|APRIL 17, 2002|
|Knight Trading Group Reports Loss Per Share of $0.10 After Non-Operating Charges of $0.03 Per Share|
| For a print friendly version, please click here
Includes International Costs of $0.05 Per Share
Difficult Market Environment and One-Penny Minimum Price Variation Continue to Pressure Revenue Capture Per Share
Knight Trading Group is the leading market maker in equity securities
listed on Nasdaq, the OTCBB of the National Association of Securities Dealers
(NASD), and the Nasdaq InterMarket -- the over-the-counter market for New York
Stock Exchange (NYSE) and American Stock Exchange (Amex)-listed securities.
Knight also is a leading market maker in listed options on individual
equities, equity indices and fixed income futures instruments in the U.S.
firm also maintains an asset management business for institutions and high net
worth individuals through its Deephaven Capital Management subsidiary.
First Quarter 2002 vs. First Quarter 2001 * 41% decline in revenues * 5% decline in U.S. equity trades executed * 147% decline in net income * 55% increase in U.S. equity shares traded First Quarter 2002 vs. Fourth Quarter 2001 * 18% decline in revenues * 7% decline in U.S. equity trades executed * 194% decline in net income * 5%decline in U.S. equity shares traded First Quarter First Quarter 2002 2001 Revenues ($) 133,500,063 225,647,124 Net (loss) income ($) (12,695,486) 26,917,463 Diluted EPS ($) (0.10) 0.21 U.S. equity trades executed 28,791,896 30,177,299 Average daily U.S. equity trades 479,865 486,731 U.S. equity shares traded 41,114,950,390 26,450,899,186
Revenues for the first quarter of 2002 declined 41% to $133.5 million, compared to $225.6 million for the first quarter of 2001. The net loss for the first quarter of 2002 totaled $12.7 million, or a loss of $0.10 per share on a diluted basis, a 147% decrease from income of $26.9 million, or earnings per share of $0.21 on a diluted basis for the same period a year ago.
The Company realized pre-tax margins of (16.0%) in the first quarter of 2002, down from 19.1% in the first quarter of 2001. Return on equity for the first quarter of 2002, stated on an annualized basis, was (6.2%). Costs related to international operations were approximately $6.0 million, equivalent to $0.05 per share.
Revenues and net earnings for the first quarter of 2002 decreased 18% and 194%, respectively, from the fourth quarter of 2001. For the first quarter, U.S. equity trades executed decreased 7% and U.S. equity shares traded decreased 5% from the fourth quarter of 2001.
Non-operating charges in the first quarter were $6.5 million on a pre-tax basis, or $4.0 million after taxes and minority interest, equivalent to $0.03 per share. Of these charges, $6.1 million was related to impaired investments in a non-public e-commerce company and an other investment, and $425,000 was related to a writedown of options exchange seats. In addition, the Company incurred $938,000 in pre-tax charges, or approximately $600,000 after taxes, relating to the decision to discontinue its options market-making activities in London and Australia.
The Company's options market-making activities generated total net trading revenue of approximately $27.2 million during the first quarter of 2002, versus $41.6 million during the first quarter of 2001. Additionally, the Company's asset management business generated $7.1 million in asset management fees during the first quarter of 2002, down 44% from $12.7 million in the same period a year ago.
The institution of a one-penny Minimum Price Variation (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 the Nasdaq market, is a separate issue from decimalization, which was an SEC-mandated change.
``We are tailoring Knight to fit the one-cent MPV market structure and challenging market conditions that continue to affect our financial results,'' said Anthony M. Sanfilippo, Interim Chief Executive Officer of Knight Trading Group. ``First, Knight is exploring every means of increasing revenue capture per trade. We are expanding our product offerings and developing human capital to attract more higher-margin business from institutions who select Knight for capital commitment, deep liquidity, scale, and market-making that's independent of investment banking and research. Institutions tap Knight's liquidity to maximize their portfolio returns. Knight's liquidity is also valuable to broker-dealers who seek Knight's high execution quality, because their trades will be executed completely and quickly, with Knight stepping into the role of principal and committing capital to be the other side of the trade. Knight is determining how to better reflect the value of our liquidity and our service to all clients.
``Second, Knight is working to decrease costs even more, particularly costs associated with an infrastructure that was built for the explosion in individual investing and that's now too heavy with overcapacity to be supported by anemic revenue streams during a down market and a changed market structure,'' Mr. Sanfilippo continued. ``We are managing our whole business like we would an integrated portfolio of assets. Each business must build revenues and balance costs, and each will 'live and die' by its returns and its strategic contribution to Knight as a whole. For example, while Knight has cut in half quarterly losses in Europe since the middle of 2001, there is more work to do. We will conclude our evaluation of our London-based operations in the second quarter and determine the appropriate changes in order to minimize losses by the end of the year. Across all of its subsidiaries, Knight has room to explore synergies and create efficiencies in capital spending, infrastructure and management.
