|JULY 21, 2004|
|Knight Trading Group Announces GAAP Loss of $0.42 Per Diluted Share for Second Quarter 2004|
Operating earnings were $0.09 per diluted share in second quarter 2004, excluding regulatory and real estate charges of $0.51 per diluted share For second quarter 2003, Knight reported GAAP earnings of $0.13 per diluted share, including loss from discontinued operations of $0.01 per share.
Despite unfavorable market conditions, all three business segments were profitable on an operating basis during second quarter 2004
JERSEY CITY, N.J., July 21 /PRNewswire-FirstCall/ -- Knight Trading Group, Inc. (Nasdaq: NITE) today reported a GAAP loss of $47.8 million for the second quarter of 2004, or a loss of $0.42 per diluted share. For the second quarter of 2003, the company reported GAAP earnings of $14.8 million, or $0.13 per diluted share.
As previously announced July 7, 2004, the company reached an agreement in principle with the staffs of the U.S. Securities and Exchange Commission and NASD to settle investigations in connection with specific institutional trade activity, conduct and supervision that occurred in 1999 through 2001; and books and records, document production and record-keeping deficiencies. During the second quarter, the company recorded $79.2 million in pre-tax charges for regulatory and related matters. In addition, the company recorded a pre-tax charge of $2.6 million in the second quarter relating to excess real estate capacity. In the aggregate, these charges were $58.0 million, net of tax, or $0.51 per diluted share. Excluding these charges, the firm had operating earnings of $10.1 million, or $0.09 per diluted share, for the second quarter of 2004.
The results for the second quarter of 2003 included a loss from discontinued operations of $1.1 million, net of tax, or $0.01 per diluted share, related to the closure of Knight Securities Japan. Excluding this item, the firm had earnings from continuing operations of $15.9 million, or $0.14 per diluted share, for the second quarter of 2003.
Revenues for the second quarter of 2004 were $176.0 million, compared to $159.4 million for the second quarter of 2003.
"Knight was successful at reaching profitability across all business lines despite the second-quarter market doldrums," said Thomas M. Joyce, Chief Executive Officer and President of Knight Trading Group. "The company remains the market leader for small- and mid-cap equities, and we continue to see success in our growing institutional business. Institutions may be trading less overall during this low part of the market cycle, but Knight has not pulled back on the personnel investments and sales and marketing efforts that are helping us develop and expand our relationships. We're pleased with the solid, profitable performance of our options business during the quarter in the face of options market challenges. And finally, Deephaven was able to both raise assets to greater than $3 billion at the end of June and produce fund returns that were in line with its peer group."
Q2 2004 Q2 2003 Revenues ($) 175,966,642 159,383,353 Net (loss)/income from continuing operations ($) (47,846,062) 15,859,342 Loss from discontinued operations, net of tax ($) -- (1,068,366) Net (loss)/income ($) (47,846,062) 14,790,976 Diluted EPS from continuing operations ($) (0.42) 0.14 Diluted EPS from discontinued operations ($) -- (0.01) Diluted EPS ($) (0.42) 0.13 U.S. equity dollar value traded (in $ millions) 416,798 385,474 U.S. equity trades executed (in thousands) 49,058 47,057 Average daily U.S. equity trades (in thousands) 791 747 Nasdaq and Listed equity shares traded (in millions) 28,936 37,336 OTC Bulletin Board and Pink Sheet shares traded (in millions) 376,153 47,066 U.S. options contracts traded (in thousands) 20,763 16,016 YTD 2004 YTD 2003 Revenues ($) 415,810,231 285,719,181 Net (loss)/income from continuing operations ($) (16,031,607) 7,079,940 Loss from discontinued operations, net of tax ($) -- (2,124,297) Net (loss)/income ($) (16,031,607) 4,955,643 Diluted EPS from continuing operations ($) (0.14) 0.06 Diluted EPS from discontinued operations ($) -- (0.02) Diluted EPS ($) (0.14) 0.04 U.S. equity dollar value traded (in $ millions) 921,413 660,139 U.S. equity trades executed (in thousands) 108,650 81,335 Average daily U.S. equity trades (in thousands) 876 656 Nasdaq and Listed equity shares traded (in millions) 69,863 63,927 OTC Bulletin Board and Pink Sheet shares traded (in millions) 696,708 87,066 U.S. options contracts traded (in thousands) 42,292 28,892
Equity Markets During the second quarter of 2004, the Equity Markets business segment, which principally consists of domestic equity market-making and institutional sales operations, generated total revenues of $127.3 million versus $108.1 million during the second quarter of 2003.
