10-Q 1 d01-34106.txt FORM 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 June 30, 2001 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 August 13, 2001, the Registrant had 31,921,571 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: June 30, 2001 (unaudited) and December 31, 2000 ................. 4 Consolidated Statements of Income (unaudited): Six Months Ended June 30, 2001 and 2000 ......................... 5 Three Months Ended June 30, 2001 and 2000 ....................... 6 Consolidated Statement of Changes in Stockholders' Equity (unaudited): Six Months Ended June 30, 2001 .................................. 7 Consolidated Statements of Cash Flows (unaudited): Six Months Ended June 30, 2001 and 2000 ......................... 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 6. Exhibits and Reports on Form 8-K ................................... 21 Signatures ......................................................... 22 QUANTEX IS A REGISTERED TRADEMARK OF THE INVESTMENT TECHNOLOGY GROUP, INC. COMPANIES. POSIT IS A REGISTERED SERVICE MARK OF THE POSIT JOINT VENTURE. SMARTSERVER, ITG ACE, TCA AND ITG ACCESS ARE TRADEMARKS OF THE INVESTMENT TECHNOLOGY GROUP, INC. COMPANIES. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 2 of 22 FORWARD-LOOKING STATEMENTS In addition to the historical information contained throughout this Quarterly Report on 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, as well as general economic and business conditions, securities, credit and financial market conditions, and 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 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2001 2000 ------------ ------------ ASSETS ..................................................... (UNAUDITED) Cash and cash equivalents .................................. $ 159,342 $ 135,533 Securities owned, at fair value ............................ 71,151 51,761 Receivables from brokers, dealers and other, net ........... 178,814 23,892 Investments in limited partnerships ........................ 27,148 16,702 Premises and equipment ..................................... 26,176 24,330 Capitalized software ....................................... 4,632 4,544 Intangible assets .......................................... 20,610 4,408 Deferred taxes ............................................. 5,617 4,499 Other assets ............................................... 2,484 16,043 ------------ ------------ Total assets ............................................... $ 495,974 $ 281,712 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses ...................... $ 59,242 $ 39,510 Payable to brokers, dealers and other ...................... 7,982 7,303 Software royalties payable ................................. 6,223 4,151 Securities sold, not yet purchased, at fair value .......... 156,249 11,402 Income taxes payable ....................................... 8,463 8,930 ------------ ------------ Total liabilities .......................................... 238,159 71,296 ------------ ------------ 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: 34,109,823 and 34,096,514 at June 30, 2001 and December 31, 2000 ................ 341 341 Additional paid-in capital ............................... 139,602 138,297 Retained earnings ........................................ 179,442 139,320 Common stock held in treasury, at cost; shares: 2,236,357 at June 30, 2001 and 2,479,568 at December 31, 2000 ... (60,595) (67,186) Accumulated other comprehensive loss: Currency translation adjustment ....................... (975) (356) ------------ ------------ Total stockholders' equity ............................... 257,815 210,416 ------------ ------------ Total liabilities and stockholders' equity ................. $ 495,974 $ 281,712 ============ ============
SEE ACCOMPANYING UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 4 of 22 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED ------------------------ JUNE 30, JUNE 30, 2001 2000 ------------------------ REVENUES: Commissions: POSIT ................................................. $ 90,524 $ 82,658 Electronic trading desk ............................... 42,100 32,838 Client site ........................................... 48,250 38,047 Other ................................................... 5,715 5,030 --------- --------- Total revenues ...................................... 186,589 158,573 --------- --------- EXPENSES: Compensation and employee benefits ...................... 49,543 38,759 Transaction processing .................................. 25,876 21,654 Software royalties ...................................... 11,629 10,798 Occupancy and equipment ................................. 9,821 8,203 Telecommunications and data processing services ......... 7,131 6,298 Net (gain) loss on long-term investments ................ (309) 2,593 Other general and administrative ........................ 13,627 10,340 --------- --------- Total expenses ...................................... 117,318 98,645 --------- --------- Income before income tax expense ........................... 69,271 59,928 Income tax expense ......................................... 29,149 26,344 ------------------------ Net income ................................................. $ 40,122 $ 33,584 ======================== Basic net earnings per share of common stock ............... $ 1.27 $ 1.09 ======================== Diluted net earnings per share of common stock ............. $ 1.25 $ 1.07 ======================== Basic weighted average shares outstanding .................. 31,714 30,712 ======================== Diluted weighted average shares and common stock equivalents outstanding ................................. 32,208 31,385 ========================