``Regardless of the dynamic nature of the marketplace, we are confident in Knight's core business model. Our trading methodologies, scale, technology and human capital have made Knight the market leader, and we believe we understand our space better than any of our competitors,'' Mr. Sanfilippo said. ``We are still adjusting the business for survival in the near term, but we are also reinventing our Company for long-term success. Knight's domestic equities business was profitable in the first quarter and we enjoy significant market share. However, we want to be an impact player in every space in which we exist, not just in domestic equities, with an eye toward appropriate return for each business line. Knight's excellent financial health, with a strong cash position and no debt, gives us flexibility to make important but prudent investments in our future. Our primary goal is to be the low-cost provider and one-stop execution venue for institutions and broker-dealers.''
Knight Trading Group will release its volume statistics for March 2002 before the start of trading today, April 17, 2002. March 2002 volume statistics will be available on the Company Web site at http://www.knight-sec.com or http://www.knighttradinggroup.com.
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 institutions 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 1,300 employees worldwide and is one of the largest destinations for stock orders placed via the Internet. Knight traded 135 billion shares in the year 2001, a volume behind only those posted by Nasdaq and the New York Stock Exchange (NYSE). More information about Knight can be obtained at http://www.knight-sec.com or http://www.knighttradinggroup.com.
Copies of this earnings release and other information on the Company can be obtained via the Internet at http://www.knight-sec.com or http://www.knighttradinggroup.com, or by calling the Company's toll-free investor information line at 1-877-INFO-NITE.
Certain statements contained herein constitute ``forward-looking statements'' within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about the Company's industry, management's beliefs and certain assumptions made by management. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Since such statements involve risks and uncertainties, the actual results and performance of the Company may turn out to be materially different from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made herein; however, readers should carefully review reports or documents the Company files from time to time with the Securities and Exchange Commission.
KNIGHT TRADING GROUP, INC. Consolidated Statements of Operations (unaudited) Three Months Ended March 31, 2002 2001 Revenues Net trading revenue $112,680,478 $187,454,445 Commissions and fees 10,750,107 14,512,201 Asset management fees 7,129,981 12,720,036 Interest and dividends, net 1,606,557 5,309,313 Investment income and other 1,332,940 5,651,129 Total revenues 133,500,063 225,647,124 Expenses Employee compensation and benefits 58,642,942 79,695,673 Execution and clearance fees 29,463,775 30,049,055 Payments for order flow 19,005,324 29,718,426 Communications and data processing 10,926,560 12,831,389 Depreciation and amortization 9,704,292 10,222,579 Occupancy and equipment rentals 7,237,946 5,010,858 Professional fees 6,683,451 5,654,011 Business development 1,190,682 3,369,758 Writedown of assets 6,485,848 -- Other 5,457,529 5,942,719 Total expenses 154,798,349 182,494,468 Income (loss) before income taxes and minority interest (21,298,286) 43,152,656 Income tax (benefit) expense (5,414,442) 17,982,130 Net (loss) income before minority interest (15,883,844) 25,170,526 Minority interest in consolidated subsidiaries (3,188,358) (1,746,937) Net (loss) income $ (12,695,486) $26,917,463 Basic earnings per share $(0.10) $0.22 Diluted earnings per share $(0.10) $0.21 Shares used in the computation of basic earnings per share 124,131,683 123,517,121 Shares used in the computation of diluted earnings per share 124,988,739 126,179,906 KNIGHT TRADING GROUP, INC. Consolidated Statements of Financial Condition March 31, December 31, 2002 2001 (unaudited) ASSETS Cash and cash equivalents $ 431,855,708 $ 361,294,311 Securities owned, held at clearing broker, at market value 1,697,830,700 1,754,482,505 Receivable from brokers and dealers 607,902,104 820,103,479 Fixed assets and leasehold improvements at cost, less accumulated depreciation 84,333,397 90,125,704 Goodwill, less accumulated amortization 17,536,945 17,536,945 Intangible assets, less accumulated amortization 33,743,747 34,363,040 Investments 96,609,735 92,665,597 Income taxes receivable 3,989,421 -- Other assets 44,723,965 56,115,374 Total assets $3,018,525,722 $3,226,686,955 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $1,930,281,518 $2,039,355,967 Payable to brokers and dealers 183,771,819 227,526,691 Accrued compensation expense 30,091,878 65,121,718 Accrued execution and clearance fees 7,334,904 10,271,164 Accrued payments for order flow 6,276,733 5,594,935 Accounts payable, accrued expenses and other liabilities 20,972,384 22,286,928 Income taxes payable -- 1,624,319 Total liabilities 2,178,729,236 2,371,781,722 Minority interest in consolidated subsidiaries 17,647,980 20,648,809 Stockholders' equity Class A Common Shares 1,243,404 1,241,586 Additional paid-in capital 337,201,387 335,796,119 Retained earnings 491,777,375 504,472,861 Unamortized stock-based compensation (1,583,596) (672,763) Accumulated other comprehensive income (loss) - foreign currency translation adjustments, net of tax (6,490,064) (6,581,379) Total stockholders' equity 822,148,506 834,256,424 Total liabilities and stockholders' equity $3,018,525,722 $3,226,686,955