<PAGE> 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
<TABLE>
<S> <C>
For the quarterly period ended March 29, 1996 Commission file number: 0 - 23644
</TABLE>
INVESTMENT TECHNOLOGY GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 13 - 3757717
- - ------------------------------------------------ ------------------------------------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
900 Third Avenue, New York, New York (212) 755 - 6800
- - ------------------------------------------------ ------------------------------------------------
(Address of Principal Executive Offices) (Registrant's Telephone Number, Including Area
Code)
10022
- - ------------------------------------------------
(Zip Code)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of April 29, 1996, the Registrant had 18,259,800 shares of common stock,
$.01 par value, outstanding.
<PAGE> 2
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART IFINANCIAL INFORMATION
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Page
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Statement of Financial Condition:
March 29, 1996 (unaudited) and December 31, 1995 . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations (unaudited):
Three Months Ended March 29, 1996 and March 31,1995 . . . . . . . . . . . . . 4
Consolidated Statement of Changes in Stockholders' Equity (unaudited):
Three Months Ended March 29, 1996 . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows (unaudited):
Three Months Ended March 29, 1996 and March 31,1995 . . . . . . . . . . . . . 6
Condensed Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 2 of 10
<PAGE> 3
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
March 29, December 31,
1996 1995
--------------------- ----------------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . $ 24,859 $ 17,960
Securities owned . . . . . . . . . . . . . . . . . . 8,417 8,509
Trade receivable from affiliate . . . . . . . . . . . 9,568 7,766
Due from affiliates . . . . . . . . . . . . . . . . . 904 5,001
Premises and equipment . . . . . . . . . . . . . . . 5,684 4,852
Capitalized software . . . . . . . . . . . . . . . . 2,947 2,757
Other assets . . . . . . . . . . . . . . . . . . . . 6,267 5,122
Goodwill . . . . . . . . . . . . . . . . . . . . . . 2,883 3,021
Deferred tax asset . . . . . . . . . . . . . . . . . 1,376 330
--------------------- ----------------------
$ 62,905 $ 55,318
===================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses . . . . . . . . $ 7,080 $ 5,112
Software royalties payable . . . . . . . . . . . . . 2,305 1,794
Securities sold, not yet purchased . . . . . . . . . 1,452 -
Due to affiliates . . . . . . . . . . . . . . . . . . 754 2,243
Income taxes payable to affiliate . . . . . . . . . . 1,787 690
--------------------- ----------------------
13,378 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................... . . . . . . . 16,675 11,279
Common stock held in treasury, at cost; shares:
420,200 at March 29, 1996 and 310,200 at December
31, 1995 . . . . . . . . . . . . . . . . . . . . (3,390) (2,042)
--------------------- ----------------------
Total stockholders' equity . . . . . . . . . . . . 49,527 45,479
--------------------- ----------------------
$ 62,905 $ 55,318
===================== ======================
Book value per share . . . . . . . . . . . . . . . . $ 2.71 $ 2.47
===================== ======================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
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<PAGE> 4
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
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<CAPTION>
Three Months Ended
-----------------------------------
March 29, March 31,
1996 1995
---------------- ----------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 26,667 $ 16,343
---------------- ----------------
Expenses:
Compensation and employee benefits . . . . . . . . . 5,869 3,542
Transaction processing . . . . . . . . . . . . . . . 3,699 2,206
Software royalties . . . . . . . . . . . . . . . . 2,221 1,381
Occupancy and equipment . . . . . . . . . . . . . . 1,027 818
Consulting . . . . . . . . . . . . . . . . . . . . . 854 563
Telecommunications and data processing services . . 1,251 486
Other general and administrative . . . . . . . . . . 2,112 1,566
---------------- ----------------
17,033 10,562
---------------- ----------------
Earnings before income tax expense . . . . . . . . . 9,634 5,781
Income tax expense . . . . . . . . . . . . . . . . . . . 4,238 2,606
---------------- ----------------
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 5,396 $ 3,175
================ ================
Net earnings per share of common stock . . . . . . . . . $ 0.29 $ 0.17
================ ================
Weighted average shares of common stock and common
stock equivalents outstanding. . . . . . . . . . . . . . 18,425 18,531
================ ================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
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<PAGE> 5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 29, 1996
DOLLARS IN THOUSANDS
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<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 . . . . . $ - $ 187 $ 36,055 $ 11,279
Purchase of common stock
for treasury (110,000 shares) . . . .