SEE ACCOMPANYING UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 5 of 22 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED --------------------- JUNE 30, JUNE 30, 2001 2000 --------------------- REVENUES: Commissions: POSIT ........................................... $ 47,315 $ 44,539 Electronic trading desk ......................... 21,113 15,471 Client site ..................................... 25,015 19,471 Other ............................................. 1,408 3,480 -------- -------- Total revenues ................................ 94,851 82,961 -------- -------- EXPENSES: Compensation and employee benefits ................ 25,710 20,319 Transaction processing ............................ 12,920 10,945 Software royalties ................................ 6,011 5,810 Occupancy and equipment ........................... 5,141 4,307 Telecommunications and data processing services ... 3,356 3,265 Net loss on long-term investments ................. 719 1,811 Other general and administrative .................. 7,035 5,182 -------- -------- Total expenses ................................ 60,892 51,639 -------- -------- Income before income tax expense ..................... 33,959 31,322 Income tax expense ................................... 14,886 13,642 --------------------- Net income ........................................... $ 19,073 $ 17,680 ===================== Basic net earnings per share of common stock ......... $ 0.60 $ 0.57 ===================== Diluted net earnings per share of common stock ....... $ 0.59 $ 0.56 ===================== Basic weighted average shares outstanding ............ 31,777 30,930 ===================== Diluted weighted average shares and common stock equivalents outstanding .......................... 32,271 31,526 =====================
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) SIX MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON ACCUMULATED ADDITIONAL STOCK OTHER TOTAL PREFERRED COMMON PAID-IN RETAINED HELD IN COMPREHENSIVE STOCKHOLDERS' STOCK STOCK CAPITAL EARNINGS TREASURY LOSS EQUITY -------------------------------------------------------------------------------------- Balance at December 31, 2000 .............. $ -- $ 341 $ 138,297 $ 139,320 $ (67,186) $ (356) $ 210,416 Issuance of common stock in connection with the 1994 stock option and long- term incentive plan (243,211 shares) ... -- -- 748 -- 6,591 -- 7,339 Issuance of common stock in connection with the employee stock purchase plan (13,309 shares) ........................ -- -- 557 -- -- -- 557 Comprehensive income: Net income ............................. -- -- -- 40,122 -- -- 40,122 Other comprehensive income: Currency translation adjustment ...... -- -- -- -- -- (619) (619) --------- Comprehensive income ...................... 39,503 ----------------------------------------------------------------------------------- Balance at June 30, 2001 .................. $ -- $ 341 $ 139,602 $ 179,442 $ (60,595) $ (975) $ 257,815 ===================================================================================
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)
SIX MONTHS ENDED -------------------------------- JUNE 30, 2001 JUNE 30, 2000 -------------------------------- Cash flows from operating activities: Net income .............................................................................. $ 40,122 $ 33,584 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax (benefit) expense ................................................ (1,119) 5,618 Depreciation and amortization ........................................................ 8,099 6,429 Gain on sale of Investment ........................................................... (1,157) -- Write down of investment in limited partnership ...................................... 1,285 -- Undistributed net (income) loss on long-term investments ............................. (309) 2,793 Provision for doubtful receivables ................................................... 405 140 Loss on sale of premises and equipment ............................................... -- 5 Decrease (increase) in operating assets: Securities owned, at fair value ...................................................... (18,816) (141,850) Receivables from brokers, dealers and other, net ..................................... (154,823) (9,822) Due from affiliates .................................................................. -- (11,363) Investments in limited partnerships .................................................. (731) (923) Other assets ......................................................................... 10,993 (2,433) Increase in operating liabilities: Accounts payable and accrued expenses ................................................ 16,545 13,613 Payable to brokers, dealers and other ................................................ 17 69,332 Software royalties payable ........................................................... 2,073 776 Securities sold, not yet purchased, at fair value .................................... 144,847 72,652 Income taxes payable ................................................................. (602) (5,828) Securities, available-for-sale gains .................................................... -- (1,973) -------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES .......................................... 46,829 30,750 -------------------------------- Cash flows from investing activities: Purchase of premises and equipment ................................................... (5,285) (6,911) Proceeds from sales of securities, available-for-sale ................................ -- 1,973 Proceeds from sales of Investment .................................................... 1,295 -- Proceeds from sales of premises and equipment ........................................ -- 5 Purchase of investments in limited partnerships ...................................... (11,000) (750) Purchase of remaining European subsidiary investment, net of cash acquired ($5,368) .. (13,132) -- Investment in joint venture .......................................................... -- (2,805) Capitalization of software development costs ......................................... (2,175) (1,353) -------------------------------- NET CASH USED IN INVESTING ACTIVITIES .............................................. (30,297) (9,841) -------------------------------- Cash flows from financing activities: Issuance/(purchase) of common stock from/(for) treasury ............................. 6,591 (8,122) Issuance of common stock in connection with employee stock option plan, including related tax benefit .................................................... 1,305 26,339 -------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES .......................................... 7,896 18,217 -------------------------------- Effect of foreign currency translation on cash and cash equivalents ................ (619) (12) Net increase in cash and cash equivalents .......................................... 23,809 39,114 Cash and cash equivalents - beginning of period ......................................... 135,533 53,081 -------------------------------- Cash and cash equivalents - end of period ............................................... $ 159,342 $ 92,195 ================================ Supplemental cash flow information: Interest paid ........................................................................ $ 21 $ 86 ================================ Income taxes paid .................................................................... $ 27,601 $ 13,539 ================================
