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Press release from PR Newswire

KCG Announces Second Quarter 2013 Results For GETCO And Knight

Wednesday, August 07, 2013

KCG Announces Second Quarter 2013 Results For GETCO And Knight

07:00 EDT Wednesday, August 07, 2013

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., Aug. 7, 2013 /PRNewswire/ -- 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.

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 MakingDuring 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 ServicesDuring 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 OtherDuring 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.

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 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               

1.03

0.98

   impact of Facebook IPO (bps) *

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 MakingDuring 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.

Global Execution ServicesDuring 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 OtherDuring 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 PresentationsKCG 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.

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 KCGKCG 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.

 

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

 

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

 

GETCO

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

55,922

2,486

68,163

4,722

Pre-Tax Loss

(64,724)

(2,088)

(75,761)

(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.

 

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.

 

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

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

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. 

 

 

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

Knight Capital Group, Inc

Regulation G Reconciliation of Non-GAAP financial measures (Continuing operations)

(in thousands)

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

 

 

 

 

SOURCE KCG Holdings, Inc.

For further information: Jonathan Mairs, Investor Relations, 201-356-1529, jmairs@kcg.com, or Sophie Sohn, Communications & Marketing, 312-931-2299, media@kcg.com

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