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8-K - FORM 8-K - Virtu KCG Holdings LLCd579840d8k.htm

Exhibit 99.1

KCG ANNOUNCES SECOND QUARTER 2013 RESULTS

FOR GETCO AND KNIGHT

GETCO recorded a net loss of $72.9 million, which included $60.7 million

in merger-related pre-tax charges for professional fees and compensation,

writedowns, restructuring charges and financing commitment fees

Knight recorded a net loss from continuing operations of $23.6 million,

which included $76.5 million in merger-related pre-tax expenses for compensation and

professional fees as well as a goodwill writedown

Strategic combination between GETCO and Knight completed July 1, 2013

JERSEY CITY, N.J. (August 7, 2013) – KCG Holdings, Inc. (NYSE: KCG) the company formed by the strategic combination of GETCO Holding Company, LLC (GETCO) and Knight Capital Group, Inc. (Knight) completed July 1, 2013, today reported second quarter 2013 results for the companies on a standalone basis.

“The second quarter of 2013 was a period of intense activity during which the two firms together built the foundation for KCG,” said Daniel Coleman, Chief Executive Officer of KCG. “The teams deepened working relationships at all levels and collaborated to accomplish the steps necessary to complete the transaction. Of critical importance, individuals worked tirelessly to meet and exceed the levels of service that clients expect from an industry leader.”

During the second quarter, integration planning involved an estimated 10 percent of the collective workforce at GETCO and Knight across areas including technology, market making, agency brokerage, finance, legal and risk. The firms worked to secure the necessary approvals from the respective unitholder and stockholder bases as well as regulators in the U.S. and U.K.

At the same time, GETCO and Knight continued to provide clients with innovative trading solutions while contributing to the overall efficiency of the markets. GETCO continued to upgrade trading technology infrastructure in U.S. equities, grew the revenue contribution from market making in commodities, fixed income and options, and gained further traction among institutional clients. Knight recorded double digit revenue growth year over year, outperformed in critical market segments, and completed the sale of institutional fixed income. Subsequent to the second quarter, Knight announced the sale of subsidiary Urban Financial Group.

 

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Mr. Coleman added, “The two firms performed well during the quarter despite enormous additional demands. KCG starts from a position of strength in terms of core capabilities. As a global, pure-play securities firm, we’ll leverage advanced technologies to reduce trading friction in the markets and deliver quality, low-cost executions to clients. At the same time, we’ll allocate capital to promote growth and create value for stockholders.”

GETCO Second Quarter 2013 Results

During the second quarter of 2013, GETCO recorded a GAAP consolidated loss of $72.9 million.

GETCO’s pre-tax loss of $69.6 million during the three months ended June 30, 2013 includes $60.7 million of professional fees and compensation expenses related to the merger, which covers costs related to unit vesting, as well as writedowns, restructuring charges and finance commitment fees. Excluding these items, the pre-tax loss on a non-GAAP basis was $8.9 million.

For the second quarter of 2012, GETCO reported consolidated pre-tax earnings of $6.0 million.

GETCO’s consolidated revenues were $118.1 million in the second quarter of 2013 compared to $141.1 million in the second quarter of 2012.

For GETCO’s second quarter 2013 financial information, please see Exhibit 1 below. A reconciliation of GAAP to non-GAAP pre-tax results is included in Exhibit 1A.

GETCO’s Market Making segment principally consists of market making in securities such as global equities, futures, options, fixed income, commodities, and foreign currencies. The Execution Services segment offers clients access to markets and self-directed trading through its electronic agency-based platforms and customizable suite of trading tools. GETCO’s Corporate and Other segment invests in strategic financial services-oriented opportunities, allocates, deploys and monitors all capital, and maintains corporate overhead expenses and all other income and expenses that are not attributable to the other segments.

Market Making

During the second quarter 2013, GETCO’s Market Making segment generated revenues of $118.4 million and a pre-tax loss of $2.0 million. During the quarter, GETCO further refined activity on global stock exchanges as well as non-equity markets primarily covering money market securities, options and corporate bonds. The year over year declines in consolidated equity volumes and market volatility across the U.S. and Europe, however, weighed on results. In the second quarter of 2012, GETCO’s Market Making revenues were $135.7 million and pre-tax earnings were $9.7 million.

