Note 14. Intangible Assets, Net and Goodwill
A summary of intangible assets, net at December 31, 2013 and 2012 is as follows (in thousands):
| 2013 | 2012 | |||
| Indefinite lived intangibles: | ||||
| Exchange and clearing organization membership interests and registrations | $ | 14,916 | $ | – |
| Amortizable intangibles: | ||||
| Customer and other relationships, net of accumulated amortization of | ||||
| $117,139 and $70,823 | 502,409 | 416,304 | ||
| Trademarks and tradename, net of accumulated amortization of $30,213 | ||||
| and $15,731 | 364,779 | 263,839 | ||
| Supply contracts, net of accumulated amortization of $20,162 and $9,874 | 129,833 | 140,121 | ||
| Licenses, net of accumulated amortization of $4,100 and $3,508 | 7,928 | 8,520 | ||
| Other, net of accumulated amortization of $4,500 and $4,467 | 664 | 1,047 | ||
| Total intangibles | $ | 1,020,529 | $ | 829,831 |
Amortization expense on intangible assets was $74.8 million, $53.7 million and $7.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. The estimated aggregate future amortization expense for the intangible assets for each of the next five years is as follows: 2014 - $66.0 million; 2015 - $63.1 million; 2016 - $61.1 million; 2017 - $61.0 million; and 2018 - $60.8 million.
A summary of goodwill at December 31, 2013 and 2012 is as follows (in thousands):
|
| ||||
| 2013 | 2012 | |||
| National Beef | $ | 14,991 | $ | 14,991 |
| Jefferies | 1,724,557 | – | ||
| Other operations | 8,551 | 9,204 | ||
| $ | 1,748,099 | $ | 24,195 | |
The increase in intangible assets and goodwill during 2013 was due to the acquisition of Jefferies, as more fully discussed in Note 4.
Goodwill Impairment Testing
Goodwill associated with the acquisition of Jefferies is allocated to the related reporting units, which are determined based on financial information provided to management in connection with its management of the businesses. A reporting unit is an operating segment or one level below an operating segment. The quantitative goodwill impairment test is performed at the level of the reporting unit and consists of two steps. In the first step, the fair value of each reporting unit is compared with its carrying value, including goodwill and allocated intangible assets. If the fair value is in excess of the carrying value, the goodwill for the reporting unit is considered not to be impaired. If the fair value is less than the carrying value, then a second step is performed in order to measure the amount of the impairment loss, if any, which is based on comparing the implied fair value of the reporting unit's goodwill to the fair value of the net assets of the reporting unit.
Allocated equity plus goodwill and allocated intangible assets are used as a proxy for the carrying amount of each Jefferies reporting unit. The amount of equity allocated to a Jefferies reporting unit is based on Jefferies cash capital model deployed in managing these businesses, which seeks to approximate the capital a business would require if it were operating independently. Intangible assets are allocated to a reporting unit based on either specifically identifying a particular intangible asset as pertaining to a reporting unit or, if shared among reporting units, based on an assessment of the reporting unit's benefit from the intangible asset in order to generate results.
Estimating the fair value of a reporting unit requires management judgment. Estimated fair values for Jefferies reporting units were determined using a market valuation method that incorporate price-to-earnings and price-to-book multiples of comparable public companies and, for certain reporting units, a net asset value method. In addition, as the fair values determined under the market approach represent a noncontrolling interest, we applied a control premium to arrive at the estimated fair value of each reporting unit on a controlling basis. Jefferies engaged an independent valuation specialist to assist management's valuation process as of August 1, 2013.
Our annual goodwill impairment testing related to Jefferies as of August 1, 2013 did not indicate any goodwill impairment in any of Jefferies reporting units. Substantially all of the goodwill is allocated to Jefferies Investment Banking, Equities and Fixed Income reporting units for which the results of our assessment indicated that these reporting units had a fair value substantially in excess of their carrying amounts based on current projections. Goodwill allocated to these reporting units is $1,665.3 million of the total goodwill associated with the acquisition of Jefferies at December 31, 2013. For Jefferies remaining less significant reporting units, we have used a net asset approach for valuation and the fair value of each of the reporting units is equal to its book value.
Goodwill related to National Beef and other operations was not impaired when tested.
Intangible Assets
We performed our annual impairment testing of Jefferies intangible assets with an indefinite useful life, which consists of exchange and clearing organization membership interests and registrations, as of August 1. We elected to perform a quantitative assessment of membership interests and registrations that have available quoted sales prices, and a qualitative assessment of the remainder of Jefferies intangible assets. Our quantitative assessment resulted in an insignificant impairment loss on certain exchange memberships based on quoted sales prices. With regard to our qualitative assessment of the remaining indefinite-life intangible assets, based on our assessment of market conditions, the utilization of the assets and the replacement costs associated with the assets since the most recent valuation date of March 1, 2013 as part of acquisition accounting, we concluded that the intangible assets were not impaired.