Segment Reporting

6 Months Ended

Jun. 30, 2016

Segment Reporting

Segment Reporting

(15) Segment Reporting

The Company is organized into four geographic operating segments through which the Company’s chief operating decision maker manages the Company’s business. The U.S., Canadian, European and Asia Pacific Operations segments provide the following categories of products and services:

· Execution Services — includes (a) self-directed trading using algorithms, smart routing and matching through POSIT in cash equities (including single stocks and portfolio lists), futures and options and (b) portfolio trading and high-touch trading desks providing execution expertise

· Workflow Technology — includes trade order and execution management software applications in addition to network connectivity

· Analytics — includes (a) tools enabling portfolio managers and traders to improve pre-trade and real-time execution performance, (b) portfolio construction and optimization decisions and (c) securities valuation

The accounting policies of the reportable segments are the same as those described in Note 2, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Company allocates resources to, and evaluates the performance of, its reportable segments based on income or loss before income tax expense. Consistent with the Company’s resource allocation and operating performance evaluation approach, the effects of inter-segment activities are eliminated except in limited circumstances where certain technology related costs are allocated to a segment to support that segment’s revenue producing activities. Commissions and fees revenue for trade executions and commission share revenues are principally attributed to each segment based upon the location of execution of the related transaction. Recurring revenues are principally attributed based upon the location of the client using the respective service.

Regional segment results exclude the impact of Corporate activity, which is presented separately and includes investment income and other gains as well as costs not associated with operating the businesses within the Company’s regional segments.  These costs include, among others, (a) the costs of being a public company, such as certain staff costs, a portion of external audit fees, and reporting, filing and listing costs, (b) intangible asset amortization, (c) interest expense, (d) professional fees associated with the Company’s global transfer pricing structure, (e) foreign exchange gains or losses and (f) certain non-operating expenses.

A summary of the segment financial information is as follows (dollars in thousands):

	U.S. Operations			Canadian Operations		European Operations		Asia Pacific Operations			Corporate			Consolidated Total
Three Months Ended June 30, 2016
Total revenues (1)	$	58,574		$	15,790	$	32,203	$	11,280		$	2,763		$	120,610
(Loss) income before income tax (benefit) expense (2)(3)(4)	(2,874		)	2,782		6,284		(93		)	(15,757		)	(9,658		)
Identifiable assets	504,998			99,036		429,986		72,196			—			1,106,216
Three Months Ended June 30, 2015
Total revenues	$	75,474		$	16,705	$	33,574	$	14,512		$	229		$	140,494
Income (loss) before income tax expense (benefit) (5)	5,735			3,615		7,763		1,602			(27,664		)	(8,949		)
Identifiable assets	1,209,355			96,370		286,607		86,163			—			1,678,495
Six Months Ended June 30, 2016
Total revenues (1)	$	124,903		$	31,886	$	63,342	$	22,037		$	3,110		$	245,278
(Loss) income before income tax (benefit) expense (2)(3)(4)	(769		)	6,120		11,963		(693		)	(29,917		)	(13,296		)
Six Months Ended June 30, 2015
Total revenues	$	155,928		$	35,617	$	70,180	$	28,034		$	462		$	290,221
Income (loss) before income tax expense (benefit) (5)	16,791			7,369		18,893		2,709			(32,371		)	13,391

The following notes relate to Corporate activity:

(1) The Company received insurance proceeds of $2.4 million in June 2016 from its corporate insurance carrier to settle a claim for lost profits arising from an August 2015 outage in its outsourced primary data center in the U.S. Additionally, the Company generated a nominal gain on the completion of the sale of its investment research operations in May 2016.

(2) During the three months ended June 30, 2016, the Company incurred $4.4 million in restructuring charges related to (a) the reduction in its high-touch trading and sales organizations and (b) the closing of its U.S. matched-book securities lending operations and its Canadian arbitrage trading desk.

(3) The Company’s new Chief Executive Officer was granted cash and stock awards upon the commencement of his employment in January 2016, a significant portion of which replaced awards he forfeited at his former employer. The amount expensed for these awards during the three and six month periods ended June 30, 2016 was $0.5 million and $3.3 million, respectively. Due to U.S. tax regulations, only a small portion of the amount expensed for these awards was eligible for a tax deduction.

(4) During the three and six month periods ended June 30, 2016, the Company established a reserve of $2.3 million and $4.8 million, respectively, for the  arbitration case with its former CEO. In addition, the Company incurred legal fees related to this matter of $2.4 million and $2.7 million during the three and six month periods ended June 30, 2016, respectively. The Company settled the arbitration case in June 2016. For more information, see Note 18, Contingencies — Legal Matters.

(5) In the second quarter of 2015, the Company reserved $20.3 million for  a settlement with the SEC in connection with the investigation into a proprietary trading pilot and incurred $2.3 million in legal and other related costs associated with this matter.

The table below details the total revenues for the categories of products and services provided by the Company (dollars in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Revenues by Product Group:
Execution Services	$	83,408	$	105,427	$	173,201	$	218,394
Workflow Technology	23,094		23,550		46,687		48,623
Analytics	11,345		11,288		22,280		22,742
Corporate	2,763		229		3,110		462
Total Revenues	$	120,610	$	140,494	$	245,278	$	290,221

In December 2015 the Company sold its energy research operations and in May 2016 the Company sold its remaining investment research operations,  both of which were within the Research, Sales and Trading (“RS&T”) product group. Beginning in the second quarter 2016, the remaining portfolio trading and high-touch execution offerings, previously grouped within RS&T, were combined with the electronic execution and liquidity solutions, previously grouped with the Electronic Brokerage (“EB”) product group, to form the new Execution Services product group to create better alignment for cross-selling synergies. The entire historic activity of EB and RS&T, including the divested research operations,  has been reclassified to the Execution Services product group to conform to the current presentation. For more information on the sale of the remaining investment research operations, see Note 3, Divestitures.  Also, in July 2016 the Company changed the name of its Platforms product group to Workflow Technology.