KCG Kcg Holdings Class A

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 30, 2014

 

 

KCG HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE		000-54991		38-3898306
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.

545 Washington Boulevard, Jersey City, NJ 07310

(Address of principal executive offices) (Zip Code)

(201) 222-9400

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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KCG Holdings, Inc.

Current Report on Form 8-K

Item 2.02 Results of Operations and Financial Condition.

See Item 9.01

Item 7.01 Regulation FD Disclosure.

The following information is furnished under Item 2.02, “Results of Operations and Financial Condition”, Item 7.01, “Regulation FD Disclosure”, and Item 9.01 “Financial Statements and Exhibits.” This information, including Exhibits 99.1 and 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On October 30, 2014, KCG Holdings, Inc. (the “Company” or “KCG”) issued a press release announcing its earnings for the third quarter of 2014. The press release did not include certain financial statements, related footnotes and certain other financial information relating to the Company that will be filed with the Securities and Exchange Commission as part of the Company’s Quarterly Report on Form 10-Q. A copy of the press release is attached hereto as Exhibit 99.1. Executives from KCG will review the earnings via teleconference and live audio webcast at 9:00 a.m. Eastern time on October 30, 2014. A copy of a visual presentation that will be a part of that review is attached as Exhibit 99.2. All of the attached exhibits are incorporated by reference into this Current Report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.

 

(a)	Financial Statements of Businesses Acquired

Not Applicable

 

(b)	Pro Forma Financial Information

Not Applicable

 

(c)	Shell Company Transactions

Not Applicable

 

(d)

Exhibits

Exhibit 99.1 - Press Release of KCG Holdings, Inc. issued on October 30, 2014.

Exhibit 99.2 - KCG Holdings, Inc. Earnings Presentation, dated October 30, 2014.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned’s duly authorized signatory.

Dated: October 30, 2014

 

KCG HOLDINGS, INC.
By:		/s/ John McCarthy
Name:		John McCarthy
Title:		General Counsel and Corporate Secretary

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press Release of KCG Holdings, Inc. issued on October 30, 2014.
99.2		KCG Holdings, Inc. Earnings Presentation, dated October 30, 2014.

KCG ANNOUNCES THIRD QUARTER 2014 RESULTS

KCG reported a GAAP net loss of $9.6 million; pre-tax loss from

continuing operations of $15.2 million includes a net benefit of $4.3 million

unrelated to core operations

KCG repurchased 3.6 million shares for approximately $42.1 million during the quarter

JERSEY CITY, New Jersey – October 30, 2014 – KCG Holdings, Inc. (NYSE: KCG) today reported a GAAP net loss of $9.6 million, or $0.09 per share, for the third quarter of 2014.

The third quarter 2014 GAAP net loss from continuing operations was $9.4 million, or a loss of $0.09 per share. The third quarter pre-tax loss from continuing operations was $15.2 million which includes a $15.1 million net gain related to the Company’s strategic investment in tradeMONSTER Group, Inc. (“tradeMONSTER”), which combined with OptionsHouse LLC (“OptionsHouse”), $10.5 million in compensation related to a reduction in workforce and other employee separations and a $0.3 million lease loss accrual. Excluding these items, on a non-GAAP basis, third quarter 2014 loss from continuing operations before income taxes was $19.5 million. A reconciliation of GAAP to non-GAAP results is included in Exhibit 4.

KCG was formed July 1, 2013 as a result of the merger between Knight Capital Group, Inc. and GETCO Holding Company, LLC. Financial results for the periods prior to the third quarter of 2013 contained herein solely represent the results of GETCO Holding Company, LLC as the accounting acquirer.

 

Select Financial Results		($ in thousands, except EPS)
From Continuing Operations		3Q14				2Q14				3Q13
Revenues			272,302				314,133				469,338
Trading revenues, net			150,865				206,780				230,471
Commissions and fees			102,663				104,776				109,079
Gain on investment in Knight Capital Group, Inc.			—				—				127,972
GAAP pre-tax (loss) income			(15,235	)			14,507				121,373
GAAP EPS			(0.09	)			0.08				1.99
Non-GAAP pre-tax (loss) income*			(19,518	)			21,512				19,047

 

*	See Exhibit 4 for a reconciliation of GAAP to non-GAAP results.