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. and AlterNet Securities, Inc., U.S. broker-dealers in equity securities, (2) Investment Technology Group Limited ("ITG Europe"), an institutional broker-dealer in Europe, which was 50% owned prior to our May 2, 2001 purchase of the 50% ownership interest in the ITG Europe joint venture we did not already own, (3) ITG Australia Limited ("ITG Australia"), an institutional broker-dealer in Australia, (4) ITG Canada Corp. ("ITG Canada"), an institutional broker-dealer in Canada, (5) ITG Software Inc., our intangible property management subsidiary in California, (6) ITG Software Solutions, Inc., our software development and maintenance subsidiary in California and (7) Inference Group LLC, our asset management subsidiary. We provide equity trading services and transaction research to institutional investors and brokers in the United States ("U.S."), Canada, Australia and Europe. 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 electronic equity matching system; QuantEX, a Unix-based decision-support, trade management and order routing system; ITG Platform, a PC-based order routing and trade management system; Electronic Trading Desk, an agency-only trading desk offering clients the ability to efficiently access multiple sources of liquidity; ACE and TCA, a set of pre- and post-trade tools for systematically estimating and measuring transaction costs; SmartServers, which offer server-based implementation of trading strategies; ITG/OPT, a computer-based equity portfolio selection system; ITG Access, a browser-based order routing tool; and research, development, sales and consulting services to clients. ACQUISITIONS In the fourth quarter of 1998, we entered into a 50/50 joint venture with Societe Generale, and founded ITG Europe. On November 18, 1998, ITG Europe launched a new agency brokerage operation that included the operation of a European version of the POSIT system. On May 2, 2001 we purchased Societe Generale's entire interest in ITG Europe for $18.5 million. The acquisition was recorded under the purchase method of accounting and a portion of the purchase price has been allocated to assets acquired and liabilities assumed based upon estimated fair market values at the date of acquisition. The purchase price allocation is preliminary and subject to further refinements upon finalization of valuation studies. Goodwill and other intangibles amounting to $16.7 million are being amortized on a straight-line basis over their useful lives, which range between 9 and 34 years. CASH AND CASH EQUIVALENTS We have defined cash and cash equivalents as highly liquid investments, with original maturities of less than ninety days, which are part of our cash management activities. 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. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 9 of 22 USE OF ESTIMATES The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets, liabilities, revenues and expenses. 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. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at June 30, 2001 and December 31, 2000 consisted of the following;
JUNE 30, DECEMBER 31, 2001 2000 ----------------------------- (DOLLARS IN THOUSANDS) Accounts payable and accrued expenses .............. $ 16,523 $ 10,664 Accrued compensation ............................... 12,494 850 Deferred compensation .............................. 16,378 14,733 Accrued soft dollars payable ....................... 11,093 10,283 Accrued rent expense ............................... 2,754 2,980 ----------------------------- Total .............................................. $ 59,242 $ 39,510 =============================
EARNINGS PER SHARE Net earnings per share of common stock, is based upon an adjusted weighted average number of shares of common stock outstanding. The diluted weighted average number of outstanding shares for the six months ended June 30, 2001 and June 30, 2000 was 32.2 million and 31.4 million, respectively. The diluted weighted average number of outstanding shares for the three months ended June 30, 2001 and June 30, 2000 was 32.3 million and 31.5 million, respectively. The following is a reconciliation of the basic and diluted earnings per share computations for the six months ended June 30, 2001 and June 30, 2000.
JUNE 30, JUNE 30, 2001 2000 -------------- -------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income ..................................................... $ 40,122 $ 33,584 ============== ============== Shares of common stock and common stock equivalents: Average number of common shares used in basic computation .. 31,714 30,712 Effect of dilutive securities - options .................... 494 673 -------------- -------------- Average number of common shares used in diluted computation 32,208 31,385 ============== ============== Earnings per share: Basic ...................................................... $ 1.27 $ 1.09 ============== ============== Diluted .................................................... $ 1.25 $ 1.07 ============== ==============
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 10 of 22 The following is a reconciliation of the basic and diluted earnings per share computations for the three months ended June 30, 2001 and June 30, 2000.
