<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
001-14223
COMMISSION FILE NUMBER
Knight/Trimark Group, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
52-2096335
(I.R.S. Employer
Identification Number)
525 Washington Boulevard, Jersey City, NJ 07310
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (201) 222-9400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days, Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At August 11, 1999 the number of shares outstanding of the registrant's
Class A common stock was 106,095,808 and the number of shares outstanding of
the registrant's Class B common stock was 5,185,396.
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<PAGE>
KNIGHT/TRIMARK GROUP, INC.
FORM 10-Q QUARTERLY REPORT
For the Quarter Ended June 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I FINANCIAL INFORMATION:
<C> <S> <C>
Item 1. Financial Statements........................................... 3
Consolidated Statements of Income.............................. 3
Consolidated Statements of Financial Condition................. 4
Consolidated Statements of Cash Flows.......................... 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 17
PART II OTHER INFORMATION:
Item 1. Legal Proceedings.............................................. 18
Item 2. Changes in Securities and Use of Proceeds...................... 18
Item 3. Defaults Upon Senior Securities................................ 18
Item 4. Submission of Matters to a Vote of Security Holders............ 18
Item 5. Other Information.............................................. 19
Item 6. Exhibits and Reports on Form 8-K............................... 19
</TABLE>
Signatures
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KNIGHT/TRIMARK GROUP, INC.
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------- -------------------------
1999 1998 1999 1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Net trading revenue...... $216,437,894 $80,225,541 $394,988,315 $143,193,040
Commissions and fees..... 4,438,874 90,388 6,966,056 114,455
Interest, net............ 3,170,418 296,659 4,756,951 810,704
------------ ----------- ------------ ------------
Total revenues......... 224,047,186 80,612,588 406,711,322 144,118,199
------------ ----------- ------------ ------------
Expenses
Employee compensation and
benefits................ 70,166,936 23,453,470 127,459,220 39,811,804
Payments for order flow.. 35,354,189 19,489,651 67,782,016 35,746,170
Execution and clearance
fees.................... 19,806,117 10,147,988 37,763,284 20,373,665
Communications and data
processing.............. 4,009,431 2,516,119 7,948,485 4,684,365
Depreciation and
amortization............ 2,182,328 1,346,834 4,133,619 2,639,428
Occupancy and equipment
rentals................. 2,465,916 1,316,568 4,289,805 2,397,464
Professional fees........ 2,161,402 695,794 3,220,229 951,040
Business development..... 1,354,203 627,026 2,014,690 1,012,317
Interest on Preferred
Units................... -- 261,574 -- 678,060
Other.................... 832,212 300,699 1,661,093 583,316
------------ ----------- ------------ ------------
Total expenses......... 138,332,734 60,155,723 256,272,441 108,877,629
------------ ----------- ------------ ------------
Income before income
taxes..................... 85,714,452 20,456,865 150,438,881 35,240,570
Income tax expense......... 35,519,688 -- 62,837,242 --
------------ ----------- ------------ ------------
Net income................. $ 50,194,764 $20,456,865 $ 87,601,639 $ 35,240,570
============ =========== ============ ============
Basic earnings per share... $ 0.45 $ 0.24 $ 0.80 $ 0.41
============ =========== ============ ============
Diluted earnings per
share..................... $ 0.43 $ 0.24 $ 0.77 $ 0.41
============ =========== ============ ============
Pro forma adjustment (Notes
4 and 5):
Income before income
taxes................... $20,456,865 $ 35,240,570
Pro forma income tax
expense................. 8,796,452 15,153,445
----------- ------------
Pro forma net income..... $11,660,413 $ 20,087,125
=========== ============
Pro forma basic earnings
per share............... $ 0.14 $ 0.23
=========== ============
Pro forma diluted
earnings per share...... $ 0.14 $ 0.23
=========== ============
Shares used in basic
earnings per share
calculation............... 110,916,677 85,603,272 109,269,227 85,603,272
============ =========== ============ ============
Shares used in diluted
earnings per share
calculation............... 116,167,843 85,603,272 114,142,368 85,603,272
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
KNIGHT/TRIMARK GROUP, INC.
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents............................ $265,729,845 $117,381,556
Securities owned, at market value.................... 201,768,405 100,476,151
Receivable from clearing brokers..................... 139,802,052 107,503,274
Fixed assets and leasehold improvements, at cost,
less accumulated depreciation....................... 13,732,228 12,014,991
Goodwill, less accumulated amortization.............. 18,406,900 16,036,859
Other assets......................................... 12,170,250 5,447,544
------------ ------------
Total assets................................... $651,609,680 $358,860,375
============ ============
Liabilities and Stockholders' Equity
Liabilities
Securities sold, not yet purchased, at market
value............................................. $219,267,126 $108,909,217
Short term borrowings.............................. -- 10,000,000
Accrued compensation expense....................... 36,583,038 16,529,004
Accrued execution and clearance fees............... 6,731,618 6,898,095
Accrued payments for order flow.................... 8,575,989 8,672,668
Accounts payable, accrued expenses and other
liabilities....................................... 8,281,717 5,445,112
Income taxes payable............................... 3,199,718 2,285,620
------------ ------------
Total liabilities.............................. 282,639,206 158,739,716
------------ ------------
Stockholders' equity
Class A Common Stock, $0.01 par value, 200,000,000
shares authorized; 105,733,808 and 98,124,368
shares issued and outstanding at June 30, 1999 and
December 31, 1998, respectively................... 1,057,338 981,244
Class B Common Stock, $0.01 par value, 20,000,000
shares authorized; 5,185,396 and 7,885,396 shares
issued and outstanding at June 30, 1999 and Decem-
ber 31, 1998, respectively........................ 51,854 78,854
Additional paid-in capital......................... 250,448,962 169,249,880
Retained earnings.................................. 117,412,320 29,810,681
------------ ------------
Total stockholders' equity..................... 368,970,474 200,120,659
------------ ------------
Total liabilities and stockholders' equity..... $651,609,680 $358,860,375
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
KNIGHT/TRIMARK GROUP, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
---------------------------
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net income....................................... $ 87,601,639 $ 35,240,570
Adjustments to reconcile net income to net cash
provided by operating activities................
