and hosting, lower licensing related to several settlements received in the prior year and lower volume for consulting.

Gross profit decreased by $18.6 million, or 18.8%, to $80.3 million for the nine months ended September 30, 2012 from $98.9 million for the nine months ended September 30, 2011. Gross profit margin decreased 5.5 percentage points to 54.4% for the nine months ended September 30, 2012 from 59.9% for the nine months ended September 30, 2011 due to the related revenue declines in our higher margin services.

SG&A expense decreased by $1.2 million, or 2.4%, to $47.8 million for the nine months ended September 30, 2012 from $49.0 million for the nine months ended September 30, 2011. SG&A expense was 32.4% of revenue for the nine months ended September 30, 2012, up from 29.7% for the nine months ended September 30, 2011. The decrease in SG&A expense was primarily due to lower legal costs, bad debt expense, and personnel costs for fewer headcount and lower variable costs, partially offset by higher facility expense. Bad debt recoveries were $0.2 million for the nine months ended September 30, 2012 compared to bad debt expense of $0.4 million for the nine months ended September 30, 2011. Research and development expense in the nine months ended September 2012 was $16.1 million, compared to $16.9 million in the nine months ended September 30, 2011.

Amortization of other intangible assets remained flat at $6.0 million for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.

Adjusted segment EBITDA decreased $16.6 million, or 28.5%, to $41.7 million for the nine months ended September 30, 2012 from $58.4 million for the nine months ended September 30, 2011.

STRATEGIC COMMUNICATIONS


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(dollars in thousands, except rate per hour)						(dollars in thousands, except rate per hour)
Revenues	$	45,811		$	51,793		$	137,466		$	151,711

Operating expenses:
Direct cost of revenues		28,452			32,415			88,197			96,415
Selling, general and administrative expenses		11,125			12,688			34,905			38,272
Special charges		201			—			4,712			—
Amortization of other intangible assets		1,159			1,195			3,491			3,575

		40,937			46,298			131,305			138,262

Segment operating income		4,874			5,495			6,161			13,449
Add back:
Depreciation and amortization of intangible assets		1,703			1,934			5,404			5,818
Special charges		201			—			4,712			—

Adjusted Segment EBITDA	$	6,778		$	7,429		$	16,277		$	19,267

Gross profit⁽¹⁾	$	17,359		$	19,378		$	49,269		$	55,296
Gross profit margin⁽²⁾		37.9	%		37.4	%		35.8	%		36.4	%
Adjusted Segment EBITDA as a percent of revenues		14.8	%		14.3	%		11.8	%		12.7	%
Number of revenue generating professionals (at period end)		597			590			597			590

⁽¹⁾	Revenues less direct cost of revenues

⁽²⁾	Gross profit as a percent of revenues

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Revenues decreased $6.0 million, or 11.6%, to $45.8 million for the three months ended September 30, 2012 from $51.8 million for the three months ended September 30, 2011 with a 2.3% decline from the estimated negative impact of foreign currency translation, which was primarily due to the weakening of the Euro and the British pound relative to the U.S. dollar. Excluding the impact of foreign currency translation, revenue declined $4.8 million, or 9.3%, due to fewer M&A and natural resource related projects in the Asia Pacific region, lower project income in the North America region and pricing pressures on retainer fees in the North America and EMEA regions.

Gross profit decreased $2.0 million, or 10.4%, to $17.4 million for the three months ended September 30, 2012 from $19.4 million for the three months ended September 30, 2011. Gross profit margin increased 0.5 percentage points to 37.9% for the three months ended September 30, 2012 from 37.4% for the three months ended September 30, 2011. The increase in gross profit margin was primarily due to lower variable compensation expenses compared to the same quarter in the prior year.

SG&A expense decreased $1.6 million, or 12.3%, to $11.1 million for the three months ended September 30, 2012 from $12.7 million for the three months ended September 30, 2011. SG&A expense was 24.3% of revenue for the three months ended September 30, 2012, down from 24.5% of revenue for the three months ended September 30, 2011. The decrease in SG&A expense was primarily related to lower personnel costs from reduced headcount.

