Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2011

Goodwill and Intangible Assets

Goodwill and Intangible Assets

12.      Goodwill and Intangible Assets

Refer to Note 1 within the footnotes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for a detailed discussion of the accounting policy related to goodwill and intangible assets.

Goodwill

The Company has designated its annual goodwill impairment testing dates for its MBS/ABS & Rates, Equities and Investment Banking reporting units to be December 31, October 1, and June 1, respectively.  The fair value of the MBS/ABS & Rates reporting unit exceeded its carrying amount as of the last impairment test date.

On August 22, 2011, the Company announced that it was implementing a new strategic plan, which included the realignment of its core investment banking practice and the termination of 32 investment banking employees as well as certain administrative positions.  As a result of the realignment of the business and associated employee terminations, the Company performed an interim goodwill impairment test related to the Investment Banking reporting unit.

In addition, during the three months ended June 30, 2011, the Company performed an interim goodwill impairment test related to the Equities reporting unit as a result of the impact of the current market environment on the segment’s net revenues coupled with the higher operating costs associated with the expansion of our equities trading and sales trading capabilities announced in the third quarter of 2010.  These factors resulted in a shortfall of actual revenues and operating results in relation to current year projections.

The following table sets forth the rollforward of goodwill for the MBS/ABS & Rates, Equities and Investment Banking reporting units at December 31, 2010 and September 30, 2011.

(In thousands of dollars)	Reporting Unit MBS/ABS & Rates		Reporting Unit Equities			Reporting Unit Investment Banking			Total
Goodwill
Balance at December 31, 2010	$	17,364	$	8,928		$	79,402		$	105,694
Impairment of goodwill	—		(8,928		)	(75,670		)	(84,598		)
Balance at September 30, 2011	$	17,364	$	—		$	3,732		$	21,096

The Company considered a combination of the market and income approaches to determine the fair value of its reporting units.  Key assumptions utilized in the market approach included the use of multiples of earnings before interest and taxes and earnings before interest, taxes, depreciation and amortization based upon available comparable company market data.  The income approach, which is a discounted cash flow analysis, utilized a discount rate which included an estimated cost of debt and cost of equity and capital structure.  The outcome of these interim goodwill impairment tests, which relies on significant unobservable inputs to determine the goodwill’s fair value, resulted in approximately $75.7 million of the goodwill allocated to the Investment Banking reporting unit and all of the goodwill of the Equities reporting unit (classified as part of discontinued operations) being written off during the nine months ended September 30, 2011.

During the nine months ended September 30, 2011, there was no contingent consideration associated with the Company’s AmTech acquisition as a result of the performance of the division.  Refer to Note 17 herein for additional information.

Intangible Assets

(In thousands of dollars)	September 30, 2011			December 31, 2010
Intangible assets (amortizable):
Descap Securities, Inc. — Customer relationships
Gross carrying amount	$	641		$	641
Accumulated amortization	(396		)	(356		)
Net carrying amount	245			285
Corporate Credit - Customer relationships
Gross carrying amount	795			795
Accumulated amortization	(571		)	(451		)
Net carrying amount	224			344
Equities - Customer relationships
Gross carrying amount	6,960			6,960
Accumulated amortization — May 31, 2011	(1,614		)	(1,362		)
Impairment of intangible asset — June 1, 2011	(5,346		)	—
Net carrying amount	—			5,598
Equities - Covenant not to compete
Gross carrying amount	330			330
Accumulated amortization — May 31, 2011	(293		)	(247		)
Impairment of intangible asset — June 1, 2011	(37		)	—
Net carrying amount	—			83
Investment Banking — Trade name
Gross carrying amount	7,300			7,300
Accumulated amortization	(828		)	(573		)
Impairment of intangible asset — September 1, 2011	(3,234		)	—
Net carrying amount	3,238			6,727
Investment Banking — Covenant not to compete
Gross carrying amount	700			700
Accumulated amortization	(522		)	(366		)
Impairment of intangible asset — September 1, 2011	(178		)	—
Net carrying amount	—			334
Investment Banking — Customer relationships
Gross carrying amount	6,500			6,500
Accumulated amortization	(5,338		)	(4,306		)
Impairment of intangible asset — September 1, 2011	(1,162		)	—
Net carrying amount	—			2,194
ClearPoint — Customer relationships
Gross carrying amount	803			—
Accumulated amortization	(75		)	—
Net carrying amount	728			—
Total Intangible assets	$	4,435		$	15,565

In connection with the interim goodwill impairment tests related to the Investment Banking and Equities reporting units, the Company evaluated the recoverability of the intangible assets allocated to these reporting units, by comparing the sum of the undiscounted cash flows expected to result from the use and eventual disposition of such assets to their carrying amounts.   These outcomes resulted in the write-off of approximately $4.6 million of the intangible assets allocated to the Investment Banking reporting unit during the three months ended September 30, 2011 and all of the intangible assets allocated to the Equities reporting unit (classified as part of discontinued operations) during the three months ended June 30, 2011.

Customer-related intangible assets are being amortized from 3 to 12 years and trademark assets are being amortized over 20 years (with approximately 18 years remaining).   Excluding the impairment related to the intangible assets allocated to the Investment Banking and Equities reporting units discussed above, total amortization expense recorded within Other in the Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010 was approximately $0.4 million and $0.7 million, respectively, and for the nine months ended September 30, 2011 and 2010 was approximately $1.7 million and $2.4 million, respectively.

Future amortization expense as of September 30, 2011 is estimated as follows:

(In thousands of dollars)
2011 (remaining)	$	124
2012	496
2013	363
2014	337
2015	337
2016	301
Thereafter	2,477
Total	$	4,435