Noncash items included in net income
Depreciation and amortization.................. 4,133,619 2,639,428
Deferred income taxes.......................... 1,305,166 --
(Increase) in operating assets
Securities owned............................... (101,292,254) (16,363,123)
Receivable from clearing brokers............... (32,298,778) (9,277,306)
Other assets................................... (8,027,870) (1,951,197)
Increase (decrease) in operating liabilities
Securities sold, not yet purchased............. 110,357,909 30,598,202
Accrued compensation expense................... 20,054,034 4,196,361
Accrued execution and clearance fees........... (166,477) (1,232,320)
Accrued payments for order flow................ (96,679) 1,236,969
Accounts payable, accrued expenses and other
liabilities................................... 2,836,605 2,581,156
Interest payable on Preferred Units............ -- (194,650)
Income taxes payable........................... 914,098 --
------------- ------------
Net cash provided by operating activities.... 85,321,012 47,474,090
------------- ------------
Cash flows from investing activities
Payment of contingent consideration.............. (3,943,386) (1,582,167)
Purchases of fixed assets and leasehold
improvements.................................... (4,277,512) (5,138,365)
------------- ------------
Net cash used in investing activities........ (8,220,898) (6,720,532)
------------- ------------
Cash flows from financing activities
Repayment of short-term loan..................... (10,000,000) --
Increase in short-term loan...................... -- 30,000,000
Decrease in liability for capital lease.......... -- (73,594)
Net proceeds from issuance of common stock....... 80,219,537 --
Stock options exercised.......................... 435,000 --
Income tax credit--stock options................. 593,638 --
Redemptions of Manditorily Redeemable Preferred A
Units........................................... -- (12,483,610)
Redemptions of Manditorily Redeemable Preferred B
Units........................................... -- (1,152,900)
Distributions on Common Units.................... -- (64,150,668)
------------- ------------
Net cash provided by (used in) financing
activities.................................. 71,248,175 (47,860,772)
------------- ------------
Increase (decrease) in cash and cash
equivalents..................................... 148,348,289 (7,107,214)
Cash and cash equivalents at beginning of
period.......................................... 117,381,556 13,797,198
------------- ------------
Cash and cash equivalents at end of period....... $ 265,729,845 $ 6,689,984
============= ============
Supplemental disclosure of cash flow information:
Cash paid for interest......................... $ 780,993 $ 893,147
============= ============
Cash paid for income taxes..................... $ 63,031,621 $ --
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
KNIGHT/TRIMARK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. Organization and Description of the Business
Knight/Trimark Group, Inc. ("Knight/Trimark") was organized in April 1998 as
the successor to the business of Roundtable Partners, L.L.C. ("Roundtable")
(hereafter, references to the "Company" refer to Knight/Trimark or Roundtable,
as appropriate) and to own and operate the securities market-making businesses
of its wholly-owned subsidiaries, Knight Securities, Inc. ("Knight") and
Trimark Securities, Inc. ("Trimark"). As part of an internal restructuring for
corporate purposes, in July 1999 Knight Securities, Inc. became Knight
Securities, L.P.
The Company operates in one segment and line of business--equity securities
market-making. Knight operates as a market maker in over-the-counter equity
securities ("OTC securities"), primarily those traded in the Nasdaq stock
market and on the OTC Bulletin Board. Trimark operates as a market maker in
the over-the-counter market for equity securities that are listed on the New
York and American Stock Exchanges ("listed securities"). Knight and Trimark
are registered as broker-dealers with the Securities and Exchange Commission
("SEC") and are members of the National Association of Securities Dealers,
Inc. ("NASD").
The accompanying unaudited consolidated financial statements include the
accounts of the Company, Knight and Trimark and, in the opinion of management,
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods. All
significant intercompany transactions and balances have been eliminated.
Certain footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. The nature of the Company's business is such that
the results of an interim period are not necessarily indicative of the results
for the full year. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's audited financial statements as of December 31, 1998 included in the
Company's Report on Form 10-K as filed with the SEC.
Certain prior period amounts have been reclassified to conform to the
current period presentation. All share and per share amounts have been
adjusted to reflect the two-for-one stock split described in Note 2.
2. Reorganization, Public Stock Offerings and Stock Split
Concurrent with the closing of the initial public offering of the Company's
Common Stock, based on the initial public offering price of $7.25 per share,
all of the member interests of Roundtable were exchanged for 73,324,830 shares
of Class A Common Stock of the Company and 7,885,396 shares of nonvoting Class
B Common Stock of the Company (the "Reorganization").
The initial public offering of 23,000,000 shares of Class A Stock included
20,376,492 newly-issued shares and 2,623,508 shares from a selling
shareholder. Proceeds received by the Company from the initial public
offering, net of the applicable underwriting discounts and offering expenses,
were approximately $136.5 million.
On February 25, 1999 a Registration Statement on Form S-1 (No. 333-71559)
was declared effective by the SEC, pursuant to which 18,000,000 shares of
Class A common stock were offered and sold at a price to the public of $17.50
per share. Of those shares, 4,849,440 were sold by Knight/Trimark, generating
net offering proceeds, after deducting underwriting discounts and commissions
and offering expenses, of approximately $80.2 million. An additional
13,150,560 were sold by selling shareholders, generating gross offering
proceeds to the selling shareholders of approximately $230.1 million. Certain
selling shareholders granted the underwriters a 30-day option to purchase up
to an additional 2,700,000 shares of Class A common stock to cover over-
allotments. That option was exercised in full on March 18, 1999.
6
<PAGE>
KNIGHT/TRIMARK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
(Unaudited)
In April 1999, the Company's Board of Directors approved a two-for-one stock
split of the Company's Class A and Class B Common Stock. Shareholders of
record as of the close of business on April 30, 1999 received, in the form of
a stock dividend, one additional share for each share held by them. On May 14,
1999, the transfer agent distributed the additional shares.
