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Knight Capital Group Announces Consolidated Earnings of $0.43 Per Diluted Share for the Fourth Quarter 2011


News provided by

Knight Capital Group, Inc.

19 Jan, 2012, 11:00 GMT

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JERSEY CITY, New Jersey, January 19, 2012 /PRNewswire/ --

Fourth quarter 2011 consolidated revenues rose 32% to $341.3 million and pre-tax earnings increased 395% to $63.1 million compared to the fourth quarter 2010

Market Making grew fourth quarter 2011 revenues 69% to $187.4 million and pre-tax earnings 181% to $84.4 million compared to the fourth quarter 2010, despite a decline in retail trading activity year over year

During the fourth quarter 2011, Knight repurchased 2.0 million shares

Knight Capital Group, Inc. (NYSE Euronext: KCG) today reported consolidated earnings of $40.2 million, or $0.43 per diluted share, for the fourth quarter of 2011. The results included a tax benefit of $1.7 million, or $0.02 per diluted share.

For the fourth quarter of 2010, the company reported consolidated earnings of $9.2 million, or $0.10 per diluted share. The results included a tax benefit of $2.1 million, or $0.02 per diluted share.

Revenues from continuing operations for the fourth quarter of 2011 were $341.3 million, compared to $259.0 million from continuing operations for the fourth quarter of 2010.

"In the fourth quarter of 2011, Knight produced strong financial results," said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "Consolidated revenues and pre-tax earnings rose considerably year over year despite a decline in market conditions as the quarter progressed. Market Making performed exceptionally well and again demonstrated the ability to adapt to the trading environment and deliver results. While the fourth quarter was not without its challenges, the contribution from Electronic Execution Services increased and we worked to improve profitability across products and services."

"Continuing operations" includes the company's Market Making, Institutional Sales and Trading, Electronic Execution Services, and Corporate and Other segments. Market Making consists of all global market making across equities, fixed income, foreign exchange and options as well as the company's activities as a Designated Market Maker at the NYSE. Institutional Sales and Trading includes full-service institutional research, sales and trading as well as equity and debt capital markets, reverse mortgage origination and securitization, and asset management. Electronic Execution Services includes Knight Direct, Hotspot FX and Knight BondPoint. Corporate and Other includes strategic investments primarily in financial services-related ventures, clearing and settlement activity, corporate overhead expenses and all other income and expenses that are not attributable to the other reporting segments.

 
                                                          Q4 2011    Q4 2010

    Revenues ($ thousands)                                341,327    259,033
    Net income ($ thousands)                               40,238      9,232
    Diluted EPS ($)                                          0.43       0.10
    Average daily U.S. equity dollar value traded ($
    billions)                                                27.3       24.7
    Average daily U.S. equity trades (thousands)          4,156.4    3,474.1
    Nasdaq and Listed equity shares traded (billions)        60.8       60.5
    OTC Bulletin Board and Pink Sheet shares traded
    (billions)                                              121.2      330.9
    Average revenue capture per U.S. equity dollar
    value traded (bps)                                       1.42       1.05
    Average daily Knight Direct equity shares
    (millions)                                              210.5      174.9
    Average daily Hotspot FX notional dollar value
    traded ($ billions)                                      53.9       42.0

                                                         YTD 2011   YTD 2010

    Revenues ($ thousands)                              1,404,527  1,149,056
    Net income ($ thousands)                              115,237     91,638
    Diluted EPS ($)                                          1.21       0.97
    Average daily U.S. equity dollar value traded ($
    billions)                                                29.3       26.6
    Average daily U.S. equity trades (thousands)          4,151.2    3,730.4
    Nasdaq and Listed equity shares traded (billions)       249.9      275.3
    OTC Bulletin Board and Pink Sheet shares traded
    (billions)                                              885.1    1,988.9
    Average revenue capture per U.S. equity dollar
    value traded (bps)                                       1.27       1.10
    Average daily Knight Direct equity shares
    (millions)                                              183.7      148.8
    Average daily Hotspot FX notional dollar value
    traded ($ billions)                                      59.1       36.9

"In 2011, Knight recorded its sixth straight year of approximately $1 in earnings per share," said Mr. Joyce. "For the full year, we maintained the number-one rankings in shares traded across NYSE- and NASDAQ-listed stocks, ETFs and OTC Bulletin Boards among all securities firms. In addition, Knight increased average daily U.S. equity dollar volume traded by 11 percent. At the same time, we undertook a restructuring to cut underperforming areas and efforts to refine the client offering continue."

Market Making

During the fourth quarter of 2011, the Market Making segment generated total revenues of $187.4 million and pre-tax income of $84.4 million. In the fourth quarter of 2010, Market Making reported total revenues of $111.0 million and pre-tax income of $30.0 million. Market Making had pre-tax margins of 45 percent in the fourth quarter of 2011 compared to pre-tax margins of 27 percent in the fourth quarter of 2010.

