Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets [Abstract]

Goodwill and Intangible Assets

5. Goodwill and Intangible Assets

The table below sets forth the changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2012.

	Health and Education Consulting			Legal Consulting		Financial Consulting			Total
Balance as of December 31, 2011:
Goodwill	$	450,828		$	33,180	$	158,077		$	642,085
Accumulated impairment		—			—		(129,900	)		(129,900	)
Goodwill, net as of December 31, 2011		450,828			33,180		28,177			512,185
Goodwill recorded in connection with business combinations		(364	)		19,312		—			18,948
Foreign currency translation		—			422		—			422
Goodwill reallocation		(1,000	)		—		1,000			—
Impairment charge		—			—		(13,083	)		(13,083	)
Goodwill, net as of September 30, 2012	$	449,464		$	52,914	$	16,094		$	518,472

In the second quarter of 2012, our Financial Consulting segment leadership undertook several initiatives intended to improve the segment’s financial performance. While the segment’s third quarter financial results improved over the second quarter results, the progress of the financial, operational, and business development improvements was not in line with our expectations. We now believe the likely time frame to improve the segment’s performance will be longer than originally anticipated. Therefore, we concluded that the carrying value of the segment likely exceeds its fair value and, in connection with the preparation of our financial statements for the quarter ended September 30, 2012, we performed an interim impairment test.

Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is to identify potential impairment by comparing the fair value of a reporting unit with its net book value (or carrying amount), including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

Based on the result of the first step of the goodwill impairment analysis, we determined that the fair value of our Financial Consulting segment was less than its carrying value as of September 30, 2012 and, as such, we applied the second step of the goodwill impairment test to this segment. Based on the result of this second step of the goodwill impairment analysis, we recorded a $13.1 million non-cash pretax charge to reduce the carrying value of goodwill in our Financial Consulting segment. As a result of the charge recognized during the third quarter, the carrying amount of our total goodwill was reduced to $518.5 million at September 30, 2012.

During the first nine months of 2012, the Company completed two acquisitions within the Legal Consulting segment; Ascertus Ltd., a London-based source of software solutions and professional services for corporate legal departments and law firms, and AdamsGrayson, a managed review and legal staffing firm based in Washington, D.C. The aggregate purchase price of the two acquisitions totaled $32.0 million. In accordance with FASB ASC Topic 805, “Business Combinations”, we recorded $8.6 million of intangible assets and $19.3 million of goodwill related to these two acquisitions.

From time to time, we reorganize our internal organizational structure to better align our service offerings. During the first quarter of 2012, we moved our healthcare valuation consulting practice from our Health and Education Consulting segment to our Financial Consulting segment. As a result, $1.0 million of related goodwill was also reallocated between these segments using a relative fair value approach.

Intangible assets as of September 30, 2012 and December 31, 2011 consisted of the following:

	September 30, 2012				December 31, 2011
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	24,856	$	9,353	$	17,367	$	6,950
Non-competition agreements		7,256		5,425		6,693		4,442
Trade names		120		4		247		192
Technology and software		4,149		1,654		11,949		7,805
Document reviewer database		450		45		—		—
Total	$	36,831	$	16,481	$	36,256	$	19,389

Identifiable intangible assets with finite lives are amortized over their estimated useful lives. Customer contracts are amortized on a straight-line basis over relatively short lives due to the short-term nature of the services provided under these contracts. The majority of customer relationships are amortized on an accelerated basis to correspond to the cash flows expected to be derived from the relationships. All other customer relationships, non-competition agreements, trade names, technology and software, and the document reviewer database are amortized on a straight-line basis.

Intangible assets amortization expense was $1.9 million and $5.1 million for the three and nine months ended September 30, 2012, respectively. Intangible assets amortization expense was $2.0 million and $6.3 million for the three and nine months ended September 30, 2011, respectively. Estimated annual intangible assets amortization expense is $7.0 million for 2012, $5.6 million for 2013, $4.4 million for 2014, $3.0 million for 2015, $1.8 million for 2016 and $1.2 million for 2017. Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions and other factors.