-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VyodF84KEca4wXVmBVB1vL5taOLQpuj+a9i7Yon68EnSzA6CHDGV6cxBgZdzYuZq esTE6zqqVINAqhnFn9LEmw== 0000912057-99-003890.txt : 19991109 0000912057-99-003890.hdr.sgml : 19991109 ACCESSION NUMBER: 0000912057-99-003890 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990924 FILED AS OF DATE: 19991108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTMENT TECHNOLOGY GROUP INC CENTRAL INDEX KEY: 0000920424 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 133757717 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-78309 FILM NUMBER: 99743133 BUSINESS ADDRESS: STREET 1: 380 MADISON AVE STREET 2: 2ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125884000 MAIL ADDRESS: STREET 1: 11100 SANTA MONICA BLVD STREET 2: 12TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90025 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 24, 1999 Commission file number: 0 - 23644 INVESTMENT TECHNOLOGY GROUP, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 95 - 2848406 ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 380 Madison Avenue, New York, New York (212) 588 - 4000 - ---------------------------------------- ------------------------------- (Address of Principal Executive Offices) (Registrant's Telephone Number, Including Area Code) 10017 - ---------------------------------------- (Zip Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 4, 1999, the Registrant had 31,021,426 shares of common stock, $.01 par value, outstanding. QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS PART I. - FINANCIAL INFORMATION
Page ----------- Item 1. Financial Statements Consolidated Statements of Financial Condition: September 24, 1999 (unaudited) and December 31, 1998................................ 4 Consolidated Statements of Operations (unaudited): Nine Months Ended September 24, 1999 and September 25, 1998........................ 5 Three Months Ended September 24, 1999 and September 25, 1998....................... 6 Consolidated Statement of Changes in Stockholders' Equity (unaudited): Nine Months Ended September 24, 1999............................................... 7 Consolidated Statements of Cash Flows (unaudited): Nine Months Ended September 24, 1999 and September 25, 1998........................ 8 Condensed Notes to Consolidated Financial Statements (unaudited)......................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 13 PART II. - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...................................... 21 Item 5. Other Information........................................................................ 21 Item 6. Exhibits and Reports on Form 8-K......................................................... 21 Signatures................................................................................. 22
QUANTEX -Registered Trademark- ("QUANTEX") IS A REGISTERED TRADEMARK OF INVESTMENT TECHNOLOGY GROUP, INC. POSIT -Registered Trademark- ("POSIT") IS A REGISTERED SERVICE MARK OF THE POSIT JOINT VENTURE. SMARTSERVER IS A SERVICE MARK OF INVESTMENT TECHNOLOGY GROUP, INC. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 2 of 22 FORWARD-LOOKING STATEMENTS In addition to the historical information contained throughout this Form 10-Q, there are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements regarding our expected future financial position, results of operations, cash flows, dividends, financing plans, business strategies, competitive positions, plans and objectives of management for future operations, and concerning securities markets and economic trends are forward-looking statements. Although we believe our expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements herein include, among others, the actions of both current and potential new competitors, rapid changes in technology, fluctuations in market trading volumes, market volatility, changes in the regulatory environment, risk of errors or malfunctions in our systems or technology, cash flows into or redemptions from equity funds, effects of inflation, customer trading patterns, securities industry participants' responses to Year 2000 issues, as well as general economic and business conditions; securities, credit and financial and market conditions; adverse changes or volatility in interest rates. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 3 of 22 PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARS IN THOUSANDS) SEPTEMBER 24, DECEMBER 31, 1999 1998 --------- --------- (UNAUDITED) ASSETS Cash and cash equivalents ................................................................ $ 79,389 $ 77,324 Securities owned, at fair value .......................................................... 41,712 39,615 Receivables from brokers, dealers and other, net ......................................... 19,495 24,127 Due from affiliates ...................................................................... - 722 Investments, at fair value ............................................................... 6,176 1,000 Premises and equipment ................................................................... 19,597 19,662 Capitalized software ..................................................................... 6,690 6,450 Goodwill ................................................................................. 961 1,373 Tax receivable ........................................................................... 4,485 - Deferred taxes ........................................................................... 2,421 2,784 Other assets ............................................................................. 6,786 7,455 --------- --------- Total assets ............................................................................. $ 187,712 $ 180,512 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses .................................................... $ 34,082 $ 24,154 Payable to brokers, dealers and other .................................................... 3,959 1,881 Software royalties payable ............................................................... 4,090 4,070 Securities sold, not yet purchased, at fair value ........................................ 5,321 288 Due to affiliates ........................................................................ - 2,557 Income taxes payable to affiliate ........................................................ - 3,853 --------- --------- Total liabilities ........................................................................ 47,452 36,803 --------- --------- STOCKHOLDERS' EQUITY: Preferred stock, par value $0.01; shares authorized: 1,000,000; shares issued: none .................................................... - - Common stock, par value $0.01; shares authorized: 100,000,000; shares issued: 31,979,067 and 30,961,253 at September 24, 1999 and December 31, 1998 ................................................................. 320 310 Additional paid-in capital ........................................................... 91,054 51,395 Retained earnings .................................................................... 58,155 104,925 Common stock held in treasury, at cost; shares: 328,600 at September 24, 1999 and 1,300,332 at December 31, 1998 .............................................................. (9,261) (12,760) Accumulated other comprehensive loss: Currency translation adjustment ................................................... (8) (161) --------- --------- Total stockholders' equity ........................................................... 140,260 143,709 --------- --------- Total liabilities and stockholders' equity ............................................... $ 187,712 $ 180,512 ========= =========
