RNS Number:2303K
Reuters Group PLC
22 April 2003
22 April 2003 05/03
INSTINET AND REUTERS GROUP FIRST QUARTER REVENUE STATEMENT
London - Instinet, the electronic brokerage in which Reuters Group has a 63% stake, published its financial results
for the first quarter of 2003 today. These results are published in US dollars and under US GAAP. Reuters (excluding
Instinet) announced its first quarter revenue on 16 April and is taking this opportunity to state Instinet's first
quarter revenue in sterling and under UK GAAP, as shown in the table below. These have been added to the Reuters
first quarter revenue figure of #670 million to give first quarter revenue for the Reuters Group.
* Under UK GAAP, Instinet's first quarter revenue fell 15% to #130 million from #153 million for the comparable period
in 2002. On a constant currency basis, the decline in Instinet revenue was 7%.
* Also under UK GAAP, Reuters Group revenue for the first quarter of 2003 declined 13% to #798 million from #912
million for the comparable period in 2002. On a constant currency basis, the decline in revenue for Reuters Group was
10%.
Instinet's full statement follows at the end of this press release.
Reuters Group
Revenue analysis - Three months to 31 March 2003
Three months to
31 March
2003 2002
#m #m
%Change
Reuters 670 762 (12%)
Instinet 130 153 (15%)
800 915 (13%)
Share of joint ventures revenue 25 27 (6%)
Intra group revenue (2) (3) (30%)
Gross revenue 823 939 (12%)
Less share of joint ventures revenue (25) (27) (6%)
Group revenue 798 912 (13%)
Reconciliation of Instinet revenue for the three months to 31 March 2003
The following is a reconciliation of the unaudited revenue for the three months to 31 March 2003 of Instinet under US
GAAP, as released by Instinet today, to the numbers shown above under UK GAAP.
Revenue
Per Instinet results - US GAAP (US$m) 240
Adjustments to UK GAAP
- Soft dollar commission (49)
- Interest (3)
- Mark-to-market of investments 22
Instinet revenue - UK GAAP (US$m) 210
Instinet revenue - UK GAAP (#m) 130
An exchange rate of US$1.61 has been used, being the average rate for the quarter.
A significant part of the adjustment from US GAAP to UK GAAP relates to soft dollar commission, primarily relating to
the purchase of third party research products, as well as payments made as part of Instinet's commission recapture
services. Under US GAAP Instinet reports its transaction fee revenue from these businesses on a gross basis. Under UK
GAAP this revenue is netted against cost.
Other revenue adjustments include interest income and mark-to-market gains and losses on investments held at the
balance sheet date, both of which are not included as revenue under UK GAAP.
End
Contacts
Press - UK Tel: +44 (0) 20 7542 7800/2615
Simon Walker/Yvonne Diaz
simon.walker@reuters.com/Yvonne.diaz@reuters.com
Investors - UK Tel: +44 (0) 20 7542 7057
Miriam McKay
miriam.mckay@reuters.com
Investors and press - USA Tel: +1 646 223 5220
Nancy Bobrowitz
nancy.bobrowitz@reuters.com
Note to Editors
Reuters (www.about.reuters.com), the global information company, provides indispensable information tailored for
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making across the globe based on our reputation for speed, accuracy and independence. We have 16,000 staff in 94
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the world's largest international multimedia news agency. In 2002, the Reuters Group had revenues of #3.6 billion.
Reuters and the sphere logo are the trademarks of the Reuters group of companies.
This statement may be deemed to include forward-looking statements relating to Reuters within the meaning of Section
27A of the US Securities Act of 1933 and Section 21E of the US Securities Exchange Act of 1934. Certain important
factors that could cause actual results to differ materially from those disclosed in such forward-looking statements
are described in Reuters Annual Report and Form 20-F 2002 under the heading 'Risk Factors'. Copies of the Annual
Report and Form 20-F are available on request from Reuters Group PLC, 85 Fleet Street, London EC4P 4AJ.
