Exhibit 99.1
Instinet Group
Media Release
Investor Contact
Lisa Kampf
Instinet Group Incorporated
212 231 5022
lisa.kampf@instinet.com
Media Contact
Stephen Austin
Instinet Group Incorporated
212 231 5331
stephen.austin@instinet.com
INSTINET GROUP ANNOUNCES FIRST QUARTER 2005 EARNINGS
NEW YORK, April 25, 2005 -- Instinet Group Incorporated (Nasdaq: INGP) today announced net income of $14 million or $0.04 per diluted share for the first quarter of 2005 compared to net income of $22 million or $0.06 per diluted share for the first quarter of 2004 and net income of $9 million or $0.03 per diluted share for the fourth quarter of 2004. The first quarter 2005 results included $3 million in net investment gains, $1 million reversal of previously recognized severance expense and $1 million in deal related advisory fees. Excluding these items and the related tax effect, pro forma net income for the first quarter of 2005 was $12 million, or $0.03 per diluted share compared to pro forma net income of $16 million or $0.05 per diluted share for the first quarter of 2004 and pro forma net income of $20 million, or $0.06 per diluted share for the fourth quarter of 2004.(All periods presented have been restated to incorporate Bridge Trading Compan y, which was acquired on March 31, 2005.)
Edward J. Nicoll, Chief Executive Officer of Instinet Group, commented, "This quarter, Instinet Group posted its fifth consecutive profitable quarter, despite challenging business conditions and an increasingly competitive landscape. Furthermore, as we announced last week, Instinet Group has signed a merger agreement with The NASDAQ Stock Market, Inc., and one result will be the purchase of Instinet, The Institutional Broker, from NASDAQ by a group led by Silver Lake Partners and Instinet senior management. The new owners and operators of Instinet will remain dedicated to offering institutional customers around the world technologically sophisticated trading products and services."
Financial Performance
Instinet Group
Revenues
Total consolidated revenues for Instinet Group, net of interest, were $316 million for the first quarter of 2005, down 12% from the first quarter of 2004 and level with the fourth quarter of 2004.
Expenses
Total expenses for the first quarter of 2005 were $295 million, down 8% from the first quarter of 2004 and down 5% from the fourth quarter of 2004. The decrease compared to the fourth quarter of 2004 was due to a $24 million goodwill impairment charge in the fourth quarter of 2004 associated with Bridge Trading Company, a lower net investment gain, lower compensation and benefits, depreciation and amortization, communications and equipment, professional fees and marketing and business development expenses, partially offset by increases in occupancy and other expenses.
Cost of revenues was $195 million, 5% higher than the fourth quarter of 2004 primarily due to higher transaction volumes.
Transaction related regulatory fees recorded as an expense in brokerage, clearing and exchange fees totaled $17 million, $11 million and $20 million for the three months ended March 31, 2005, December 31, 2004 and March 31, 2004, respectively.
Direct expenses were $102 million for the first quarter of 2005, down 8% from the fourth quarter of 2004.
- Compensation and benefits expense was $53 million in the first quarter of 2005, down 12% from the previous quarter primarily due to lower variable compensation associated with lower profitability and lower severance expense partially offset by higher stock based compensation expense. The first quarter of 2005 included a $1 million reversal of previously recognized severance expense while the fourth quarter of 2004 included $7 million of severance expense.
- Communications and equipment expense was $14 million, down 10% from the previous quarter, primarily due to lower client communication and market data expenses.
- Depreciation and amortization expense was $10 million, down 23% from the previous quarter primarily due to lower depreciation of computer equipment.
- Other expense was $6 million, up $4 million from the previous quarter, primarily due to higher legal-related expenses and an increase in bad debt expense as the fourth quarter of 2004 had higher levels of recoveries of aged customer receivables.
Balance Sheet
At March 31, 2005, Instinet Group had net cash (cash and cash equivalents and securities owned less short-term borrowings) of approximately $843 million, down $113 million from $956 million at December 31, 2004 due to an increase in firm cash used in customer settlement activities and seasonal payments related to 2004 incentive compensation. At March 31, 2005, total assets were approximately $1.8 billion and shareholders' equity was approximately $1.1 billion. There were approximately 339 million shares of common stock outstanding as of March 31, 2005. On March 31, 2005, Instinet Group's total headcount was 1,029 employees compared to 1,049 on December 31, 2004. Headcount at March 31, 2005 included 855 employees from Instinet including 49 employees from Bridge Trading Company, 78 employees from INET and 96 employees from Instinet Group. (Headcount statistics for all periods presented have been restated to incorporate Bridge Trading Company, which was acquired on March 31, 2005.)