3. Related Party Transactions and Significant Customers
Before the Reorganization and initial public offering, Roundtable was owned
by a consortium of 31 independent securities firms and investors (the "Broker
Dealer Owners"). Under Roundtable's limited liability company agreement, the
Broker Dealer Owners, who were considered affiliated companies, shared in
Roundtable's profits in proportion to their equity interests and the quantity
of order flow they directed to the Company. After the initial public offering,
this profit sharing practice was discontinued and, while some of the Broker
Dealer Owners still own common stock in the Company, these Broker Dealer
Owners do not receive any special inducement to provide the Company with order
flow.
Subsequent to the initial public offering, the Company considers affiliates
to be holders of 5% or more of the Company's outstanding common stock
("Affiliates"). As of June 30, 1999 there were two Broker Dealer Owners who
are considered Affiliates of the Company. As measured in share volume, each
Affiliate represented 12.0% and 12.1%, respectively, of the Company's order
flow for the three months ended June 30, 1999, and 12.2% and 11.5%,
respectively, of the Company's order flow for the six months ended June 30,
1999. One additional customer provided 12.4% and 11.1% of the Company's order
flow for the three and six month periods ended June 30, 1999, respectively.
Included within payments for order flow on the Consolidated Statements of
Income for the three and six month periods ended June 30, 1999 is $12,413,624
and $23,961,219, respectively, related to Affiliates. Additionally, included
within payments for order flow on the Consolidated Statements of Income for
the three and six month periods ended June 30, 1998 is $5,700,077 and
$11,173,593, respectively, related to Affiliates. Included within accrued
payments for order flow on the Consolidated Statement of Financial Condition
as of June 30, 1999 is $2,262,045 related to Affiliates.
Trimark clears its securities transactions through an Affiliate. Knight
clears its securities transactions through an unaffiliated clearing broker.
Included within execution and clearance fees on the Consolidated Statement of
Income for the three and six month periods ended June 30, 1999 is $8,286,541
and $16,885,430, respectively, related to this Affiliate. Additionally,
included within execution and clearance fees on the Consolidated Statement of
Income for the three and six month periods ended June 30, 1998 is $4,870,159
and $10,467,671 related to this Affiliate. Included within accrued execution
and clearance fees on the Consolidated Statement of Financial Condition as of
June 30, 1999 is $2,624,601 related to Affiliates.
4. Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Before the Reorganization, Roundtable was a limited liability company
and was not subject to federal or state income taxes. Subsequent to the
Reorganization, the Company is subject to federal income taxes and state
income taxes in New York, New Jersey and other states.
Pro forma income represents net income adjusted to reflect pro forma income
taxes as if the Company was a C Corporation for the three and six month
periods ended June 30, 1998.
7
<PAGE>
KNIGHT/TRIMARK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
(Unaudited)
5. Earnings per Share
Basic earnings per share has been calculated by dividing net income by the
sum of the weighted average shares of Class A Common Stock and Class B Common
Stock outstanding during each respective period. The diluted earnings per
share calculation includes the effect of dilutive stock options, as calculated
under the treasury stock method. All shares of Class B Common Stock, which are
non-voting, are held by a single shareholder. Except for voting rights, the
Class B Common Stock has identical rights and rewards as the Class A Common
Stock and must be automatically converted to Class A Common Stock in the event
of a sale or a transfer by the current owner.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 1999 June 30, 1998
------------------------ ------------------------
Numerator/
pro forma Denominator/
Numerator/ Denominator/ net pro forma
net income shares income shares
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares and income used in
basic calculations......... $50,194,764 110,916,677 $11,660,413 85,603,272
Effect of dilutive stock
options.................... -- 5,251,166 -- --
----------- ----------- ----------- ----------
Shares and income used in
diluted calculations....... $50,194,764 116,167,843 $11,660,413 85,603,272
=========== =========== =========== ==========
Basic earnings per share.. $ 0.45 $ 0.14
=========== ==========
Diluted earnings per
share.................... $ 0.43 $ 0.14
=========== ==========
<CAPTION>
Six months ended Six months ended
June 30, 1999 June 30, 1998
------------------------ ------------------------
Numerator/
pro forma Denominator/
Numerator/ Denominator/ net pro forma
net income shares income shares
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares and income used in
basic calculations......... $87,601,639 109,269,227 $20,087,125 85,603,272
Effect of dilutive stock
options.................... -- 4,873,141 -- --
----------- ----------- ----------- ----------
Shares and income used in
diluted calculations....... $87,601,639 114,142,368 $20,087,125 85,603,272
=========== =========== =========== ==========
Basic earnings per share.. $ 0.80 $ 0.23
=========== ==========
Diluted earnings per
share.................... $ 0.77 $ 0.23
=========== ==========
</TABLE>
Pro forma shares outstanding for the three and six months periods ended June
30, 1998 have been determined as if the Reorganization described in Note 2
occurred as of January 1, 1998.
6. Net Capital Requirements
As registered broker-dealers and NASD member firms, Knight and Trimark are
subject to the SEC's Uniform Net Capital Rule (the "Rule") which requires the
maintenance of minimum net capital. Knight and Trimark have elected to use the
basic method, permitted by the Rule, which requires that they each maintain
net capital equal to the greater of $1.0 million or 6 2/3% of aggregate
indebtedness, as defined.
At June 30, 1999, Knight had net capital of $138,693,570, which was
$134,608,232 in excess of its required net capital of $4,085,338 and Trimark
had net capital of $34,817,295 which was $33,500,430 in excess of its required
net capital of $1,316,865.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of the results of operations of the Company should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's audited financial statements as of December
31, 1998 included within our report on Form 10-K. This discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including, but not limited
to, those set forth elsewhere in this document.
We are the leading market maker in Nasdaq securities, other OTC equity
securities, and NYSE- and AMEX-listed equity securities in the Third Market.
Through our wholly-owned subsidiary, Knight, we make markets in over 7,100
equity securities in Nasdaq and on the NASD's OTC Bulletin Board. Through our
wholly-owned subsidiary, Trimark, we make markets in all NYSE- and AMEX-listed
equity securities in the Third Market.
