Instinet Group Incorporated (Nasdaq: INGP) today announced net
income of $84 million or $0.25 per diluted share for the third
quarter of 2005 compared to net income of $11 million or $0.03 per
diluted share for the third quarter of 2004 and net income of $8
million or $0.02 per diluted share for the second quarter of 2005.
Excluding the discontinued operations of Lynch Jones & Ryan
("LJR"), Instinet Group incurred a net loss of $5 million or
$(0.02) per diluted share for the third quarter of 2005 compared to
net income of $8 million or $0.02 per diluted share for the third
quarter of 2004 and net income of $7 million or $0.02 per diluted
share for the second quarter of 2005. Discontinued operations for
the third quarter of 2005 included an after-tax gain on the sale of
LJR of $90 million. The third quarter 2005 results included $20
million in charges related to facility and asset write-offs, $9
million in severance charges and $6 million in merger related
advisory fees, partially offset by $9 million in net investment
gains. Excluding these items and the related tax effects, pro forma
net income from continuing operations for the third quarter of 2005
was $11 million, or $0.03 per diluted share compared to pro forma
net income from continuing operations of $5 million or $0.02 per
diluted share for the third quarter of 2004 and pro forma net
income from continuing operations of $6 million, or $0.02 per
diluted share for the second quarter of 2005.(1) Financial
Performance(2) Instinet Group Revenues Total consolidated revenues
for Instinet Group, net of interest, were $254 million for the
third quarter of 2005, up 2% from the third quarter of 2004 and
down 2% from the second quarter of 2005. Expenses Total expenses
for the third quarter of 2005 were $269 million, up 12% from $240
million in the third quarter of 2004 and up 9% from $246 million in
the second quarter of 2005. The third quarters of 2005 and 2004 and
second quarter of 2005 included net investment gains of $9 million,
$4 million and $25 million, respectively. Excluding these gains,
total expenses were $278 million in the third quarter of 2005, up
14% from $244 million in the third quarter of 2004 and up 3% from
$271 million in the second quarter of 2005. Cost of revenues was
$154 million for the third quarter of 2005, down 4% from the second
quarter of 2005 primarily due to lower transaction volumes. Direct
expenses were $124 million for the third quarter of 2005, up 12%
from the second quarter of 2005. -- Compensation and benefits
expense was $57 million for the third quarter of 2005, down 6% from
the previous quarter primarily due to lower severance charges
partially offset by higher variable compensation. The third quarter
of 2005 included a $9 million severance charge while the second
quarter of 2005 included $16 million in severance expense. These
severance charges are part of our ongoing efforts to streamline the
institutional broker business. These cost reductions are not
related to the pending transaction with The Nasdaq Stock Market,
Inc. ("NASDAQ"). -- Depreciation and amortization expense was $14
million, up 34% from the previous quarter primarily due to $5
million of asset write-offs associated with facility consolidation
in the U.S. -- Occupancy expense was $23 million for the third
quarter of 2005, up $13 million from the previous quarter due to
$15 million in facility write-offs associated with the
consolidation of space in the U.S. and the move to new space in
London. At September 30, 2005, Instinet Group had net cash (cash
and cash equivalents and securities owned less short-term
borrowings) of approximately $938 million, up $2 million from $936
million at December 31, 2004. The increase in cash was primarily
due to proceeds received from the sale of LJR partially offset by a
special dividend paid to shareholders, firm cash used in customer
settlement activities and seasonal payments related to incentive
compensation. At September 30, 2005, total assets were
approximately $1.8 billion and shareholders' equity was
approximately $1.1 billion. There were approximately 341 million
shares of common stock outstanding as of September 30, 2005. On
September 30, 2005, Instinet Group's total headcount was 785
employees compared to 938 on June 30, 2005. Headcount at September
30, 2005 included 614 employees from Instinet, 82 employees from
INET and 89 employees from Instinet Group. Business Segments(3)
Instinet, The Institutional Broker -- Instinet reported a net loss
from continuing operations before income taxes of $28 million for
the third quarter of 2005, 32% lower than the second quarter of
2005. -- Total revenues, net of interest, were $142 million for the
third quarter of 2005, 2% lower than the second quarter of 2005,
primarily due to lower U.S. revenues partially offset by higher
revenues from our international business. -- Instinet's customers
traded an average of 99 million U.S. shares a day in the third
quarter of 2005, up 6% from 93 million shares a day during the
second quarter of 2005. Average daily consideration in non-U.S.