Execution Services

During the second quarter 2013, GETCO’s Execution Services segment generated revenues of $13.0 million and a pre-tax loss of $2.9 million. During the quarter, GETCO continued to develop inroads in to institutional clients. Agency-based algorithmic trade volumes more than doubled from the second quarter 2012 and the firm’s dark pool ranked among the top 12 in the U.S. In the second quarter of 2012, GETCO’s Execution Services revenues were $9.2 million and the pre-tax loss was $1.5 million.

Corporate and Other

During the second quarter 2013, GETCO’s Corporate and Other segment generated net negative revenues of $8.8 million and a pre-tax loss of $64.7 million. The results were impacted by merger-related professional fees and compensation, writedowns of strategic investments, restructuring charges and finance commitment fees. In the second quarter of 2012, GETCO’s Corporate and Other revenues were $398,000 and the pre-tax loss was $2.1 million.

 

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GETCO’s headcount at June 30, 2013 was 396 full-time employees, compared to 398 full-time employees a year earlier.

As of June 30, 2013, GETCO had $466.5 million in cash and cash equivalents. The firm had $903.0 million in unitholders’ equity at the end of the second quarter 2013.

Knight Second Quarter 2013 Results

For the second quarter of 2013, Knight recorded a GAAP net loss of $30.8 million.

Knight’s GAAP net loss of $30.8 million during the three months ended June 30, 2013 includes a pre-tax loss from continuing operations of $21.8 million and a net loss from discontinued operations of $7.2 million. The pre-tax loss from continuing operations includes $76.5 million of merger-related expenses for compensation and professional fees as well as a goodwill writedown and a reserve for legal proceedings. After adjusting for these items, Knight’s non-GAAP pre-tax income from continuing operations was $54.8 million for the three months ended June 30, 2013.

These adjustments incorporate the effects of professional and other fees related to the merger with GETCO on July 1, 2013 and professional fees related to the August 1, 2012 technology issue. In conjunction with the merger, certain change in control provisions to Knight’s stock plan required full vesting and an acceleration of expenses related to certain stock-based compensation awards, which were recognized in the second quarter. The adjustments also include the results of our annual review for impairment of goodwill, in which the company determined that the fair value related to its reverse mortgage business was below book value and led to the impairment charge. Additionally, Knight recorded a reserve for legal proceedings as well as compensation expenses related to a reduction in workforce.

For the second quarter of 2012, Knight reported GAAP consolidated pre-tax earnings of $7.6 million. Knight’s second quarter 2012 consolidated earnings included pre-tax trading losses of $35.4 million related to the Facebook IPO and a one-time $10.0 million gain from a strategic investment accounted for under the equity method of accounting.

Knight’s consolidated revenues from continuing operations were $315.4 million in the second quarter of 2013 compared to $252.1 million in the second quarter of 2012, which includes the losses related to the Facebook IPO and gain from a strategic investment previously noted.

For Knight’s second quarter 2013 financial information, please see Exhibit 2 below. A reconciliation of GAAP to non-GAAP pre-tax results is included in Exhibit 2A.

“Continuing operations” includes Knight’s Market Making, Global Execution Services, and Corporate and Other segments. In the first quarter of 2013, to reflect Knight’s client offering, changes in senior management, the combination of the institutional equities sales teams and how the businesses are managed, the company changed its reporting segments from (i) Market Making, (ii) Institutional Sales and Trading, (iii) Electronic Execution Services, and (iv) Corporate and Other to (i) Market Making, (ii) Global Execution Services and (iii) Corporate and Other. Knight’s Market Making segment consists of all global market making including Knight Link and the company’s activities as a Designated Market Maker at the NYSE. The Global Execution Services segment includes Knight Direct, equity sales and trading, Knight Hotspot FX, Knight BondPoint, Knight Futures, and reverse mortgage origination and securitization. Knight’s Corporate and Other segment invests in strategic financial services-oriented opportunities, allocates, deploys and monitors all capital, and maintains corporate overhead expenses and all

 

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other income and expenses that are not attributable to the other segments. The Corporate and Other segment houses functions that support the Company’s other segments such as self-clearing services, including stock lending activities.

During the second quarter of 2013, Knight decided to close subsidiary Astor Asset Management. Accordingly, the results of its operations have been reported as discontinued operations. Discontinued operations also include institutional fixed income sales and trading, which was sold to Stifel Financial Corp. in the second quarter of 2013, and correspondent clearing, which the company announced it was closing in the first quarter of 2013.

