Exhibit 99.1
FOR IMMEDIATE RELEASE
INVESTOR RELATIONS: MEDIA RELATIONS:
John Pitt Silvia Davi
Instinet Group Incorporated Instinet Group Incorporated
212 310 7481 212 310 7792
john.pitt@instinet.com silvia.davi@instinet.com
INSTINET ANNOUNCES FOURTH QUARTER
AND 2002 RESULTS
NEW YORK, February 11, 2003 - Instinet Group Incorporated (Nasdaq: INET) today
announced a fourth quarter 2002 net loss of $112 million, or $0.34 per share,
compared to net income of $46 million, or $0.18 per share, for the fourth
quarter of 2001.(1) The pro forma operating loss was $10 million, or $0.03 per
share, for the fourth quarter of 2002. The pro forma operating loss excludes
restructuring charges, investment gains and losses, discontinued operations and
the related tax effect of those items.(2)
For the year ended December 31, 2002, the net loss was $735 million or $2.71 per
share, compared to net income of $145 million, or $0.63 per share for 2001. The
pro forma operating loss for the year ended December 31, 2002 was $8 million or
$0.03 per share. The pro forma operating loss for the full year excludes
goodwill impairment, restructuring charges, investment gains and losses,
discontinued operations, change in accounting principle, and the related tax
effect of those items.
Ed Nicoll, Chief Executive Officer of Instinet, commented: "This has been a
tough quarter for us, but we are moving ahead to position ourselves for
long-term growth and profitability. We are on schedule to reduce our annualized
costs by $100 million by the end of 2003, which will result in a leaner and more
efficient company. We will also continue to provide our customers with the
insight and expertise in the marketplace that flow directly from our combination
of professionalism, superior liquidity, state-of-the art technology, and global
execution infrastructure. Especially in a challenging economic environment, our
customers will demand the most innovative and efficient electronic marketplace.
We'll be there to deliver for them."
BUSINESS HIGHLIGHTS
- - Our clients traded 36.8 billion U.S. equity shares through Instinet in the
fourth quarter of 2002, up 113% from 17.2 billion shares executed in the
fourth quarter of 2001, and up 39% from 26.5 billion shares executed in the
third quarter of 2002. (This includes volume from all Instinet Group
subsidiaries.) The Island ECN accounted for 15.5 billion shares of this
volume in the fourth quarter of 2002.
- --------
(1) Unless otherwise specified, financial results and statistical information
referred to in this release include data for Island Holding Company, Inc.
following the closing of our acquisition of Island on September 20, 2002.
Instinet/1
- - U.S. equity shares executed through Instinet during the fourth quarter of
2002 consisted of 31.2 billion Nasdaq-listed shares and 5.6 billion
exchange-listed shares. Island ECN accounted for 13.4 billion of this
Nasdaq-listed share volume and 2.1 billion of this exchange-listed share
volume.
- - Our share of total U.S. equity volume was 16.1% in the fourth quarter. This
compares to 7.8% in the fourth quarter of 2001.
- - Our share of Nasdaq-listed equity volume was 29.7% in the fourth quarter,
and our share of U.S. exchange-listed equity volume was 4.5%.
- - Our annualized fixed-cost base was $665 million in the fourth quarter. This
was $31 million, or 4%, below its level in the fourth quarter of 2001.
Island contributed an increase of $15 million to our fourth-quarter fixed
cost base. (The fixed-cost base excludes non-recurring expenses - charges
for goodwill impairment, restructuring and insurance recovery of World
Trade Center losses-- and variable costs, including soft dollar and
commission recapture, brokerage, clearing and exchange fees, and
broker-dealer rebates.)
FINANCIAL PERFORMANCE
Revenues
Total revenues for the fourth quarter were $267 million, down 23% from the
fourth quarter of 2001.
Transaction fee revenue for the fourth quarter was $278 million, down 13% from
the comparable period in 2001. Net of soft dollar expenses and commission
recapture expenses, and broker-dealer rebates, fourth-quarter net transaction
fee revenue declined 34% from the fourth quarter of 2001.
