SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
August 4, 2011
Date of Report (Date of earliest event reported)
INVESTMENT TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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001-32722 |
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95-2848406 |
(State or other jurisdiction of |
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(Commission file number) |
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(I.R.S. Employer |
380 Madison Avenue
New York, New York 10017
(Address of principal executive offices)
(212) 588-4000
(Registrants telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communication pursuant to Rule 425 under the Securities Act (17. CFR 230.425)
o Soliciting material pursuant to Rule 14a-2 under the Exchange Act (17. CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17. CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17. CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On August 4, 2011 Investment Technology Group, Inc. issued a press release announcing financial results for the quarter June 30, 2011. A copy of this press release is attached hereto as Exhibit 99.1.
The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this report, including the exhibit hereto, shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.
Item 9.01 Financial Statements and Exhibits
(c) Exhibits
99.1 Press release issued by Investment Technology Group, Inc. on August 4, 2011.
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 hereunto duly authorized.
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INVESTMENT TECHNOLOGY GROUP, INC. | |
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(Registrant) | |
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|
|
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Date: August 4, 2011 |
By: |
/s/ Steven R. Vigliotti |
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Steven R. Vigliotti |
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Chief Financial Officer and |
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Duly Authorized Signatory of Registrant |
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Investment Technology Group Reports
Second Quarter 2011 Results
GAAP Results Include Previously Announced Charges for Goodwill Impairment, Restructuring and Acquisition Costs
International Profitability Improves Over Prior Year
NEW YORK, August 4, 2011 Investment Technology Group, Inc. (NYSE: ITG), a leading agency research broker and financial technology firm, today reported results for the quarter ended June 30, 2011.
Second quarter 2011 highlights included:
· A GAAP net loss of $196.1 million, or $4.77 per diluted share compared to GAAP net income of $7.5 million, or $0.17 per diluted share in the second quarter of 2010. The GAAP net loss for the second quarter of 2011 included (i) a non-cash goodwill impairment charge attributable to ITGs U.S. business of $225.0 million, or $4.61 per diluted share after taxes; (ii) a restructuring charge associated with a cost reduction plan of $17.7 million, or $0.27 per diluted share after taxes; and (iii) costs related to the acquisition of the Ross Smith Energy Group (RSEG) of $2.5 million, or $0.04 per diluted share after taxes. GAAP net income for the second quarter of 2010 included (i) restructuring charges primarily associated with the closing of ITGs on-shore Japanese operations of $2.3 million, or $0.06 per diluted share after taxes; and (ii) a non-cash goodwill impairment charge attributable to ITGs Australian operations of $5.4 million, or $0.12 per diluted share after taxes.
· Adjusted net income of $5.8 million, or $0.14 per diluted share, compared to adjusted net income of $15.3 million, or $0.35 per diluted share in the second quarter of 2010.
· Revenues of $142.6 million, compared to $155.3 million in the second quarter of 2010.
· Expenses of $377.2 million compared to expenses of $136.0 million in the second quarter of 2010.
· Adjusted expenses of $132.0 million compared to adjusted expenses of $128.2 million in the second quarter of 2010. Second quarter 2011 adjusted expenses included $8.1 million of costs from ITG Investment Research (including post-acquisition operating expenses for RSEG) and an increase from the second quarter of 2010 of $3.4 million from foreign currency translations.
· Average daily trading volume in the U.S. of 191 million shares, down 4% from the second quarter of 2010. POSIT average daily U.S. volume was 82.7 million shares, up 20% from the second quarter of 2010.
· The expansion of ITGs data-driven research platform with the acquisition of RSEG, a Calgary-based independent provider of research on the oil and gas industry for more than 200 clients in North America and Europe.
· The repurchase of 340,000 shares of common stock under the Companys authorized share repurchase program for a total of $5.2 million.
ITGs U.S. revenues were $93.9 million in the second quarter of 2011, compared to U.S. revenues of $108.1 million in the second quarter of 2010. ITGs U.S. operations incurred a GAAP net loss of $196.3 million and generated adjusted net income of $3.7 million in the second quarter of 2011, compared to GAAP net income of $14.3 million in the second quarter of 2010. There were no adjustments to GAAP net income in the U.S. during the second quarter of 2010.
