UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No.
2
to
Schedule
TO
Tender Offer Statement under Section 14(d)(1) or 13(e)(1)
Of the Securities Exchange Act of 1934
KCG Holdings,
Inc.
(Name of Subject Company (Issuer) and Filing Person (Offeror))
Class A Common Stock, par value $0.01 per share
(Title of Class of Securities)
48244B 100
(CUSIP Number
of Class of Securities)
John McCarthy, Esq.
KCG
Holdings, Inc.
545 Washington Boulevard
Jersey City, New Jersey 07310
(201) 222-9400
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
with a
copy to:
Robert W. Reeder, Esq.
Jared M. Fishman, Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
(212) 558-4000
(Name, address and telephone number of person authorized to receive notices and communications on behalf of the filing persons)
CALCULATION OF FILING FEE
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Transaction Valuation* |
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Amount of Filing Fee** |
$330,000,000 |
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$38,346 |
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* |
The transaction value is estimated only for purposes of calculating the filing fee. This amount is based on the offer to purchase up to $330,000,000 of the Class A Common Stock, par value $0.01 per share, of KCG
Holdings, Inc. |
** |
The amount of the filing fee, calculated in accordance with Rule 011 under the Securities Exchange Act of 1934, as amended, equals $116.20 per million dollars of the value of the transaction. |
x |
Check the box if any part of the fee is offset as provided by Rule 011(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: $38,346 |
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Filing Party: KCG Holdings, Inc. |
Form or Registration No.: 005-87533 |
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Date Filed: May 4, 2015 |
¨ |
Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. |
Check the appropriate boxes below to designate any transactions to which the statement relates:
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¨ |
third-party tender offer subject to Rule 14d1. |
|
x |
issuer tender offer subject to Rule 13e4. |
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¨ |
going-private transaction subject to Rule 13e3. |
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¨ |
amendment to Schedule 13D under Rule 13d2. |
Check the following box if the filing is a final amendment
reporting the results of the tender offer: ¨
If applicable, check the appropriate box(es)
below to designate the appropriate rule provision(s) relied upon:
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¨ |
Rule 13e4(i) (Cross-Border Issuer Tender Offer) |
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¨ |
Rule 14d1(d) (Cross-Border Third Party Tender Offer) |
This Amendment No. 2 (Amendment No. 2) amends and supplements the Tender
Offer Statement on Schedule TO initially filed by KCG Holdings, Inc., a Delaware corporation (the Company), on May 4, 2015 and amended by Amendment No. 1 on May 12, 2015 (as may be further supplemented or amended from time
to time, the Schedule TO), pursuant to Rule 13e4 under the Securities Exchange Act of 1934, as amended, in connection with the Companys offer to purchase for cash up to $330,000,000 of shares of its Class A Common Stock,
par value $0.01 per share (the Shares), at a price not greater than $14.00 nor less than $13.50 per Share, net to the seller in cash, less any applicable withholding taxes and without interest, upon the terms and subject to the
conditions described in the Offer to Purchase, dated May 4, 2015, and in the related Letter of Transmittal (which together, as they may be amended or supplemented from time to time, constitute the Offer).
This Amendment No. 2 is being filed to amend and supplement certain provisions of the Schedule TO as set forth herein. Except as amended
hereby to the extent specifically provided herein, all terms of the Offer and all other disclosures set forth in the Schedule TO and the Exhibits thereto remain unchanged and are hereby expressly incorporated into this Amendment No. 2 by
reference.
Item 11. |
Additional Information |
Item 11 of the Schedule TO is hereby
amended and supplemented by adding the following:
On June 3, 2015, the Company issued a press release announcing the preliminary
results of the Offer, a copy of which is filed as Exhibit (a)(5)(E) to the Schedule TO and is incorporated herein by reference. A copy of a slide presentation to be used by Daniel Coleman, Chief Executive Officer of the Company, at the Sandler
ONeill Global Exchange & Brokerage Conference on June 3, 2015 is filed as Exhibit (a)(5)(F) to the Schedule TO and is incorporated herein by reference.