 

     Q2 2013     Q2 2012  

Revenues ($ thousands)

     315,387        252,094   

Pre-tax (loss) income from continuing operations - GAAP basis ($ thousands)

     (21,778     7,609   

Pre-tax income from continuing operations - Non-GAAP basis ($ thousands)

     54,756        33,055   

U.S. equity Market Making statistics:

    

Average daily dollar value traded ($ billions)

     23.3        20.9   

Average daily trades (thousands)

     3,178.5        3,290.4   

Nasdaq and Listed shares traded (billions)

     45.7        45.7   

FINRA OTC Bulletin Board and Other shares traded (billions)

     173.7        166.9   

Average revenue capture per U.S. equity dollar value traded (bps)

     1.06        0.77   

Average revenue capture per U.S. equity dollar value traded, excluding impact of Facebook IPO (bps) *

     1.06        0.97   

Average daily Knight Direct equity shares (millions) (U.S. exchange listed shares)

     184.9        188.0   

Average daily Knight Hotspot FX notional dollar value traded ($ billions)

     33.3        28.1   
     YTD 2013     YTD 2012  

Revenues ($ thousands)

     599,690        553,026   

Pre-tax (loss) income from continuing operations - GAAP basis ($ thousands)

     (3,315     58,599   

Pre-tax income from continuing operations - Non-GAAP basis ($ thousands)

     91,387        84,045   

U.S. equity Market Making statistics:

    

Average daily dollar value traded ($ billions)

     22.7        21.4   

Average daily trades (thousands)

     3,079.2        3,312.3   

Nasdaq and Listed shares traded (billions)

     88.7        93.0   

FINRA OTC Bulletin Board and Other shares traded (billions)

     356.8        338.1   

Average revenue capture per U.S. equity dollar value traded (bps)

     1.03        0.88   

Average revenue capture per U.S. equity dollar value traded, excluding impact of Facebook IPO (bps) *

     1.03       0.98  

Average daily Knight Direct equity shares (millions) (U.S. exchange listed shares)

     184.7        185.4   

Average daily Knight Hotspot FX notional dollar value traded ($ billions)

     30.6        28.0   

 

* Statistic excludes $26.0 million in trading losses related to the Facebook IPO for 2012 periods.

Market Making

During the second quarter 2013, Knight’s Market Making segment generated revenues of $167.9 million and pre-tax earnings of $49.5 million. During the quarter, Knight remained the wholesale market making leader and recorded strong year over year revenue growth along with wider pre-tax margins. Despite the continued weak U.S. equity market conditions, results benefited from rises in both retail trading activity and broad market valuations from the second quarter 2012. In the second quarter of 2012, Knight’s Market Making revenues were $113.5 million and pre-tax earnings were $5.9 million. Excluding the losses related to the Facebook IPO, second quarter 2012 pre-tax earnings were $31.9 million.

 

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Global Execution Services

During the second quarter 2013, Knight’s Global Execution Services segment generated revenues of $133.7 million and pre-tax earnings of $714,000. During the quarter, Knight received stronger and more balanced contributions from the firm’s multi-asset class execution venues, institutional trading in U.S. equities and ETFs, and reverse mortgages. Contributing to the positive results were inflows to U.S. equity mutual funds as well as strong volumes of ETFs and spot foreign exchange. The results included a goodwill writedown associated with the firm’s reverse mortgage business of $17.8 million plus compensation from severance of $3.3 million. Excluding these charges, pre-tax earnings from Knight’s Global Execution Services segment were $21.8 million. In the second quarter of 2012, Knight’s Global Execution Services revenues were $118.9 million and pre-tax earnings were $6.3 million. Excluding the losses related to the Facebook IPO, second quarter 2012 pre-tax earnings were $15.8 million.

Corporate and Other

During the second quarter 2013, Knight’s Corporate and Other segment generated revenues of $13.8 million and a pre-tax loss of $72.0 million. Corporate expenses included accelerated stock-based awards related to the merger, professional and other fees related to the merger and Knight’s August 1st technology issue, a reserve for legal proceedings and other items which totaled $55.4 million. In the second quarter of 2012, Knight’s Corporate and Other revenues were $19.7 million and the pre-tax loss was $4.7 million.

