SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 23, 2002
Instinet Group Incorporated
(Exact Name of Registrant as Specified in Charter)
Delaware 000-32717 13-4134098
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
3 Times Square, New York, New York 10036
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 212-310-9500
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events
(a) In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 142 is effective for fiscal years beginning after December
15, 2001. We adopted this statement on January 1, 2002. SFAS No. 142 requires
that goodwill no longer be amortized to earnings, but instead be periodically
reviewed for impairment. Impairment is deemed to exist when the carrying value
of goodwill is greater than its implied fair value. Fair value is determined
based upon the discounted cash flows of the businesses. Should the review
indicate that goodwill is impaired, the Company's carrying value of goodwill
would be reduced by the estimated shortfall of the discounted cash flows. This
methodology differs from our previous policy, as permitted under accounting
standards existing before SFAS 142, of using undiscounted cash flows of the
businesses acquired over its estimated life. We completed our transitional
review of goodwill which resulted in a cumulative effect of a change in
accounting principle of $18.6 million, net of tax, for the three months ended
March 31, 2002, which is disclosed in our quarterly report on Form 10-Q for the
quarterly period ended March 31, 2002.
Goodwill existing as of June 30, 2001 was amortized until December 31, 2001. For
goodwill arising from acquisitions after June 30, 2001, we did not amortize
goodwill but reviewed it for impairment based upon the undiscounted cash flows
of the businesses acquired over its estimated useful life for the period ended
December 31, 2001, after which we changed its accounting policy as described
above.
SFAS 142 also requires that a company disclose in its annual and quarterly
financial statements (e.g., Form 10-K and 10-Q) for the year in which FAS 142 is
adopted net income adjusted to exclude amortization expense recognized in those
periods related to goodwill that is no longer being amortized, in addition to a
reconciliation of reported net income to the adjusted net income and adjusted
earnings per share for any preceding years presented for comparative purposes.
As we adopted SFAS 142 on January 1, 2002, we were not required to disclose
comparative information on our Annual Report on Form 10-K for the year ended
December 31, 2001. We are now disclosing the required comparative information in
connection with certain registration statements, which will incorporate by
reference this filing on Form 8-K.
(b) On July 22, 2002, we issued a press release announcing our second quarter
2002 results. The press release is filed as Exhibit 99.1 hereto and incorporated
herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) The selected consolidated financial data set forth below should be read
together with our financial statements and the related notes and the discussion
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in our Annual Report on Form 10-K and Quarterly Reports on Form
10-Q. The information as of and for the years ended December 31, 2001, 2000,
1999, 1998 and 1997 set forth below was derived from our audited consolidated
financial statements and related notes. The information as of and for the three
months ended March 31, 2002 and 2001 set forth below was derived from our
unaudited consolidated financial statements and the related notes. This
unaudited information, in the opinion of management, includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of our financial position and results of operations for these periods. Interim
financial results are not necessarily indicative of results of any future
period.
The historical financial information may not be indicative of our
future performance and does not reflect what our financial position and results
of operations would have been had we operated as a separate, stand-alone entity
during 2000, 1999, 1998 and 1997.
