|JULY 18, 2001|
|Knight Trading Group Reports Earnings Per Share of $0.03 After Non-Operating Charges of $0.07 Per Share|
|Includes International Expansion Costs of $0.07 Per Share One-Penny Minimum Price Variant Impacts Revenue Capture Per Share
JERSEY CITY, N.J., July 18 /PRNewswire/ --
Knight Trading Group, Inc. today reported results for the second quarter ended June 30, 2001.
Knight Trading Group is the leading market maker in equity securities listed on Nasdaq, the OTCBB of the National Association of Securities Dealers (NASD), and the over-the-counter market for New York Stock Exchange (NYSE) and American Stock Exchange (AMEX)-listed securities. Knight also is a leading market maker in options on individual equities, equity indices and fixed income instruments in the U.S. and Europe. The firm also maintains an asset management business for institutional investors and high net worth individuals through its Deephaven Capital Management subsidiary.
Second Quarter Second Quarter 2001 2000 Revenues ($) 165,806,564 307,127,951 Net income ($) 3,803,014 67,484,894 Diluted EPS ($) 0.03 0.53 Equity trades executed 31,804,054 33,285,417 Average daily equity trades 504,826 528,340 Equity shares traded 34,065,655,573 21,516,920,838 YTD YTD 2001 2000 Revenues ($) 391,453,690 817,726,988 Pro forma net income ($) 30,720,476 203,169,878 Pro forma diluted EPS ($) 0.24 1.60 Equity trades executed 61,981,353 77,354,858 Average daily equity trades 495,851 613,927 Equity shares traded 60,516,554,759 65,333,712,218
Revenues for the second quarter of 2001 declined 46% to $165.8 million, compared to $307.1 million for the second quarter of 2000. Net income for the second quarter of 2001 totaled $3.8 million, or $0.03 per share on a diluted basis, a 94% decrease from $67.5 million, or $0.53 per share on a diluted basis for the same period a year ago. The Company achieved pre-tax margins of 3.1% in the second quarter of 2001, down from 35.6% in the second quarter of 2000. Return on equity for the second quarter of 2001, stated on an annualized basis, was 1.8%. Costs related to international expansion efforts were $8.2 million, equivalent to $0.07 per share.
Non-operating charges in the second quarter were $13.1 million on a pre- tax basis, or $8.4 million on an after-tax basis, equivalent to $0.07 per share. Of these charges, $10 million was a non-recurring charge relating to an impaired investment in a non-public e-commerce company, $1.5 million was related to severance costs incurred during the second quarter and $1.6 million related to a write-down of exchange seats.
Revenues and net income for the second quarter of 2001 decreased 27% and 86%, respectively, from the first quarter of 2001. For the second quarter, equity trades executed increased 5% versus the first quarter of 2001. Equity shares traded for the second quarter of 2001 increased 29% from the first quarter of 2001.
The Company's options market maker generated total net trading revenue of approximately $27.0 million during the second quarter of 2001, versus $37.6 million during the second quarter of 2000. Additionally, the Company's asset management business generated $8.6 million in asset management fees during the second quarter of 2001, down 24% from $11.2 million in the same period a year ago.
The institution of a one-penny Minimum Price Variant (MPV) has introduced new challenges for participants in the securities marketplace. The one-penny MPV was instituted concurrently with the full implementation of decimalization for Nasdaq issues on April 9, 2001 and for NYSE- and Amex-listed issues on January 29, 2001. The one-penny MPV, instituted by the exchanges and Nasdaq market, is a separate issue from decimalization, which was an SEC mandated change.
''Knight was fully prepared from a systems and client product position for the impact of decimalization. This regulatory change was fully implemented on April 9th for all Nasdaq securities,'' stated Kenneth D. Pasternak, Chairman and Chief Executive Officer of Knight Trading Group. ''We knew the operating environment would be challenging under decimalization. However, we could not foresee the full magnitude of a concurrent, but separate, rule -- the implementation of a one-penny minimum price variant (MPV), which allowed for trading in increments as small as one cent.''
''To face this challenge, Knight is using the experience gained over the last 14 weeks to fine-tune our trading algorithms. This will ensure that our trading methodologies better reflect the dynamics of a one-penny MPV marketplace,'' continued Mr. Pasternak. ''In addition, consolidation in our industry and reduction in the depth of book have resulted in greater demand for Knight as a liquidity provider. Therefore, on July 1st we revised our rebate schedules (known as ''payment for order flow'') to clients and are considering the introduction of fees for certain transactions. These changes reflect better the value that Knight's liquidity provides to the marketplace, and should result in a more acceptable level of profitability to the benefit of the Company and our shareholders.''