Knight’s headcount at June 30, 2013 was 1,211 full-time employees, which excludes employees affected by the closure of Astor, sale of institutional fixed income, closure of correspondent clearing and exit from equity research and equity capital markets, compared to 1,341 full-time employees a year earlier.

As of June 30, 2013, Knight had $522.3 million in cash and cash equivalents. The firm had $1.5 billion in stockholders’ equity at the end of the second quarter 2013, equivalent to a book value of $3.97 per share prior to the transaction close and three-for-one conversion of Knight Class A Common Stock into KCG Class A Common Stock. Knight had $1.5 billion in stockholders’ equity at the end of the second quarter 2012.

During the second quarter of 2013, Knight did not repurchase any shares under the company’s stock repurchase program. As a result of the merger, the repurchase program has been terminated.

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 and six months ended June 30, 2013 and three and six months ended June 30, 2012 for GETCO and Knight. KCG believes this presentation provides comparability for GETCO’s and Knight’s results of operations for the three and six months ended June 30, 2013 to the respective results for the three and six months ended June 30, 2012. Reconciliations of GAAP to non-GAAP results are included in Exhibits 1A and 2A below.

The second quarter 2013 earnings press release and other financial information on KCG can be obtained at http://investors.kcg.com. Considering GETCO and Knight operated as independent firms up to the transaction close on July 1, 2013, KCG will not host a conference call on second quarter 2013 earnings. KCG expects to initiate conference calls for all interested parties starting with third quarter 2013 earnings.

 

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Subsequent to the second quarter 2013, KCG announced the sale of subsidiary Urban Financial Group to an investor group. Until the transaction close, which is expected in the fourth quarter of 2013, the results of operations from Urban will be reported as discontinued operations beginning in the third quarter 2013. Urban’s headcount at June 30, 2013 was 208 full-time employees.

KCG will release July trade volumes on August 14, 2013 at https://www.kcg.com/access-performance/liquidity along with historical trade volumes on a monthly basis dating back to the start of 2012.

Daniel Coleman, Chief Executive Officer of KCG, is scheduled to present at the Barclays Global Financial Services Conference in New York on September 11, 2013. Mr. Coleman’s remarks will be webcast live as well as archived for replay at http://investors.kcg.com.

About KCG

KCG is a leading independent securities firm offering investors 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 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. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. 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 combination 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; (ii) the August 1, 2012 technology issue at Knight 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 capital structure and business as well as actions taken in response thereto and consequences thereof; (iii) the costs and risks associated with KCG’s sale of its reverse mortgage business; (iv) the ability of KCG’s broker-dealer subsidiary to recover all or a portion of the damages that are attributable to the manner in which NASDAQ OMX handled the Facebook IPO; (v) changes in market structure, legislative, regulatory or financial reporting rules, including the continuing legislative and regulatory scrutiny of high-frequency trading; (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 risk, legal risk, liquidity risk, reputational risk, counterparty 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 and Knight’s reports with the SEC, including, without limitation, those detailed under “Certain Factors Affecting Results of Operations” and “Risk Factors” in Knight’s Annual Report on Form 10-K for the year-ended December 31, 2012, and in KCG’s Registration Statement on Form S-4/A filed May 24, 2013, and in other reports or documents KCG files with, or furnishes to, the SEC from time to time.

CONTACTS

 

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

 

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GETCO    EXHIBIT 1
CONSOLIDATED STATEMENTS OF OPERATIONS   
(Unaudited)   

 

     For the three months
ended June 30,
     For the six months
ended June 30,
 
     2013      2012      2013      2012  
     (in thousands)  

Revenues

           

Trading gains and losses, net

     $   127,176           $   141,714           $   239,661           $   294,935     

Interest and dividends, net

     582           (809)          546           (967)    

Loss from investments, net

     (9,184)          -           (8,817)          -     

Other (loss) income, net

     (457)          211           (421)          730     
  

 

 

    

 

 

    

 

 

    

 

 

 
     118,117           141,116           230,969           294,698     
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses

           

