<PAGE> 1
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 27, 1997 Commission file number: 0-23644
INVESTMENT TECHNOLOGY GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 13-3757717
- ----------------------------------------------------- ---------------------------------------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
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)
900 Third Avenue New York, New York 10022
- -----------------------------------------------------
(Former Address of Principal Executive Offices)
</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 July 29, 1997, the Registrant had 18,135,868 shares of common stock, $.01
par value, outstanding.
<PAGE> 2
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Item 1. Financial Statements
Consolidated Statement of Financial Condition:
June 27, 1997 (unaudited) and December 31, 1996.................................... 3
Consolidated Statement of Operations (unaudited):
Six Months Ended June 27, 1997 and June 28, 1996.................................. 4
Three Months Ended June 27, 1997 and June 28, 1996................................ 5
Consolidated Statement of Changes in Stockholders' Equity (unaudited):
Six Months Ended June 27, 1997.................................................... 6
Consolidated Statement of Cash Flows (unaudited):
Six Months Ended June 27, 1997 and June 28 ,1996.................................. 7
Condensed Notes to Consolidated Financial Statements (unaudited)...................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................. 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................... 13
Item 6. Exhibits and Reports on Form 8-K...................................................... 14
Signature ........................... .............................................................. 15
</TABLE>
Investment Technology Group, Inc. and Subsidiaries
Page 2 of 15
<PAGE> 3
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
June 27, December 31,
1997 1996
------------------------ ------------------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents................................. $ 48,974 $ 43,955
Securities owned.......................................... 4,596 4,808
Investment in limited partnership (at market; cost $5,000) 5,475 5,193
Trade receivables......................................... 7,022 4,806
Trade receivable from affiliate........................... 3,761 2,812
Due from affiliates....................................... 1,391 1,459
Premises and equipment.................................... 16,904 8,442
Capitalized software...................................... 4,139 3,028
Other assets.............................................. 2,914 3,467
Goodwill.................................................. 2,197 2,471
Deferred tax asset........................................ 2,776 2,357
------------------------ ------------------------
$ 100,149 $ 82,798
======================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses..................... $ 13,697 $ 8,648
Software royalties payable................................ 2,636 2,274
Securities sold, not yet purchased........................ 79 1,226
Due to affiliates......................................... 4,434 1,922
Income taxes payable to affiliate......................... 352 1,635
------------------------ ------------------------
21,198 15,705
Stockholders' equity:
Preferred stock, par value $.01; shares authorized:
5,000,000; none issued............................... - -
Common stock, par value $.01; shares authorized:
30,000,000; shares issued: 18,703,971................ 187 187
Additional paid-in capital............................. 36,120 36,055
Retained earnings...................................... 49,153 34,614
Common stock held in treasury, at cost; shares:597,500
at June 27, 1997 and 445,200 at December 31, 1996....
(6,509) (3,763)
------------------------ ------------------------
Total stockholders' equity............................. 78,951 67,093
------------------------ ------------------------
$ 100,149 $ 82,798
======================== ========================
Book value per share...................................... $ 4.36 $ 3.68
======================== ========================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Investment Technology Group, Inc. and Subsidiaries
Page 3 of 15
<PAGE> 4
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------------
June 27, June 28,
1997 1996
--------------------- ---------------------
<S> <C> <C>
Revenues.................................................. $ 67,333 $ 52,980
Expenses:
Compensation and employee benefits................... 13,880 12,021
Transaction processing............................... 10,585 7,475
Software royalties................................... 4,963 4,243
Occupancy and equipment.............................. 3,868 2,284
Consulting........................................... 946 1,546
Telecommunications and data processing services...... 3,113 2,176
Other general and administrative..................... 4,692 3,749
--------------------- ---------------------
42,047 33,494
--------------------- ---------------------
Earnings before income tax expense................... 25,286 19,486
Income tax expense........................................ 10,747 8,523
--------------------- ---------------------
Net earnings.............................................. $ 14,539 $ 10,963
===================== =====================
Primary earnings per share................................ $ 0.78 $ 0.59
===================== =====================
Fully diluted earnings per share.......................... $ 0.77 $ 0.59
===================== =====================
Primary weighted average shares of common stock and
common stock equivalents outstanding......................
