|APRIL 18, 2001|
|Knight Trading Group Reports Earnings Per Share of $0.21, Ahead of Reduced Expectations|
|Difficult Market Environment During First Quarter 2001 Impacts Quarterly Results
International Expansion Investment Costs Total $0.08 Per Share
JERSEY CITY, N.J., April 18 /PRNewswire/ -- Knight Trading Group, Inc. (Nasdaq: NITE - news) today reported results for the first quarter ended March 31, 2001. Knight Trading Group is the leading market maker in equity securities listed on Nasdaq, the OTCBB of the National Association of Securities Dealers (NASD), and the over-the-counter market for New York Stock Exchange (NYSE) and American Stock Exchange (AMEX)-listed securities. Knight also is a leading market maker in options on individual equities, equity indices and fixed income instruments in the U.S. and Europe. The firm also maintains an asset management business for institutional investors and high net worth individuals through its Deephaven Capital Management subsidiary.
pro forma net income
First Quarter First Quarter 2001 2000 Revenues ($) 225,647,124 510,599,038 Pro forma net income ($) 26,917,463 135,731,822 Pro forma diluted EPS ($) 0.21 1.07 Equity trades executed 30,177,299 44,069,441 Average daily equity trades 486,731 699,515 Equity shares traded 26,450,899,186 43,816,791,380
Revenues for the first quarter of 2001 declined 56% to $225.6 million, compared to $510.6 million for the first quarter of 2000. Net income for the first quarter of 2001 totaled $26.9 million, or $0.21 per share on a diluted basis, an 80% decrease from $135.7 million, or $1.07 per share on a pro forma diluted basis for the same period a year ago. The Company achieved pre-tax margins of 19.1% in the first quarter of 2001, down from 42.5% in the first quarter of 2000. Return on equity for the first quarter of 2001, stated on an annualized basis, was 13.8%. Costs related to international expansion efforts accounted for approximately $10 million, equivalent to $0.08 per share.
Revenues and net income for the first quarter of 2001 decreased 10% and 24%, respectively, from the fourth quarter of 2000. For the first quarter, equity trades executed declined 11% versus the fourth quarter of 2000. Equity shares traded for the first quarter of 2001 increased 7% from the fourth quarter of 2000.
The Company's options market maker generated total net trading revenue of approximately $41.6 million during the first quarter of 2001, versus $33.0 million during the first quarter of 2000. Additionally, the Company's asset management business generated $12.7 million in asset management fees during the first quarter of 2001, up 30% from $9.8 million in the same period a year ago.
''First quarter 2001 was the most challenging trading environment Knight has experienced, characterized by severe declines across most of the leading indexes,'' stated Kenneth D. Pasternak, Chairman, Chief Executive Officer and President of Knight Trading Group. ''The Nasdaq, DJIA, S&P 500 and Russell 2000 indices closed down 26%, 8%, 12% and 7%, respectively, during the quarter, despite increased trading volume.''
''The precipitous decline in the Nasdaq Composite Index, which went from a high of 5,049 on March 10, 2000 to its first quarter 2001 low of 1,820 on March 29th, negatively impacted trading activity by the self-directed investor -- Knight's core constituency. Record levels of money flows into money market funds during the first two months of this year reflected the bias in self-directed investor sentiment towards cash rather than equities. Absent any economic catalyst, we believe the self-directed investor will continue to remain cautious as the market cycle bottoms out.''
''Knight's efforts to diversify our revenue stream through enhanced product offerings and by broadening our client base have been important factors in partially offsetting the negative effects of the current market,'' continued Mr. Pasternak. ''Despite the recent cyclical downturn in the equity markets, we believe there is a powerful, ongoing secular trend towards self-directed investing as a means of wealth creation and management. Evidence of this trend is clearly outlined when one reviews Knight's average daily equity trades for the first quarters of the past five years: 63,000 in 1997, 124,000 in 1998, 306,000 in 1999, 700,000 in 2000, and 487,000 in 2001. We believe that positioning Knight as a single point of entry for order flow across multiple product, client and geographic lines will enhance our ability to capture the benefits of this trend when the market cycle swings back into positive territory.''
Knight is the liquidity center that offers superior execution services to its broker-dealer and institutional clients in over-the-counter (OTC) and listed equity securities, and in equity options. In so doing, Knight helps its clients meet their fiduciary obligation of obtaining best execution for the securities orders that they place on behalf of their customers. Knight also maintains an asset management business for institutional investors and high net worth individuals through Deephaven Capital Management.
Knight has the power to commit capital for market orders, and also maintains one of the largest limit order books in the OTC market. It is one of the largest destinations for stock orders placed via the Internet. Knight traded 112 billion shares in the year 2000, a volume behind only those posted by Nasdaq and the New York Stock Exchange (NYSE). For the second consecutive year, based on 1999 and 2000 fiscal year results, Knight was ranked by Forbes magazine as one of the 500 most profitable public companies in the U.S. Ultimately, Knight plans to enable the global trading village to trade all types of equity securities and options at anytime, from anywhere in the world. More information about Knight can be obtained at http://www.knighttradinggroup.com.
