Knight Capital Group Announces GAAP Loss of $0.04 Per Diluted Share
for Second Quarter 2005 GAAP loss includes $0.04 per diluted share
of non-operating real estate and regulatory charges recorded within
the company's two operating business segments, Equity Markets and
Asset Management JERSEY CITY, N.J., July 20 /PRNewswire-FirstCall/
-- Knight Capital Group, Inc. (NASDAQ:NITE) today reported a GAAP
loss of $4.2 million for the second quarter of 2005, or a loss of
$0.04 per diluted share. For the second quarter of 2005, the
company recorded charges of $4.2 million, net of tax, or $0.04 per
diluted share, including $2.7 million, net of tax, relating to real
estate charges and a writedown of fixed assets for its 525
Washington Boulevard facility; and $1.5 million, net of tax,
relating to regulatory and related matters. Excluding these
charges, the firm had a net operating loss from continuing
operations of approximately $100,000 for the second quarter of
2005. Included within the net operating loss for the second quarter
of 2005, the company recognized a gain of $6.1 million, net of tax,
or $0.06 per diluted share, relating to its investments in The
Nasdaq Stock Market, Inc. For the second quarter of 2004, the
company reported a GAAP loss of $47.9 million, or a loss of $0.42
per diluted share, which included a net loss from continuing
operations of $51.6 million, or a loss of $0.46 per diluted share,
and income from discontinued operations of $3.7 million, net of
tax, or $0.03 per diluted share. During the second quarter of 2004,
the company recorded charges for excess real estate capacity,
writedowns of fixed assets and regulatory and related matters of
$58.0 million, net of tax, or $0.51 per diluted share. Excluding
these charges, the firm had operating earnings from continuing
operations of $6.4 million, or $0.06 per diluted share, for the
second quarter of 2004. "Continuing operations" include the
company's two operating business segments, Equity Markets and Asset
Management. Continuing operations also include a Corporate segment,
encompassing corporate investments and overhead expenses. Amounts
reported as "discontinued operations" include the company's former
Derivative Markets business segment, the sale of which was
completed to Citigroup at the close of business on December 9,
2004. Revenues for the second quarter of 2005 were $114.1 million,
compared to $140.0 million from continuing operations for the
second quarter of 2004. "Knight had a rough start to the second
quarter, but we worked hard to narrow losses through June and we
continue to regain ground so far in July," said Thomas M. Joyce,
Chairman and Chief Executive Officer of Knight Capital Group.
"Miserable market conditions in April and May impacted
profitability in both our Equity Markets and Asset Management
businesses. During those challenging months, Knight management made
some of its most far-reaching and considerable changes to date to
the broker-dealer business as part of the ongoing effort to
counteract revenue capture decline. The company dramatically
increased its use of automation and instituted pricing structure
adjustments that included a significant reduction in payment for
order flow on Nasdaq, S&P 500, listed and Bulletin Board
securities." Q2 2005 Q2 2004 Revenues ($) 114,096,109 140,036,160
Net loss from continuing operations ($) (4,210,577) (51,597,576)
Income from discontinued operations, net of tax ($) - 3,736,622 Net
loss ($) (4,210,577) (47,860,954) Diluted EPS from continuing
operations ($) (0.04) (0.46) Diluted EPS from discontinued
operations ($) - 0.03 Diluted EPS ($) (0.04) (0.42) U.S. equity
dollar value traded (in $ millions) 445,808 416,798 U.S. equity
trades executed (in thousands) 48,150 49,058 Average daily U.S.