Net transaction fee revenue from U.S. equity transactions for the fourth quarter
was $134 million, down 37% from the year-ago quarter due to a decline in revenue
per share that more than offset an increase in volume. The decline in revenue
per share was primarily the result of a reduction in the broker-dealer pricing
schedule that we implemented in March 2002, offset by the inclusion of Island's
revenues in the fourth quarter of 2002.
Net transaction fee revenue from U.S. equities traded by U.S. broker-dealers
represented approximately 42% of total net transaction fee revenue in the fourth
quarter of 2002 compared to 44% in the fourth quarter of 2001. Buy-side
institutions trading U.S. equities made up approximately 54% of total net
transaction fee revenue in the fourth quarter of 2002 and in the comparable
period in 2001.
Net transaction fee revenue from non-U.S. equities decreased from the previous
quarter, and consisted of 21% of the total, compared to 18% a year earlier.
Interest income for the fourth quarter was $9 million, down 26% from the
comparable period in 2001, primarily due to lower interest rates which affect
our securities lending activities, as well as a reduction in cash balances
following the payment of our $249 million special dividend in October.
Instinet/2
During the quarter, Instinet recorded a net investment loss of $20 million,
resulting mainly from a write-down in the carrying value of some of the
company's non-public investments.
Expenses
Instinet's total expenses from continuing operations for the fourth quarter of
2002 were $372 million, up 36% from the comparable period in 2001, with our
acquisition of Island accounting for 55% of the increase. Excluding the $62
million restructuring charge in the fourth quarter of 2002 and the $1 million
restructuring charge in the fourth quarter of 2001, expenses were $310 million,
up approximately 14% from the fourth quarter of 2001.
- - Compensation and benefits expense was $61 million in the fourth quarter of
2002, down 28% from the comparable period the previous year, reflecting
substantially lower staff levels, partially offset by an increase due to
our acquisition of Island.
- - Soft dollar and commission recapture expense fell 14% to $50 million from
the fourth quarter of 2001. Higher commission recapture revenue from plan
sponsors was offset by lower soft dollar revenue in line with a decrease in
trading volumes.
- - Brokerage, clearing and exchange fees were $37 million, down 8% from the
prior year's quarter, reflecting lower regulatory fees and increased trade
compression, partially offset by an increase due to our acquisition of
Island.
- - Broker-dealer rebates, introduced in March 2002, were $57 million for the
fourth quarter of 2002.
- - Communications and equipment expense was $37 million, up 11% due to
accelerated charges associated with the migration of clients off our
proprietary high-speed network and onto the Radianz network, and the
inclusion of Island for the fourth quarter.
- - Depreciation and amortization expense was $25 million, up 16% from the
year-ago quarter, primarily due to the amortization of intangible assets,
which arose from our acquisition of Island, offset by the exclusion of
goodwill amortization as a result of accounting changes.
Balance Sheet
At December 31, 2002, Instinet had net cash (cash and cash equivalents and
securities owned less short-term borrowings) of approximately $595 million, $894
million of tangible net assets, and shareholders' equity of $1 billion. There
were approximately 331 million shares of common stock outstanding.
COST REDUCTION
During the fourth quarter, Instinet commenced a cost-reduction plan to reduce
operating costs by $100 million on an annualized basis by the end of 2003. As
part of this plan, the company reduced its workforce by 300, or approximately
17% of its full-time employees, both in the U.S. and in its international
operations, and consolidated office space within the New York
Instinet/3
City area. A restructuring charge of $62 million was recorded for the fourth
quarter in connection with these measures.
Instinet's Chief Financial Officer, John Fay, commented: "We have implemented a
plan to produce a leaner and more efficient cost structure. We intend to look
for more savings from the integration of Instinet and Island as the year
progresses."
OPERATING REVIEW
Important operating achievements during the quarter included:
- - Instinet Trading Portal(SM), the company's new front-end trading
application, was deployed at over 600 Instinet client sites by the end of
the fourth quarter. This was well ahead of the company's original year-end
deployment target of 400. Portal now contributes approximately 20% of
Instinet's total institutional order flow. On its peak day so far (in
December 2002), the system processed nearly 35 million shares. Instinet
aims to double the number of customers using Portal by the end of 2003.