Copies of this earnings release and other information on the Company can be obtained via the Internet at http://www.knighttradinggroup.com, or by calling the Company's toll-free investor information line at 1-877-INFO-NITE.
The matters described herein contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks, uncertainties or other factors beyond the Company's control, which could cause actual results to differ materially from historical results, performance or other expectations and from any opinions or statements expressed with respect to future periods. These factors include, but are not limited to, the Company's ability to implement its growth strategies, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, intellectual property rights, and other factors detailed in the Company's registration statement and periodic reports filed with the Securities and Exchange Commission.
KNIGHT TRADING GROUP, INC. Consolidated Statements of Income (unaudited) Three Months Ended March 31, 2001 2000 Revenues Net trading revenue $187,454,445 $486,778,104 Asset management fees 12,720,036 9,773,589 Interest and dividends, net 5,309,313 3,507,417 Commissions and fees 14,512,201 7,027,629 Investment income and other 5,651,129 3,512,299 Total revenues 225,647,124 510,599,038 Expenses Employee compensation and benefits 79,695,673 175,198,790 Payments for order flow 29,718,426 59,317,560 Execution and clearance fees 30,049,055 30,222,288 Communications and data processing 12,831,389 7,125,993 Depreciation and amortization 10,222,579 4,214,963 Professional fees 5,654,011 4,532,062 Occupancy and equipment rentals 5,010,858 3,093,186 Business development 3,369,758 5,238,693 Other 5,942,719 4,605,761 Total expenses 182,494,468 293,549,296 Income before income taxes and minority interest 43,152,656 217,049,742 Income tax expense 17,982,130 80,454,361 Net income before minority interest $25,170,526 $136,595,381 Minority interest in consolidated subsidiaries (1,746,937) -- Net income $ 26,917,463 $136,595,381 Basic earnings per share $0.22 $1.12 Diluted earnings per share $0.21 $1.08 Pro forma adjustments:* Income before income taxes $217,049,742 Adjustment for pro forma employee compensation and benefits (267,109) Pro forma income before income taxes 216,782,633 Pro forma income tax expense 81,050,811 Pro forma net income $135,731,822 Pro forma basic earnings per share $1.11 Pro forma diluted earnings per share $1.07 Shares used in the computation of basic earnings per share* 123,517,121 122,146,982 Shares used in the computation of diluted earnings per share* 126,179,906 126,981,962 * On January 12, 2000, Knight Trading Group, Inc. (the "Company") completed its merger with Arbitrade Holdings LLC ("Arbitrade"). The transaction was accounted for as a pooling of interests, and, as such, the historical financial statements have been restated to account for the merger on a retroactive basis. Pro forma adjustments for compensation and income taxes have been made to the historical financial statements of Arbitrade to adjust for partners' compensation paid as distributions of capital and income taxes, which were previously borne by the individual partners. The foregoing description of the Arbitrade transaction is a brief summary and is qualified in its entirety by reference to the Merger Agreement, a copy of which was filed as an exhibit to the Company's 8-K filed with the SEC on January 12, 2000. See also the Company's Reports on Form 10-K for the years ended December 31, 1999 and December 31, 2000. KNIGHT TRADING GROUP, INC. Consolidated Statements of Financial Condition March 31, December 31, 2001 2000 (unaudited) ASSETS Cash and cash equivalents $374,848,966 $364,057,534 Securities owned, held at clearing broker, at market value 1,517,954,276 1,799,966,679 Receivable from clearing brokers 658,361,210 114,047,275 Fixed assets and leasehold improvements at cost, less accumulated depreciation 86,819,156 79,014,393 Goodwill, less accumulated amortization 43,194,198 45,239,177 Investments 83,253,424 64,917,975 Other assets 54,824,311 54,166,139 Total assets $2,819,255,541 $2,521,409,172 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $1,745,436,253 $1,427,214,323 Payable to clearing brokers 134,333,130 184,269,478 Accrued compensation expense 41,693,199 62,444,645 Accrued execution and clearance fees 5,040,626 6,092,754 Accrued payments for order flow 5,981,101 11,635,069 Accounts payable, accrued expenses and other liabilities 22,827,010 30,576,814 Income taxes payable 17,563,405 4,813,771 Total liabilities 1,972,874,724 1,727,046,854 Minority interest in consolidated subsidiaries 27,094,662 20,175,872 Stockholders' equity Class A Common Shares 1,236,505 1,232,908 Additional paid-in capital 331,163,026 309,611,248 Retained earnings 492,864,757 465,947,294 Accumulated other comprehensive income (loss) - foreign currency translation adjustments, net of tax (5,978,133) (2,605,004) Total stockholders' equity 819,286,155 774,186,446 Total liabilities and stockholders' equity $2,819,255,541 $2,521,409,172