SEE ACCOMPANYING UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 4 of 22 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED --------------------------------------------------------- SEPTEMBER 24, SEPTEMBER 25, 1999 1998 ----------------------------- -------------------------- REVENUES: Commissions: POSIT................................................ $ 92,931 $ 85,643 Electronic trading desk.............................. 33,037 34,382 Client............................................... 35,523 29,232 Other.................................................... 2,013 732 -------------------------- -------------------------- Total revenues.................................... 163,504 149,989 -------------------------- -------------------------- EXPENSES: Compensation and employee benefits....................... 37,317 36,962 Transaction processing................................... 23,035 19,281 Software royalties....................................... 12,109 11,175 Occupancy and equipment.................................. 9,610 8,691 Telecommunications and data processing services.......... 7,005 6,285 Net loss/(gain) on long-term investments ................ 1,490 (1,545) Spin-off costs .......................................... 6,674 1,104 Other general and administrative......................... 11,585 10,588 -------------------------- -------------------------- Total expenses.................................... 108,825 92,541 -------------------------- -------------------------- Income before income tax expense............................... 54,679 57,448 Income tax expense............................................. 26,825 26,274 --------------------------------------------------------- Net income..................................................... $ 27,854 $ 31,174 ========================================================= Basic net earnings per share of common stock................... $ 0.91 $ 1.07 ========================================================= Diluted net earnings per share of common stock................. $ 0.87 $ 1.02 ========================================================= Basic weighted average shares outstanding...................... 30,695 29,238 ========================================================= Diluted weighted average shares and common stock equivalents outstanding.................................. 32,098 30,531 =========================================================
SEE ACCOMPANYING UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 5 of 22 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 24, SEPTEMBER 25, 1999 1998 -------------------------- -------------------------- REVENUES: Commissions: POSIT.................................................. $ 31,361 $ 33,917 Electronic trading desk................................ 11,558 12,577 Client................................................. 10,755 11,808 Other...................................................... 890 (605) -------------------------- -------------------------- Total revenues...................................... 54,564 57,697 -------------------------- -------------------------- EXPENSES: Compensation and employee benefits......................... 11,402 14,152 Transaction processing..................................... 7,677 6,917 Software royalties......................................... 4,083 4,416 Occupancy and equipment.................................... 3,201 3,071 Telecommunications and data processing services............ 2,701 2,179 Net loss/(gain) on long-term investments................... 275 (3,632) Spin-off costs ............................................ (85) 479 Other general and administrative........................... 4,170 4,384 -------------------------- -------------------------- Total expenses...................................... 33,424 31,966 -------------------------- -------------------------- Income before income tax expense................................. 21,140 25,731 Income tax expense............................................... 10,039 11,847 --------------------------------------------------------- Net income....................................................... $ 11,101 $ 13,884 ========================================================= Basic net earnings per share of common stock .................... $ 0.35 $ 0.47 ========================================================= Diluted net earnings per share of common stock ................. $ 0.34 $ 0.45 ========================================================= Basic weighted average shares outstanding........................ 31,685 29,389 ========================================================= Diluted weighted average shares and common stock Equivalents outstanding...................................... 32,665 30,688 =========================================================
SEE ACCOMPANYING UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 6 of 22 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 24, 1999 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Additional Preferred Common Paid-in Retained Stock Stock Capital Earnings ------------------------------------------------------------------------- Balance at December 31, 1998 .......................... $ - $ 310 $ 51,395 $ 104,925 Retirement of Common Stock held in Treasury (1,300,333 shares) ....................... - (13) (12,747) - Purchase of common stock for treasury (328,600 shares) .................................. - - - - Payment of special cash dividend ...................... - - - (74,624) Issuance of common stock in connection with the employee stock option plan (2,284,626 shares) ................................ - 23 51,543 - Issuance of common stock in connection with the employee stock purchase plan (34,205 shares) ................................... - - 863 - Comprehensive income/(loss): Net income ........................................ - - - 27,854 Other comprehensive income, net of tax: Currency translation adjustment ............... - - - - Comprehensive income ------------- --------- --------- --------- Balance at September 24, 1999 ......................... $ - $ 320 $ 91,054 $ 58,155 ============= ========= ========= =========
