| JANUARY 20, 2005 |
| Knight Trading Group Announces GAAP Earnings From Continuing Operations of $0.20 Per Diluted Share for Fourth Quarter 2004 |
Fourth quarter 2004 earnings from continuing operations in Knight's two business segments driven by higher returns from Asset Management, complemented by a return to profitability in Equity Markets amidst higher fourth quarter trading volume Including discontinued operations, GAAP earnings were $0.94 per diluted share for fourth quarter 2004, with $0.70 per diluted share related to the sale of the Derivative Markets business to Citigroup and $0.04 per diluted share related to the segment's earnings from operations For year-over-year comparison, Knight reported GAAP earnings from continuing operations of $0.22 per diluted share for fourth quarter 2003, in addition to a loss of $0.14 per diluted share from discontinued operations JERSEY CITY, N.J., Jan. 20 /PRNewswire-FirstCall/ -- Knight Trading Group, Inc. (Nasdaq: NITE) today reported GAAP earnings of $108.5 million, or $0.94 per diluted share, which includes earnings from discontinued operations of $86.0 million, or $0.74 per diluted share, for the fourth quarter of 2004. The company had GAAP net income from continuing operations of $22.6 million, or $0.20 per diluted share, for the fourth quarter of 2004. "Continuing operations" includes the company's Equity Markets and Asset Management business segments, and "discontinued operations" includes the former Derivative Markets business segment. In accordance with generally accepted accounting principles, the results of this business segment as well as the gain on the sale of this business segment have been included within discontinued operations for all periods presented. As previously announced on December 10, 2004, the company completed the sale of its Derivative Markets business to Citigroup for approximately $237 million in cash as of the close of business on December 9, 2004. The final purchase price is subject to adjustment based on the final determination of the book value of the Derivative Markets business at the time the deal closed. The results of the Derivative Markets business and the gain on the sale resulted in earnings of $86.0 million net of taxes, or $0.74 per diluted share, during the fourth quarter of 2004. For the fourth quarter of 2003, the company reported GAAP earnings of $10.0 million, or $0.08 per diluted share, which included a loss from discontinued operations of $16.4 million, or $0.14 per diluted share, representing the results of the Derivative Markets business segment. The company had GAAP net income from continuing operations of $26.3 million, or $0.22 per diluted share, for the fourth quarter of 2003. Revenues from continuing operations for the fourth quarter of 2004 were $185.6 million, compared to $170.7 million for the fourth quarter of 2003. "After a flat summer, market conditions improved in the last months of the year and helped Knight enjoy a healthy fourth quarter," said Thomas M. Joyce, Chairman and Chief Executive Officer of Knight Trading Group. "While both of our business segments responded positively to the market rebound, the performance of our Asset Management segment, Deephaven, was exceptional. Equity Markets benefited from significant increases in both daily dollar volumes and trade volumes, although revenue capture remained at third quarter levels in the midst of a very competitive environment."