Amortization of other intangible assets of $1.2 million was unchanged for the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

Adjusted segment EBITDA decreased $0.7 million, or 8.8%, to $6.8 million for the three months ended September 30, 2012 from $7.4 million for the three months ended September 30, 2011.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Revenues decreased $14.2 million, or 9.4%, to $137.5 million for the nine months ended September 30, 2012 from $151.7 million for the nine months ended September 30, 2011 with 2.1% decline from the estimated negative impact of foreign currency translation, which was primarily due to the weakening of the Euro, the British pound and the South African rand relative to the U.S. dollar. Excluding the impact of foreign currency translation, revenue declined $11.1 million, or 7.3%, due to fewer M&A-related projects in the Asia Pacific region, lower project income in the North America region and pricing pressures on retainer fees in the EMEA and North America regions.

Gross profit decreased $6.0 million, or 10.9%, to $49.3 million for the nine months ended September 30, 2012 from $55.3 million for the nine months ended September 30, 2011. Gross profit margin decreased 0.6 percentage points to 35.8% for the nine months ended September 30, 2012 from 36.4% for the nine months ended September 30, 2011. The decline in gross profit margin was primarily due to fewer high-margin project engagements partially offset by lower variable compensation expenses compared to prior year.

SG&A expense decreased $3.4 million, or 8.8%, to $34.9 million for the nine months ended September 30, 2012 from $38.3 million for the nine months ended September 30, 2011. SG&A expense was 25.4% of revenue for the nine months ended September 30, 2012, up from 25.2% of revenue for the nine months ended September 30, 2011. The decrease in SG&A expense was primarily related to lower personnel costs from reduced headcount.

Amortization of other intangible assets decreased to $3.5 million for the nine months ended September 30, 2012 from $3.6 million for the nine months ended September 30, 2011.

Adjusted segment EBITDA decreased $3.0 million, or 15.5%, to $16.3 million for the nine months ended September 30, 2012 from $19.3 million for the nine months ended September 30, 2011.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the US. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011 describes the significant accounting policies and methods used in preparation of the Consolidated Financial Statements. We evaluate our estimates, including those related to bad debts, goodwill, income taxes and contingencies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies that reflect our more significant estimates, judgments and assumptions and for which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

•

Revenue Recognition

•

Allowance for Doubtful Accounts and Unbilled Services

•

Goodwill and Other Intangible Assets

•

Business Combinations

•

Share-Based Compensation

•

Income Taxes

There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies,” as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on February 24, 2012.

Goodwill and Other Intangible Assets

We test our goodwill and other indefinite-lived intangible assets for impairment annually as of the first day of the fourth quarter or whenever events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset may not be recoverable. We performed our annual impairment test as of October 1, 2011, and concluded that there was no impairment based on procedures performed and the estimates and assumptions used.

We also consider factors that could trigger an interim impairment review, including, but not limited to, the following: significant underperformance relative to historical or projected future operating results; a significant change in the manner of our use of the acquired asset or strategy for our overall business; a significant negative industry or economic trend; and our market capitalization relative to net book value. Through our assessment, we determined that there were no events or circumstances that more likely than not would reduce the fair value of any of our reporting units below their carrying value. Accordingly, we did not perform an interim impairment test in any of the quarters in the nine-months ended September 30, 2012.

There can be no assurance, however, that the estimates and assumptions used in our goodwill impairment testing will prove to be accurate predictions of the future. Our next evaluation of goodwill by reporting unit will be performed during the three months ended December 31, 2012. If our assumptions regarding forecasted cash flows are not achieved, we may be required to perform the two-step quantitative goodwill impairment analysis. In addition, if the aforementioned factors have the effect of changing one of the critical assumptions or estimates we use to calculate the value of our goodwill or intangible assets, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment test or if a triggering event occurs outside of the quarter during which the annual goodwill impairment test is performed. It is not possible at this time to determine if any future impairment charge would result or, if it does, whether such charge would be material.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows


	Nine Months Ended September 30,
	2012			2011
	(dollars in thousands)
Net cash provided by operating activities	$	13,624		$	46,848
Net cash used in investing activities	$	(48,092	)		(87,068	)
Net cash used in financing activities	$	(102,959	)		(215,373	)

We have generally financed our day-to-day operations, capital expenditures and acquisition-related contingent payments through cash flows from operations. During the first quarter of our fiscal year, our cash needs generally exceed our cash flows from operations due to the payments of annual incentive compensation and acquisition-related contingent payment amounts. Our operating cash flows generally exceed our cash needs subsequent to the first quarter of each year.

