|OCTOBER 16, 2002|
|Knight Trading Group Reports Loss of $0.03 Per Share|
JERSEY CITY, N.J., Oct. 16 /PRNewswire-FirstCall/ -- Knight Trading Group, Inc. (Nasdaq: NITE) today reported a net loss of $3.4 million for the third quarter of 2002, or $0.03 loss per share. For the third quarter of 2001, the Company reported a net loss of $5.7 million, or $0.05 per share.
The quarterly results for the third quarter of 2002 included severance and other non-operating items of $1.8 million, or $0.02 loss per share. Excluding severance and other non-operating items, the net loss for the third quarter was $1.6 million, or $0.01 loss per share. The results for the prior year period included severance and other non-operating items of $4.7 million, or $0.04 loss per share. Excluding severance and other non-operating items, the net loss for the prior year third quarter was $1.0 million, or $0.01 loss per share.
Revenues for the third quarter of 2002 were $120.0 million, compared to $130.9 million for the prior year period. The Company's equities and options market-making activities generated net trading revenue of $68.8 million and $29.7 million, respectively, during the third quarter of 2002, versus $65.7 million and $37.4 million during the third quarter of 2001. Additionally, the Company's asset management business generated $6.1 million in asset management fees during the third quarter of 2002, down from $10.5 million in the same period a year ago. The Company had $1.2 billion of funds under management at September 30, 2002 and December 31, 2001.
Third Quarter Third Quarter 2002 2001 Revenues ($) 120,042,276 130,934,908 Net (loss) ($) (3,430,666) (5,675,844) Diluted EPS ($) (0.03) (0.05) U.S. equity trades executed 31,108,203 24,413,865 Average daily U.S. equity trades 486,066 413,794 U.S. equity shares traded 51,528,587,423 31,421,957,193 U.S. options contracts traded 13,464,822 8,677,179 YTD YTD 2002 2001 Revenues ($) 385,309,344 522,388,540 Net (loss) income ($) (39,653,138) 25,044,623 Diluted EPS ($) (0.33) 0.20 U.S. equity trades executed 89,045,740 86,395,218 Average daily U.S. equity trades 473,648 469,539 U.S. equity shares traded 138,815,221,168 91,938,511,952 U.S. options contracts traded 36,948,149 27,612,929
"During the third quarter, Knight began putting the appropriate corporate structure into place in order to be more client-centric and service-oriented," said Thomas M. Joyce, Chief Executive Officer and President of Knight Trading Group. "We added to our depth of talent with several key appointments in equity sales, trading and client service while reducing our workforce in the U.S. to the proper size for a challenging market environment. Finally, our balance sheet remains strong, and we intend to keep it that way as we work through this extended bear market."
Net operating income from all domestic businesses was approximately $640,000 for the third quarter, excluding severance and other non-operating items of $1.6 million. Severance and other non-operating items include fixed asset write-downs and a one-time gain from the sale of a strategic investment.
After reducing its domestic headcount by 10% in the second quarter of 2002, the Company further reduced its domestic headcount by an additional 7% in the third quarter. The Company currently has 945 employees in the U.S., down from 1,013 at the end of the second quarter.
Net operating losses from international operations were $2.3 million, equivalent to $0.02 loss per share.
After further review of its European operations, the Company is focusing efforts on its original strengths -- selling U.S. equities to European institutions and broker-dealers. Effective October 15, Knight has discontinued its U.K. market-making operations. As a result, the Company will incur severance and other non-operating charges of up to $0.05 per share in the fourth quarter of 2002. The Company has 89 employees in Europe and Asia, before European staff reductions expected in the fourth quarter.
In light of economic conditions and proposed changes in market structure, Knight is currently in the process of reviewing its business plan alternatives for Knight Securities Japan.
Liquidity and Stock Repurchase Plan
The Company had $765.0 million in stockholders' equity as of September 30, 2002, equivalent to a book value of $6.46 per share. As of September 30, 2002, the Company had $340.0 million in cash and cash equivalents and a $154.5 million investment in funds managed by its Deephaven subsidiary.
On April 4, 2002, the Knight Board of Directors announced the authorization of a stock repurchase program, which allowed for the purchase of Class A Common Stock up to a total amount of $35 million. During the second quarter, the Company repurchased 3,888,000 shares for $21.8 million. In its July 16 meeting, the Board of Directors authorized an increase in the size of this repurchase program from $35 million to $70 million. During the third quarter, the Company repurchased an additional 2,870,000 shares totaling $13.1 million. Under the $70 million stock repurchase program, the Company has repurchased 6,758,000 shares for $34.9 million. The Company may repurchase shares in the open market or through privately negotiated transactions, depending on prevailing market conditions, alternative use of capital and other factors. The Company cautions that there are no assurances that any further repurchases may actually occur. Knight Trading Group currently has approximately 118.3 million shares of common stock outstanding as of September 30, 2002.
"Knight will continue to concentrate on clients, corporate structure, and cash position during the fourth quarter," Mr. Joyce said. "We expect the market will remain challenging through the rest of the year, but we are using this uncertain time to lay the foundation for 2003. Further, we are putting the finishing touches on a business plan to be introduced before the end of the quarter and building a corporate culture around premium client service, quality execution and integrity. Externally, we are meeting with clients, both current and potential, showing them Knight's intrinsic value and services."