"In Market Making, Knight grew revenues 69 percent and pre-tax earnings 181 percent year over year," said Mr. Joyce. "Amid lower retail trading activity compared to the fourth quarter of 2010, Market Making maintained industry-leading market share in U.S. equities and drove the rise in average daily dollar volume traded. Near-constant enhancements to trading technologies covering platforms, models and strategies contributed to the increase in revenue capture. During the quarter, we progressed in efforts to grow European equities and U.S. options."

Institutional Sales and Trading

During the fourth quarter of 2011, the Institutional Sales and Trading segment generated total revenues of $103.8 million and pre-tax loss of $17.1 million. In the fourth quarter of 2010, Institutional Sales and Trading reported total revenues of $112.4 million and pre-tax loss of $7.7 million.

"In Institutional Sales and Trading, Knight produced strong revenues and renewed efforts to decrease expenses," said Mr. Joyce. "We generated balanced contributions across products and regions. Further, the institutional equities and fixed income teams instituted a number of measures to increase referrals and cut costs. During the quarter, Urban worked to secure its position among the reverse mortgage industry leaders in lending and issuance."

Electronic Execution Services

During the fourth quarter of 2011, the Electronic Execution Services segment generated total revenues of $40.6 million and pre-tax income of $12.5 million. In the fourth quarter of 2010, Electronic Execution Services reported total revenues of $37.1 million and pre-tax income of $10.7 million. Electronic Execution Services had pre-tax margins of 31 percent in the fourth quarter of 2011 compared to pre-tax margins of 29 percent in the fourth quarter of 2010.

"In Electronic Execution Services, Knight grew revenues nine percent and pre-tax earnings 17 percent year over year," said Mr. Joyce. "The results are due to the respective strengths of the electronic trading products as well as secular trends and, to a lesser extent, market conditions. In comparison to the fourth quarter of 2010, we witnessed growth in average daily volumes of 28 percent at Hotspot FX, 20 percent at Knight Direct and 13 percent at Knight BondPoint."

Corporate and Other

During the fourth quarter of 2011, the Corporate and Other segment reported a pre-tax loss of $16.5 million. In the fourth quarter of 2010, the Corporate segment reported a pre-tax loss of $20.2 million.

"During the fourth quarter of 2011, Knight performed extremely well," said Mr. Joyce. "Relative to the financial sector, I believe Knight's path to improving and sustaining strong financial results is straightforward. We're beginning to realize the benefits of investments in core areas and refocusing on new and innovative trading technologies that allow us to provide clients with consistent, high-quality trade executions and low transaction costs."

Headcount at December 31, 2011 was 1,423 full-time employees, as compared to 1,326 full-time employees at December 31, 2010.

As of December 31, 2011, the company had $467.6 million in cash and cash equivalents. The company had $1.5 billion in stockholders' equity as of December 31, 2011, equivalent to a book value of $15.70 per diluted share. The company had a book value of $14.51 per diluted share as of December 31, 2010.

During the fourth quarter of 2011, the company repurchased 2.0 million shares for $25.0 million under the company's existing stock repurchase program. To date, the company has repurchased 75.2 million shares for $859.5 million. The company has approximately $140.5 million of availability to repurchase shares under the program. The company cautions that there are no assurances that any further repurchases may actually occur.

* * *

Copies of this earnings release and other company information can be obtained on Knight's website, http://www.knight.com/. The company will conduct its fourth quarter 2011 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Time (ET) today, January 19, 2012. To access Knight's earnings conference call, please dial 866-564-7439 for domestic callers or +1-719-457-2618 for international callers. When prompted, please enter passcode 2983341. A replay of the fourth quarter 2011 earnings conference call will be available by dialing 888-203-1112 for domestic callers or +1-719-457-0820 for international callers. When prompted, please enter passcode 2983341. The conference call will be webcast live at 9:00 a.m. ET for all investors and interested parties on Knight's website. In addition, the company will release its monthly volume statistics for December 2011 on its website at http://www.knight.com/ourfirm/volumestats.asp before the start of trading today.

* * *

About Knight

Knight Capital Group (NYSE Euronext: KCG) is a global financial services firm that provides access to the capital markets across multiple asset classes to a broad network of clients, including buy- and sell-side firms and corporations. Knight is headquartered in Jersey City, N.J. with a global presence across the Americas, Europe, and the Asia Pacific region. For further information about Knight, please visit http://www.knight.com/.