Net earnings . . . . . . . . . . . . . 5,396
----------------------------------------------------------------------------------
Balance at March 29, 1996 . . . . . . . $ - $ 187 $ 36,055 $ 16,675
==================================================================================
<CAPTION>
COMMON TOTAL
STOCK STOCK-
HELD IN HOLDERS'
TREASURY EQUITY
----------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 . . . . . $ (2,042) $ 45,479
Purchase of common stock
for treasury (110,000 shares) . . . . (1,348) (1,348)
Net earnings . . . . . . . . . . . . . 5,396
----------------------------------------------
Balance at March 29, 1996 . . . . . . . $ (3,390) $ 49,527
==============================================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
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<PAGE> 6
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
March 29, March 31,
1996 1995
-----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,396 $ 3,175
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Deferred income tax (benefit) expense . . . . . . . . . . . . . . . . (1,046) 1,947
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 772 489
Decrease (increase) in operating assets:
Securities owned . . . . . . . . . . . . . . . . . . . . . . . . . 92 -
Trade receivable from affiliate . . . . . . . . . . . . . . . . . (1,802) (1,290)
Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . 4,096 -
Income taxes receivable from affiliate . . . . . . . . . . . . . - 746
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,267) (124)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . 2,083 417
Software royalties payable . . . . . . . . . . . . . . . . . . . . 512 322
Securities sold, not yet purchased . . . . . . . . . . . . . . . . 1,452 -
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . (1,489) 442
Income taxes payable to affiliate . . . . . . . . . . . . . . . . 1,097 700
-----------------------------------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 9,896 6,824
-----------------------------------------
Cash flows from financing activities:
Purchase of common stock for treasury . . . . . . . . . . . . . . . . . . (1,348) (280)
-----------------------------------------
Net cash used by financing activities . . . . . . . . . . . . . . . . . . (1,348) (280)
-----------------------------------------
Cash flows from investing activities:
Investment in VERSUS Technologies, Inc. . . . . . . . . . . . . . . . . . 8 250
Purchase of premises and equipment . . . . . . . . . . . . . . . . . . . (1,180) (698)
Capitalization of software development costs . . . . . . . . . . . . . . (477) (589)
-----------------------------------------
Net cash used by investing activities . . . . . . . . . . . . . . . . . . (1,649) (1,037)
-----------------------------------------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . 6,899 5,507
Cash and cash equivalents - beginning of period . . . . . . . . . . . . . . . . 17,960 21,446
-----------------------------------------
Cash and cash equivalents - end of period . . . . . . . . . . . . . . . . . . . $ 24,859 $ 26,953
=========================================
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12 $ 8
=========================================
Income taxes paid to (received from) affiliate . . . . . . . . . . . . . $ 4,187 $ (787)
=========================================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
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<PAGE> 7
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Investment
Technology Group, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"), principally ITG Inc. ("ITG"), a Delaware corporation, registered
as a broker-dealer in securities under the Securities Exchange Act of 1934, and
ITG Global Trading, Inc. ("Global Trading") which is a 50% partner in the
Global POSIT joint venture. Jefferies Group, Inc. ("Jefferies Group") owned
over 80% of the Company's common stock at March 29, 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 7 of 10
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995 (Dollars in millions, except as
noted)
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<CAPTION>
Three Months Ended Change
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March 29, 1996 March 31, 1995 Amount Percentage
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Revenues $26.7 $16.3 $10.4 64%
Number of Trading Days 63 63 0 0%
Revenues per Trading Day (Dollars in thousands) $423 $259 $164 63%
</TABLE>
Increased revenues were attributed to a growing use of POSIT, QuantEX and the
Company's other electronic trading desk services. For the quarter ended March
29, 1996, POSIT revenues were approximately 55% or $6.0 million above the
comparable period for 1995, while QuantEX revenues were approximately 70% or
$2.3 million above the comparable period for 1995. For the quarter ended March
29, 1996, other electronic trading desk services were $2.5 million above the
comparable period for 1995.
