-----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, PK64UhRsbNWIs9nOGQJ5Tje/LZfMGFSvXjeDQ/KS/5m+J0NmW1bOj311vSxjA1Pu qwA4S0+ntf2ZmVV4oxBThQ== 0000950123-96-004381.txt : 19960911 0000950123-96-004381.hdr.sgml : 19960911 ACCESSION NUMBER: 0000950123-96-004381 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960628 FILED AS OF DATE: 19960813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTMENT TECHNOLOGY GROUP INC CENTRAL INDEX KEY: 0000920424 STANDARD INDUSTRIAL CLASSIFICATION: 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: 96610912 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 June 28, 1996 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 (I.R.S. Employer Incorporation or Organization) Identification No.) 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 August 5, 1996, the Registrant had 18,254,800 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: June 28, 1996 (unaudited) and December 31, 1995.................................... 3 Consolidated Statement of Operations (unaudited): Six Months Ended June 28, 1996 and June 30, 1995.................................. 4 Consolidated Statement of Operations (unaudited): Three Months Ended June 28, 1996 and June 30, 1995................................ 5 Consolidated Statement of Changes in Stockholders' Equity (unaudited): Six Months Ended June 28, 1996.................................................... 6 Consolidated Statement of Cash Flows (unaudited): Six Months Ended June 28, 1996 and June 30, 1995.................................. 7 Condensed Notes to Consolidated Financial Statements (unaudited)...................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................. 9 Item 4. Submission of Matters to a Vote of Security Holders................................... 12 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K...................................................... 12
Investment Technology Group, Inc. and Subsidiaries Page 2 of 13 3 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
June 28, December 31, 1996 1995 ---------- ------------ ASSETS (unaudited) Cash and cash equivalents........................ $36,555 $17,960 Securities owned................................. 6,031 8,509 Trade receivables................................ 4,616 2,482 Trade receivable from affiliate.................. 2,542 7,766 Due from affiliates.............................. 928 5,001 Premises and equipment........................... 6,679 4,852 Capitalized software............................. 3,152 2,757 Other assets..................................... 2,798 2,640 Goodwill......................................... 2,746 3,021 Deferred tax asset............................... 1,612 330 ------- ------- $67,659 $55,318 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses............ $ 7,832 $ 5,112 Software royalties payable....................... 2,030 1,794 Securities sold, not yet purchased............... 63 -- Due to affiliates................................ 2,138 2,243 Income taxes payable to affiliate................ 803 690 ------- ------- 12,866 9,839 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............................. 22,242 11,279 Common stock held in treasury, at cost; shares: 440,200 at June 28, 1996 and 310,200 at December 31, 1995 (3,691) (2,042) ------- ------- Total stockholders' equity.................... 54,793 45,479 ------- ------- $67,659 $55,318 ======= ======= Book value per share............................. $ 3.00 $ 2.47 ======= =======
See accompanying unaudited notes to consolidated financial statements. Investment Technology Group, Inc. and Subsidiaries Page 3 of 13 4 CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Six Months Ended ------------------------- June 28, June 30, 1996 1995 ---- ---- Revenues ........................................... $52,980 $33,043 Expenses: Compensation and employee benefits ............ 12,021 7,071 Transaction processing ........................ 7,475 4,933 Software royalties ............................ 4,243 2,645 Occupancy and equipment ....................... 2,284 1,701 Consulting .................................... 1,546 959 Telecommunications and data processing services 2,176 1,162 Other general and administrative .............. 3,749 2,898 ------- ------- 33,494 21,369 ------- ------- Earnings before income tax expense ............ 19,486 11,674 Income tax expense ................................. 8,523 5,149 ------- ------- Net earnings ....................................... $10,963 $ 6,525 ======= ======= Net earnings per share of common stock ............. $ 0.59 $ 0.35 ======= ======= Weighted average shares of common stock and common stock equivalents outstanding ...................... 18,606 18,526 ======= =======
See accompanying unaudited notes to consolidated financial statements. Investment Technology Group, Inc. and Subsidiaries Page 4 of 13 5 CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Three Months Ended ------------------------ June 28, June 30, 1996 1995 ---- ---- Revenues ............................................... $26,313 $16,700 Expenses: Compensation and employee benefits ................ 6,006 3,529 Transaction processing ............................ 3,776 2,727 Software royalties ................................ 2,022 1,264 Occupancy and equipment ........................... 1,257 883 Consulting ........................................ 692 396 Telecommunications and data processing services ... 925 676 Other general and administrative .................. 1,783 1,332 ------- ------- 16,461 10,807 ------- ------- Earnings before income tax expense ................ 9,852 5,893 Income tax expense ..................................... 4,285 2,543 ------- ------- Net earnings ........................................... $ 5,567 $ 3,350 ======= ======= Net earnings per share of common stock ................. $ 0.30 $ 0.18 ======= ======= Weighted average shares of common stock and common stock equivalents outstanding ................................ 18,574 18,520 ======= =======