18,755 18,606
===================== =====================
Fully diluted weighted average shares of common stock
and common stock equivalents outstanding.................. 18,975 18,606
===================== =====================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Investment Technology Group, Inc. and Subsidiaries
Page 4 of 15
<PAGE> 5
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
June 27, June 28,
1997 1996
---------------------- ----------------------
<S> <C> <C>
Revenues..................................................$ 36,679 $ 26,313
Expenses:
Compensation and employee benefits................... 7,007 6,006
Transaction processing............................... 5,682 3,776
Software royalties................................... 2,581 2,022
Occupancy and equipment.............................. 2,010 1,257
Consulting........................................... 574 692
Telecommunications and data processing services...... 2,156 925
Other general and administrative..................... 2,744 1,783
---------------------- ----------------------
22,754 16,461
---------------------- ----------------------
Earnings before income tax expense................... 13,925 9,852
Income tax expense........................................ 5,917 4,285
---------------------- ----------------------
Net earnings..............................................$ 8,008 $ 5,567
====================== ======================
Primary earnings per share................................$ 0.43 $ 0.30
==================== =====================
Fully diluted earnings per share..........................$ 0.42 $ 0.30
==================== ======================
Primary weighted average shares of common stock and
common stock equivalents outstanding...................... 18,688 18,574
====================== ======================
Fully diluted weighted average shares of common stock
and common stock equivalents outstanding..................
18,901 18,574
====================== ======================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Investment Technology Group, Inc. and Subsidiaries
Page 5 of 15
<PAGE> 6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 27, 1997
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Retained
Stock Stock Capital Earnings
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996............... $ - $ 187 $ 36,055 $ 34,614
Issuance of common stock - Note (1) 65
Purchase of common stock
for treasury (152,300 shares).............
Net earnings............................... 14,539
==============================================================================
Balance at June 27, 1997................... $ - $ 187 $ 36,120 $ 49,153
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Common Total
Stock Stock-
Held in holders'
Treasury Equity
--------------------------------------------------
<S> <C> <C>
Balance at December 31, 1996............... $ (3,763) $ 67,093
Issuance of common stock - Note (1) 65
Purchase of common stock
for treasury (152,300 shares)............. (2,746) (2,746)
Net earnings............................... 14,539
==================================================
Balance at June 27, 1997................... $ (6,509) $ 78,951
==================================================
</TABLE>
Note (1): 3,971 shares of common stock were issued during the second quarter of
1997, from options exercised under the 1994 Stock Option and Long-Term Incentive
Plan.
See accompanying unaudited notes to consolidated financial statements.
Investment Technology Group, Inc. and Subsidiaries
Page 6 of 15
<PAGE> 7
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------
June 27, June 28,
1997 1996
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................................................... $ 14,539 $ 10,963
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Deferred income tax benefit ............................................... (419) (1,282)
Depreciation and amortization.............................................. 2,848 1,618
Unrealized gain on investment in limited partnership....................... (283) (83)
Undistributed loss of affiliates........................................... 316 -
Provision for doubtful accounts receivable................................. 42 190
Decrease (increase) in operating assets:
Securities owned...................................................... 212 2,478
Trade receivables..................................................... (2,258) (2,324)
Trade receivable from affiliate....................................... (948) 5,224
Due from affiliates................................................... 68 4,073
Other assets.......................................................... 186 (303)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses................................. 5,097 2,948
Software royalties payable............................................ 363 236
Securities sold, not yet purchased.................................... (1,147) 63
Due to affiliates..................................................... 2,512 (105)
Income taxes payable to affiliate..................................... (1,283) 113
-------------------------------------------
Net cash provided by operating activities...................................... 19,845 23,809
-------------------------------------------
Cash flows from financing activities:
Purchase of common stock for treasury.......................................... (2,746) (1,649)
Issuance of common stock..................................................... 65 -
-------------------------------------------
Net cash used by financing activities.......................................... (2,681) (1,649)
Cash flows from investing activities:
Purchase of premises and equipment............................................. (10,213) (2,611)
Capitalization of software development costs................................... (1,932) (954)
-------------------------------------------
Net cash used by investing activities.......................................... (12,145) (3,565)
-------------------------------------------
Net increase in cash and cash equivalents...................................... 5,019 18,595
Cash and cash equivalents - beginning of period..................................... 43,955 17,960
-------------------------------------------
Cash and cash equivalents - end of period........................................... $ 48,974 $ 36,555
===========================================
Supplemental cash flow information:
Interest paid.................................................................. $ 100 $ 54
===========================================
Income taxes paid to affiliate................................................. $ 12,434 $ 9,692
===========================================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Investment Technology Group, Inc. and Subsidiaries
Page 7 of 15
<PAGE> 8
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Investment
Technology Group, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"), principally ITG Inc. ("ITG"), a Delaware corporation, registered as
a broker-dealer in securities under the Securities Exchange Act of 1934, ITG
Global Trading, Inc. ("Global Trading") which is a 50% partner in the Global
POSIT joint venture, ITG Australia PTY Limited which is a 50% partner in ITG
Pacific Holdings. and ITG Ventures Inc. Jefferies Group, Inc. ("Jefferies
Group") owned over 80% of the Company's common stock at June 27, 1997.