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Third Quarter Highlights

 

•

Grew market share of consolidated U.S. equity share volume executed by KCG market making from the second quarter

 

•

Increased algorithmic trading volumes and net revenues from institutional clients for the second consecutive quarter

 

•

Announced the sale of KCG’s futures commission merchant (FCM)

 

•

Repurchased 3.6 million shares for $42.1 million

Daniel Coleman, Chief Executive Officer of KCG, said, “KCG’s financial results for the third quarter of 2014 were impacted by the subdued market environment in U.S. equities. In particular, the muted retail trading activity and single-digit realized volatility within a heightened competitive environment cut into Market Making segment results. Consecutive quarters in a market cycle trough reaffirm the importance of reducing the cost structure while diversifying in select asset classes in ways that are scalable and non-capital intensive. During the quarter, KCG continued to carry out our strategic plan, pursue opportunities to unlock additional value and return capital to stockholders.”

In the first quarter of 2014, the Company began to charge the Market Making and Global Execution Services segments for the cost of aggregate debt interest. The interest amount charged to each of the segments is based on capital limits and requirements. Historically, debt interest was included within the Corporate and Other segment. This change in the measurement of segment profitability, which has no impact to the consolidated results, is reported prospectively and, therefore, is not reflected in the financial results for any period prior to January 1, 2014.

Market Making

The Market Making segment encompasses direct-to-client and non-client, exchange-based market making across multiple asset classes and is an active participant in all major cash, options and futures markets in the U.S., Europe and Asia. During the third quarter of 2014, the segment generated total revenues of $166.6 million and a pre-tax loss of $8.0 million, which included a debt interest charge of $6.1 million. The results also included compensation related to a reduction in workforce and other employee separations of $2.8 million. Excluding this item, Market Making generated a pre-tax loss of $5.2 million in the third quarter.

In the second quarter of 2014, the segment generated total revenues of $218.4 million and pre-tax income of $36.0 million, which included a debt interest charge of $5.9 million. In the third quarter of 2013, the segment reported total revenues of $240.1 million and pre-tax income of $47.9 million.

During the third quarter of 2014, results from U.S. equity market making were adversely affected by the decline in retail trading activity, heightened competition for retail order flow and challenging market conditions late in the quarter. According to SEC Rule 605 data, average daily U.S. equity share volume handled by the leading market makers was 11 percent below the quarterly average over the past five years while price improvement on retail orders rose approximately 7.5 percent market-wide from the second quarter of 2014 and 27.5 percent from the third quarter of 2013. Results from non-U.S. equity market making were largely static quarter over quarter amid mixed market conditions in European and Asian equities, fixed income, currencies and commodities.

Mr. Coleman commented, “A number of factors coalesced to pressure revenues and revenue capture in U.S. equities during the quarter. The seasonally slow July and August were followed by an active yet difficult September. The elevated levels of price improvement put added pressure on revenue capture. Nonetheless, we grew market share of consolidated U.S. equity share volume during the quarter and made important progress in certain other strategic asset classes.”

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Select Trade Statistics: U.S. Equity Market Making

 

		3Q14				2Q14				3Q13
Average daily dollar volume traded ($ millions)			24,726				25,143				25,365
Average daily trades (thousands)			3,326				3,620				3,809
Average daily shares traded (millions)			5,787				10,820				4,148
NYSE and NASDAQ shares traded			727				758				805
OTC Bulletin Board and OTC Market shares traded			5,060				10,061				3,343
Average revenue capture per U.S. equity dollar value traded (bps)			0.75				1.07				1.01

Global Execution Services

The Global Execution Services segment comprises agency execution services and trading venues. During the third quarter of 2014, the segment generated total revenues of $79.2 million and a pre-tax loss of $1.7 million, which included a debt interest charge of $1.6 million. The results also included compensation related to a reduction in workforce and other employee separations of $3.6 million. Excluding this item, Global Execution Services generated pre-tax income of $1.9 million in the third quarter.

In the second quarter of 2014, the segment generated total revenues of $85.9 million and pre-tax income of $0.7 million, which included a debt interest charge of $1.8 million. The results also included compensation related to a reduction in workforce of $1.9 million. Excluding this item, Global Execution Services generated pre-tax income of $2.6 million in the second quarter of 2014. In the third quarter of 2013, the segment reported total revenues of $91.4 million and a pre-tax loss of $16.4 million, which included $15.1 million in compensation charges related to a reduction in workforce. Excluding this item, Global Execution Services generated a pre-tax loss of $1.2 million in the third quarter of 2013.

