-----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, OsBYqyHJIS4JwNip+EI00yGz8rvNw18VGa//u64zQFTqwGmCOo9jkQIgQeV1d0Lw c+jHJrlRHK5PDhRonGgnYg== 0000950123-97-004205.txt : 19970514 0000950123-97-004205.hdr.sgml : 19970514 ACCESSION NUMBER: 0000950123-97-004205 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970328 FILED AS OF DATE: 19970513 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 000-23644 FILM NUMBER: 97601938 BUSINESS ADDRESS: STREET 1: 900 THIRD AVE STREET 2: 2ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2127556800 MAIL ADDRESS: STREET 1: 11100 SANTA MONICA BLVD STREET 2: 12TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90025 10-Q 1 FORM 10-Q / INVESTMENT TECHNOLOGY GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 28, 1997 Commission file number: 0 - 23644 INVESTMENT TECHNOLOGY GROUP, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 13 - 3757717 - ------------------------------------------------ ---------------------------------------------- (State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.) Organization) 900 Third Avenue, New York, New York (212) 755 - 6800 - ------------------------------------------------ ---------------------------------------------- (Address of Principal Executive Offices) (Registrant's Telephone Number, Including Area Code)
10022 - ------------------------------------------------ (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 April 22, 1997, the Registrant had 18,102,500 shares of common stock, $.01 par value, outstanding. 2 QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS PART I FINANCIAL INFORMATION
Page ---- Item 1. Financial Statements Consolidated Statement of Financial Condition: March 28, 1997 (unaudited) and December 31, 1996...................... 3 Consolidated Statement of Operations (unaudited): Three Months Ended March 28, 1997 and March 29, 1996.................. 4 Consolidated Statement of Changes in Stockholders' Equity (unaudited): Three Months Ended March 28, 1997..................................... 5 Consolidated Statement of Cash Flows (unaudited): Three Months Ended March 28, 1997 and March 29 ,1996.................. 6 Condensed Notes to Consolidated Financial Statements (unaudited).......... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 8 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.......................................... 9
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 2 of 10 3 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
March 28, December 31, 1997 1996 ---- ---- ASSETS (unaudited) Cash and cash equivalents .................................... $ 46,834 $ 43,955 Securities owned ............................................. 5,381 4,808 Investment in limited partnership (at market; cost $5,000) ... 5,316 5,193 Trade receivables ............................................ 6,217 4,806 Trade receivable from affiliate .............................. 2,573 2,812 Due from affiliates .......................................... 973 1,459 Premises and equipment ....................................... 11,854 8,442 Capitalized software ......................................... 3,031 3,028 Other assets ................................................. 3,269 3,467 Goodwill ..................................................... 2,334 2,471 Deferred tax asset ........................................... 2,343 2,357 -------- -------- $ 90,125 $ 82,798 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses ........................ $ 9,744 $ 8,648 Software royalties payable ................................... 2,349 2,274 Securities sold, not yet purchased ........................... 46 1,226 Due to affiliates ............................................ 4,030 1,922 Income taxes payable to affiliate ............................ 396 1,635 -------- -------- 16,565 15,705 Stockholders' equity: Preferred stock, par value $.01; shares authorized: 5,000,000; none issued .................................. -- -- Common stock, par value $.01; shares authorized: 30,000,000; shares issued: 18,700,000 ................... 187 187 Additional paid-in capital ................................ 36,055 36,055 Retained earnings ......................................... 41,145 34,614 Common stock held in treasury, at cost; shares:448,500 at March 28, 1997 and 445,200 at December 31, 1996 ...... (3,827) (3,763) -------- -------- Total stockholders' equity ................................ 73,560 67,093 -------- -------- $ 90,125 $ 82,798 ======== ======== Book value per share ......................................... $ 4.03 $ 3.68 ======== ========
See accompanying unaudited notes to consolidated financial statements. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 3 of 10 4 CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Three Months Ended ------------------ March 28, March 29, 1997 1996 ---- ---- Revenues .................................................... $30,654 $26,667 Expenses: Compensation and employee benefits ..................... 6,873 5,869 Transaction processing ................................. 4,903 3,699 Software royalties ..................................... 2,382 2,221 Occupancy and equipment ................................ 1,858 1,027 Consulting ............................................. 372 854 Telecommunications and data processing services ........ 957 1,251 Other general and administrative ....................... 1,948 2,112 ------- ------- 19,293 17,033 ------- ------- Earnings before income tax expense ..................... 11,361 9,634 Income tax expense .......................................... 4,830 4,238 ------- ------- Net earnings ................................................ $ 6,531 $ 5,396 ------- ======= Primary earnings per share .................................. $ 0.35 $ 0.29 ======= ======= Fully diluted earnings per share ............................ $ 0.35 $ 0.29 ======= ======= Primary weighted average shares of common stock and common stock equivalents outstanding ........................ 18,816 18,425 ======= ======= Fully diluted weighted average shares of common stock and common stock equivalents outstanding ........................ 18,816 18,632 ======= =======
See accompanying unaudited notes to consolidated financial statements. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 4 of 10 5 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) THREE MONTHS ENDED MARCH 28, 1997 DOLLARS IN THOUSANDS
Common Total Additional Stock Stock- Preferred Common Paid-in Retained Held in holders' Stock Stock Capital Earnings Treasury Equity ----- ----- ------- -------- -------- ------ Balance at December 31, 1996 ... $ -- $ 187 $36,055 $34,614 $(3,763) $67,093 Purchase of common stock for treasury (3,300 shares) ... (64) (64) Net earnings ................... 6,531 6,531 ------- ------- ------- ------- ------- ------- Balance at March 28, 1997 ...... $ -- $ 187 $36,055 $41,145 $(3,827) $73,560 ======= ======= ======= ======= ======= =======
