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Gleacher & Company Reports Second Quarter 2013 Financial Results

  Gleacher & Company Reports Second Quarter 2013 Financial Results

Business Wire

NEW YORK -- August 8, 2013

Gleacher & Company, Inc. (Nasdaq: GLCH) today reported net loss of $61.5
million for the second quarter of 2013 (including a restructuring charge of
$43.6 million) and loss per share of ($10.02).

                             Recent Developments

Gleacher & Company, Inc. (“Gleacher” or the “Company”) historically has
operated an investment banking business, predominately fixed-income sales and
trading and financial advisory services, through three principal business
units: Investment Banking, MBS & Rates and Credit Products. The Company also
engaged in residential mortgage lending operations through ClearPoint Funding,
Inc. (“ClearPoint”) until this business was discontinued, and the business
sold, in February 2013.

The Company has disclosed previously various uncertainties that had adversely
impacted counterparty relationships, employee turnover and operating results.
Those factors impacted the overall stability of the Company’s platform. During
the second quarter, the Company’s Board of Directors approved plans to
discontinue operations in its MBS & Rates and Credit Products divisions
(together, “Fixed Income” or the “Fixed Income businesses”) as well as, later
in the quarter, its Investment Banking Division. As a result of the exits from
these businesses, the Company now has no meaningful revenue-producing
operations. As of August 8, 2013, the Company had approximately 20 employees.

In connection with exiting Investment Banking and Fixed Income, the Company
recognized a charge of approximately $43.6 million. See “Results from
Discontinued Operations” below for additional information.

The Company is evaluating several strategic alternatives in order to preserve
and maximize stockholder value. These include:

  *pursuing a strategic transaction with a third party, such as a merger or
    sale of the Company;
  *reinvesting the Company’s liquid assets into favorable opportunities; and
  *continuing the wind-down of the Company’s remaining operations and making
    a distribution of proceeds to stockholders.

On May 31, 2013, the Company appointed Christopher J. Kearns of Capstone
Advisory Group, LLC (“Capstone”) as the Company’s Chief Restructuring Officer
and Chief Executive Officer. Also, Capstone was retained to assist the Company
with its restructuring process.

Also, during the quarter, the Company implemented a 1-for-20 reverse stock
split. All share and share-related information in this press release has been
adjusted, to the extent necessary, to reflect this reverse stock split. In
part as result of this reverse stock split, the Company regained compliance
with the listing standards of the Nasdaq Global Market.

                         Financial Results – Summary

Included within the results of continuing operations are certain expenses
associated with former employees and former Company initiatives. Therefore,
reported results from continuing operations below are not necessarily
indicative of results from continuing operations to be reported in the future.

                                                            
                    Three Months Ended           Six Months
                                                  Ended
                    June          June          June            June
(In
thousands,
except for          2013            2012          2013             2012
per-share
amounts)
                    (Unaudited)     (Unaudited)   (Unaudited)      (Unaudited)
Revenues –
continuing          $ (499    )     $ (76     )   $  (304    )     $ 609
operations
Pre-tax loss
from                $ (6,859  )     $ (8,179  )   $  (13,204 )     $ (14,285 )
continuing
operations
                                                                     
Net loss from
continuing          $ (6,928  )     $ (35,465 )   $  (13,358 )     $ (39,255 )
operations
Loss from
discontinued        $ (54,567 )     $ (23,508 )   $  (66,108 )     $ (24,402 )
operations,
net of taxes
Net loss            $ (61,495 )     $ (58,973 )   $  (79,466 )     $ (63,657 )
                                                                     
Loss per
share:
Continuing          $ (1.13   )     $ (5.93   )   $  (2.21   )     $ (6.59   )
operations
Discontinued        $ (8.89   )     $ (3.93   )   $  (10.92  )     $ (4.09   )
operations
Loss per            $ (10.02  )     $ (9.86   )   $  (13.13  )     $ (10.68  )
share – total
                                                                     
Shares
Weighted
average               6,136          5,978         6,056          5,959   
diluted
shares^1
                                                                 

^1 GAAP requires the exclusion of potentially dilutive securities when an
entity reports a net loss, so that the calculated earnings per share are a
more conservative (greater) loss per share. The Company was in a net loss
position for the three and six months ended June 30, 2013 and 2012. Therefore,
for purposes of computing dilutive loss per share for the three and six months
ended June 30, 2013 and 2012, the Company excluded approximately 456,000 and
474,000, respectively, of shares underlying stock options, 46,000 and 458,000,
respectively, of shares of restricted stock, and 25,000 and 201,000,
respectively, of shares underlying restricted stock units.