equities for the third quarter of 2005 was $1,011 million, a 11%
increase from the second quarter of 2005. -- Gross margin of $71
million for the third quarter of 2005 was level with the second
quarter of 2005. -- Direct expenses of $99 million for the third
quarter of 2005 were up 8% from the second quarter of 2005. INET,
The electronic marketplace -- INET reported net income before
income taxes of $4 million for the third quarter of 2005, down 54%
from $10 million in the second quarter of 2005. -- Total revenues,
net of interest, were $116 million for the third quarter of 2005,
2% lower than the previous quarter primarily due to lower U.S.
equity market volumes in the third quarter of 2005. -- INET
reported NASDAQ-listed average matched equity share volume of 416
million shares per day in the third quarter of 2005, down 8% from
the previous quarter. INET's share of the total market in
NASDAQ-listed equity trading was 25.8% in the third quarter of
2005, down from 26.0% in the previous quarter. -- INET reported
U.S. exchange-listed average matched equity share volume of 100
million shares per day in the third quarter of 2005, up from 85
million in the previous quarter. INET's share of the total market
in U.S. exchange-listed equity trading was 4.5% in the third
quarter of 2005, up from 3.9% in the previous quarter. -- Cost of
revenues as a percentage of total transaction fees was 80% in the
third quarter of 2005 compared to 79% in the second quarter of
2005. -- Gross margin was $24 million for the third quarter of
2005, 3% lower than the previous quarter. -- Direct expenses of $20
million for the third quarter of 2005 were up 29% from the second
quarter of 2005. Company Announcements and Updates Instinet Group
announced on April 22, 2005 that it has entered into a definitive
agreement pursuant to which NASDAQ will acquire Instinet Group. --
NASDAQ will acquire all outstanding shares of Instinet Group for an
aggregate purchase price of approximately $1.88 billion in cash, or
$5.10 per share (on a fully diluted basis) (reflecting a reduction
of the purchase price for the special cash dividend) subject to
certain adjustments. The $1.88 billion included proceeds from a
separate sale of Lynch Jones and Ryan to The Bank of New York for
$174 million. Instinet Group paid a special cash dividend of $0.32
per common share to Instinet Group stockholders on August 15, 2005,
based upon the net after-tax proceeds of the sale of Lynch Jones
and Ryan. -- The merger agreement was adopted on September 21, 2005
by a majority of Instinet Group shareholders. Instinet Group
expects that the merger will be completed during the fourth quarter
of 2005, at which time each shareholder will have the right to
receive approximately $5.10 per share (on a fully diluted basis)
(reflecting a reduction of the purchase price for the special cash
dividend) subject to certain adjustments. Completion of the
transaction is still subject to customary conditions, including
regulatory approvals. -- On June 17, 2005 the Department of Justice
("DOJ") issued a Request for Additional Information and Documentary
Materials (a "second request") to Instinet Group and NASDAQ in
connection with the DOJ's investigation under the Hart-Scott Rodino
Antitrust Improvements Act of the pending acquisition of Instinet
Group by NASDAQ. Based on discussions with the DOJ staff
responsible for reviewing the NASDAQ/Instinet transaction, we
understand that the staff has forwarded its recommendation to
senior DOJ officials and that we anticipate a formal decision from
the DOJ soon. -- In April and May 2005, four purported class action
lawsuits were filed in the Court of Chancery in the State of
Delaware against Instinet Group, each of our directors and Reuters
alleging, among other things, that defendants breached their
fiduciary duties as to our public stockholders in connection with
the proposed merger by approving the transaction at an allegedly
unfair and inadequate price. On June 22, 2005, plaintiffs filed a
consolidated amended complaint consolidating three of the lawsuits
while voluntarily dismissing the fourth lawsuit. The amended
complaint seeks, among other things, class action status, an
injunction against consummation of the transaction, invalidation of
certain provisions of the Merger Agreement, damages in an
unspecified amount, rescission in the event the transaction is
consummated and attorney's fees. On September 9, 2005, the parties
entered into a proposed settlement of the action pursuant to a
Stipulation and Agreement of Compromise, Settlement and Release.