See accompanying unaudited notes to consolidated financial statements. Investment Technology Group, Inc. and Subsidiaries Page 5 of 13 6 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) SIX MONTHS ENDED JUNE 28, 1996 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, 1995 ... $-- $ 187 $36,055 $11,279 $(2,042) $45,479 Purchase of common stock for treasury (130,000 shares) (1,649) (1,649) Net earnings ................... 10,963 10,963 ----------------------------------------------------------------------------- Balance at June 28, 1996 ....... $-- $ 187 $36,055 $22,242 $(3,691) $54,793 ============================================================================
See accompanying unaudited notes to consolidated financial statements. Investment Technology Group, Inc. and Subsidiaries Page 6 of 13 7 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) DOLLARS IN THOUSANDS
Six Months Ended -------------------------- June 28, June 30, 1996 1995 ---- ---- Cash flows from operating activities: Net earnings .......................................................... $10,963 $ 6,525 Adjustments to reconcile net earnings to net cash provided by operating activities: Deferred income tax (benefit) expense ............................. (1,282) 1,618 Depreciation and amortization ..................................... 1,618 1,003 Unearned income related to investments ............................ (83) (293) Decrease (increase) in operating assets: Securities owned ............................................. 2,478 (865) Trade receivables ............................................ (2,134) (880) Trade receivable from affiliate .............................. 5,224 (1,517) Due from affiliates .......................................... 4,073 -- Income taxes receivable from affiliate ....................... -- 1,405 Other assets ................................................. (303) (315) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses ........................ 2,948 1,325 Software royalties payable ................................... 236 208 Termination of plans expense payable ......................... -- (758) Due to affiliates ............................................ (105) 689 Securities sold, not yet purchased ........................... 63 802 Income taxes payable to affiliate ............................ 113 1,614 ------- ------- Net cash provided by operating activities ............................. 23,809 10,561 ------- ------- Cash flows from financing activities: Purchase of common stock for treasury ................................. (1,649) (525) ------- ------- Net cash used by financing activities ................................. (1,649) (525) ------- ------- Cash flows from investing activities: Purchase of premises and equipment .................................... (2,611) (2,138) Capitalization of software development costs .......................... (954) (964) ------- ------- Net cash used by investing activities ................................. (3,565) (3,102) ------- ------- Net increase in cash and cash equivalents ............................. 18,595 6,934 Cash and cash equivalents - beginning of period ............................ 17,960 21,446 ------- ------- Cash and cash equivalents - end of period .................................. $36,555 $28,380 ======= ======= Supplemental cash flow information: Interest paid ......................................................... $ 54 $ 2 ======= ======= Income taxes paid to affiliate ........................................ $ 9,692 $ 512 ======= =======
See accompanying unaudited notes to consolidated financial statements. Investment Technology Group, Inc. and Subsidiaries Page 7 of 13 8 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 June 28, 1996. 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 1995 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 1996. 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 8 of 13 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FIRST HALF 1996 VERSUS FIRST HALF 1995 (Dollars in millions, except as noted)
Six Months Ended Change ---------------- ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Revenues $53.0 $33.0 $20.0 61% Number of Trading Days 126 126 0 0% Revenues per Trading Day (Dollars in thousands) $ 421 $ 262 $ 159 61%
Increased revenues were attributed to a growing use of POSIT, QuantEX and the Company's other electronic trading desk services. For the six months ended June 28, 1996, POSIT revenues were approximately 59% or $12.0 million above the comparable period for 1995, while QuantEX revenues were approximately 67% or $5.2 million above the comparable period for 1995. For the six months ended June 28, 1996, other electronic trading desk services were $3.2 million above the comparable period for 1995.