Q4 2004 Q4 2003
Revenues ($) 185,577,606 170,659,337
Net income from continuing operations ($) 22,595,492 26,330,605
Income (loss) from discontinued
operations, net of tax ($) 85,954,320 (16,363,700)
Net income ($) 108,549,812 9,966,905
Net operating income from continuing
operations per diluted share ($) 0.20 0.22
Diluted EPS from continuing
operations ($) 0.20 0.22
Diluted EPS from discontinued
operations ($) 0.74 (0.14)
Diluted EPS ($) 0.94 0.08
U.S. equity dollar value traded
(in $ millions) 476,142 478,722
U.S. equity trades executed (in thousands) 55,681 52,226
Average daily U.S. equity trades
(in thousands) 870 816
Nasdaq and Listed equity shares
traded (in millions) 32,834 37,989
OTC Bulletin Board and Pink Sheet
shares traded (in millions) 358,910 135,201
Average month-end balance of assets
under management ($ millions) 3,584.7 1,547.9
Quarterly fund return to investors* 4.8% 5.0%
2004 2003
Revenues ($) 625,750,354 545,908,762
Net (loss) income from continuing
operations ($) (9,511,769) 51,541,322
Income (loss) from discontinued
operations, net of tax ($) 100,903,791 (13,016,202)
Net income ($) 91,392,022 38,525,120
Net operating income from continuing
operations per diluted share ($) 0.42 0.52
Diluted EPS from continuing operations ($) (0.08) 0.44
Diluted EPS from discontinued operations ($) 0.86 (0.11)
Diluted EPS ($) 0.78 0.33
U.S. equity dollar value traded
(in $ millions) 1,730,658 1,560,007
U.S. equity trades executed (in thousands) 205,903 181,341
Average daily U.S. equity trades
(in thousands) 817 720
Nasdaq and Listed equity shares
traded (in millions) 125,243 138,082
OTC Bulletin Board and Pink Sheet
shares traded (in millions) 1,349,856 305,303
Average month-end balance of assets
under management ($ millions) 2,963.5 1,359.4
Annual fund return to investors* 6.5% 13.9%
* Return represents the average return across all assets under management
in the Deephaven Funds
Continuing Operations Equity Markets During the fourth quarter of 2004, the Equity Markets business segment, which consists of both domestic and international equity market-making and institutional sales operations, generated total revenues of $127.3 million compared to $140.9 million during the fourth quarter of 2003. In the fourth quarter, the Equity Markets business segment reported an operating gain of approximately $4.5 million net of taxes, which represents operating gains of approximately $5.8 million from domestic equity markets and a loss of $1.3 million from our London operations. "I believe Knight's client efforts continue to drive the success of our Equity Markets business," Mr. Joyce said. "Our penetration of the institutional market continues, and we are building a reputation for providing superior service, especially among those smaller firms who may be overlooked by our competitors. We understand that it's not solely trade execution that generates repeat business from institutions. That's why we continue to emphasize one-on-one relationships with our clients. Meanwhile, high-quality, customizable executions continue to be the reason our broker-dealer clients return to trade with Knight." Included within the results of our Equity Markets business segment is an approximate $4 million reserve, net of taxes, or $6.5 million pre-tax, representing the amount the company believes it is owed by a counterparty in a trading dispute. The reserve reduced net trading revenues by $6.5 million during the fourth quarter of 2004. The company believes it has a meritorious claim against the counterparty in this matter and is pursuing remedies to recover the funds. The results of our Equity Markets business segment for the fourth quarter of 2004 also included a benefit of approximately $2 million, net of taxes, or $3.4 million pre-tax, for refunds received related to certain execution and clearance fees. These refunds reduced execution and clearance fees during the fourth quarter by $3.4 million. Additionally, during the fourth quarter of 2004 the company changed the classification of certain transaction-related regulatory fee expenses from offsetting net trading revenues to being recorded as an expense within execution and clearance fees. These regulatory fee expenses for the three months ended December 31, 2004 and 2003 were $3.6 million and $7.2 million, respectively. For the years ending December 31, 2004 and 2003, these regulatory fee expenses were $18.3 million and $23.0 million, respectively. Asset