During the second quarter of 2004, the company's Derivative Markets business segment, which principally consists of options market-making and option specialist operations, generated total revenues of $39.1 million versus $37.4 million during the second quarter of 2003.
The company's Asset Management business segment generated $8.1 million in asset management fees during the second quarter of 2004, compared to $9.8 million in the same period a year ago. The decrease reflects lower returns, but higher assets under management. Asset Management had approximately $3.2 billion under management at June 30, 2004 versus $1.3 billion at June 30, 2003. The company earned $490,000 during the second quarter of 2004 on its investment in the Deephaven funds, down from $3.9 million in the second quarter of 2003.
Knight Trading Group had 942 employees at the end of the second quarter 2004, compared to 939 at the end of 2003.
"Market conditions deteriorated with the passing of each month in the second quarter, and the near term does not seem to hold much promise for the higher volume and volatility that creates strong trading opportunities for Knight," Mr. Joyce said. "Like others in the financial services industry, we are looking toward the post-election period as the time when, traditionally, investors shake off their uncertainty and take a fresh look at equities. We can't predict when equity market conditions will improve. But we can maintain a long-term strategy, continue to operate Knight's businesses profitably, and position ourselves for the inevitable market rebound."
Liquidity and Stock Repurchase Plan
The company had $773.2 million in stockholders' equity as of June 30, 2004, equivalent to a book value of $6.67 per share. As of June 30, 2004, the company had $223.6 million in cash and cash equivalents and a $207.9 million investment in funds managed by its Deephaven subsidiary.
At its April 20, 2004 meeting, the Board of Directors authorized a $15 million increase in the size of the company's stock repurchase program to $110 million from $95 million. During the second quarter of 2004, the company repurchased 824,900 shares. To date, the company has repurchased 15,641,800 shares for $90.4 million under the program. The company cautions that there are no assurances that any further repurchases may actually occur.
Knight Trading Group had approximately 116.0 million shares of common stock outstanding as of June 30, 2004.
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 second quarter earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Daylight Time (EDT) today, July 21, 2004. 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 June 2004 before the start of trading today on Knight's Web site.
Knight is focused on meeting the needs of institutional and broker-dealer clients by providing comprehensive trade execution services in equities and derivatives. A leading execution specialist, Knight offers capital commitment and access to a deep pool of liquidity across the depth and breadth of the equity market. Knight also operates an asset management business for institutions and high net worth individuals. To be a valued partner, Knight strives to provide superior client service and will continue to tailor its offering to meet the needs of its clients. More information about Knight can be obtained at http://www.knighttradinggroup.com.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding the Company's results as determined by generally accepted accounting principles (GAAP), the Company also discloses certain non-GAAP information which management believes provides useful information to investors. Within this press release, the Company has disclosed its net income (loss) amounts for certain reporting periods before charges, writedowns and discontinued operations to assist the reader in understanding the impact of these charges, writedowns and discontinued operations on the Company's financial results, thereby facilitating more useful period-to-period comparisons of the Company's businesses.
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) For the three months ended For the six months ended June 30, June 30, 2004 2003 2004 2003 REVENUES Net trading revenue $89,730,381 $100,980,052 $226,800,570 $171,168,255 Commissions and fees 78,246,615 42,875,984 163,619,252 75,569,624 Asset management fees 8,106,756 9,766,106 22,038,887 23,991,827 Interest and dividends, net (1,477,813) 1,236,869 (4,335,948) 3,007,231 Investment income and other 1,360,703 4,524,342 7,687,470 11,982,244 Total revenues 175,966,642 159,383,353 415,810,231 285,719,181 EXPENSES Employee compensation and benefits 65,750,925 61,441,064 145,599,876 115,459,037 Execution and clearance fees 37,087,489 30,644,548 81,379,819 59,862,172 Payments for order