JUNE 30, JUNE 30, 2001 2000 -------------- -------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income ..................................................... $ 19,073 $ 17,680 ============== ============== Shares of common stock and common stock equivalents: Average number of common shares used in basic computation .. 31,777 30,930 Effect of dilutive securities - options .................... 494 596 -------------- -------------- Average number of common shares used in diluted computation 32,271 31,526 ============== ============== Earnings per share: Basic ...................................................... $ 0.60 $ 0.57 ============== ============== Diluted .................................................... $ 0.59 $ 0.56 ============== ==============
NET CAPITAL REQUIREMENT ITG Inc. and AlterNet Securities, Inc. are subject to the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934, which requires the maintenance of minimum net capital. ITG Inc. has elected to use the alternative method permitted by Rule 15c3-1, which requires that ITG Inc. maintain minimum net capital equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions, as defined. AlterNet Securities, Inc. has elected to use the basic method permitted by Rule 15c3-1, which requires that AlterNet Securities, Inc. maintain minimum net capital, as defined, equal to the greater of $100,000 or 6 2/3% of aggregate indebtedness. At June 30, 2001, ITG Inc. and AlterNet Securities, Inc. had net capital of $82.0 million and $1.2 million, respectively, of which $81.7 million and $1.1 million, respectively, was in excess of required net capital. In addition, ITG Canada, ITG Australia and ITG Europe had regulatory capital in excess of the minimum requirements applicable to each company of approximately $3.4 million, $1.2 million and $1.0 million, respectively. CONTINGENCIES In 1998, we received a "30-day letter" 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 development expenditures. On September 18, 2000, we entered into a closing agreement with the IRS with respect to the compensation plan deductions, whereby the IRS agreed that the deductions taken were allowable deductions. This agreement eliminates approximately $7.6 million of the $9.6 million potential tax deficiency raised by the IRS in 1998. We are continuing to pursue the resolution of the research and development tax credit issue and we believe that the ultimate resolution will not be material to the financial position of the Company. We may continue to be liable for certain liabilities of our former parent, Jefferies Group, Inc., despite the express assignment of such liabilities to, and the express assumption of such liabilities by, a wholly owned subsidiary of Jefferies Group, Inc. ("New Jefferies"). Pursuant to the distribution agreement, benefits agreement and tax sharing and indemnification agreement executed in connection with our spin-off from Jefferies Group, Inc. New Jefferies will be obligated to indemnify us for liabilities related to our former parent and its subsidiaries, but not for our liabilities. Under those agreements, we will be obligated to indemnify New Jefferies for liabilities related to our Company. Our 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 11 of 22 At both June 30, 2001 and December 31, 2000, we had outstanding capital contribution commitments to a limited partnership in the amount of $300,000. 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. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS No. 141") and SFAS No.142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the new standards. Other intangible assets will continue to be amortized over their useful lives. This will impact the goodwill associated with our completed acquisitions of ITG Australia and ITG Europe. We will apply the new rules in accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the new standards is expected to result in an increase in net income but is not expected to have a material impact on our earnings or financial position. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 12 of 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL In November 2000 and May 2001, respectively, we purchased the 50% interests in ITG Australia and ITG Europe that we did not previously own. Prior to these acquisitions, ITG Australia and ITG Europe were unconsolidated and accounted for under the equity method of accounting. Following the acquisitions, these entities were fully consolidated and all intercompany activities were eliminated. REVENUES: We generate substantially all of our revenues from the following three products and services, each contributing to our single line of business: o POSIT: a confidential electronic stock crossing system; o Electronic Trading Desk: an agency-only trading desk; o Client Site Front End Software; o QuantEX: a Unix-based front-end software system providing market analysis, trade management and electronic connectivity to POSIT and multiple trade execution destinations; o 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 site revenue any order that is sent by our clients, through ITG's Client site systems but without assistance from the Electronic Trading Desk, to any third party trade execution destination. Other revenue includes (a) interest income/expense, (b) market gains/losses and financing costs resulting from temporary positions in securities assumed in the normal course of our agency trading business, (c) fees for development and other services provided to our unconsolidated international affiliates, prior to our acquisition of the remaining interests in ITG Australia and ITG Europe and (d) realized gains and losses in connection with our cash management and strategic investment activities. EXPENSES: Expenses consist of compensation and employee benefits, transaction processing, software royalties, occupancy and equipment, telecommunications and data processing services, net (gain)/loss on long-term investments, 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, partially 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. Occupancy and equipment expenses include rent, depreciation, amortization of leasehold improvements, maintenance, utilities, and occupancy taxes. 