                      Results from Continuing Operations

Revenues from continuing operations for the three months ended June 30, 2013
were ($0.5) million, compared to ($0.1) million for the three months ended
June 30, 2012. The decrease in net revenues was primarily due to changes in
the fair value of the Company’s investments. Revenues for the six months ended
June 30, 2013 were ($0.3) million, compared to $0.6 million for the six months
ended June 30, 2012. This decrease in net revenues was due to changes in the
fair value of the Company’s investments and lower fees and other.

Compensation expense from continuing operations includes compensation for
approximately 20 remaining employees, as well as compensation expense of $0.9
million and $2.3 million during the three and six months ended June 30, 2013,
respectively, of certain former administrative employees, including the
Company’s former Chief Executive Officer and Chief Operating Officer.
Compensation expense related to continuing operations was $2.1 million and
$3.2 million for the three months ended June 30, 2013 and 2012, respectively
and was $4.6 million and $6.2 million for the six months ended June 30, 2013
and 2012, respectively. The declines were primarily attributable to lower
discretionary bonus compensation accruals in the current year.

Non-compensation expenses related to continuing operations of $4.2 million and
$4.9 million for the three months ended June 30, 2013 and 2012, respectively,
and $8.3 million and $8.7 million for the six months ended June 30, 2013 and
2012, respectively, are primarily comprised of professional fees, including
legal, consulting and audit costs. Non-compensation expenses also include
occupancy costs associated with the Company’s current headcount and other
general costs, including insurance. The declines in non-compensation costs are
primarily due to ongoing cost reductions in connection with the Company’s
restructuring.

Reclassifications

Certain items previously not allocated to the Company’s Investment Banking
division and Fixed Income have been reclassified as discontinued operations,
as follows:

                                               
                       Three Months Ended         Six Months Ended
                        June         June          June          June
(In thousands)          2013         2012          2013          2012
                        (Unaudited)   (Unaudited)   (Unaudited)    (Unaudited)
Items
Reclassified to                                                 
Discontinued
Operations
Revenues
Interest income
– Intersegment        $ -            $   1,521     $  778       $  3,454
allocation
Expenses
Compensation          $ 867           $   2,206     $  2,387      $  4,234
expense
Professional            (206    )         301          182           1,158
fees
Occupancy               837               364          1,428         643
expense
Goodwill                -       ^1        21,096       -     ^1      21,096
impairment
Communications
and data                173               124          338           358
processing
Other                   121              225          278          459
Total expenses          1,792            24,316       4,613          27,948
                                                                       
Total items
reclassified to       $ 1,792        $   22,795    $  3,835      $   24,494
discontinued
operations
                                                                       

^1 Impairment of intangible assets of $3.3 million and $3.9 million for the
three and six months ended June 30, 2013, recognized in connection with the
Company’s exits from Investment Banking, Fixed Income and ClearPoint, is
recorded as restructuring expense and included within discontinued operations.

              Provision for Income Taxes – Continuing Operations

Three and Six Months Ended June 30, 2013

The Company provided for a full valuation allowance against the net operating
losses (“NOLs”) generated during the three and six months ended June 30, 2013,
resulting in no income tax benefit. The Company’s pre-tax federal NOL at June
30, 2013 is estimated to be approximately $95.0 million. In the event that the
Company experiences an ownership change under Internal Revenue Code Section
382, the Company’s NOLs would be fully impaired (reduced nearly to zero).
Income tax expense from continuing operations of $0.1 million and $0.2 million
for the three and six months ended June 30, 2013, respectively, is due to
state franchise taxes and interest expense on uncertain tax positions.