Item 12 is hereby amended and supplemented by adding
the following exhibit:
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(a)(5)(E) |
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Press Release issued by the Company on June 3, 2015. |
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(a)(5)(F) |
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Slide Presentation of the Company, dated June 3, 2015. |
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and
correct.
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KCG HOLDINGS, INC. |
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By: |
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/s/ John McCarthy |
Name: |
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John McCarthy |
Title: |
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General Counsel |
Date: June 3, 2015
EXHIBIT INDEX
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Exhibit Number |
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Description |
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(a)(1)(A) |
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Offer to Purchase, dated May 4, 2015.* |
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(a)(1)(B) |
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Letter of Transmittal (including IRS Form W-9).* |
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(a)(1)(C) |
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Notice of Guaranteed Delivery.* |
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(a)(1)(D) |
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Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees.* |
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(a)(1)(E) |
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Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees.* |
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(a)(1)(F) |
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Form of Summary Advertisement.* |
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(a)(5)(A) |
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Press Release issued by the Company on May 1, 2015.* |
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(a)(5)(B) |
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Earnings Presentation of the Company, dated May 1, 2015.* |
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(a)(5)(C) |
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Transcript of the Earnings Conference Call of the Company on May 1, 2015.* |
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(a)(5)(D) |
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Press Release issued by the Company on May 12, 2015, providing specified pro forma financial information.* |
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(a)(5)(E) |
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Press Release issued by the Company on June 3, 2015. |
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(a)(5)(F) |
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Slide Presentation of the Company, dated June 3, 2015. |
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(d)(1) |
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Registration Rights Agreement dated July 1, 2013, among the Company, Daniel V. Tierney 2011 Trust, Serenity Investments, LLC and GA-GTCO Interholdco, LLC - Incorporated herein by reference to Exhibit 4.2 of the Companys
Form 8-K Current Report filed on July 1, 2013. |
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(d)(2) |
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Warrant Agreement, dated July 1, 2013, between the Company and Computershare Shareowner Services LLC - Incorporated herein by reference to Exhibit 4.3 of the Companys Form 8-K Current Report filed on July 1, 2013. |
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(d)(3) |
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Form of Class A Warrant Certificate - Included in Exhibit (d)(2). |
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(d)(4) |
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Form of Class B Warrant Certificate - Included in Exhibit (d)(2). |
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(d)(5) |
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Form of Class C Warrant Certificate - Included in Exhibit (d)(2). |
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(d)(6) |
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Indenture, dated March 13, 2015 among the Company, the guarantors named herein and The Bank of New York Mellon, as trustee and collateral agent - Incorporated by reference to Exhibit 4.1 of the Companys Form 8-K Current
Report filed on March 16, 2015. |
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(d)(7) |
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Employment Agreement between the Company and Daniel Coleman - Incorporated herein by reference to Exhibit 10.4 of the Companys Form 8-K Current Report filed on July 1, 2013. |
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(d)(8) |
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Form of Employment Agreement - Incorporated herein by reference to Exhibit 10.1 of the Companys Form 8-K Current Report filed on August 9, 2013. |
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(d)(9) |
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Term Schedule to Employment Agreement between the Company and John McCarthy - Incorporated herein by reference to Exhibit 10.4 of the Companys Form 8-K Current Report filed on August 9,
2013. |
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Exhibit Number |
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Description |
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(d)(10) |