Common Stock Accumulated Total Held in Comprehensive Stockholders' Treasury Income/(loss) Equity --------------------------------------------------------- Balance at December 31, 1998 .......................... $ (12,760) $ (161) $ 143,709 Retirement of Common Stock held in Treasury (1,300,333 shares) ....................... 12,760 - - Purchase of common stock for treasury (328,600 shares) .................................. (9,261) - (9,261) Payment of special cash dividend ...................... - - (74,624) Issuance of common stock in connection with the employee stock option plan (2,284,626 shares) ................................ - - 51,566 Issuance of common stock in connection with the employee stock purchase plan (34,205 shares) ................................... - - 863 Comprehensive income/(loss): Net income ........................................ - - 27,854 Other comprehensive income, net of tax: Currency translation adjustment ............... - 153 153 Comprehensive income .................................. 28,007 --------- --------- --------- Balance at September 24, 1999 ......................... $ (9,261) $ (8) $ 140,260 ========= ========= =========
SEE ACCOMPANYING UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 7 of 22 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED -------------------------------------- SEPTEMBER 24, SEPTEMBER 25, 1999 1998 -------------------------------------- Cash flows from operating activities: Net income ..................................................................... $ 27,854 $ 31,174 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax expense ............................................... 362 87 Depreciation and amortization ............................................. 9,808 6,677 Undistributed loss of affiliates .......................................... 1,827 52 Provision for doubtful receivables ........................................ 173 72 Decrease (increase) in operating assets: Securities owned, at fair value ............................................ (2,097) (2,115) Receivables from brokers, dealers and other ................................ 4,459 (7,308) Tax receivable ............................................................. (4,485) - Due from affiliates ........................................................ 722 974 Investments ................................................................ (176) (373) Other assets ............................................................... 359 1,090 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses ...................................... 10,003 17,108 Payable to brokers, dealers and other ...................................... 2,078 1,421 Software royalties payable ................................................. 20 1,825 Securities sold, not yet purchased, at fair value .......................... 5,032 166 Due to affiliates .......................................................... (2,557) (1,016) Income taxes payable to affiliate .......................................... (3,853) (20) -------- -------- Net cash provided by operating activities ................................ 49,529 49,814 -------- -------- Cash flows from investing activities: Purchase of premises and equipment ......................................... (5,898) (4,517) Purchase of investments .................................................... (5,000) - Investment in joint venture ................................................ (1,591) - Capitalization of software development costs ............................... (3,673) (3,486) -------- -------- Net cash used in investing activities .................................... (16,162) (8,003) -------- -------- Cash flows from financing activities: Dividends paid ............................................................. (74,624) - Retirement/(purchase) of common stock held in treasury, at cost ............ 3,499 (5,077) Issuance of common stock ................................................... 39,670 7,726 -------- -------- Net cash (used)/provided by financing activities ......................... (31,455) 2,649 -------- -------- Effect of foreign currency translation on cash and cash equivalents ............ 153 (221) Net increase (decrease) in cash and cash equivalents ..................... 2,065 44,239 Cash and cash equivalents - beginning of period ................................ 77,324 14,263 -------- -------- Cash and cash equivalents - end of period ...................................... $ 79,389 $ 58,502 ======== ======== Supplemental cash flow information: Interest paid .............................................................. $ 21 $ 31 ======== ======== Income taxes paid .......................................................... $ 6,742 $ 23,530 ======== ========
SEE ACCOMPANYING UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 8 of 22 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ORGANIZATION AND BASIS OF PRESENTATION The Consolidated Financial Statements include the accounts of Investment Technology Group, Inc. and its wholly-owned subsidiaries ("ITG"), which principally include: (1) ITG Inc., a broker-dealer in equity securities, (2) Investment Technology Group International Limited, which is a 50% partner in the ITG Europe joint venture, and (3) ITG Australia Holdings Pty Limited, which is a 50% partner in ITG Pacific Holdings Pty Limited. Our investments in the ITG Europe joint venture and ITG Pacific Holdings Pty Limited are accounted for using the equity method. We are a leading financial technology firm that provides a fully integrated set of value-added electronic equity analysis and trade execution tools. We provide services that help our clients optimize their portfolio construction and trading strategies, efficiently access liquidity in multiple markets and achieve superior, low-cost trade execution. Our clients are major institutional investors and broker/dealers. Our products include: POSIT, the world's largest intra-day electronic equity matching system; QuantEX, a fully-integrated trade routing, analysis and management system; ITG Platform, a tool that provides connections to POSIT, ITG's Electronic Trading Desk and SuperDOT; pre- and post-trade analysis, a set of analytical tools for systematically lowering the costs of trading; SmartServers, which offer server based implementation of trading strategies; ITG/OPT, a computer-based equity portfolio selection system; and research, development, sales and consulting services to clients. SPIN-OFF FROM JEFFERIES GROUP On April 27, 1999, we were effectively spun off from Jefferies Group, Inc ("Jefferies Group"). The spin-off was effected through a series of transactions including our merger with and into Jefferies Group, with Jefferies Group surviving the merger and being renamed Investment Technology Group, Inc. ("New ITG"). The merger occurred following the transfer by Jefferies Group of substantially all of its assets and liabilities to its wholly-owned subsidiary ("New Jefferies"), and the pro rata distribution by Jefferies Group to its stockholders of all of the New Jefferies common stock. After these transactions, New Jefferies owned all of the assets of Jefferies Group other than Jefferies Group's equity interest in ITG, and Jefferies Group's existing stockholders owned all of the equity interest in New Jefferies. Following the merger, New Jefferies was renamed Jefferies Group, Inc., and, through its subsidiaries, carries on the businesses of Jefferies Group prior to the transactions (other than the businesses of our company). In