"Knight is in transition," Mr. Joyce continued. "We are working on initiatives to improve all aspects of our company. We're excited about Knight's prospects for the future, and we look forward to sharing our progress through the coming year."
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 1,034 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 from the Company's Web site at http://www.knighttradinggroup.com.
Copies of this earnings release and other information on the Company can be obtained via the Internet at the Company's Web site, or by calling the Company's toll-free investor information line at 1-877-INFO-NITE. The Company will conduct its third quarter earnings conference call for analysts, investors and the media at 9:00 a.m. (EDT) today, October 16, 2002. The conference call will be Webcast live at 9:00 a.m. (EDT) for all investors and interested parties on Knight's Web site. In addition, the Company will release its volume statistics for September 2002 before the start of trading today, October 16, 2002, on Knight's Web site.
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 September 30 Nine Months Ended September 30 2002 2001 2002 2001 Revenues Net trading revenue $ 98,543,539 $ 103,035,435 $ 322,627,162 $ 425,520,038 Commissions and fees 9,882,307 9,687,678 30,899,776 36,626,037 Asset management fees 6,053,433 10,470,648 20,030,936 31,778,906 Interest and dividends, net 1,674,690 6,599,050 4,301,728 20,616,938 Investment income and other 3,888,307 1,142,097 7,449,742 7,846,621 Total revenues 120,042,276 130,934,908 385,309,344 522,388,540 Expenses Employee compensation and benefits 48,259,187 53,636,003 164,220,041 191,969,605 Execution and clearance fees 30,227,850 26,645,135 88,171,506 86,790,180 Payments for order flow 14,514,242 14,413,046 50,557,586 64,331,781 Communications and data processing 8,649,621 13,236,478 29,378,131 39,464,320 Depreciation and amortization 9,153,613 10,620,019 28,547,195 31,210,749 Occupancy and equipment rentals 5,637,167 4,143,809 19,804,364 13,740,835 Professional fees 3,597,717 3,681,321 13,467,136 12,845,127 Business development 1,326,663 2,392,246 5,734,099 9,866,475 International charges 277,197 -- 32,233,561 -- Writedown of assets and lease loss accrual 1,395,834 6,624,056 10,456,782 18,195,569 Other 3,221,048 5,658,935 10,514,874 15,873,113 Total expenses 126,260,139 141,051,048 453,085,275 484,287,754 (Loss) income before income taxes and minority interest (6,217,863) (10,116,140) (67,775,931) 38,100,786 Income tax (benefit) expense (1,806,119) (1,129,322) (19,819,889) 20,409,297 (Loss) income before minority interest (4,411,744) (8,986,818) (47,956,042) 17,691,489 Minority interest in consolidated subsidiaries (981,078) (3,310,974) (8,302,904) (7,353,134) Net (loss) income $(3,430,666) $(5,675,844) $(39,653,138) $25,044,623 Basic earnings per share $(0.03) $(0.05) $(0.33) $0.20 Diluted earnings per share $(0.03) $(0.05) $(0.33) $0.20 Shares used in the computation of basic earnings per share 118,316,798 123,998,269 121,658,913 123,711,607 Shares used in the computation of diluted earnings per share 118,316,798 123,998,269 121,658,913 125,845,652 Certain prior period amounts have been reclassified to conform to the current year presentation. KNIGHT TRADING GROUP, INC. Consolidated Statements of Financial Condition September 30, December 31, 2002 2001* (unaudited) ASSETS Cash and cash equivalents $340,014,104 $361,294,311 Securities owned, held at clearing broker, at market value 1,971,936,075 1,754,482,505 Receivable from brokers and dealers 641,291,035 820,103,479 Fixed assets and leasehold improvements at cost, less accumulated depreciation 63,972,669 90,125,704 Goodwill 17,536,945 17,536,945 Intangible assets, less accumulated amortization 32,502,383 34,363,040 Investment in Deephaven sponsored fund 154,485,281 50,919,198 Strategic investments 23,373,223 41,746,399 Other assets 92,340,217 56,115,374 Total assets $3,337,451,932 $3,226,686,955 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $2,399,928,159 $2,039,355,967 Payable to brokers and dealers 72,762,855 227,526,691 Accrued compensation expense 42,165,124 65,121,718 Accounts payable, accrued expenses and other liabilities 45,103,511 39,777,346 Total liabilities 2,559,959,649 2,371,781,722 Minority interest in consolidated subsidiaries 12,519,024 20,648,809 Stockholders' equity Class A Common Shares 1,247,053 1,241,586 Additional paid-in capital 340,173,801 335,796,119 Retained earnings 464,187,774 504,472,861 Treasury stock, at cost (32,805,423) -- Unamortized stock-based compensation (4,107,027) (672,763) Accumulated other comprehensive income (loss) - foreign currency translation adjustments, net of tax (3,722,919) (6,581,379) Total stockholders' equity 764,973,259 834,256,424 Total liabilities and stockholders' equity $3,337,451,932 $3,226,686,955 Certain prior period amounts have been reclassified to conform to the current year presentation.
SOURCE Knight Trading Group, Inc.