Investor Relations: Media Relations:
John Pitt Alicia Curran
Instinet Group Incorporated Instinet Group Incorporated
212 310 7481 212 310 5462
john.pitt@instinet.com alicia.curran@instinet.com
INSTINET ANNOUNCES FIRST QUARTER RESULTS
NEW YORK, April 22, 2003 - Instinet Group Incorporated (Nasdaq: INET) today announced a net loss of $34 million or
$0.10 per share, compared to a net loss of $35 million, or $0.14 per share, for the first quarter of 2002.(1) The pro
forma operating loss was $6 million, or $0.02 per share, for the first quarter of 2003. The pro forma operating loss
excludes investment gains and losses, the effect of charges related to our recently announced cost reductions,
insurance recovery for assets lost at the World Trade Center in 2001, and the related tax effect of these items.(2)
Ed Nicoll, Chief Executive Officer of Instinet, commented: "Under tough first-quarter business conditions both in the
U.S. and elsewhere, Instinet made significant progress with our comprehensive plan to reduce costs and deliver
technologically advanced products and services in the most efficient manner possible. Over the coming months, we will
also seize the opportunity to provide our customers enhanced automated services for the trading of U.S. listed
securities, which will allow our fully electronic, unconflicted marketplace to compete more aggressively against the
manual, floor-based markets."
Business Highlights
* Our clients traded 31.5 billion U.S. equity shares through Instinet in the first quarter of 2003, up from 15.2
billion shares executed in the first quarter of 2002, and down 14% from 36.8 billion shares executed in the fourth
quarter of 2002. The decline versus the fourth quarter of 2002 was due to lower overall average daily market volumes
and three fewer trading days in 1Q03. The Island ECN accounted for 12.4 billion shares of this volume in the first
quarter of 2003.
* U.S. equity shares executed through Instinet during the first quarter of 2003 consisted of 26.3 billion Nasdaq-listed
shares and 5.2 billion U.S. exchange-listed shares.
* Our share of total U.S. equity volume was 15.4% in the first quarter. This compares to 7.1% in the first quarter of
2002 and 16.1% in the fourth quarter of 2002. The decline in our overall market share versus the fourth quarter was
due to a shift in the mix of total volume between the exchange-listed and Nasdaq-listed markets, as our share of each
market remained level.
* Our share of Nasdaq-listed equity volume was 29.6% in the first quarter, and our share of U.S. exchange-listed equity
volume was 4.5%.
* We have achieved a significant portion of our fourth quarter 2002 cost reduction targets. Our annualized fixed-cost
base was approximately $563 million in the first quarter. This was $142 million, or 20%, below its level in the first
quarter of 2002. (The fixed-cost base excludes variable costs - soft dollar and commission recapture, broker-dealer
rebates and brokerage, clearing and exchange fees - and non-operating expenses, which include charges related to
goodwill and our cost-reduction initiatives).2
Financial Performance
Revenues
Total revenues for the first quarter were $240 million, down 10% from the fourth quarter of 2002.
Transaction fee revenue for the first quarter was $255 million, down 8% from the fourth quarter of 2002. Our net
equity transaction fee revenue was $152 million, down 9% from the fourth quarter of 2002.2
During the first quarter, Instinet recorded a net investment loss of $22 million, resulting primarily from a
write-down in the carrying value of certain of the company's non-public investments.
Expenses
Instinet's total expenses from continuing operations for the first quarter of 2003 were $281 million, down 25% from
the fourth quarter of 2002. Operating expenses, which exclude severance and occupancy charges of $11 million
(included in compensation and benefits, and occupancy) related to our recently announced cost reductions, $5 million
insurance recovery of fixed assets lost at the World Trade Center in 2001, and restructuring charges in 2002, were
$274 million, or 12% lower than the comparable expenses in the fourth quarter of 2002.2
* Compensation and benefits expense was $64 million in the first quarter of 2003. Excluding a $9 million severance
charge for our recently announced cost reductions, compensation and benefits expense was down 10% from the previous
period, reflecting lower staff levels.
* Brokerage, clearing and exchange fees were $34 million, down 8% from the previous quarter, reflecting lower volume
and the integration of Island's clearing in the first quarter of 2003, partly offset by higher international clearing
costs.
* Communications and equipment expense was $31 million, down 16% from the previous quarter due to lower spending on
equipment, hardware and software, as well as lower costs related to our core communications due to system
efficiencies.
* Other expenses were $8 million, down 53% from the fourth quarter of 2002, primarily due to higher bad debt reserves
in the fourth quarter of 2002 related to loans made in prior periods to certain companies in which Instinet has
strategic investments.