Three and Six Months Ended June 30, 2012

The Company’s provision for income taxes from continuing operations for the
three and six months ended June 30, 2012 wasapproximately $27.3 million and
$25.0 million, respectively, and is primarily due to the establishment of a
valuation allowance against substantially all of the Company’s deferred tax
assets, of which a substantial portion has been allocated to continuing
operations.

                    Discontinued Operations, net of taxes

As previously discussed, during the three months ended June 30, 2013, the
Company exited its Investment Banking and Fixed Income businesses. In
addition, during the first quarter of 2013, substantially all of ClearPoint’s
assets were sold to Homeward Residential, Inc. (resulting in a loss of
approximately $1.1 million). As a result of these actions, the results of
these businesses have been reclassified as discontinued operations.

Discontinued operations also include residual profits and losses related to
the Equities division due to the Company’s decision to exit this business in
August of 2011.

Amounts reflected in the Consolidated Statements of Operations for the three
and six months ended June 30, 2013 and 2012 related to these discontinued
operations are presented in the following table:

                     
                         Three Months Ended         Six Months Ended
                         June         June          June         June
(In thousands of         2013         2012         2013         2012      
dollars)
                         (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Net Revenues
Investment Banking       $ 1           $ 8,730       $ 15,034      $ 13,263
MBS & Rates                (3,621  )     5,282         (4,344  )     25,613
Credit Products            739           17,872        12,564        39,589
ClearPoint                 (53     )     11,316        4,355         26,861
Equities division          -             6             76            43
Other items
reclassified from          -            1,521        778          3,454   
continuing
operations
Total net revenues         (2,934  )     44,727       28,463       108,823 
Total expenses
(excluding
restructuring
expense)
Investment Banking         918           6,535         12,606        10,489
MBS & Rates                2,969         7,028         10,502        21,872
Credit Products            1,967         16,587        14,209        38,992
ClearPoint                 283           13,828        6,436         32,226
Equities division          77            (31     )     119           (104    )
Other items
reclassified from          1,792        24,316       4,613        27,948  
continuing
operations
Total expenses
(excluding                 8,006        68,263       48,485       131,423 
restructuring
expense)
(Loss)/income from
discontinued
operations before
income taxes
(excluding
restructuring
expense)
Investment Banking         (917    )     2,195         2,428         2,774
MBS & Rates                (6,590  )     (1,746  )     (14,846 )     3,741
Credit Products            (1,228  )     1,285         (1,645  )     597
ClearPoint                 (336    )     (2,512  )     (2,081  )     (5,365  )
Equities division          (77     )     37            (43     )     147
Other items
reclassified from          (1,792  )     (22,795 )     (3,835  )     (24,494 )
continuing
operations
Subtotal                   (10,940 )     (23,536 )     (20,022 )     (22,600 )
Restructuring              (43,627 )     -            (46,086 )     -       
expense
Loss from
discontinued               (54,567 )     (23,536 )     (66,108 )     (22,600 )
operations before
income taxes
Income tax                 -            (28     )     -            1,802   
(benefit)/expense
Loss from
discontinued             $ (54,567 )   $ (23,508 )   $ (66,108 )   $ (24,402 )
operations, net of
taxes
                                                                     

                     Results from Discontinued Operations

The Company’s net revenue from operations now discontinued was ($2.9) million
and $44.7 million for the three months ended June 30, 2013 and 2012,
respectively and $28.5 million and $108.8 million for the six months ended
June 30, 2013 and 2012, respectively.

No revenue was generated from investment banking during the three months ended
June 30, 2013, primarily due to the instability of the Company’s platform.
Revenue-generating capabilities of the Fixed Income businesses suffered from
the previously mentioned uncertainties and adverse developments. Results of
the MBS & Rates division reflect sales and trading losses, including losses on
the wind down of the Company’s financial instruments owned of $4.4 million and
$9.4 million for the three and six months ended June 30, 2013, respectively.
The sales and trading losses were partially mitigated by net interest income.
The Credit Products division suffered significant declines in revenues upon
the departure of approximately 20 professionals in mid-February of 2013. Those
and other subsequent departures, which further contributed to the Company’s
instability, had a material adverse impact on the Credit Products division’s
sales and trading activities. Net revenues of this division were $0.7 million
and $12.6 million for the three and six months ended June 30, 2013,
respectively.

