Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2016

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 equity 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 one 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 two of the impairment assessment is performed using a discounted cash flow methodology with a risk-adjusted weighted average cost of equity 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.

During the third quarter of 2016, the Company wrote off certain trading rights that ceased being utilized in the period. The writeoff resulted in a charge of $0.7 million which was recorded within Other expense in the Consolidated Statements of Operations for the three and nine months ended September 30, 2016. No other events occurred in the nine months ended September 2016 that would indicate that the carrying amounts of the Company’s goodwill or intangible assets may not be recoverable.

No events occurred in the nine months ended September 2015 that would indicate that the carrying amounts of the Company’s goodwill or intangible assets may not be recoverable.

As detailed in Footnote 3 “Assets of Businesses Held for Sale & Sales of Businesses” the Company conducted a strategic review of its businesses and determined that certain of its businesses are no longer considered core to its strategy and the Company is currently seeking the opportunity to exit or divest or has already exited or divested of these businesses. The $8.2 million and $26.0 million estimated fair value of such intangibles as of September 30, 2016 and December 31, 2015, respectively are reported within Assets of businesses held for sale on the Consolidated Statements of Financial Condition.

As of both September 30, 2016 and December 31, 2015, all goodwill was recorded within the Market Making segment.

Intangible assets with definite useful lives are amortized over their remaining estimated useful lives, the majority of which have been determined to range from one to eight years. The weighted average remaining life of the Company’s intangible assets with definite useful lives at September 30, 2016 and December 31, 2015 was approximately two and three years, respectively.

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



	September 30, 2016 ⁽¹⁾		December 31, 2015 ⁽¹⁾
Market Making
Technology	$	39,501	$	38,151
Trading rights	7,035		8,530
Total	46,536		46,681
Global Execution Services
Technology	20,646		21,446
Customer relationships	8,306		9,389
Trade names	675		750
Total	29,627		31,585
Corporate and Other
Technology	7,668		5,801
Total	$	83,831	$	84,067


⁽¹⁾	Excluded from the September 30, 2016 and December 31, 2015 balance is $8.2 million and $26.0 million, respectively, of intangibles related to businesses which meet the requirements to be considered held for sale. As noted in Footnote 3 "Assets of Businesses Held for Sale & Sales of Businesses", such amounts are included in Assets of businesses held for sale.



		September 30, 2016			December 31, 2015
Technology ⁽¹⁾	Gross carrying amount	$	147,538		$	120,256
	Accumulated amortization	(79,723		)	(54,858		)
	Net carrying amount	67,815			65,398
Trading rights ⁽²⁾	Gross carrying amount	7,509			9,209
	Accumulated amortization	(474		)	(679		)
	Net carrying amount	7,035			8,530
Customer relationships ⁽³⁾	Gross carrying amount	13,000			13,000
	Accumulated amortization	(4,694		)	(3,611		)
	Net carrying amount	8,306			9,389
Trade names ⁽⁴⁾	Gross carrying amount	1,000			1,000
	Accumulated amortization	(325		)	(250		)
	Net carrying amount	675			750
Total	Gross carrying amount	169,047			143,465
	Accumulated amortization	(85,216		)	(59,398		)
	Net carrying amount	$	83,831		$	84,067

⁽¹⁾

The weighted average remaining life for technology, including capitalized internal use software, was approximately two years as of both September 30, 2016 and December 31, 2015. Excluded from the September 30, 2016 and December 31, 2015 balances are $8.2 million and $8.8 million, respectively, of technology assets related to Assets of businesses held for sale. As noted in Footnote 3 "Assets of Businesses Held for Sale & Sales of Businesses", these assets are included in Assets of businesses held for sale.

⁽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 4 and 5 years as of September 30, 2016 and December 31, 2015, respectively. As of September 30, 2016 and December 31, 2015, $6.9 million of trading rights had indefinite useful lives. Excluded from the December 31, 2015 balance is $17.2 million of trading rights related to Assets of businesses held for sale.


⁽³⁾	Customer relationships relate to KCG BondPoint. The weighted average remaining life was approximately 6 and 7 years as of September 30, 2016 and December 31, 2015, respectively. Lives may be reduced depending upon actual retention rates.


⁽⁴⁾	Trade names relate to KCG BondPoint. The weighted average remaining life was approximately 7 years as of both September 30, 2016 and December 31, 2015.

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



	For the three months ended September 30,				For the nine months ended September 30,
	2016		2015		2016		2015
Amortization expense	$	8,943	$	8,533	$	24,810	$	26,400

As of September 30, 2016, the following table summarizes the Company’s estimated amortization expense for future periods (in thousands):



	Amortization expense
For the three months ended December 31, 2016	$	9,199
For the year ended December 31, 2017	35,366
For the year ended December 31, 2018	23,201
For the year ended December 31, 2019	5,179
For the year ended December 31, 2020	1,561

- 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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