Balance Sheet
At March 31, 2003, Instinet had net cash (cash and cash equivalents and securities owned less short-term borrowings)
of approximately $540 million, tangible net assets of approximately $870 million, and shareholders' equity of
approximately $990 million. There were approximately 331 million shares of common stock outstanding.
Cost Reduction
During the first quarter, Instinet announced that, as part of its continuing cost-reduction effort, it would reduce
its workforce by approximately 175 employees (or approximately 12 percent of its full-time employees), across its
operations, both in the U.S. and internationally. These reductions result from attrition and the elimination of
positions. They are expected to produce an estimated $20 million reduction in annualized operating costs. This
decrease is in addition to the $100 million cost reduction target announced in the fourth quarter of 2002. As noted
above, in the first quarter of 2003 we incurred costs of $11 million related to this cost reduction program.
Instinet's Chief Financial Officer, John F. Fay, commented: "In the first quarter, we reduced our operating costs
significantly compared to the fourth quarter. We are operating in a very tough environment and continue to be focused
on looking for cost reductions and efficiencies. We believe that with our strong, debt-free balance sheet, we are
well positioned to weather the current market conditions and are focused on transforming to a low-cost organization
to better serve our customers."
Operating Review
Important operating achievements during the quarter included:
* Instinet Trading PortalSM, the company's new front-end trading application, was deployed at over 700 Instinet client
sites by the end of the first quarter, well ahead of original deployment targets. By quarter-end, over 25% of
Instinet's total institutional order flow was being processed through Portal.
* NewportTM, Instinet's patent-pending global program-trading and execution management solution, was deployed at 75
clients by the end of the quarter. Customers use Newport to trade in global markets, access Instinet Crossing,
implement rules-based automated trading, and route orders to other unaffiliated broker-dealers. Newport is also used
actively on Instinet's own trading desks to receive and trade orders on behalf of clients. During the first quarter,
shares with a value of $14.5 billion were executed via Newport, an increase of 36% over the previous quarter.
* Instinet Crossing was made accessible through Portal. The functionality allows Portal customers to route orders to
the after-hours cross as a destination choice in the Portal order ticket, and provides next-day execution reports.
Access to the cross is already a feature of Newport and other Instinet front-ends.
* Instinet began implementing smart-routing for trading in U.S. exchange-listed stocks. The technology will give
clients fast, one-stop access with complete anonymity to all major sources of upstairs listed liquidity, including
ECNs and ITS-CAES (which combined account for over 17% of average daily volume in NYSE-listed stocks), together with
DOT connectivity. The enhancement includes upgraded order-entry functionality.
* Instinet Clearing Services migrated Instinet's U.S. broker business to its new high-performance clearing system, a
scalable transaction processing system that significantly increases Instinet's clearing capacities.
* As part of its continuing program to achieve additional cost savings through the integration of Instinet and Island,
the company successfully converted Island's clearing to Instinet Clearing Services. This was one of the largest such
conversions in Wall Street history, and is expected to significantly reduce clearing costs.
* Other integration developments during the quarter included reduction of office space, rationalization of vendor
contracts, optimization of client connectivity and re-organization of internal human resource programs and policies
that together are expected to produce annual savings of over $30 million.
"Despite one of the most challenging business environments in its history, Instinet has successfully maintained its
leadership position in the market for Nasdaq-listed securities, and at the same time taken steps to deliver new
products and services to our customers to further increase our presence in the market for U.S. exchange-listed
securities," said Jean-Marc Bouhelier, Chief Operating Officer of Instinet. "We also continue to take steps to
further reduce our unit costs and improve profitability."
Webcast
Instinet will webcast a conference call to discuss its first 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, manage their orders 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. Our customers primarily consist
of institutional investors, such as mutual funds, pension funds, insurance companies and hedge funds, as well as
market professionals, including 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.