Knight commenced Nasdaq and OTC securities market-making operations on July
24, 1995. Based on rankings published by The AutEx Group, a widely recognized
industry reporting service that publishes daily trading volume and market
share statistics reported by broker-dealer market makers, Knight was ranked
first in AutEx's Nasdaq/OTC Securities rankings, with a 17.49% market share
during June 1999. Knight's share volume totaled 17.1 billion and 7.0 billion,
or 80.4% and 73.9% of our total share volume, for the three months ended June
30, 1999, and 1998, respectively. Trimark has held the #1 market share ranking
in trading of NYSE- and AMEX-listed securities in the Third Market for over
three years. Trimark's share volume totaled 4.2 billion and 2.5 billion, or
19.6% and 26.1% of our total share volume for the three months ended June 30,
1999 and 1998, respectively.
The Company has experienced and expects to continue to experience,
significant fluctuations in quarterly operating results due to a variety of
factors, including the value of the Company's securities positions and the
Company's ability to manage the risks attendant thereto, the volume of its
market-making activities, volatility in the securities markets, its ability to
manage personnel, overhead and other expenses, the amount of revenue derived
from limit orders as a percentage of net trading revenues, changes in payments
for order flow, clearing costs, the addition or loss of sales and trading
professionals, regulatory changes, the amount and timing of capital
expenditures, the incurrence of costs associated with acquisitions and general
economic conditions. If demand for the Company's market making services
declines and the Company is unable to adjust its cost structure on a timely
basis, the Company's operating results could be materially and adversely
affected. The Company has experienced, and may experience in the future,
significant seasonality in its business.
Due to all of the foregoing factors, period-to-period comparisons of the
revenues and operating results of the Company are not necessarily meaningful
and such comparisons cannot be relied upon as indicators of future
performance. There also can be no assurance that the Company will be able to
sustain the rates of revenue growth that it has experienced in the past, that
it will be able to improve its operating results or that it will be able to
sustain its profitability on a quarterly basis.
Revenues
Our revenues consist principally of net trading revenue from market-making
activities. To date, we have only traded equity securities, and have never
traded in options, futures, forwards, swaps or other derivative instruments.
Net trading revenue, which represents trading gains net of trading losses, is
primarily affected by changes in trade and share volumes from customers, our
ability to derive trading gains by taking proprietary positions primarily to
facilitate customer transactions, changes in our execution standards and by
regulatory changes and evolving industry customs and practices. Our net
trading revenue per trade for OTC securities has historically exceeded the net
trading revenue per trade for listed securities.
We continue to focus on increasing our sales to institutional customers. OTC
securities transactions with institutional customers are executed as
principal, and all related profits and losses are included within net trading
revenue. Listed securities transactions with institutional customers are
executed on an agency basis, for which
9
<PAGE>
we earn commissions on a per share basis. We also receive fees for providing
certain information to market data providers. Commissions and fees are
primarily affected by changes in our trade and share volumes in listed
securities.
We also earn interest income from our cash and securities positions held at
banks and in trading accounts at clearing brokers, net of transaction-related
interest charged by clearing brokers for facilitating the settlement and
financing of securities sold, not yet purchased, and interest on subordinated
notes and short-term debt. Interest, net is primarily affected by the changes
in cash balances held at banks and clearing brokers, and the level of
securities sold, not yet purchased.
Expenses
Our operating expenses largely consist of employee compensation and
benefits, payments for order flow and execution and clearance fees. A
substantial portion of these expenses is variable in nature. Employee
compensation and benefits expense, which is largely profitability based,
fluctuates, for the most part, based on changes in net trading revenue and our
profitability. Payments for order flow fluctuate based on share volume, the
mix of market orders and limit orders and the mix of orders received from
broker-dealers compared to other institutional customers. Execution and
clearance fees fluctuate primarily based on changes in trade and share volume,
the mix of trades of OTC securities compared to listed securities and the
clearance fees charged by clearing brokers.
Employee compensation and benefits expense primarily consists of salaries
and wages paid to administrative and customer service personnel and
profitability based compensation, which includes compensation and benefits
paid to market-making and sales personnel based on their individual
performance, and incentive compensation paid to all other employees based on
our overall profitability. Profitability based compensation represented 88%
and 76% of total employee compensation and benefits expense for the three
months ended June 30, 1999 and 1998, respectively, and 87% and 75% of total
employee compensation and benefits expense for the six months ended June 30,
1999 and 1998, respectively. We have grown from 398 employees at June 30, 1998
to 552 employees as of June 30, 1999. Approximately 80% of our employees are
directly involved in market-making, sales or customer service activities.
Compensation for employees engaged in market making and sales activities, the
largest component of employee compensation and benefits, is determined
primarily based on a percentage of gross trading profits net of expenses
including related payments for order flow, execution and clearance costs and
overhead allocations. Employee compensation and benefits will, therefore, be
affected by changes in payments for order flow, execution and clearance costs
and the costs we allocate to employees engaged in market making and sales
activities.
Payments for order flow represent customary payments to broker-dealers, in
the normal course of business, for directing their order flow to us. We only
pay broker-dealers for orders which provide us with a profit opportunity. For
example, we make payments on market orders, but do not pay on limit orders.
Execution and clearance fees primarily represent clearance fees paid to
clearing brokers for OTC and listed securities, transaction fees paid to
Nasdaq, and execution fees paid to third parties, primarily for executing
trades in listed securities on the NYSE and AMEX and for executing orders
through electronic communications networks, commonly referred to as ECNs.
Execution and clearance fees are higher for listed securities than for OTC
securities. Due to our significant growth in share and trade volume, we have
been able to negotiate favorable rates and volume discounts from clearing
brokers and providers of execution services. As a result of these lower rates
and discounts and the increase in trade volume of OTC securities as a
percentage of total trade volume, execution and clearance fees per trade have
decreased.
Communications and data processing expense primarily consists of costs for
obtaining stock market data and telecommunications services.
10
<PAGE>
Depreciation and amortization expense results from the depreciation of fixed
assets purchased by us or financed under a capital lease, and the amortization
of goodwill, which includes contingent consideration resulting from the
acquisition of the listed securities market-making businesses of Trimark and
Tradetech Securities, L.P., which we acquired in November 1997.
Occupancy and equipment rentals expense primarily consists of rental
payments on office and equipment leases.