Pursuant to the proposed settlement: (i) Instinet revised the
definitive proxy statement to include certain disclosures that have
been agreed upon and reviewed by plaintiffs; (ii) Nasdaq and
Instinet agreed to reduce by 15%, from $66,500,000 to $56,525,000,
the break-up fee that Instinet would pay to Nasdaq under certain
conditions pursuant to Section 8.6(a) of the merger agreement; and
(iii) Nasdaq agreed to waive, with respect to members of the
purported plaintiff class only, the provisions of the merger
agreement pursuant to which the aggregate merger consideration was
to have been reduced by up to $2.5 million based on the total
amount of certain of our transaction liabilities, the net effect of
which is an increase of approximately $0.007 per share (or
approximately $1.0 million in the aggregate) in the merger
consideration that will be received by Instinet stockholders other
than the defendants. On September 16, 2005, Instinet mailed a
notice of settlement to its stockholders. On October 25, 2005, the
Delaware Court of Chancery certified the class of Instinet Group
shareholders and approved the proposed settlement as fair and
reasonable. Separately, on November 30, 2005, the Court will hold a
hearing to consider plaintiffs' counsel's application for an award
of attorneys' fees and reimbursement of expenses. The settlement is
still subject to the entry of a final and non-appealable judgment
dismissing the consolidated action with prejudice and the delivery
of appropriate releases. Webcast Instinet Group will webcast a
conference call to discuss its third quarter results at 10:00 a.m.
New York time on November 2, 2005 at
http://www.investor.instinetgroup.com. A replay will be available
at the same address following the call. About Instinet Group
Instinet Group, through affiliates, is the largest global
electronic agency securities broker and has been providing
investors with electronic trading solutions and execution services
for more than 30 years. We operate our two major businesses through
Instinet, LLC, The Institutional Broker, and Inet ATS, Inc., The
electronic marketplace. -- Instinet, The Institutional Broker,
gives its customers the opportunity to use its sales-trading
expertise and advanced technology tools to interact with global
securities markets, improve trading performance and lower overall
transaction costs. Through Instinet's electronic platforms,
customers can access other U.S. trading venues, including NASDAQ
and the NYSE, and almost 30 securities markets throughout the
world. Instinet acts solely as an agent for its customers,
including institutional investors, such as mutual funds, pension
funds, insurance companies and hedge funds. -- INET, The electronic
marketplace, represents the consolidation of the order flow of the
former Instinet ECN and former Island ECN, providing its U.S.
broker-dealer customers one of the largest liquidity pools in
NASDAQ-listed securities. This news release may be deemed to
include forward-looking statements relating to Instinet Group.
Certain important factors that could cause actual results to differ
materially from those disclosed in such forward-looking statements
are included in Instinet Group's Annual Report on Form 10-K for the
fiscal year ended December 31, 2004, and other documents filed with
the SEC and available on the Company's website at
www.investor.instinetgroup.com. (C)2005 Instinet Group Incorporated
and its affiliated companies. All rights reserved. INSTINET and
INET are service marks in the United States. Instinet, LLC, member
NASD/SIPC, branded as Instinet, The Institutional Broker, Inet ATS,
Inc., member NASD/NSX/SIPC, branded as INET, The electronic
marketplace and Bridge Trading Company, member NASD/SIPC are
subsidiaries of Instinet Group Incorporated which is a member of
the Reuters family of companies. -0- *T (1) The comparative
quarters exclude asset write-offs, advisory fees, severance expense
and investment gains. See table titled "Reconciliation of Pro Forma
Operating Results for 3Q05" on our website at
www.investor.instinetgroup.com under the heading "Earnings Releases
- Financial Tables." (2) All financial information disclosed in
this section of the release excludes the discontinued operations of
LJR unless otherwise noted. (3) See also "Earnings Releases -
Financial Tables" on our website at www.investor.instinetgroup.com.