ITGs International revenues were $48.7 million in the second quarter of 2011, compared to $47.2 million in the second quarter of 2010. ITGs International operations generated GAAP net income of $0.1 million and adjusted net income of $2.2 million in the second quarter of 2011, compared to a GAAP net loss of $6.8 million and adjusted net income of $1.1 million in the second quarter of 2010.
As previously announced on July 12, 2011, ITG initiated a cost reduction plan to improve margins and enhance stockholder returns primarily focused on employment, consulting, and infrastructure costs in the U.S. and Europe. This plan is expected to generate pre-tax cost savings in 2012 of more than $20 million, or approximately $0.30 per diluted
share after taxes. The cost savings will begin to take effect during the third quarter of 2011.
Record revenues and a narrowing loss in the Asia Pacific region helped drive improvement in our international operations, said Bob Gasser, ITGs Chief Executive Officer and President. With the lack of institutional trading activity negatively impacting our overall results, we are taking the necessary steps to position the firm for future growth by lowering the cost base of our core execution platform while we continue to build out our research offering.
Year-to-Date Results
For the six months ended June 30, 2011, revenues were $292.7 million, GAAP net loss was $186.6 million, or $4.52 per diluted share, and adjusted net income was $15.4 million, or $0.37 per diluted share. For the first six months of 2010, revenues were $302.0 million, GAAP net income was $15.9 million, or $0.36 per diluted share, and adjusted net income was $27.2 million, or $0.62 per diluted share.
The discussion above includes adjusted expenses and adjusted net income and related per share amounts, which are non-GAAP financial measures that are described in the attached tables along with a reconciliation of these non-GAAP financial measures.
Conference Call
ITG has scheduled a conference call today at 11:00 a.m. ET to discuss second quarter results. Those wishing to listen to the call should dial 1-866-831-6162 (1-617-213-8852 outside the US) and enter the passcode 57736819 at least 10 minutes prior to the start of the call to ensure connection. The webcast and accompanying slideshow presentation can be downloaded from ITGs web site at www.itg.com. For those unable to listen to the live broadcast of the call, a replay will be available for one week by dialing 888-286-8010 (1-617-801-6888 outside the US) and entering the passcode 88829104. The replay will be available starting approximately two hours after the completion of the conference call.
ABOUT ITG
Investment Technology Group, Inc. is an independent agency research broker that partners with asset managers globally to improve performance throughout the investment process. A leader in electronic trading since launching the POSIT® crossing network in 1987, ITG takes a consultative approach in delivering the highest quality institutional liquidity, execution services, analytical tools, and proprietary research insights grounded in data. Asset managers rely on ITGs independence, experience, and intellectual capital to help mitigate risk, improve performance, and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe, and the Asia Pacific region. For more information on ITG, please visit www.itg.com.
In addition to historical information, this press release may contain forward-looking statements that reflect managements expectations for the future. A variety of important factors could cause results to differ materially from such statements. These factors are noted throughout ITGs 2010 Annual Report on Form 10-K, and its Form 10-Qs and include, but are not limited to, the actions of both current and potential new competitors, fluctuations in market trading volumes, financial market volatility, changes in commission pricing, potential impairment charges related to goodwill and other long-lived assets, evolving industry regulations, errors or malfunctions in ITGs systems or technology, rapid changes in technology, cash flows into or redemptions from equity funds, effects of inflation, ability to meet liquidity requirements related to the clearing of customers trades, customer trading patterns, the success of ITGs products and service offerings, ITGs ability to continue to innovate and meet the demands of customers for new or enhanced products, ITGs ability to successfully integrate acquired companies, changes in tax policy or accounting rules, fluctuations in foreign exchange rates, adverse changes or volatility in interest rates, ITGs ability to attract and retain talented employees, general economic, business, credit and financial market conditions, internationally or nationally, as well as ITGs ability to achieve cost savings from its cost reduction plan. The forward-looking statements included herein represent ITGs views as of the date of this
release. ITG undertakes no obligation to revise or update publicly any forward-looking statement for any reason unless required by law.