During the third quarter of 2014, results were impacted by the quarter over quarter declines in market volumes of U.S. and European equities, offset in part by additional progress in algorithmic trading as well as a rise in market volumes of foreign exchange and ETFs. In algorithmic trading, the contributions from institutional clients grew for the second consecutive quarter to 24 percent of U.S. equity share volume and 63 percent of net revenues for the unit. KCG Hotspot benefitted from a 15 percent quarter over quarter rise in overall notional foreign exchange dollar volume among reporting venues. KCG’s U.S. ETF trading team continued to build momentum amid an approximate 5 percent quarter over quarter increase in overall ETF share volume.

Mr. Coleman commented, “We have made steady progress to date in algorithmic trading. In the first half of the year, we introduced a new algorithm employing a market maker’s approach and made several, targeted new hires. As a result of all the efforts, we’ve onboarded 50 new institutional clients through the third quarter. We continue to beta test new intuitive algorithms that leverage KCG’s intellectual capital and technology to add to the product portfolio.”

As KCG continues to evaluate how best to realize untapped value throughout the company, KCG has begun to explore strategic options for KCG Hotspot, with the goal of executing on opportunities if it creates additional value for our stockholders, clients and employees. KCG has not made a decision to enter into any transaction at this time, and there can be no assurance that KCG will enter into such a transaction in the future.

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Select Trade Statistics: Agency Execution and Trading Venues

 

		3Q14				2Q14				3Q13
Average daily KCG algorithmic trading and order routing U.S. equities shares traded (millions)			248.2				265.3				269.7
Average daily KCG Hotspot notional foreign exchange dollar value traded ($ billions)			30.3				26.2				28.4
Average daily KCG BondPoint fixed income par value traded ($ millions)			126.0				133.7				129.1

KCG electronic execution average daily U.S. equities share volume includes U.S. exchange listed shares traded by algorithmic trading and order routing.

Corporate and Other

The Corporate and Other segment includes strategic investments and corporate overhead expenses. During the third quarter of 2014, the segment recorded total revenues of $26.5 million and a pre-tax loss of $5.5 million. Included in the results was a net gain of $15.1 million related to KCG’s investment in tradeMONSTER, in conjunction with tradeMONSTER’s combination with OptionsHouse in the third quarter, compensation related to a reduction in workforce and other employee separations of $4.2 million and a lease loss accrual of $0.3 million. Excluding these items, the Corporate and Other segment’s pre-tax loss for the third quarter was $16.2 million.

In the second quarter of 2014, the segment recorded total revenues of $9.8 million and a pre-tax loss of $22.2 million. Included in the results was a $2.0 million writedown of capitalized debt costs related to the principal repayment of debt, $0.8 million in compensation related to a reduction in workforce, and a lease loss accrual of $1.5 million. Excluding these items, the Corporate and Other segment’s pre-tax loss for the second quarter was $17.9 million. In the third quarter of 2013, the segment recorded total revenues of $137.9 million and pre-tax income of $89.9 million. Included in the results was revenue of $128.0 million resulting from the gain on investment in Knight Capital Group, Inc. as well as professional and other fees related to the Mergers and August 1^st technology issue of $7.3 million and lease loss accruals of $0.8 million. Excluding these items, the Corporate and Other segment’s pre-tax loss for the third quarter of 2013 was $30.0 million.

Financial Condition

As of September 30, 2014, KCG had $540.5 million in cash and cash equivalents. Total outstanding debt was $422.3 million, of which $117.3 million is due in March 2015. The Company had $1.5 billion in stockholders’ equity equivalent to a book value of $12.68 per share and tangible book value of $11.05 per share based on total shares outstanding of 117.2 million, including restricted stock units.

KCG’s headcount at September 30, 2014 was 1,153 full-time employees as compared to 1,207 full-time employees at June 30, 2014. Approximately 45 full-time employees will be affected by the announced sale of KCG’s futures commission merchant (FCM), which is expected to close in the fourth quarter of 2014.