Employee compensation and related benefits

     69,041           39,571           101,661           81,121     

Regulatory, exchange and execution fees

     45,950           52,587           86,908           102,390     

Colocation and data line expenses

     20,365           21,750           40,041           42,719     

Professional fees

     23,230           4,046           30,264           8,669     

Depreciation and amortization

     7,746           7,728           15,913           19,606     

Occupancy, communication, and office

     4,239           3,848           8,184           7,535     

Restructuring costs and lease loss

     1,074           -           3,697           -     

Travel and entertainment

     1,645           2,754           3,031           5,799     

Computer supplies and maintenance

     882           1,190           1,832           2,592     

Order flow expense

     806           675           1,701           1,470     

Interest expense on corporate borrowings and capital lease obligations

     2,172           531           2,645           1,296     

Other expenses

     10,578           404           12,008           1,189     
  

 

 

    

 

 

    

 

 

    

 

 

 
     187,728           135,084           307,885           274,386     
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

     (69,611)          6,032           (76,916)          20,312     

Provision for income taxes

     3,315           2,279           5,289           5,563     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income

     $ (72,926)          $ 3,753           $ (82,205)          $ 14,749     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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GETCO

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

 

     June 30,
2013
     December 31,
2012
 
     (in thousands)  

ASSETS

     

Cash and cash equivalents

     $ 466,502           $ 427,631     

Restricted cash and cash equivalents

     308,081           -     

Receivables from exchanges

     20,259           11,544     

Receivables from clearing brokers and clearing organizations

     290,038           85,282     

Deposits with clearing organizations and exchanges

     40,394           43,245     

Securities and options owned, at fair value:

     

Equity securities

     434,308           381,991     

Listed equity options

     111,587           92,305     

Debt securities

     21,455           183,637     
  

 

 

    

 

 

 

Total securities and options owned, at fair value

     567,350           657,933     

Securities borrowed

     97,123           55,141     
Exchange memberships, at cost      6,267           6,267     

Investments

     240,854           245,398     

Intangibles and goodwill, net of amortization

     48,009           50,768     

Fixed assets and leasehold improvements, net

     81,357           83,341     

Other receivables and other assets

     28,140           20,986     
  

 

 

    

 

 

 

Total assets

     $ 2,194,374           $ 1,687,536     
  

 

 

    

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

     

Liabilities

     

Securities and options sold, not yet purchased, at fair value:

     

Equity securities

     $ 645,700           $ 423,740     

Listed equity options

     80,496           69,757     

Debt securities

     16,465           19,056     
  

 

 

    

 

 

 

Total securities and options sold, not yet purchased, at fair value

     742,661           512,553     

Payables to clearing brokers and clearing organizations

     34,101           24,185     

Compensation payable

     39,140           30,197     

Capital lease obligation

     15,466           24,191     

Notes payable

     320,000           15,000     

Accounts payable and accrued expenses

     137,826           115,492     

Distributions payable

     2,136           107     
  

 

 

    

 

 

 

Total liabilities

     1,291,330           721,725     
  

 

 

    

 

 

 

Members’ equity

     903,044           965,811     
  

 

 

    

 

 

 

Total liabilities and members’ equity

     $ 2,194,374           $ 1,687,536     
  

 

 

    

 

 

 

 

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PRE-TAX EARNINGS BY BUSINESS SEGMENT

(In thousands)

(Unaudited)

 

     For the three months ended
June 30,
     For the six months ended
June 30,
 
     2013      2012      2013      2012  

Market Making

           

Revenues

    $     118,367         $     135,745         $     225,384         $     285,075    

Expenses

     120,335          126,083          222,207          258,061    
  

 

 

    

 

 

    

 

 

    

 

 

 

Pre-Tax (Loss) Earnings

     (1,968)         9,662          3,177          27,014    
  

 

 

    

 

 

    

 

 

    

 

 

 

Execution Services

           

Revenues

     13,024          9,173          22,228          16,905    

Expenses

     15,943          10,715          26,560          20,003    
  

 

 

    

 

 

    

 

 

    

 

 

 

Pre-Tax Loss

     (2,919)         (1,542)         (4,332)         (3,098)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Corporate & Other

           

Revenues

     (8,802)         398          (7,598)         1,118    

Expenses

     55,921          2,486          68,162          4,722    
  

 

 

    

 

 

    

 

 

    

 

 

 

Pre-Tax Loss

     (64,723)         (2,088)         (75,760)         (3,604)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Eliminations

           

Revenues/Expenses

     (4,472)         (4,200)         (9,045)         (8,400)   

Consolidated

           

Revenues

     118,117          141,116          230,969          294,698    

Expenses

     187,728          135,084          307,885          274,386    
  

 

 

    

 

 

    

 

 

    

 

 

 

Pre-Tax (Loss) Earnings

    $ (69,611)        $ 6,032         $ (76,916)        $ 20,312    
  

 

 

    

 

 

    

 

 

    

 

 

 

* Totals may not add due to rounding.