Professional fees primarily consist of fees paid to computer programming and
systems consultants, as well as legal fees and other professional fees.
Business development expense primarily consists of marketing expenses,
including travel and entertainment and promotion and advertising costs.
Interest on Preferred Units represents required interest payments on our
Mandatorily Redeemable Preferred A and B Units at a rate approximating the
Federal Funds rate. All Preferred Units were redeemed during 1998.
Other expenses primarily consist of administrative expenses and other
operating costs incurred in connection with our business growth, as well as
directors fees.
Income Tax
Prior to our initial public offering, we were a limited liability company
and were not subject to federal or state income taxes. Subsequent to our
reorganization from a limited liability company to a corporation, which
occurred immediately before the closing of our initial public offering, we
became subject to federal income taxes and state income taxes in New York, New
Jersey and other states.
Results of Operations
Three Months Ended June 30, 1999 and 1998
Revenues
Net trading revenue increased 169.8% to $216.4 million for the three months
ended June 30, 1999, from $80.2 million for the comparable period in 1998.
This increase was primarily due to higher trading volume and increased average
revenue per trade and per share. Total trade volume increased 137.9% to 21.4
million trades for the three months ended June 30, 1999, from 9.0 million
trades for the comparable period in 1998. Total share volume increased 125.0%
to 21.3 billion shares traded for the three months ended June 30, 1999, from
9.5 billion shares traded for the comparable period in 1998. Average net
revenue per trade increased 13.4% to $10.09 per trade and average net revenue
per share increased 20.0% to $0.0102 per share for the three months ended June
30, 1999.
Commissions and fees increased to $4.4 million for the three months ended
June 30, 1999, from $90,000 for the comparable period in 1998. This increase
is primarily due to higher trade and share volumes from institutional
customers in listed securities and the receipt of fees for providing certain
information to market data providers.
Interest, net increased to $3.2 million for the three months ended June 30,
1999, from $297,000 for the comparable period in 1998. This increase was
primarily due to larger cash balances held at banks and our clearing brokers
as a result of our initial and follow-on stock offerings.
11
<PAGE>
Expenses
Employee compensation and benefits expense increased 199.2% to $70.2 million
for the three months ended June 30, 1999, from $23.5 million for the
comparable period in 1998. As a percentage of net trading revenue, employee
compensation and benefits expense increased to 32.4% for the three months
ended June 30, 1999, from 29.2% for the comparable period in 1998. The
increase on a dollar basis was primarily due to increases in gross trading
profits and growth in the number of employees. The increase as a percentage of
net trading revenue was primarily due to increased profitability, and
decreases in both payments for order flow and execution and clearance costs as
percentages of revenue. Due to increased net trading revenue and
profitability, profitability based compensation increased 245% to $62.0
million for the three months ended June 30, 1999, from $17.9 million for the
comparable period in 1998. The number of employees increased to 552 employees
as of June 30, 1999, from 398 employees as of June 30, 1998.
Payments for order flow increased 81.4% to $35.4 million for the three
months ended June 30, 1999, from $19.5 million for the comparable period in
1998. As a percentage of net trading revenue, payments for order flow
decreased to 16.3% for the three months ended June 30, 1999 from 24.3% for the
comparable period in 1998. The increase in payments for order flow on a dollar
basis was primarily due to a 125.0% increase in shares traded for the three
months ended June 30, 1999 to 21.3 billion shares, up from 9.5 billion for the
comparable period in 1998. The decrease in payments for order flow as a
percentage of net trading revenue resulted from increased profitability on a
per share basis and growth in our institutional business.
Execution and clearance fees increased 95.2% to $19.8 million for the three
months ended June 30, 1999, from $10.1 million for the comparable period in
1998. As a percentage of net trading revenue, execution and clearance fees
decreased to 9.2% for the three months ended June 30, 1999 from 12.6% for the
comparable period in 1998. The increase on a dollar basis was primarily due to
a 137.9% increase in trades for the three months ended June 30, 1999, which
was offset, in part, by a decrease in clearance rates charged by clearing
brokers and volume discounts. The decrease in execution and clearance fees as
a percentage of net trading revenue was due to the decrease in clearance rates
charged by clearing brokers, volume discounts, increased average revenue per
trade and growth in the volume of OTC securities transactions.
Communications and data processing expense increased 59.3% to $4.0 million
for the three months ended June 30, 1999, from $2.5 million for the comparable
period in 1998. This increase was generally attributable to higher trading
volumes and an increase in the number of employees.
Depreciation and amortization expense increased 62.0% to $2.2 million for
the three months ended June 30, 1999, from $1.3 million for the comparable
period in 1998. This increase was primarily due to the purchase of
approximately $3.4 million of additional fixed assets and leasehold
improvements during the three months ended June 30, 1999 and the amortization
of goodwill related to the acquisition of the listed securities market-making
businesses of Trimark and Tradetech.
Occupancy and equipment rentals expense increased 87.3% to $2.5 million for
the three months ended June 30, 1999, from $1.3 million for the comparable
period in 1998. This increase was primarily attributable to additional office
space and increased computer equipment lease expense. We occupied 85,999
square feet of office space at June 30, 1999, up from 75,768 square feet of
office space at June 30, 1998.
Professional fees increased 210.6% to $2.2 million for the three months
ended June 30, 1999, up from $696,000 for the comparable period in 1998. This
increase was primarily due to increased consulting expenses related to our
investments in technology, as well as legal fees and other professional fees.
Business development expense increased 116.0% to $1.4 million for the three
months ended June 30, 1999, from $627,000 for the comparable period in 1998.
This increase was primarily the result of higher travel and entertainment
costs consistent with the growth in our business and our increased focus on
the institutional sales business.
12
<PAGE>
Interest on Preferred Units was zero for the three months ended June 30,
1999, and $262,000 for the comparable period in 1998. This decrease is due to
our redemption of all of the remaining Preferred A and B Units during 1998.
Other expenses increased 176.8% to $832,000 for the three months ended June
30, 1999, from $301,000 for the comparable 1998 period. This was primarily the
result of increased administrative expenses and other operating costs in
connection with our overall business growth.