During the third quarter of 2014, KCG repurchased 3.6 million shares for approximately $42.1 million under the Company’s initial $150.0 million stock repurchase program. As of September 30, 2014, KCG had approximately $55.0 million of remaining capacity available to repurchase additional shares under the program. The Company cautions that there are no assurances that any further repurchases may actually occur.

Conference Call

KCG will hold a conference call to discuss third quarter 2014 financial results starting at 9:00 a.m. Eastern Time today, October 30, 2014. To access the call, dial 888-263-2736 (domestic) or 913-905-3216 (international) and enter passcode 9791821. In addition, the call will be webcast at http://www.media-server.com/m/acs/41fae90442d481b1589c479d3013dbef. Following the

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conclusion of the call, a replay will be available by dialing 888-203-1112 in the U.S. or selecting a number based on location outside the U.S. from a list posted at https://replaynumbers.conferencinghub.com/index.aspx?confid=9791821&passcode=9791821 and entering passcode 9791821.

Additional information for investors, including a presentation of the third quarter financial results, can be found at http://investors.kcg.com.

Non-GAAP Financial Presentations

KCG believes that certain non-GAAP financial presentations, when taken into consideration with the corresponding GAAP financial presentations, are important in understanding operating results. Selected financial information is included in the non-GAAP financial presentations for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013 and for the nine months ended September 30, 2014 and 2013. KCG believes the presentations provide a meaningful summary of results of operations for each of the three and nine month periods. Reconciliations of GAAP to non-GAAP results are included in the schedules in Exhibit 4.

About KCG

KCG is a leading independent securities firm offering investors and clients a range of services designed to address trading needs across asset classes, product types and time zones. The firm combines advanced technology with exceptional client service across market making, agency execution and venues. KCG has multiple access points to trade global equities, fixed income, currencies and commodities via voice or automated execution. www.kcg.com

Certain statements contained herein may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “prospects” or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could” or “may,” or by variations of such words or by similar expressions. These “forward-looking statements” are not historical facts and are based on current expectations, estimates and projections about KCG’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Any forward-looking statement contained herein speaks only as of the date on which it is made. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict including, without limitation, risks associated with: (i) the strategic business combination (the “Mergers”) of Knight Capital Group, Inc. (“Knight”) and GETCO Holding Company, LLC (“GETCO”), including, among other things, (a) difficulties and delays in integrating the Knight and GETCO businesses or fully realizing cost savings and other benefits, (b) the inability to sustain revenue and earnings growth, and (c) customer and client reactions to the Mergers; (ii) the August 1, 2012 technology issue that resulted in Knight’s broker-dealer subsidiary sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market and the impact to Knight’s business as well as actions taken in response thereto and consequences thereof; (iii) the sale of KCG’s reverse mortgage origination and securitization business and the departure of the managers of KCG’s listed derivatives group; (iv) changes in market structure, legislative, regulatory or financial reporting rules, including the increased focus by regulators, the New York Attorney General, Congress and the media on market structure issues, and in particular, the scrutiny of high frequency trading, alternative trading systems, market fragmentation, colocation, access to market data feeds, and remuneration arrangements such as payment for order flow and exchange fee structures; (v) past or future changes to organizational structure and management; (vi) KCG’s ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by KCG’s customers and potential customers; (vii) KCG’s ability to keep up with technological changes; (viii) KCG’s ability to effectively identify and manage market risk, operational and technology risk, legal risk, liquidity risk, reputational risk, counterparty and credit risk, international risk, regulatory risk, and compliance risk; (ix) the cost and other effects of material contingencies, including litigation contingencies, and any adverse judicial, administrative or arbitral rulings or proceedings; and (x) the effects of increased competition and KCG’s ability to maintain and expand market share. The list above is not exhaustive. Readers should carefully review the risks and uncertainties disclosed in KCG’s reports with the SEC, including, without limitation, those detailed under “Risk Factors” in KCG’s Annual Report on Form 10-K for the year-ended December 31, 2013, under “Certain Factors Affecting Results of Operations” in KCG’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, and other reports or documents KCG files with, or furnishes to, the SEC from time to time.

