KCG Kcg Holdings Class A

 

 

UNITED STATES

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): July 31, 2015

 

 

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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Item 2.02

Results of Operation 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 July 31, 2015, KCG Holdings, Inc. (the “Company” or “KCG”) issued a press release announcing its earnings for the second quarter of 2015. 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 July 31, 2015. A copy of a visual presentation that will be a part of that review is attached as Exhibit 99.2. Exhibits 99.1 and 99.2 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 July 31, 2015.

Exhibit 99.2 – KCG Holdings, Inc. Earnings Presentation, dated July 31, 2015.

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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: July 31, 2015

 

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

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press Release of KCG Holdings, Inc. issued on July 31, 2015.
99.2		KCG Holdings, Inc. Earnings Presentation, dated July 31, 2015.

Exhibit 99.1

 

		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 SECOND QUARTER 2015 RESULTS

KCG reports GAAP net loss of $19.2 million;

Pre-tax loss from continuing operations of $57.1 million includes charges

of $60.2 million from items unrelated to core operations

During the quarter, KCG repurchased 23.6 million shares for $330 million

as a result of its “modified Dutch auction” tender offer

KCG’s tangible book value rose to $14.05 per share,

book value increased to $15.58 per share

KCG announces planned relocation of global headquarters to New York City

JERSEY CITY, New Jersey – July 31, 2015 – KCG Holdings, Inc. (NYSE: KCG) today reported a GAAP net loss of $19.2 million, or $0.18 per share, for the second quarter of 2015. Included in the $57.1 million pre-tax loss is an accelerated compensation expense of $28.8 million as a result of stockholder-approved changes made to the vesting provisions of outstanding annual equity awards; debt extinguishment charges comprising a debt “make-whole” premium and a writedown of capitalized debt costs of $16.5 million and $8.5 million, respectively, as a result of the early redemption of the $305 million 8.25% Senior Secured Notes; and other real estate related charges of $6.3 million. Excluding these items, on a non-GAAP basis, second quarter 2015 pre-tax income from continuing operations was $3.1 million. A reconciliation of GAAP to non-GAAP results is included in Exhibit 4.

 

Select Financial Results		($ in thousands, except EPS)
From Continuing Operations		2Q15				1Q15				2Q14
GAAP Revenues			261,882				696,156				314,133
Non-GAAP revenues*			261,882				311,130				314,133
Trading revenues, net			170,750				208,795				206,780
Commissions and fees			87,370				99,961				104,776
GAAP pre-tax (loss) income			(57,114	)			406,128				14,507
GAAP EPS			(0.18	)			2.19				0.08
Non-GAAP pre-tax income*			3,068				32,427				21,512

 

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

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Second Quarter Highlights

 

•

KCG market making’s share of retail SEC Rule 605 U.S. equity share volume increased more than one full percentage point from first quarter 2015

 

•

The percentage of algorithmic trading and order routing net revenue attributable to institutional clients grew for the third straight quarter

 

•

Repurchased 23.6 million shares of KCG Class A Common Stock for $330 million through a “modified Dutch auction” tender offer

 

•

Completed the refinancing of the $305 million 8.25% Senior Secured Notes due in 2018

 

•

Subsequent to the quarter, KCG entered into an agreement to relocate its global headquarters to New York City

Daniel Coleman, Chief Executive Officer of KCG, said, “During the second quarter, KCG continued to focus on strategic clients, completed a tender offer for 22 percent of shares outstanding, excluding restricted stock units, and developed plans to consolidate global headquarters in New York City. The financial results, however, were negatively affected by the deterioration in market-wide volumes and volatility in U.S. equities from the first quarter, heightened competition for retail order flow, and several non-operating items. While we believe KCG is steadily developing into a major multi-asset class liquidity provider, the results do not meet our expectations. As a firm, we cannot assume that the market environment will improve. To generate the right returns for our shareholders, we will continuously review, adjust, and improve how we run our business.”

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 second quarter of 2015, the segment generated total revenues of $192.3 million and pre-tax income of $4.4 million. Excluding expenses related to accelerated stock-based compensation of $19.8 million, the segment generated pre-tax income of $24.2 million.

During the second quarter of 2015, consolidated U.S. equity share and dollar volume continued to decline quarter over quarter along with realized volatility for the S&P 500. In particular, retail trading activity declined approximately 10 percent market-wide amid continued strong competition and a narrowing of spreads. KCG’s results were augmented by solid contributions from Asian equities, U.S. commodities and European fixed income, partially offset by U.S. fixed income.