 

9


GETCO    EXHIBIT 1A

Regulation G Reconciliation of Non-GAAP financial measures

(in thousands)

 

Three months ended June 30, 2013

  Market
  Making  
    Execution
  Services  
    Corporate
  and Other  
      Consolidated    

Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:

       

GAAP pre-tax loss:

    $ (1,968)         $ (2,919)         $ (64,724)         $ (69,611)    

Merger - professional fees, bank fees,

interest expense, and other

    -              -              33,299          33,299     

Merger - unit and deferred compensation

acceleration

    -              -              14,931          14,931     

Strategic investment impairment

    -              -              9,184          9,184     

Severance and non-compete

    1,852          335          -              2,187     

Restructuring and lease loss

    -              -              1,074          1,074     
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP loss from operations before income taxes

    $ (116)         $ (2,584)        $ (6,235)         $ (8,936)    
 

 

 

   

 

 

   

 

 

   

 

 

 

Six months ended June 30, 2013

  Market
  Making  
    Execution
  Services  
    Corporate
  and Other  
      Consolidated    

Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:

       

GAAP pre-tax income (loss):

    $ 3,177          $ (4,332)         $ (75,761)         $ (76,916)    

Merger - professional fees, bank fees,

interest expense, and other

    -              -              38,876          38,876     

Merger - unit and deferred compensation

acceleration

    -              -              14,931          14,931     

Strategic investment impairment

    -              -              9,184          9,184     

Severance and non-compete

    3,955          865          -              4,820     

Restructuring and lease loss

    -              -              3,697          3,697     
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP income (loss) from operations before income taxes

    $ 7,132          $ (3,467)         $ (9,072)         $ (5,407)    
 

 

 

   

 

 

   

 

 

   

 

 

 

 

* Totals may not add due to rounding.

 

10


KNIGHT CAPITAL GROUP, INC.    EXHIBIT 2
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)   

 

     For the three months ended
June 30,
     For the six months ended
June 30,
 
     2013      2012      2013      2012  
     (In thousands, except per share amounts)  

Revenues

           

Commissions and fees

     $     126,169         $     139,838         $     250,546         $     279,599    

Net trading revenue

     176,499          96,222          325,337          249,356    

Interest, net

     5,813          4,227          12,202          9,837    

Investment income and other, net

     6,906          11,807          11,605          14,234    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     315,387          252,094          599,690          553,026    
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses

           

Employee compensation and benefits

     135,992          100,964          243,070          212,412    

Execution and clearance fees

     51,518          52,276          101,881          104,493    

Payments for order flow

     29,499          20,155          64,592          41,843    

Communications and data processing

     23,242          22,342          45,377          42,543    

Professional fees

     22,459          4,334          35,438          9,196    

Interest

     13,273          13,659          26,325          26,813    

Depreciation and amortization

     10,057          11,573          19,632          23,031    

Occupancy and equipment rentals

     5,356          5,324          10,682          10,682    

Business development

     3,892          4,934          7,730          9,048    

Writedown of assets

     17,787          -           17,787          -     

Other

     24,090          8,924          30,491          14,366    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     337,165          244,485          603,005          494,427    
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income from continuing operations before income taxes

     (21,778)         7,609          (3,315)         58,599    

Income tax expense

     1,851          2,853          7,982          22,693    
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income from continuing operations, net of tax

     (23,629)         4,756          (11,297)         35,906    

(Loss) income from discontinued operations, net of tax

     (7,213)         (1,465)         (28,901)         491    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income

     $ (30,842)        $ 3,291         $ (40,198)        $ 36,397    
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic (loss) earnings per share from continuing operations

     $ (0.07)        $ 0.05         $ (0.04)        $ 0.40    
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted (loss) earnings per share from continuing operations

     $ (0.07)        $ 0.05         $ (0.04)        $ 0.39    
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic (loss) earnings per share from discontinued operations