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Term Schedule to Employment Agreement between the Company and Nick Ogurtsov - Incorporated herein by reference to Exhibit 10.5 of the Companys Form 8-K Current Report filed on August 9, 2013. |
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(d)(11) |
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Revised Term Schedule to Employment Agreement between the Company and Jonathan Ross - Incorporated herein by reference to Exhibit 10.1 of the Companys Form 10-Q Quarterly Report filed on November 12, 2013. |
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(d)(12) |
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Term Schedule to Employment Agreement between the Company and Ryan Primmer - Incorporated herein by reference to Exhibit 10.9 of the Companys Form 10-K Annual Report filed on March 3 2014. |
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(d)(13) |
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Term Schedule to Employment Agreement between the Company and Gregory Tusar - Incorporated herein by reference to Exhibit 10.10 of the Companys Form 10-K Annual Report filed on March 3, 2014. |
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(d)(14) |
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Term Schedule to Employment Agreement between the Company and Steffan Parratt - Incorporated herein by reference to Exhibit 10.2 of the Companys Form 8-K Current Report filed on January 6, 2015. |
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(d)(15) |
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Employment Agreement between KCG Europe Limited and Philip Allison - Incorporated herein by reference to Exhibit 10.12 of the Companys Form 10-K Annual Report filed on March 2, 2015. |
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(d)(16) |
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KCG Holdings, Inc. Amended and Restated Equity Incentive Plan - Incorporated herein by reference to Exhibit 10.5 of the Companys Form 10-Q Quarterly Report filed on May 12, 2014. |
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(d)(17) |
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KCG Holdings, Inc. Amended and Restated Executive Incentive Plan - Incorporated herein by reference to Exhibit B of the Companys Proxy Statement on Schedule 14A filed on April 3, 2014. |
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(d)(18) |
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KCG Holdings, Inc. Amended and Restated Equity Incentive Plan Form of Restricted Stock Unit Agreement - Incorporated herein by reference to Exhibit 10.8 of the Companys Form 8-K Current Report filed on July 1,
2013. |
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(d)(19) |
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KCG Holdings, Inc. Amended and Restated Equity Incentive Plan Form of Employee Stock Option Agreement - Incorporated herein by reference to Exhibit 10.9 of the Companys Form 8-K Current Report filed on July 1, 2013. |
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(d)(20) |
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KCG Holdings, Inc. Amended and Restated Equity Incentive Plan Form of Employee Stock Appreciation Right Agreement - Incorporated herein by reference to Exhibit 10.10 of the Companys Form 8-K Current Report filed on July 1,
2013. |
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(d)(21) |
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KCG Holdings, Inc. Compensation Recoupment Policy - Incorporated herein by reference to Exhibit 10.16 of the Companys Form 8-K Current Report filed on July 1, 2013. |
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(d)(22) |
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Credit Agreement, dated July 1, 2013, by and among OCTEG, LLC and Knight Capital Americas LLC, as borrowers, the Company, as guarantor, the lenders from time to time party thereto, BMO Harris Bank N.A., as administrative agent and
collateral agent, JPMorgan Chase Bank N.A. and Bank of America, N.A., as syndication agents, and BMO Capital Markets, JPMorgan Securities, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint book runners
- Incorporated herein by reference to Exhibit 10.1 of the Companys Form 8-K Current Report filed on July 2, 2013. |
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(d)(23) |
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First Amendment to Credit Agreement dated October 24, 2013, by and among OCTEG, LLC and Knight Capital Americas LLC, as borrowers, the Company, as guarantor, the lenders from time to time party thereto and BMO Harris Bank N.A., as
administrative agent - Incorporated herein by reference to Exhibit 10.21 of the Companys Form 10-K Annual Report filed on March 3, 2014. |
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Exhibit Number |
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Description |
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(d)(24) |
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Security Agreement, dated March 13, 2015 among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and collateral agent - Incorporated herein by reference to Exhibit 10.1 of the Companys
Form 8-K Current Report filed on March 16, 2015. |
Exhibit (a)(5)(E)
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KCG Holdings, Inc. 545 Washington Boulevard
Jersey City, New Jersey 07310 1 201 222 9400 tel
1 800 544 7508 toll free
www.kcg.com |
KCG ANNOUNCES PRELIMINARY RESULTS OF ITS
MODIFIED DUTCH AUCTION TENDER OFFER
KCG expects to repurchase approximately 23.6 million shares of Class A Common Stock
at $14.00 per share for a total cost of $330 million, excluding fees and expenses
JERSEY CITY, New Jersey June 3, 2015 KCG Holdings, Inc. (NYSE: KCG) today announced the preliminary results of its modified Dutch
auction tender offer, which expired on June 2, 2015 at 5:00 p.m., New York City time.