connection with these transactions, on April 21, 1999, we paid a special cash dividend of $4.00 per share, payable pro rata to all of our stockholders of record as of April 20, 1999, including Jefferies Group. The aggregate amount of the special cash dividend was $74.6 million, of which we paid $60.0 million to Jefferies Group. As a result of the merger and based upon the number of shares of Jefferies Group common stock outstanding on the date of the merger (23,931,814) and the number of shares of the ITG common stock held by Jefferies Group (15,000,000), ITG's stockholders, other than Jefferies Group, received 1.5955 shares of common stock of New ITG for each share of ITG common stock held by them. Through September 24, 1999, we had incurred spin-off costs of approximately $8.6 million, consisting of approximately $1.9 million through December 31, 1998 and approximately $6.7 million in the first nine months of 1999. The merger and related transactions resulted in the stockholders of Jefferies Group becoming direct stockholders of our company and Jefferies Group ceasing to be our parent company. The merger was accounted for as a "merger of entities under common control" in accordance with generally accepted accounting principles and accordingly, reflected the historical cost basis of assets and liabilities of ITG. All material intercompany balances and transactions are eliminated in consolidation. The consolidated financial statements reflect all adjustments, which are in the opinion of management, necessary for the fair presentation of the results for the interim periods and should be read in conjunction with our 1998 annual report on Form 10-K, as amended by Form 10-K-A. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 9 of 22 FAIR VALUE OF FINANCIAL INSTRUMENTS Substantially all of our financial instruments are carried at fair value or amounts approximating fair value. Cash and cash equivalents, securities owned and certain receivables, are carried at fair value or contracted amounts which approximate fair value due to the short period to maturity and repricing characteristics. Similarly, liabilities are carried at amounts approximating fair value. Securities sold, not yet purchased, are valued at quoted market prices. USE OF ESTIMATES ITG's management has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets, liabilities, revenues and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made to the prior year's amounts to conform to the current year's presentation. INCOME TAXES Until April 27, 1999, we were a member of Jefferies Group affiliated tax group ("Group") for purposes of filing a Federal income tax return (i.e., Jefferies Group owned more than 80% of ITG). With respect to tax periods ending prior to April 28, 1999, our tax liability was determined on a "separate return" basis. That is, we were required to pay to Jefferies Group our proportionate share of the Group's consolidated tax liability plus any excess of our "separate" tax liability (assuming a separate tax return were to be filed by us) over our proportionate amount of the consolidated Group tax liability. Alternatively, Jefferies Group was required to pay us an "additional amount" for the amount by which the consolidated tax liability of the Group was decreased by reason of inclusion of ITG in the Group. We account for income taxes on the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statement of Operations in the period that includes the enactment date. At September 24, 1999, we had a net tax receivable balance of $4.5 million, comprised of tax benefits related to the exercise of employee stock options, offset by taxes payable on income from current operations. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 10 of 22 ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at September 24, 1999 and December 31, 1998 consisted of the following;
SEPTEMBER 24, DECEMBER 31, 1999 1998 -------------------------- (DOLLARS IN THOUSANDS) Accounts payable and accrued expenses ......... $ 9,527 $ 6,681 Deferred compensation ......................... 10,315 6,579 Accrued soft dollars expenses ................. 7,091 6,692 Accrued bonus expense ......................... 4,639 1,757 Accrued rent expense .......................... 2,510 2,445 ------- ------- Total ......................................... $34,082 $24,154 ======= =======
OTHER COMPREHENSIVE LOSS The following summarizes other comprehensive income (loss) as of September 24, 1999 (Dollars in thousands):
TAX NET PRE-TAX (EXPENSE) OF TAX AMOUNT OR BENEFIT AMOUNT ------------------ ---------------------- ----------------- Currency translation adjustment............................... $ 153 $ - $ 153 ------------------ ---------------------- ----------------- Other Comprehensive loss...................................... $ 153 $ - $ 153 ================== ====================== =================
ACCUMULATED CURRENCY OTHER TRANSLATION COMPREHENSIVE ADJUSTMENT INCOME/(LOSS) ------------------ -------------------- Balance at December 31,1998................................... $ (161) $ (161) Change during period ended September 24, 1999................. 153 153 ------------------ -------------------- Balance at September 24, 1999................................. $ (8) $ (8) ================== ====================
EARNINGS PER SHARE Net earnings per share of common stock, is based upon an adjusted weighted average number of shares of common stock outstanding adjusted to reflect our company's spin-off transaction from Jefferies Group. The adjusted diluted weighted average number of outstanding shares for the nine months ended September 24, 1999 and September 25, 1998 was 32.1 million and 30.5 million, respectively. The adjusted diluted weighted average number of outstanding shares for the three months ended September 24, 1999 and September 25, 1998 was 32.7 million and 30.7 million, respectively. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 11 of 22 The following is a reconciliation of the basic and diluted earnings per share computations for the nine months ended September 24, 1999 and September 25, 1998.
SEPTEMBER 24, SEPTEMBER 25, 1999 1998 --------------------- ------------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income................................................................ $ 27,854 $ 31,174 ===================== ================== Shares of common stock and common stock equivalents: Average number of common shares used in basic computation... 30,695 29,238 Effect of dilutive securities - options............................. 1,403 1,293 --------------------- ------------------- Average number of common shares used in diluted computation. 32,098 30,531 ===================== ================== Earnings per share: Basic............................................................... $ 0.91 $ 1.07 ===================== ================== Diluted............................................................. $ 0.87 $ 1.02 ===================== ==================
The following is a reconciliation of the basic and diluted earnings per share computations for the three months ended September 24, 1999 and September 25, 1998.