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 (gain) loss on long-term investments includes equity gain/loss on joint INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 13 of 22 venture investments. Other general and administrative expenses include amortization of software and goodwill and other intangible assets, legal, audit, tax, consulting and promotional expenses. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 The table below sets forth, certain items in the statement of operations expressed as a percentage of revenues for the periods indicated:
SIX MONTHS ENDED --------------------- JUNE 30, JUNE 30, --------------------- 2001 2000 --------------------- Revenues: Commissions POSIT ..................................... 48.5 52.1 Electronic trading desk ................... 22.6 20.7 Client site ............................... 25.9 24.0 Other ......................................... 3.0 3.2 --------------------- Total revenues ............................ 100.0% 100.0% --------------------- Expenses: Compensation and employee benefits ............ 26.6 24.4 Transaction processing ........................ 13.9 13.7 Software royalties ............................ 6.2 6.8 Occupancy and equipment ....................... 5.3 5.2 Telecommunications and data processing services 3.8 4.0 Net (gain) loss on long-term investments ...... (0.2) 1.6 Other general and administrative .............. 7.3 6.5 --------------------- Total expenses ............................ 62.9 62.2 --------------------- Income before income tax expense .................. 37.1 37.8 Income tax expense ................................ 15.6 16.6 --------------------- Net income ........................................ 21.5 21.2 =====================
EARNINGS PER SHARE: Basic net earnings per share for the six months ended June 30, 2001 ("First Half 2001") increased $0.18, or 16%, to $1.27 from $1.09 for the six months ended June 30, 2000 ("First Half 2000"). Diluted net earnings per share increased $0.18, or 17%, to $1.25 from $1.07. These results include one-time gains in both First Half 2000 and First Half 2001. In First Half 2000, other revenues included a gain of $2.0 million, recorded on the partial sale of our investment in Versus Technologies, Inc. ("Versus"). In First Half 2001, net (gain) loss on long-term investments included a gain of $1.9 million relating to the sale of 100,000 shares of stock that ITG Europe held in the London Stock Exchange ("LSE"). Excluding these non-recurring gains, diluted net earnings per share increased 15% or $0.15 from $1.03 to $1.18. REVENUES: Total revenues increased $28.0 million, or 18%, from $158.6 million to $186.6 million. There were 126 trading days in First Half 2000 and 125 trading days in First Half 2001. Revenues per trading day increased by $234,000, or 19%, from $1,259,000 to $1,493,000. Revenues per employee decreased $102,000 or 23%, from $443,000 to $341,000 primarily due to a headcount increase of 105 resulting from our consolidation of ITG Australia in November 2000 and ITG Europe in May 2001 as well as the start-up of ITG Canada in the second quarter of 2000. The increase in headcount INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 14 of 22 outpaced the increase in revenues from international operations as ITG Europe and ITG Canada are in the early stages of development. Consolidated POSIT revenues increased $7.9 million or 10% reflecting higher share volume and the consolidation of ITG Australia and ITG Europe in First Half 2001. The number of shares crossed on the U.S. POSIT system increased 0.4 billion, or 9%, from 4.2 billion in First Half 2000 to 4.6 billion in First Half 2001. The number of shares crossed on the U.S. POSIT system per day increased 3.4 million, or 10%, from 33.5 million in First Half 2000 to 36.9 million in First Half 2001. POSIT earned revenues of $2.0 million from international operations in First Half 2001. There were no POSIT revenues from international operations included in the consolidated financial statements in First Half 2000. Client site revenues increased 27% resulting from an increase in share volume in First Half 2001, partially offset by a decrease in average Client site revenue per share. The decrease in average Client site revenue per share reflects, in part, growth in our lower priced routing only services which yielded higher margins because we do not have transaction processing costs associated with this business. Electronic Trading Desk revenues increased 28% due to both an increase in U.S. share volume in First Half 2001 and the inclusion of $4.1 million of revenues from ITG Australia, ITG Canada and ITG Europe for which no revenues were reported in First Half 2000. Other revenues increased primarily from an increase in investment income arising from larger average interest-earning balances. The First Half 2000 included the gain of $2.0 million recorded on the partial sale of our investment in Versus. EXPENSES: Total expenses excluding income tax expense for First Half 2001 increased $18.7 million, or 19%, from $98.6 million in First Half 2000 to $117.3 million.