- - Newport(TM), Instinet's patent-pending global program-trading and execution
management solution, was deployed at 50 clients in the U.S. and Europe by
the end of the quarter, more than twice as many as in the previous quarter.
Customers are using Newport to trade in global markets, to access Instinet
Global Crossing, to implement rules-based automated trading, and to route
orders to other unaffiliated broker-dealers. In addition, Newport is used
actively on Instinet's own program-trading, sales-trading and working-order
desks to receive and trade portfolios and discretionary orders on behalf of
clients.
- - The company completed the first phase of interaction between the Instinet
and Island order books, using our Smart Router and IOC technology to give
each system's customers seamless access to a combined virtual book. The
migration of U.S. FIX customers to our new, faster FIX protocol, ITFI-Lite,
was completed. Instinet also shifted its quoting to the Alternative Display
Facility.
- - In January 2003, the company completed a significant component of
cost-saving when it successfully converted Island's clearing to Instinet
Clearing Services in one of the largest such conversions in the history of
Wall Street. The company expects to significantly reduce clearing costs
subsequent to the conversion.
"The increase in our trading volume and market share shows the quality of our
offerings to clients," said Jean-Marc Bouhelier, Chief Operating Officer of
Instinet. "We persevered through a difficult 2002, but I think 2003 holds a lot
of opportunity as we focus on serving our clients, reducing costs, and
increasing our market share within each of our customer segments through the
deployment of new products and services. We will continue to adapt our operating
model to meet the demands of a very challenging market environment."
Instinet/4
WEBCAST
Instinet will webcast a conference call to discuss its fourth quarter results at
11:00 a.m. New York time today at http://www.investor.instinet.com. A replay
will be available at the same address following the call.
ABOUT INSTINET
Instinet, through affiliates, is the largest global electronic agency securities
broker and has been providing investors with electronic trading solutions for
more than 30 years. Our services enable buyers and sellers worldwide to trade
securities directly and anonymously with each other, have the opportunity to
gain price improvement for their trades and lower their overall trading costs.
Through our electronic platforms, our customers also can access over 40
securities markets throughout the world, including Nasdaq, the NYSE and stock
exchanges in Frankfurt, Hong Kong, London, Paris, Sydney, Tokyo, Toronto and
Zurich. We also provide our customers with access to research generated by us
and by third parties, as well as various informational and decision-making
tools. Unlike most traditional broker-dealers, we act solely as an agent for our
customers and do not trade securities for our own account or maintain
inventories of securities for sale.
2. See table titled "Reconciliation of Pro Forma Operating Results".
# # #
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.
(C) 2003 Instinet Corporation and its affiliated companies. All rights reserved.
Instinet Clearing Services, Inc. is a wholly owned subsidiary of Instinet
Corporation, both members NASD/SIPC, and subsidiaries of Instinet Group
Incorporated. INSTINET, the INSTINET Mark, the Instinet Trading Portal and
Newport are trademarks and service marks in the United States and in other
countries throughout the world. Island Holding Company and the Island ECN, Inc.,
member NASD/CSE/SIPC, are subsidiaries of Instinet Group Incorporated. The
Island ECN operates as an entity separate from Instinet Corporation's ECN.
This news release may be deemed to include forward-looking statements relating
to Instinet. Certain important factors that could cause actual results to differ
materially from those disclosed in such forward-looking statements are included
in Instinet's Quarterly Report on Form 10-Q for the period ended September 30,
2002, and other documents filed with the SEC and available on the Company's
website. Certain information regarding Nasdaq trading volumes is also included
in Instinet's Annual Report on Form 10-K for the fiscal year ended December 31,
2001 and on the Company's website at www.instinet.com. These statements speak
only as of the date of this news release, and the Company does not undertake any
obligation to update them.
