|JANUARY 23, 2003|
|Knight Trading Group Reports $0.03 Loss Per Share for Fourth Quarter 2002|
Results Enhanced by Strong Fourth Quarter Returns in Asset Management and by Solid Performance in Options Business
Domestic Equities Business Impacted by Difficult Trading Environment and Market Fragmentation
Company Absorbed Costs Associated with Staff Additions
JERSEY CITY, N.J., Jan. 23 /PRNewswire-FirstCall/ -- Knight Trading Group, Inc. (Nasdaq: NITE) today reported a net loss of $3.6 million for the fourth quarter of 2002, or $0.03 loss per share. For the fourth quarter of 2001, the company reported net income of $13.5 million, or $0.11 per share.
The quarterly results for the fourth quarter of 2002 included writedowns for excess real estate capacity of $3.4 million and international severance and other charges of $3.3 million. Excluding the writedowns and charges, the firm earned $3.1 million, or $0.03 per share, in the fourth quarter of 2002. The results for the prior year period included severance, writedowns for excess real estate capacity and other charges of $2.5 million, or $0.02 loss per share. Excluding the writedowns and charges, net income for the prior year fourth quarter was $16.0 million, or $0.13 per share.
Revenues for the fourth quarter of 2002 were $142.1 million, compared to $162.3 million for the prior year period. During the fourth quarter of 2002, the company's equities and options market-making activities generated net trading revenue of $72.0 million and $35.7 million, respectively, versus $116.2 million and $22.9 million during the fourth quarter of 2001.
Fourth Fourth Quarter Quarter 2002 2001 Revenues ($) 142,050,513 162,319,927 Net (loss) income ($) (3,588,525) 13,477,037 Diluted EPS ($) (0.03) 0.11 U.S. equity trades executed 37,653,911 30,899,567 Average daily U.S. equity trades 588,342 482,806 U.S. equity shares traded 63,167,601,677 43,099,613,471 U.S. options contracts traded 12,925,211 9,826,840 2002 2001 Revenues ($) 527,356,107 684,712,375 Net (loss) income ($) (43,241,664) 38,525,567 Diluted EPS ($) (0.36) 0.31 U.S. equity trades executed 126,699,651 117,294,785 Average daily U.S. equity trades 502,776 472,963 U.S. equity shares traded 201,982,822,845 135,038,125,423 U.S. options contracts traded 49,873,360 37,439,768
"In the second half of 2002, Knight instituted the processes and engaged the right people for the effective implementation of our new business plan in 2003," said Thomas M. Joyce, Chief Executive Officer and President of Knight Trading Group. "We understand that service will be the great differentiator between us and our competitors, so we refocused the company on our clients. As part of that effort, Knight adopted a simpler organizational structure and worked to shift our culture to embrace greater client commitment and service. At the same time, we hired high-quality, talented and experienced individuals who we believe will add value to Knight.
"During the fourth quarter of 2002, Knight continued to adjust our core business according to our new philosophy and business plan. While we worked to keep costs in line with limited opportunity in our domestic equities business, expenses were not offset by revenues. Knight has allocated an increasing share of its resources to building a stronger institutional presence, and we are seeing positive signs. For example, Knight's ability to attract talented individuals has gained momentum. People are coming to Knight because they believe in the new management team and its ability to adapt the company for the future. Meanwhile, Knight's broker-dealer business experienced increased volumes as a handful of market makers dropped out, while at the same time we continued to seek efficiencies for this lower-margin business."
Net operating income from all domestic businesses was approximately $4.7 million for the fourth quarter of 2002, or $0.04 per share, excluding writedowns for excess real estate capacity of $3.4 million. For the fourth quarter of 2001, net operating income from all domestic businesses was approximately $24.9 million, or $0.20 per share, excluding severance, writedowns for excess real estate capacity and charges for impaired investments of $1.7 million.