Income Tax
Our effective tax rate for the three months ended June 30, 1999 and pro
forma effective tax rate for the three months ended June 30, 1998 differ from
the federal statutory rate of 35% due to state income taxes, as well as
nondeductible expenses, including the amortization of goodwill resulting from
the acquisition of Trimark and a portion of business development expenses
Six Months Ended June 30, 1999 and 1998
Revenues
Net trading revenue increased 175.8% to $395.0 million for the six months
ended June 30, 1999, from $143.2 million for the comparable period in 1998.
This increase was primarily due to higher trading volume and increased average
revenue per trade and per share. Total trade volume increased 142.0% to 40.1
million trades for the six months ended June 30, 1999, from 16.6 million
trades for the comparable period in 1998. Total share volume increased 120.7%
to 37.3 billion shares traded for the six months ended June 30, 1999, from
16.9 billion shares traded for the comparable period in 1998. Average net
revenue per trade increased 13.9% to $9.84 per trade and average net revenue
per share increased 24.7% to $0.0106 per share for the six months ended June
30, 1999.
Commissions and fees increased to $7.0 million for the six months ended June
30, 1999, from $114,000 for the comparable period in 1998. This increase is
primarily due to higher trade and share volumes from institutional customers
in listed securities and the receipt of fees for providing certain information
to market data providers.
Interest, net increased to $4.8 million for the six months ended June 30,
1999, from $811,000 for the comparable period in 1998. This increase was
primarily due to larger cash balances held at banks and our clearing brokers
as a result of our initial and follow-on stock offerings, which was offset in
part by increased transaction-related interest expense resulting from a higher
level of securities sold, not yet purchased.
Expenses
Employee compensation and benefits expense increased 220.2% to $127.5
million for the six months ended June 30, 1999, from $39.8 million for the
comparable period in 1998. As a percentage of net trading revenue, employee
compensation and benefits expense increased to 32.3% for the six months ended
June 30, 1999, from 27.8% for the comparable period in 1998. The increase on a
dollar basis was primarily due to increases in gross trading profits and
growth in the number of employees. The increase as a percentage of net trading
revenue was primarily due to increased profitability, and decreases in both
payments for order flow and execution and clearance costs as percentages of
revenue. Due to increased net trading revenue and profitability, profitability
based compensation increased 274% to $111.3 million for the six months ended
June 30, 1999, from $29.7 million for the comparable period in 1998. The
number of employees increased to 552 employees as of June 30, 1999, from 398
employees as of June 30, 1998.
Payments for order flow increased 89.6% to $67.8 million for the six months
ended June 30, 1999, from $35.7 million for the comparable period in 1998. As
a percentage of net trading revenue, payments for order
13
<PAGE>
flow decreased to 17.2% for the six months ended June 30, 1999 from 25.0% for
the comparable period in 1998. The increase in payments for order flow on a
dollar basis was primarily due to a 120.7% increase in shares traded for the
six months ended June 30, 1999 to 37.3 billion shares, up from 16.9 billion
for the comparable period in 1998. The decrease in payments for order flow as
a percentage of net trading revenue resulted from increased profitability on a
per share basis and growth in our institutional business.
Execution and clearance fees increased 85.4% to $37.8 million for the six
months ended June 30, 1999, from $20.4 million for the comparable period in
1998. As a percentage of net trading revenue, execution and clearance fees
decreased to 9.6% for the six months ended June 30, 1999 from 14.2% for the
comparable period in 1998. The increase on a dollar basis was primarily due to
a 142.0% increase in trades for the six months ended June 30, 1999, which was
offset, in part, by a decrease in clearance rates charged by clearing brokers
and volume discounts. The decrease in execution and clearance fees as a
percentage of net trading revenue was due to the decrease in clearance rates
charged by clearing brokers, volume discounts, increased average revenue per
trade and growth in the volume of OTC securities transactions.
Communications and data processing expense increased 69.7% to $7.9 million
for the six months ended June 30, 1999, from $4.7 million for the comparable
period in 1998. This increase was generally attributable to higher trading
volumes and an increase in the number of employees.
Depreciation and amortization expense increased 56.6% to $4.1 million for
the six months ended June 30, 1999, from $2.6 million for the comparable
period in 1998. This increase was primarily due to the purchase of
approximately $4.3 million of additional fixed assets and leasehold
improvements during the six months ended June 30, 1999 and the amortization of
goodwill related to the acquisition of the listed securities market-making
businesses of Trimark and Tradetech.
Occupancy and equipment rentals expense increased 78.9% to $4.3 million for
the six months ended June 30, 1999, from $2.4 million for the comparable
period in 1998. This increase was primarily attributable to additional office
space and increased computer equipment lease expense. We occupied 85,999
square feet of office space at June 30, 1999, up from 75,768 square feet of
office space at June 30, 1998.
Professional fees increased 238.6% to $3.2 million for the six months ended
June 30, 1999, up from $951,000 for the comparable period in 1998. This
increase was primarily due to increased consulting expenses related to our
investments in technology, as well as legal fees and other professional fees.
Business development expense increased 99.0% to $2.0 million for the six
months ended June 30, 1999, from $1.0 million for the comparable period in
1998. This increase was primarily the result of higher travel and
entertainment costs consistent with the growth in our business and our
increased focus on the institutional sales business.
Interest on Preferred Units was zero for the six months ended June 30, 1999,
and $678,000 for the comparable period in 1998. This decrease is due to our
redemption of all of the remaining Preferred A and B Units during 1998.
Other expenses increased 184.8% to $1.7 million for the six months ended
June 30, 1999, from $583,000 for the comparable 1998 period. This was
primarily the result of increased administrative expenses and other operating
costs in connection with our overall business growth.