Instinet/5
Instinet Group Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three months ended
---------------------------- Pct Chg
Dec 31, 2002 Dec 31, 2001 inc/(decr)
------------ ------------ ----------
REVENUES
Transaction fees $ 278,441 $ 319,219 (12.8)%
Interest
Investments 8,546 11,562 (26.1)
(19,878) 17,817 --
------------ ------------
TOTAL REVENUES 267,109 348,598 (23.4)
EXPENSES
Compensation and benefits 60,745 83,996 (27.7)
Soft dollar and commission recapture 50,161 58,174 (13.8)
Broker-dealer rebates 56,601 -- --
Brokerage, clearing and exchange fees 36,994 40,364 (8.3)
Communications and equipment 36,604 32,872 11.4
Depreciation and amortization 24,659 21,269 15.9
Occupancy 16,158 11,587 39.4
Professional fees 7,820 7,880 (0.8)
Marketing and business development 3,756 2,739 37.1
Other 16,559 13,742 20.5
Restructuring 62,405 1,557 --
Loss of fixed assets at World Trade Center -- 818 --
Insurance recovery of fixed assets lost at the World Trade
Center -- (1,472) --
------------ ------------
TOTAL EXPENSES 372,462 273,526 36.2
------------ ------------
Income/(loss) from continuing operations before income taxes (105,353) 75,072
Income tax provision 6,690 26,662
------------ ------------
Income/(loss) from continuing operations (112,043) 48,410
Discontinued operations:
Loss from operations of fixed income business (412) (4,535)
Income tax benefit 252 1,844
------------ ------------
NET INCOME/(LOSS) $(112,203) $ 45,719
============ ============
EARNINGS/(LOSS) PER SHARE - BASIC AND DILUTED
Income/(loss) from continuing operations $ (0.34) $ 0.19
Discontinued operations:
Loss from operations of fixed income business (0.00) (0.02)
Income tax benefit 0.00 0.01
------------ ------------
NET INCOME/(LOSS) $ (0.34) $ 0.18
============ ============
Weighted average shares outstanding - basic 329,933 248,351 32.8
Weighted average shares outstanding - diluted 331,498 248,351 33.5
Note: Results for Island Holding Company, Inc. are included in
2002.
Instinet/6
Instinet Group Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Year ended
----------------------------- Pct Chg
Dec 31, 2002 Dec 31, 2001 inc/(decr)
------------ ------------ ----------
(Unaudited) (Audited)
REVENUES
Transaction fees $ 1,078,172 $ 1,424,343 (24.3)%
Interest 40,137 49,296 (18.6)
Investments (59,109) 17,388 --
------------ ------------
TOTAL REVENUES 1,059,200 1,491,027 (29.0)
EXPENSES
Compensation and benefits 281,761 406,348 (30.7)
Soft dollar and commission recapture 217,314 220,050 (1.2)
Broker-dealer rebates 124,399 -- --
Brokerage, clearing and exchange fees 149,521 146,223 2.3
Communications and equipment 125,720 156,002 (19.4)
Depreciation and amortization 78,424 80,754 (2.9)
Occupancy 55,528 49,918 11.2
Professional fees 24,594 39,990 (38.5)
Marketing and business development 17,094 22,143 (22.8)
Other 58,984 54,534 8.2
Restructuring 120,800 24,378 --
Goodwill impairment 551,991 -- --
Loss of fixed assets at World Trade Center 20,346 --
Insurance recovery of fixed assets lost (21,000) --
------------ ------------
TOTAL EXPENSES 1,806,130 1,199,686 50.6
------------ ------------
Income/(loss) from continuing operations before income taxes
and the cumulative effect of change in accounting principle (746,930) 291,341
Income tax provision/(benefit) (53,088) 122,210
------------ ------------
Income/(loss) from continuing operations before the cumulative
effect of change in accounting principle (693,842) 169,131
Discontinued operations:
Loss from operations of fixed income business (33,768) (39,133)
Income tax benefit 11,022 14,769
------------ ------------
Income/(loss) before cumulative effect of change in accounting
principle (716,588) 144,767
Cumulative effect of change in accounting principle, net of tax (18,642) --
------------ ------------
NET INCOME/(LOSS) $ (735,230) $ 144,767
============ ============
EARNINGS/(LOSS) PER SHARE - BASIC AND DILUTED
Income/(loss) from continuing operations $ (2.56) $ 0.73
Discontinued operations:
Loss from operations of fixed income business (0.12) (0.17)
Income tax benefit 0.04 0.07
------------ ------------
Income/(loss) before cumulative effect of change in accounting
principle (2.64) 0.63
Cumulative effect of change in accounting principle (0.07) --
------------ ------------
NET INCOME/(LOSS) $ (2.71) $ 0.63
============ ============
Weighted average shares outstanding - basic 271,542 230,561 17.8
Weighted average shares outstanding - diluted 272,135 230,564 18.0
Note: Results for Island Holding Company, Inc. are included subsequent to
9/20/02.