Three Months
Ended March 31, Year Ended December 31,
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2002 2001 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
(in thousands, other than share and per share data)
Statement of Income Data:
Revenues:
Transaction fees................$266,989 $415,463 $1,427,687 $1,385,509 $936,958 $821,757 $693,749
Interest........................ 9,104 12,807 51,085 40,471 23,916 21,587 17,357
Investments..................... (5,714) 2,405 17,687 9,059 8,570 (1,175) 3,542
-------- ------- --------- --------- ------- ------- -------
Total revenues.............. 270,379 430,675 1,496,459 1,435,039 969,444 842,169 714,648
Expenses:(1)
Compensation and benefits....... 92,182 133,785 433,363 412,391 257,491 205,970 169,849
Communications and equipment.... 35,498 45,391 163,594 153,735 92,322 73,065 59,096
Soft dollar and commission
recapture..................... 53,591 56,053 220,050 180,035 89,469 80,339 63,317
Brokerage, clearing and
exchange fees................. 37,567 6,734 146,699 137,446 78,966 67,766 48,855
Depreciation and
amortization.................. 20,163 19,502 84,088 77,721 71,206 64,502 50,014
Professional fees............... 5,227 15,684 41,623 95,256 62,737 24,182 14,305
Occupancy....................... 14,153 10,890 52,771 38,250 27,096 22,935 24,560
Marketing and business
development................... 3,512 10,154 22,493 32,679 23,447 9,767 9,262
Broker-dealer rebates........... 3,291 -- -- -- -- -- --
Other........................... 15,733 13,003 55,846 42,916 32,337 20,337 20,997
Restructuring................... 15,030 -- 24,378 -- -- -- --
Loss of fixed assets at
World Trade Center............ -- -- 20,346 -- -- -- --
Insurance recovery of fixed
assets lost................... -- -- (21,000) -- -- -- --
-------- ------- --------- --------- ------- ------- -------
Total expenses.............. 295,947 341,196 1,244,251 1,170,429 735,071 568,863 460,255
-------- ------- --------- --------- ------- ------- -------
Income/(loss) before income
taxes and cumulative effect
of change in accounting
principle...................... (25,568) 89,479 252,208 264,610 234,373 273,306 254,393
Provision for/(benefit from)
income taxes................... (9,527) 39,371 107,441 116,428 98,255 113,409 113,154
-------- ------- --------- --------- ------- ------- -------
Net income/(loss)
before cumulative effect
of change in accounting
principle................ (16,041) 50,108 144,767 148,182 136,118 159,897 141,239
Cumulative effect of change in
accounting principle........... (18,642) -- -- -- -- -- --
-------- ------- --------- --------- ------- ------- -------
Net income/(loss)...........$(34,683) 50,108 $144,767 $148,182 $136,118 $159,897 $141,239
======== ======= ========= ========= ======= ======= =======
Earnings/(loss) per share -
basic and
diluted:
Income/(loss) before
cumulative effect of change
accounting
in principle............... $(0.06) $0.24 $0.63 $0.72(2) $0.66(2) $0.77(2) $0.68(2)
Cumulative effect of
change in accounting
principle................... (0.08) -- -- -- -- -- --
-------- ------- --------- --------- ------- ------- -------
Net earnings/(loss) per share..... $(0.14) $0.24 $0.63 $0.72(2) $0.66(2) $0.77(2) $0.68(2)
Weighted average shares
outstanding:
Outstanding-- basic..........248,730,356 206,900,000 230,561,134 206,900,000(2) 206,900,000(2) 206,900,000(2) 206,900,000(2)
Outstanding-- diluted........248,730,356 206,900,000 230,564,476 206,900,000(2) 206,900,000(2) 206,900,000(2) 206,900,000(2)
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(1) The expenses in various categories in this table include costs we incurred
in developing our fixed income securities business and a retail brokerage
capability. These costs totaled $11.1 million and $18.3 million in the
first three months of 2002 and 2001, respectively and $49.3 million in
2001, $118.8 million in 2000, $51.1 million in 1999 and $13.4 million in
1998. In December 2000, we decided not to launch our retail brokerage
operation, and on May 3, 2002, we closed our fixed income trading platform.
(2) Calculated based on the number of common shares that would have been held
by Reuters after giving effect to a return of capital payment of $150
million to Reuters and our conversion from a limited liability company to a
corporation, which is pushed back for EPS calculation purposes.
Three Months
Ended March 31 Year Ended December 31,
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2001/2002 2000/2001 1999/2000 1998/1999 1997/1998
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Growth rates:
Total revenue........... (37.2)% 4.3% 48.0% 15.1% 17.8%
Total expenses(1)....... (13.3) 6.3 59.2 29.2 23.6
Net income.............. (169.2) (2.3) 8.9 (14.9) 13.2
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(1) Includes costs we incurred in developing our fixed income securities
business and a retail brokerage capability. These costs totaled $11.1
million and $18.3 million in the first three months of 2002 and 2001,
respectively and $49.3 million in 2001, $118.8 million in 2000, $51.1
million in 1999 and $13.4 million in 1998. In December 2000, we decided not
to launch our retail brokerage operation, and on May 3, 2002, we closed our
fixed income trading platform.