Company Highlights
- Instinet Group announced on April 22, 2005 that it entered into a definitive agreement pursuant to which The Nasdaq Stock Market Inc. (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 $5.44 per share2(on a fully diluted basis).
- Upon completion of the transaction, INET will be combined with NASDAQ's current operations. Instinet, The Institutional Broker, will be acquired by Silver Lake Partners from NASDAQ immediately following the NASDAQ acquisition of Instinet Group. Instinet Group's subsidiary, Lynch, Jones & Ryan, Inc. (LJR) will be acquired by The Bank of New York.
- In addition to its approval of the NASDAQ and LJR transactions described above, Instinet Group's Board has approved the declaration of a dividend to all stockholders in an amount not to exceed the net proceeds of the LJR transaction. The dividend will be declared at the time the LJR transaction closes. Any dividend will result in a reduction in the merger consideration to be received by shareholders in the transaction with NASDAQ.
- On March 31, 2005 Instinet Group acquired Bridge Trading Company, an agency execution broker, from Reuters for 3,751,527 shares of INGP stock, valued at approximately $21.5 million. All financial historical information has been restated as if the company had always been owned by Instinet Group. Bridge Trading Company is included in the results of the Instinet, The Institutional Broker, business segment.
Business Segments3
Instinet, The Institutional Broker
- Instinet reported net income before income taxes of $9 million for the first quarter of 2005, compared to $7 million in the fourth quarter of 2004.
- Total revenues, net of interest, were $197 million, 2% lower than the fourth quarter of 2004, primarily due to lower revenue capture per share partially offset by higher U.S. and non-U.S. equity market volumes.
_________________
2Based upon 345.4 million fully diluted shares (338.5 million shares outstanding at March 31, 2005 and an additional 6.8 million shares of stock equivalents related to outstanding employee stock options and performance share awards).
3 See also "Earnings Releases -- Financial Tables" on our website at www.investor.instinetgroup.com.
- Instinet's customers traded an average of 121 million U.S. shares a day in the first quarter of 2005, up 3% from 117 million shares a day during the fourth quarter of 2004. Average daily consideration in non-U.S. equities for the first quarter of 2005 was $844 million, a 14% increase from the fourth quarter of 2004.
- Cost of revenues as a percentage of total transaction fees was 55% in the first quarter of 2005 compared to 52% in the fourth quarter of 2004.
- Gross margin of $91 million for the first quarter of 2005, was $7 million, or 7%, lower than the fourth quarter of 2004.
- Direct expenses of $82 million for the first quarter of 2005 were down $9 million, or 10%, from the fourth quarter of 2004.
INET, The electronic marketplace
- INET reported net income before income taxes of $10 million for the first quarter of 2005, down $2 million from the fourth quarter of 2004.
- Total revenues, net of interest, were $125 million, 3% higher than the previous quarter primarily due to higher U.S. market volumes and higher market share in the first quarter of 2005.
- INET reported NASDAQ-listed average matched equity share volume of 521 million shares per day in the first quarter of 2005, up 14% from the previous quarter. INET's share of the total market in NASDAQ-listed equity trading was 26.3% in the first quarter of 2005, up from 24.6% in the previous quarter.
- INET reported U.S. exchange-listed average matched equity share volume of 70 million shares per day in the first quarter of 2005, down from 73 million in the previous quarter. INET's share of the total market in U.S. exchange-listed equity trading was 3.1% in the first quarter of 2005, down from 3.4% in the previous quarter.
- Cost of revenues as a percentage of total transaction fees was 78% in the first quarter of 2005 compared to 74% in the fourth quarter of 2004.
- Gross margin was $28 million for the first quarter of 2005, 12% lower than the previous quarter.
- Direct expenses of $18 million for the first quarter of 2005 were down 10% from the fourth quarter of 2004.
Business Highlights
On April 18, 2005, substantially all INET customer flow coming through Instinet's Smartrouter was migrated to RASH (routing and special handling), INET's recently developed proprietary routing technology. As a result of this migration, INET is now substantially independent of Instinet's routing technology.