ITG Media/Investor Contact:
J.T. Farley
(212) 444-6259
corpcomm@itg.com
INVESTMENT TECHNOLOGY GROUP, INC.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
|
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Three Months Ended |
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Six Months Ended |
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2011 |
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2010 |
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2011 |
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2010 |
| ||||
Revenues: |
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|
|
|
|
|
|
|
| ||||
Commissions and fees |
|
$ |
111,850 |
|
$ |
130,500 |
|
$ |
230,526 |
|
$ |
252,418 |
|
Recurring |
|
26,514 |
|
22,761 |
|
53,735 |
|
44,732 |
| ||||
Other |
|
4,253 |
|
2,061 |
|
8,434 |
|
4,862 |
| ||||
Total revenues |
|
142,617 |
|
155,322 |
|
292,695 |
|
302,012 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
| ||||
Compensation and employee benefits |
|
55,679 |
|
54,587 |
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113,157 |
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108,051 |
| ||||
Transaction processing |
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23,104 |
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23,581 |
|
46,130 |
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44,240 |
| ||||
Occupancy and equipment |
|
15,063 |
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14,969 |
|
30,005 |
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30,166 |
| ||||
Telecommunications and data processing services |
|
14,870 |
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12,971 |
|
29,941 |
|
26,606 |
| ||||
Other general and administrative |
|
22,762 |
|
21,928 |
|
44,922 |
|
50,085 |
| ||||
Goodwill impairment |
|
225,035 |
|
5,375 |
|
225,035 |
|
5,375 |
| ||||
Restructuring charges |
|
17,678 |
|
2,337 |
|
17,678 |
|
2,250 |
| ||||
Acquisition related costs |
|
2,523 |
|
|
|
2,523 |
|
|
| ||||
Interest expense |
|
494 |
|
206 |
|
764 |
|
430 |
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Total expenses |
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377,208 |
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135,954 |
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510,155 |
|
267,203 |
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(Loss) income before income tax (benefit) expense |
|
(234,591 |
) |
19,368 |
|
(217,460 |
) |
34,809 |
| ||||
Income tax (benefit) expense |
|
(38,448 |
) |
11,860 |
|
(30,866 |
) |
18,869 |
| ||||
Net (loss) income |
|
$ |
(196,143 |
) |
$ |
7,508 |
|
$ |
(186,594 |
) |
$ |
15,940 |
|
|
|
|
|
|
|
|
|
|
| ||||
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
(4.77 |
) |
$ |
0.17 |
|
$ |
(4.52 |
) |
$ |
0.37 |
|
Diluted |
|
$ |
(4.77 |
) |
$ |
0.17 |
|
$ |
(4.52 |
) |
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average number of common shares outstanding |
|
41,112 |
|
43,226 |
|
41,272 |
|
43,525 |
| ||||
Diluted weighted average number of common shares outstanding |
|
41,112 |
|
43,704 |
|
41,272 |
|
44,129 |
|
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands, except share amounts)
|
|
June 30, |
|
December 31, |
| ||
|
|
(unaudited) |
|
|
| ||
Assets |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
268,832 |
|
$ |
317,010 |
|
Cash restricted or segregated under regulations and other |
|
68,495 |
|
68,965 |
| ||
Deposits with clearing organizations |
|
19,567 |
|
14,235 |
| ||
Securities owned, at fair value |
|
8,481 |
|
25,789 |
| ||
Receivables from brokers, dealers and clearing organizations |
|
1,834,343 |
|
865,251 |
| ||
Receivables from customers |
|
1,140,878 |
|
606,256 |
| ||
Premises and equipment, net |
|
36,977 |
|
34,790 |
| ||
Capitalized software, net |
|
63,264 |
|
62,507 |
| ||
Goodwill |
|
274,289 |
|
468,479 |
| ||
Other intangibles, net |