Our operating assets and liabilities consist primarily of billed and unbilled accounts receivable, notes receivable from employees, accounts payable, accrued expenses and accrued compensation expense. The timing of billings and collections of receivables as well as payments for compensation arrangements affect the changes in these balances.

Net cash provided by operating activities decreased by $33.2 million to $13.6 million for the nine months ended September 30, 2012 from $46.8 million for the nine months ended September 30, 2011. The decrease in net cash provided by operating activities was primarily due to higher compensation and other operating expenses and the funding of forgivable loans, partially offset by higher cash collections in the nine months ended September 30, 2012 relative to the same prior year period.

Net cash used in investing activities for the nine months ended September 30, 2012 was $48.1 million as compared to $87.1 million for the nine months ended September 30, 2011. The prior year included $25.7 million of payments related to the acquisition of practices from LECG and $3.8 million of purchase price adjustments related to prior year acquisitions. Payments related to acquisition-related contingent consideration were $24.5 million for the nine months ended September 30, 2012 as compared to $32.8 million for the nine months ended September 30, 2011. Capital expenditures were $20.5 million for the nine months ended September 30, 2012 as compared to $24.6 million for the nine months ended September 30, 2011.

Net cash used in financing activities for the nine months ended September 30, 2012 was $103.0 million as compared to $215.4 million for the nine months ended September 30, 2011. Our financing activities for the nine months ended September 30, 2012 included the repayment of $156.5 million of long-term debt and capital lease obligations, including $149.9 million of Convertible Notes. The repayment was made using cash on hand and the proceeds of a $75.0 million borrowing under our senior secured bank credit facility. In addition, our financing activities for the nine months ended September 30, 2012 included $20.0 million in cash used to repurchase and retire 757,650 shares of the Company’s common stock. Our financing activities for the nine months ended September 30, 2011 included $209.4 million in cash used to repurchase and retire 5,733,205 shares of the Company’s common stock.

Capital Resources

As of September 30, 2012, our capital resources included $126.9 million of cash and cash equivalents and available borrowing capacity of $173.6 million under a $250 million revolving line of credit under our senior secured bank credit facility (“bank credit facility”). As of September 30, 2012, we had $75.0 million outstanding under our bank credit facility and $1.4 million of outstanding letters of credit which reduced the availability of borrowings under the bank credit facility. We use letters of credit primarily in lieu of security deposits for our leased office facilities.

Future Capital Needs

We anticipate that our future capital needs will principally consist of funds required for:

•

operating and general corporate expenses relating to the operation of our businesses;

•

capital expenditures, primarily for information technology equipment, office furniture and leasehold improvements;

•

debt service requirements, including interest payments on our long-term debt;

•

compensating designated executive management and senior managing directors under our various long-term incentive compensation programs;

•

discretionary funding of our Repurchase Program;

•

contingent obligations related to our acquisitions;

•

potential acquisitions of businesses that would allow us to diversify or expand our service offerings; and

•

other known future contractual obligations.

We currently anticipate aggregate capital expenditures will range between $25 million to $31 million to support our organization during 2012, including direct support for specific client engagements. Our estimate takes into consideration the needs of our existing businesses but does not include the impact of any purchases that we make as a result of future acquisitions or specific client engagements that are not currently contemplated. Our capital expenditure requirements may change if our staffing levels or technology needs change significantly from what we currently anticipate, if we purchase additional equipment specifically to support a client engagement or if we pursue and complete additional acquisitions.

In certain business combinations consummated prior to January 1, 2009, a portion of our purchase price was in the form of contingent consideration, often referred to as earn-outs. The use of contingent consideration allows us to shift some of the valuation risk, inherent at the time of acquisition, to the sellers based upon the outcome of future financial targets that the sellers contemplate in the valuations of the companies, assets or businesses they sell. Contingent consideration is payable annually as agreed upon performance targets are met and is generally subject to a maximum amount within a specified time period. Our obligations change from period-to-period primarily as a result of payments made during the current period, changes in the acquired entities’ performance and changes in foreign currency exchange rates. In addition, certain acquisition-related restricted stock agreements 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 the stock restrictions lapse. As of September 30, 2012, we had no accrued contingent consideration liabilities for business combinations consummated prior to January 1, 2009.

For business combinations consummated on or after January 1, 2009, contingent consideration obligations are recorded as liabilities on our condensed consolidated balance sheet and re-measured to fair value at each subsequent reporting date with an offset to current period earnings. Contingent purchase price obligations for these business combinations are $9.9 million at September 30, 2012.