Webcast
Instinet Group will webcast a conference call to discuss its first quarter results at 10:00 a.m. New York time on April 25th athttp://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. Lynch, Jones & Ryan, Inc., Instinet Group's commission recapture subsidiary is also a part of Instinet.
- 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 press release is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
Instinet, The Institutional Broker, represents Instinet, LLC and its affiliates, not including the direct subsidiaries of Inet Holding Company, Inc. and Lynch, Jones & Ryan, Inc.
Copyright 2005 Instinet Group Incorporated and its affiliated companies. All rights reserved. INSTINET and INET are service marks in the United States. Instinet, LLC (branded Instinet, The Institutional Broker), member NASD/SIPC; Inet ATS, Inc. (branded INET, The electronic marketplace), member NASD/NSX/SIPC; Lynch, Jones & Ryan, Inc., member NASD/SIPC; are subsidiaries of Instinet Group Incorporated which is part of the Reuters family of companies.
Where to Find Additional Information about Instinet, NASDAQ and the Merger
Instinet Group intends to file a proxy statement of Instinet Group in connection with the proposed merger. Instinet Group stockholders should read the proxy statement and other relevant materials when they become available, because they will contain important information about Instinet Group, NASDAQ and the proposed merger. In addition to the documents described above, Instinet Group and NASDAQ file annual, quarterly and current reports, proxy statements and other information with the SEC. The proxy statement and other relevant materials (when they become available), and any other documents filed with the SEC by Instinet Group or NASDAQ are available without charge at the SEC's website, at www.sec.gov, or from the companies' websites at http://www.instinetgroup.com and http://www.nasdaq.com, respectively.
Instinet Group, NASDAQ and their respective officers and directors may be deemed to be participants in the solicitation of proxies from Instinet Group stockholders in connection with the proposed merger. A description of certain interests of the directors and executive officers of Instinet Group is set forth in the Instinet Group proxy statement for its 2005 annual meeting which was filed with the SEC on April 15, 2005. A description of certain interests of the directors and officers of NASDAQ is set forth in NASDAQ's proxy statement for its 2005 annual meeting, which was filed with the SEC on April 11, 2005. Additional information regarding the interests of such potential participants will be included in the definitive proxy statement and other relevant documents to be filed with the SEC in connection with the proposed merger.
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.
Instinet Group Incorporated | | | | | | |
Consolidated Statements of Operations | | | | | |
(In thousands, except per share amounts) | | | | | | |
(Unaudited) | | | | | | |
| | | | Three Months Ended |
| | | | Mar 31, | | Dec 31, | | Mar 31, |
| | | | 2005 | | 2004 | | 2004 |
Revenue | | | | | | |
| Transaction fees | | $ 310,863 | | $ 310,621 | | $ 355,428 |
| | | | | | | | |
| | Interest income | | 6,249 | | 5,368 | | 4,577 |
| | Interest expense | | (842) | | (969) | | (1,077) |
| Interest income, net | | 5,407 | | 4,399 | | 3,500 |
| | | | | | | | |
| | Total revenues, net | | 316,270 | | 315,020 | | 358,928 |
| | | | | | | | |
Cost of Revenues | | | | | | |
| Soft dollar and commission recapture | | 63,872 | | 64,991 | | 75,098 |
| Broker-dealer rebates | | 73,020 | | 67,150 | | 68,147 |