Management During the fourth quarter of 2004, the Asset Management business segment, Deephaven, generated $48.8 million in asset management fees, compared to $20.9 million in the same period a year ago. Asset Management had approximately $3.6 billion under management at December 31, 2004, compared to $1.6 billion at December 31, 2003. "Deephaven produced impressive results this quarter as both a business segment and a corporate investment, contributing a total of $0.16 to Knight's earnings per diluted share," Mr. Joyce said. "We have always been confident that we have the right people in place to make our Asset Management business a success. Deephaven's results reflect the strong operating leverage and earnings power of more than $3 billion of assets under management. Furthermore, Deephaven remains a prudent place to keep a portion of our cash while we seek strategic investments." During the fourth quarter of 2004, there was a net inflow of approximately $84 million in assets under management. The company's investment in the Deephaven funds returned $9.0 million pre-tax during the fourth quarter of 2004, up from pre-tax earnings of $8.8 million in the fourth quarter of 2003. At the end of the fourth quarter of 2004, the company had $215.3 million invested in the Deephaven funds. On January 1, 2005, Knight invested an additional $100 million in the Deephaven funds, bringing the total corporate investment to $315 million. Discontinued Operations Derivative Markets For the fourth quarter and full year of 2004, the results of the Derivative Markets business segment were presented net of taxes within discontinued operations. The business segment results principally consist of the gain on the sale of the Derivative Markets business as well as the earnings of its options market-making and option specialist operations through the period ended December 9, 2004, the date of the sale. The gain on the sale of the Derivative Markets business, net of transaction costs and taxes, was approximately $80.9 million, or $0.70 per diluted share, in the fourth quarter of 2004. Additionally, in the fourth quarter, through the date of the sale, the Derivative Markets business segment reported a gain from its operations, net of taxes, of approximately $5.0 million, or $0.04 per diluted share. In total, during the fourth quarter, the company had net income from discontinued operations of $86.0 million, or $0.74 per diluted share, from its Derivative Markets business segment. Liquidity and Stock Repurchase Plan The company had $854.5 million in stockholders' equity as of December 31, 2004, equivalent to a book value of $7.26 per diluted share. As of December 31, 2004, the company had $445.5 million in cash and cash equivalents within its continuing operations and a $215.3 million investment in funds managed by Deephaven, its Asset Management business segment. In December 2004, the company paid approximately $79 million relating to its settlement with the U.S. Securities and Exchange Commission and NASD. The settlement, as previously announced on December 16, 2004, involved the company's over-the-counter trading subsidiary Knight Securities, L.P., renamed Knight Equity Markets, L.P. The company took a pre-tax charge of approximately $79 million in the second quarter of 2004 relating to the settlement. During the fourth quarter of 2004, the company repurchased 2.7 million shares for approximately $30 million under the company's $250 million stock repurchase program. To date, the company has repurchased 21.7 million shares for $151 million. The company cautions that there are no assurances that any further repurchases may actually occur. On December 15, 2004, Thomas M. Joyce, Chief Executive Officer and President of Knight Trading Group, was elected Chairman of the Board of the company. As a result of an amendment to the company's by-laws and his election as Chairman of the Board, Mr. Joyce voluntarily relinquished his title as President of the company, effective immediately. The company has no plans to fill this position at this time. Copies of this earnings release and other information on the company can be obtained via the Internet at the company's Web site. The company will conduct its fourth quarter 2004 earnings conference call for analysts, investors and the media at 9:00 a.m. Eastern Standard Time (EST) today, January 20, 2005. 