Income Tax
Our effective tax rate for the six months ended June 30, 1999 and pro forma
effective tax rate for the six months ended June 30, 1998 differ from the
federal statutory rate of 35% due to state income taxes, as well as
nondeductible expenses, including the amortization of goodwill resulting from
the acquisition of Trimark and a portion of business development expenses
14
<PAGE>
Liquidity and Capital Resources
Historically, we have financed our business primarily through cash generated
by operations, as well as the proceeds from our stock offerings, the private
placement of preferred and common units and borrowings under subordinated
notes. As of June 30, 1999, we had $651.6 million in assets, 93% of which
consisted of cash or assets readily convertible into cash, principally
receivables from clearing brokers and securities owned. Receivables from
clearing brokers include interest bearing cash balances held with clearing
brokers, net of amounts related to securities transactions that have not yet
reached their contracted settlement date, which is generally within three
business days of the trade date. Securities owned principally consist of
equity securities which trade in Nasdaq and on the NYSE and AMEX markets.
Net income plus depreciation and amortization was $52.4 million and $13.0
million during the three months ended June 30, 1999 and 1998, respectively.
Depreciation and amortization expense, which related to fixed assets and
goodwill, was $2.2 million and $1.3 million during the three months ended June
30, 1999 and 1998, respectively. Capital expenditures were $3.4 million and
$3.5 million for the three months ended June 30, 1999 and 1998, respectively,
primarily related to the purchase of data processing and communications
equipment, as well as leasehold improvements and additional office facilities
to support our growth. Additionally, we made cash payments of $2.3 million for
the three months ended June 30, 1999 in connection with our acquisitions of
the listed securities market-making businesses of Trimark in 1995 and
Tradetech in 1997. We anticipate that we will meet our 1999 capital
expenditure needs out of operating cash flows.
As registered broker-dealers and market makers, Knight and Trimark are
subject to regulatory requirements intended to ensure the general financial
soundness and liquidity of broker-dealers and requiring the maintenance of
minimum levels of net capital, as defined in SEC Rule 15c3-1 ($4.1 million and
$1.3 million, respectively as of June 30, 1999). These regulations also
prohibit a broker-dealer from repaying subordinated borrowings, paying cash
dividends, making loans to its parent, affiliates or employees, or otherwise
entering into transactions which would result in a reduction of its total net
capital to less than 120.0% of its required minimum capital. Moreover, broker-
dealers, including Knight and Trimark, are required to notify the SEC prior to
repaying subordinated borrowings, paying dividends and making loans to its
parent, affiliates or employees, or otherwise entering into transactions,
which, if executed, would result in a reduction of 30.0% or more of their
excess net capital (net capital less minimum requirement). The SEC has the
ability to prohibit or restrict such transactions if the result is detrimental
to the financial integrity of the broker-dealer. At June 30, 1999, Knight had
net capital of $138.7 million, which was $134.6 million in excess of its
required net capital of $4.1 million and Trimark had net capital of $34.8
million, which was $33.5 million in excess of its required net capital of $1.3
million.
PaineWebber Capital Inc., an affiliate of PaineWebber Incorporated, loaned
$30.0 million to Roundtable under a loan agreement dated as of June 19, 1998.
Roundtable used the proceeds from this loan to make distributions of
undistributed profits to the members of Roundtable before our reorganization
from a limited liability company to a Delaware corporation immediately before
our initial public offering. In connection with the dissolution of Roundtable,
we assumed all of Roundtable's obligations under the loan. We subsequently
repaid the entire loan from our operating cash flows, making principal pre-
payments of $5.0 million, $9.0 million, $6.0 million and $10.0 million on
September 15, 1998, October 20, 1998, December 15, 1998 and January 19, 1999,
respectively.
We currently anticipate that available cash resources and credit facilities
will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next 12 months.
In April 1999, the Company's Board of Directors approved a two-for-one stock
split of the Company's Class A and Class B Common Stock. Shareholders of
record as of the close of business on April 30, 1999 received, in the form of
a stock dividend, one additional share for each share held by them. On May 14,
1999, the transfer agent distributed the additional shares.
15
<PAGE>
Recent Developments
On October 8, 1998, our Board of Directors approved a program to repurchase,
over a period of up to eighteen months, up to 3 million shares of our
outstanding Class A common stock up to a total aggregate amount not to exceed
$20 million. On July 21, 1999, our Board of Directors cancelled the repurchase
program. We did not repurchase any shares under this program.
On July 28, 1999, the Company purchased an 18.92% interest in EASDAQ (the
European Association of Securities Dealers Automated Quotations) for
approximately $8.2 million. EASDAQ is a pan-European stock market for
international growth and technology companies.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These date
code fields will need to accept four digit entries to distinguish 21st century
dates from 20th century dates. As a result, computer systems and/or software
used by many companies and governmental agencies may need to be upgraded to
comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
State of Readiness. We have made an assessment of the Year 2000 readiness of
our trading-related, communications and data processing systems. Our readiness
plan consists of: (1) quality assurance testing of our main trading-related
systems including all customer interfaces and links to exchanges and
utilities; (2) contacting third-party vendors and licensors of material
hardware, software and services that relate directly and indirectly to the
main trading systems; (3) contacting vendors of critical non-trading related
communications and data processing systems; (4) contacting our clearing
brokers; (5) assessment of repair or replacement requirements; (6) repair or
replacement; (7) implementation; and (8) creation of contingency plans for
possible Year 2000 failures. Additionally, we participated in the Securities
Industry Association "streetwide" testing in March 1999. We believe that our
main trading-related systems are currently Year 2000 compliant. We have
required vendors of material hardware and software components of our
information technology systems to provide assurances of their Year 2000
compliance. We have recently received certification from all mission-critical
vendors of information equipment. We have also completed testing of all
internal trading systems and the majority of our trading interfaces, and
expect to complete testing of all trading interfaces by the end of the third
quarter of 1999.
Costs. To date, we have incurred approximately $475,000 in costs in
connection with identifying and evaluating Year 2000 compliance issues. Most
of our expenses have related to, and are expected to continue to relate to,
the operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. At this time, we estimate
that the total cost of the Year 2000 project to be approximately $550,000.
Risks. We are not currently aware of any Year 2000 compliance problems
relating to our main trading-related, communications or data processing
systems that would have a material adverse effect on our business, financial
condition and operating results, without taking into account our efforts to
avoid or fix such problems. We cannot assure that we will not discover Year
2000 compliance problems that will require substantial revisions. In addition,
we cannot assure you that third-party software, hardware or services
incorporated into our systems will not need to be revised or replaced, all of
which could be time consuming and expensive. If we fail to fix our trading-
related, communications or data processing systems or to fix or replace third-
party software, hardware or services on a timely basis our business, financial
condition and operating results could be materially adversely affected.