See accompanying unaudited notes to consolidated financial statements. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 5 of 10 6 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) DOLLARS IN THOUSANDS
Three Months Ended ------------------ March 28, March 29, 1997 1996 ---- ---- Cash flows from operating activities: Net earnings .............................................................. $ 6,531 $ 5,396 Adjustments to reconcile net earnings to net cash provided by operating activities: Deferred income tax (benefit) expense ................................. 14 (1,046) Depreciation and amortization ......................................... 1,344 772 Unrealized gain on investment in limited partnership .................. (123) -- Undistributed loss of affiliates ...................................... 156 -- Provision for doubtful accounts receivable ............................ 21 21 Decrease (increase) in operating assets: Securities owned ................................................. (573) 92 Trade receivables ................................................ (1,432) (1,175) Trade receivable from affiliate .................................. 239 (1,802) Due from affiliates .............................................. 486 4,096 Other assets ..................................................... 18 (113) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses ............................ 1,119 2,083 Software royalties payable ....................................... 75 512 Securities sold, not yet purchased ............................... (1,180) 1,452 Due to affiliates ................................................ 2,108 (1,489) Income taxes payable to affiliate ................................ (1,239) 1,097 -------- -------- Net cash provided by operating activities ................................. 7,564 9,896 -------- -------- Cash flows from financing activities: Purchase of common stock for treasury ..................................... (64) (1,348) -------- -------- Net cash used by financing activities ..................................... (64) (1,348) -------- -------- Cash flows from investing activities: Investment in VERSUS Technologies, Inc. ................................... -- 8 Purchase of premises and equipment ........................................ (4,210) (1,180) Capitalization of software development costs .............................. (411) (477) -------- -------- Net cash used by investing activities ..................................... (4,621) (1,649) -------- -------- Net increase in cash and cash equivalents ................................. 2,879 6,899 Cash and cash equivalents - beginning of period ................................ 43,955 17,960 -------- -------- Cash and cash equivalents - end of period ...................................... $ 46,834 $ 24,859 ======== ======== Supplemental cash flow information: Interest paid ............................................................. $ 17 $ 12 ======== ======== Income taxes paid to affiliate ............................................ $ 6,055 $ 4,187 ======== ========
See accompanying unaudited notes to consolidated financial statements. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 6 of 10 7 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The consolidated financial statements include the accounts of Investment Technology Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company"), principally ITG Inc. ("ITG"), a Delaware corporation, registered as a broker-dealer in securities under the Securities Exchange Act of 1934, and ITG Global Trading, Inc. ("Global Trading") which is a 50% partner in the Global POSIT joint venture. Jefferies Group, Inc. ("Jefferies Group") owned over 80% of the Company's common stock at March 28, 1997. 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 statement of the results for the interim periods and should be read in conjunction with the Company's 1996 annual report on Form 10-K. Certain reclassifications have been made to the financial statements for the prior period to conform to the presentation for 1997. FORWARD-LOOKING STATEMENTS In addition to the historical information contained throughout this Quarterly Report on Form 10-Q, there are forward-looking statements that reflect management's expectations for the future. A variety of important factors could cause results to differ materially from such statements. These factors are noted throughout this Quarterly Report on Form 10-Q and include: the actions of both current and potential new competitors, rapid changes in technology, financial market volatility, evolving industry regulation, cash flows into or redemptions from equity funds, effects of inflation, customer trading patterns, and new products and services. ACCOUNTING DEVELOPMENTS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase in primary earnings per share for the first quarter ended March 28, 1997 of $0.01 and have no impact on primary earnings per share for the first quarter ended March 29, 1996. Statement 128 will have no impact on the calculation of fully diluted earnings per share for either of these quarters. INCOME TAXES The Company is a member of the Jefferies affiliated group ("Group") for purposes of filing a Federal income tax return (i.e., Jefferies Group owns more than 80% of the Company). The Company's tax liability is determined on a "separate return" basis. That is, the Company is required to pay to Jefferies Group its proportionate share of the consolidated tax liability plus any excess of its "separate" tax liability (assuming a separate tax return were to be filed by the Company) over its proportionate amount of the consolidated Group tax liability. Alternatively, Jefferies Group is required to pay the Company an "additional amount" for the amount by which the consolidated tax liability of the Group is decreased by reason of inclusion of the Company in the Group. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 7 of 10 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FIRST QUARTER 1997 VERSUS FIRST QUARTER 1996 (Dollars in millions, except as noted)
Three Months Ended Change ------------------ ------ March 28, 1997 March 29, 1996 Amount Percentage -------------- -------------- ------ ---------- Revenues $30.7 $26.7 $ 4.0 15% Number of Trading Days 60 63 (3) (5%) Revenues per Trading Day (Dollars in thousands) $ 511 $ 423 $ 88 21%
Increased revenues were attributed to a growing use of POSIT, QuantEX and the Company's other electronic trading desk services. For the quarter ended March 28, 1997, POSIT revenues were approximately 6% or $1.1 million above the comparable period for 1996, while QuantEX revenues were approximately 18% or $1.0 million above the comparable period for 1996. For the quarter ended March 28, 1997, other electronic trading desk services were 44% or $1.6 million above the comparable period for 1996.