# # #
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 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and other documents
filed with the SEC and available on the Company's website. Certain information regarding trading volumes is also
included in Instinet's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 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 Group Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited) Pct Chg -- inc/(decr)
Three months ended Mar 31 2003 versus:
Mar 31, 2003 Dec 31, 2002 Mar 31, 2002 Dec 31, 2002 Mar 31, 2002
REVENUES
Transaction fees $ 255,224 $ 278,441 $ 265,881 (8.3) (4.0)
Interest 6,347 8,546 8,934 (25.7) (29.0)
Investments (21,678) (19,878) (5,714) 9.1 279.4
Total revenues 239,893 267,109 269,101 (10.2) (10.9)
EXPENSES
Compensation and 63,984 60,745 86,218 5.3 (25.8)
benefits
Soft dollar and 49,058 50,161 53,591 (2.2) (8.5)
commission recapture
Broker-dealer rebates 50,420 56,601 3,291 (10.9)
Brokerage, clearing and 34,025 36,994 36,681 (8.0) (7.2)
exchange fees
Communications and 30,720 36,604 33,309 (16.1) (7.8)
equipment
Depreciation and 24,074 24,659 19,123 (2.4) 25.9
amortization
Occupancy 16,458 16,158 13,552 1.9 21.4
Professional fees 6,338 7,820 5,018 (19.0) 26.3
Marketing and business 2,781 3,756 3,407 (26.0) (18.4)
development
Other 7,860 16,559 15,674 (52.5) (49.9)
Restructuring - 62,405 15,030 - -
Insurance recovery of (5,000) - - - -
fixed assets lost at the
World Trade Center
Total expenses 280,718 372,462 284,894 (24.6) (1.5)
Income/(loss) from (40,825) (105,353) (15,793) (61.2) 158.5
continuing operations
before income taxes
Income tax provision (6,507) 6,690 (5,703) (197.3) 14.1
Income/(loss) from (34,318) (112,043) (10,090) (69.4) 240.1
continuing operations
Discontinued operations:
Loss from operations of - (412) (9,775) (100.0) (100.0)
fixed income business
Income tax benefit - 252 3,824 (100.0) (100.0)
Income/(loss) before (34,318) (112,203) (16,041) (69.4) 113.9
cumulative effect of
change in accounting
principle
Cumulative effect of - - (18,642) (100.0)
change in accounting
principle related to
goodwill, net of tax
Net income/(loss) $ (34,318) $ (112,203) $ (34,683) (69.4) (1.1)
Earnings/(loss) per
share - basic and
diluted
Income/(loss) from $ (0.10) $ (0.34) $ (0.04)
continuing operations
Discontinued operations:
Loss from operations of - (0.00) (0.04)
fixed income business
Income tax benefit - 0.00 0.02
Net income/(loss) $ (0.10) $ (0.34) $ (0.14) (69.5) (25.6)
Weighted average shares 330,764 329,933 248,730 0.3 33.0
outstanding - basic
Weighted average shares 330,764 329,933 248,730 0.3 33.0
outstanding - diluted
Note: Results for Island Holding Company, Inc. are included subsequent to 9/20/02.
Instinet Group Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Quarter ended:
Mar 31, Dec 31, Sept 30, June 30, Mar 31, Dec 31, Sept 30, June 30, Mar 31,
2003 2002 2002 2002 2002 2001 2001 2001 2001
REVENUE
Transaction fees $255,224 $278,441 $263,917 $269,933 $265,881 $319,219 $311,737 $378,891 $414,496
Interest 6,347 8,546 10,699 11,958 8,934 11,562 14,254 11,199 12,281
Investments (21,678) (19,878) (20,336) (13,181) (5,714) 17,817 (6,330) 3,689 2,212
Total revenues 239,893 267,109 254,280 268,710 269,101 348,598 319,661 393,779 428,989
EXPENSES
Compensation and 63,984 60,745 63,809 70,989 86,218 83,996 84,820 112,735 124,797
benefits
Soft dollar and 49,058 50,161 51,824 61,738 53,591 58,174 51,595 54,228 56,053
commission
recapture
Broker-dealer 50,420 56,601 39,004 25,503 3,291 - - - -
rebates
Brokerage, 34,025 36,994 42,079 33,767 36,681 40,364 33,284 36,185 36,390
clearing and
exchange fees
Communications and 30,720 36,604 26,620 29,187 33,309 32,872 36,939 42,560 43,631
equipment
Depreciation and 24,074 24,659 16,712 17,930 19,123 21,269 21,206 19,669 18,610