| Brokerage, clearing and exchange fees | | 58,550 | | 53,372 | | 66,686 |
| | Total cost of revenues | | 195,442 | | 185,513 | | 209,931 |
| | | | | | | | |
| Gross margin | | 120,828 | | 129,507 | | 148,997 |
| | | | | | | | |
Direct Expenses | | | | | | |
| Compensation and benefits | | 53,406 | | 60,766 | | 61,872 |
| Communications and equipment | | 13,541 | | 15,075 | | 22,092 |
| Depreciation and amortization | | 10,149 | | 13,176 | | 15,508 |
| Occupancy | | 10,218 | | 8,921 | | 9,493 |
| Professional fees | | 7,255 | | 8,899 | | 5,085 |
| Marketing and business development | | 1,630 | | 2,634 | | 3,342 |
| Other | | 5,907 | | 1,462 | | 2,963 |
| | Total direct expenses | | 102,106 | | 110,933 | | 120,355 |
| | | | | | | | |
| Goodwill and intangible asset impairment | | - | | 24,783 | | - |
| Investments | | (2,915) | | (11,006) | | (4,674) |
| Insurance recovery | | - | | - | | (5,116) |
| | Total expenses | | 294,633 | | 310,223 | | 320,496 |
| | | | | | | | |
| Income from operations before income taxes | | 21,637 | | 4,797 | | 38,432 |
| Income tax provision (benefit) | | 7,735 | | (3,880) | | 16,627 |
| | Net income | | $ 13,902 | | $ 8,677 | | $ 21,805 |
| | | | | | | | |
EARNINGS PER SHARE | | | | | | |
| | Basic EPS | | $ 0.04 | | $ 0.03 | | $ 0.07 |
| | Diluted EPS | | $ 0.04 | | $ 0.03 | | $ 0.06 |
| | | | | | | | |
Weighted average shares outstanding - basic | | 338,277 | | 337,854 | | 334,993 |
Weighted average shares outstanding - diluted | | 340,558 | | 340,122 | | 338,140 |
| | | | | | | | |
| NOTE: | All periods presented have been restated to incorporate Bridge Trading Company which was acquired on March 31, 2005. |
| | Net income (loss) for Bridge Trading Company for the three months ended March 31, 2005, December 31, 2004 and |
| | March 31, 2004 was $1,530, $(10,062) and $2,991, respectively. | | | | |
| | | | | | | | |
Instinet Group Incorporated | | | | | | | | | |
Operating Data | | | | | | | | | |
(Unaudited) | | | | | | | | | | |
| | | | Three Months Ended |
| | | | Mar 31, | | Dec 31, | | | Mar 31, |
| | | | 2005 | | 2004 | | | 2004 |
U.S. Market | | | | | | |
| Trade Days | 61 | | 64 | | | 62 |
| | | | | | | | | |
| Average daily NASDAQ-listed equity share volume (millions) | 1,981 | | 1,865 | | | 2,030 |
| Average daily U.S. exchange-listed equity share volume (millions) | 2,252 | | 2,119 | | | 2,255 |
| Average daily U.S. equity share volume (millions) | 4,233 | | 3,984 | | | 4,285 |
| | | | | | | | | |
| Total U.S. equity share volume (millions) | 258,190 | | 254,969 | | | 265,685 |
| | | | | | | | | |
Instinet, The Unconflicted Institutional Broker | | | | | | |
| A. U.S. Equities1 | | | | | | |
| | | | | | | | | |
| | Our total average daily volume (million shares) | 121 | | 117 | | | 122 |
| | Our share of total market | 2.9% | | 2.9% | | | 2.8% |
| | | | | | | | | |
| | Our average daily volume (million shares) - Institutional and Crossing | 86 | | 87 | | | 100 |
| | Average amount charged to client per share (cents per share)2 - Institutional and Crossing | 1.36 | | 1.41 | | | 1.49 |
| | | | | | | | | |
| | Our average daily volume (million shares) - Institutional Correspondents | 34 | | 29 | | | 22 |
| | Average amount charged to client per share (cents per share)2 - Institutional Correspondents | 0.05 | | 0.06 | | | 0.11 |
| | | | | | | | | |
| B. Non-US Equities3 | | | | | | |
| | Our average daily consideration (millions) | $844 | | $742 | | | $932 |
| | Average basis points charged to client per consideration traded | 5.0 | | 5.3 | | | 5.3 |
| | | | | | | | | |
INET, The electronic marketplace | | | | | | |
| A. Our Matched Average Daily Volume4 | | | | | | |
| | | | | | | | | |
