Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2017

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.

No events occurred in the three months ended March 31, 2017 or 2016 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 Business Held for Sale & Sales of Businesses”, in late 2015, the Company conducted a strategic review of its businesses and determined that one of its businesses was no longer considered core to its strategy and the Company sought the opportunity to exit or divest this business. The estimated fair value of intangibles related to a business held for sale of $8.2 million as of December 31, 2016 was reported within Assets of business held for sale on the Consolidated Statements of Financial Condition. These intangibles, which comprise a technology platform, have been reclassified to Intangible Assets as of March 31, 2017 as it has been determined that such assets of the business will not be sold.

As of both March 31, 2017 and December 31, 2016, $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 six years. The weighted average remaining life of the Company’s intangible assets with definite useful lives at both March 31, 2017 and December 31, 2016 was approximately two years.

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



	March 31, 2017		December 31, 2016
Market Making
Technology	$	38,759	$	39,536
Trading rights	7,028		7,027
Total	45,787		46,563
Global Execution Services
Technology	20,033		20,694
Customer relationships	7,583		7,944
Trade names	625		650
Total	28,241		29,288
Corporate and Other
Technology ⁽¹⁾	16,418		8,084
Total	$	90,446	$	83,935

⁽¹⁾

Excluded from the December 31, 2016 balance is $8.2 million of intangibles related to a business which met the requirements to be considered held for sale. As noted above and in Footnote 3 "Assets of Business Held for Sale & Sales of Businesses", such amounts were included in Assets of business held for sale at December 31, 2016, however, such intangibles were no longer considered to be held for sale at March 31, 2017 and are therefore included above at March 31, 2017.



		March 31, 2017			December 31, 2016
Technology ⁽¹⁾	Gross carrying amount	$	183,567		$	157,188
	Accumulated amortization	(108,347		)	(88,874		)
	Net carrying amount	75,220			68,314
Trading rights ⁽²⁾	Gross carrying amount	7,509			7,509
	Accumulated amortization	(491		)	(482		)
	Net carrying amount	7,018			7,027
Customer relationships ⁽³⁾	Gross carrying amount	13,000			13,000
	Accumulated amortization	(5,417		)	(5,056		)
	Net carrying amount	7,583			7,944
Trade names ⁽⁴⁾	Gross carrying amount	1,000			1,000
	Accumulated amortization	(375		)	(350		)
	Net carrying amount	625			650
Total	Gross carrying amount	205,076			178,697
	Accumulated amortization	(114,630		)	(94,762		)
	Net carrying amount	$	90,446		$	83,935

⁽¹⁾

The weighted average remaining life for technology, including capitalized internal use software, was approximately two years as of both March 31, 2017 and December 31, 2016. Excluded from the December 31, 2016 balance is $8.2 million of technology assets related to Assets of businesses held for sale. As noted above and in Footnote 3 "Assets of Business Held for Sale & Sales of Businesses", these assets are included in Assets of businesses held for sale at December 31, 2016.


⁽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 3 and 4 years as of March 31, 2017 and December 31, 2016, respectively. As of March 31, 2017 and December 31, 2016, $6.9 million of trading rights had indefinite useful lives.


⁽³⁾	Customer relationships relate to KCG BondPoint. The weighted average remaining life was approximately 5 and 6 years as of March 31, 2017 and December 31, 2016, respectively. Lives may be reduced depending upon actual retention rates.


⁽⁴⁾	Trade names relate to KCG BondPoint. The weighted average remaining life was approximately 6 and 7 years as of March 31, 2017 and December 31, 2016, respectively.

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



	For the three months ended March 31,
	2017		2016
Amortization expense	$	10,109	$	7,559

As of March 31, 2017, the following table summarizes the Company’s estimated amortization expense for future periods (in thousands):



	Amortization expense
For the nine months ended December 31, 2017	$	33,654
For the year ended December 31, 2018	32,749
For the year ended December 31, 2019	12,708
For the year ended December 31, 2020	2,009
For the year ended December 31, 2021	1,544

- 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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