equity trades (in thousands) 752 791 Nasdaq and Listed equity
shares traded (in millions) 25,363 28,936 OTC Bulletin Board and
Pink Sheet shares traded (in millions) 154,050 376,142 Average
revenue capture per U.S. equity dollar value traded (bps) 1.5 2.5
Average month-end balance of assets under management ($ millions)
3,268.5 2,895.1 Quarterly fund return to investors* -1.3% 0.1% *
Quarterly fund return represents the blended quarterly return
across all assets under management in the Deephaven funds YTD 2005
YTD 2004 Revenues ($) 251,652,980 338,355,625 Net income (loss)
from continuing operations ($) 1,809,356 (25,619,746) (Loss) income
from discontinued operations, net of tax ($) (265,927) 9,604,387
Net income (loss) ($) 1,543,429 (16,015,359) Diluted EPS from
continuing operations ($) 0.02 (0.23) Diluted EPS from discontinued
operations ($) - 0.08 Diluted EPS ($) 0.01 (0.14) U.S. equity
dollar value traded (in $ millions) 916,483 921,413 U.S. equity
trades executed (in thousands) 100,999 108,650 Average daily U.S.
equity trades (in thousands) 808 876 Nasdaq and Listed equity
shares traded (in millions) 54,462 69,863 OTC Bulletin Board and
Pink Sheet shares traded (in millions) 449,849 696,708 Average
revenue capture per U.S. equity dollar value traded (bps) 1.6 2.7
Average month-end balance of assets under management ($ millions)
3,375.3 2,432.6 Year-to-date fund return to investors* -0.2% 2.1% *
Year-to-date fund return represents the blended return across all
assets under management in the Deephaven funds Equity Markets
During the second quarter of 2005, the Equity Markets business
segment generated total revenues of $98.5 million, compared to
$131.1 million in the second quarter of 2004. In the second quarter
of 2005, the Equity Markets business segment reported a net
operating loss of $1.1 million, compared to net operating earnings
of $9.4 million in the second quarter of 2004. On June 16, 2005,
the company announced the completion of its acquisition of the
business of Direct Trading Institutional, Inc., a direct market
access firm. In connection with this closing, the company made an
initial cash payment of $40.0 million and recorded goodwill of
$20.7 million and intangible assets of $20.0 million. Asset
Management During the second quarter of 2005, the Asset Management
business segment, Deephaven Capital Management, generated $8.0
million in asset management fees, compared to $8.1 million in the
same period a year ago. In the second quarter of 2005, the Asset
Management business segment reported a net operating loss of
approximately $500,000, compared to net operating earnings of $1.3
million in the second quarter of 2004. Asset Management had
approximately $3.4 billion under management at June 30, 2005, down
slightly from the $3.5 billion under management at March 31, 2005,
and up from $3.2 billion at June 30, 2004. "As we start the third
quarter, each business has established clear priorities and
operational goals," Mr. Joyce said. "We continue to adapt and
enhance our broker-dealer operations to meet new regulatory, market
and competitive issues. Knight is very committed to remaining an
industry leader serving broker-dealer clients. We believe the
institutional equities business remains a growth opportunity, and
we are confident that Knight's strength in listed market making and
in small-to-mid-cap stocks will continue to drive our penetration
of the institutional market. Moreover, as Knight integrates our new
Electronic Services group, we'll see new opportunities to offer
direct market access through Direct Trading Institutional, as well
as ECN trade executions and other products and services. And
finally, Deephaven continues to expand its offering by adding new
single-strategy funds. "In July we're experiencing an early summer
rally, and the operating environment looks encouraging over the
short term," Mr. Joyce added. "The strategies that Knight
implemented in the second quarter, combined with somewhat improved
market conditions, are having a positive impact on the
profitability of our equity operations. Meanwhile, Deephaven
started to see a rebound in returns in late May, which carried
through the end of the second quarter. Our enthusiasm is tempered
only by the need for greater economic recovery, including lower oil
prices and stability in interest rates. We also can't rule out that
the seasonal summer slowdown may simply arrive a little later than
usual this year." Corporate In the second quarter of 2005, the
Corporate segment reported net operating earnings of $1.5 million,
compared to a net operating loss of $4.3 million in the second
quarter of 2004. The company's investment in the Deephaven funds
lost $1.7 million, net of tax, during the second quarter of 2005,
down from earnings of $300,000, net of tax, during the second
quarter of 2004. At the end of the second quarter of 2005, the
company had $227.2 million invested in the Deephaven funds. On July
1, 2005, Knight invested an additional $40 million in the Deephaven
funds, bringing the total corporate investment to $267.2 million.
