|OCTOBER 17, 2001|
|Knight Trading Group Reports Third Quarter 2001 Loss Per Share of $0.05|
JERSEY CITY, N.J., Oct. 17 /PRNewswire/ -- Knight Trading Group, Inc. (Nasdaq: NITE) today reported results for the third quarter ended September 30, 2001. Knight Trading Group is the leading market maker in equity securities listed on Nasdaq, the OTCBB of the National Association of Securities Dealers (NASD), and the over-the-counter market for New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) -listed securities. Knight also is a leading market maker in options on individual equities, equity indices and fixed income instruments in the U.S. and Europe. The firm also maintains an asset management business for institutional investors and high net worth individuals through its Deephaven Capital Management subsidiary.
Third Quarter 2001 vs. Third Quarter 2000
* 30% decline in revenues * 22% decline in equity trades executed * 128% decline in net income * 43% increase in equity shares traded
Nine months ended 2001 vs. Nine months ended 2000
* 48% decline in revenues * 21% decline in equity trades executed * 89% decline in pro forma * 5% increase in equity shares traded net income
Third Quarter Third Quarter 2001 2000 Revenues ($) 130,934,908 187,864,987 Net income (loss)($) (5,675,844) 20,583,979 Diluted EPS ($) (0.05) 0.16 Equity trades executed 24,413,865 31,419,403 Average daily equity trades 413,794 498,721 Equity shares traded 31,421,957,193 21,921,940,076 YTD YTD 2001 2000 Revenues ($) 522,388,591 1,005,591,976 Pro forma net income ($) 25,044,623 223,753,973 Pro forma diluted EPS ($) 0.20 1.76 Equity trades executed 86,395,218 108,774,261 Average daily equity trades 469,539 575,525 Equity shares traded 91,938,511,952 87,255,652,294
Knight's results were impacted by adverse market conditions during the quarter and four lost trading days following the tragic events of September 11, 2001. Revenues for the third quarter of 2001 declined 30% to $130.9 million, compared to $187.9 million for the third quarter of 2000. Net loss for the third quarter of 2001 totaled $5.7 million, or ($0.05) per share on a diluted basis, a 128% decrease from $20.6 million, or $0.16 per share on a diluted basis for the same period a year ago. The Company achieved pre-tax margins of (7.7)% in the third quarter of 2001, down from 18.4% in the third quarter of 2000. Return on equity for the third quarter of 2001, stated on an annualized basis, was (2.7%).
"Knight's first quarterly loss since its founding occurred during an unprecedented three months in both financial and American history," said Kenneth D. Pasternak, Chairman & Chief Executive Officer of Knight Trading Group. "First, a cyclical low in the equity markets was compounded by the traditional third-quarter seasonal low. Second, market participants were -- and are still -- adjusting to the major market structure issues brought about by the introduction of decimalization and the one-penny Minimum Price Variant in April 2001. And finally, the effects of the September 11th attacks were two-fold: they resulted in the four-day closure of the market, and a consequential dramatic decline in major market indices."
During the four days following the World Trade Center attack, Knight incurred expenses of approximately $0.02 per share that could not be offset by trading revenue due to the market's closure. Losses from international expansion efforts were $10.6 million, equivalent to $0.09 per share.
Non-operating charges in the third quarter were $6.6 million on a pre-tax basis, or $4.1 million on an after-tax basis, equivalent to $0.03 per share. These charges relate to the write-down of excess real-estate capacity.
The Company's market-making activity relating to options generated total net trading revenue of approximately $36.8 million during the third quarter of 2001, versus $23.1 million during the third quarter of 2000. Additionally, the Company's asset management business generated $10.5 million in asset management fees during the third quarter of 2001, up 5% from $10.0 million in the same period a year ago. This reflects an increase in new assets under management.
Knight built its original business on the growth in electronic brokers and the trend in self-directed investing in the U.S. From 1997 through 2000, the Company made substantial investments in technology, people and operations to meet the capacity needs of a booming equities market. In that time, the Company's revenues grew at a compounded annual growth rate of more than 66%, and equity trades executed increased at a compounded annual growth rate of more than 90%.
"Knight is adjusting to a new era that began in early 2001," Mr. Pasternak said. "When capital market activities came to an unexpected halt and growth and technology stocks fell out of favor, Knight started to right-size its business to reflect the suddenly stagnant market. These efforts continued through the third quarter, and today, we continue to review all aspects of our business, including real estate holdings, expenses and headcount. Our European operations are being scaled back to better reflect the current market environment."
Mr. Pasternak added, "While Knight is adjusting to these new market realities, we also are carefully planning for the future by maintaining and even growing our competitive positions. The scale, capacity and technology that made Knight a low-cost trade execution destination for broker-dealers are increasingly attractive to institutional investors in a market with new dynamics. Meanwhile, we are seeing consolidation and abdication among market participants in the U.S. as the one-penny MPV and decline in depth-of-book further commoditize the equities trading business. We continue to modify our trading algorithms to better price the liquidity we provide and to improve revenue capture per trade.
"Knight will remain focused on our objectives to protect our strong balance sheet, manage the Company for profitability, and maintain or increase our competitive position in equities, derivatives and asset management," Mr. Pasternak said. "While we expect to be a beneficiary of market consolidation, we will balance business opportunities with challenging business conditions, keeping efforts to increase our competitive position in proportion with our profitability objectives."