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 monthly volume statistics for December 2004 before the start of trading today on Knight's Web site. About Knight Trading Group Knight is focused on meeting the needs of institutional and broker-dealer clients by providing comprehensive trade execution services in equities. A leading trade 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.knight.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 results of discontinued operations to assist the reader in understanding the impact of these charges, writedowns and results of 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 including, without limitation, the risks and uncertainties detailed under the headings "Certain Factors Affecting Results of Operations" and "Risks Affecting our Business" in the Company's Annual Report on Form 10-K.
KNIGHT TRADING GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS*
(Unaudited)
For the three months ended For the year ended
December 31, December 31,
2004 2003 2004 2003
REVENUES
Net trading revenue $53,123,498 $82,824,257 $250,992,997 $290,937,517
Commissions and fees 72,206,052 54,826,980 276,010,852 163,147,122
Asset management
fees 48,814,379 20,917,161 77,658,193 57,903,057
Interest and
dividends, net 1,818,167 1,112,771 4,647,059 3,657,050
Investment income
and other 9,615,510 10,978,168 16,441,253 30,264,016
Total revenues 185,577,606 170,659,337 625,750,354 545,908,762
EXPENSES
Employee
compensation and
benefits 76,086,322 56,362,839 244,549,546 206,860,453
Execution and
clearance fees 23,300,602 31,980,992 111,787,940 102,658,908
Soft dollar and
commission
recapture expense 15,795,557 6,246,856 60,117,556 9,985,651
Payments for order
flow 9,215,539 10,175,253 36,632,317 32,178,913
Communications and
data processing 7,312,818 6,655,025 28,896,451 27,991,441
Depreciation and
amortization 3,325,185 4,180,787 14,045,623 19,201,293
Occupancy and
equipment rentals 3,781,636 4,169,113 16,599,072 16,892,380
Professional fees 3,353,340 1,980,290 14,914,772 10,993,116
Business
development 2,347,014 2,189,880 8,268,973 7,159,726
Writedown of assets
and lease loss
accrual 312,192 (204,898) 3,810,453 16,507,981
Regulatory charges
and related
matters 141,732 -- 79,341,732 --
Other 2,725,922 4,117,985 6,844,290 11,151,856
Total expenses 147,697,859 127,854,122 625,808,725 461,581,718
Income (loss) from
continuing
operations before
income taxes 37,879,747 42,805,215 (58,371) 84,327,044
Income tax expense 15,284,255 16,474,610 9,453,398 32,785,722
Net income (loss)
from continuing
operations 22,595,492 26,330,605 (9,511,769) 51,541,322
Income (loss) from
discontinued
operations, net of
tax 85,954,320 (16,363,700) 100,903,791 (13,016,202)
Net income $108,549,812 $9,966,905 $91,392,022 $38,525,120
Basic earnings per
share from
continuing
operations $0.20 $0.23 $(0.08) $0.46
Diluted earnings
per share from
continuing
operations $0.20 $0.22 $(0.08) $0.44
Basic earnings per
share from
discontinued
operations $0.77 $(0.15) $0.90 $(0.12)
Diluted earnings
per share from
discontinued
operations $0.74 $(0.14) $0.86 $(0.11)
Basic earnings per
share $0.98 $0.09 $0.81 $0.34
Diluted earnings
per share $0.94 $0.08 $0.78 $0.33
Shares used in
computation of
basic earnings per
share 111,252,398 112,377,676 112,423,158 112,023,419
Shares used in
computation of
diluted earnings
per share 115,578,444 120,780,923 117,636,085 117,749,743
* Certain prior period amounts have been reclassified to conform to the
current period presentation.
KNIGHT TRADING GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
December 31, December 31,
2004 2003
ASSETS
Cash and cash equivalents $445,539,282 $249,997,693
Securities owned, held at clearing
brokers, at market value 254,473,209 201,238,570
Receivable from brokers and dealers 244,881,065 205,019,632
Receivable from discontinued operations -- 43,529,819
Investment in Deephaven sponsored funds 215,329,959 197,605,068
Fixed assets and leasehold
improvements at cost, less
accumulated depreciation and
amortization 54,024,186 28,741,113
Strategic investments 29,266,796 20,496,876
Goodwill 19,182,248 16,665,074
Intangible assets, less
accumulated amortization 11,546,528 11,952,000
Assets within discontinued operations -- 2,938,222,972
Other assets 117,305,578 87,879,509
Total assets $1,391,548,851 $4,001,348,326
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Securities sold, not yet purchased,
at market value $221,420,569 $173,118,793
Payable to brokers and dealers 88,480,788 26,813,012