For the last several years, our cash flows from operations have exceeded our cash needs for capital expenditures and debt service requirements. We believe that our cash flows from operations, supplemented by short-term borrowings under our bank credit facility, as necessary, will provide adequate cash to fund our long-term cash needs from normal operations.

Our conclusion that we will be able to fund our cash requirements by using existing capital resources and cash generated from operations does not take into account the impact of any future acquisition transactions or any unexpected significant changes in the number of employees. The anticipated cash needs of our businesses could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if economic conditions change from those currently prevailing or from those now anticipated, or if other unexpected circumstances arise that have a material effect on the cash flow or profitability of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to raise additional debt or equity funding to meet those needs. Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:

•

our future profitability;

•

the quality of our accounts receivable;

•

our relative levels of debt and equity;

•

the volatility and overall condition of the capital markets; and

•

the market prices of our securities.

Any new debt funding, if available, may be on terms less favorable to us than our bank credit facility or the indentures that govern our senior notes. See “Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Risk Factors” included in Part I – Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on February 24, 2012.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements other than operating leases and we have not entered into any transactions involving unconsolidated subsidiaries or special purpose entities.

Future Contractual Obligations

There have been no significant changes in our future contractual obligations since December 31, 2011.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance, future capital expenditures, expectations, plans or intentions relating to acquisitions and other matters, business trends and other information that is not historical. Forward-looking statements often contain words such as estimate, expects, anticipates, projects, plans, intends, believes, forecasts and variations of such words or similar expressions. All forward-looking statements, including, without limitation, management’s examination of historical operating trends, are based upon our historical performance and our current plans, estimates and expectations at the time we make them and various assumptions. There can be no assurance that management’s expectations, beliefs and projections will result or be achieved. Our actual financial results, performance or achievements could differ materially from those expressed in, or implied by, any forward-looking statements. The inclusion of any forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Given these risks, uncertainties and other factors, you should not place undue reliance on any forward-looking statements.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in, or implied by, this Quarterly Report on Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q are set forth under the heading “Risk Factors” included in Part I– Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on February 24, 2012. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q include the following:

•

changes in demand for our services;

•

our ability to attract and retain qualified professionals and senior management;

•

conflicts resulting in our inability to represent certain clients;

•

our former employees joining or forming competing businesses;

•

our ability to manage our professionals’ utilization and billing rates and maintain or increase the pricing of our services and products;

•

our ability to make acquisitions and integrate the operations of acquisitions as well as the costs of integration;

•

our ability to adapt to and manage the risks associated with operating in non-U.S. markets;

•

our ability to replace key personnel, including senior managers and regional and practice leaders who have highly specialized skills and experience;

•

our ability to identify suitable acquisition candidates, negotiate favorable terms and take advantage of opportunistic acquisition situations;

•

our ability to protect the confidentiality of internal and client data and proprietary information;

•

legislation or judicial rulings, including rulings regarding data privacy and the discovery process;

•

periodic fluctuations in revenues, operating income and cash flows;

•

damage to our reputation as a result of claims involving the quality of our services;

•

fee discounting or renegotiation, lower pricing, less advantageous contract terms and unexpected terminations of client engagements;

•

competition;

•

general economic factors, industry trends, restructuring and bankruptcy rates, legal or regulatory requirements, capital market conditions, merger and acquisition activity, major litigation activity and other events outside of our control;

•

our ability to manage growth;

•

risk of non-payment of receivables;

•

the amount and terms of our outstanding indebtedness;

•

changes in accounting principles;

•

risks relating to the obsolescence of, changes to, or the protection of, our proprietary software products and intellectual property rights; and

•

fluctuations in the mix of our services and the geographic locations in which our clients are located or services are rendered.

There may be other factors that may cause our actual results to differ materially from our forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included herein. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances and do not intend to do so.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risks see “Item 7A Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on February 24, 2012. There have been no significant changes in our market risk exposure since December 31, 2011, except as noted below.

Equity Price Sensitivity

Certain acquisition-related restricted stock agreements 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 the applicable stock restrictions lapse (“the determination date”). The future settlement of any contingency related to our

common stock price would require a cash outflow. There are no determination dates remaining in 2012. The following table details by year the cash outflows that would result from the remaining stock price guarantee payments if, on the applicable determination dates, our common stock price was at $26.68 per share (our closing share price on September 28, 2012, the last trading day of September 2012), 20% above or 20% below that price.