CONTACTS

 

Sophie Sohn		Jonathan Mairs
Communications & Marketing		Investor Relations
312-931-2299		201-356-1529
media@kcg.com		jmairs@kcg.com

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KCG HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)		Exhibit 1

 

		For the three months ended
		September 30, 2014				June 30, 2014				September 30, 2013
		(In thousands, except per share amounts)
Revenues
Trading revenues, net		$	150,865			$	206,780			$	230,471
Commissions and fees			102,663				104,776				109,079
Interest, net			139				(289	)			(177	)
Investment income and other, net			18,635				2,866				129,965
Total revenues			272,302				314,133				469,338
Expenses
Employee compensation and benefits			95,307				103,430				129,631
Execution and clearance fees			74,058				73,242				81,023
Communications and data processing			38,576				38,279				44,046
Depreciation and amortization			20,298				19,823				20,091
Payments for order flow			15,377				18,076				16,431
Debt interest expense			7,714				7,497				19,350
Occupancy and equipment rentals			7,672				8,235				8,898
Collateralized financing interest			7,330				6,395				4,520
Professional fees			7,161				7,337				9,077
Business development			3,163				2,609				2,644
Writedown of assets and lease loss accrual, net			301				1,941				936
Writedown of capitalized debt costs			—				1,995				—
Other			10,580				10,767				11,318
Total expenses			287,537				299,626				347,965
(Loss) Income from continuing operations before income taxes			(15,235	)			14,507				121,373
Income tax (benefit) expense			(5,796	)			5,520				(107,190	)
(Loss) Income from continuing operations, net of tax			(9,439	)			8,987				228,563
Loss from discontinued operations, net of tax			(177	)			(67	)			(784	)
Net (loss) Income		$	(9,616	)		$	8,920			$	227,779
Basic (loss) earnings per share from continuing operations		$	(0.09	)		$	0.08			$	2.00
Diluted (loss) earnings per share from continuing operations		$	(0.09	)		$	0.08			$	1.99
Basic loss per share from discontinued operations		$	—			$	—			$	(0.01	)
Diluted loss per share from discontinued operations		$	—			$	—			$	(0.01	)
Basic (loss) earnings per share		$	(0.09	)		$	0.08			$	2.00
Diluted (loss) earnings per share		$	(0.09	)		$	0.08			$	1.98
Shares used in computation of basic (loss) earnings per share			110,376				114,859				114,113
Shares used in computation of diluted (loss) earnings per share			110,376				117,601				114,773

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KCG HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS(1) (Unaudited)		Exhibit 1 (Continued)

 

		For the nine months ended
		September 30, 2014				September 30, 2013
		(In thousands, except per share amounts)
Revenues
Trading revenues, net		$	615,942			$	415,495
Commissions and fees			319,696				164,391
Interest, net			798				(970	)
Investment income and other, net			33,656				125,046
Total revenues			970,092				703,962
Expenses
Employee compensation and benefits			321,056				236,983
Execution and clearance fees			222,801				167,931
Communications and data processing			113,651				86,040
Depreciation and amortization			60,224				36,004
Payments for order flow			55,485				17,468
Debt interest expense			24,735				21,995
Occupancy and equipment rentals			24,192				15,454
Collateralized financing interest			19,887				4,520
Professional fees			19,900				38,928
Business development			7,455				2,686
Writedown of assets and lease loss accrual, net			2,508				4,248
Writedown of capitalized debt costs			9,552				—
Other			29,990				30,028
Total expenses			911,436				662,285
Income from continuing operations before income taxes			58,656				41,677
Income tax expense (benefit)			22,191				(101,901	)
Income from continuing operations, net of tax			36,465				143,578
Loss from discontinued operations, net of tax			(1,497	)			(784	)
Net income		$	34,968			$	142,794
Net loss allocated to preferred and participating units		$	—			$	(21,535	)
Net income attributable to common shareholders		$	34,968			$	164,329
Basic earnings per share from continuing operations		$	0.32			$	2.41
Diluted earnings per share from continuing operations		$	0.31			$	2.40
Basic loss per share from discontinued operations		$	(0.01	)		$	(0.01	)
Diluted loss per share from discontinued operations		$	(0.01	)		$	(0.01	)
Basic earnings per share		$	0.31			$	2.39
Diluted earnings per share		$	0.30			$	2.39
Shares used in computation of basic earnings (loss) per share			113,680				68,632
Shares used in computation of diluted earnings (loss) per share			117,127				68,855

 

(1)	Nine months ended September 30, 2013 includes three months of results of KCG Holdings, Inc. plus six months of GETCO Holding Company, LLC.