Six Months Ended Change ---------------- ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Compensation and employee benefits expense $12.0 $7.1 $4.9 69% Number of employees at period end 149 111 38 34% Revenues per employee (Dollars in thousands) $ 356 $297 $ 59 20% Compensation and employee benefits expense per employee (Dollars in thousands) $ 81 $ 64 $ 17 27%
The increase in compensation and employee benefits expense is due primarily to an increase in the number of employees and an increase in profitability based compensation.
Six Months Ended Change ---------------- ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Transaction processing expense $ 7.5 $ 4.9 $ 2.6 53% Transaction processing expense as a percentage of revenues 14.2% 14.8% (0.6%) (4.1%)
The increase is primarily due to the expense associated with a higher volume of transactions in 1996. The decrease in expense per revenues is due to lower execution charges as a result of volume discounts and a change in the mix of ticket types in favor of lower priced tickets.
Six Months Ended Change ---------------- ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Software royalties expense $4.2 $2.6 $1.6 62%
The increase is due to higher revenue associated with POSIT.
Six Months Ended Change ---------------- ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Occupancy and equipment expense $2.3 $1.7 $0.6 35%
The increase is due primarily to depreciation of premises and equipment acquired since the beginning of 1995 and increased rent expense, which is primarily related to opening the new Boston office in April 1995.
Six Months Ended Change ---------------- ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Consulting expense $1.5 $1.0 $0.5 50%
Consulting is primarily for equity research functions which the Company currently believes are advantageous to out-source. The increase is due primarily to the Firm undertaking special projects related to contingency planning and systems' security. Investment Technology Group, Inc. and Subsidiaries Page 9 of 13 10
Six Months Ended Change ---------------- ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Telecommunications and data processing services expense $2.2 $1.2 $1.0 83%
The increase is due primarily to an increase in quotation services and communications charges associated with the increased number of QuantEX installations. In addition, an increased level of activity in the existing QuantEX business raised the semi variable component of the quotation services and communications charges.
Six Months Ended Change ---------------- ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Other general and administrative expense $3.7 $2.9 $0.8 28%
The increase is largely due to an increase in amortization of capitalized software and allowances for general legal and bad debt expenses.
Six Months Ended Change ---------------- ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Income tax expense $8.5 $5.1 $3.4 67%
The increase is entirely due to the increase in pretax earnings. SECOND QUARTER 1996 VERSUS SECOND QUARTER 1995 (Dollars in millions, except as noted)
Three Months Ended Change ------------------ ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Revenues $26.3 $16.7 $9.6 57% Number of Trading Days 63 63 0 0% Revenues per Trading Day (Dollars in thousands) $ 418 $ 265 $153 58%
Increased revenues were attributed to a growing use of POSIT, QuantEX and the Company's other electronic trading desk services. For the quarter ended June 28, 1996, POSIT revenues were approximately 61% or $5.8 million above the comparable period for 1995, while QuantEX revenues were approximately 61% or $2.6 million above the comparable period for 1995. For the quarter ended June 28, 1996, other electronic trading desk services were $1.2 million above the comparable period for 1995.
Three Months Ended Change ------------------ ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Compensation and employee benefits expense $6.0 $3.5 $2.5 71% Number of employees at period end 149 111 38 34% Revenues per employee (Dollars in thousands) $177 $150 $ 27 18% Compensation and employee benefits expense per employee (Dollars in thousands) $ 40 $ 32 $ 8 25%
The increase in compensation and employee benefits expense is due primarily to an increase in the number of employees and an increase in profitability based compensation.
