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 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.
Derivative Markets 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. Asset Management 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 DATASOURCE: Knight Trading Group, Inc.
CONTACT: Margaret Wyrwas, Senior Managing Director, Corporate
Communications & Investor Relations, +1-201-557-6954, , or Kara
Fitzsimmons, Vice President, Corporate Communications,
+1-201-356-1523, , or Judy Pirro, Vice President, Investor &
Shareholder Relations, +1-201-356-1548, , or Greta Morley,
Assistant Vice President, Marketing Communications & Public
Relations, +1-201-557-6948, , all of Knight Trading Group, Inc. Web
site: http://www.knighttradinggroup.com/
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