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| MF Global Reports Fiscal 2009 First Quarter Results |
NEW YORK--Aug. 7, 2008--MF Global Ltd. (NYSE: MF), the world's leading broker of exchange-listed futures and options, today reported financial results for the first fiscal quarter of 2009 ended June 30, 2008. Fiscal 2009 First Quarter Results Revenues, net of interest and transaction-based expenses (net revenues), were $374.7 million in the first fiscal quarter, essentially unchanged when compared to the $374.4 million for the same period last year. GAAP net income in the first fiscal quarter of 2009 was $14.4 million, or $0.12 per basic and diluted share, compared to $72.9 million, or $0.70 per basic and diluted share for the same period in the prior year. First quarter adjusted net income was $37.0 million, or $0.29 per adjusted diluted share, compared to $46.1 million, or $0.36 per adjusted pro forma fully diluted share for the same period in the prior year. Adjusted figures for both periods exclude items that management believes are not representative of future operating performance.(1) GAAP pre-tax margin for the first fiscal quarter was 6.0 percent, compared to 29.8 percent for the same period last year. Adjusted pre-tax margin for the fiscal first quarter was 14.1 percent, compared to 18.8 percent in the first fiscal quarter 2008. Total net interest income for the first fiscal quarter was $107.0 million, an increase of 20 percent year-over-year, although total net interest income was down from the fourth quarter mainly due to the narrowing of short term credit spreads coupled with the reduced duration of the investment of client funds. First fiscal quarter net interest income is comprised of two main components: 1. $36.5 million in interest generated from principal transactions and related financing transactions; and 2. $70.5 million in interest generated from client funds and interest on excess cash. Please see attached table for comparison periods. "Our first quarter performance illustrates the benefit of our diversified business model. A good example of this is that the decline in net interest income from client funds this quarter was partially offset by the solid growth in our volumes and associated transaction-based businesses," said Kevin R. Davis, chief executive officer, MF Global. "Now, with our new capital structure in place and our investment grade ratings reaffirmed, MF Global is well positioned to create value for its clients and shareholders going forward." Employee compensation and benefits during the quarter were $210.7 million. Excluding termination liabilities of $5.5 million, employee compensation and benefits totaled $205.2 million, or 54.8 percent of net revenues, for the first fiscal quarter 2009. GAAP non-compensation expense for the quarter was $126.5 million. Adjusted non-compensation expense was $97.1 million for the first fiscal quarter 2009. The company's errors and bad debts in the quarter were 0.8 percent of net revenues. Fiscal 2009 First Quarter Performance Metrics Total first fiscal quarter 2009 volume was up 17 percent year-over-year to 550.0 million contracts. Execution-only volume was up 24 percent to 163.0 million contracts, and cleared volume was up 14 percent to 387.0 million contracts. For the first fiscal quarter 2009, execution-only commissions were $119.1 million, up eight percent year-over-year and cleared commissions were $374.2 million, up four percent year-over-year. Principal transactions for the first fiscal quarter were $63.2 million. Including interest income from related financing transactions, aggregate revenues from principal transactions were $99.7 million in the first quarter, approximately unchanged year-over-year. Please see attached table for comparison periods. As of June 30, 2008, MF Global had $16.9 billion in client payables, up 10 percent from $15.3 billion at fiscal year end. Client funds have historically moved up and down based on a number of factors such as the ebbs and flows of exchange margin requirements and customer gains and losses. "Over time, we believe, shareholders should see the benefits of our efforts to increase efficiency and produce higher margins," said Randy MacDonald, chief financial officer, MF Global. "In addition, we are committed to increasing the transparency and clarity of our financial model." Rate per Contract In the first quarter, rate per contract in execution only commissions was down $0.07 year-over-year to $0.60. The decline is primarily the result of growth in self-execution volume in the energy business as a consequence of a significant shift from floor to screen-based trading. In cleared commissions, the rate per contract was $0.38, down $0.05 year-over-year as a result of a mix shift from retail toward professional traders. Apart from the unique movements in the energy and retail markets this quarter, the diversity of the business produces normal mix shifts which can cause rate per contract to fluctuate.
% Change
-----------
1Q09 1Q09
vs vs
1Q09 4Q08 1Q08 4Q08 1Q08
----- ----- ----- ----- -----
Execution (1) $0.60 $0.65 $0.67 (7%) (10%)
Total $0.38 $0.44 $0.43 (12%) (11%)
Clearing (1)
Non-Professional Trader (6%) (6%)
(1) Excludes net commission and volume unrelated to exchange-traded derivative activities.
