As discussed in the above filings and as previously announced, the company has taken action, including significant price reductions, to compete more aggressively for trading volumes from U.S. broker-dealer customers. Instinet believes that the impact of these actions will be to stimulate growth in its Nasdaq liquidity pool to the benefit of all customer groups, and to contribute to sequential revenue growth during the second half of 2002.
To address the immediate revenue shortfall arising from price cuts to U.S. broker-dealer customers, Instinet intends to reduce its annualized operating cost structure by approximately $120 million, compared to the expense rate in the fourth quarter of 2001. The company believes that this cost reduction will be substantially achieved by the end of the second quarter of 2002. This is an increase from the $60 million cost-reduction target announced on February 11, 2002. Instinet expects that it will incur a pre-tax restructuring charge of approximately $55 million during the first half of 2002, in comparison to the earlier estimate of $25 million.
Because the shortfall in broker-dealer revenue has been more immediate than the impact of cost-reduction and revenue-growth actions, Instinet may incur a net operating loss in the first quarter of 2002. Nevertheless, Instinet believes that the measures it is taking will position the company for improved profitability during the second half of 2002.