Moreover, the failure to adequately address Year 2000 compliance issues in our
main trading-related, communications or data processing systems could result
in litigation, which could be costly and time-consuming to defend.
In addition, we cannot assure you that customers, governmental agencies,
utility companies, securities exchanges, Internet access companies, third-
party service providers, including our clearing brokers, and others
16
<PAGE>
outside our control will be Year 2000 compliant. The failure by these entities
to be Year 2000 compliant could result in a systemic failure beyond our
control, such as a prolonged Internet, telecommunications or electrical
failure, which could also prevent us from delivering our services to our
customers and could have a material adverse effect on our business, results of
operations and financial condition.
Contingency Plan. As discussed above, we are engaged in an ongoing Year 2000
assessment and are in the process of finalizing a contingency plan. The
results of our Securities Industry Association testing and the responses
received from third-party vendors, service providers and customers will be
taken into account in determining the nature and extent of any contingency
plans.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our market-making and trading activities expose our capital to significant
risks. These risks include, but are not limited to, absolute and relative
price movements, price volatility or changes in liquidity, over which we have
virtually no control.
We employ an automated proprietary trading and risk management system which
provides real time, on-line risk management and inventory control. We monitor
our risks by a constant review of trading positions. For each trader, we have
established a system whereby any trades that exceed pre-determined limits are
monitored by senior management as are individual and aggregate dollar and
share position totals and real-time profits and losses. The management of
trading positions is enhanced by review of mark-to-market valuations and/or
position summaries on a daily basis.
In the normal course of our market-making business, we maintain inventories
of exchange-listed and OTC securities. The fair value of these securities at
June 30, 1999 was $201.8 million in long positions and $219.3 million in short
positions. The potential change in fair value, using a hypothetical 10.0%
decline in prices, is estimated to be a $1.7 million gain as of June 30, 1999
due to the offset of losses in long positions with gains in short positions.
For working capital purposes, we invest in money market funds or maintain
interest bearing balances in our trading accounts with clearing brokers, which
are classified as cash equivalents and receivable from clearing brokers,
respectively, in the Consolidated Statements of Financial Condition. These
amounts do not have maturity dates or present a material market risk, as the
balances are short-term in nature and subject to daily repricing. Since its
inception, neither Knight/Trimark nor any of its subsidiaries has traded or
otherwise transacted in derivatives.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any legal proceedings the adverse outcome of
which, individually or in the aggregate, could have a material adverse effect
on our business, financial condition or operating results. We and certain of
our officers and employees have been subject to legal proceedings in the past
and may be subject to legal proceedings in the future.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 19, 1999 for the
purposes of electing its Board of Directors and ratifying the appointment of
its independent auditors. The Board of Directors consists of a total of
fifteen persons who are elected by the holders of the Company's Class A Common
Stock. The fifteen persons were nominated by the Board of Directors to serve
as directors for terms of one year. The following sets forth the results of
the election of Directors:
DIRECTORS
<TABLE>
<CAPTION>
For % Withheld %
Name of Nominee ---------- ----- -------- ----
<S> <C> <C> <C> <C>
Steven L. Steinman........................ 43,472,718 99.58% 182,746 0.42%
Kenneth D. Pasternak...................... 43,473,168 99.58% 182,296 0.42%
Walter F. Raquet.......................... 43,473,418 99.58% 182,046 0.42%
Robert I. Turner.......................... 43,473,435 99.58% 182,029 0.42%
Robert M. Lazarowitz...................... 43,473,218 99.58% 182,246 0.42%
Anthony M. Sanfilippo..................... 43,473,468 99.58% 181,996 0.42%
Martin Averbuch........................... 43,473,243 99.58% 182,221 0.42%
Charles V. Doherty........................ 43,553,718 99.77% 101,746 0.23%
Gene L. Finn.............................. 43,553,515 99.77% 101,949 0.23%
Gary R. Griffith.......................... 43,554,218 99.77% 101,246 0.23%
Bruce R. McMaken.......................... 43,467,556 99.57% 187,908 0.43%
J. Joe Ricketts........................... 43,471,828 99.58% 183,636 0.42%
Rodger O. Riney........................... 43,474,018 99.58% 181,446 0.42%
V. Eric Roach............................. 43,467,567 99.57% 187,897 0.43%
Charles A. Zabatta........................ 43,553,443 99.77% 102,021 0.23%
</TABLE>
No proxies were solicited from the holders of the Class B Common Stock since
such shares are not publicly traded and do not have voting rights. There was
no solicitation in opposition to the nominees proposed to be elected by the
holders of the Class A Common Stock in the Proxy Statement.
The ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors for the Company for the fiscal year ending December 31,
1999 was approved by the Shareholders with 43,631,034 votes FOR (99.95%),
12,015 votes AGAINST, and 12,415 votes ABSTAINED OR BROKER NON-VOTES.
18
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial Data Schedule
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto until duly authorized.
Knight/Trimark Group, Inc.
/s/ Robert I. Turner
-------------------------------------
By: Robert I. Turner
Title: Director, Treasurer,
Executive Vice President, and
Chief Financial Officer
(principal financial and
accounting officer)
Date: August 11, 1999
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED BALANCE SHEET OF THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 265,730
<RECEIVABLES> 139,802
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 201,768
<PP&E> 13,732
<TOTAL-ASSETS> 651,610
<SHORT-TERM> 0
<PAYABLES> 63,373
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 219,267
<LONG-TERM> 0
0
0
<COMMON> 1,109
<OTHER-SE> 367,861
<TOTAL-LIABILITY-AND-EQUITY> 651,610
<TRADING-REVENUE> 394,988
<INTEREST-DIVIDENDS> 4,757
<COMMISSIONS> 6,966
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 127,459
<INCOME-PRETAX> 150,439
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,602
<EPS-BASIC> .80
<EPS-DILUTED> .77
</TABLE>