Based on the preliminary count by Computershare, the
depositary for the tender offer, a total of approximately 82.3 million shares of KCGs Class A Common Stock were properly tendered and not properly withdrawn at or below $14.00 per share, including approximately 9.0 million shares
that were tendered by notice of guaranteed delivery. In accordance with the terms and conditions of the tender offer, and based on the preliminary count by the depositary, KCG expects to repurchase 23.6 million shares at $14.00 per share on a pro
rata basis, except for tenders of odd lots, which will be accepted in full, for a total cost of approximately $330 million, excluding fees and expenses related to the tender offer. As such, KCG has been informed by the depositary that the
preliminary proration factor for the tender offer is approximately 28.7%. The shares expected to be repurchased represent approximately 22% of KCGs Class A Common Stock outstanding excluding restricted stock units as of May 7, 2015.
The number of shares expected to be purchased in the tender offer and the purchase price are preliminary and subject to change. The preliminary information
contained in this press release is subject to confirmation by the depositary and is based on the assumption that all shares tendered by notice of guaranteed delivery will be delivered within the prescribed three trading day settlement period. The
final number of shares to be purchased and the final purchase price will be announced following the completion by the depositary of the confirmation process. Payment for the shares accepted for purchase pursuant to the tender offer, and the return
of all other shares tendered and not purchased, will occur promptly thereafter.
Merrill Lynch, Pierce, Fenner & Smith Incorporated is the dealer
manager for the tender offer. Georgeson Inc. is the information agent and Computershare is the depositary for the tender offer. All inquiries about the tender offer should be directed to Merrill Lynch, Pierce, Fenner & Smith Incorporated
toll-free at (888) 803-9655 or Georgeson Inc. toll-free at (888) 680-1525.
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 KCGs industry, managements 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 Knights broker-dealer subsidiary sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market and the impact to Knights
business as well as actions taken in response thereto and consequences thereof; (iii) the sales of KCGs reverse mortgage origination and securitization business, KCGs futures commission merchant and KCG Hotspot; (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 KCGs organizational
structure and management; (vi) KCGs ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by KCGs customers and potential customers; (vii) KCGs ability to keep
up with technological changes; (viii) KCGs 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; (x) the effects of increased competition and
KCGs ability to maintain and expand market share; and (xi) the completion of the tender offer commenced by KCG on May 4, 2015. The list above is not exhaustive. Readers should carefully review the risks and uncertainties disclosed in
KCGs reports with the SEC, including, without limitation, those detailed under Risk Factors in KCGs Annual Report on Form 10-K for the year-ended December 31, 2014, Quarterly Report on Form 10-Q for the quarter-ended March
31, 2015, and other reports or documents KCG files with, or furnishes to, the SEC from time to time.
CONTACTS
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Sophie Sohn Communications & Marketing
312-931-2299 media@kcg.com |
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Jonathan Mairs Investor Relations
201-356-1529 jmairs@kcg.com |
KCG Holdings, Inc. (NYSE: KCG) Sandler ONeill Global Exchange and Brokerage Conference
June 3, 2015
Exhibit (A)(5)(F) |
Safe Harbor 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 sales of KCG's
reverse mortgage origination and securitization business, KCG's futures commission merchant and KCG Hotspot; (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 KCGs 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; (x) the effects of increased competition and KCG's ability to maintain and expand market share; and (xi) the completion of the
tender offer commenced by KCG on May 4, 2015.