The pre-tax results from discontinued operations for the three and six months
ended June 30, 2013 were losses of $54.6 million and $66.1 million,
respectively. Discontinued operations were directly affected by the drastic
declines in revenues and were also impacted by a restructuring charge of $43.6
million and $46.1 million recognized during the three and six months ended
June 30, 2013, respectively (of which $34.2 million is expected to result in
cash expenditures). The major costs associated with the exits of Investment
Banking and Fixed Income (second quarter) and ClearPoint (first quarter) are
as follows:

  *severance and other compensation costs of approximately $10.1 million and
    $11.4 million for the three and six months ended June 30, 2013,
    respectively;
  *termination of third-party vendor contracts and other costs of
    approximately $5.9 million and $6.0 million for the three and six months
    ended June 30, 2013, respectively;
  *costs associated with exiting our lease commitments, including the
    Company’s headquarters and other office locations, of approximately $16.8
    million for the three and six months ended June 30, 2013;
  *non-cash charges related to the vesting of stock-based compensation and
    other deferred compensation of approximately $4.1 million and $4.5 million
    for the three and six months ended June 30, 2013, respectively; and
  *non-cash charges related to the impairment of fixed assets, leasehold
    improvements, goodwill and intangible assets of $6.7 million and $7.4
    million for the three and six months ended June 30, 2013, respectively.

As of June 30, 2013, the Company’s remaining obligation associated with these
exits was approximately $23.6 million. The Company’s reserve for lease
commitments is based upon assumptions including sublease rents per square
foot, free rent periods and downtime for locating a subtenant. The Company may
incur additional charges that are material to the extent the leases are
terminated for amounts in excess of the Company’s estimates, or if finding a
subtenant takes longer than estimated and/or actual sublease rents are less
than projected. In addition, the Company estimates its remaining exposure to
severance, in connection with these restructurings, to be between
approximately $0.5 million and $1.0 million. No other material charges are
expected to be incurred. The cash obligations associated with these exits will
be satisfied from available cash on hand.

              Consolidated Statements of Operations (Unaudited)

                                                
                         Three Months Ended          Six Months Ended
(In thousands,
except for               June         June          June         June
per-share amounts)
                         2013         2012         2013         2012      
Revenues:                (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Investment losses,       $ (601    )   $ (139    )   $ (429    )   $ (7      )
net
Fees and other            102         63          125         616     
Total revenues            (499    )    (76     )    (304    )    609     
Expenses:
Compensation and           2,117         3,247         4,640         6,180
benefits
Professional fees          3,088         3,050         5,598         5,348
Communications and         288           522           694           1,045
data processing
Occupancy,
depreciation and           458           399           765           774
amortization
Other                     409         885         1,203       1,547   
Total non-interest        6,360       8,103       12,900      14,894  
expenses
Loss from
continuing
operations before          (6,859  )     (8,179  )     (13,204 )     (14,285 )
income taxes and
discontinued
operations
Income tax expense        69          27,286      154         24,970  
Loss from
continuing                 (6,928  )     (35,465 )     (13,358 )     (39,255 )
operations
Loss from
discontinued              (54,567 )    (23,508 )    (66,108 )    (24,402 )
operations, net of
taxes
Net loss                 $ (61,495 )   $ (58,973 )   $ (79,466 )   $ (63,657 )
                                                                     
Earnings per
share:
Basic loss per
share
Continuing               $ (1.13   )   $ (5.93   )   $ (2.21   )   $ (6.59   )
operations
Discontinued              (8.89   )    (3.93   )    (10.92  )    (4.09   )
operations
Net loss per share       $ (10.02  )   $ (9.86   )   $ (13.13  )   $ (10.68  )
                                                                     