| | Our NASDAQ-listed equity share volume (million shares) | 521 | | 459 | | | 505 |
| | | Our share of total market | 26.3% | | 24.6% | | | 24.9% |
| | | | | | | | | |
| | Our U.S. exchange-listed equity share volume (million shares) | 70 | | 73 | | | 64 |
| | | Our share of total market | 3.1% | | 3.4% | | | 2.8% |
| | | | | | | | | |
| | Our total U.S. equity share volume (million shares) | 591 | | 532 | | | 569 |
| | | Our share of total market | 14.0% | | 13.4% | | | 13.3% |
| | | | | | | | | |
| B. Our Routed Average Daily Volume (million shares)5 | 143 | | 119 | | | 98 |
| | | | | | | | | |
Headcount6 | 1,029 | | 1,049 | | | 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 of certain U.S. buy-side clients, all of the clients of Lynch, Jones & Ryan and our international business. They include fund managers, pension plans, hedge funds and other clients. Crossing includes order flow from both buy-side and sell-side clients who execute though our after hours cross. Institutional Correspondents represent our direct market access U.S. buy-side clients. |
| All periods presented have been restated to incorporate Bridge Trading Company which was acquired on March 31, 2005. |
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 Bridge Trading Company for all periods presented. |
Instinet Group Incorporated | | | | | | | | | |
Consolidated Statement of Operations - Three Months Ended March 31, 2005 | | |
(In thousands) | | | | | | | | | |
(Unaudited) | | | | | | | | | |
| | | Three Months Ended March 31, 2005 |
| | | Instinet | | INET | | Eliminations | | Corporate | | Total |
Revenue | | | | | | | | | |
| Transaction fees | $ 193,824 | | $ 124,338 | | $ (7,299) | | $ - | | $ 310,863 |
| | | | | | | | | | | |
| Interest income, net | 2,726 | | 403 | | - | | 2,278 | | 5,407 |
| | Total revenue, net | 196,550 | | 124,741 | | (7,299) | | 2,278 | | 316,270 |
| | | | | | | | | | | |
Cost of revenues | | | | | | | | | |
| Soft dollar and commission recapture | 63,872 | | - | | - | | - | | 63,872 |
| Broker-dealer rebates | - | | 73,020 | | - | | - | | 73,020 |
| Brokerage, clearing and exchange fees | 42,092 | | 23,757 | | (7,299) | | - | | 58,550 |
| | Total cost of revenues | 105,964 | | 96,777 | | (7,299) | | - | | 195,442 |
| | | | | | | | | | | |
| | Gross margin | 90,586 | | 27,964 | | - | | 2,278 | | 120,828 |
| | | | | | | | | | | |
Direct Expenses | | | | | | | | | |
| Compensation and benefits | 38,086 | | 4,373 | | - | | 10,947 | | 53,406 |
| Communications and equipment | 11,781 | | 1,273 | | - | | 487 | | 13,541 |
| Depreciation and amoritization | 7,897 | | 1,994 | | - | | 258 | | 10,149 |
| Occupancy | 7,506 | | 436 | | - | | 2,276 | | 10,218 |
| Professional fees | 4,028 | | 126 | | - | | 3,101 | | 7,255 |
| Marketing and business development | 1,488 | | 129 | | - | | 13 | | 1,630 |
| Other | 3,560 | | 1,325 | | - | | 1,022 | | 5,907 |
| Technology service company charges | (3,429) | | 3,429 | | - | | - | | - |
| Corporate overhead charges | 10,680 | | 5,146 | | - | | (15,826) | | - |
| | Total direct expenses | 81,597 | | 18,231 | | - | | 2,278 | | 102,106 |
| | | | | | | | | | | |
| Investments | - | | - | | - | | (2,915) | | (2,915) |
| | | | | | | | | | | |
| | Total expenses | 187,561 | | 115,008 | | (7,299) | | (637) | | 294,633 |
| | | | | | | | | | | |
| | Net income before income taxes | $ 8,989 | | $ 9,733 | | $ - | | $ 2,915 | | $ 21,637 |
| | | | | | | | | | | |
| | See also table titled "Statements of Operations - Segments" on our website atwww.investor.instinetgroup.com under |
| | the heading "Investor Relations" for historical data. | | | | | | | | |
| | | | | | | | | | | |