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.
[Financial tables follow] KNIGHT TRADING GROUP, INC. Consolidated Statements of Income (unaudited) Three Months Ended Six Months Ended June 30 June 30 2001 2000 2001 2000 Revenues Net trading revenue $135,030,160 $282,515,465 $322,484,606 $769,293,569 Asset management fees 8,595,133 11,241,256 21,315,169 21,014,845 Interest and dividends, net 8,708,576 4,111,692 14,017,890 7,619,109 Commissions and fees 12,419,249 5,997,936 26,931,449 13,025,564 Investment income and other 1,053,446 3,261,602 6,704,576 6,773,901 Total revenues 165,806,564 307,127,951 391,453,690 817,726,988 Expenses Employee compensation and benefits 57,104,741 102,286,239 136,808,600 277,485,029 Payments for order flow 20,200,309 38,319,274 49,918,735 97,636,834 Execution and clearance fees 30,095,990 28,917,311 60,145,045 59,139,599 Communications and data processing 13,396,452 7,104,826 26,227,840 14,230,819 Depreciation and amortization 10,368,150 5,501,436 20,590,730 9,716,399 Professional fees 3,520,265 6,106,709 9,174,276 10,638,771 Occupancy and equipment rentals 4,586,170 4,314,147 9,597,028 7,407,333 Business development 4,104,472 2,884,409 7,474,230 8,123,102 Other 4,269,219 2,302,611 10,203,757 6,908,372 Loss on writedown of assets and investment and severance costs 13,096,513 -- 13,096,513 -- Total expenses 160,742,281 197,736,962 343,236,754 491,286,258 Income before income taxes and minority interest 5,064,283 109,390,989 48,216,936 326,440,730 Income tax expense 3,556,491 41,906,095 21,538,620 122,360,456 Net income before minority interest 1,507,792 67,484,894 26,678,316 204,080,274 Minority interest in consolidated subsidiaries (2,295,222) -- (4,042,160) -- Net income $3,803,014 $67,484,894 $30,720,476 $204,080,274 Basic earnings per share $0.03 $0.55 $0.25 $1.67 Diluted earnings per share $0.03 $0.53 $0.24 $1.61 Pro forma adjustments:* Income before income taxes $326,440,730 Adjustment for pro forma employee compensation and benefits (267,109) Pro forma income before income taxes 326,173,621 Pro forma income tax expense 123,003,743 Pro forma net income $203,169,878 Pro forma basic earnings per share $1.66 Pro forma diluted earnings per share $1.60 Shares used in the computation of basic earnings per share * 123,683,862 122,234,246 123,603,466 122,192,533 Shares used in the computation of diluted earnings per share * 125,884,824 126,795,238 126,046,085 127,007,447 * 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 Report on Form 10-K for the year ended December 31, 1999.KNIGHT TRADING GROUP, INC. Consolidated Statements of Financial Condition June 30, December 31, 2001 2000 (unaudited) ASSETS Cash and cash equivalents $347,384,808 $364,057,534 Securities owned, held at clearing broker, at market value 1,643,644,013 1,799,966,679 Receivable from clearing brokers 810,134,190 114,047,275 Fixed assets and leasehold improvements at cost, less accumulated depreciation 90,261,326 79,014,393 Goodwill, less accumulated amortization 41,820,295 45,239,177 Investments 74,452,276 64,917,975 Income taxes receivable 6,472,465 -- Other assets 58,795,028 54,166,139 Total assets $3,072,964,401 $2,521,409,172 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $1,867,452,000 $1,427,214,323 Payable to clearing brokers 278,976,772 184,269,478 Accrued compensation expense 46,474,033 62,444,645 Accrued execution and clearance fees 5,965,621 6,092,754 Accrued payments for order flow 4,374,269 11,635,069 Accounts payable, accrued expenses and other liabilities 18,831,743 30,576,814 Income taxes payable -- 4,813,771 Total liabilities 2,222,074,438 1,727,046,854 Minority interest in consolidated subsidiaries 27,047,171 20,175,872 Stockholders' equity Class A Common Shares 1,237,740 1,232,908 Additional paid-in capital 332,386,841 309,611,248 Retained earnings 496,657,258 465,947,294 Unamortized stock- based compensation (831,090) -- Accumulated other comprehensive income (loss) - foreign currency translation adjustments, net of tax (5,607,957) (2,605,004) Total stockholders' equity 823,842,792 774,186,446 Total liabilities and stockholders' equity $3,072,964,401 $2,521,409,172