Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill is assessed for impairment annually or when events indicate that the amounts may not be recoverable. The Company assesses goodwill for impairment at the reporting unit level. The Company’s reporting units are the components of its business segments for which discrete financial information is available and is regularly reviewed by the Company’s management. As part of the assessment for impairment, the Company considers the cash flows of the respective reporting unit and assesses the fair value of the respective reporting unit as well as the overall market value of the Company compared to its net book value. The assessment of fair value of the reporting units is principally performed using a discounted cash flow methodology with a risk-adjusted weighted average cost of capital which the Company believes to be the most reliable indicator of the fair values of its respective reporting units. The Company also assesses the fair value of each reporting unit based upon its estimated market value and assesses the Company’s overall market value based upon the market price of KCG Class A Common Stock.

Intangible assets are assessed for recoverability when events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. The Company assesses intangible assets for impairment at the “asset group” level which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. As part of the assessment for impairment, the Company considers the cash flows of the respective asset group and assesses the fair value of the respective asset group. Step 1 of the impairment assessment for intangibles is performed using undiscounted cash flow models, which indicates whether the future cash flows of the asset group are sufficient to recover the book value of such asset group. When an asset is not considered to be recoverable, step 2 of the impairment assessment is performed using a discounted cash flow methodology with a risk-adjusted weighted average cost of capital to determine the fair value of the intangible asset group. In cases where amortizable intangible assets and goodwill are assessed for impairment at the same time, the amortizable intangibles are assessed for impairment prior to goodwill being assessed.

As discussed in Footnote 2 "Merger of GETCO and Knight", as a result of the Mergers, $156.8 million and $13.8 million in identifiable intangible assets and goodwill, respectively, were recorded by the Company.

No events occurred in the three or nine months ended September 30, 2013 or 2012 that would indicate that the carrying amounts of the Company’s goodwill or intangible assets may not be recoverable.

The following table summarizes the Company’s Goodwill by segment (in thousands):



	September 30, 2013		December 31, 2012
Market Making	$	15,159	$	4,645
Global Execution Services	3,239		—
Total	$	18,398	$	4,645

Intangible assets are amortized over their estimated remaining useful lives, the majority of which have been determined to range from four to 12 years. The weighted average remaining life of the Company’s intangible assets at September 30, 2013 and December 31, 2012 is approximately 7 years and 10 years, respectively.

The following tables summarize the Company’s Intangible assets, net of accumulated amortization by segment and type (in thousands):



	September 30, 2013		December 31, 2012
Market Making
Trading rights	$	47,065	$	42,635
Technology	52,791		3,488
Total	99,856		46,123
Global Execution Services
Customer relationships	34,139		—
Trade names	3,900		—
Technology	39,900		—
Total	77,939		—
Corporate and Other
Technology	14,250
Consolidated Total	$	192,045	$	46,123



		September 30, 2013			December 31, 2012
Customer relationships ⁽¹⁾	Gross carrying amount	$	35,000		$	—
	Accumulated amortization	(861		)	—
	Net carrying amount	34,139			—
Trading rights ⁽²⁾	Gross carrying amount	59,628			51,828
	Accumulated amortization	(12,563		)	(9,193		)
	Net carrying amount	47,065			42,635
Trade names ⁽³⁾	Gross carrying amount	4,000			—
	Accumulated amortization	(100		)	—
	Net carrying amount	3,900			—
Technology ⁽⁴⁾	Gross carrying amount	115,580			5,580
	Accumulated amortization	(8,639		)	(2,092		)
	Net carrying amount	106,941			3,488
Total	Gross carrying amount	214,208			57,408
	Accumulated amortization	(22,163		)	(11,285		)
	Net carrying amount	$	192,045		$	46,123

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⁽¹⁾	Customer relationships relate to KCG Hotspot and KCG BondPoint. The weighted average remaining life is approximately 10 years as of September 30, 2013. Lives may be reduced depending upon actual retention rates.


⁽²⁾	Trading rights provide the Company with the rights to trade on certain exchanges. The weighted average remaining life is approximately 9 and 10 years as of September 30, 2013 and December 31, 2012, respectively.


⁽³⁾	Trade names relate to KCG Hotspot and KCG BondPoint. The weighted average remaining life is approximately 10 years as of September 30, 2013.


⁽⁴⁾	The weighted average remaining life is approximately five and three years as of September 30, 2013 and December 31, 2012, respectively.

The following table summarizes the Company’s amortization expense from continuing operations relating to Intangible assets (in thousands):



	For the three months ended September 30,				For the nine months ended September 30,
	2013		2012		2013		2012
Amortization expense	$	8,119	$	1,380	$	10,878	$	4,139

As of September 30, 2013, the following table summarizes the Company’s estimated amortization expense for future periods (in thousands):



	Amortization expense
For the three months ending December 31, 2013	$	8,119
For the year ended December 31, 2014	32,477
For the year ended December 31, 2015	31,780
For the year ended December 31, 2016	31,082
For the year ended December 31, 2017	31,082

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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