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 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. DATASOURCE: Knight Trading
Group, Inc. CONTACT: Margaret Wyrwas, Senior Managing Director,
Corporate Communications & Investor Relations, +1-201-557-6954,
or , or Kara Fitzsimmons, Vice President, Corporate Communications,
+1-201-356-1523, or , or Greta Morley, Assistant Vice President,
Marketing Communications & Public Relations, +1-201-557-6948,
or , or Molly McDowell, Analyst, Corporate Communications &
Investor Relations, +1-201-356-1723, or , all of Knight Trading
Group Web site: http://www.knighttradinggroup.com/
http://www.knight.com/
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