Instinet Group Incorporated Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited) Three Months
Ended Nine Months Ended -----------------------------
------------------- Sep 30, Jun 30, Sep 30, Sep 30, Sep 30, 2005
2005 2004 2005 2004 --------- --------- -------- --------- --------
Revenue Transaction fees $246,449 $252,960 $245,696 $771,000
$828,385 Interest income 9,414 7,073 4,061 22,522 12,923 Interest
expense (1,449) (739) (743) (3,005) (2,565) -------- --------
-------- -------- -------- Interest income, net 7,965 6,334 3,318
19,517 10,358 -------- -------- -------- -------- -------- Total
revenues, net 254,414 259,294 249,014 790,517 838,743 --------
-------- -------- -------- -------- Cost of Revenues Soft dollar
33,416 36,260 36,943 110,129 128,664 Broker-dealer rebates 63,811
67,992 59,859 204,823 190,394 Brokerage, clearing and exchange fees
56,467 56,141 47,078 165,295 159,294 -------- -------- --------
-------- -------- Total cost of revenues 153,694 160,393 143,880
480,247 478,352 -------- -------- -------- -------- -------- Gross
margin 100,720 98,901 105,134 310,270 360,391 -------- --------
-------- -------- -------- Direct Expenses Compensation and
benefits 57,390 61,047 43,467 167,313 153,320 Communications and
equipment 13,655 14,092 18,775 41,015 57,564 Depreciation and
amortization 13,886 10,382 13,363 34,396 45,139 Occupancy 22,804
9,769 9,351 42,728 28,197 Professional fees 11,160 10,815 7,410
29,087 20,568 Marketing and business development 1,111 1,559 2,725
3,781 10,655 Other 4,110 2,768 4,802 12,476 9,993 -------- --------
-------- -------- -------- Total direct expenses 124,116 110,432
99,893 330,796 325,436 -------- -------- -------- -------- --------
Contractual settlement - - - - (7,250) Investments (8,768) (24,690)
(4,031) (36,373) (8,705) Insurance recovery - - - - (5,116)
-------- -------- -------- -------- -------- Total expenses 269,042
246,135 239,742 774,670 782,717 -------- -------- -------- --------
-------- Income (loss) from continuing operations before income
taxes (14,628) 13,159 9,272 15,847 56,026 Income tax expense
(benefit) (9,325) 6,410 1,440 2,975 20,961 -------- --------
-------- -------- -------- Net income (loss) from continuing
operations (5,303) 6,749 7,832 12,872 35,065 Discontinued
operations, net of tax 89,591 1,635 2,784 93,702 9,465 --------
-------- -------- -------- -------- Net income $ 84,288 $ 8,384 $
10,616 $106,574 $ 44,530 ======== ======== ======== ========
======== BASIC AND DILUTED EARNINGS PER SHARE Income (loss) from
continuing operations $ (0.02) $ 0.02 $ 0.02 $ 0.04 $ 0.10
Discontinued operations, net of tax 0.27 - 0.01 0.27 0.03 --------
-------- -------- -------- -------- Net income $ 0.25 $ 0.02 $ 0.03
$ 0.31 $ 0.13 ======== ======== ======== ======== ======== Weighted
average shares outstanding - basic 340,474 339,765 337,327 339,513
336,127 Weighted average shares outstanding - diluted 341,876
341,505 339,226 341,044 338,111 Instinet Group Incorporated
Operating Data (Unaudited) Three Months Ended
----------------------------- Sep 30, Jun 30, Mar 31, 2005 2005
2005 -------- --------- --------- U.S. Market ----------- Trade
Days 64 64 61 Average daily NASDAQ-listed equity share volume
(millions) 1,615 1,746 1,981 Average daily U.S. exchange-listed
equity share volume (millions) 2,217 2,193 2,252 -------- ---------
--------- Average daily U.S. equity share volume (millions) 3,832
3,939 4,233 Total U.S. equity share volume (millions) 245,255
252,113 258,190 Instinet, The Institutional Broker
---------------------------------- A. U.S. Equities (1) Our total
average daily volume (million shares) 99 93 111 Our share of total
market 2.6% 2.4% 2.6% Our average daily volume (million shares) -
Institutional and Crossing 58 61 77 Average amount charged to
client per share (cents per share) (2) - Institutional and Crossing
1.34 1.38 1.34 Our average daily volume (million shares) -
Institutional Correspondents 41 32 34 Average amount charged to
client per share (cents per share) (2) - Institutional
Correspondents 0.04 0.05 0.05 B. Non-US Equities (3) Our average
daily consideration (millions) $ 1,011 $ 907 $ 844 Average basis
points charged to client per consideration traded 4.5 4.5 5.0 INET,
The electronic marketplace -------------------------------- A. Our
Matched Average Daily Volume (4) Our NASDAQ-listed equity share
volume (million shares) 416 453 521 Our share of total market 25.8%
26.0% 26.3% Our U.S. exchange-listed equity share volume (million
shares) 100 85 70 Our share of total market 4.5% 3.9% 3.1% Our
total U.S. equity share volume (million shares) 516 538 591 Our
share of total market 13.5% 13.6% 14.0% B. Our Routed Average Daily
Volume (million shares) (5) 202 180 143 Headcount (6) 785 938 1,029
------------- Three Months Ended
--------------------------------------- Dec 31, Sep 30, Jun 30, Mar
31, 2004 2004 2004 2004 -------- -------- -------- -------- U.S.