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<CAPTION>
Three Months Ended Change
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March 29, 1996 March 31, 1995 Amount Percentage
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Compensation and employee benefits expense $ 5.9 $ 3.5 $ 2.3 66%
Number of employees at period end 127 95 32 34%
Revenues per employee (Dollars in thousands) $210 $172 $38 22%
Compensation and employee benefits expense per
employee (Dollars in thousands) $ 46 $ 37 $ 9 24%
</TABLE>
The increase is due primarily to an increase in the number of employees and an
increase in profitability based compensation.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
March 29, 1996 March 31, 1995 Amount Percentage
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Transaction processing expense $3.7 $2.2 $1.5 68%
Transaction processing expense per revenues 13.9% 13.5% 0.4% 3.0%
</TABLE>
The increase is primarily due to the expense associated with a higher volume of
transactions in 1996. The increase as a percentage of revenues increased
by 3% primarily because the QuantEX revenues were a larger mix of the total
revenues. The QuantEX product has slightly lower margins than POSIT because
there are no floor brokerage expenses associated with POSIT.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
March 29, 1996 March 31, 1995 Amount Percentage
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Software royalties expense $2.2 $1.4 $0.8 61%
</TABLE>
The increase is due to higher revenue associated with POSIT.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
March 29, 1996 March 31, 1995 Amount Percentage
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Occupancy and equipment expense $1.0 $0.8 $0.2 26%
</TABLE>
The increase is due primarily to depreciation of capital expenditures acquired
since the beginning of 1995 and increased rent expense, both of which are
primarily related to the opening of the Boston office.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
March 29, 1996 March 31, 1995 Amount Percentage
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Consulting expense $0.9 $0.6 $0.3 52%
</TABLE>
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
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<PAGE> 9
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<CAPTION>
Three Months Ended Change
------------------ ------
March 29, 1996 March 31, 1995 Amount Percentage
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Telecomunications and data processing services
expense $1.3 $0.5 $0.8 157%
</TABLE>
The increase is due primarily to an increase in quotation services charges and
communications charges associated with the increased number of QuantEX
installations as well as the increased amount of QuantEX business.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
March 29, 1996 March 31, 1995 Amount Percentage
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Other general and administrative expense $2.1 $1.6 $0.5 35%
</TABLE>
The increase is largely due to an increase in amortization of capitalized
software and an allowance for general legal expenses.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
March 29, 1996 March 31, 1995 Amount Percentage
-------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Income tax expense $4.2 $2.6 $1.6 63%
</TABLE>
The increase is primarily due to the increase in pretax earnings partially
offset by a decrease in the effective tax rate from 45% to 44%.
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
There are no exhibits for the quarter ended March 29, 1996.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended
March 29, 1996.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
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<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INVESTMENT TECHNOLOGY GROUP, INC.
---------------------------------
(Registrant)
Date: May 13, 1996 By: /s/ John R. MacDonald
------------------ ----------------------
John R. MacDonald
Chief Financial Officer, and
Duly Authorized Signatory of Registrant
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
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<PAGE> 11
EXHIBIT INDEX
-------------
EXHIBIT 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-29-1996
<CASH> 24,859
<SECURITIES> 8,417
<RECEIVABLES> 10,472
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,684
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,905
<CURRENT-LIABILITIES> 13,378
<BONDS> 0
0
0
<COMMON> 187
<OTHER-SE> 49,340
<TOTAL-LIABILITY-AND-EQUITY> 62,905
<SALES> 26,667
<TOTAL-REVENUES> 26,667
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,634
<INCOME-TAX> 4,238
<INCOME-CONTINUING> 5,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,396
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0
</TABLE>