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, 2014, Quarterly Report on Form 10-Q for the quarter-ended March 31, 2015, and other reports or documents KCG files with, or furnishes to, the SEC from time to time. For additional disclosures, please see https://www.kcg.com/legal/global-disclosures. |
Update on Modified Dutch Auction Tender Offer On May 4, 2015, KCG commenced a modified Dutch auction tender offer under
the terms of which KCG would repurchase for cash properly tendered
outstanding shares of KCG Class A Common Stock
having an aggregate purchase price of up to $330
million From May 4 through June 2, 2015, KCG
stockholders were able to tender stock to KCG at
specified prices per share of not less than $13.50 and not greater than $14.00, or at the purchase price determined by KCG in
accordance with the terms of the offer
Based on the preliminary count, the offer is fully subscribed and
KCG expects to repurchase 23.6 million shares at
$14.00 per share with a preliminary proration factor
of approximately 28.7% Projected weighted average
shares outstanding of 108 to 111 million in 2Q15
1
1
The number of shares expected to be purchased in the tender offer
and the purchase price are preliminary and subject to change and to confirmation by the depositary. The final number of shares to be purchased and the final purchase price will be announced following the completion by the depositary of the confirmation process. 1 |
Cash Management: Deleveraging to Capital Return Debt level 1 Debt level and share repurchases for June 2015 assume no principal debt prepayments are made and that $330 million of shares
are repurchased pursuant to the modified Dutch auction tender offer 2 Represents the aggregate cash and cash equivalents held by GETCO Holding Company, LLC and Knight Capital Group, Inc. at June 30, 2013; also factors in cash activity related to the Mergers on 7/1 including issuance of $535 million First Lien Credit Facility, contribution of $55 million from GA offset by payment to Knight shareholders of $720 million, funding of escrow account to paydown Knight Convertibles of $375 million, payment of debt (and interest on debt) on GETCO's books and fees on Merger-related debt issuances 3 Asset sales represent aggregate cash received to date from sales of Urban Financial of America, KCG's futures commission
merchant (FCM) and KCG Hotspot, less estimated taxes payable on the applicable gains and excluding all future consideration 4 Free cash flow represents income from continuing operations less capital expenditures plus non-cash items such as
depreciation and amortization, stock-based compensation and non-GAAP adjustments included in Regulation G tables through 1Q15 5 Debt repayments represents total cash used to repay 8.25% $305 million Senior Secured Notes plus its make-whole premium plus $535 million First Lien Credit Facility ($117 million of the paydown of this facility came from the Collateral Account funded on 7/1; $117 million of KCG's cash was then used for the repayment of the remaining principal
outstanding of KCG's Convertible Notes 6
Funds received from issuance of debt, net represents issuance of
6.875% $500 million Senior Secured Notes, net of fees paid to third parties directly attributable to the debt issuance 7 Distributions from investments, net represents cash received as returns on capital related to KCG's investments, net of
additional investments made 8
Represents share repurchases under the initial $150 million share
repurchase program authorized by the KCG Board of Directors on May 1, 2014 9 Represents the preliminary dollar value of shares expected to be repurchased under the modified Dutch auction tender offer
announced on May 1, 2015. 10
Targeted liquidity pool, as described in KCG's quarterly report on
Form 10-Q for the quarter ended March 31, 2015 within Item 3 Quantitative and Qualitative Disclosures About Market Risk 11 Represents cash in excess of the targeted liquidity pool, a portion of which is contained in Cash and cash equivalents and the remainder is used to fund daily
operations and contained elsewhere on the balance sheet including within Receivable from brokers, dealers and clearing organizations 2 $1,215 $95 $495 $0 $250 $500 $750 $1,000 $1,250 KCG debt level and cumulative share repurchases $425 Cumulative share repurchases
Cash
(in $ millions)
Sources
Uses
Approximate cash and cash equivalents
$ 730
Asset sales
304
278
857
488
58
95
330
Subtotal
575
Targeted liquidity pool of cash and highly-liquid
instruments
350
$ 225
NOTE: Totals may not add due to rounding
5
7
10
11
4
Free cash flow Debt repayments
Funds received from issuance of debt, net 6 Distributions from investments, net
Share repurchases 8 2 Tender Offer
Approximate remaining cash at July 1, 2013 3 9 1 |
Consolidated Financials 3 Compensation and benefits Communications and data processing Depreciation and amortization Debt interest expense Professional fees Occupancy and equipment rentals Business development Other 1 See addendum for a reconciliation of GAAP to non-GAAP financial results; quarterly averages are
derived from totals provided in the charts
2
Free cash flow represents income from continuing operations less
capital expenditures plus non-cash items such as
depreciation and amortization, stock-based compensation and non-GAAP adjustments included in the Regulation G tables 3 Debt at March 31, 2015 included the 8.25% $305 million Senior Secured Notes, which were redeemed
subsequent to the quarter close using funds held in
escrow 4
Debt-to-tangible equity ratio at March 31, 2015 excludes
the 8.25% $305 million Senior Secured Notes which
were redeemed subsequent to the quarter close; tangible equity is calculated by subtracting goodwill and intangible assets from equity 5 Tangible book value is calculated by subtracting goodwill and intangible assets from equity; based on
shares outstanding of 117.9 million, including restricted stock
units (RSUs) as of May 7, 2015 Non-GAAP
pre-tax income from continuing operations
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
2H13
2014
1Q15
$0
$10
$20
$30
$40
$50
$60
2H13
2014
1Q15
$210.2 mn
$199.0 mn
$186.6 mn
$19.4 mn
$22.5 mn
$32.4 mn
$41.6 mn
$36.5 mn
$48.4 mn
Avg.