	Remainder of 2012		2013		Total
			(in thousands)
Cash outflow, assuming:
Closing share price of $26.68 at September 28, 2012	$	—	$	6,265	$	6,265
20% increase in share price	$	—	$	5,370	$	5,370
20% decrease in share price	$	—	$	7,159	$	7,159

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) included, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with any certainty and in the case of more complex legal proceedings such as intellectual property and securities litigation, the results are difficult to predict at all. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of our operations.

Item 1A.

Risk Factors

There have been no material changes in any risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2012. We may disclose changes to risk factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered sales of equity securities.

None

Repurchases of our common stock. The following table provides information with respect to purchases we made of our common stock during the third quarter ended September 30, 2012 (in thousands, except per share amounts).


	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Approximate Dollar Value that May Yet Be Purchased Under the Program
July 1 through July 31, 2012		4	⁽¹⁾	$	26.16		—	$	250,000
August 1 through August 31, 2012		408	⁽²⁾⁽⁴⁾	$	24.83		404	$	239,994	⁽⁴⁾
September 1 through September 30, 2012		358	⁽³⁾⁽⁴⁾	$	28.31		354	$	229,987	⁽⁴⁾

Total		770					758

⁽¹⁾	Represents 3,715 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock.

⁽²⁾	Represents 404,176 shares of common stock repurchased pursuant to our stock repurchase program announced in June 2012 and 3,994 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock.

⁽³⁾	Represents 353,474 shares of common stock repurchased pursuant to our stock repurchase program announced in June 2012 and 4,021 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock.

⁽⁴⁾	In June 2012, our Board of Directors authorized a two-year stock repurchase program of up to $250.0 million (the “Repurchase Program”). As of September 30, 2012, a balance of approximately $230 million remains available under the program to fund stock repurchases by the Company.

Item 3.

Defaults Upon Senior Securities.

None

Item 4.

Mine Safety Disclosures.

Not applicable

Item 5.

Other Information.

None

Item 6.

Exhibits

(a) Exhibits.


Exhibit Number		Exhibit Description

3.1		Articles of Incorporation of FTI Consulting, Inc., as amended and restated. (Filed with the SEC on May 23, 2003 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated May 21, 2003 and incorporated herein by reference.)

3.2		Articles of Amendment of FTI Consulting, Inc. (Filed with the SEC on June 2, 2011 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated June 1, 2011 and incorporated herein by reference.)

3.3		Bylaws of FTI Consulting, Inc., as amended and restated on June 1, 2011. (Filed with the SEC on June 2, 2011 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated June 1, 2011 and incorporated herein by reference.)

4.1		Tenth Supplemental Indenture relating to the 3³/₄% Senior Subordinated Convertible Notes due July 15, 2012, dated as of July 10, 2012, by and among FTI Consulting, Inc., the other guarantors named therein, Sports Analytics LLC, a Maryland limited liability company, and Wilmington Trust Company, as trustee.

4.2		Sixth Supplemental Indenture relating to the 7³/₄% Senior Notes due 2016, dated as of July 10, 2012, by and among FTI Consulting, Inc., the other Guarantors, Sports Analytics LLC, a Maryland limited liability company, and Wilmington Trust Company, as trustee.

4.3		First Supplemental Indenture relating to the 6³/₄% Senior Notes due 2020, dated as of July 10, 2012, by and among FTI Consulting, Inc., the other Guarantors, Sports Analytics LLC, a Maryland limited liability company, and Wilmington Trust Company, as trustee.

31.1†		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended (Section 302 of the Sarbanes-Oxley Act of 2002).

31.2†		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended (Section 302 of the Sarbanes-Oxley Act of 2002).

32.1†		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

32.2†		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

101		The following financial information from the Quarterly Report on Form 10-Q of FTI Consulting, Inc. for the quarter ended September 30, 2012, furnished electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Statement of Stockholders’ Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to the Condensed Consolidated Financial Statements.

†	Filed herewith.

SIGNATURES

Pursuant to the requirements 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.

Date: November 8, 2012


FTI CONSULTING, INC.

By		/s/ Catherine M. Freeman
		Catherine M. Freeman
		Senior Vice President, Controller and Chief Accounting Officer
		(principal accounting officer)