All material intercompany balances and transactions are eliminated in
consolidation. The consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for the fair statement of the
results for the interim periods and should be read in conjunction with the
Company's 1996 annual report on Form 10-K.
Certain reclassifications have been made to the financial statements for the
prior period to conform to the presentation for 1997.
FORWARD-LOOKING STATEMENTS
In addition to the historical information contained throughout this Quarterly
Report on Form 10-Q, there are forward-looking statements that reflect
management's expectations for the future. A variety of important factors could
cause results to differ materially from such statements. These factors are noted
throughout this Quarterly Report on Form 10-Q and include: the actions of both
current and potential new competitors, rapid changes in technology, financial
market volatility, evolving industry regulation, cash flows into or redemptions
from equity funds, effects of inflation, customer trading patterns, and new
products and services.
ACCOUNTING DEVELOPMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an increase
in primary earnings per share for the six months ended June 27, 1997 and the six
months ended June 28, 1996 of $0.02 and $0.01, respectfully. The impact is
expected to result in an increase in primary earnings per share for the three
months ended June 27, 1997 and June 28,1996 of $0.01. Fully diluted earnings per
share for both the six and the three months ended June 27, 1997 would increase
by $0.01 while there would be no impact on both the six and three month periods
ended June 28, 1996.
INCOME TAXES
The Company is a member of the Jefferies Group for purposes of filing a Federal
income tax return (i.e., Jefferies Group owns more than 80% of the Company). The
Company's tax liability is determined on a "separate return" basis. That is, the
Company is required to pay to Jefferies Group its proportionate share of the
consolidated tax liability plus any excess of its "separate" tax liability
(assuming a separate tax return were to be filed by the Company) over its
proportionate amount of the consolidated Group tax liability. Alternatively,
Jefferies Group is required to pay the Company an "additional amount" for the
amount by which the consolidated tax liability of the Group is decreased by
reason of inclusion of the Company in the Group.
Investment Technology Group, Inc. and Subsidiaries
Page 8 of 15
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST HALF 1997 VERSUS FIRST HALF 1996 (Dollars in millions, except as noted)
<TABLE>
<CAPTION>
Six Months Ended Change
---------------- ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Revenues $ 67.3 $ 53.0 $ 14.3 27%
Number of Trading Days 124 126 (2) (2%)
Revenues per Trading Day (Dollars in thousands) $543 $421 $122 29%
</TABLE>
Increased revenues were attributed to a growing use of POSIT, QuantEX and the
Company's other electronic trading desk services. For the six months ended June
27, 1997 ("First Half 1997"), POSIT revenues were approximately 17% or $5.4
million above the six months ended June 28, 1996 ("First Half 1996"), while
QuantEX revenues were approximately 26% or $3.2 million above the First Half
1996. For the First Half 1997, other electronic trading desk services were 73%
or $5.5 million above First Half 1996.
<TABLE>
<CAPTION>
Six Months Ended Change
---------------- ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Compensation and employee benefits expense $ 13.9 $ 12.0 $ 1.9 16%
Number of employees at period end 184 141 43 31%
Revenues per employee (Dollars in thousands) $366 $376 ($10) (3%)
Compensation and employee benefits expense per
employee (Dollars in thousands) $ 76 $ 85 ($9) (11%)
</TABLE>
The increase is due to an increase in the number of employees offset by a
decrease in profitability based compensation. Capitalized software development
costs increased approximately $978,000 over the First Half 1996 primarily due to
additional projects and an increase in staff engaged in software development.
<TABLE>
<CAPTION>
Six Months Ended Change
---------------- ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Transaction processing expense $10.6 $7.5 $3.1 41%
Transaction processing expense as a percentage
of revenues 15.8% 14.2% 1.6 pts. 11%
</TABLE>
The increase is primarily due to the expense associated with a higher volume of
transactions and shares in First Half 1997. The increase as a percentage of
revenues increased by 11% primarily because the QuantEX and electronic trading
desk service revenues were a larger mix of the total revenues. The QuantEX
product and electronic trading desk services have slightly lower margins than
POSIT because there are no floor brokerage expenses associated with POSIT.