|
41,770 |
|
36,784 |
| ||
Income taxes receivable |
|
7,583 |
|
5,561 |
| ||
Deferred taxes |
|
12,795 |
|
4,902 |
| ||
Other assets |
|
25,307 |
|
20,324 |
| ||
Total assets |
|
$ |
3,802,581 |
|
$ |
2,530,853 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders Equity |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Accounts payable and accrued expenses |
|
$ |
176,874 |
|
$ |
195,109 |
|
Short-term bank loan |
|
19,874 |
|
|
| ||
Payables to brokers, dealers and clearing organizations |
|
1,407,236 |
|
1,139,958 |
| ||
Payables to customers |
|
1,478,360 |
|
272,027 |
| ||
Securities sold, not yet purchased, at fair value |
|
3,305 |
|
19,362 |
| ||
Income taxes payable |
|
12,350 |
|
16,215 |
| ||
Deferred taxes |
|
356 |
|
18,114 |
| ||
Term loan |
|
25,469 |
|
|
| ||
Total liabilities |
|
3,123,824 |
|
1,660,785 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Stockholders Equity: |
|
|
|
|
| ||
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding |
|
|
|
|
| ||
Common stock, $0.01 par value; 100,000,000 shares authorized; 51,835,395 and 51,790,608 shares issued at June 30, 2011 and December 31, 2010, respectively |
|
518 |
|
518 |
| ||
Additional paid-in capital |
|
240,860 |
|
246,085 |
| ||
Retained earnings |
|
646,539 |
|
833,133 |
| ||
Common stock held in treasury, at cost; 10,892,939 and 10,524,757 shares at June 30, 2011 and December 31, 2010, respectively |
|
(223,709 |
) |
(220,161 |
) | ||
Accumulated other comprehensive income (net of tax) |
|
14,549 |
|
10,493 |
| ||
Total stockholders equity |
|
678,757 |
|
870,068 |
| ||
Total liabilities and stockholders equity |
|
$ |
3,802,581 |
|
$ |
2,530,853 |
|
INVESTMENT TECHNOLOGY GROUP, INC.
Reconciliation of U.S. GAAP Results to Adjusted Results
In evaluating ITGs financial performance, management reviews results from operations which excludes non-operating or one-time charges. Adjusted expenses and adjusted net income and related per share amounts are non-GAAP (generally accepted accounting principles) performance measures, but the Company believes that they are useful to assist investors in gaining an understanding of the trends and operating results for the Companys core businesses. These measures should be viewed in addition to, and not in lieu of, the Companys reported results under GAAP.
The following is a reconciliation of GAAP results to adjusted results for the periods presented (in thousands except per share amounts):
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
20011 |
|
2010 |
| ||||
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| ||||
Total revenues |
|
$ |
142,617 |
|
$ |
155,322 |
|
$ |
292,695 |
|
$ |
302,012 |
|
|
|
|
|
|
|
|
|
|
| ||||
Total expenses |
|
377,208 |
|
135,954 |
|
510,155 |
|
267,203 |
| ||||
Less: |
|
|
|
|
|
|
|
|
| ||||
Goodwill impairment (1)(2) |
|
(225,035 |
) |
(5,375 |
) |
(225,035 |
) |
(5,375 |
) | ||||
Acquisition related costs (3) |
|
(2,523 |
) |
|
|
(2,523 |
) |
|
| ||||
Software Write-Off (4) |
|
|
|
|
|
|
|
(6,091 |
) | ||||
Restructuring charges (5)(6) |
|
(17,678 |
) |
(2,337 |
) |
(17,678 |
) |
(2,250 |
) | ||||
Adjusted expenses |
|
131,972 |
|
128,242 |
|
264,919 |
|
253,487 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
(Loss) income before income tax (benefit) expense |
|
(234,591 |
) |
19,368 |
|
(217,460 |
) |
34,809 |
| ||||
Effect of adjustments |
|
245,236 |
|
7,712 |
|
245,236 |
|
13,716 |
| ||||
Adjusted pre-tax income |
|
10,645 |
|
27,080 |
|
27,776 |
|
48,525 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income tax (benefit) expense |
|
(38,448 |
) |
11,860 |
|
(30,866 |
) |
18,869 |
| ||||
Tax effect of adjustments |
|
43,260 |
|
(72 |
) |
43,260 |
|
2,482 |
| ||||
Adjusted income tax expense |
|
4,812 |
|
11,788 |
|
12,394 |
|
21,351 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income |
|
(196,143 |
) |
7,508 |
|
(186,594 |
) |
15,940 |
| ||||
