Instinet Group Announces Third Quarter 2005 Earnings

Business Wire, Nov 2, 2005

NEW YORK -- Instinet Group Incorporated (Nasdaq: INGP) today announced net income of $84 million or $0.25 per diluted share for the third quarter of 2005 compared to net income of $11 million or $0.03 per diluted share for the third quarter of 2004 and net income of $8 million or $0.02 per diluted share for the second quarter of 2005. Excluding the discontinued operations of Lynch Jones & Ryan ("LJR"), Instinet Group incurred a net loss of $5 million or $(0.02) per diluted share for the third quarter of 2005 compared to net income of $8 million or $0.02 per diluted share for the third quarter of 2004 and net income of $7 million or $0.02 per diluted share for the second quarter of 2005. Discontinued operations for the third quarter of 2005 included an after-tax gain on the sale of LJR of $90 million.

The third quarter 2005 results included $20 million in charges related to facility and asset write-offs, $9 million in severance charges and $6 million in merger related advisory fees, partially offset by $9 million in net investment gains. Excluding these items and the related tax effects, pro forma net income from continuing operations for the third quarter of 2005 was $11 million, or $0.03 per diluted share compared to pro forma net income from continuing operations of $5 million or $0.02 per diluted share for the third quarter of 2004 and pro forma net income from continuing operations of $6 million, or $0.02 per diluted share for the second quarter of 2005.(1)

Financial Performance(2)

Instinet Group

Revenues

Total consolidated revenues for Instinet Group, net of interest, were $254 million for the third quarter of 2005, up 2% from the third quarter of 2004 and down 2% from the second quarter of 2005.

Expenses

Total expenses for the third quarter of 2005 were $269 million, up 12% from $240 million in the third quarter of 2004 and up 9% from $246 million in the second quarter of 2005. The third quarters of 2005 and 2004 and second quarter of 2005 included net investment gains of $9 million, $4 million and $25 million, respectively. Excluding these gains, total expenses were $278 million in the third quarter of 2005, up 14% from $244 million in the third quarter of 2004 and up 3% from $271 million in the second quarter of 2005.

Cost of revenues was $154 million for the third quarter of 2005, down 4% from the second quarter of 2005 primarily due to lower transaction volumes.

Direct expenses were $124 million for the third quarter of 2005, up 12% from the second quarter of 2005.

--Compensation and benefits expense was $57 million for the third quarter of 2005, down 6% from the previous quarter primarily due to lower severance charges partially offset by higher variable compensation. The third quarter of 2005 included a $9 million severance charge while the second quarter of 2005 included $16 million in severance expense. These severance charges are part of our ongoing efforts to streamline the institutional broker business. These cost reductions are not related to the pending transaction with The Nasdaq Stock Market, Inc. ("NASDAQ").

--Depreciation and amortization expense was $14 million, up 34% from the previous quarter primarily due to $5 million of asset write-offs associated with facility consolidation in the U.S.

--Occupancy expense was $23 million for the third quarter of 2005, up $13 million from the previous quarter due to $15 million in facility write-offs associated with the consolidation of space in the U.S. and the move to new space in London.

At September 30, 2005, Instinet Group had net cash (cash and cash equivalents and securities owned less short-term borrowings) of approximately $938 million, up $2 million from $936 million at December 31, 2004. The increase in cash was primarily due to proceeds received from the sale of LJR partially offset by a special dividend paid to shareholders, firm cash used in customer settlement activities and seasonal payments related to incentive compensation. At September 30, 2005, total assets were approximately $1.8 billion and shareholders' equity was approximately $1.1 billion. There were approximately 341 million shares of common stock outstanding as of September 30, 2005.

On September 30, 2005, Instinet Group's total headcount was 785 employees compared to 938 on June 30, 2005. Headcount at September 30, 2005 included 614 employees from Instinet, 82 employees from INET and 89 employees from Instinet Group.

Business Segments(3)

Instinet, The Institutional Broker

--Instinet reported a net loss from continuing operations before income taxes of $28 million for the third quarter of 2005, 32% lower than the second quarter of 2005.

--Total revenues, net of interest, were $142 million for the third quarter of 2005, 2% lower than the second quarter of 2005, primarily due to lower U.S. revenues partially offset by higher revenues from our international business.

--Instinet's customers traded an average of 99 million U.S. shares a day in the third quarter of 2005, up 6% from 93 million shares a day during the second quarter of 2005. Average daily consideration in non-U.S. equities for the third quarter of 2005 was $1,011 million, a 11% increase from the second quarter of 2005.