quarterly
earnings
and
free
cash
flow
Avg.
quarterly
non-GAAP
expenses
Free cash flow
from
operating
income
2
1
1
KCG balance
sheet
As
of March 31, 2015
(in $ millions)
Cash and cash equivalents
990.5
Debt
3
799.8
Stockholders equity
1,783.3
-
-
-
0.30
-
-
-
Book
value per share
5
$15.10
Tangible book value per share
5
$13.86
Debt-to-tangible equity ratio
4 |
The Competitive Landscape Getting to the Right Strategic Spot in U.S. Trade Execution Potential Disruptors Market Leaders Specialized Full Service Client Offering Global banks Proprietary Trading Groups EMSs / OMSs Exchanges ATSs Institutional e-Brokers Mid-Size Institutional Brokers KCG * * KCG Holdings, Inc. was formed July 1, 2013 by the merger of GETCO Holding Company, LLC and Knight Capital Group,
Inc. 4
Prime
Brokers
Market Makers |
Prospects for Multiyear Organic Growth 5 Agency Execution: Expansion of algorithmic trading among U.S. and European asset managers, The continued growth of ETF assets under management and trading volume, The potential for unbundling Market Making: Incremental market share gains in U.S. equities from strategic clients and expanded capabilities, Market making in fixed income, currencies and commodities on a global basis, Building out the client network in Europe Trading Venues: Expansion of the KCG BondPoint offering for institutional clients Industry consolidation among ATSs Market Making Agency Execution Trading Venues |
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 7 3 months ended March 31, 2015 Market Making Global Execution Services Corporate and Other Consolidated GAAP income (loss) from continuing operations before income taxes $ 39,340 $ 381,058 $ (14,270) $ 406,128 Gainon sale of KCG Hotspot - (385,026) - (385,026) Professional fees related to sale of KCG Hotspot - 6,736 - 6,736 Compensation expense related to sale of KCG Hotspot - 4,457 - 4,457 Lease loss accrual, net - - 132 132 $ 39,340 $ 7,225 $ (14,138) $ 32,427 Non-GAAP income (loss) from continuing operations before income taxes Reconciliation of GAAP pre-tax to non-GAAP pre-tax: |
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 8 3 months ended December 31, 2014 Reconciliation of GAAP pre-tax to non-GAAP pre-tax:
GAAP income (loss) from continuing operations before income
taxes Non-GAAP income (loss) from continuing
operations before income taxes Gain on sale of
FCM Lease loss accrual, net
Market Making
Global Execution
Services
Corporate and
Other
Consolidated
$ 42,710
$ 42,710
-
-
$ 9,968
(2,116)
-
$ 7,852
$ (26,147)
6,117
$ (20,030)
-
$ 26,531
$ 30,532
6,117
(2,116) |
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 9 3 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)
|
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 3 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 $ (22,233) $ 14,507 Writedown of capitalized debt costs - - 1,995 1,995 Compensation related to reduction in workforce 383 1,886 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 10 $ 36,004 $ 736 800 |
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) Market Making Global Execution Services Corporate and Other Consolidated $ 76,032 $ 2,016 $ (18,664) $ 59,384 - - 7,557 7,557 - - (9,644) (9,644) Lease loss accrual, net 359 - (93) 266 $ 76,391 $ 2,016 $ (20,844) $ 57,563 11 Non-GAAP income (loss) from continuing operations before income taxes Writedown of capitalized debt costs 3 months ended March 31, 2014 Reconciliation of GAAP pre-tax to non-GAAP pre-tax:
GAAP income (loss) from continuing operations before income
taxes Income resulting from the merger of BATS and
Direct Edge, net |
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 12 3 months ended December 31, 2013
Reconciliation of GAAP pre-tax to
non-GAAP pre-tax: GAAP income (loss) from continuing operations before income taxes Compensation and other expenses related to a reduction in workforce Professional and other fees related to Mergers and August 1st technology issue
Writedown of capitalized debt costs
Writedown of assets and lease loss accrual Gain on strategic asset
Non-GAAP income (loss) from continuing
operations before income taxes Market Making Global Execution Services Corporate and Other Consolidated $ 47,951 $ (4,491) $ (60,159) $ (16,699) 5,254 5,447 708 11,409 - - 2,785 2,785 - - 13,209 13,209 - - (1,359) (1,359) - 1,681 8,819 10,500 $ 53,205 $ 2,637 $ (35,997) $ 19,845 |
13 Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 13 Market Making Global Execution Services Corporate and Other Consolidated $ 47,853 $ (16,354) $ 89,874 $ 121,373 - - (127,972) (127,972) 2,309 15,132 - 17,441 - - 7,269 7,269 108 - 828 936 $ 50,270 $ (1,222) $ (30,001) $ 19,047 3 months ended September 30, 2013
Reconciliation of GAAP pre-tax to
non-GAAP pre-tax: GAAP income (loss) from continuing operations before income taxes Gain on investment in Knight Capital Group, Inc. Compensation and other expenses related to reduction in workforce Writedown of assets and lease loss accrual, net Non-GAAP income (loss) from continuing operations before income taxes Professional and other fees related to Mergers and August 1 st technology issue |
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) GAAP Adjustments for non-GAAP presentation KCG non-GAAP, normalized expenses Employee compensation and benefits 106,718 4,457 102,261 33,764 - 33,764 Depreciation and amortization 20,615 - 20,615 Debt interest expense 8,463 - 8,463 Professional fees 11,181 6,736 4,445 Occupancy and equipment rentals 7,340 - 7,340 Business development 1,857 - 1,857 132 132 - Other 7,808 - 7,808 Total expenses $ 197,878 $ 11,325 $ 186,553 14 Total expenses exclude transaction-based expenses which fluctuate based on market conditions and client activity.
3 months ended June 30, 2014
1
1 Lease loss accrual, net Reconciliation of GAAP expenses to KCG non-GAAP, normalized expenses: Communications and data processing |
GAAP Adjustments for non-GAAP presentation KCG non-GAAP, normalized expenses Employee compensation and benefits 116,214 - 116,214 36,945 - 36,945 Depreciation and amortization 21,224 - 21,224 Debt interest expense 7,721 - 7,721 Professional fees 5,695 - 5,695 Occupancy and equipment rentals 8,514 - 8,514 Business development 2,308 - 2,308 Lease loss accrual, net 6,117 6,117 - Other 9,822 - 9,822 Total expenses $ 214,561 $ 6,117 $ 208,444 Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 15 Total expenses exclude transaction-based expenses which fluctuate based on market conditions and client activity.