amortization
Occupancy 16,458 16,158 12,223 13,595 13,552 11,587 14,424 13,796 10,111
Professional fees 6,338 7,820 5,110 6,646 5,018 7,880 8,085 9,012 15,013
Marketing and 2,781 3,756 2,451 7,480 3,407 2,739 843 8,477 10,084
business
development
Other 7,860 16,559 9,899 16,852 15,674 13,742 14,312 13,545 12,935
Restructuring - 62,405 955 42,410 15,030 1,557 22,821 - -
Goodwill - - 551,991 - - - - - -
impairment
Loss of fixed - - - - 818 19,528 - -
assets at World
Trade Center
Insurance recovery (5,000) - - - - (1,472) (19,528) - -
of fixed assets
lost
Total expenses 280,718 372,462 822,677 326,097 284,894 273,526 288,329 310,207 327,624
Income/(loss) from (40,825) (105,353) (568,397) (57,387) (15,793) 75,072 31,332 83,572 101,365
continuing
operations before
income taxes,
cumulative effect
of change in
accounting
principle
Income tax (6,507) 6,690 (39,958) (14,117) (5,703) 26,662 15,685 36,198 43,665
provision/(benefit)
Income/(loss) from (34,318) (112,043) (528,439) (43,270) (10,090) 48,410 15,647 47,374 57,700
continuing
operations before
cumulative effect
of change in
accounting
principle
Discontinued
operations:
Loss from - (412) - (23,581) (9,775) (4,535) (11,871) (10,841) (11,886)
operations of
fixed income
business
Income tax benefit - 252 - 6,946 3,824 1,844 4,434 4,197 4,294
Income before
cumulative effect $(34,318) $(112,203) $(528,439) $(59,905) $(16,041) $45,719 $ 8,210 $ 40,730 $ 50,108
of change in
accounting
principle
Cumulative effect - - - - (18,642) - - - -
of change in
accounting
principle, net of
tax
Net income /
(loss) $(34,318) $(112,203) $(528,439) $(59,905) $(34,683) $45,719 $ 8,210 $ 40,730 $ 50,108
Basic and diluted:
Earnings/(loss) $(0.10) $ (0.34) $ (2.05) $ (0.24) $ (0.14) $ 0.18 $ 0.03 $ 0.18 $ 0.24
per share
Note: Results for Island Holding Company, Inc. are included subsequent to 9/20/02.
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 (5) Mar 31 2003 versus:
Mar 31, 2003 Dec 31, 2002 Mar 31, 2002 Dec 31, 2002 Mar 31, 2002
Total U.S. equity share 204,359 228,692 212,299 (10.6) (3.7)
volume (millions) 1,2
Instinet's U.S. equity 31,541 36,771 15,160 (14.2) 108.1
share volume (millions)
1,2
Instinet's share of total 15.4% 16.1% 7.1%
U.S. equity share volume
1,2
Total Nasdaq-listed equity 89,015 105,116 109,429 (15.3) (18.7)
share volume (millions) 2
Instinet's Nasdaq-listed 26,341 31,182 12,043 (15.5) 118.7
equity share volume
(millions) 2
Instinet's share of total 29.6% 29.7% 11.0%
Nasdaq-listed equity share
volume 2
Total U.S. exchange-listed 115,343 123,576 102,870 (6.7) 12.1
equity share volume
(millions)
Instinet's U.S. 5,200 5,589 3,117 (7.0) 66.8
exchange-listed equity
share volume (millions) 2
Instinet's share of total 4.5% 4.5% 3.0%
U.S. exchange-listed
equity share volume 2
Instinet's U.S. equity 67,987 64,673 18,953 5.1 258.7
transaction volume
(thousands)
Instinet's non-U.S. equity 2,161 2,329 1,957 (7.2) 10.4
transaction volume
(thousands)
Instinet's total equity 70,148 67,002 20,910 4.7 235.5
transaction volume
(thousands)
Instinet's average U.S. 464 569 800 (18.4) (42.0)
equity transaction size
(shares per transaction)
Instinet's average equity 1,150 1,031 349 11.5 229.5
transactions per day
(thousands)
Net transaction fees from $ 122,370 $ 133,547 $ 166,773 (8.4) (26.6)
US equities (thousands) 3
Net transaction fees from $ 30,019 $ 34,635 $ 39,217 (13.3) (23.5)
non-US equities and other
(thousands)3
Total net equity $ 152,389 $ 168,182 $ 205,990 (9.4) (26.0)
transaction fees
(thousands) 3
Instinet's average net $ 0.0019 $ 0.0018 $ 0.0050 5.6 (62.0)
equity transaction fee
revenue (U.S. cents per
share per side) 4
Full time employees at 1,428 1,474 1,937 (3.1) (26.3)
period end
(1) U.S. shares consist of shares of U.S exchange-listed and Nasdaq-quoted stocks.