Business Highlights
Completion of Capital Plan
On July 18th, MF Global successfully completed its capital plan to refinance the $1.4 billion bridge loan established at the time of its initial public offering. The new capital structure bolsters the firm's equity capital position, substantially reducing short-term debt from the balance sheet while significantly extending MF Global's debt maturity profile. At this time, the three major credit rating agencies have confirmed MF Global's investment grade ratings and have removed the company from negative watch. Close of Risk Management Review Following the broker-related loss incurred in February of 2008, MF Global's Nominating and Corporate Governance Committee commissioned two independent reviews by outside consulting firms to assess MF Global's risk management systems, processes and overall control infrastructure. FTI Consulting has completed its review of the Order Express order entry system. Separately, Promontory Financial Group has completed its global review of risk management, internal control infrastructure and trading operations. Both consultants have reported their findings and recommendations to the board of directors and MF Global is in the process of addressing those recommendations. MF Global continues to work with FTI in its evaluation of other order entry systems globally. The company also continues to work with Promontory in connection with its recommendations related to best practices policies and procedures. New Chief Compliance Officer MF Global has appointed Tracy Lowery Whille as chief compliance officer. Ms. Whille is responsible for managing, instituting and enhancing compliance programs, policies and procedures globally. Ms. Whille was previously senior managing director and global compliance director with Bear Stearns & Co. which she joined in 2005. In this role, she was responsible for all compliance aspects of the firm. Prior to her role at Bear Stearns, Ms. Whille held several positions in compliance and finance at Lehman Brothers and Goldman Sachs. Conference Call Information MF Global will hold a conference call to discuss the quarter's results today at 10:00 a.m. EDT. The call is open to the public. Dial-in Information --------------------------- US/Canada Dial-in #: +1 866 312 9464 International Dial-in #: +1 706 643 0009 Passcode: 56183434 Listeners to the call should dial in approximately 10 minutes prior to the start of the call. A live audio webcast of the presentation will be available on the investor relations section of the MF Global Web site and will be available for replay shortly after the event. About MF Global MF Global Ltd. (NYSE: MF) is the leading broker of exchange-listed futures and options in the world. It provides independent execution and clearing services for exchange-traded and over-the-counter derivative products as well as for non-derivative foreign exchange products and securities in the cash market. MF Global is uniquely diversified across products, trading markets, customers and regions. Its worldwide client base of more than 138,000 active accounts ranges from financial institutions, industrial groups, hedge funds and other asset managers to professional traders and private/retail clients. MF Global operates in 12 countries on more than 70 exchanges, providing access to the largest and fastest growing financial markets in the world. It is the leader by volume on many of these markets and on a single day averages more than eight million lots, more than most of the world's largest derivatives exchanges. For more information, please visit www.mfglobal.com. Forward-Looking Statement SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Forward-looking statements in this press release, including statements relating to the Company's future revenues and earnings, plans, strategies, objectives, expectations and intentions, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy, and some of which might not be anticipated. We caution you not to place undue reliance on these forward-looking statements. We refer you to the Company's latest Annual Report on Form 10-K on file with the Securities and Exchange Commission (SEC) for a description of the risks and uncertainties the Company faces. This press release includes certain non-GAAP financial measures, as defined under SEC rules. A reconciliation of these measures is included in the financial information later in this release, as well as in the Company's Current Report on Form 8-K furnished to the SEC in connection with this earnings release, which is available on the Company's website at www.mfglobal.com and on the SEC's website at www.sec.gov. Non-GAAP Financial Measures In addition to our consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP financial measures of our financial performance for the reasons described further below. The presentation of these measures is not intended to be considered in isolation from, as a substitute for or as superior to, the financial information prepared and presented in accordance with GAAP, and our presentation of these measures may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. The non-GAAP financial measures we use are (1) non-GAAP adjusted net income, (2) non-GAAP adjusted pre-tax income and margin, (3) non-GAAP adjusted net income per adjusted diluted common shares, (4) non-GAAP adjusted employee compensation and benefits, and (5) non-GAAP adjusted non-compensation expenses. These non-GAAP financial measures currently exclude the following items from our statement of operations:
We do not believe that any of these items are representative of our future operating performance. Other than exchange membership gains and losses, these items reflect costs that were incurred for specific reasons outside of normal operations. In addition, we may consider whether other significant non-operating or unusual items that arise in the future should also be excluded in calculating the non-GAAP financial measures we use. The non-GAAP financial measures also take into account income tax adjustments with respect to the excluded items. (1) Adjusted items are non-GAAP measures. Adjusted items include Refco integration costs, exchange membership gains and losses, IPO-related costs, stock compensation expense related to IPO awards and costs associated with the February 2008 broker-related loss. For a reconciliation of non-GAAP measures used in this release with the comparable GAAP measures, please reference the information at the end of this release.