Market ----------- Trade Days 64 64 62 62 Average daily
NASDAQ-listed equity share volume (millions) 1,865 1,542 1,735
2,030 Average daily U.S. exchange- listed equity share volume
(millions) 2,119 1,853 2,072 2,255 -------- -------- --------
-------- Average daily U.S. equity share volume (millions) 3,984
3,395 3,807 4,285 Total U.S. equity share volume (millions) 254,969
217,305 236,023 265,685 Instinet, The Institutional Broker
---------------------------------- A. U.S. Equities (1) Our total
average daily volume (million shares) 106 92 101 111 Our share of
total market 2.7% 2.7% 2.7% 2.6% Our average daily volume (million
shares) - Institutional and Crossing 77 67 77 89 Average amount
charged to client per share (cents per share) (2) - Institutional
and Crossing 1.40 1.52 1.49 1.46 Our average daily volume (million
shares) - Institutional Correspondents 29 25 24 22 Average amount
charged to client per share (cents per share) (2) - Institutional
Correspondents 0.06 0.06 0.08 0.11 B. Non-US Equities (3) Our
average daily consideration (millions) $ 742 $ 678 $ 901 $ 932
Average basis points charged to client per consideration traded 5.3
5.4 5.2 5.3 INET, The electronic marketplace
-------------------------------- A. Our Matched Average Daily
Volume (4) Our NASDAQ-listed equity share volume (million shares)
459 401 433 505 Our share of total market 24.6% 26.0% 25.0% 24.9%
Our U.S. exchange-listed equity share volume (million shares) 73 72
71 64 Our share of total market 3.4% 3.9% 3.4% 2.8% Our total U.S.
equity share volume (million shares) 532 473 504 569 Our share of
total market 13.4% 13.9% 13.2% 13.3% B. Our Routed Average Daily
Volume (million shares) (5) 119 115 115 91 Headcount (6) 1,049
1,128 1,138 1,176 ------------- (1) Instinet average daily U.S.
equity share volume is counted as the sum of our customers' share
volume per side related to a trade. For example a matched trade
where one customer buys 100 shares and the other sells 100 shares
is counted as 200 shares; if the buy or sell order were routed out,
we would count 100 shares on the customer side. Institutional and
Crossing comprise certain U.S. buy-side clients, hedge funds and
other clients. Crossing includes order flow from both buy-side and
sell-side clients who execute through our after hours cross.
Institutional Correspondents represent our direct market access
U.S. buy-side clients. All periods presented have been restated to
exclude Lynch, Jones & Ryan which is a discontinued operation.
(2) The amount charged per share is the average cents per share
charged net of soft dollar and commission recapture expenses. (3)
Commissions on international transactions are presented as basis
points (one hundred of one percent) of the total value
(consideration) of the transaction. (4) In computing our U.S. share
volume for INET in either NASDAQ-listed or U.S. exchange-listed
equities, we count the customer share volume on one side of the
matched trade. Matched volume reflects transactions where the buyer
and seller are matched on INET. For example, where a customer sells
100 shares to another customer as a matched trade, we count 100
shares. INET share volume includes transactions sent to it by
Instinet, the Institutional Broker and prior quarters have been
recalculated to include this volume. In computing our total market
share, our numerator share volume is counted as described above for
each market where we disclose a market share statistic. The
denominator for NASDAQ market share is total NASDAQ share volume as
published by NASDAQ. For U.S. exchange-listed market share, the
denominator is the total share volume of U.S. listed markets
obtained from a widely recognized market data vendor. Listed
markets include the New York Stock Exchange, American Stock
Exchange, Boston Stock Exchange, Philadelphia Stock Exchange,
National Stock Exchange, Chicago Stock Exchange and Pacific Stock
Exchange. Historical amounts may be restated due to updates of
volume information from these sources. (5) Routed volume reflects
transactions where the trade was not matched on INET. (6) Instinet
Group headcount is as of the end of the reporting period and
includes LJR for all periods presented. Instinet Group Incorporated
Consolidated Statement of Operations - Three Months Ended September
30, 2005 (In thousands) (Unaudited) Three Months Ended September
30, 2005 ---------------------------------------------------
Instinet INET Eliminations Corporate Total