flow 15,348,457 11,269,288 34,859,953 22,182,079 Soft dollar and commission recapture expense 14,236,854 1,607,847 30,012,769 2,275,321 Communications and data processing 7,742,138 8,002,990 15,519,563 16,737,296 Depreciation and amortization 4,924,095 7,395,158 10,715,471 15,510,796 Occupancy and equipment rentals 4,738,800 4,902,294 9,559,976 9,337,926 Professional fees 4,205,807 3,783,242 7,796,686 7,575,406 Business development 1,956,727 1,880,747 4,099,524 3,830,652 Writedown of assets and lease loss accrual 2,623,986 -- 2,623,986 17,412,066 Regulatory charges and related matters 79,200,000 -- 79,200,000 -- Other 2,436,711 2,045,884 5,398,643 4,710,440 Total expenses 240,251,989 132,973,062 426,766,266 274,893,191 (Loss)/Income before income taxes and discontinued operations (64,285,347) 26,410,291 (10,956,035) 10,825,990 Income tax (benefit)/expense (16,439,285) 10,550,949 5,075,572 3,746,050 Net (loss)/income from continuing operations (47,846,062) 15,859,342 (16,031,607) 7,079,940 Loss from discontinued operations, net of tax -- (1,068,366) -- (2,124,297) Net (loss)/income $(47,846,062) $14,790,976 $(16,031,607) $4,955,643 Basic and diluted earnings per share from continuing operations $(0.42) $0.14 $(0.14) $0.06 Basic and diluted earnings per share from discontinued operations $ -- $(0.01) $ -- $(0.02) Basic and diluted earnings per share $(0.42) $0.13 $(0.14) $0.04 Shares used in computation of basic earnings per share 112,971,307 110,605,879 113,222,334 112,318,599 Shares used in computation of diluted earnings per share 112,971,307 113,616,863 113,222,334 115,006,879 * Certain prior period amounts have been reclassified to conform to the current year presentation. KNIGHT TRADING GROUP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, 2004 December 31, 2003 ASSETS Cash and cash equivalents $223,560,628 $262,200,309 Securities owned, held at clearing brokers, at market value 3,351,750,964 3,025,120,511 Receivable from brokers and dealers 504,031,170 269,815,897 Investment in Deephaven sponsored funds 207,899,205 197,605,068 Fixed assets and leasehold improvements at cost, less accumulated depreciation and amortization 38,658,542 37,557,829 Strategic investments 25,922,073 20,516,876 Goodwill 23,626,692 21,109,518 Intangible assets, less accumulated amortization 13,496,009 14,696,175 Other assets 142,892,410 109,196,325 Total assets $4,531,837,693 $3,957,818,508 LIABILITIES & STOCKHOLDERS' EQUITY Liabilities Securities sold, not yet purchased, at market value $2,593,811,020 $2,658,090,718 Payable to brokers and dealers 919,642,804 313,744,175 Accrued compensation expense 89,195,314 116,668,586 Accounts payable, accrued expenses and other liabilities 155,997,181 79,183,251 Total liabilities 3,758,646,319 3,167,686,730 Stockholders' equity Class A common shares 1,304,720 1,281,871 Additional paid-in-capital 398,293,169 370,897,405 Retained earnings 483,025,149 499,056,756 Treasury stock, at cost (85,181,965) (68,795,258) Unamortized stock-based compensation (24,249,699) (12,308,996) Total stockholders' equity 773,191,374 790,131,778 Total liabilities and stockholders' equity $4,531,837,693 $3,957,818,508 KNIGHT TRADING GROUP, INC. RECONCILIATION OF GAAP TO NON-GAAP DISCLOSURES For the three months ended For the six months ended June 30, June 30, 2004 2003 2004 2003 GAAP NET(LOSS) INCOME $(47,846,062) $14,790,976 $(16,031,607) $4,955,643 Adjustments, net of tax: Writedown of assets and lease loss accrual 1,521,912 -- 1,521,912 10,274,827 Regulatory charges and related matters 56,436,000 -- 56,436,000 -- Loss from discontinued operations -- 1,068,366 -- 2,124,297 Net impact of writedowns and charges 57,957,912 1,068,366 57,957,912 12,399,124 EARNINGS FROM OPERATIONS $10,111,850 $15,859,342 $41,926,305 $17,354,767 GAAP NET (LOSS) INCOME PER DILUTED SHARE $(0.42) $0.13 $(0.14) $0.04 Adjustments, net of tax: Writedown of assets and lease loss accrual 0.01 -- 0.01 0.09 Regulatory charges and related matters 0.50 -- 0.50 -- Loss from discontinued operations -- 0.01 -- 0.02 Net impact of writedowns and charges 0.51 0.01 0.51 0.11 EARNINGS FROM OPERATIONS PER DILUTED SHARE $0.09 $0.14 $0.37 $0.15
SOURCE Knight Trading Group, Inc. -0- 07/21/2004 /CONTACT: Margaret Wyrwas, Senior Managing Director, Corporate Communications & Investor Relations, +1-201-557-6954, email@example.com, or Kara Fitzsimmons, Vice President, Corporate Communications, +1-201-356-1523, firstname.lastname@example.org, or Judy Pirro, Vice President, Investor & Shareholder Relations, +1-201-356-1548, email@example.com, or Greta Morley, Assistant Vice President, Marketing Communications & Public Relations, +1-201-557-6948, firstname.lastname@example.org, all of Knight Trading Group, Inc./ /Web site: http://www.knighttradinggroup.com / (NITE)