SEPTEMBER 24, SEPTEMBER 25, 1999 1998 --------------------- --------------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income .................................................................. $ 11,101 $ 13,884 ===================== ===================== Shares of common stock and common stock equivalents: Average number of common shares used in basic computation.............. 31,685 29,389 Effect of dilutive securities - options................................ 980 1,299 --------------------- --------------------- Average number of common shares used in diluted computation............ 32,665 30,688 ===================== ===================== Earnings per share: Basic.................................................................. $ 0.35 $ 0.47 ===================== ===================== Diluted................................................................ $ 0.34 $ 0.45 ===================== =====================
CONTINGENCIES In 1998, we received a "30-day letter" from the Internal Revenue Service proposing certain adjustments which, if sustained, would result in a tax deficiency of approximately $9.6 million plus interest. The adjustments proposed relate to (i) the disallowance of deductions taken in connection with the termination of certain compensation plans at the time of our initial public offering in 1994 and (ii) the disallowance of tax credits taken in connection with certain research and experimentation expenditures. We believe that the tax benefits in question were taken properly and intend to vigorously contest the proposed adjustments. Based on the facts and circumstances known at this time, we are unable to predict when this matter will be resolved or the costs associated with its resolution. Our company may continue to be liable for certain liabilities of its former parent, Jefferies Group, despite the express assignment of such liabilities to, and the express assumption of such liabilities by, New Jefferies. Pursuant to the distribution agreement, benefits agreement and tax sharing and indemnification agreement executed in connection with the spin-off, New Jefferies will be obligated to indemnify ITG for liabilities related to ITG's former parent and its subsidiaries, but not for liabilities related to our company. Under those agreements, ITG will be obligated to indemnify New Jefferies for liabilities related to our company. ITG's ability to recover any costs under such indemnity will depend upon the future financial strength of New Jefferies. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 12 of 22 DIVIDENDS Any future payments of dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors deemed relevant. Our revolving credit facility substantially limits our ability to pay dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL REVENUES: We generate substantially all of our revenues from the following four products and services, each contributing to our single line of business: - POSIT: a confidential electronic stock crossing system; - Electronic Trading Desk: an agency-only trading desk; - Front End Software; - QuantEX: a Unix-based front-end software system providing market analysis, trade management and electronic connectivity to POSIT and multiple trade execution destinations; and - ITG Platform: a PC-based front-end software system providing market analysis, trade management and electronic connectivity to POSIT and multiple trade execution destinations. Revenues primarily consist of commissions from customers' use of our trade execution and analytical services. Because these commissions are paid on a per-transaction basis, revenues fluctuate from period to period depending on the volume of securities traded through our services. We record as POSIT revenue any order that is executed on the POSIT system regardless of the manner in which the order was submitted to POSIT. ITG collects a commission from each side of a trade matched on POSIT. We record as Electronic Trading Desk revenue any order that is handled by our trading desk personnel and executed at any trade execution destination other than POSIT. We record as Client revenue any order that is sent by our clients, through ITG's front-end systems but without assistance from the Electronic Trading Desk, to any third party trade execution destination. Other revenue includes interest income and market losses resulting from temporary positions in securities assumed in the normal course of our agency trading business. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 13 of 22 EXPENSES: Expenses consist of compensation and employee benefits, transaction processing, software royalties, occupancy and equipment, telecommunications and data processing services, net loss/(gain) on long-term investments, spin-off costs and other general and administrative expenses. Compensation and employee benefits expenses include base salaries, bonuses, employment agency fees, part-time employee compensation, fringe benefits, including employer contributions for medical insurance, life insurance, retirement plans and payroll taxes, offset by capitalized software. Transaction processing expenses consist of floor brokerage and clearing fees and connection fees for use of certain third party execution services. Software royalties are payments to our POSIT joint venture partner, BARRA, at the contractually fixed rate of 13% of POSIT Revenues. Occupancy and equipment expenses include rent, depreciation, amortization of leasehold improvements, maintenance, utilities, occupancy taxes and property insurance. Telecommunications and data processing services include costs for computer hardware, office automation and workstations, data center equipment, market data services and voice, data, telex and network communications. Net loss/(gain) on long-term investments includes gains on the sale of equity investments, as offset by amortization of goodwill, equity gain/loss pickup and initial start-up costs. Spin-off costs include legal, accounting, consulting and various other expenses in connection with the spin-off from Jefferies Group and related transactions. Other general and administrative expenses include amortization of software and goodwill, legal, audit, tax, consulting and promotional expenses. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 24, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 25, 1998 The table below sets forth, certain items in the statement of operations expressed as a percentage of revenues for the periods indicated:
NINE MONTHS ENDED ------------------------------------------- SEPTEMBER 24, SEPTEMBER 25, 1999 1998 -------------------- ---------------------- Revenues: 100.0% 100.0% Commissions POSIT............................................. 56.9 57.1 Electronic trading desk........................... 20.2 22.9 Client............................................ 21.7 19.5 Other................................................... 1.2 0.5 Expenses: Compensation and employee benefits...................... 22.8 24.5 Transaction processing.................................. 14.1 12.9 Software royalties...................................... 7.4 7.5 Occupancy and equipment................................. 5.9 5.8 Telecommunications and data processing services......... 4.3 4.2 Net loss/(gain) on long-term investments ............... 0.9 (1.0) Spin-off costs ......................................... 4.1 0.7 Other general and administrative........................ 7.1 7.1 -------------------- ---------------------- Total expenses.................................... 66.6 61.7 -------------------- ---------------------- Income before income tax expense.............................. 33.4 38.3 Income tax expense............................................ 16.4 17.5 -------------------- ---------------------- Net income.................................................... 17.0 20.8 ==================== ======================