Instinet/7
Instinet Group Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three months ended
-------------------------------
Sept 30, Pct Chg
Dec 31, 2002 2002 inc/(decr)
------------ --------- ----------
REVENUES
Transaction fees $ 278,441 $ 263,917 5.5%
Interest 8,546 10,699 (20.1)
Investments (19,878) (20,336) --
------------ ---------
TOTAL REVENUES 267,109 254,280 5.0
------------ ---------
EXPENSES
Compensation and benefits 60,745 63,809 (4.8)
Soft dollar and commission recapture 50,161 51,824 (3.2)
Broker-dealer rebates 56,601 39,004 --
Brokerage, clearing and exchange fees 36,994 42,079 (12.1)
Communications and equipment 36,604 26,620 37.5
Depreciation and amortization 24,659 16,712 47.6
Occupancy 16,158 12,223 32.2
Professional fees 7,820 5,110 53.0
Marketing and business development 3,756 2,451 53.2
Other 16,559 9,899 67.3
Restructuring 62,405 955 --
Goodwill impairment -- 551,991 --
------------ ---------
TOTAL EXPENSES 372,462 822,677 (54.7)
------------ ---------
Income/(loss) from continuing operations before
income taxes (105,353) (568,397)
Income tax provision 6,690 (39,958)
Income/(loss) from continuing operations (112,043) (528,439)
Discontinued operations:
Loss from operations of fixed income business (412) --
Income tax benefit 252 --
------------ ---------
NET INCOME/(LOSS) $(112,203) $(528,439)
============ =========
EARNINGS/(LOSS) PER SHARE - BASIC AND DILUTED
Income/(loss) from continuing operations $ (0.34) $ (2.05)
Discontinued operations:
Loss from operations of fixed income (0.00) --
Income tax benefit 0.00 --
------------ ---------
NET INCOME/(LOSS) $ (0.34) $ (2.05)
============ =========
Weighted average shares outstanding - basic 329,933 258,206 27.8
Weighted average shares outstanding - diluted 331,498 258,487 28.2
Note: Results for Island Holding Company, Inc. are included subsequent to
9/20/02.
Instinet/8
Instinet Group Incorporated
KEY STATISTICAL INFORMATION
The following table presents key transaction volume information, as well as
certain other operating information.
Pct Chg --
inc/(decr)
-------------------
Three months ended Dec 31 2002
--------------------------------------- versus:
Dec 31 Sep 30 Dec 31 Sep 30 Dec 30
2002 2002 2001 2002 2001
-------- -------- -------- --------- ------
Net transaction fees from US equities (thousands)(1) $133,547 $130,121 $211,290 2.6 (36.8)%
Net transaction fees from non-US equities (thousands)(1) $ 34,635 $ 40,495 $ 46,512 (14.5) (25.5)
-------- -------- --------
Total net equity transaction fees (thousands)(1) $168,182 $170,616 $257,802 (1.4) (34.8)
-------- -------- --------
Total U.S. equity share volume (millions)(2,3) 228,692 239,100 220,876 (4.4) 3.5
Instinet's U.S. equity share volume (millions)(2) 36,771 26,471 17,229 38.9 113.4
Instinet's share of total U.S. equity share volume(2,3) 16.1% 11.1% 7.8%
Total Nasdaq-listed equity share volume (millions)(3) 105,116 110,195 119,086 (4.6) (11.7)
Instinet's Nasdaq-listed equity share volume (millions) 31,182 22,569 14,016 38.2 122.5
Instinet's share of total Nasdaq-listed equity share volume(3) 29.7% 20.5% 11.8%
-------- -------- --------
Total U.S. exchange-listed equity share volume (millions) 123,576 128,905 101,578 (4.1) 21.7
Instinet's U.S. exchange-listed equity share volume (millions) 5,589 3,902 3,213 43.2 73.9
Instinet's share of total U.S. exchange-listed equity
share volume 4.5% 3.0% 3.2%
-------- -------- --------
Instinet's U.S. equity transaction volume (thousands) 64,673 37,789 23,937 71.1 170.2
Instinet's non-U.S. equity transaction volume (thousands) 1,330 2,376 2,460 (44.0) (45.9)
-------- -------- --------
Instinet's total equity transaction volume (thousands) 66,003 40,165 26,397 64.3 150.0
-------- -------- --------
Instinet's average net equity transaction fee revenue
(U.S. cents per share per side)(1) 0.18 0.25 0.61 (28.0) (70.5)
Instinet's average U.S. equity transaction size (shares
per transaction) 569 700 720 (18.8) (21.0)
Instinet's average equity transactions per day
(thousands) 1,031 628 412 64.3 150.2
------- -------- --------
Full time employees at period end 1,474 1,723 2,132 (14.5) (30.9)
-------- -------- --------
1. Net equity transaction fees exclude revenues directly related to "Soft
Dollar and Commission Recapture" and "Broker-dealer Rebates", and thus do not
represent U.S. GAAP.
