Goodwill and Intangible Assets

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 included in Intangible assets 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 year ended December 31, 2016. No other events occurred in the year ended December 2016 that would indicate that the carrying amounts of the Company’s goodwill or intangible assets may not be recoverable.

In the fourth quarter of 2016, the Company assessed the impairment of goodwill and intangible assets as part of its annual assessment. The Company’s annual assessment indicated that the fair value of its Market Making reporting unit was approximately 20% higher than its book value as of the fourth quarter of 2016. As such, the Company concluded that the goodwill recorded within Market Making was not impaired.

As detailed in Footnote 3 “Discontinued Operations, Assets of Businesses Held for Sale & Sales of Businesses”, in late 2015, 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 sought the opportunity to exit or divest or has already exited or divested of these businesses. As a result, the Company recorded a charge of $15.0 million in the Consolidated Statement of Operations for the year ended December 31, 2015 to reflect the excess of carrying value over estimated fair value of intangible assets related to the businesses held for sale. The estimated fair value of intangibles related to businesses held for sale of $8.2 million and $26.0 million as of December 31, 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 December 31, 2016 and December 31, 2015, $16.4 million of 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 seven years. The weighted average remaining life of the Company’s intangible assets with definite useful lives at December 31, 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):



	December 31, 2016 ⁽¹⁾		December 31, 2015 ⁽¹⁾
Market Making
Technology	$	39,536	$	38,151
Trading rights	7,027		8,530
Total	46,563		46,681
Global Execution Services
Technology	20,694		21,446
Customer relationships	7,944		9,389
Trade names	650		750
Total	29,288		31,585
Corporate and Other
Technology	8,084		5,801
Total	$	83,935	$	84,067


⁽¹⁾	Excluded from the December 31, 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 above and in Footnote 3 "Discontinued Operations, Assets of Businesses Held for Sale & Sales of Businesses", such amounts are included in Assets of businesses held for sale.



		December 31, 2016			December 31, 2015
Technology ⁽¹⁾	Gross carrying amount	$	157,188		$	120,256
	Accumulated amortization	(88,874		)	(54,858		)
	Net carrying amount	68,314			65,398
Trading rights ⁽²⁾	Gross carrying amount	7,509			9,209
	Accumulated amortization	(482		)	(679		)
	Net carrying amount	7,027			8,530
Customer relationships ⁽³⁾	Gross carrying amount	13,000			13,000
	Accumulated amortization	(5,056		)	(3,611		)
	Net carrying amount	7,944			9,389
Trade names ⁽⁴⁾	Gross carrying amount	1,000			1,000
	Accumulated amortization	(350		)	(250		)
	Net carrying amount	650			750
Total	Gross carrying amount	178,697			143,465
	Accumulated amortization	(94,762		)	(59,398		)
	Net carrying amount	$	83,935		$	84,067

⁽¹⁾

The weighted average remaining life for technology, including capitalized internal use software, was approximately two years as of both December 31, 2016 and December 31, 2015. Excluded from the December 31, 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 "Discontinued Operations, 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 December 31, 2016 and December 31, 2015, respectively. As of December 31, 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 December 31, 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 December 31, 2016 and December 31, 2015.

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



	For the years ended December 31,
	2016		2015		2014
Amortization expense	$	34,356	$	35,244	$	35,592

As of December 31, 2016, the following table summarizes the Company’s estimated amortization expense for future periods (in thousands):



	Amortization expense
For the year ended December 31, 2017	$	38,579
For the year ended December 31, 2018	26,402
For the year ended December 31, 2019	8,066
For the year ended December 31, 2020	1,561
For the year ended December 31, 2021	1,544