--------------------------------------------------- Revenue
Transaction fees $139,638 $114,865 $ (8,054) $ - $246,449 Interest
income, net 2,009 953 - 5,003 7,965 --------- --------- ----------
--------- -------- Total revenue, net 141,647 115,818 (8,054) 5,003
254,414 --------- --------- ---------- --------- -------- Cost of
revenues Soft dollar 33,416 - - - 33,416 Broker-dealer rebates -
63,811 - - 63,811 Brokerage, clearing and exchange fees 36,755
27,766 (8,054) - 56,467 --------- --------- ---------- ---------
-------- Total cost of revenues 70,171 91,577 (8,054) - 153,694
--------- --------- ---------- --------- --------
-------------------------------------------------- Gross margin
71,476 24,241 - 5,003 100,720 --------- --------- ----------
--------- -------- Direct Expenses Compensation and benefits 41,296
3,834 - 12,260 57,390 Communications and equipment 12,251 1,109 -
295 13,655 Depreciation and amortization 6,736 2,089 - 5,061 13,886
Occupancy 10,456 380 - 11,968 22,804 Professional fees 3,283 720 -
7,157 11,160 Marketing and business development 913 43 - 155 1,111
Other 4,654 177 - (721) 4,110 Technology service company charges
(1,242) 1,242 - - - Corporate overhead charges 20,917 10,255 -
(31,172) - --------- --------- ---------- --------- -------- Total
direct expenses 99,264 19,849 - 5,003 124,116 --------- ---------
---------- --------- -------- Investments - - - (8,768) (8,768)
-------------------------------------------------- Total expenses
169,435 111,426 (8,054) (3,765) 269,042 --------- ---------
---------- --------- -------- Income (loss) from continuing
operations before income taxes $(27,788) $ 4,392 $ - $ 8,768
$(14,628) ========= ========= ========== ========= ======== See
also table titled "Statements of Operations - Segments" on our
website at www.investor.instinetgroup.com under the heading
"Investor Relations" for historical data. NOTE: All periods
presented have been restated to include LJR as a discontinued
operation. Instinet Group Incorporated Consolidated Statement of
Operations - Nine Months Ended September 30, 2005 (In thousands)
(Unaudited) Nine Months Ended September 30, 2005
--------------------------------------------------- Instinet INET
Eliminations Corporate Total
--------------------------------------------------- Revenue
Transaction fees $436,487 $356,853 $ (22,340) $ - $771,000 Interest
income, net 6,929 1,873 - 10,715 19,517 --------- ---------
---------- --------- -------- Total revenue, net 443,416 358,726
(22,340) 10,715 790,517 --------- --------- ---------- ---------
-------- Cost of revenues Soft dollar 110,129 - - - 110,129
Broker-dealer rebates - 204,823 - - 204,823 Brokerage, clearing and
exchange fees 110,882 76,753 (22,340) - 165,295 --------- ---------
---------- --------- -------- Total cost of revenues 221,011
281,576 (22,340) - 480,247 --------- --------- ---------- ---------
-------- -------------------------------------------------- Gross
margin 222,405 77,150 - 10,715 310,270 --------- ---------
---------- --------- -------- Direct Expenses Compensation and
benefits 122,237 12,323 - 32,753 167,313 Communications and
equipment 35,976 3,938 - 1,101 41,015 Depreciation and amortization
22,799 6,060 - 5,537 34,396 Occupancy 25,195 1,334 - 16,199 42,728
Professional fees 10,718 1,289 - 17,080 29,087 Marketing and
business development 3,076 406 - 299 3,781 Other 10,359 1,302 - 815
12,476 Technology service company charges (6,015) 6,015 - - -
Corporate overhead charges 42,306 20,763 - (63,069) - ---------
--------- ---------- --------- -------- Total direct expenses
266,651 53,430 - 10,715 330,796 --------- --------- ----------
--------- -------- Investments - - - (36,373) (36,373)
------------------------------------------------- Total expenses
487,662 335,006 (22,340) (25,658) 774,670 --------- ---------
---------- --------- -------- Income (loss) from continuing
operations before income taxes $(44,246) $ 23,720 $ - $ 36,373 $
15,847 ========= ========= ========== ========= ======== See also
table titled "Statements of Operations - Segments" on our website
at www.investor.instinetgroup.com under the heading "Investor
Relations" for historical data. NOTE: All periods presented have
been restated to include LJR as a discontinued operation. Instinet
Group Incorporated Statements of Operations - Instinet, The
Institutional Broker (In thousands) (Unaudited) Three Months Ended