1 1 3 months ended December 31, 2014
Reconciliation of GAAP expenses to KCG non-GAAP, normalized expenses:
Communications and data processing |
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) GAAP Adjustments for non-GAAP presentation KCG non-GAAP, normalized expenses Employee compensation and benefits 95,307 10,521 84,786 38,576 - 38,576 Depreciation and amortization 20,298 - 20,298 Debt interest expense 7,714 - 7,714 Professional fees 7,161 - 7,161 Occupancy and equipment rentals 7,672 - 7,672 Business development 3,163 - 3,163 301 301 - Other 10,580 - 10,580 $ 190,772 $ 10,822 $ 179,950 16 1 Total expenses exclude transaction-based expenses which fluctuate based on market conditions and client activity.
3 months ended September 30, 2014
Reconciliation of GAAP expenses to KCG non-GAAP,
normalized expenses:
Communications and data processing
Writedown of assets and lease loss accrual, net 1 Total expenses |
GAAP Adjustments for non-GAAP presentation KCG non-GAAP, normalized expenses Reconciliation of GAAP expenses to KCG non-GAAP, normalized expenses: Employee compensation and benefits 103,430 3,069 100,361 38,279 - 38,279 Depreciation and amortization 19,823 - 19,823 Debt interest expense 7,497 - 7,497 Professional fees 7,337 - 7,337 Occupancy and equipment rentals 8,235 - 8,235 Business development 2,609 - 2,609 3,936 3,936 - Other 10,767 - 10,767 $ 201,913 $ 7,005 $ 194,908 Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 17 Total expenses exclude transaction-based expenses which fluctuate based on market conditions and client activity.
1 3 months ended June 30, 2014 Writedown of assets, lease loss accrual and capitalized debt costs Communications and data processing Total expenses 1 |
GAAP Adjustments for non-GAAP presentation KCG non-GAAP, normalized expenses normalized expenses: 122,319 - 122,319 36,796 - 36,796 20,103 - 20,103 9,524 - 9,524 5,402 - 5,402 8,285 - 8,285 1,683 - 1,683 7,823 7,823 - 8,643 - 8,643 Total expenses 1 $ 220,578 $ 7,823 $ 212,755 Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 18 1 Total expenses exclude transaction-based expenses which fluctuate based on market conditions and client activity.
3 months ended March 31, 2014 Reconciliation of GAAP expenses to KCG non-GAAP, Communications and data processing
Lease loss accrual and writedown of
capitalized debt costs Employee compensation and benefits
Depreciation and amortization Debt interest expense
Professional fees Occupancy and equipment rentals Business development
Other |
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 19 1 Total expenses exclude transaction-based expenses which fluctuate based on market conditions and client activity.
GAAP
Adjustments for
non-GAAP presentation
KCG non-GAAP, normalized
expenses
Employee compensation and benefits
112,209
11,409
100,800
37,512
-
37,512
Depreciation and amortization
19,566
-
19,566
Debt interest expense
12,943
-
12,943
Professional fees
7,734
2,491
5,243
Occupancy and equipment rentals
9,358
-
9,358
Business development
1,923
-
1,923
23,709
23,709
-
Other
13,066
294
12,772
Total
expenses
1 $ 238,020 $ 37,903 $ 200,117 3 months ended December 31, 2013
Lease loss accrual and writedown of
capitalized debt costs Reconciliation of GAAP expenses to KCG non-GAAP, normalized expenses:
Communications and data processing |
Regulation G Reconciliation of Non-GAAP Financial Measures (Continuing Operations) 20 1 Total expenses exclude transaction-based expenses which fluctuate based on market conditions and client activity.
GAAP
Adjustments for
non-GAAP presentation
KCG non-GAAP, normalized
expenses
Employee compensation and benefits
129,631
17,441
112,190
44,046
-
44,046
Depreciation and amortization
20,091
-
20,091
Debt interest expense
19,350
2,982
16,368
Professional fees
9,077
4,087
4,990
Occupancy and equipment rentals
8,898
-
8,898
Business development
2,644
200
2,444
936
936
-
Other
11,318
-
11,318
TotalExpenses
1 $ 245,991 $ 25,647 $ 220,345 Writedown of assets and lease loss accrual, net
Reconciliation of GAAP expenses to KCG
non-GAAP, normalized expenses:
Communications and data processing 3 months ended September 30, 2013
|
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