| NOTE: | All periods presented have been restated to incorporate Bridge Trading Company which was acquired on March 31, 2005. |
| | Net income before income taxes for Bridge Trading Company for the three months ended March 31, 2005 was $1,999. |
| | | | | | | | | | | |
Instinet Group Incorporated | | | | | | | | | | |
Statements of Operations - Instinet, The Unconflicted Institutional Broker | |
(In thousands) | | | | | | | | | | |
(Unaudited) | | | | | | | | | | |
| | | Three Months Ended | |
| | | Mar 31, | | Dec 31, | | | Mar 31, | |
| | | 2005 | | 2004 | | | 2004 | |
Revenue | | | | | | | |
| Transaction fee | $ 186,510 | | $ 190,314 | | | $ 230,924 | |
| Clearing revenue | 7,314 | | 5,781 | | | 10,390 | |
| | Total transaction fees | 193,824 | | 196,095 | | | 241,314 | |
| | | | | | | | | |
| Interest income, net | 2,726 | | 3,511 | | | 3,285 | |
| | Total revenues, net | 196,550 | | 199,606 | | | 244,599 | |
| | | | | | | | | |
Cost of Revenues | | | | | | | |
| Soft dollar and commission recapture | 63,872 | | 64,991 | | | 75,098 | |
| Brokerage, clearing and exchange fees | 42,092 | | 37,241 | | | 50,927 | |
| | Total cost of revenues | 105,964 | | 102,232 | | | 126,025 | |
| | | | | | | | | |
| | Gross margin | 90,586 | | 97,374 | | | 118,574 | |
| | | | | | | | | |
Direct Expenses | | | | | | | |
| Compensation and benefits | 38,086 | | 45,824 | | | 47,480 | |
| Communications and equipment | 11,781 | | 13,621 | | | 16,981 | |
| Depreciation and amortization | 7,897 | | 9,956 | | | 12,511 | |
| Occupancy | 7,506 | | 5,948 | | | 8,392 | |
| Professional fees | 4,028 | | 5,804 | | | 3,084 | |
| Marketing and business development | 1,488 | | 2,437 | | | 2,809 | |
| Other | 3,560 | | 658 | | | 2,492 | |
| Technology service company charges | | (3,429) | | (4,525) | | | (8,146) | |
| Corporate overhead charges | | 10,680 | | 10,653 | | | 10,474 | |
| | Total direct expenses | 81,597 | | 90,376 | | | 96,077 | |
| | | | | | | | | |
| | Total expenses | 187,561 | | 192,608 | | | 222,102 | |
| | | | | | | | | |
| | Net income before income taxes | $ 8,989 | | $ 6,998 | | | $ 22,497 | |
| | | | | | | | | |
| NOTE: | All periods presented have been restated to incorporate Bridge Trading Company which was acquired on March 31, 2005. |
| | Net income before income taxes for Bridge Trading Company for the three months ended March 31, 2005, |
| | December 31, 2004 and March 31, 2004 was $1,999, $5,853 and $4,753, respectively. | |
| | | | | | | | | | | | |
Instinet Group Incorporated | | | | | | | | | |
Statements of Operations - INET, The electronic marketplace | | | | | | |
(In thousands) | | | | | | | | | |
(Unaudited) | | | | | | | | | |
| | | Three Months Ended |
| | | Mar 31, | | Dec 31, | | | Mar 31, |
| | | 2005 | | 2004 | | | 2004 |
Revenue | | | | | | |
| Transaction fees | $ 124,338 | | $ 120,153 | | | $ 119,799 |
| | | | | | | | |
| Interest income, net | 403 | | 512 | | | 215 |
| | Total revenues, net | 124,741 | | 120,665 | | | 120,014 |
| | | | | | | | |
Cost of Revenues | | | | | | |
| Broker-dealer rebates | 73,020 | | 67,150 | | | 68,147 |
| Brokerage, clearing and exchange fees | 23,757 | | 21,758 | | | 21,444 |
| | Total cost of revenues | 96,777 | | 88,908 | | | 89,591 |
| | | | | | | | |
| | Gross margin | 27,964 | | 31,757 | | | 30,423 |
| | | | | | | | |
Direct Expenses | | | | | | |
| Compensation and benefits | 4,373 | | 5,649 | | | 3,808 |
| Communications and equipment | 1,273 | | 1,100 | | | 4,343 |
| Depreciation and amortization | 1,994 | | 2,832 | | | 2,583 |
| Occupancy | 436 | | 193 | | | 569 |
| Professional fees | 126 | | 959 | | | 277 |
| Marketing and business development | 129 | | 460 | | | 722 |