Three Months Ended Change ------------------ ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Transaction processing expense $ 3.8 $ 2.7 $ 1.1 41% Transaction processing expense as a percentage of revenues 14.4% 16.2% (1.8%) (11.1%)
Investment Technology Group, Inc. and Subsidiaries Page 10 of 13 11 The increase is primarily due to the expense associated with a higher volume of transactions in 1996. The decrease in expense per revenues is due to lower execution charges as a result of volume discounts and a change in the mix of ticket types in favor of lower priced tickets.
Three Months Ended Change ------------------ ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Software royalties expense $2.0 $1.3 $0.7 54%
The increase is due to higher revenue associated with POSIT.
Three Months Ended Change ------------------ ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Occupancy and equipment expense $1.3 $0.9 $0.4 44%
The increase is due primarily to depreciation of premises and equipment acquired since the beginning of 1995.
Three Months Ended Change ------------------ ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Consulting expense $0.7 $0.4 $0.3 75%
Consulting is primarily for equity research functions which the Company currently believes are advantageous to out-source. The increase is due primarily to the Firm undertaking special projects related to contingency planning and systems' security.
Three Months Ended Change ------------------ ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Telecommunications and data processing services expense $0.9 $0.7 $0.2 29%
The increase is due primarily to an increase in quotation services and communications charges associated with the increased number of QuantEX installations. In addition, an increased level of activity in the existing QuantEX business raised the semi variable component of the quotation services and communications charges.
Three Months Ended Change ------------------ ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Other general and administrative expense $1.8 $1.3 $0.5 38%
The increase is largely due to an increase in the allowance for bad debt expenses.
Three Months Ended Change ------------------ ------ June 28, 1996 June 30, 1995 Amount Percentage ------------- ------------- ------ ---------- Income tax expense $4.3 $2.5 $1.8 72%
The increase is primarily due to the increase in pretax earnings, as well as an increase in the effective tax rate from 43.2% to 43.5%. Investment Technology Group, Inc. and Subsidiaries Page 11 of 13 12 Item 4 Submission of Matters to a Vote of Security Holders (a) Date of Meeting - May 14, 1996 Type of Meeting - Annual Meeting of Stockholders (b) At the meeting, the following directors were elected by the stockholders to hold office until the next annual meeting of stockholders or until their successors have been duly elected and qualified: Frank E. Baxter Richard G. Dooley David F. Eisner William I. Jacobs Raymond L. Killian, Jr. Robert L. King Dale A. Prouty Scott P. Mason Mark A. Wolfson (c) At the meeting, with respect to the election of the directors, the following votes were cast in the following manner: Election of Directors
NAME FOR WITHHELD ---- --- -------- Frank E. Baxter 18,299,125 5,400 Richard G. Dooley 18,299,125 5,400 David F. Eisner 18,299,125 5,400 William I. Jacobs 18,299,125 5,400 Raymond L. Killian, Jr. 18,299,125 5,400 Robert L. King 18,299,125 5,400 Dale A. Prouty 18,299,125 5,400 Scott P. Mason 18,299,125 5,400 Mark A. Wolfson 18,299,125 5,400
Approval of the Non-employee Directors' Stock Option Plan Number of Shares ---------------- For 18,278,280 Against 18,070 Abstain 4,000 Broker Non-votes 4,175 (d) Not applicable 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 June 28, 1996. Investment Technology Group, Inc. and Subsidiaries Page 12 of 13 13 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: August 14, 1996 By: /s/ John R. MacDonald ---------------------- John R. MacDonald Chief Financial Officer, and Duly Authorized Signatory of Registrant INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 13 of 13 14 EXHIBIT INDEX ------------- Exhibit 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-28-1996 36,555 6,031 8,086 0 0 0 6,679 0 67,659 12,866 0 0 0 187 54,606 67,659 52,980 52,980 0 0 33,494 0 0 19,486 8,523 10,963 0 0 0 10,963 .59 0
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