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KCG HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)		Exhibit 2

 

 

		September 30, 2014				December 31, 2013
		(In thousands)
ASSETS
Cash and cash equivalents		$	540,457			$	674,281
Cash and cash equivalents segregated under federal and other regulations			15,805				183,082
Financial instruments owned, at fair value:
Equities			2,595,507				2,298,785
Listed options			130,931				339,798
Debt securities			123,151				83,256
Total financial instruments owned, at fair value			2,849,589				2,721,839
Collateralized agreements:
Securities borrowed			1,711,214				1,357,387
Receivable from brokers, dealers and clearing organizations			969,018				1,257,251
Fixed assets and leasehold improvements, less accumulated depreciation and amortization			138,892				146,668
Investments			101,746				125,413
Goodwill and Intangible assets, less accumulated amortization			190,601				208,806
Deferred tax asset, net			175,215				175,639
Assets held for sale			686,639				—
Other assets			136,070				146,638
Total assets		$	7,515,246			$	6,997,004
LIABILITIES & EQUITY
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equities		$	2,057,849			$	1,851,006
Listed options			117,829				252,282
Debt securities			186,211				57,198
Other financial instruments			636				5,014
Total financial instruments sold, not yet purchased, at fair value			2,362,525				2,165,500
Collateralized financings:
Securities loaned			778,000				733,230
Financial instruments sold under agreements to repurchase			867,858				640,950
Total collateralized financings			1,645,858				1,374,180
Payable to brokers, dealers and clearing organizations			611,426				474,108
Payable to customers			61,540				481,041
Accrued compensation expense			70,630				149,430
Accrued expenses and other liabilities			159,135				175,910
Capital lease obligations			7,250				10,039
Liabilities held for sale			688,802				—
Debt			422,259				657,259
Total liabilities			6,029,425				5,487,467
Equity
Class A Common Stock			1,277				1,233
Additional paid-in capital			1,357,613				1,306,549
Retained earnings			246,646				211,678
Treasury stock, at cost			(121,457	)			(11,324	)
Accumulated other comprehensive income			1,742				1,401
Total equity			1,485,821				1,509,537
Total liabilities and equity		$	7,515,246			$	6,997,004

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KCG HOLDINGS, INC. PRE-TAX EARNINGS (LOSS) FROM CONTINUING OPERATIONS BY BUSINESS SEGMENT* (In thousands) (Unaudited)		Exhibit 3

 

		For the three months ended
		September 30, 2014				June 30, 2014				September 30, 2013
Market Making
Revenues		$	166,620			$	218,446			$	240,110
Expenses			174,653				182,442				192,257
Pre-tax (loss) earnings			(8,033	)			36,004				47,853
Global Execution Services
Revenues			79,218				85,903				91,366
Expenses			80,882				85,167				107,720
Pre-tax (loss) earnings			(1,664	)			736				(16,354	)
Corporate and Other
Revenues			26,464				9,784				137,862
Expenses			32,002				32,017				47,988
Pre-tax (loss) earnings			(5,538	)			(22,233	)			89,874
Consolidated
Revenues			272,302				314,133				469,338
Expenses			287,537				299,626				347,965
Pre-tax (loss) earnings		$	(15,235	)		$	14,507			$	121,373

 

*	Totals may not add due to rounding.

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KCG HOLDINGS, INC. PRE-TAX EARNINGS (LOSS) FROM CONTINUING OPERATIONS BY BUSINESS SEGMENT* (In thousands) (Unaudited)		Exhibit 3 (Continued)

 

		For the nine months ended
		September 30, 2014				September 30, 2013
Market Making
Revenues		$	662,412			$	455,678
Expenses			558,409				400,016
Pre-tax earnings			104,003				55,662
Global Execution Services
Revenues			252,341				113,700
Expenses			251,253				135,002
Pre-tax earnings (loss)			1,088				(21,302	)
Corporate and Other
Revenues			55,339				134,584
Expenses			101,774				127,267
Pre-tax (loss) earnings			(46,435	)			7,317
Consolidated
Revenues			970,092				703,962
Expenses			911,436				662,285
Pre-tax earnings		$	58,656			$	41,677

 

*	Totals may not add due to rounding.