Certain statements contained herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about the Company's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. 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 related to the corporate restructuring in the third quarter 2011, including the ability to recognize anticipated cost savings, the possibility of unexpected costs or expenditures, and the impact of the restructuring on the Company's businesses and results of operations, risks associated with changes in market structure, legislative, regulatory and financial rules changes, risks associated with the Company's changes to its organizational structure and management and the costs, integration, performance and operation of businesses recently acquired or developed organically, or that may be acquired or developed organically in the future. Readers should carefully review the risks and uncertainties disclosed in the Company's reports with the U.S. Securities and Exchange Commission (SEC), including, without limitation, those detailed under the headings "Certain Factors Affecting Results of Operations" and "Risk Factors" in the Company's Annual Report on Form 10-K for the year-ended December 31, 2010, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time. This information should also be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto contained in the Company's Annual Report on Form 10-K for the year-ended December 31, 2010, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time.

 
    KNIGHT CAPITAL GROUP, INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (Unaudited)
                                                   For the three months ended December 31,
                                                                   2011           2010
                                                   (In thousands, except per share amounts)

    Revenues
                        Net trading revenue                   $  168,412    $   96,619
                        Commissions and fees                     164,587       165,901
                        Interest, net                                443         1,240
                        Investment income (loss) and other,
                        net                                        7,885        (4,727)
                                            Total revenues       341,327       259,033

    Expenses
                        Employee compensation and benefits       137,496       133,972
                        Execution and clearance fees              53,433        41,966
                        Communications and data processing        21,557        19,287
                        Payments for order flow                   19,238         8,987
                        Depreciation and amortization             13,519        12,435
                        Interest                                  11,827         8,785
                        Occupancy and equipment rentals            6,558         7,300
                        Business development                       6,490         4,502
                        Professional fees                          5,907         4,701
                        Restructuring                                  -             -
                        Writedown of assets and lease loss
                        accrual                                      700             -
                        Other                                      1,455         4,331
                                            Total expenses       278,180       246,266

    Income from continuing operations before income taxes         63,147        12,767
    Income tax expense                                            22,883         3,391
    Income from continuing operations, net of tax                 40,264         9,376
    Loss from discontinued operations, net of tax                    (26)         (144)
 
    Net income                                                $   40,238    $    9,232
 
    Basic earnings per share from continuing operations       $     0.45    $     0.10
 
    Diluted earnings per share from continuing operations     $     0.43    $     0.10
 
    Basic earnings per share                                  $     0.44    $     0.10
 
    Diluted earnings per share                                $     0.43    $     0.10
 
    Shares used in computation of basic earnings per share        90,427        91,226
 
    Shares used in computation of diluted earnings per share      93,141        93,735

    KNIGHT CAPITAL GROUP, INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (Unaudited)
                                                         For the year ended December 31,
                                                                     2011           2010
                                                  (In thousands, except per share amounts)

    Revenues
                        Net trading revenue                   $  631,989    $  489,394
                        Commissions and fees                     749,911       660,527
                        Interest, net                              4,649         2,092
                        Investment income (loss) and other,
                        net                                       17,978        (2,957)
                                            Total revenues     1,404,527     1,149,056

    Expenses
                        Employee compensation and benefits       583,786       546,748
                        Execution and clearance fees             229,209       176,116
                        Communications and data processing        87,109        69,597
                        Payments for order flow                   85,269        37,700
                        Depreciation and amortization             54,000        42,773
                        Interest                                  42,068        25,896
                        Occupancy and equipment rentals           28,084        26,632
                        Business development                      23,360        19,493
                        Professional fees                         21,305        17,463
                        Restructuring                             28,624        16,731
                        Writedown of assets and lease loss
                        accrual                                    2,978         1,032
                        Other                                     31,606        18,909
                                            Total expenses     1,217,398       999,090

    Income from continuing operations before income taxes        187,129       149,966
    Income tax expense                                            71,488        57,969
    Income from continuing operations, net of tax                115,641        91,997
    Loss from discontinued operations, net of tax                   (404)         (359)
 
    Net income                                                $  115,237    $   91,638
 
    Basic earnings per share from continuing operations       $     1.26    $     1.02
 
    Diluted earnings per share from continuing operations     $     1.22    $     0.97
 
    Basic earnings per share                                  $     1.26    $     1.02
 
    Diluted earnings per share                                $     1.21    $     0.97
 
    Shares used in computation of basic earnings per share        91,490        90,167
 
    Shares used in computation of diluted earnings per share      95,013        94,447
 
    KNIGHT CAPITAL GROUP, INC.
    CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
    (Unaudited)