During the second quarter of 2005, the company recognized a gain of
$6.1 million, net of tax, or $0.06 per diluted share, relating to
its investments in The Nasdaq Stock Market, Inc. The company had
$794.9 million in stockholders' equity as of June 30, 2005,
equivalent to a book value of $7.25 per diluted share. As of June
30, 2005, the company had $236.5 million in cash and cash
equivalents and a $227.2 million investment in funds managed by
Deephaven, its Asset Management business segment. During the second
quarter of 2005, the company repurchased 4.0 million shares for
approximately $32.9 million under the company's $320 million stock
repurchase program. To date, the company has repurchased 32.3
million shares for $252 million. The company cautions that there
are no assurances that any further repurchases may actually occur.
On July 11, 2005, the company filed an SEC Form 8-K to announce its
decision to correct its method of accounting for property lease
transactions, and to restate its financial statements for the years
ended December 31, 2002, 2003 and 2004, included in the company's
2004 Annual Report on Form 10-K. The interim financial statements
included in the company's Form 10-Q for the quarterly period ended
March 31, 2005 will also be restated. Accordingly, the unaudited
financial data in this release reflects the restatement of these
prior periods. Copies of this earnings release and other
information on the company can be obtained at the company's Web
site, http://www.knight.com/. The company will conduct its second
quarter 2005 earnings conference call for analysts, investors and
the media at 9:00 a.m. Eastern Daylight Time (EDT) today, July 20,
2005. 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 monthly volume statistics
for June 2005 on its Web site before the start of trading today.
About Knight Capital Group Knight is a leading provider of
comprehensive trade execution and asset management services. Our
Equity Markets business offers institutions and broker-dealers high
quality trade execution and capital commitment across the depth and
breadth of the equity market. Our Asset Management business,
Deephaven Capital Management, is a market-neutral investment
manager focused on delivering risk-adjusted returns with low
volatility for institutions and high net worth individuals. Knight
strives to be a valued partner by providing superior service and
continually enhancing its offering to meet client needs. 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 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 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 CAPITAL GROUP, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS* (Unaudited) For the three months ended For the six
months ended June 30, June 30, 2005 2004 2005 2004 REVENUES Net
trading revenue $27,051,166 $61,234,847 $64,472,995 $161,962,704
Commissions and fees 68,022,217 68,568,535 138,138,228 145,206,054
Asset management fees 8,036,861 8,106,756 25,917,529 22,038,887
Interest and dividends, net 2,216,039 771,956 4,555,840 1,629,917
Investment income and other 8,769,826 1,354,066 18,568,388
7,518,063 Total revenues 114,096,109 140,036,160 251,652,980
338,355,625 EXPENSES Employee compensation and benefits 48,193,801
53,250,738 105,051,243 118,354,526 Execution and clearance fees
23,348,038 28,682,313 46,894,821 66,444,613 Soft dollar and
commission recapture expense 14,649,781 14,236,854 30,134,356
30,012,769 Payments for order flow 3,582,088 9,843,017 10,986,162
22,861,456 Communications and data processing 8,151,261 6,962,602
15,965,223 13,716,379 Depreciation and amortization 3,734,419
