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Revision to Financial Statements | 12 Months Ended
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Dec. 31, 2011
Revision to Financial Statements[Abstract] |
Revision to financial statements | 2. Revision to financial statements During the year ended December 31, 2011, the Company identified historical errors relating to its tax treatment of deferred compensation obligations assumed as part of the 2003 acquisition of the Private Client Division from Canadian Imperial Bank of Commerce (“CIBC”) that affected prior periods. As a result, the Company has determined the need to reestablish book basis of goodwill related to the 2003 transaction in the amount of $5.4 million. Further analysis revealed uncertain tax positions, that were inadvertently taken as a result of the errors, leading to the establishment of a reserve in the amount of $3 million, including accrued interest, as well as cumulative adjustments primarily related to current and deferred tax items of $2.8 million for periods prior to 2009. The Company assessed the impact of the errors, including the impact of previously disclosed out-of-period adjustments, on its prior period financial statements included in the December 31, 2010 Form 10-K and concluded that these errors were not material, individually or in the aggregate, to any of those financial statements. Although the effect of these errors was not material to any previously issued financial statements, the cumulative effect of correcting these historical errors in the current year would have been material for the fiscal year 2011. As part of this revision process, the Company also reversed other previously disclosed out-of-period adjustments (see below for more details), which were immaterial, and recorded them instead in the periods in which the errors originated. These revisions have no net impact on the Company’s net cash amounts provided by (used in) operating, financing or investing activities for the any of the periods previously reported, nor in the current period. The cumulative effect of the above adjustments resulted in an $8.2 million credit to opening retained earnings as of January 1, 2009. The financial statements as of December 31, 2010 and December 31, 2009, included herein, have been prepared in light of the cumulative revisions above. The financial statements for all other periods affected by the revisions can continue to be relied upon, and will be revised to reflect the revisions discussed above, the next time such financial statements are included in future reports for comparative purposes. As previously disclosed, the Company identified certain over-accruals in compensation and related expenses related to prior periods which the Company adjusted during the three month period ended March 31, 2010. These previously recorded out-of-period adjustments, which were not material to any prior period, resulted in an increase to compensation and related expenses of $3.7 million for the year ended December 31, 2010. The over-accruals occurred in the Global High Yield (“GHY”) loan sales and trading business and were the result of duplicate production related compensation expenses being accrued. In addition, the Company had other out-of-period adjustments in 2010 that offset the over-accrual of GHY compensation totaling $1.1 million that were also corrected in the three month period ended March 31, 2010. Most notably was the reversal of a legal accrual of $1 million related to the settlement of an Auction Rate Securities (“ARS”) case and the recognition of a fair value adjustment of $1.1 million related to ARS as a result of this legal settlement (net effect of $67,000). The remaining out-of-period adjustments, individually of lesser amounts, in the aggregate were approximately $1 million. The Company considered all of the above out-of-period adjustments both individually and in the aggregate in light of several quantitative and qualitative factors that mitigate the large percentage impact on pre-tax income when assessing impact to the overall financial statements. The out-of-period adjustments of $3.7 million related to the GHY business did not result in any over payments to employees or members of management. And compensation payments made in April 2010 were substantially equal to and offsetting the amount referred to above. The magnitude of the out-of-period adjustments were exacerbated by the low profitability of the Company in 2009 and 2010. The adjustments did not impact the trend of earnings from the net loss in 2008 to the net income reported in 2009 and 2010 nor did they cause income (loss) to result in loss (income) for any of the periods in question. The adjustments for each period would have improved results incrementally and did not change significantly the magnitude of the variances period-over-period. While this reduced level of earnings in 2009 and 2010 resulted in the net over accrual being quantitatively large on pre-tax earnings, the Company assessed the impact on return on assets, return on equity, total revenues, total expenses, compensation expense, compensation as a percentage of revenue ratio, shareholders’ equity, book value per share, and the capital markets business segment’s total revenues and profitability in determining the materiality of the adjustments to the financial statements taken as a whole and concluded that the adjustments were not material in the context of the overall financial statements. The Company also considered factors such as there was no negative impact on regulatory or debt covenant calculations as a result of these items. As a result, the Company concluded that the impact of the adjustments was not material, individually or in the aggregate, to the 2009 or 2010 consolidated financial statements. As indicated above, the previously recorded out-of-period adjustments have now been reversed and recorded in the proper period as part of the revision process. The impact of the above adjustments for the years ended December 31, 2010 and December 31, 2009 was as follows: (In thousands, except per share amounts) For the year ended December 31, 2010
|  |  | September 30, |  |  |  | September 30, |  |  |  | September 30, |
|  | As previously reported |  |  | Revision |  |  | Revised balance |
Principal transactions, net |  | $ | 77,183 |  |  | $ | 1,201 |  |  | $ | 78,384 |
Compensation and related expenses |  | $ | 672,244 |  |  | $ | 3,797 |  |  | $ | 676,041 |
Interest expense |  | $ | 25,914 |  |  | $ | (164 | ) |  | $ | 25,750 |
Other expenses |  | $ | 101,305 |  |  | $ | 343 |  |  | $ | 101,648 |
Profit (loss) before income taxes |  | $ | 70,766 |  |  | $ | (2,775 | ) |  | $ | 67,991 |
Income tax provision (benefit) |  | $ | 30,187 |  |  | $ | (2,976 | ) |  | $ | 27,211 |
Net profit |  | $ | 38,331 |  |  | $ | 201 |  |  | $ | 38,532 |
Earnings per share—basic |  | $ | 2.87 |  |  | $ | 0.02 |  |  | $ | 2.89 |
For the year ended December 31, 2009
|  |  | September 30, |  |  |  | September 30, |  |  |  | September 30, |
|  | As previously reported |  |  | Revision |  |  | Revised balance |
Principal transactions, net |  | $ | 107,094 |  |  | $ | (953 | ) |  | $ | 106,141 |
Compensation and related expenses |  | $ | 672,325 |  |  | $ | (3,541 | ) |  | $ | 668,784 |
Communication and technology |  | $ | 62,724 |  |  | $ | 149 |  |  | $ | 62,873 |
Interest expense |  | $ | 21,050 |  |  | $ | 379 |  |  | $ | 21,429 |
Other expenses |  | $ | 99,401 |  |  | $ | (194 | ) |  | $ | 99,207 |
Profit before income taxes |  | $ | 34,813 |  |  | $ | 2,254 |  |  | $ | 37,067 |
Income tax provision |  | $ | 15,326 |  |  | $ | 917 |  |  | $ | 16,243 |
Net profit |  | $ | 19,487 |  |  | $ | 1,337 |  |  | $ | 20,824 |
Earnings per share—basic |  | $ | 1.49 |  |  | $ | 0.10 |  |  | $ | 1.59 |

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