MF Global
Consolidated and Combined Statements of Operations
(Dollars in thousands, except share data)
Three months ended
June 30,
---------------------------
2008 2007
------------- -------------
Revenues
Execution only commissions 119,063 110,296
Cleared commissions 374,173 358,673
Principal transactions 63,161 99,955
Interest income 345,819 992,228
Other 11,641 9,440
------------- -------------
Total revenues 913,857 1,570,592
Interest and transaction-based expenses:
Interest expense 238,797 902,992
Execution and clearing fees 232,703 221,401
Sales commissions 67,703 71,796
------------- -------------
Total interest and transaction-based
expenses 539,203 1,196,189
Revenues, net of interest and transaction-
based expenses 374,654 374,403
------------- -------------
Expenses
Employee compensation and benefits
(excluding non-recurring IPO awards) 210,665 215,378
Employee compensation related to non-
recurring IPO awards 17,744 -
Communications and technology 32,426 26,647
Occupancy and equipment costs 10,255 8,563
Depreciation and amortization 14,165 12,383
Professional fees 31,020 14,472
General and other 15,225 18,019
IPO-related costs 5,468 20,752
Refco integration costs 270 1,327
------------- -------------
Total other expenses 337,238 317,541
Gains/(losses) on exchange seats and
shares (648) 63,301
Interest on borrowings 14,217 8,692
------------- -------------
Income before provision for income taxes 22,551 111,471
Provision for income taxes 6,726 36,859
Minority interests in income of combined
companies (net of tax) 556 943
Equity in earnings of unconsolidated
companies (net of tax) (878) (772)
------------- -------------
Net income $ 14,391 $ 72,897
============= =============
Earnings per share:
Basic $ 0.12 $ 0.70
Diluted $ 0.12 $ 0.70
Weighted average number of common shares
outstanding:
Basic 120,122,933 103,726,453
Diluted 121,995,205 103,726,453
MF Global
Consolidated Balance Sheets
(Dollars in thousands, except share data)
June 30, March 31,
2008 2008
------------ ------------
Assets
Cash and cash equivalents $ 2,053,447 $ 1,481,084
Restricted cash and segregated securities 11,902,964 12,047,009
Securities purchased under agreements to
resell 9,839,878 13,022,376
Securities borrowed 5,614,320 4,649,172
Securities received as collateral 394,336 623,752
Securities owned, at fair value 5,325,299 7,380,290
Receivables:
Brokers, dealers and clearing organizations 7,681,119 7,085,652
Customers 817,294 2,367,461
Affiliates 312 716
Other 31,825 41,835
Memberships in exchanges, at cost 8,895 8,909
Furniture, equipment and leasehold
improvements, net 53,765 54,911
Goodwill 76,798 74,145
Intangible assets, net 184,341 193,180
Other assets 280,574 224,379
------------ ------------
TOTAL ASSETS 44,265,167 49,254,871
============ ============
Liabilities and Shareholders' Equity
Short-term borrowings, including current
portion of long-term borrowings 1,194,004 1,729,815
Securities sold under agreements to
repurchase 14,305,083 18,638,033
Securities loaned 3,560,742 3,188,154
Obligation to return securities borrowed 394,336 623,752
Securities sold, not yet purchased, at fair
value 1,481,524 1,869,039
Payables:
Brokers, dealers and clearing organizations 4,024,963 6,317,297
Customers 16,941,856 15,302,498
Affiliates 26,810 12,921
Accrued expenses and other liabilities 257,181 313,507
Long-term borrowings 650,000 -
------------ ------------
TOTAL LIABILITIES 42,836,499 47,995,016
------------ ------------
Commitments and contingencies
Preference shares, $1.00 par value per
share; 200,000,000 shares authorized;
1,500,000 Series B Convertible, issued and
outstanding, non-cumulative 128,844 -
Minority interests in consolidated
subsidiaries 10,631 10,830
------------ ------------
SHAREHOLDERS' EQUITY
Common shares, $1.00 par value per share;
1,000,000,000 shares authorized,
119,875,977 shares issued and outstanding 119,876 119,647
Additional paid-in capital 1,293,550 1,265,733
Accumulated other comprehensive income (net
of tax) 3,815 6,084
