GOODWILL AND OTHER INTANGIBLES, NET
Goodwill
The following table outlines the activity in the carrying value of the Company’s goodwill, which is all assigned to the Company’s trading and investing segment (dollars in thousands):
|
| | | |
| Trading & Investing |
Balance at December 31, 2011 | $ | 1,934,232 |
|
Activity | — |
|
Balance at December 31, 2012 | 1,934,232 |
|
Impairment of goodwill | (142,423 | ) |
Balance at December 31, 2013 | $ | 1,791,809 |
|
Goodwill is evaluated for impairment on an annual basis and when events or changes indicate the carrying value of an asset exceeds its fair value and the loss may not be recoverable. At December 31, 2013 and 2012, the Company’s trading and investing segment had two reporting units; market making and retail brokerage.
At the end of June 2013, the Company decided to exit its market making business. Based on this decision in the second quarter of 2013, the Company conducted an interim goodwill impairment test for the market making reporting unit, using the expected sale structure of the market making business. This structure assumed a shorter period of cash flows related to an order flow arrangement, compared to prior estimates of fair value. Based on the results of the first step of the goodwill impairment test, the Company determined that the carrying value of the market making reporting unit, including goodwill, exceeded the fair value for that reporting unit as of June 30, 2013. The Company proceeded to the second step of the goodwill impairment test to measure the amount of goodwill impairment. As a result of the evaluation, it was determined that the entire carrying amount of goodwill allocated to the market making reporting unit was impaired, and the Company recognized a $142.4 million impairment of goodwill during the second quarter of 2013.
For the year ended December 31, 2013, the Company performed its annual goodwill assessment for the retail brokerage reporting unit, electing to qualitatively assess whether it was more likely than not that the fair value was less than the carrying value. As a result of this assessment, the Company determined that the first step of the goodwill impairment test was not necessary, and concluded that goodwill was not impaired at December 31, 2013.
At December 31, 2013, goodwill is net of accumulated impairment losses of $142.4 million related to the trading and investing segment and $101.2 million in the balance sheet management segment. At December 31, 2012, goodwill is net of accumulated impairment losses of $101.2 million in the balance sheet management segment.
Other Intangibles, Net
In the second quarter of 2013, pursuant to the Company's decision to exit the market making business, $21.2 million of other intangible assets related to the market making reporting unit was reclassified as held-for-sale. These held-for-sale intangible assets have been included in the other assets line item in the consolidated balance sheet at December 31, 2013. For additional information on the market making business, see Note 2–Business Held-for-Sale. The following table outlines the Company's other intangible assets with finite lives consisted of customer lists, which are amortized on an accelerated basis (dollars in thousands):
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| | | | | | | | | | | | | | | |
| Customer Lists |
| Weighted Average Original Useful Life (Years) | | Weighted Average Remaining Useful Life (Years) | | Gross Amount | | Accumulated Amortization | | Net Amount |
December 31, 2013 | 20 | | 12 | | $ | 434,804 |
| | $ | (218,874 | ) | | $ | 215,930 |
|
December 31, 2012 | 21 | | 13 | | $ | 496,624 |
| | $ | (236,002 | ) | | $ | 260,622 |
|
Assuming no future impairments of customer lists or additional acquisitions or dispositions, the following table presents our future annual amortization expense (dollars in thousands): |
| | | |
Years ending December 31, | |
2014 | $ | 21,803 |
|
2015 | 20,357 |
|
2016 | 19,735 |
|
2017 | 19,147 |
|
2018 | 18,590 |
|
Thereafter | 116,298 |
|
Total future amortization expense | $ | 215,930 |
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