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 14 of 22 EARNINGS PER SHARE: Basic net earnings per share decreased $0.16, or 15%, from $1.07 for the nine months ended September 25, 1998 ("First Nine Months 1998") to $0.91 for the nine months ended September 24, 1999 ("First Nine Months 1999"). Diluted net earnings per share decreased $0.15, or 15%, from $1.02 to $0.87. Diluted net earnings per share for First Nine Months 1999 and First Nine Months 1998, excluding non-recurring charges of $6.7 million and $1.1 million, respectively, incurred in connection with our spin-off from Jefferies Group, were $1.05 and $1.06, respectively. REVENUES: Total revenues increased $13.5 million, or 9%, from $150.0 million to $163.5 million. There were 185 trading days in First Nine Months 1998 compared to 184 in First Nine Months 1999. Revenues per trading day increased by $78,000, or 10%, from $811,000 to $889,000. Revenues per employee decreased $100,000, or 16%, from $622,000 to $522,000. The increases in POSIT and Client revenues were attributable to an increase in trading volume by existing customers and an increase in the number of customers. The number of shares crossed on the POSIT system increased 365 million, or 9%, from 4.3 billion to 4.6 billion. The number of shares crossed on the POSIT system per day increased 2.1 million, or 9%, from 23.0 million to 25.1 million. In addition, on both June 24, and July 15, 1999, a record breaking 49.0 and 59.9 million shares were crossed on the POSIT system, respectively. Of Client revenues, ITG Platform increased 249% representing 49% of the increase in Client revenues. Electronic Trading Desk revenues decreased due to a number of factors, including, our clients winning fewer portfolio transitions, increased competition from principal bids and lower turnover of portfolios for some of our clients. Other revenues increased primarily as a result of a $1.4 million increase in development fees in the First Nine Months 1999 over the First Nine Months 1998. EXPENSES: Total expenses excluding income tax expense for the First Nine Months 1999 increased $16.3 million, or 18%, from $92.5 million to $108.8 million. COMPENSATION AND EMPLOYEE BENEFITS: Salaries, bonuses and related employee benefits increased primarily due to growth in our employee base of 30% from 241 to 313, and additional compensation necessary to attract and retain quality personnel. Over 50% of the increase in new employees were staffed in technology, product development and production infrastructure. This is consistent with our ongoing effort to respond to continuous changes in the securities industry and demand for increased efficiencies by enhancing existing software and developing new software and services. The First Nine Months 1999 also included Medicare taxes of approximately $0.5 million resulting from the exercise of expiring options. Average compensation and employee benefits expenses per person decreased $45,000, or 22%, from $204,000 to $159,000 on an annualized basis. TRANSACTION PROCESSING: Transaction processing as a percentage of revenues increased from 12.9% to 14.1% of revenues. Ticket charges increased 22%, primarily as a result of customers allocating transactions to a larger number of accounts. With only a 9% increase in execution volume, ITG has not realized significant savings on its volume-discounted costs. SOFTWARE ROYALTIES: Because software royalties are contractually fixed at 13% of POSIT revenues, the increase is wholly attributable to an increase in POSIT revenues. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 15 of 22 OCCUPANCY AND EQUIPMENT: The increase in headcount resulted in increased equipment purchases and the associated depreciation expense. In addition, the expansion of our research and development facility in Culver City, California, in July 1998, resulted in a rent expense increase. TELECOMMUNICATIONS AND DATA PROCESSING SERVICES: The $0.7 million increase in telecommunications and data processing services stems primarily from an increase of $1.5 million in initial fees to upgrade client data feeds, including market data line connections, increase in communication charges from linking to ITG Europe, and increases in dial-up costs related to the increase in ITG Platform installations. This increase was offset primarily by a $0.9 million decrease in spending on contingency-related planning and implementation. NET LOSS/(GAIN) ON LONG-TERM INVESTMENTS: The net loss on long-term investments in the First Nine Months 1999 primarily reflects losses incurred by ITG Europe partially offset by our recognition of the deferred gain on the sale of our equity ownership in the LongView Group, Inc. in August 1998 which was held in escrow for one year. The First Nine Months 1998 included the gain on sale of our equity ownership in the LongView Group, Inc. of $3.8 million. SPIN-OFF COSTS: The spin-off expenses are attributable to our legal, accounting, consulting and other expenses incurred for the spin-off and merger transactions, as discussed in "Condensed Notes to Consolidated Financial Statements - Spin-Off from Jefferies Group." OTHER GENERAL AND ADMINISTRATIVE: The increase in other general and administrative expenses reflects software amortization for certain products that were released in late 1998, offset in part by a decline in consulting expenses for projects such as network migration and strategic market studies. INCOME TAX EXPENSE: The increase in the effective tax rate from 45.7% in First Nine Months 1998 to 49.1% in First Nine Months 1999 was due to increases in certain non-deductible expenses, such as spin-off costs and the inability to offset international losses against United States profits in calculating income tax expense. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 16 of 22 RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 24, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER 25, 1998 The table below sets forth, certain items in the statement of income expressed as a percentage of revenues for the periods indicated:
THREE MONTHS ENDED ----------------------------------------------- SEPTEMBER 24, SEPTEMBER 25, 1999 1998 ----------------------- ----------------------- Revenues: 100.0% 100.0% Commissions POSIT............................................ 57.5 58.7 Electronic trading desk.......................... 21.2 21.8 Client........................................... 19.7 20.5 Other................................................... 1.6 (1.0) Expenses: Compensation and employee benefits...................... 20.9 24.5 Transaction processing.................................. 14.1 12.0 Software royalties...................................... 7.5 7.7 Occupancy and equipment................................. 5.9 5.3 Telecommunications and data processing services......... 5.0 3.8 Net loss/(gain) on long-term investments ............... 0.5 (6.3) Spin-off costs ......................................... (0.2) 0.8 Other general and administrative........................ 7.6 7.6 ----------------------- ----------------------- Total expenses................................... 61.3 55.4 ----------------------- ----------------------- Income before income tax expense.............................. 38.7 44.6 Income tax expense............................................ 18.4 20.5 ----------------------- ----------------------- Net income.................................................... 20.3 24.1 ======================= =======================