Net effect of adjustments |
|
201,976 |
|
7,784 |
|
201,976 |
|
11,234 |
| ||||
Adjusted net income |
|
$ |
5,833 |
|
$ |
15,292 |
|
$ |
15,382 |
|
$ |
27,174 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted (loss) earnings per share |
|
$ |
(4.77 |
) |
$ |
0.17 |
|
$ |
(4.52 |
) |
$ |
0.36 |
|
Net effect of adjustments |
|
4.91 |
|
0.18 |
|
4.89 |
|
0.26 |
| ||||
Adjusted diluted earnings per share |
|
$ |
0.14 |
|
$ |
0.35 |
|
$ |
0.37 |
|
$ |
0.62 |
|
|
|
U.S. |
|
International |
| |||||
|
|
Three Months |
|
Three Months |
|
Three Months |
| |||
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| |||
Total revenues |
|
$ |
93,893 |
|
$ |
48,724 |
|
$ |
47,233 |
|
|
|
|
|
|
|
|
| |||
Total expenses |
|
330,143 |
|
47,065 |
|
52,038 |
| |||
Less: |
|
|
|
|
|
|
| |||
Goodwill impairment (1)(2) |
|
(225,035 |
) |
|
|
(5,375 |
) | |||
Acquisition related costs (3) |
|
(2,523 |
) |
|
|
|
| |||
Restructuring charges (5)(6) |
|
(15,444 |
) |
(2,234 |
) |
(2,502 |
) | |||
Adjusted expenses |
|
87,141 |
|
44,831 |
|
44,161 |
| |||
|
|
|
|
|
|
|
| |||
(Loss) income before income tax (benefit) expense |
|
(236,250 |
) |
1,659 |
|
(4,805 |
) | |||
Effect of adjustments |
|
243,002 |
|
2,234 |
|
7,877 |
| |||
Adjusted pre-tax income |
|
6,752 |
|
3,893 |
|
3,072 |
| |||
|
|
|
|
|
|
|
| |||
Income tax (benefit) expense |
|
(39,966 |
) |
1,518 |
|
2,013 |
| |||
Tax effect of adjustments |
|
43,041 |
|
219 |
|
(6 |
) | |||
Adjusted income tax expense |
|
3,075 |
|
1,737 |
|
2,007 |
| |||
|
|
|
|
|
|
|
| |||
Net (loss) income |
|
(196,284 |
) |
141 |
|
(6,818 |
) | |||
Net effect of adjustments |
|
199,961 |
|
2,015 |
|
7,883 |
| |||
Adjusted net income |
|
$ |
3,677 |
|
$ |
2,156 |
|
$ |
1,065 |
|
|
|
|
|
|
|
|
| |||
Diluted (loss) earnings per share |
|
$ |
(4.77 |
) |
$ |
|
|
$ |
(0.16 |
) |
Net effect of adjustments |
|
4.86 |
|
0.05 |
|
0.18 |
| |||
Adjusted diluted earnings per share |
|
$ |
0.09 |
|
$ |
0.05 |
|
$ |
0.02 |
|
Notes:
(1) In the second quarter of 2011, goodwill with a carrying value of $470.1 million relating to ITGs U.S. operations was deemed impaired and its fair value was determined to be $245.1 million, resulting in an impairment charge of $225.0 million.
(2) In 2010, goodwill with a carrying value of $5.4 million in the Asia Pacific operating segment relating to ITGs Australian operations was deemed impaired and its fair value was determined to be zero, resulting in an impairment charge of $5.4 million.
(3) During the second quarter of 2011, ITG acquired Ross Smith Energy Group Ltd, a Calgary-based independent provider of research on the oil and gas industry. In connection with the acquisition, ITG incurred approximately $2.5 million of acquisition related costs, including legal and other professional fees and contract termination costs.
(4) As part of the fourth quarter 2009 restructuring, ITG made certain changes to its product priorities and wrote off $2.4 million of capitalized development initiatives that were not yet deployed. As ITGs product development plan continued to evolve in the first quarter of 2010, it was determined that additional amounts capitalized in 2009 were not likely to be used and a further $6.1 million write-off was recorded.
(5) In the second quarter of 2011, ITG established a plan to improve margins and enhance stockholder returns primarily focused on reducing workforce, consulting and infrastructure costs in the U.S. and Europe. The cost reduction plan resulted in a restructuring charge of $17.7 million, consisting of employee separation and related costs ($17.4 million) and lease consolidation costs ($0.3 million).
(6) During the fourth quarter 2010, in connection with the integration of Majestic Research Corp., ITG closed its Westchester, NY office and relocated the staff, primarily sales traders and support, to its midtown Manhattan office and incurred a restructuring charge of $2.3 million.