Three Months Ended Change ------------------ ------ March 28, 1997 March 29, 1996 Amount Percentage -------------- -------------- ------ ---------- Compensation and employee benefits expense $6.9 $5.9 $1.0 17% Number of employees at period end 169 127 42 33% Revenues per employee (Dollars in thousands) $182 $210 $(28) (13%) Compensation and employee benefits expense per employee (Dollars in thousands) $ 41 $ 46 $ (5) (11%)
The increase is due primarily to an increase in the number of employees offset by a decrease in profitability based compensation.
Three Months Ended Change ------------------ ------ March 28, 1997 March 29, 1996 Amount Percentage -------------- -------------- ------ ---------- Transaction processing expense $ 4.9 $ 3.7 $1.2 32% Transaction processing expense as a percentage of revenues 16.0% 13.9% 2.1 pts. 15%
The increase is primarily due to the expense associated with a higher volume of transactions and shares in 1997. The increase as a percentage of revenues increased by 15% primarily because the QuantEX and electronic trading desk service revenues were a larger mix of the total revenues. The QuantEX product and electronic trading desk services have slightly lower margins than POSIT because there are no floor brokerage expenses associated with POSIT.
Three Months Ended Change ------------------ ------ March 28, 1997 March 29, 1996 Amount Percentage -------------- -------------- ------ ---------- Software royalties expense $ 2.4 $ 2.2 $0.2 9% Software royalties expense as a percentage of POSIT revenues 13.1% 13.0% 0.1 pt. 1%
The increase is due to higher revenue associated with POSIT.
Three Months Ended Change ------------------ ------ March 28, 1997 March 29, 1996 Amount Percentage -------------- -------------- ------ ---------- Occupancy and equipment expense $1.9 $1.0 $0.9 90%
The increase is due primarily to increased depreciation from the purchase of additional equipment associated with increased headcount. In addition, the Company accelerated the write-off of unamortized leasehold improvements at 900 Third Avenue. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 8 of 10 9
Three Months Ended Change ------------------ ------ March 28, 1997 March 29, 1996 Amount Percentage -------------- -------------- ------ ---------- Consulting expense $0.4 $0.9 ($0.5) (56%)
Consulting is primarily for functions which the Company currently believes are advantageous to out-source. The decrease is due primarily to the Firm undertaking nonrecurring special projects in 1996 related to contingency planning and systems' security.
Three Months Ended Change ------------------ ------ March 28, 1997 March 29, 1996 Amount Percentage -------------- -------------- ------ ---------- Telecommunications and data processing services expense $1.0 $1.3 ($0.3) (23%)
The decrease is due primarily to credits received as a result of renegotiated bills and cost savings achieved from new vendors.
Three Months Ended Change ------------------ ------ March 28, 1997 March 29, 1996 Amount Percentage -------------- -------------- ------ ---------- Other general and administrative expense $1.9 $2.1 ($0.2) (10%)
Software amortization for the quarter ended March 28, 1997 increased over the comparable period for 1996. The increase is offset by a decrease in marketing costs and firm travel and entertainment.
Three Months Ended Change ------------------ ------ March 28, 1997 March 29, 1996 Amount Percentage -------------- -------------- ------ ---------- Income tax expense $4.8 $4.2 $0.6 14%
The increase is primarily due to the increase in pretax earnings partially offset by a decrease in the effective tax rate from 44% to 43% from research and development credits taken in 1997. PART II. - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K. There were no reports filed on Form 8-K during the quarter ended March 28, 1997. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 9 of 10 10 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: May 13, 1997 By: /s/ John R. MacDonald -------------- --------------------- John R. MacDonald Chief Financial Officer and Duly Authorized Signatory of Registrant INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 10 of 10 EX-27 2 FINANCIAL DATA SCHEDULE
BD THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS OF 3-28-1997 AND FOR THE 3 MONTHS THEN ENDED AND THE NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FILED IN THE 1997 INVESTMENT TECHNOLOGY GROUP, INC. 1ST QUARTER 10-Q FILING. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-28-1997 46,834 9,763 0 0 10,697 11,854 90,125 0 12,093 0 0 46 0 0 0 187 73,373 90,125 0 552 30,102 0 0 17 6,873 11,361 11,361 0 0 6,531 .35 .35
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