The company's asset management business generated $14.5 million in asset management fees during the fourth quarter of 2002, up from $5.0 million in the same period a year ago. The asset management business had approximately $1.2 billion of funds under management at December 31, 2002 and 2001, respectively.
The company had 967 employees in the U.S. at the end of the fourth quarter, up from 945 at the end of the third quarter and down from 1,142 at the end of 2001.
For the fourth quarter of 2002, net operating losses from international operations were $1.7 million, or $0.01 loss per share, excluding severance and other charges of $3.3 million. For the fourth quarter of 2001, net operating losses from international operations were $8.9 million, or $0.07 loss per share, excluding severance of $0.8 million.
In Knight's third quarter press release issued on October 16, 2002, the company said that it discontinued its U.K. market-making operations and would incur severance and other non-operating charges of up to $0.05 per share in the fourth quarter of 2002. During the fourth quarter, the company incurred severance and other non-operating charges of $3.3 million, or a loss of $0.03 per share.
As of December 31, 2002, the company had 63 employees in Europe and Asia, down from 89 at the end of the third quarter and down from 165 at the end of 2001.
In light of economic conditions and proposed changes in market structure, Knight continues to review its business plan alternatives for Knight Securities Japan.
Liquidity and Stock Repurchase Plan
The company had $756.4 million in stockholders' equity as of December 31, 2002, equivalent to a book value of $6.42 per share. As of December 31, 2002, the company had $316.7 million in cash and cash equivalents and a $153.8 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. 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 fourth quarter, the company repurchased an additional 1,200,000 shares totaling $6.3 million. Under the $70 million stock repurchase program, the company has repurchased 7,960,000 shares for $41.2 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 117.9 million shares of common stock outstanding as of December 31, 2002.
"Knight's achievements to date are in line with our preliminary goals, and we anticipate steady progress throughout 2003," Mr. Joyce said. "Knight is looking to enhance our institutional offerings, increase our client base as well as the business we have with current clients, and coordinate across product areas. We will also look for more ways to drive productivity and effective cost management into the broker-dealer business. Knight is not alone in its efforts to navigate an increasingly fragmented marketplace that is marked by increasing fees to access liquidity. As a leader, we will work to help level the playing field for all market participants."
Knight is focused on meeting the needs of institutional and broker-dealer clients by offering the highest quality trade execution, superior service, capital commitment and access to a deep pool of liquidity across the depth and breadth of the market. As a leading execution specialist, Knight broadens our clients' access to the capital markets by providing comprehensive trade execution services in equity securities and option classes. Knight also maintains a $1 billion asset management business for institutions and high net worth individuals. 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 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 fourth quarter earnings conference call for analysts, investors and the media at 9:00 a.m. (EST) today, January 23, 2003. The conference call will be Webcast live at 9:00 a.m. (EST) for all investors and interested parties on Knight's Web site. In addition, the Company will release its volume statistics for December 2002 before the start of trading today, January 23, 2003, 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* Three Months Year Ended Dec. 31 Ended Dec. 31 2002 2001 2002 2001 Revenues (unaudited) (unaudited) (unaudited) Net trading revenue $107,696,634 $139,106,271 $430,323,796 $564,630,212 Commissions and fees 10,868,194 