3,560,345 8,036,831 7,480,028 Occupancy and equipment rentals
2,829,725 4,388,032 6,947,116 8,736,809 Professional fees 4,550,021
3,950,860 8,331,745 7,307,132 Business development 1,707,779
1,825,410 3,001,115 3,868,379 Writedown of assets and lease loss
accrual 4,545,895 2,623,986 4,545,895 2,623,986 Regulatory charges
and related matters 2,000,000 79,200,000 2,000,000 79,200,000 Other
3,425,759 2,189,722 6,079,506 4,938,852 Total expenses 120,718,567
210,713,879 247,974,013 365,544,929 (Loss) income from continuing
operations before income taxes (6,622,458) (70,677,719) 3,678,967
(27,189,304) Income tax (benefit) expense (2,411,881) (19,080,143)
1,869,611 (1,569,558) Net (loss) income from continuing operations
(4,210,577) (51,597,576) 1,809,356 (25,619,746) Income (loss) from
discontinued operations, net of tax - 3,736,622 (265,927) 9,604,387
Net (loss) income $(4,210,577) $(47,860,954) $1,543,429
$(16,015,359) Basic and diluted earnings per share from continuing
operations $(0.04) $(0.46) $0.02 $(0.23) Basic and diluted earnings
per share from discontinued operations $- $0.03 $- $0.08 Basic and
diluted earnings per share $(0.04) $(0.42) $0.01 $(0.14) Shares
used in computation of basic earnings per share 104,335,490
112,971,307 106,584,672 113,222,334 Shares used in computation of
diluted earnings per share 104,335,490 112,971,307 109,579,944
113,222,334 * Certain prior period amounts have been reclassified
to conform to the current period presentation. KNIGHT CAPITAL
GROUP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) June 30, 2005 December 31, 2004 ASSETS Cash and cash
equivalents $236,483,470 $445,539,282 Securities owned, held at
clearing brokers, at market value 368,690,244 254,473,209
Receivable from brokers and dealers 791,509,982 244,881,065
Investment in Deephaven sponsored funds 227,221,471 215,329,959
Fixed assets and leasehold improvements at cost, less accumulated
depreciation and amortization 63,773,595 54,382,503 Strategic
investments 65,865,078 29,266,796 Goodwill 39,859,776 19,182,248
Intangible assets, less accumulated amortization 31,235,694
11,546,528 Other assets 74,255,144 119,418,725 Total assets
$1,898,894,454 $1,394,020,315 LIABILITIES & STOCKHOLDERS'
EQUITY Liabilities Securities sold, not yet purchased, at market
value $321,559,724 $221,420,569 Payable to brokers and dealers
644,999,033 88,480,788 Accrued compensation expense 62,098,705
123,664,383 Accrued expenses and other liabilities 75,343,647
109,252,681 Total liabilities 1,104,001,109 542,818,421
Stockholders' equity Class A common stock 1,381,140 1,339,655
Additional paid-in-capital 463,490,454 427,451,712 Retained
earnings 588,696,262 587,152,786 Treasury stock, at cost
(249,944,718) (147,636,413) Accumulated other comprehensive income,
net of tax 21,672,747 - Unamortized stock-based compensation
(30,402,540) (17,105,846) Total stockholders' equity 794,893,345
851,201,894 Total liabilities and stockholders' equity
$1,898,894,454 $1,394,020,315 KNIGHT CAPITAL GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP DISCLOSURES* Amounts in
millions, except per share data (Unaudited) For the three months
ended June 30, 2005 Equity Asset Corporate Discontinued Total
Markets Management Operations GAAP NET (LOSS) INCOME $(3.7) $(2.0)
$1.5 $- $(4.2) Adjustments, net of tax: Writedown of assets and
lease loss accrual 2.6 - - - 2.6 Regulatory charges and related
matters - 1.5 - - 1.5 Net impact of adjustments 2.6 1.5 - - 4.1 NET
OPERATING (LOSS) INCOME FROM CONTINUING OPERATIONS $(1.1) $(0.5)
$1.5 $- $(0.1) GAAP NET (LOSS) INCOME PER DILUTED SHARE $(0.04)
