Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and intangible assets with indefinite lives are assessed for impairment annually or when events indicate that the amounts may be impaired. 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, $155.4 million and $12.7 million in identifiable intangible assets and goodwill, respectively, were recorded by the Company as of the date of the Mergers.

No events occurred in the years ended December 31, 2014 or 2013 that would indicate that the carrying amounts of the Company’s goodwill or intangible assets may not be recoverable. In the fourth quarter of 2014 and 2013, the Company assessed the impairment of goodwill and intangible assets as part of its annual assessment and concluded that there was no impairment.

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



	December 31, 2014		December 31, 2013
Market Making	$	16,404	$	16,404
Global Execution Services	907		907
Total	$	17,311	$	17,311

Intangible assets with definite useful lives are amortized over their estimated remaining useful lives, the majority of which have been determined to range from one to 9 years. The weighted average remaining life of the Company’s intangible assets with definite useful lives at December 31, 2014 and December 31, 2013 was approximately five and six years, respectively.

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



	December 31, 2014		December 31, 2013
Market Making
Technology	$	50,542	$	53,315
Trading rights	44,358		48,920
Total	94,900		102,235
Global Execution Services ⁽¹⁾
Technology	18,200		38,682
Customer relationships	10,833		33,278
Trade names	850		3,800
Total	29,883		75,760
Corporate and Other
Technology	10,500		13,500
Total	$	135,283	$	191,495


⁽¹⁾	Excluded from the December 31, 2014 balance is $34.7 million of intangibles related to the KCG Hotspot which is held for sale. As noted in Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale", such amount is included in Assets of business held for sale at December 31, 2014.



		December 31, 2014			December 31, 2013
Technology ⁽¹⁾	Gross carrying amount	$	115,804		$	120,346
	Accumulated amortization	(36,562		)	(14,849		)
	Net carrying amount	79,242			105,497
Trading rights ⁽²⁾	Gross carrying amount	62,468			62,450
	Accumulated amortization	(18,110		)	(13,530		)
	Net carrying amount	44,358			48,920
Customer relationships ⁽³⁾	Gross carrying amount	13,000			35,000
	Accumulated amortization	(2,167		)	(1,722		)
	Net carrying amount	10,833			33,278
Trade names ⁽⁴⁾	Gross carrying amount	1,000			4,000
	Accumulated amortization	(150		)	(200		)
	Net carrying amount	850			3,800
Total	Gross carrying amount	192,272			221,796
	Accumulated amortization	(56,989		)	(30,301		)
	Net carrying amount	$	135,283		$	191,495

⁽¹⁾

The weighted average remaining life for technology, including capitalized software, was approximately 3 and 4 years as of December 31, 2014 and December 31, 2013, respectively. Excluded from the December 31, 2014 balance is $13.1 million of technology assets related to the KCG Hotspot which as noted in Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale", is included in Assets of business held for sale at December 31, 2014.


⁽²⁾	Trading rights provide the Company with the rights to trade on certain exchanges. The weighted average remaining life of trading rights with definite useful lives was approximately 7 and 8 years as of December 31, 2014 and December 31, 2013, respectively. As of December 31, 2014 and December 31, 2013, $6.8 million and $7.6 million, respectively, of trading rights had indefinite useful lives.

⁽³⁾

Customer relationships relate to KCG BondPoint and KCG Hotspot (for December 31, 2013 only). The weighted average remaining life was approximately 8 and 10 years as of December 31, 2014 and December 31, 2013, respectively. Lives may be reduced depending upon actual retention rates. Excluded from the December 31, 2014 balance is $19.0 million of customer relationships related to the KCG Hotspot which as noted in Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale", is included in Assets of business held for sale at December 31, 2014.

⁽⁴⁾

Trade names relate to KCG BondPoint and KCG Hotspot (for December 31, 2013 only). The weighted average remaining life was approximately 9 and 10 years as of December 31, 2014 and December 31, 2013, respectively. Excluded from the December 31, 2014 balance is $2.6 million of trade name related to the KCG Hotspot which as noted in Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale", is included in Assets of business held for sale at December 31, 2014.

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



	For the year ended December 31,
	2014		2013		2012
Amortization expense	$	35,592	$	19,211	$	5,518

As of December 31, 2014, the following table summarizes the Company’s estimated amortization expense for future periods (in thousands):



	Amortization expense
For the year ended December 31, 2015	$	31,180
For the year ended December 31, 2016	30,049
For the year ended December 31, 2017	27,244
For the year ended December 31, 2018	15,611
For the year ended December 31, 2019	6,211

- 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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