FIRST HALF ENDED JUNE 30, -------- (DOLLARS IN THOUSANDS) ---------------------- 2001 2000 CHANGE % CHANGE -------- -------- -------- -------- Compensation and employee benefits .................. $ 49,543 $ 38,759 $ 10,784 27.8 Transaction processing .............................. 25,876 21,654 4,222 19.5 Software royalties .................................. 11,629 10,798 831 7.7 Occupancy and equipment ............................. 9,821 8,203 1,618 19.7 Telecommunications and data processing services ..... 7,131 6,298 833 13.2 Net (gain) loss on long-term investments ............ (309) 2,593 (2,902) (111.9) Other general and administrative .................... 13,627 10,340 3,287 31.8 Income tax expense .................................. 29,149 26,344 2,805 10.6
COMPENSATION AND EMPLOYEE BENEFITS: Salaries, bonuses and related employee benefits increased primarily due to growth in our employee base of 189 employees or 53% from 358 to 547. Approximately 56% of the increase related to the addition of employees in ITG Canada and the consolidation of ITG Australia and ITG Europe. Twenty five percent of the increase related to new staff in technology, product development and production infrastructure. Total compensation and employee benefits as a percentage of revenues increased to 26.6% in the First Half 2001 from 24.4% in First Half 2000. This 2.2% increase is primarily attributable to the consolidation of ITG Australia and ITG Europe and the inclusion of ITG Canada, while the U.S. percentage remained relatively unchanged. Average compensation and employee benefits expenses per (average) headcount decreased $15,000, or 13%, from $115,000 to $100,000. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 15 of 22 TRANSACTION PROCESSING: Transaction processing as a percentage of revenues increased from 13.7% to 13.9% of revenues. This includes transaction costs incurred by ITG Australia, ITG Canada and ITG Europe that were not included in First Half 2000. U.S. transaction costs as a percentage of revenues decreased from 13.8% in First Half 2000 to 13.7% in First Half 2001. ECN costs in the U.S. increased $2.6 million from $4.7 million in First Half 2000 to $7.3 million in First Half 2001 reflecting higher ECN volume, which more than doubled compared to First Half 2000, partially offset by savings achieved due to a higher share of executions being made through lower cost ECN providers. Despite our share volume growth, U.S. clearing and execution costs contributed to the decline as a result of rate reductions negotiated with our clearing and execution vendors and a change in trading patterns in U.S. POSIT as average execution sizes increased. SOFTWARE ROYALTIES: Because software royalties are contractually fixed as a percentage of POSIT revenues, the increase is wholly attributable to an increase in POSIT revenues. OCCUPANCY AND EQUIPMENT: The increase in headcount and infrastructure enhancements resulted in additional equipment purchases and the associated depreciation and maintenance expenses. Rent expense increased due to the expansion of our research and development facility in Culver City, California, the opening of additional offices in June 2000 in Toronto, Canada and Waltham, Massachusetts and the space utilized by ITG Australia and ITG Europe subsequent to consolidation of these entities in November 2000 and May 2001, respectively. TELECOMMUNICATIONS AND DATA PROCESSING SERVICES: Telecommunications and data processing services as a percentage of revenues decreased slightly from 4.0% to 3.8% reflecting supplier refunds received in the Second Quarter 2001 as a result of aggressive cost reviews, partially offset by the inclusion of costs incurred by ITG Australia, ITG Canada and ITG Europe, which were not included in First Half 2000. NET (GAIN) LOSS ON LONG-TERM INVESTMENTS: In First Half 2001 we recognized a one time gain of $1.9 million through our ITG Europe joint venture relating to the sale of 100,000 shares of stock that ITG Europe held in the LSE which were received at the time of the LSE demutualization in the year 2000. The reported gain of $0.3 million was net of our $1.6 million share of ITG Europe's operating loss for First Half 2001. In First Half 2000 we recognized a loss on long-term investments primarily resulting from the start-up costs of our Vostock joint venture with WIT SoundView combined with losses on our ITG Europe joint venture relating to the development and marketing costs of our European expansion. OTHER GENERAL AND ADMINISTRATIVE: The increase in other general and administrative expenses reflects an increase in consulting fees, increased spending on business development and costs incurred from ITG Australia, ITG Canada, and ITG Europe, which were not included in First Half 2000. In addition, expenses relating to software amortization for certain products that were released in the fourth quarter of 2000 contributed to the higher expense in First Half 2001. INCOME TAX EXPENSE The decrease in the effective tax rate from 44.0% in First Half 2000 to 42.1% in First Half 2001 was due to decreases in state and local income taxes as well as the application of ITG Europe's net operating loss carry forwards against income (primarily as a result of the recognition of a $1.9 million gain on the sale of LSE shares) that was therefore not subject to tax. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 16 of 22 RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 The table below sets forth, certain items in the statement of operations expressed as a percentage of revenues for the periods indicated:
THREE MONTHS ENDED ---------------------- JUNE 30, JUNE 30, ---------------------- 2001 2000 ---------------------- Revenues: Commissions POSIT ......................................... 49.9 53.7 Electronic trading desk ....................... 22.3 18.6 Client site ................................... 26.4 23.5 Other ............................................. 1.4 4.2 ---------------------- Total revenues ................................ 100.0% 100.0% ---------------------- Expenses: Compensation and employee benefits ................ 27.1 24.5 Transaction processing ............................ 13.6 13.2 Software royalties ................................ 6.3 7.0 Occupancy and equipment ........................... 5.4 5.2 Telecommunications and data processing services ... 3.5 3.9 Net loss on long-term investments ................. 0.8 2.2 Other general and administrative .................. 7.5 6.2 ---------------------- Total expenses ................................ 64.2 62.2 ---------------------- Income before income tax expense ...................... 35.8 37.8 Income tax expense .................................... 15.7 16.4 ---------------------- Net income ............................................ 20.1 21.4 ======================
EARNINGS PER SHARE: Basic net earnings per share for the three months ended June 30, 2001 ("Second Quarter 2001") increased $0.03, or 5%, to $0.60 from $0.57 for the three months ended June 30, 2000 ("Second Quarter 2000"). Diluted net earnings per share increased $0.03, or 5%, to $0.59 from $0.56. Excluding the non-recurring gain from the partial sale of our investment in Versus in Second Quarter 2000, diluted net earnings per share increased 14% or $0.07 from $0.52 to $0.59. REVENUES: Total revenues increased $11.9 million, or 14%, from $83.0 million to $94.9 million. There were 63 trading days in both Second Quarter 2000 and Second Quarter 2001. Revenues per trading day increased by $189,000, or 14%, from $1,317,000 to $1,506,000. Revenues per employee decreased $59,000 or 25%, from $232,000 to $173,000 primarily due to a headcount increase of 105 resulting from our consolidation of ITG Australia in November 2000 and ITG Europe in May 2001 as well as the start-up of ITG Canada in Second Quarter 2000. The increase in headcount outpaced the increase in revenues from international operations as ITG Europe and ITG Canada are in the early stages of development. Consolidated POSIT revenues increased $2.8 million or 6% which included the consolidation of ITG Australia and ITG Europe which contributed $1.6 million or 57% of the increase. The number of shares crossed on the U.S. POSIT system increased 0.1 billion, or 1%, from 2.3 billion in Second Quarter 2000 to 2.4 billion in Second Quarter 2001. The number of shares crossed on the U.S. POSIT system per day increased 0.5 million, or 1%, from 36.8 million in Second Quarter 2000 to 37.3 million in Second Quarter 2001. POSIT earned revenues of $1.6 million from international operations in Second Quarter 2001. There were no POSIT revenues from international operations included in the consolidated financial statements in Second Quarter 2000. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 17 of 22 Client site revenues increased 28% resulting from an increase in share volume in Second Quarter 2001 partially offset by a decrease in average Client site revenue per share. The decrease in average Client site revenue per share reflects, in part, growth in our lower priced routing only services which yielded higher margins because we do not have transaction processing costs associated with this business. Electronic Trading Desk revenues increased 37% due to both an increase in U.S. share volume in Second Quarter 2001 and revenues from ITG Australia, ITG Canada and ITG Europe for which no revenues were reported in Second Quarter 2000. Other revenues decreased primarily due to the gain recorded in the Second Quarter 2000 from the partial sale of our investment in Versus and the reduction in Second Quarter 2001 of international development fee income from ITG Europe due to our acquisition and consolidation of this entity from May 2001. EXPENSES: Total expenses excluding income tax expense for Second Quarter 2001 increased $9.3 million, or 18%, from $51.6 million in Second Quarter 2000 to $60.9 million.
SECOND QUARTER ENDED JUNE 30, -------- (DOLLARS IN THOUSANDS) ---------------------- 2001 2000 CHANGE % CHANGE --------- -------- -------- -------- Compensation and employee benefits ............ $ 25,710 $ 20,319 $ 5,391 26.5 Transaction processing ........................ 12,920 10,945 1,975 18.0 Software royalties ............................ 6,011 5,810 201 3.5 Occupancy and equipment ....................... 5,141 4,307 834 19.4 Telecommunications and data processing services 3,356 3,265 91 2.8 Net loss on long-term investments ............. 719 1,811 (1,092) (60.3) Other general and administrative .............. 7,035 5,182 1,853 35.8 Income tax expense ............................ 14,886 13,642 1,244 9.1
COMPENSATION AND EMPLOYEE BENEFITS: Salaries, bonuses and related employee benefits increased primarily due to growth in our employee base of 189 employees or 53% from 358 to 547. Approximately 56% of the headcount increase related to the addition of employees in ITG Canada and the consolidation of ITG Australia and ITG Europe. As a percentage of revenues, total compensation and employee benefits increased to 27.1% in the Second Quarter 2001 from 24.5% in Second Quarter 2000. This 2.6% increase is primarily attributable to the consolidation of ITG Australia and ITG Europe and the inclusion of ITG Canada, while the U.S. remained relatively unchanged. Average compensation and employee benefits expenses per (average) headcount decreased $8,000, or 13%, from $60,000 to $52,000. TRANSACTION PROCESSING: Transaction processing as a percentage of revenues increased from 13.2% to 13.6% of revenues. This includes transaction costs incurred by ITG Australia, ITG Canada and ITG Europe that were not included in Second Quarter 2000. U.S. transaction costs as a percentage of revenues were 13.4% in Second Quarter 2001 vs. 13.3% in Second Quarter 2000. ECN costs in the U.S. increased $0.9 million from $2.6 million in Second Quarter 2000 to $3.5 million in Second Quarter 2001 reflecting higher ECN volume, which more than doubled compared to Second Quarter 2000, partially offset by savings achieved due to a higher share of executions being made through lower cost ECN providers. Despite share volume growth, collective U.S. clearing and execution costs decreased as a percentage of revenues as a result of negotiated rate reductions with our vendors and the change in trading patterns in POSIT as average execution sizes increased. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 18 of 22 SOFTWARE ROYALTIES: Because software royalties are contractually fixed as a percentage of POSIT revenues, the increase is wholly attributable to an increase in POSIT revenues. OCCUPANCY AND EQUIPMENT: The increase in headcount and infrastructure enhancements resulted in additional equipment purchases and the associated depreciation and maintenance expenses. Rent expense increased due to the expansion of our research and development facility in Culver City, California, the opening of additional offices during June 2000 in Toronto, Canada and Waltham, Massachusetts and the space utilized by ITG Australia and ITG Europe subsequent to consolidation of these entities in November 2000 and May 2001, respectively. TELECOMMUNICATIONS AND DATA PROCESSING SERVICES: Telecommunications and data processing services as a percentage of revenues decreased from 3.9% to 3.5% reflecting supplier refunds received as a result of aggressive cost reviews, partially offset by the inclusion of costs incurred by ITG Australia, ITG Canada and ITG Europe, which were not included in Second Quarter 2000. NET LOSS ON LONG-TERM INVESTMENTS: In Second Quarter 2001 we recognized our 50% share of ITG Europe's operating loss for the period prior to its consolidation in May 2001, when it became a wholly owned subsidiary. In Second Quarter 2000 we recognized the start-up costs of our Vostock joint venture with WIT SoundView combined with a loss on long-term investments primarily resulting from our ITG Europe joint venture. OTHER GENERAL AND ADMINISTRATIVE: The increase in other general and administrative expenses reflects an increase in consulting fees, increased spending on business development and costs incurred from ITG Australia, ITG Canada, and ITG Europe, which were not included in Second Quarter 2000. In addition, expenses relating to software amortization for certain products that were released in the fourth quarter of 2000 contributed to the higher expense in Second Quarter 2001. INCOME TAX EXPENSE The increase in the effective tax rate from 43.6% in Second Quarter 2000 to 43.8% in Second Quarter 2001 was primarily due to an increase in non-deductible foreign losses resulting from the full consolidation of ITG Europe in May 2001, which was partially offset by decreases in state and local income taxes in the U.S. LIQUIDITY AND CAPITAL RESOURCES Our liquidity and capital resource requirements result from our working capital needs primarily consisting of compensation and 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, common stock and convertible debt securities. At June 30, 2001, such cash equivalents and securities owned at fair value amounted to $230.5 million and net receivables from brokers, dealers and other, of $175.5 million were due within 30 days. We also invest a portion of our excess cash balances in cash enhanced strategies, which we believe should yield higher returns without any significant effect on risk. As of June 30, 2001, we had investments in limited partnerships investing in marketable securities and a venture capital fund amounting to $27.1 million in the aggregate. The limited partnerships employ either a hedged convertible strategy or a long/short strategy to capitalize on short term price movements. INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 19 of 22 Historically, all regulatory capital needs of ITG have been provided by cash from operations. We believe that cash flows from operations will provide ITG with sufficient regulatory capital. Although we believe that the combination of our existing net regulatory capital and operating cash flows will be sufficient to meet regulatory capital requirements, a shortfall in net regulatory capital would have a material adverse effect on us. ACQUISITIONS In the fourth quarter of 1998, we entered into a 50/50 joint venture with Societe Generale, and founded ITG Europe. On November 18, 1998, ITG Europe launched a new agency brokerage operation that included the operation of a European version of the POSIT system. On May 2, 2001 we purchased Societe Generale's entire interest in ITG Europe for $18.5 million. The acquisition was recorded under the purchase method of accounting and a portion of the purchase price has been allocated to assets acquired and liabilities assumed based upon estimated fair market values at the date of acquisition. The purchase price allocation is preliminary and subject to further refinements upon finalization of valuation studies. Goodwill and other intangibles amounting to $16.7 million are being amortized on a straight-line basis over their useful lives, which range between 9 and 34 years. 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 Date of the Meeting - May 16, 2001 Type of Meeting - Annual Meeting of Stockholders 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 Neal S. Garonzik William I Jacobs Raymond L. Killian, Jr. Robert L. King Mark A. Wolfson At the meeting, with respect to the election of the directors and ratification of the appointment of KPMG LLP as our independent auditors for the 2001 fiscal year, the votes were cast in the following manner: Election of Directors:
NAME FOR WITHHELD Frank E Baxter 28,080,053 330,290 Neal S Garonzik 28,261,199 149,144 William I Jacobs 28,261,199 149,144 Raymond L Killian, Jr, 25,347,361 3,062,982 Robert L King 28,261,199 149,144 Mark A Wolfson 28,261,199 149,144
Ratification of the appointment of KPMG LLP as our independent auditors for the 2001 fiscal year:
NUMBER OF SHARES ---------------- For 28,263,089 Against 131,277 Abstain 15,977
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None 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: August 13, 2001 By: /S/ Howard C. Naphtali --------------------- ----------------------------------------- Howard C. Naphtali Chief Financial Officer and Duly Authorized Signatory of Registrant INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES Page 22 of 22