Nine Months Ended -------------------------------------------------
Sep 30, Jun 30, Sep 30, Sep 30, Sep 30, 2005 2005 2004 2005 2004
-------- -------- -------- -------- -------- Revenue Transaction
fee $134,001 $135,310 $140,624 $416,564 $485,114 Clearing revenue
5,637 6,987 5,981 19,923 23,102 -------- -------- -------- --------
-------- Total transaction fees 139,638 142,297 146,605 436,487
508,216 -------- -------- -------- -------- -------- Interest
income, net 2,009 2,383 2,916 6,929 9,298 -------- --------
-------- -------- -------- Total revenues, net 141,647 144,680
149,521 443,416 517,514 -------- -------- -------- --------
-------- Cost of Revenues Soft dollar 33,416 36,260 36,943 110,129
128,664 Brokerage, clearing and exchange fees 36,755 37,898 30,140
110,882 111,101 -------- -------- -------- -------- -------- Total
cost of revenues 70,171 74,158 67,083 221,011 239,765 --------
-------- -------- -------- -------- Gross margin 71,476 70,522
82,438 222,405 277,749 -------- -------- -------- -------- --------
Direct Expenses Compensation and benefits 41,296 47,385 35,943
122,237 123,207 Communications and equipment 12,251 12,217 16,839
35,976 48,524 Depreciation and amortization 6,736 8,187 10,502
22,799 36,632 Occupancy 10,456 7,296 5,922 25,195 22,269
Professional fees 3,283 3,550 5,219 10,718 13,129 Marketing and
business development 913 1,194 2,507 3,076 7,670 Other 4,654 2,454
3,822 10,359 8,511 Technology service company charges (1,242)
(1,344) (5,573) (6,015) (20,383) Corporate overhead charges 20,917
10,709 7,122 42,306 25,654 -------- -------- -------- --------
-------- Total direct expenses 99,264 91,648 82,303 266,651 265,213
-------- -------- -------- -------- -------- Total expenses 169,435
165,806 149,386 487,662 504,978 -------- -------- -------- --------
-------- Income (loss) from continuing operations before income
taxes $(27,788) $(21,126) $ 135 $(44,246) $ 12,536 ========
======== ======== ======== ======== NOTE: All periods presented
have been restated to include LJR as a discontinued operation.
Instinet Group Incorporated Statements of Operations - INET, The
electronic marketplace (In thousands) (Unaudited) Three Months
Ended Nine Months Ended -----------------------------
------------------- Sep 30, Jun 30, Sep 30, Sep 30, Sep 30, 2005
2005 2004 2005 2004 -------- -------- -------- -------- --------
Revenue Transaction fees $114,865 $117,650 $104,057 $356,853
$334,915 Interest income, net 953 517 402 1,873 1,060 --------
-------- -------- -------- -------- Total revenues, net 115,818
118,167 104,459 358,726 335,975 -------- -------- -------- --------
-------- Cost of Revenues Broker-dealer rebates 63,811 67,992
59,859 204,823 190,394 Brokerage, clearing and exchange fees 27,766
25,230 21,904 76,753 62,939 -------- -------- -------- --------
-------- Total cost of revenues 91,577 93,222 81,763 281,576
253,333 -------- -------- -------- -------- -------- Gross margin
24,241 24,945 22,696 77,150 82,642 -------- -------- --------
-------- -------- Direct Expenses Compensation and benefits 3,834
4,116 3,590 12,323 10,470 Communications and equipment 1,109 1,556
1,418 3,938 7,262 Depreciation and amortization 2,089 1,977 2,518
6,060 7,512 Occupancy 380 518 503 1,334 1,456 Professional fees 720
443 383 1,289 1,263 Marketing and business development 43 234 206
406 2,274 Other 177 (200) (715) 1,302 (1,340) Technology service
company charges 1,242 1,344 5,573 6,015 20,383 Corporate overhead
charges 10,255 5,362 4,114 20,763 10,943 -------- -------- --------
-------- -------- Total direct expenses 19,849 15,350 17,590 53,430
60,223 -------- -------- -------- -------- -------- Total expenses
111,426 108,572 99,353 335,006 313,556 -------- -------- --------
-------- -------- Income (loss) from continuing operations before
income taxes $ 4,392 $ 9,595 $ 5,106 $ 23,720 $ 22,419 ========
======== ======== ======== ======== Instinet Group Incorporated
Statements of Operations - Corporate (In thousands) (Unaudited)
Three Months Ended Nine Months Ended ----------------------------
------------------- Sep 30, Jun 30, Sep 30, Sep 30, Sep 30, 2005
2005 2004 2005 2004 -------- -------- -------- -------- --------
Interest income, net $ 5,003 $ 3,434 $ - $ 10,715 $ - --------
-------- -------- -------- -------- Direct Expenses Compensation
and benefits 12,260 9,546 3,934 32,753 19,643 Communications and
equipment 295 319 518 1,101 1,778 Depreciation and amortization