| Other | 1,325 | | (114) | | | (123) |
| Technology service company charges | | 3,429 | | 4,525 | | | 8,146 |
| Corporate overhead charges | | 5,146 | | 4,577 | | | 3,953 |
| | Total direct expenses | 18,231 | | 20,181 | | | 24,278 |
| | | | | | | | |
| | Total expenses | 115,008 | | 109,089 | | | 113,869 |
| | | | | | | | |
| | Net income before income taxes | $ 9,733 | | $ 11,576 | | | $ 6,145 |
Instinet Group Incorporated | | | | | | | | |
Statements of Operations - Corporate | | | | | | | | |
(In thousands) | | | | | | | | |
(Unaudited) | | | | | | | | |
| | | Three Months Ended |
| | | Mar 31, | | Dec 31, | | | Mar 31, |
| | | 2005 | | 2004 | | | 2004 |
| | | | | | | | |
Interest income, net | $ 2,278 | | $ 376 | | | $ - |
| | | | | | | | |
Direct Expenses | | | | | | |
| Compensation and benefits | 10,947 | | 9,293 | | | 10,584 |
| Communications and equipment | 487 | | 354 | | | 768 |
| Depreciation and amortization | 258 | | 388 | | | 414 |
| Occupancy | 2,276 | | 2,780 | | | 532 |
| Professional fees | 3,101 | | 2,136 | | | 1,724 |
| Marketing and business development | 13 | | (263) | | | (189) |
| Other | 1,022 | | 918 | | | 594 |
| Technology service company charges | | - | | - | | | - |
| Corporate overhead charges | | (15,826) | | (15,230) | | | (14,427) |
| | Total direct expenses | 2,278 | | 376 | | | - |
| | | | | | | | |
| | Net income before income taxes | $ - | | $ - | | | $ - |
| | | | | | | | |
Instinet Group Incorporated | | | | | | |
Reconciliation of Pro Forma Operating Results for 1Q05 | | | |
(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, goodwill and intangible assets 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 | |
| | | Mar 31, | | Dec 31, | | Mar 31, | |
| | | 2005 | | 2004 | | 2004 | |
| | | | | | | | |
Total revenues, net, as reported | $ 316,270 | | $ 315,020 | | $ 358,928 | |
| | | | | | | | |
Total expenses, as reported | 294,633 | | 310,223 | | 320,496 | |
| Severance included in compensation and benefits | 737 | | (7,190) | | - | |
| Goodwill and intangible assets impairment | - | | (24,783) | | - | |
| Net fixed asset write-off in depreciation and amortization | - | | (1,168) | | - | |
| Advisory fees in professional fees | (1,186) | | - | | - | |
| Investments | 2,915 | | 11,006 | | 4,674 | |
| Insurance recovery | - | | - | | 5,116 | |
| | Pro forma operating expenses | 297,099 | | 288,088 | | 330,286 | |
| | | | | | | | |
| Pro forma income before income taxes | 19,171 | | 26,932 | | 28,642 | |
| | | | | | | | |
Income tax provision (benefit), as reported | 7,735 | | (3,880) | | 16,627 | |
| Tax effect of pro forma adjustments | (150) | | 10,946 | | (4,308) | |
| | Pro forma provision for income taxes | 7,585 | | 7,066 | | 12,319 | |
| | | | | | | | |
Net income, as reported | 13,902 | | 8,677 | | 21,805 | |
| Net effect of pro forma adjustments | (2,316) | | 11,189 | | (5,482) | |
| | Pro forma net income | $ 11,586 | | $ 19,866 | | $ 16,323 | |
| | | | | | | | |
Earnings per share - basic, as reported | $ 0.04 | | $ 0.03 | | $ 0.07 | |
| Net effect of pro forma adjustments | (0.01) | | 0.03 | | (0.02) | |
| | Pro forma earnings per share - basic | $ 0.03 | | $ 0.06 | | 0.05 | |
| | | | | | | | |
Earnings per share - diluted, as reported | $ 0.04 | | $ 0.03 | | $ 0.06 | |
| Net effect of pro forma adjustments | (0.01) | | 0.03 | | (0.01) | |
| | Pro forma earnings per share - diluted | $ 0.03 | | $ 0.06 | | $ 0.05 | |
| | | | | | | | |
Weighted average shares outstanding - basic | 338,277 | | 337,854 | | 334,993 | |
Weighted average shares outstanding - diluted | 340,558 | | 340,122 | | 338,140 | |
| | | | | | | | |