                                  December 31, 2011         December 31, 2010
                                                (In thousands)
    ASSETS
    Cash and cash
    equivalents                      $      467,633             $     375,569
    Financial instruments
    owned, at fair value:
    Equities                              1,416,090                 1,299,052
    Listed equity options                   280,384                    41,840
    Debt securities                         134,631                    77,288
    Loan inventory                          206,572                   146,472
    Other financial
    instruments                              21,483                    38,487
    Securitized HECM loan
    inventory                             1,722,631                         -
    Total financial
    instruments owned, at
    fair value                            3,781,791                 1,603,139
    Collateralized
    agreements:
    Securities borrowed                   1,494,647                 1,361,010
    Receivable from
    brokers, dealers and
    clearing
    organizations                           623,897                   476,159
    Fixed assets and
    leasehold
    improvements,
    at cost, less
    accumulated
    depreciation and
    amortization                            111,464                   117,601
    Investments                              83,231                    81,331
    Goodwill                                337,843                   338,743
    Intangible assets,
    less accumulated
    amortization                             92,889                   109,784
    Other assets                            159,556                   206,875

    Total assets                     $    7,152,951            $    4,670,211

    LIABILITIES & EQUITY
    Liabilities
    Financial instruments
    sold, not yet
    purchased, at fair
    value:
    Equities                         $    1,369,750            $    1,164,718
    Listed equity options                   254,506                    40,564
    Debt securities                          63,073                    60,679
    Other financial
    instruments                              34,563                    45,363
    Total financial
    instruments sold, not
    yet purchased, at
    fair value                            1,721,892                 1,311,324
    Collateralized
    financings:
    Securities loaned                       697,998                   527,945
    Financial instruments
    sold under agreements
    to repurchase                           420,320                   485,184
    Liability to GNMA
    trusts, at fair value                 1,710,627                         -
    Other secured
    financings                               59,405                    35,583
    Payable to brokers,
    dealers and clearing
    organizations                           322,660                   337,430
    Accrued compensation
    expense                                 188,939                   186,451
    Accrued expenses and
    other liabilities                       144,747                   114,376
    Long-term debt                          424,338                   311,060

    Total liabilities                     5,690,926                 3,309,353

    Equity
    Knight Capital Group,
    Inc. stockholders'
    equity
    Class A common stock                      1,664                     1,628
    Additional paid-in
    capital                                 850,837                   807,287
    Retained earnings                     1,433,320                 1,317,462
    Treasury stock, at
    cost                                  (823,023)                 (765,875)
    Accumulated other
    comprehensive loss                        (773)                     (265)
    Total Knight Capital
    Group, Inc.
    stockholders' equity                  1,462,025                 1,360,237
    Noncontrolling
    interests                                     -                       621
    Total equity                          1,462,025                 1,360,858

    Total liabilities and
    equity                         $      7,152,951            $    4,670,211
 
    KNIGHT CAPITAL GROUP,
    INC.
    PRE-TAX EARNINGS BY BUSINESS
    SEGMENT*
    Amounts in
    millions
    (Unaudited)

                                For the three
                                months ended            For the year ended
                                 December 31,              December 31,
                               2011       2010(1)        2011       2010(1)
    Market
    Making
    Revenues               $  187.4     $  111.0    $   704.5     $   549.1
    Expenses (2)
    (3)                       103.0         81.1        448.4         339.3
    Pre-tax
    earnings                   84.4         30.0        256.1         209.9

    Institutional Sales
    and Trading
    Revenues                  103.8        112.4        511.5         457.6
    Expenses (2)
    (3)                       121.0        120.1        555.9         477.1
    Pre-tax loss             (17.1)        (7.7)       (44.4)        (19.5)

    Electronic
    Execution Services
    Revenues                   40.6         37.1        167.9         138.2
    Expenses (2)
    (3)                        28.1         26.4        118.4         100.8
    Pre-tax
    earnings                   12.5         10.7         49.5          37.4

    Corporate
    and Other
    Revenues                    9.6        (1.5)         20.6           4.1
    Expenses (2)
    (3)                        26.1         18.7         94.7          82.0
    Pre-tax loss             (16.5)       (20.2)       (74.1)        (77.9)

    Consolidated
    Revenues                  341.3        259.0      1,404.5       1,149.1
    Expenses (2)
    (3)                       278.2        246.3      1,217.4         999.1
    Pre-tax
    earnings               $   63.1     $   12.8    $   187.1     $   150.0

    * Totals may not add due to rounding.
    (1) - Prior period amounts have been recast to conform with
    current period segment presentation.
    Such recast had no effect on previously reported
    Consolidated Pre-tax earnings.
    (2) - Included in Expenses for the year ended December 31,
    2011 is a Restructuring charge
    of $28.6 million which includes $0.5 million for Market
    Making, $23.9 million for Institutional Sales and Trading,
    $0.4 million for Electronic Execution Services, and $3.8
    million for Corporate and Other.
    (3) - Included in Expenses for the year ended December 31,
    2010 is a Restructuring charge
    of $16.7 million which includes $1.6 million for Market
    Making, $14.3 million for Institutional Sales and Trading,
    $0.1 million for Electronic Execution Services, and $0.7
    million for Corporate and Other.

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