EARNINGS PER SHARE: Basic net earnings per share decreased $0.12, or 26%, from $0.47 for the three months ended September 25, 1998 ("Third Quarter 1998") to $0.35 for the three months ended September 24, 1999 ("Third Quarter 1999"). Diluted net earnings per share decreased $0.11, or 24%, from $0.45 to $0.34. REVENUES: Total revenues decreased $3.1 million, or 5%, from $57.7 million to $54.6 million. There were 63 trading days in both Third Quarter 1998 and Third Quarter 1999. Revenues per trading day decreased by $50,000, or 5%, from $916,000 to $866,000. Revenues per employee decreased $65,000, or 27%, from $239,000 to $174,000. The decreases in POSIT and Client revenues were attributable to a decrease in trading volume by existing customers, offset partially by an increase in the number of customers. The number of shares crossed on the POSIT system decreased 112.0 million, or 7%, from 1.7 billion to 1.6 billion. The number of shares crossed on the POSIT system per day decreased 1.8 million, or 7%, from 26.9 million to 25.1 million. Of Client revenues, ITG Platform increased 173%, which offset the 21% decrease in other Client revenue products. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 17 of 22 Electronic Trading Desk revenues decreased due to a number of factors, including, our clients winning fewer portfolio transitions, increased competition from principal bids and lower turnover of portfolios for some of our clients. There was a significant increase in our Other revenue from Third Quarter 1998 due to the collection of Development Fee and Royalty fees from our joint Ventures, recorded in Third Quarter 1999. EXPENSES: Total expenses excluding income tax expense for the Third Quarter 1999 increased $1.4 million, or 4%, from $32.0 million to $33.4 million. COMPENSATION AND EMPLOYEE BENEFITS: Salaries, bonuses and related employee benefits decreased in part due to reduced bonuses paid under our profitability-based compensation plan. In addition, in the Third Quarter 1998, the Board of Directors voted to accelerate the vesting of the options of our deceased Chief Executive Officer, Scott P. Mason, resulting in a $2.8 million charge to compensation expense. These decreases were offset by increased salaries resulting from our 30% growth in employee base, and additional compensation necessary to attract and retain quality personnel. Average compensation and employee benefits expenses per person decreased $23,000, or 39%, from $59,000 to $36,000 on a quarterly basis. TRANSACTION PROCESSING: Transaction processing as a percentage of revenues increased from 12.0% to 14.1% primarily due to an increase in ticket charges. The increase in ticket charges reflects a 10% increase in the number of tickets, primarily as a result of customers allocating transactions to a larger number of accounts. SOFTWARE ROYALTIES: Because software royalties are contractually fixed at 13% of POSIT revenues, the decrease is wholly attributable to a decrease in POSIT revenues. OCCUPANCY AND EQUIPMENT: The increase in headcount resulted in increased equipment purchases and the associated depreciation expense. TELECOMMUNICATIONS AND DATA PROCESSING SERVICES: The increase in telecommunications and data processing services stems primarily from the data feed upgrades for clients, including market data line connections, offset by a decline in contingency related spending. NET LOSS/(GAIN) ON LONG-TERM INVESTMENTS: The net loss on long-term investments in the Third Quarter 1999 primarily reflects losses incurred by ITG Europe partially offset by our recognition of the deferred gain on the sale of our equity ownership in the LongView Group, Inc. in August 1998 which was held in escrow for one year. In August 1998, we sold our equity ownership in the LongView Group, Inc. resulting in a gain of $3.8 million. SPIN-OFF COSTS: The spin-off expenses are attributable to our legal, accounting, consulting and other expenses incurred for the spin-off and merger transactions, as discussed in "Condensed Notes to Consolidated Financial Statements - Spin-Off from Jefferies Group." In the Third Quarter 1999, estimates for certain spin-off costs were adjusted. OTHER GENERAL AND ADMINISTRATIVE: The decrease in other general and administrative expenses reflects a reserve recorded in 1998 for a net receivable owed to us from joint venture activities, offset by increases resulting from software amortization for certain products that were released in late 1998, and increased business development costs to further promote the firm. INCOME TAX EXPENSE: The increase was the result of an increase in pretax income and an increase in the effective tax rate from 46.0% in Third Quarter 1998 to 47.5% in Third Quarter 1999. The effective tax rate increased due to certain non-deductible expenses, such as spin-off costs and the inability to offset the Third Quarter 1999 international losses against United States profits in calculating income tax expense. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 18 of 22 LIQUIDITY AND CAPITAL RESOURCES Our liquidity and capital resource requirements result from our working capital needs, primarily consisting of compensation, benefits, transaction processing fees and software royalty fees. Historically, cash from operations has met all working capital requirements. A substantial portion of our assets are liquid, consisting of cash and cash equivalents or assets readily convertible into cash. We believe that our cash flow from operations and existing cash balances will be sufficient to meet our cash requirements. We generally invest our excess cash in money market funds and other short-term investments that generally mature within 90 days or less. Additionally, securities owned at fair value include highly liquid, variable rate municipal securities, auction rate preferred stock and common stock. At September 24, 1999, such cash equivalents amounted to $79.4 million and net receivables from brokers, dealers and other, of $10.2 million were due within 30 days. A special cash dividend of $74.6 million was paid on April 21, 1999 in connection with the spin-off from Jefferies Group. See "Spin-Off from Jefferies Group." Historically, all regulatory capital needs of ITG Inc. have been provided by cash from operations. We believe that cash flows from operations will provide ITG Inc. with sufficient regulatory capital. As of September 24, 1999, we had net excess regulatory capital of $65.3 million. We have an agreement with a bank to borrow up to $20 million on a revolving basis to enable ITG Inc. to satisfy its regulatory net capital requirements. This commitment will expire on March 14, 2000. Any amounts drawn may be prepaid at any time, but no later than March 15, 2001. We incur a fee at a rate per annum equal to 0.35% on the daily amount of the unused commitment to March 13, 2000. The interest rate on any amounts drawn will be prime; if such amounts