11,316,530 41,767,970 47,942,570 Asset management fees 14,479,176 4,977,959 34,510,112 36,756,865 Interest and dividends, net 1,621,606 4,332,371 5,923,334 24,949,310 Investment income and other 7,384,903 2,586,796 14,830,895 10,433,418 Total revenues 142,050,513 162,319,927 527,356,107 684,712,375 Expenses Employee compensation and benefits 55,942,354 58,001,550 220,162,394 249,971,154 Execution and clearance fees 32,347,246 30,728,441 120,518,753 117,518,622 Payments for order flow 16,014,185 17,609,757 66,571,771 81,941,538 Communications and data processing 8,365,571 11,391,829 37,743,702 50,856,148 Depreciation and amortization 9,021,730 11,548,418 37,568,925 42,759,165 Occupancy and equipment rentals 5,219,798 6,799,217 25,024,163 20,540,053 Professional fees 3,726,472 2,207,146 17,193,608 15,052,273 Business development 1,847,238 1,750,889 7,581,337 11,617,364 International charges 3,690,873 - 35,924,434 - Writedown of assets and lease loss accrual 5,704,329 2,343,084 16,157,360 20,538,652 Other 6,202,889 3,699,139 16,717,764 19,572,254 Total expenses 148,082,685 146,079,470 601,164,211 630,367,223 (Loss) income before income taxes and minority interest (6,032,172) 16,240,457 (73,808,104) 54,345,152 Income tax (benefit) expense (1,698,162) 5,051,948 (21,518,051) 25,461,246 (Loss) income before minority interest (4,334,010) 11,188,509 (52,290,053) 28,883,906 Minority interest in consolidated subsidiaries (745,485) (2,288,528) (9,048,389) (9,641,661) Net (loss) income $(3,588,525) $13,477,037 $(43,241,664) $38,525,567 Basic earnings per share $(0.03) $0.11 $(0.36) $0.31 Diluted earnings per share $(0.03) $0.11 $(0.36) $0.31 Shares used in the computation of basic earnings per share 116,876,706 124,121,053 120,771,786 123,796,181 Shares used in the computation of diluted earnings per share 116,876,706 125,421,454 120,771,786 125,758,863 Certain prior period amounts have been reclassified to conform to the current year presentation. KNIGHT TRADING GROUP, INC. Consolidated Statements of Financial Condition Dec. 31, Dec. 31, 2002 2001* (unaudited) ASSETS Cash and cash equivalents $316,722,259 $361,294,311 Securities owned, held at clearing broker, at market value 1,984,500,084 1,754,482,505 Receivable from brokers and dealers 480,195,130 820,103,479 Fixed assets and leasehold improvements at cost, less accumulated depreciation 58,066,695 90,125,704 Goodwill 17,536,945 17,536,945 Intangible assets, less accumulated amortization 34,852,535 34,363,040 Investment in Deephaven sponsored fund 153,790,799 50,919,198 Strategic investments 24,715,110 41,746,399 Other assets 101,496,749 56,115,374 Total assets $3,171,876,306 $3,226,686,955 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $2,254,900,355 $2,039,355,967 Payable to brokers and dealers 35,271,654 227,526,691 Accrued compensation expense 60,525,247 65,121,718 Accounts payable, accrued expenses and other liabilities 52,753,720 39,777,346 Total liabilities 2,403,450,976 2,371,781,722 Minority interest in consolidated subsidiaries 12,009,561 20,648,809 Stockholders' equity Class A Common Shares 1,247,053 1,241,586 Additional paid-in capital 340,211,426 335,796,119 Retained earnings 460,541,000 504,472,861 Treasury stock, at cost (35,423,292) - Unamortized stock-based compensation (6,791,533) (672,763) Accumulated other comprehensive income (loss) - foreign currency translation adjustments, net of tax (3,368,885) (6,581,379) Total stockholders' equity 756,415,769 834,256,424 Total liabilities and stockholders' equity $3,171,876,306 $3,226,686,955 Certain prior period amounts have been reclassified to conform to the current year presentation.SOURCE Knight Trading Group, Inc.
CONTACT: Robert Turner, Executive Vice President, Chief Financial Officer and Treasurer, +1-201-557-6845 or firstname.lastname@example.org, Margaret Wyrwas, Senior Vice President, Corporate Communications & Investor Relations, +1-201-557-6954 or email@example.com, Judy Pirro, Manager, Investor and Shareholder Relations, +1-201-356-1548 or firstname.lastname@example.org, or Kara Fitzsimmons, Manager, Corporate Communications, +1-201-356-1523 or email@example.com, all of Knight Trading Group