Diluted loss per
share
Continuing               $ (1.13   )   $ (5.93   )   $ (2.21   )   $ (6.59   )
operations
Discontinued              (8.89   )    (3.93   )    (10.92  )    (4.09   )
operations
Net loss per share       $ (10.02  )   $ (9.86   )   $ (13.13  )   $ (10.68  )
                                                                     
Weighted average
number of shares
of common stock:
Basic                      6,136         5,978         6,056         5,959
Diluted                    6,136         5,978         6,056         5,959
                                                                     

          Consolidated Statement of Financial Condition (Unaudited)

                                                            
(In thousands, except for share and              June 30,        December 31,
per-share amounts)
                                                 2013           2012        
Assets:
Cash and cash equivalents                        $ 88,498        $ 44,868
Cash and securities segregated for                 6,000           13,000
regulatory and other purposes
Receivables from
Brokers, dealers and clearing                      9,249           12,824
organizations
Related parties                                    1,500           1,474
Other                                              2,407           12,563
Financial instruments owned, at fair value         867             1,096,181
Investments                                        20,995          20,478
Office equipment and leasehold                     772             5,311
improvements, net
Goodwill                                           -               1,212
Intangible assets                                  -               5,303
Income taxes receivable                            4,418           7,394
Deferred tax assets, net                           -               -
Other assets                                      9,184         9,030     
Total Assets                                     $ 143,890      $ 1,229,638 
Liabilities and Stockholders' Equity:
Liabilities
Payables to:
Brokers, dealers and clearing                    $ -             $ 638,009
organizations
Related parties                                    1,163           2,944
Other                                              1,662           2,251
Securities sold under agreements to                -               159,386
repurchase
Securities sold, but not yet purchased, at         -               132,730
fair value
Secured borrowings, ClearPoint                     -               64,908
Accrued compensation                               2,116           34,199
Restructuring reserve                              23,642          -
Accounts payable and accrued expenses              6,089           9,866
Income taxes payable                               3,896           3,755
Subordinated debt                                 409           595       
Total Liabilities                                 38,977        1,048,643 
Stockholders' Equity
Common stock ($.01 par value; authorized           1,337           1,337
10,000,000 shares)
Additional paid-in capital                         457,540         453,938
Deferred compensation                              101             124
Accumulated deficit                                (343,043  )     (263,577  )
Treasury stock, at cost                           (11,022   )    (10,827   )
Total Stockholders' Equity                        104,913       180,995   
Total Liabilities and Stockholders' Equity       $ 143,890      $ 1,229,638 
                                                                   
Common stock (in shares)
Shares issued                                      6,688,387       6,688,387
Less: Treasury stock                              (530,047  )    (466,428  )
Shares outstanding                                6,158,340     6,221,959 
                                                                             

                           About Gleacher & Company

Gleacher & Company, Inc. (Nasdaq: GLCH) is incorporated under the laws of the
State of Delaware. The Company’s common stock is traded on The NASDAQ Global
Market under the symbol “GLCH.”

                          Forward Looking Statements

This press release contains “forward-looking statements.” These statements are
not historical facts but instead represent the Company’s belief or plans
regarding future events, many of which are inherently uncertain and outside of
the Company's control. The Company often, but not always, identifies
forward-looking statements by using words or phrases such as “anticipate,”
“estimate,” “plan,” “project,” “target,” “expect,” “continuing,” “ongoing,”
“believe” and “intend.” The Company’s forward-looking statements are based on
facts as the Company understands them at the time the Company makes any such
statement as well as estimates and judgments based on these facts. The
Company’s forward-looking statements may turn out to be inaccurate for a
variety of reasons, many of which are outside of its control. Factors that
could render the Company’s forward-looking statements subsequently inaccurate
include the risk that we are unable to preserve or maximize stockholder value
through the realization of any of the strategic alternatives being evaluated
by the Company and the other risks and factors identified from time to time in
the Company’s filings with the Securities and Exchange Commission. You are
cautioned not to place undue reliance on forward-looking statements. The
Company does not undertake to update any of its forward-looking statements.

Contact:

Gleacher & Company, Inc.
Investor Relations, 212-273-7100
 
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