Mr. Coleman commented, “Although direct-to-client market making in U.S. equities increased market share and our models performed well, the current competitive environment remains a challenge in terms of revenue realization. We are committed to improving returns irrespective of an improvement in the competitive or macro environment. Outside of U.S. equities, we continued to diversify in select asset classes, add strategies and build scale.”

In the first quarter of 2015, the segment generated total revenues of $224.5 million and pre-tax income of $39.3 million. In the second quarter of 2014, the segment generated total revenues of $218.4 million and pre-tax income of $36.0 million.

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Select Trade Statistics: U.S. Equity Market Making

 

		2Q15				1Q15				2Q14
Average daily dollar volume traded ($ millions)			27,883				31,025				25,143
Average daily trades (thousands)			3,550				3,947				3,620
Average daily shares traded (millions)			5,785				5,048				10,820
NYSE and NASDAQ shares traded			885				933				758
OTC Bulletin Board and OTC Market shares traded			4,900				4,115				10,061
Average revenue capture per U.S. equity dollar value traded (bps)			0.80				0.92				1.07

Global Execution Services

The Global Execution Services segment comprises agency execution services and trading venues. During the second quarter of 2015, the segment generated total revenues of $63.5 million and a pre-tax loss of $9.9 million. Excluding expenses related to accelerated stock-based compensation of $8.2 million, the segment generated a pre-tax loss of $1.7 million.

During the second quarter of 2015, in addition to the decline in consolidated U.S. equity share volume quarter over quarter, ETF trading activity decreased approximately 13 percent market-wide. Also, during the quarter, institutional investors in the U.S. experienced an acceleration in domestic mutual fund outflows. All periods prior to the second quarter include the results of KCG Hotspot up through the date of its sale on March 13, 2015.

Mr. Coleman commented, “Despite the market-wide decline in U.S. equity trading activity quarter over quarter, KCG’s algorithmic trading and sales and trading teams were little affected. During the second quarter, 18 asset managers began using KCG algorithms and we onboarded an additional 10 new asset management clients. The results in ETFs, however, were affected by the market-wide decline in trading activity.”

In the first quarter of 2015, excluding the gain on the sale of KCG Hotspot FX and related professional and compensation expenses, the segment generated total revenues of $79.2 million and pre-tax income of $7.2 million. In the second quarter of 2014, the segment generated total revenues of $85.9 million and pre-tax income of $0.7 million. Excluding $1.9 million in compensation related to a reduction in workforce, pre-tax income was $2.6 million.

Select Trade Statistics: Agency Execution and Trading Venues

 

		2Q15				1Q15				2Q14
Average daily KCG algorithmic trading and order routing U.S. equities shares traded (millions)			287.0				299.0				265.3
Average daily KCG BondPoint fixed income par value traded ($ millions)			138.3				145.8				133.7

Corporate and Other

The Corporate and Other segment includes strategic investments and corporate overhead expenses. During the second quarter of 2015, the segment generated total revenues of $6.0 million and a pre-tax loss of $51.6 million. Excluding expenses related to accelerated stock-based compensation of $0.8 million, a debt make-whole premium of $16.5 million, writedown of capitalized debt costs of $8.5 million, and other real estate related charges of $6.3 million, the segment generated a pre-tax loss of $19.4 million.

In the first quarter of 2015, the segment generated total revenues of $7.3 million and a pre-tax loss of $14.3 million. In the second quarter of 2014, the segment generated total revenues of $9.8 million and a pre-tax loss of $22.2 million. Excluding 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, the pre-tax loss was $17.9 million.

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During the second quarter of 2015 KCG effected a change in tax status of one of its subsidiaries and as a result reversed a valuation allowance on certain state tax net operating losses and other deferred tax assets. This resulted in a one-time deferred tax benefit of $16.2 million and a corresponding increase to KCG’s deferred tax asset.

Financial Condition

As of June 30, 2015, KCG had $541.3 million in cash and cash equivalents. Total outstanding debt was $495.1 million. The Company had $1.47 billion in stockholders’ equity, equivalent to a book value of $15.58 per share and tangible book value of $14.05 per share based on total shares outstanding of 94.4 million, including restricted stock units.

KCG’s headcount was 1,045 full-time employees at June 30, 2015 compared to 1,038 full-time employees at March 31, 2015.

During the second quarter of 2015, KCG completed a “modified Dutch auction” tender offer and repurchased 23.6 million shares of KCG’s Class A Common Stock at a purchase price of $14.00 per share, for a cost of $330 million, excluding expenses related to the tender offer. The repurchased shares represented approximately 22% of KCG’s Class A Common Stock outstanding excluding restricted stock units as of May 7, 2015.