     $ (0.02)        $ (0.02)        $ (0.09)        $ 0.01    
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted (loss) earnings per share from discontinued operations

     $ (0.02)        $ (0.02)        $ (0.09)        $ 0.01    
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic (loss) earnings per share

     $ (0.09)        $ 0.04         $ (0.13)        $ 0.41    
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted (loss) earnings per share

     $ (0.09)        $ 0.04         $ (0.13)        $ 0.39    
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used in computation of basic (loss) earnings per share

     359,955          89,624          306,879          89,685    
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used in computation of diluted (loss) earnings per share

     359,955          92,682          306,879          93,167    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


KNIGHT CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

 

     June 30,
2013
     December 31,
2012
 
     (In thousands)  

ASSETS

     

Cash and cash equivalents

     $ 522,318          $ 413,926     

Cash and securities segregated under federal and other regulations

     203,045          166,992     

Financial instruments owned, at fair value:

     

Equities

     1,609,957          1,463,916     

Debt securities

     138,730          111,157     

Listed equity options

     188,166          202,091     

Loan inventory

     130,635          191,712     

Other financial instruments

     1,076          237     

Securitized HECM loan inventory

     5,327,418          4,054,905     
  

 

 

    

 

 

 

Total financial instruments owned, at fair value

     7,395,982          6,024,018     

Collateralized agreements:

     

Securities borrowed

     1,158,981          1,008,720     

Receivable from brokers, dealers and clearing organizations

     1,366,974          868,805     

Fixed assets and leasehold improvements, at cost, less accumulated depreciation and amortization

     90,535          94,226     

Investments

     80,281          78,348     

Goodwill

     196,113          213,900     

Intangible assets, less accumulated amortization

     49,645          55,654     

Income taxes receivable

     6,486          152,576     

Assets of business held for sale

     -           449,509     

Assets within discontinued operations

     108,804          -     

Other assets

     253,847          251,773     
  

 

 

    

 

 

 

Total assets

     $ 11,433,011          $ 9,778,447     
  

 

 

    

 

 

 

LIABILITIES, CONVERTIBLE PREFERRED STOCK & EQUITY

     

Liabilities

     

Financial instruments sold, not yet purchased, at fair value:

     

Equities

     $ 1,290,401          $ 1,164,999     

Debt securities

     90,421          118,991     

Listed equity options

     132,161          155,942     

Other financial instruments

     -           5,505     
  

 

 

    

 

 

 

Total financial instruments sold, not yet purchased, at fair value

     1,512,983          1,445,437     

Collateralized financings:

     

Securities loaned

     626,891          504,082     

Financial instruments sold under agreements to repurchase

     545,000          355,000     

Other secured financings

     95,912          146,330     

Liability to GNMA trusts, at fair value

     5,284,303          4,002,704     
  

 

 

    

 

 

 

Total collateralized financings

     6,552,106          5,008,116     

Payable to brokers, dealers and clearing organizations

     635,914          378,724     

Payable to customers

     527,918          388,676     

Accrued compensation expense

     109,453          141,794     

Accrued expenses and other liabilities

     181,938          186,746     

Liabilities of business held for sale

     -           357,661     

Liabilities within discontinued operations

     84,535          -     

Long-term debt

     346,449          388,753     
  

 

 

    

 

 

 

Total liabilities

     9,951,296          8,295,907     
  

 

 

    

 

 

 

Convertible Preferred Stock

     -           229,857     
  

 

 

    

 

 

 

Equity

     

Class A common stock

     4,492          2,748     

Additional paid-in capital

     1,683,390          1,400,317     

Retained earnings

     670,423          710,621     

Treasury stock, at cost

     (870,819)         (858,907)    

Accumulated other comprehensive loss

     (5,771)         (2,096)    
  

 

 

    

 

 

 

Total equity

     1,481,715          1,252,683     
  

 

 

    

 

 

 

Total liabilities, convertible preferred stock and equity

     $ 11,433,011          $   9,778,447     
  

 

 

    

 

 

 

 

12


KNIGHT CAPITAL GROUP, INC.