Accumulated deficit (128,048) (142,439)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 1,289,193 1,249,025
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $44,265,167 $49,254,871
============ ============
GAAP Reconciliation
The table below reconciles pre-tax income to adjusted pre-tax income
for the periods presented:
Three months ended
June 30,
---------------------
2008 2007
---------- ----------
(dollars in millions)
Income before taxes (unadjusted) $ 22.6 $111.5
Add: Refco integration costs 0.3 1.3
Less: Exchange membership gains/(losses) 0.6 (63.3)
Add: IPO-related costs 5.5 20.8
Add: Stock compensation charge on IPO awards 17.7 -
Add: Broker related loss and associated costs 6.0 -
---------------------
Adjusted pre-tax income $ 52.7 $ 70.3
The table below reconciles net income to adjusted net income (applying
an assumed tax rate of 35% to the adjustments prior to the
Reorganization and Separation), for the periods presented:
Three months ended
June 30,
---------------------
2008 2007
---------- ----------
(dollars in millions)
Net income (unadjusted) $ 14.4 $ 72.9
Add: Refco integration costs 0.2 0.9
Less: Exchange membership gains/(losses) 0.4 (41.2)
Add: IPO-related costs 5.5 13.5
Add: Stock compensation charge on IPO awards 13.0 -
Add: Broker related loss and associated costs 3.5 -
---------- ----------
Adjusted net income $ 37.0 $ 46.1
Adjusted diluted earnings per share $ 0.29 $ 0.36
Adjusted diluted shares outstanding (in
millions) (1) 128.5 127.1
(1) We believe it is meaningful to investors to present adjusted net
income per adjusted diluted common share. Common shares outstanding
are adjusted at June 30, 2008 to add back shares underlying an
additional 6,556,096 restricted share units granted as part of the
IPO Awards that are not considered dilutive under U.S. GAAP and
therefore not included in diluted common shares outstanding. As of
June 30, 2008, our adjusted diluted shares outstanding were 128.5
million, subject to increase to reflect our grant of additional
awards in the future. Since we expect to add back the expenses
associated with these awards in determining our adjusted net income
in future periods, we believe it is more meaningful to investors to
calculate pro forma adjusted net income per common share based on
adjusted diluted shares outstanding. We believe that this
presentation is meaningful because it demonstrates the dilution that
investors will experience at the end of the three-year vesting period
of these awards.
GAAP Reconciliation (continued)
The table below calculates Principal Transaction Revenue
for the periods presented:
Three months ended
June 30,
---------------------
2008 2007
---------- ----------
(dollars in millions)
Principal transactions $ 63.2 $ 100.0
Net interest generated from principal
transactions, related financing transactions
and impact of equity swaps 36.5 0.3
---------- ----------
Total Principal Transaction Revenue $ 99.7 $ 100.3
========== ==========
The table below calculates the components of net
interest income:
Three months ended
June 30,
---------------------
2008 2007
---------- ----------
(dollars in millions)
Net Interest generated from client funds and
excess cash $ 70.5 $ 88.9
Net interest generated from principal
transactions, related financing transactions
and impact of equity swaps 36.5 0.3
---------- ----------
Total Net Interest Income $ 107.0 $ 89.2
========== ==========
The table below calculates Adjusted Non-Compensation Expenses for the
periods presented:
Three months ended
June 30,
---------------------
2008 2007
---------- ----------
(dollars in millions)
Total other expenses $ 337.2 $ 317.5
Less: Employee compensation and benefits
(excluding non-recurring IPO awards) (210.7) (215.4)
Less: Employee compensation related to non-
recurring IPO awards (17.7) -
Less: Refco integration costs (0.3) (1.3)
Less: IPO-related costs (5.5) (20.8)
Less: Broker related loss and associated costs (6.0) -
---------- ----------
Adjusted Non-Compensation Expenses $ 97.1 $ 80.1
========== ==========
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