$(0.02) $0.01 $- $(0.04) Adjustments, net of tax: Writedown of
assets and lease loss accrual 0.03 - - - 0.03 Regulatory charges
and related matters - 0.01 - - 0.01 Net impact of adjustments 0.03
0.01 - - 0.04 NET OPERATING (LOSS) INCOME FROM CONTINUING
OPERATIONS PER DILUTED SHARE $(0.01) $(0.01) $0.01 $- $(0.00) For
the three months ended June 30, 2004 Equity Asset Corporate
Discontinued Total Markets Management Operations GAAP NET (LOSS)
INCOME $(48.6) $1.3 $(4.3) $3.7 $(47.9) Adjustments, net of tax:
Writedown of assets and lease loss accrual 1.5 - - - 1.5 Regulatory
charges and related matters 56.4 - - - 56.4 (Income) from
discontinued operations - - - (3.7) (3.7) Net impact of adjustments
58.0 - - (3.7) 54.2 NET OPERATING INCOME (LOSS)FROM CONTINUING
OPERATIONS $9.4 $1.3 $(4.3) $- $6.4 GAAP NET (LOSS) INCOME PER
DILUTED SHARE $(0.43) $0.01 $(0.04) $0.03 $(0.42) Adjustments, net
of tax: Writedown of assets and lease loss accrual 0.01 - - - 0.01
Regulatory charges and related matters 0.50 - - - 0.50 (Income)
from discontinued operations - - - (0.03) (0.03) Net impact of
adjustments 0.51 - - (0.03) 0.48 NET OPERATING INCOME (LOSS) FROM
CONTINUING OPERATIONS PER DILUTED SHARE $0.08 $0.01 $(0.04) $-
$0.06 * Totals may not add due to rounding. KNIGHT CAPITAL GROUP,
INC. RECONCILIATION OF GAAP TO NON-GAAP DISCLOSURES* Amounts in
millions, except per share data (Unaudited) For the six months
ended June 30, 2005 Equity Asset Corporate Discontinued Total
Markets Management Operations GAAP NET (LOSS) INCOME $(10.3) $0.2
$12.0 $(0.3) $1.5 Adjustments, net of tax: Writedown of assets and
lease loss accrual 2.6 - - - 2.6 Regulatory charges and related
matters - 1.5 - 1.5 Loss from discontinued operations - - - 0.3 0.3
Net impact of adjustments 2.6 1.5 - 0.3 4.4 NET OPERATING (LOSS)
INCOME FROM CONTINUING OPERATIONS $(7.7) $1.7 $12.0 $- $5.9 GAAP
NET (LOSS) INCOME PER DILUTED SHARE $(0.09) $0.00 $0.11 $(0.00)
$0.01 Adjustments, net of tax: Writedown of assets and lease loss
accrual 0.02 - - - 0.02 Regulatory charges and related matters -
0.01 - - 0.01 Loss from discontinued operations - - - 0.00 0.00 Net
impact of adjustments 0.02 0.01 - 0.00 0.04 NET OPERATING (LOSS)
INCOME FROM CONTINUING OPERATIONS PER DILUTED SHARE $(0.07) $0.02
$0.11 $- $0.05 For the six months ended June 30, 2004 Equity Asset
Corporate Discontinued Total Markets Management Operations GAAP NET
(LOSS) INCOME $(24.8) $4.9 $(5.8) $9.6 $(16.0) Adjustments, net of
tax: Writedown of assets and lease loss accrual 1.5 - - - 1.5
Regulatory charges and related matters 56.4 - - - 56.4 (Income)
from discontinued operations - - - (9.6) (9.6) Net impact of
adjustments 58.0 - - (9.6) 48.4 NET OPERATING INCOME (LOSS) FROM
CONTINUING OPERATIONS $33.2 $4.9 $(5.8) $- $32.3 GAAP NET (LOSS)
INCOME PER DILUTED SHARE $(0.22) $0.04 $(0.05) $0.08 $(0.14)
Adjustments, net of tax: Writedown of assets and lease loss accrual
0.01 - - - 0.01 Regulatory charges and related matters 0.50 - - -
0.50 (Income) from discontinued operations - - - (0.08) (0.08) Net
impact of adjustments 0.51 - - (0.08) 0.43 NET OPERATING INCOME
(LOSS) FROM CONTINUING OPERATIONS PER DILUTED SHARE $0.29 $0.04
$(0.05) $- $0.29 * Totals may not add due to rounding. DATASOURCE:
Knight Capital 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 Greta Morley, Vice
President, Marketing Communications & Public Relations,
+1-201-557-6948, , or Molly McDowell, Analyst, Corporate
Communications & Investor Relations, +1-201-356-1723, , all of
Knight Capital Group, Inc. Web site: http://www.knight.com/
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