Accrued compensation expense 123,664,383 94,224,406
Liabilities within
discontinued operations -- 2,851,696,563
Accrued expenses and other liabilities 103,485,220 65,363,774
Total liabilities 537,050,960 3,211,216,548
Stockholders' equity
Class A common shares 1,339,655 1,281,871
Additional paid-in-capital 427,451,712 370,897,405
Retained earnings 590,448,783 499,056,756
Treasury stock, at cost (147,636,413) (68,795,258)
Unamortized stock-based compensation (17,105,846) (12,308,996)
Total stockholders' equity 854,497,891 790,131,778
Total liabilities and
stockholders' equity $1,391,548,851 $4,001,348,326
KNIGHT TRADING GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP DISCLOSURES*
Amounts in millions, except per share data
(Unaudited)
For the three months ended
December 31, 2004
Equity Asset Discontinued
Markets Management Operations Total
GAAP NET INCOME $4.2 $18.3 $86.0 $108.5
Adjustments, net of tax:
Writedown of assets
and lease loss accrual 0.2 -- -- 0.2
Regulatory charges
and related matters 0.1 -- -- 0.1
(Income) from discontinued
operations -- -- (86.0) (86.0)
Net impact of adjustments 0.3 -- (86.0) (85.7)
NET OPERATING INCOME
FROM CONTINUING OPERATIONS $4.5 $18.3 $-- $22.9
GAAP NET INCOME
PER DILUTED SHARE $0.04 $0.16 $0.74 $0.94
Adjustments, net of tax:
Writedown of assets
and lease loss accrual -- -- -- --
Regulatory charges
and related matters -- -- -- --
(Income) from discontinued
operations -- -- (0.74) (0.74)
Net impact of adjustments -- -- (0.74) (0.74)
NET OPERATING INCOME FROM
CONTINUING OPERATIONS
PER DILUTED SHARE $0.04 $0.16 $-- $0.20
For the three months ended
December 31, 2003
Equity Asset Discontinued
Markets Management Operations Total
GAAP NET INCOME (LOSS) $13.6 $12.7 $(16.4) $10.0
Adjustments, net of tax:
Writedown of assets
and lease loss accrual (0.1) -- -- (0.1)
Loss from discontinued
operations -- -- 16.4 16.4
Net impact of adjustments (0.1) -- 16.4 16.2
NET OPERATING INCOME FROM
CONTINUING OPERATIONS $13.5 $12.7 $-- $26.2
GAAP NET INCOME (LOSS)
PER DILUTED SHARE $0.11 $0.11 $(0.14) $0.08
Adjustments, net of tax:
Writedown of assets
and lease loss accrual -- -- -- --
Loss from discontinued
operations -- -- 0.14 0.14
Net impact of adjustments -- -- 0.14 0.14
NET OPERATING INCOME FROM
CONTINUING OPERATIONS
PER DILUTED SHARE $0.11 $0.11 $-- $0.22
* Totals may not add due to rounding.
KNIGHT TRADING GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP DISCLOSURES*
Amounts in millions, except per share data
(Unaudited)
For the year ended December 31, 2004
Equity Asset Discontinued
Markets Management Operations Total
GAAP NET(LOSS) INCOME $(33.4) $23.9 $100.9 $91.4
Adjustments, net of tax:
Writedown of assets
and lease loss accrual 2.2 -- -- 2.2
Regulatory charges
and related matters 56.5 -- -- 56.5
(Income) from discontinued
operations -- -- (100.9) (100.9)
Net impact of adjustments 58.7 -- (100.9) (42.2)
NET OPERATING INCOME
FROM CONTINUING OPERATIONS $25.3 $23.9 $-- $49.2
GAAP NET (LOSS) INCOME
PER DILUTED SHARE $(0.28) $0.20 $0.86 $0.78
Adjustments, net of tax:
Writedown of assets
and lease loss accrual 0.02 -- -- 0.02
Regulatory charges
and related matters 0.48 -- -- 0.48
(Income) from discontinued
operations -- -- (0.86) (0.86)
Net impact of adjustments 0.50 -- (0.86) (0.36)
NET OPERATING INCOME FROM
CONTINUING OPERATIONS
PER DILUTED SHARE $0.22 $0.20 $-- $0.42
For the year ended December 31, 2003
Equity Asset Discontinued
Markets Management Operations Total
GAAP NET INCOME (LOSS) $20.1 $31.5 $(13.0) $38.5
Adjustments, net of tax:
Writedown of assets
and lease loss accrual 9.7 -- -- 9.7
Loss from discontinued
operations -- -- 13.0 13.0
Net impact of adjustments 9.7 -- 13.0 22.7
NET OPERATING INCOME FROM
CONTINUING OPERATIONS $29.8 $31.5 $-- $61.3
GAAP NET INCOME (LOSS)
PER DILUTED SHARE $0.17 $0.27 $(0.11) $0.33
Adjustments, net of tax:
Writedown of assets
and lease loss accrual 0.08 -- -- 0.08
Loss from discontinued
operations -- -- 0.11 0.11
Net impact of adjustments 0.08 -- 0.11 0.19
NET OPERATING INCOME FROM
CONTINUING OPERATIONS
PER DILUTED SHARE $0.25 $0.27 $-- $0.52
* Totals may not add due to rounding.
SOURCE Knight Trading Group, Inc. http://www.prnewswire.com |
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The matters described within the Investor Relations section of the Knight Capital Group (the "Company") Web site 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.
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