(2) For a description of how we calculate our Nasdaq share volumes, see - "Nasdaq Volume Calculations" and
"Calculation of Instinet ATS and Island ATS Volume Combined Volumes" in our Annual Report on Form 10-K for the year
ended December 31, 2002.
(3) Our net equity transaction fee revenues are calculated by subtracting the soft dollar and commission recapture
expenses and broker-dealer rebates from the related equity transaction fees. GAAP requires us to add our soft
dollar and commission recapture expenses and broker-dealer rebates, dollar-for-dollar, to related equity
transaction fee revenues.
(4) Our average U.S. net equity transaction fee revenue is calculated by dividing our net U.S. equity transaction
fee revenue for the buy and sell side of each transaction by our total U.S. share volume.
(5) 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.
Instinet Group Incorporated
RECONCILIATION OF PRO FORMA OPERATING RESULTS FOR 1Q03
In evaluating our financial performance and results of operations, management reviews certain
financial measures that are not in accordance with generally accepted accounting standards 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 financials 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 financials measures should be considered in the context
with our GAAP results. A reconciliation of our non-GAAP measurements are provided below:
(1) 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
global agency brokerage business. These non-operating charges are investment gains and losses,
charges related to our cost reduction initiatives, goodwill impairment, fixed assets losts at the
World Trade Center and related insurance recovery, and the related tax effects of those items. The
following schedule reconciles our operating income to our GAAP financial results:
Three months ended
Mar 31, 2003 Dec 31, 2002 Mar 31, 2002
Total revenues, as reported $ 239,893 $ 267,109 $ 269,101
Less Investments (21,678) (19,878) (5,714)
Pro forma revenues 261,571 286,987 274,815
Total expenses, as reported 280,718 372,462 284,894
Less severance included in compensation and benefits 9,146 - -
Less real estate abandonment costs included in occupancy 2,333 - -
Less restructuring - 62,405 15,030
Add insurance recovery of fixed assets at the World Trade (5,000) - -
Center
Pro forma operating expenses 274,239 310,057 269,864
Pro forma income/(loss) before income taxes (12,668) (23,070) 4,951
Income tax provision/(benefit), as reported (6,507) 6,690 (5,703)
Tax effect of pro forma adjustments 337 (19,773) 7,188
Pro forma provision/(benefit) for income taxes (6,170) (13,083) 1,485
Net loss, as reported (34,318) (112,203) (38,683)
Net effect of pro forma adjustments 27,820 102,056 17,556
Add loss from operations of fixed income business, net of tax - (160) (5,951)
Add cummulative effect of change in accounting principle - - (18,642)
Pro forma net income/(loss) $ (6,498) $ (9,987) $ 3,466
Earnings/(loss) per share - basic and diluted, as reported $ (0.10) $ (0.34) $ (0.14)
Net effect of pro forma adjustments 0.08 0.31 0.15
Pro forma earnings/(loss) per share - basic and diluted $ (0.02) $ (0.03) $ 0.01
Instinet Group Incorporated
RECONCILIATION OF PRO FORMA OPERATING RESULTS FOR 1Q03
In evaluating our financial performance and results of operations, management reviews certain
financial measures that are not in accordance with generally accepted accounting standards 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 financials 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 financials measures should be considered in the context
with our GAAP results. A reconciliation of our non-GAAP measurements are provided below:
(2) Our expense structure includes a certain level of fixed costs, as well as a variable cost base
that fluctuates with customer transaction volumes. If demand for our brokerage services declines
and we are unable to respond by adjusting our fixed cost base, our operating results could be
materially adversely affected. Therefore, we have undertaken cost reduction initiatives to reduce
our fixed cost base. We estimate our fixed cost base by subtracting line items that we have
determined to be predominantly variable in nature. Some of these variable line items may contain a
fixed component. Similarly, some of our fixed expense line items may contain a variable component.