Relocation of Global Headquarters

Subsequent to the second quarter, KCG entered into an agreement to relocate its global headquarters from Jersey City, NJ to New York City. Under a plan authorized by the Board of Directors, KCG will reduce occupied space and consolidate legacy metro area offices in Jersey City, NJ and New York, NY. KCG’s new headquarters will encompass 169,000 square feet at 300 Vesey Street, in lower Manhattan. The relocation is expected to be substantially completed at the end of 2016.

As a result of the planned relocation and consolidation of metro New York area offices and a reduction of occupied space in Chicago, KCG expects to incur additional expenses through fiscal year 2016. KCG will record non-recurring, real estate charges of $25 to $30 million in the 3rd quarter of 2015 related to the early termination of leases at 545 Washington Boulevard in Jersey City, NJ and 165 Broadway in New York, NY as well as a consolidation of space at 350 N. Orleans Street in Chicago, IL. Further, the Company will record added depreciation and amortization expenses of approximately $4.5 to $5.0 million per quarter beginning in the 3rd quarter of 2015 and running through the 4th quarter of 2016 as well as added occupancy costs of approximately $1.5 million per quarter beginning in the 4th quarter of 2015 and running through the 4th quarter of 2016.

Conference Call

KCG will hold a conference call to discuss second quarter 2015 financial results starting at 9:00 a.m. Eastern Time today, July 31, 2015. To access the call, dial 800-401-3551 (domestic) or 913-312-0726 (international) and enter passcode 3586698. In addition, the call will be webcast at http://investors.kcg.com/phoenix.zhtml?p=irol-eventDetails&c=105070&eventID=5196957. Following the conclusion of the call, a replay will be available by selecting a number based on country of origin from a list posted at: https://replaynumbers.conferencinghub.com/index.aspx?confid=7898269&passcode=7898269 and entering passcode 3586698.

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

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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 June 30, 2015, March 31, 2015 and June 30, 2014 and for the six months ended June 30, 2015 and June 30, 2014. KCG believes the presentations provide a meaningful summary of revenues and results of operations for each of the three and six 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”); (ii) difficulties and delays in fully realizing cost savings and other benefits of the Mergers and the inability to manage revenue capture and sustain revenue and earnings growth; (iii) the sale of 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 KCG’s 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 (such as the events that affected Knight on August 1, 2012), 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 announced plan to relocate KCG’s global headquarters from Jersey City, NJ to New York, NY. 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.

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
		June 30, 2015				March 31, 2015				June 30, 2014
		(In thousands, except per share amounts)
Revenues
Trading revenues, net		$	170,750			$	208,795			$	206,780
Commissions and fees			87,370				99,961				104,776
Interest, net			(596	)			(23	)			(289	)
Investment income and other, net			4,358				387,423				2,866
Total revenues			261,882				696,156				314,133
Expenses
Employee compensation and benefits			109,471				106,718				103,430
Execution and clearance fees			62,598				68,473				73,242
Communications and data processing			34,240				33,764				38,279
Depreciation and amortization			20,726				20,615				19,823
Payments for order flow			14,935				15,221				18,076
Debt interest expense			9,989				8,463				7,497
Collateralized financing interest			8,859				8,456				6,395
Occupancy and equipment rentals			7,474				7,340				8,235
Professional fees			5,694				11,181				7,337
Business development			3,025				1,857				2,609
Debt extinguishment charges			25,006				—				1,995
Other real estate related charges			6,327				132				1,941
Other			10,652				7,808				10,767
Total expenses			318,996				290,028				299,626
(Loss) Income from continuing operations before income taxes			(57,114	)			406,128				14,507
Income tax (benefit) expense			(37,952	)			156,827				5,520
(Loss) Income from continuing operations, net of tax			(19,162	)			249,301				8,987
Loss from discontinued operations, net of tax			—				—				(67	)
Net (Loss) Income		$	(19,162	)		$	249,301			$	8,920
Basic (loss) earnings per share from continuing operations		$	(0.18	)		$	2.25			$	0.08
Diluted (loss) earnings per share from continuing operations		$	(0.18	)		$	2.19			$	0.08
Basic loss per share from discontinued operations		$	—			$	—			$	—
Diluted loss per share from discontinued operations		$	—			$	—			$	—
Basic (loss) earnings per share		$	(0.18	)		$	2.25			$	0.08
Diluted (loss) earnings per share		$	(0.18	)		$	2.19			$	0.08
Shares used in computation of basic (loss) earnings per share			108,588				110,782				114,859
Shares used in computation of diluted (loss) earnings per share			108,588				113,615				117,601

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

 

