Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses

12 Months Ended

Dec. 31, 2015

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses

Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses

In July 2013, the Company entered into an agreement to sell to an investor group Urban, the reverse mortgage origination and securitization business that was previously owned by Knight. The transaction was completed in November 2013, and, as a result, residual revenues and expenses of Urban's operations and costs of the related sale have been included in (Loss) income from discontinued operations, net of tax within the Consolidated Statements of Operations for the year ended December 31, 2014 and the six months ended December 31, 2013.

The revenues and results of operations of discontinued operations are summarized as follows (in thousands):

	For the year ended December 31, 2014			For the six months ended December 31, 2013
Revenues and gain (adjustment to gain) on sale	$	(1,148	)	$	39,868
Expenses:
Compensation	$	70		$	14,068
Payments for order flow	—			9,885
Execution and clearance fees	—			5,038
Other expenses	930			10,748
Total expenses	1,000			39,739
Pre-tax (loss) income from discontinued operations	(2,148		)	129
Income tax expense (benefit)	816			(49		)
(Loss) income from discontinued operations, net of tax	$	(1,332	)	$	80

For the year ended December 31, 2015, there was no activity related to discontinued operations.

In September 2014, KCG entered into an agreement to sell certain assets and liabilities related to its FCM business to Wedbush Securities Inc. The transaction closed on November 30, 2014. The FCM is not considered a discontinued operation, and therefore the results of the FCM’s operations for 2013 and 2014 are included in the Global Execution Services segment and in Continuing Operations on the Consolidated Statements of Operations.

In October 2014, the Company announced that it began to explore strategic options for KCG Hotspot. KCG Hotspot was a single disposal group that was considered to be held-for-sale as of December 31, 2014 and, as a result, certain assets and liabilities related to KCG Hotspot were included in Assets of businesses held for sale and Liabilities of businesses held for sale on the Consolidated Statement of Financial Condition as of December 31, 2014. The Company determined that the sale of KCG Hotspot did not represent a strategic shift that would have a major effect on its operations and financial results, and therefore KCG Hotspot did not meet the requirements to be treated as a discontinued operation. As such, the results of KCG Hotspot's operations through the sale date of March 13, 2015 are included in the Global Execution Services segment and in Continuing Operations on the Consolidated Statements of Operations for all applicable periods presented.

In March 2015, the Company completed the sale of KCG Hotspot to BATS. The Company and BATS have agreed to share certain tax benefits, which could result in future payments to the Company of up to approximately $70.0 million in the three-year period following the close, consisting of a $50 million payment in 2018 and annual payments of up to $6.6 million per year (the "Annual Payments"), from 2016 up to and including 2018. The additional potential payments are recorded at fair value in Other assets on the Consolidated Statements of Financial Condition and as of December 31, 2015, have a fair value of $64.2 million. The Annual Payments were contingent on KCG Hotspot achieving various levels of trading volumes through June 2015. That contingency has been removed because the trading levels were achieved. However, the Annual Payments remain contingent on BATS generating sufficient taxable net income to receive the tax benefits.

The Company recorded a gain upon completion of the sale of $385.0 million, which is recorded as Investment income and other, net on the Consolidated Statements of Operations for the year ended December 31, 2015. The net gain on the sale of KCG Hotspot was $373.8 million which is net of direct costs associated with the sale which comprised professional fees of $6.7 million and compensation of $4.5 million, which are recorded in Professional fees and Employee compensation and benefits, respectively, on the Consolidated Statements of Operations for the year ended December 31, 2015.

The Company has elected the fair value option related to the $64.2 million receivable from BATS. It considers the receivable to be a Level 2 asset in the fair value hierarchy as the fair value is derived from observable significant inputs such as contractual cash flows and market discount rates.

In accordance with the Company's strategic review of its businesses and evaluation of their potential value in the marketplace relative to their current and expected returns, KCG determined in 2015 that certain of its businesses including its NYSE DMM business, are no longer considered core to its strategy, and KCG is currently seeking the opportunity to exit or divest of these businesses. KCG believes that the sale or divestiture of these businesses does not represent a strategic shift that will have a major effect on its operations and financial results,however, these businesses meet the requirements to be considered as held-for-sale at December 31, 2015. As part of this review, KCG determined that the carrying value of certain intangible assets related to businesses that are considered held for sale exceeded their fair value, and, as a result, recorded charges in the Consolidated Statement of Operations for the year ended December 31, 2015 totaling $15.0 million to reflect the estimated fair value of such held-for-sale businesses. The estimated fair value of such assets of $26.0 million is based on several factors including quoted market prices, and are included within Assets of businesses held for sale on the December 31, 2015 Consolidated Statement of Financial Condition. See Footnote 12 "Goodwill and Intangible Assets" and Footnote 27 "Subsequent Events" for further details.

The assets and liabilities of businesses held for sale as of December 31, 2015 and 2014 are summarized as follows (in thousands):

	December 31, 2015		December 31, 2014
Assets:
Fixed assets, less accumulated depreciation	$	—	$	391
Intangible assets, net of accumulated amortization	25,999		34,696
Other assets	—		5,397
Total assets of businesses held for sale	$	25,999	$	40,484
Liabilities:
Accrued compensation expense	$	—	$	2,298
Accrued expenses and other liabilities	—		58
Total liabilities of businesses held for sale	$	—	$	2,356