Management does not adjust for the variable or fixed component within each line item when analyzing
our fixed cost base. Our fixed cost base is calculated as follows:
Three months ended
Mar 31, 2003 Dec 31, 2002 Mar 31, 2002
Reconciliation of fixed cost base:
Total expenses, as reported $ 280,718 $ 372,462 $ 284,894
Less brokerage, clearing and exchange fees 34,025 36,994 36,681
Less soft dollar and commission recapture 49,058 50,161 53,591
Less broker-dealer rebates 50,420 56,601 3,291
Add insurance recovery of fixed assets at the World Trade (5,000) - -
Center
Less restrcuturing - 62,405 15,030
Less severance included in compensation and benefits 9,146 - -
Less real estate abandonment costs included in occupancy 2,333 - -
Total fixed costs 140,736 166,301 176,301
Annualized $ 562,944 $ 665,204 $ 705,204
Instinet Group Incorporated
RECONCILIATION OF PRO FORMA OPERATING RESULTS FOR 1Q03
In evaluating our financial performance and results of operations, management reviews certain
financial measures that are not in accordance with generally accepted accounting standards 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 financials 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 financials measures should be considered in the context
with our GAAP results. A reconciliation of our non-GAAP measurements are provided below:
(3) Our transaction fees earned from our customers trading equity securities have represented, and
continue to represent, a substantial part of our revenues. GAAP requires us to add our soft dollar
and commission recapture expenses and broker-dealer rebates, dollar-for-dollar, to related equity
transaction fee revenues, which has a dilutive effect on our operating margins. Therefore, when
evaluating our revenues from equity transactions, management reviews our net equity transaction fee
revenue, based on U.S. securities and non-U.S. securities. Our net equity transaction fee revenues
are calculated by subtracting the soft dollar and commission recapture expenses as well as
broker-dealer rebates from the related equity transaction fees, as well as non-equity related
revenues, and is calculated as follows:
Three months ended
Mar 31, 2003 Dec 31, 2002 Mar 31, 2002
Total
Transaction fee revenue, as reported $ 255,224 $ 278,441 $ 265,881
Less non equity related transaction fee revenue 3,357 3,497 3,009
Less soft dollar revenues and commission recapture expenses 49,058 50,161 53,591
Less broker-dealer rebates 50,420 56,601 3,291
Net equity transaction fee revenue $ 152,389 $ 168,182 $ 205,990
Instinet Group Incorporated
RECONCILIATION OF PRO FORMA OPERATING RESULTS FOR 1Q03
In evaluating our financial performance and results of operations, management reviews certain financial measures
that are not in accordance with generally accepted accounting standards 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 financials 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 financials measures should be considered in the context with our GAAP results. A
reconciliation of our non-GAAP measurements are provided below:
(4) Our transaction fees earned from our customers trading equity securities have represented, and continue to
represent, a substantial part of our revenues. GAAP requires us to add our soft dollar and commission recapture
expenses and broker-dealer rebates, dollar-for-dollar, to related equity transaction fee revenues, which has a
dilutive effect on our operating margins. Therefore, when evaluating our revenues from equity transactions,
management reviews our net equity transaction fee revenue, based on U.S. securities and non-U.S. securities. Our
net equity transaction fee revenues are calculated by subtracting the soft dollar and commission recapture expenses
as well as broker-dealer rebates from the related equity transaction fees, as well as non-equity related revenues,
and is calculated as follows:
Three months ended
Mar 31, 2003
U.S.
Transaction fee revenue from U.S. equities $211,934
Less non equity related transaction fee revenue 3,357
Less soft dollar revenues and commission recapture expenses from U.S. equities 35,787
Less broker-dealer rebates 50,420
Net equity transaction fee revenue from U.S. equities $122,370
Three months ended
Mar 31, 2003
U.S. revenue per share
Average U.S. equity transaction fee revenue (per share, per side) $0.0034
Less non equity related transaction fee revenue 0.0001
Less soft dollar revenues and commission recapture expenses from U.S. equities 0.0006
Less broker-dealer rebates 0.0008
Average U.S. equity net transaction fee revenue (per share, per side) $0.0019
Three months ended
Mar 31, 2003
Non-U.S.
Transaction fee revenue from non-U.S. equities $43,290
Less non equity related transaction fee revenue -
Less soft dollar revenues and commission recapture expenses from non-U.S. equities 13,271
Net equity transaction fee revenue from non-U.S. equities $30,019
----------------------------------------------------------------------------------------------------------------------
(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.
(2) See table titled "Reconciliation of Pro Forma Operating Results for 1Q03".
This information is provided by RNS
The company news service from the London Stock Exchange
END
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