		For the six months ended
		June 30, 2015				June 30, 2014
		(In thousands, except per share amounts)
Revenues
Trading revenues, net		$	379,545			$	465,077
Commissions and fees			187,331				217,033
Interest, net			(619	)			659
Investment income and other, net			391,781				15,021
Total revenues			958,038				697,790
Expenses
Employee compensation and benefits			216,189				225,749
Execution and clearance fees			131,071				148,743
Communications and data processing			68,004				75,075
Depreciation and amortization			41,341				39,926
Payments for order flow			30,156				40,108
Debt interest expense			18,452				17,021
Collateralized financing interest			17,315				12,557
Occupancy and equipment rentals			14,814				16,520
Professional fees			16,875				12,739
Business development			4,882				4,292
Debt extinguishment charges			25,006				9,552
Other real estate related charges			6,459				2,207
Other			18,460				19,410
Total expenses			609,024				623,899
(Loss) Income from continuing operations before income taxes			349,014				73,891
Income tax (benefit) expense			118,875				27,987
(Loss) Income from continuing operations, net of tax			230,139				45,904
Loss from discontinued operations, net of tax			—				(1,320	)
Net (Loss) Income		$	230,139			$	44,584
Basic (loss) earnings per share from continuing operations		$	2.08			$	0.40
Diluted (loss) earnings per share from continuing operations		$	2.02			$	0.39
Basic loss per share from discontinued operations		$	—			$	(0.01	)
Diluted loss per share from discontinued operations		$	—			$	(0.01	)
Basic (loss) earnings per share		$	2.08			$	0.39
Diluted (loss) earnings per share		$	2.02			$	0.38
Shares used in computation of basic (loss) earnings per share			110,890				115,282
Shares used in computation of diluted (loss) earnings per share			113,809				118,170

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

 

		June 30, 2015				December 31, 2014
ASSETS
Cash and cash equivalents		$	541,292			$	578,768
Cash and cash equivalents segregated under federal and other regulations			3,600				3,361
Financial instruments owned, at fair value:
Equities			2,391,499				2,479,910
Listed options			117,934				144,586
Debt securities			185,938				82,815
Other financial instruments			355				60
Total financial instruments owned, at fair value			2,695,726				2,707,371
Collateralized agreements:
Securities borrowed			1,871,312				1,632,062
Receivable from brokers, dealers and clearing organizations			690,291				1,188,833
Fixed assets and leasehold improvements, less accumulated depreciation and amortization			116,849				134,051
Investments			107,348				100,726
Goodwill and Intangible assets, less accumulated amortization			144,798				152,594
Deferred tax asset, net			180,673				154,759
Assets of business held for sale			—				40,484
Other assets			234,459				137,645
Total assets		$	6,586,348			$	6,830,654
LIABILITIES & EQUITY
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equities		$	1,785,493			$	2,069,342
Listed options			93,113				115,362
Debt securities			159,551				101,003
Total financial instruments sold, not yet purchased, at fair value			2,038,157				2,285,707
Collateralized financings:
Securities loaned			741,732				707,744
Financial instruments sold under agreements to repurchase			995,667				933,576
Total collateralized financings			1,737,399				1,641,320
Payable to brokers, dealers and clearing organizations			529,748				676,089
Payable to customers			38,282				22,110
Accrued compensation expense			64,040				114,559
Accrued expenses and other liabilities			144,390				136,977
Income taxes payable			64,107				—
Capital lease obligations			3,877				6,700
Liabilities of business held for sale			—				2,356
Debt			495,113				422,259
Total liabilities			5,115,113				5,308,077
Equity
Class A Common Stock			1,059				1,275
Additional paid-in capital			1,429,368				1,369,298
Retained earnings			173,155				272,780
Treasury stock, at cost			(133,562	)			(122,909	)
Accumulated other comprehensive income			1,214				2,133
Total equity			1,471,234				1,522,577
Total liabilities and equity		$	6,586,348			$	6,830,654

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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
		June 30, 2015				March 31, 2015				June 30, 2014
Market Making
Revenues		$	192,328			$	224,548			$	218,446
Expenses			187,926				185,208				182,442
Pre-tax earnings			4,402				39,340				36,004
Global Execution Services
Revenues			63,522				464,266				85,903
Expenses			73,459				83,208				85,167
Pre-tax (loss) earnings			(9,937	)			381,058				736
Corporate and Other
Revenues			6,032				7,342				9,784
Expenses			57,611				21,612				32,017
Pre-tax loss			(51,579	)			(14,270	)			(22,233	)
Consolidated
Revenues			261,882				696,156				314,133
Expenses			318,996				290,028				299,626
Pre-tax (loss) earnings		$	(57,114	)		$	406,128			$	14,507

 

*	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 six months ended
		June 30, 2015				June 30, 2014
Market Making
Revenues		$	416,876			$	495,792
Expenses			373,134				383,756
Pre-tax earnings			43,742				112,036
Global Execution Services
Revenues			527,788				173,123
Expenses			156,667				170,371
Pre-tax earnings			371,121				2,752
Corporate and Other
Revenues			13,374				28,875
Expenses			79,223				69,772
Pre-tax loss			(65,849	)			(40,897	)
Consolidated
Revenues			958,038				697,790
Expenses			609,024				623,899
Pre-tax earnings		$	349,014			$	73,891

 

*	Totals may not add due to rounding.