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 route on behalf of their customers. Knight also maintains an asset management business for institutional investors and high net worth individuals through Deephaven Capital Management LLC.
Knight has the power to commit capital for market orders and also maintains one of the largest limit order books in the OTC market. The Company has approximately 1,400 employees worldwide and 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). Ultimately, Knight plans to enable its clients to trade all types of equity securities and options at any time, 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 Nine Months Ended September 30 September 30 2001 2000 2001 2000 Revenues Net trading revenue $103,035,435 $165,106,177 $425,520,038 $934,399,747 Asset management fees 10,509,686 10,012,506 31,824,854 27,622,915 Commissions and fees 9,648,640 5,876,668 36,580,089 22,306,668 Interest and dividends, net 6,599,050 5,653,424 20,616,938 13,272,532 Investment income and other 1,142,097 1,216,212 7,846,672 7,990,114 Total revenues 130,934,908 187,864,987 522,388,591 1,005,591,976 Expenses Employee compensation and benefits 53,636,003 57,307,783 191,969,605 334,792,813 Payments for order flow 14,413,046 37,270,268 64,331,781 134,907,102 Execution and clearance fees 26,645,135 24,475,966 86,790,180 83,615,566 Communications and data processing 13,236,478 8,057,211 39,464,320 22,288,031 Depreciation and amortization 10,620,019 7,375,100 31,210,749 17,091,498 Occupancy and equipment rentals 4,143,809 5,404,623 13,740,835 12,811,955 Business development 2,392,246 2,437,801 9,866,475 10,560,904 Professional fees 3,681,321 5,844,373 12,855,597 16,483,145 Other 5,658,935 5,175,687 15,862,694 12,076,468 Loss on writedown of assets 6,624,056 -- 18,195,569 -- Total expenses 141,051,048 153,348,812 484,287,805 644,627,482 Income/(loss) before income taxes and minority interest (10,116,140) 34,516,175 38,100,786 360,964,494 Income tax expense/(benefit) (1,129,322) 14,109,959 20,409,297 136,470,415 Net income/(loss) before minority interest (8,986,818) 20,406,216 17,691,489 224,494,079 Minority interest in consolidated subsidiaries (3,310,974) (177,763) (7,353,134) (177,763) Net income/(loss) $(5,675,844) $20,583,979 $25,044,623 $224,671,842 Basic earnings per share ($0.05) $0.17 $0.20 $1.84 Diluted earnings per share ($0.05) $0.16 $0.20 $1.77 Pro forma adjustments:* Income before income taxes $360,964,494 Adjustment for pro forma employee compensation and benefits (267,109) Pro forma income before income taxes 360,697,385 Pro forma income tax expense 137,121,175 Pro forma income before minority interest $223,576,210 Minority interest in consolidated subsidiaries (177,763) Pro forma net income $223,753,973 Pro forma basic earnings per share $1.83 Pro forma diluted earnings per share $1.76 Shares used in the computation of basic earnings per share * 123,998,269 122,661,830 123,711,607 122,350,107 Shares used in the computation of diluted earnings per share * 125,168,828 126,565,409 125,845,652 126,930,997
KNIGHT TRADING GROUP, INC. Consolidated Statements of Financial Condition
September 30, December 31, 2001 2000 (unaudited) ASSETS Cash and cash equivalents $337,320,671 $364,057,534 Securities owned, held at clearing broker, at market value 1,653,654,486 1,799,966,679 Receivable from clearing brokers 829,213,887 114,047,275 Fixed assets and leasehold improvements at cost, less accumulated depreciation and amortization 94,470,960 79,014,393 Goodwill, less accumulated amortization 46,437,217 45,239,177 Investments 92,595,336 64,917,975 Income taxes receivable 8,798,842 -- Other assets 48,684,447 54,166,139 Total assets $3,111,175,846 $2,521,409,172 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $1,909,662,274 $1,427,214,323 Payable to clearing brokers 259,858,024 184,269,478 Accrued compensation expense 54,075,384 62,444,645 Accrued execution and clearance fees 7,246,975 6,092,754 Accrued payments for order flow 3,830,855 11,635,069 Accounts payable, accrued expenses and other liabilities 29,852,340 30,576,814 Income taxes payable -- 4,813,771 Total liabilities 2,264,525,852 1,727,046,854 Minority interest in consolidated subsidiaries 24,433,777 20,175,872 Stockholders' equity Class A Common Shares 1,240,515 1,232,908 Additional paid-in capital 334,883,381 309,611,248 Retained earnings 490,981,414 465,947,294 Unamortized stock-based compensation (758,514) -- Accumulated other comprehensive income (loss) - foreign currency translation adjustments, net of tax (4,130,579) (2,605,004) Total stockholders' equity 822,216,217 774,186,446 Total liabilities and stockholders' equity $3,111,175,846 $2,521,409,172
SOURCE Knight Trading Group, Inc.
CONTACT: Robert Turner, Executive Vice President, Chief Financial Officer and Treasurer, +1-201-557-6845, Margaret Wyrwas, Senior Vice President, Corporate Communications & Investor Relations, +1-201-557-6954, email@example.com, Judy Pirro, Manager, Investor and Shareholder Relations, +1-201-356-1548, firstname.lastname@example.org, or Kara Fitzsimmons, Manager, Corporate Communications, +1-201-356-1523, email@example.com, all of Knight Trading Group, Inc./