PRE-TAX EARNINGS FROM CONTINUING OPERATIONS BY BUSINESS SEGMENT*

(In thousands)

(Unaudited)

 

     For the three months ended
June 30,
     For the six months ended
June 30,
 
           2013                  2012(1)                  2013                  2012(1)        

Market Making

           

Revenues

    $ 167,878        $ 113,490        $ 318,607        $ 265,655    

Expenses

     118,418         107,557         232,597         214,592    
  

 

 

    

 

 

    

 

 

    

 

 

 

Pre-tax earnings

     49,460         5,933         86,010         51,063    
  

 

 

    

 

 

    

 

 

    

 

 

 

Global Execution Services

           

Revenues

     133,741         118,876         255,261         257,607    

Expenses

     133,027         112,535         243,272         227,528    
  

 

 

    

 

 

    

 

 

    

 

 

 

Pre-tax earnings

     714         6,341         11,989         30,079    
  

 

 

    

 

 

    

 

 

    

 

 

 

Corporate and Other

           

Revenues

     13,768         19,728         25,822         29,764    

Expenses

     85,720         24,393         127,136         52,307    
  

 

 

    

 

 

    

 

 

    

 

 

 

Pre-tax loss

     (71,952)        (4,665)        (101,314)        (22,543)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated

           

Revenues

     315,387         252,094         599,690         553,026    

Expenses

     337,165         244,485         603,005         494,427    
  

 

 

    

 

 

    

 

 

    

 

 

 

Pre-tax (loss) earnings

    $ (21,778)       $ 7,609        $ (3,315)       $ 58,599    
  

 

 

    

 

 

    

 

 

    

 

 

 

* Totals may not add due to rounding.

(1) - Prior period amounts have been recast to conform with current period segment presentation.

 

13


KNIGHT CAPITAL GROUP, INC.    EXHIBIT 2A
Regulation G Reconciliation of Non-GAAP financial measures (Continuing operations)
(in thousands)   

 

Three months ended June 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

     $ 49,460           $ 714           $ (71,952)          $ (21,778)    

Accelerated stock-based compensation expense due to Mergers

     -           -           22,497           22,497     

Professional and other fees related to Mergers and August 1st technology issue

     -           -           22,171           22,171     

Writedown of goodwill related to reverse mortgage business

     -           17,787           -           17,787     

Reserve for legal proceedings

     -           -           10,000           10,000     

Compensation and other expenses related to reduction in workforce

     -           3,302           777           4,079     
  

 

 

    

 

 

    

 

 

    

 

 

 

Non GAAP Income (Loss) from continuing operations before income taxes

     $ 49,460           $ 21,803           $ (16,507)          $ 54,756     
  

 

 

    

 

 

    

 

 

    

 

 

 
Six months ended June 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

     $ 86,010           $ 11,989           $ (101,314)          $ (3,315)    

Accelerated stock-based compensation expense due to Mergers

     -           -           22,497           22,497     

Professional and other fees related to Mergers and August 1st technology issue

     -           -           31,423           31,423     

Writedown of goodwill related to reverse mortgage business

     -           17,787           -           17,787     

Reserve for legal proceedings

     -           -           10,000           10,000     

Compensation and other expenses related to reduction in workforce

     230           7,712           5,053           12,995     
  

 

 

    

 

 

    

 

 

    

 

 

 

Non GAAP Income (Loss) from continuing operations before income taxes

     $ 86,240           $ 37,488           $ (32,341)          $ 91,387     
  

 

 

    

 

 

    

 

 

    

 

 

 

* Totals may not add due to rounding

 

Three months ended June 30, 2012    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

     $ 5,933           $ 6,341           $ (4,665)          $ 7,609     

Facebook IPO trading losses

     25,975           9,463           -           35,438     

Investment gain

     -           -           (9,992)          (9,992)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Non GAAP Income (Loss) from continuing operations before income taxes

     $ 31,908           $ 15,804           $ (14,657)          $ 33,055     
  

 

 

    

 

 

    

 

 

    

 

 

 
Six months ended June 30, 2012    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

     $ 51,063           $ 30,079           $ (22,543)          $ 58,599     

Facebook IPO trading losses

     25,975           9,463           -           35,438     

Investment gain

     -           -           (9,992)          (9,992)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Non GAAP Income (Loss) from continuing operations before income taxes

     $ 77,038           $ 39,542           $ (32,535)          $ 84,045     
  

 

 

    

 

 

    

 

 

    

 

 

 

* Totals may not add due to rounding

 

14