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

 

Three months ended June 30, 2015		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		$	4,402			$	(9,937	)		$	(51,579	)		$	(57,114	)
Accelerated stock-based compensation			19,844				8,202				803				28,849
Debt make-whole premium			—				—				16,500				16,500
Writedown of capitalized debt costs			—				—				8,506				8,506
Other real estate related charges			—				—				6,327				6,327
Non-GAAP Income (loss) from continuing operations before income taxes		$	24,246			$	(1,735	)		$	(19,443	)		$	3,068
Three months ended March 31, 2015		Market Making				Global Execution Services				Corporate and Other				Consolidated
Reconciliation of GAAP Revenues to Non-GAAP Revenues:
GAAP Revenues		$	224,548			$	464,266			$	7,342			$	696,156
Gain on sale of KCG Hotspot			—				(385,026	)			—				(385,026	)
Non-GAAP Revenues		$	224,548			$	79,240			$	7,342			$	311,130
Three months ended March 31, 2015		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		$	39,340			$	381,058			$	(14,270	)		$	406,128
Gain on sale of KCG Hotspot			—				(385,026	)			—				(385,026	)
Professional fees related to the sale of KCG Hotspot			—				6,736				—				6,736
Compensation expense related to the sale of KCG Hotspot			—				4,457				—				4,457
Other real estate related charges			—				—				132				132
Non-GAAP Income (loss) from continuing operations before income taxes		$	39,340			$	7,225			$	(14,138	)		$	32,427
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
Compensation related to reduction in workforce			383				1,886				800				3,069
Writedown of capitalized debt costs			—				—				1,995				1,995
Other real estate related charges			452				—				1,489				1,941
Non-GAAP Income (loss) from continuing operations before income taxes		$	36,839			$	2,622			$	(17,949	)		$	21,512

 

*	Totals may not add due to rounding

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

 

Six months ended June 30, 2015		Market Making				Global Execution Services				Corporate and Other				Consolidated
Reconciliation of GAAP Revenues to Non-GAAP Revenues:
GAAP Revenues		$	416,876			$	527,788			$	13,374			$	958,038
Gain on sale of KCG Hotspot			—				(385,026	)			—				(385,026	)
Non-GAAP Revenues		$	416,876			$	142,762			$	13,374			$	573,012
Six months ended June 30, 2015		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		$	43,742			$	371,121			$	(65,849	)		$	349,014
Gain on sale of KCG Hotspot			—				(385,026	)			—				(385,026	)
Accelerated stock-based compensation			19,844				8,202				803				28,849
Debt make-whole premium			—				—				16,500				16,500
Writedown of capitalized debt costs			—				—				8,506				8,506
Professional fees related to the sale of KCG Hotspot			—				6,736				—				6,736
Other real estate related charges			—				—				6,459				6,459
Compensation expense related to the sale of KCG Hotspot			—				4,457				—				4,457
Non-GAAP Income (loss) from continuing operations before income taxes		$	63,586			$	5,490			$	(33,581	)		$	35,495
Six months ended June 30, 2014		Market Making				Global Execution Services				Corporate and Other				Consolidated
Reconciliation of GAAP Revenues to Non-GAAP Revenues:
GAAP Revenues		$	495,792			$	173,123			$	28,875			$	697,790
Income resulting from the merger of BATS and Direct Edge, net			—				—				(9,644	)			(9,644	)
Non-GAAP Revenues		$	495,792			$	173,123			$	19,231			$	688,146
Six 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		$	112,036			$	2,752			$	(40,897	)		$	73,891
Writedown of capitalized debt costs			—				—				9,552				9,552
Income resulting from the merger of BATS and Direct Edge, net			—				—				(9,644	)			(9,644	)
Compensation related to reduction in workforce			383				1,886				800				3,069
Other real estate related charges			811				—				1,396				2,207
Non-GAAP Income (loss) from continuing operations before income taxes		$	113,230			$	4,638			$	(38,793	)		$	79,075

 

*	Totals may not add due to rounding

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