5,061 218 343 5,537 995 Occupancy 11,968 1,955 2,926 16,199 4,472
Professional fees 7,157 6,822 1,808 17,080 6,176 Marketing and
business development 155 131 12 299 711 Other (721) 514 1,695 815
2,822 Corporate overhead charges (31,172) (16,071) (11,236)
(63,069) (36,597) -------- -------- -------- -------- --------
Total direct expenses 5,003 3,434 - 10,715 - -------- --------
-------- -------- -------- Income (loss) from operations before
investments and income taxes $ - $ - $ - $ - $ - ======== ========
======== ======== ======== Instinet Group Incorporated
Reconciliation of Pro Forma Operating Results for 3Q05 (In
thousands, except per share amounts) (Unaudited) In evaluating our
financial performance and results of operations, management reviews
certain financial measures that are not in accordance with
generally accepted accounting principles in the United States
("non-GAAP"). Non-GAAP measurements do not have any standardized
meaning and are therefore unlikely to be comparable to similar
measures presented by other companies. Management uses non-GAAP
financial measures in evaluating our operating performance. In
light of the use by management of these non-GAAP measurements to
assess our operational performance, we believe it is useful to
provide information with respect to these non-GAAP measurements so
as to share this perspective of management. These non-GAAP
financial measures should be considered in context with our GAAP
results. A reconciliation of our non-GAAP measurements is provided
below. Management reviews adjusted operating income, in addition to
GAAP financial results. This non- GAAP financial measurement
excludes non-operating items, which by their nature, management
does not consider to be a true reflection of the operating results
and financial performance of our business. These non-operating
charges are investment gains and losses, charges related to our
cost reduction initiatives, fixed asset write-offs, contractual
settlements, goodwill and intangible asset impairment, insurance
recoveries, advisory fees and the related tax effects of those
items. The following schedule reconciles our pro forma net income
to our GAAP financial results: Three Months Ended Nine Months Ended
----------------------------- ------------------- Sep 30, Jun 30,
Sep 30, Sep 30, Sep 30, 2005 2005 2004 2005 2004 ---------
--------- -------- --------- -------- Total revenues, net, as
reported $254,414 $259,294 $249,014 $790,517 $838,743 Total
expenses, as reported 269,042 246,135 239,742 774,670 782,717
Severance in compensation and benefits (9,466) (15,886) - (24,615)
(3,668) Advisory fees in professional fees (5,770) (5,093) -
(12,049) - Asset write-offs in depreciation and amortization
(4,824) (804) - (5,628) (2,018) Facilities write- offs in occupancy
(15,413) - - (15,413) - Contractual settlements - - - - 7,250
Investments 8,768 24,690 4,031 36,373 8,705 Insurance recovery - -
- - 5,116 -------- -------- -------- -------- -------- Pro forma
operating expenses 242,337 249,042 243,773 753,338 798,102 --------
-------- -------- -------- -------- Pro forma income from
continuing operations before income taxes 12,077 10,252 5,241
37,179 40,641 -------- -------- -------- -------- -------- Income
tax provision, as reported (9,325) 6,410 1,440 2,975 20,961 Tax
effect of pro forma adjustments 10,135 (1,758) (1,495) 6,061
(5,803) -------- -------- -------- -------- -------- Pro forma
provision for income taxes 810 4,652 (55) 9,036 15,158 --------
-------- -------- -------- -------- Income (loss) from continuing
operations, as reported (5,303) 6,749 7,832 12,872 35,065 Net
effect of pro forma adjustments 16,570 (1,149) (2,536) 15,271
(9,582) -------- -------- -------- -------- -------- Pro forma
income from continuing operations $ 11,267 $ 5,600 $ 5,296 $ 28,143
$ 25,483 ======== ======== ======== ======== ======== Earnings per
share from continuing operations - basic and diluted, as reported $
(0.02) $ 0.02 $ 0.02 $ 0.04 $ 0.10 Net effect of pro forma
adjustments 0.05 - - 0.04 (0.03) -------- -------- --------
-------- -------- Pro forma earnings per share from continuing
operations - basic and diluted $ 0.03 $ 0.02 $ 0.02 $ 0.08 $ 0.08
======== ======== ======== ======== ======== Weighted average
shares outstanding - basic 340,474 339,765 337,327 339,513 336,127
Weighted average shares outstanding - diluted 341,876 341,505
339,226 341,044 338,111 *T
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