are not repaid within two weeks, the interest rate will increase to prime plus 2%. The credit facility is secured by a pledge of the stock of ITG Inc., ITG Ventures, Inc. and ITG Global Trading Incorporated. This agreement limits our ability to pay cash dividends or incur indebtedness and requires us to comply with certain financial covenants. Although we believe that the combination of our existing net regulatory capital, operating cash flows and the revolving credit facility will be sufficient to meet regulatory capital requirements, a shortfall in net regulatory capital would have a material adverse effect on us. THE YEAR 2000 ISSUE Some computer systems and software products were originally designed to accept only two digit entries in the data code field. As a result, certain computer systems and software packages will not be able to interpret dates beyond December 31, 1999 and thus will interpret dates beginning January 1, 2000 incorrectly. This could potentially result in computer failure or miscalculations, causing operating disruptions, including an inability to process transactions, send invoices or engage in normal business operations. Therefore, companies may have to upgrade or replace computer and software systems in order to comply with the "Year 2000" requirements. STRATEGY We are well aware of and are actively addressing the Year 2000 issue and the potential problems that can arise in any computer and software system. Planning and evaluation work began in 1997 including the identification of those systems affected. We established a "Year 2000 working group" to address the Year 2000 issue. We have targeted our efforts into three major areas: (1) vendors; (2) company proprietary products; and (3) clients. VENDORS. Our ability to successfully meet the Year 2000 challenge is in part dependent on our vendors. We have contacted our vendors to determine the status of their Year 2000 programs and have created a database recording each vendor's readiness status. Substantially all of our vendors have indicated that their systems are currently Year 2000 compliant. Based upon the results of our testing to date, we are satisfied with the representations we have received from INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 19 of 22 our vendors. We plan to finalize the integration of Year 2000 compliant versions of our vendors' software and hardware with our proprietary products by November 15, 1999. COMPANY PROPRIETARY PRODUCTS. We have evaluated our trading systems and have endeavored to examine all code contained in our internally produced software. We have completed regression testing and date-forward testing of all mission critical systems and released Year 2000 compliant versions of all such systems. We also participated in the Securities Industry Association's industry-wide testing program in March and April 1999. CLIENTS. We have periodically informed our clients of the progress of our Year 2000 program. In June 1999, we sent our clients a letter to inform them that Year 2000 compliant versions of all our products were available and to identify the Year 2000 compliant version of each product. In addition, we contacted clients on a project-by-project basis to ascertain compatibility between our systems and changes made to the clients' systems. We have provided point-to-point testing opportunities for our clients since April 1999. YEAR 2000 CONTINGENCY PLANNING We have prepared a Year 2000 contingency plan to deal with both internal and external failures of critical systems. The Year 2000 issue can affect all businesses that rely heavily on automated systems. Our Year 2000 contingency plan is therefore intended to address failures of internal systems, client connections and connections to trading destinations, as well as failures of major infrastructure components. We intend to update and refine our contingency plan as needed on a continuing basis. We believe, however, that such contingency plan will not provide satisfactory solutions for our worst-case scenario: the general failure of computer and communication systems relied upon by the securities industry, such as the systems provided by long distance telephone companies, the stock exchanges, Nasdaq, The Depository Trust Company and ADP Brokerage Services, and the failure of our securities clearing and execution firms to provide services under agreements with us. Such failure would prevent us from operating in whole or in part until such systems or services have been restored and could have a material adverse effect on us. In the event any of our internally developed systems fails, we will undertake to remediate such system on an emergency basis at the time of such failure. To ensure that adequate staff will be available to handle any such emergencies in January of 2000, we have imposed a moratorium on employee vacations during the first two weeks of January 2000, and have made arrangements to have a number of software development personnel (normally based in our Culver City office) at our New York headquarters during the final week of December 1999 and the first week of January 2000. Our inability to remediate a failure of any of our internally developed mission critical systems would prevent us from operating in whole or in part until such systems have been restored and could have a material adverse effect on us. COSTS We do not believe that the costs incurred to ready our systems for the Year 2000 will have a material effect on our financial condition. Total costs for the whole project are estimated to be approximately $3.0 million, which includes the cost of personnel, consultants and software and hardware costs. Costs incurred for the Year 2000 project were approximately $1.15 million for the First Nine Months 1999 and totaled $2.7 million to date. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 20 of 22 PART II. - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION On October 13, 1999, ITG announced that it had ended its May 20, 1999 letter of intent with Bloomberg L.P. for ITG to invest in the Tradebook ECN. In lieu of this investment, Bloomberg and ITG entered into a letter agreement, dated October 12, 1999, that provides for access by ITG's products, including QuantEX, ITG Platform, and Electronic Trading Desk, to the Tradebook ECN and completion of the POSIT sweep from the Tradebook ECN. Both arrangements will be provided on a nonexclusive basis. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 21 of 22 SIGNATURE 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 thereunto duly authorized. INVESTMENT TECHNOLOGY GROUP, INC. --------------------------------- (Registrant) Date: November 4, 1999 By: /s/ John R. MacDonald --------------------- --------------------- John R. MacDonald Chief Financial Officer and Duly Authorized Signatory of Registrant INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 22 of 22 EX-27 2 EXHIBIT 27
BD THE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS OF SEPTEMEBER 24, 1999 AND FOR THE NINE MONTHS THEN ENDED AND THE NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FILED IN THE 1998 INVESTMENT TECHNOLOGY GROUP, INC. ANNUAL 10-K FILING. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-24-1999 79,389 23,980 0 0 47,888 19,597 187,712 0 42,131 0 0 5,321 0 0 0 320 139,940 187,712 (3,350) 2,876 161,491 0 2,487 37 37,317 54,679 54,679 0 0 27,854 0.91 0.87
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