March 31, December 31,
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2002 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ----
Statement of Financial Condition Data:
Cash and cash equivalents.......... $522,479 $703,678 $415,199 $349,522 $339,281 $245,060
Securities owned, at market value. 357,768 236,007 185,121 214,625 190,393 144,862
Receivable from broker-dealers..... 193,658 421,196 660,319 434,995 139,838 74,876
Receivable from customers.......... 86,607 68,280 149,080 110,006 37,555 37,969
Total assets....................... 2,662,729 2,994,841 2,440,424 1,747,470 1,155,576 840,131
Stockholders' equity............... 1,429,698 1,462,509 927,336 778,842 703,022 540,637
Three Months Ended
March 31, Year Ended December 31,
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2002 2001 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
Other Data:
Instinet's Nasdaq share volume (millions)....... 12,043 20,053 65,893 57,390 35,211 28,653 25,690
Instinet's U.S. exchange-listed share volume
(millions).................................. 3,117 2,689 11,016 9,321 5,935 5,078 3,194
------ ------ ------ ------ ------ ------ ------
Instinet's total U.S. share volume (millions)... 15,160 22,742 76,909 66,711 41,146 33,731 28,884
Instinet's U.S. equity transaction volume
(thousands)................................. 18,953 27,488 98,346 82,437 44,902 26,800 20,450
Instinet's international equity transaction
volume (thousands).......................... 1,957 1,702 7,685 5,181 2,827 1,334 567
------ ------ ------ ------ ------ ------ ------
Instinet's total equity transaction volume
(thousands)................................. 20,910 29,190 106,031 87,618 47,729 28,133 21,017
Instinet's average equity transactions per day.. 349 471 428 348 189 112 83
Three
Months
Ended March 31, Year Ended December 31,
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2001/2002 2000/2001 1999/2000 1998/1999 1997/1998
--------- --------- --------- --------- ---------
Growth rates:
Instinet's Nasdaq share volume................. (39.9)% 14.8% 63.0% 22.9% 11.5%
Instinet's U.S. exchange-listed share volume... 15.9 18.2 57.1 16.9 59.0
Instinet's total U.S. share volume............. (33.3) 15.3 62.1 22.0 16.8
Instinet's U.S. equity transaction volume...... (31.0) 19.3 83.6 67.5 31.1
Instinet's international equity transaction 15.0 48.3 83.3 111.9 135.3
volume.........................................
Instinet's total equity transaction volume..... (28.4) 21.0 83.6 69.7 33.9
Instinet's average equity transactions per day. (25.9) 23.0 84.1 68.8 34.9
For comparative purposes, the following table reflects our results
adjusted as though we had adopted SFAS 142 on January 1, 1999 and had not
amortized goodwill:
Three Months Ended
March 31, Year Ended December 31,
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2002 2001 2001 2000 1999
---- ---- ---- ---- ----
Net income/(loss), as reported................. $(34,683) $50,108 $144,767 $148,182 $136,118
Goodwill amortization.......................... -- 2,011 8,110 7,505 4,616
Tax effect..................................... -- (356) (1,376) (1,185) --
Net income/(loss), as adjusted................. $(34,683) $51,763 $151,501 $154,502 $140,734
Basic and diluted earnings/(loss) per share, $(0.14) $0.24 $0.63 $0.72 $0.66
as reported....................................
Basic and diluted earnings/(loss) per share,
as adjusted.................................... $(0.14) $0.25 $0.66 $0.75 $0.68
(c) Exhibits
Number Description
99.1 News Release of Instinet Group Incorporated
issued July 22, 2002: Instinet Announces
Second Quarter 2002 Results.
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 duly authorized.
INSTINET GROUP INCORPORATED
Registrant
Date: July 23, 2002
By: /s/ Mark Nienstedt
-----------------------------------------
Mark Nienstedt
Acting President and Chief Executive
Officer, and Chief Financial Officer, and
Director
Exhibit Index
99.1 News Release of Instinet Group Incorporated issued
July 22, 2002: Instinet Announces Second Quarter 2002
Results.