2. Represents Instinet Group Incorporated volume from all sources, including
the Island ECN subsequent to 9/20/02, ProTrader Securities L.P. subsequent to
10/1/01 and Instinet Corporation. U.S. shares consist of shares of
exchange-listed and Nasdaq-quoted stocks. For a description of how we calculate
our Nasdaq volumes, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Key Statistical Information -- Nasdaq
Volume Calculations" in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.
3. Market share information may be subject to change when NASDAQ posts its
final volume statistics.
Instinet/9
Instinet Group Incorporated
RECONCILIATION OF PRO FORMA OPERATING RESULTS
In evaluating the Company's financial performance, management reviews results
from operations, which excludes non-operating or one-time charges. The following
is a reconciliation of US GAAP results to pro forma operating results.
Three Months Ended Year Ended
------------------------------------------- -----------------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2002 2002 2001 2002 2001
----------- ----------- ----------- ----------- -----------
Total revenues, as reported $ 267,109 $ 254,280 $ 348,598 $ 1,059,200 $ 1,491,027
Less investments (19,878) (20,336) 17,817 (59,109) 17,388
----------- ----------- ----------- ----------- -----------
Adjusted operating revenues 286,987 274,616 330,781 1,118,309 1,473,639
----------- ----------- ----------- ----------- -----------
Total expenses, as reported 372,462 822,677 273,526 1,806,130 1,199,686
Less goodwill impairment -- 551,991 -- 551,991 --
Less restructuring 62,405 955 1,557 120,800 24,378
Less fixed assets lost at the World Trade Center -- -- 818 -- 20,346
Less insurance recovery of fixed assets lost -- -- (1,472) -- (21,000)
----------- ----------- ----------- ----------- -----------
Adjusted operating expenses 310,057 269,731 272,623 1,133,339 1,175,962
----------- ----------- ----------- ----------- -----------
Adjusted operating income/(loss) from continuing
operations before income taxes and cumulative
effect of change in accounting principle ----------- ----------- ----------- ----------- -----------
(23,070) 4,885 58,158 (15,030) 297,677
----------- ----------- ----------- ----------- -----------
Income tax provision/(benefit), as reported 6,690 (39,958) 26,662 (53,088) 122,210
Less tax effect of pro forma adjustments 19,773 41,833 (6,953) (46,475) (11,745)
----------- ----------- ----------- ----------- -----------
Adjusted operating income tax provision/(benefit) (13,083) 1,875 33,615 (6,613) 133,955
----------- ----------- ----------- ----------- -----------
Income/(loss) from continuing operations before
cumulative change in accounting principle,
as reported (112,043) (528,439) 48,410 (693,842) 169,131
Less net effect of adjustments (102,056) 531,449 23,867 (685,425) 5,409
----------- ----------- ----------- ----------- -----------
Adjusted operating income $ (9,987) $ 3,010 $ 24,543 $ (8,417) $ 163,722
=========== =========== =========== =========== ===========
Instinet/10