Nine months ended September 30, 2013 includes three months of results of KCG Holdings, Inc. plus six months of GETCO Holding Company, LLC.

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KCG HOLDINGS, INC. Regulation G Reconciliation of Non-GAAP financial measures (Continuing operations) (in thousands)		Exhibit 4

 

Three months ended September 30, 2014		Market Making				Global Execution Services				Corporate and Other				Consolidated
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:
GAAP Loss from continuing operations before income taxes		$	(8,033	)		$	(1,664	)		$	(5,538	)		$	(15,235	)
Net gain related to tradeMONSTER combination with OptionsHouse			—				—				(15,105	)			(15,105	)
Compensation related to reduction in workforce and other employee separations			2,786				3,577				4,158				10,521
Writedown of assets and lease loss accrual, net			—				—				301				301
Non GAAP (Loss) Income from continuing operations before income taxes		$	(5,247	)		$	1,913			$	(16,184	)		$	(19,518	)
Three months ended June 30, 2014		Market Making				Global Execution Services				Corporate and Other				Consolidated
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:
GAAP Income (Loss) from continuing operations before income taxes		$	36,004			$	736			$	(22,233	)		$	14,507
Writedown of capitalized debt costs			—				—				1,995				1,995
Compensation related to reduction in workforce			383				1,886				800				3,069
Writedown of assets and lease loss accrual, net			452				—				1,489				1,941
Non GAAP Income (Loss) from continuing operations before income taxes		$	36,839			$	2,622			$	(17,949	)		$	21,512
Three months ended September 30, 2013		Market Making				Global Execution Services				Corporate and Other				Consolidated
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:
GAAP Income (Loss) from continuing operations before income taxes		$	47,853			$	(16,354	)		$	89,874			$	121,373
Gain on investment in Knight Capital Group, Inc.			—				—				(127,972	)			(127,972	)
Compensation and other expenses related to reduction in workforce			2,309				15,132				—				17,441
Professional and other fees related to Mergers and August 1st technology issue			—				—				7,269				7,269
Writedown of assets and lease loss accrual			108				—				828				936
Non GAAP Income (Loss) from continuing operations before income taxes		$	50,270			$	(1,222	)		$	(30,001	)		$	19,047

 

*	Totals may not add due to rounding

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KCG HOLDINGS, INC. Regulation G Reconciliation of Non-GAAP financial measures (Continuing operations)(1) (in thousands)		Exhibit 4 (Continued)

 

Nine months ended September 30, 2014		Market Making				Global Execution Services				Corporate and Other				Consolidated
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:
GAAP Income (Loss) from continuing operations before income taxes		$	104,003			$	1,088			$	(46,435	)		$	58,656
Net gain related to tradeMONSTER combination with OptionsHouse			—				—				(15,105	)			(15,105	)
Income resulting from the merger of BATS and Direct Edge, net			—				—				(9,644	)			(9,644	)
Compensation related to reduction in workforce and other employee separations			3,169				5,463				4,958				13,590
Writedown of capitalized debt costs			—				—				9,552				9,552
Writedown of assets and lease loss accrual, net			811				—				1,697				2,508
Non GAAP Income (Loss) from continuing operations before income taxes		$	107,983			$	6,551			$	(54,977	)		$	59,557
Nine months ended September 30, 2013		Market Making				Global Execution Services				Corporate and Other				Consolidated
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:
GAAP Income (Loss) from continuing operations before income taxes		$	55,662			$	(21,302	)		$	7,317			$	41,677
Gain on investment in Knight Capital Group, Inc.			—				—				(127,972	)			(127,972	)
Professional and other fees related to Mergers and August 1st technology issue			—				—				44,398				44,398
Compensation and other expenses related to reduction in workforce			6,264				15,997				—				22,261
Unit based compensation acceleration due to Mergers			—				—				22,031				22,031
Strategic asset impairment			—				—				9,184				9,184
Writedown of assets and lease loss accrual			108				—				4,525				4,633
Non GAAP Income (Loss) from continuing operations before income taxes		$	62,034			$	(5,305	)		$	(40,517	)		$	16,212

 

*	Totals may not add due to rounding

(1)	Nine months ended September 30, 2013 includes three months of results of KCG Holdings, Inc. plus six months of GETCO Holding Company, LLC.

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