<TABLE>
<CAPTION>
Six Months Ended Change
---------------- ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Software royalties expense $5.0 $4.2 $0.8 19%
Software royalties expense as a percentage
of POSIT revenues 13.1% 13.0% 0.1 pt. 1%
</TABLE>
The increase is due to higher revenue associated with POSIT.
<TABLE>
<CAPTION>
Six Months Ended Change
---------------- ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Occupancy and equipment expense $3.9 $2.3 $1.6 70%
</TABLE>
The increase is due primarily to increased depreciation from the purchase of
additional equipment associated with increased headcount. In addition, the
Company relocated its corporate headquarters from 900 Third Avenue to 380
Madison Avenue in mid-June, which accelerated the write-off of unamortized
leasehold improvements from the 900 Third Avenue location.
Investment Technology Group, Inc. and Subsidiaries
Page 9 of 15
<PAGE> 10
<TABLE>
<CAPTION>
Six Months Ended Change
---------------- ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Consulting expense $0.9 $1.5 ($0.6) (40%)
</TABLE>
Consulting is primarily for functions which the Company currently believes are
advantageous to out-source. The decrease is due primarily to the Firm
undertaking nonrecurring special projects in First Half 1996 related to
contingency planning and systems' security.
<TABLE>
<CAPTION>
Six Months Ended Change
---------------- ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Telecommunications and data processing
services expense $3.1 $2.2 $0.9 41%
</TABLE>
The increase is primarily due to communications costs incurred in 1995 and 1996
relating to the POSIT Joint Venture, which were presented for payment in the
second quarter of 1997. In addition, duplicate services were required for 900
Third Avenue and 380 Madison Avenue in connection with the move of the Company's
headquarters.
<TABLE>
<CAPTION>
Six Months Ended Change
---------------- ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Other general and administrative expense $4.7 $3.7 $1.0 27%
</TABLE>
Software amortization for the First Half 1997 increased over the First Half
1996. In addition, outside legal fees increased due to the fact that the Company
did not have in-house counsel, and required outside legal services to evaluate
and draft joint venture agreements the Company has been involved in. There was
also an increase in charges for services provided by Jefferies & Company Inc. as
a result of contract renegotiation.
<TABLE>
<CAPTION>
Six Months Ended Change
---------------- ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Income tax expense $10.7 $8.5 $2.2 26%
</TABLE>
The increase is primarily due to the increase in pretax earnings partially
offset by a decrease in the effective tax rate from 43.7% to 42.5% from research
and development credits taken in 1997. There were no similar benefits in the
First Half 1996 due to a temporary expiration of the credits in the First Half
1996.
SECOND QUARTER 1997 VERSUS SECOND QUARTER 1996
(Dollars in millions, except as noted)
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Revenues $ 36.7 $ 26.3 $ 10.4 40%
Number of Trading Days 64 63 1 2%
Revenues per Trading Day (Dollars in thousands) $573 $417 $156 37%
</TABLE>
Increased revenues were attributed to a growing use of POSIT, QuantEX and the
Company's other electronic trading desk services. For the three months ended
June 27, 1997 ("Second Quarter 1997"), POSIT revenues were approximately 28% or
$4.3 million above the comparable three months ended June 28, 1996 ("Second
Quarter 1996"), while QuantEX revenues were approximately 34% or $2.2 million
above the Second Quarter 1996. For the Second Quarter 1997, other electronic
trading desk services were 101% or $3.9 million above the Second Quarter 1996.
Investment Technology Group, Inc. and Subsidiaries
Page 10 of 15
<PAGE> 11
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Compensation and employee benefits expense $ 7.0 $ 6.0 $ 1.0 17%
Number of employees at period end 184 141 43 31%
Revenues per employee (Dollars in thousands) $199 $187 $12 6%
Compensation and employee benefits expense per
employee (Dollars in thousands) $ 38 $ 43 ($5) (12%)
</TABLE>
The increase is due to an increase in the number of employees offset by a
decrease in profitability based compensation. Capitalized software development
costs increased approximately $1 million over the comparable Second Quarter 1996
primarily due to additional projects and an increase in staff engaged in
software development.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Transaction processing expense $5.7 $3.8 $1.9 50%
Transaction processing expense as a percentage
of revenues 15.5% 14.4% 1.1 pts. 8%
</TABLE>
The increase is primarily due to the expense associated with a higher volume of
transactions and shares in Second Quarter 1997. The increase as a percentage of
revenues increased by 8% primarily because the QuantEX and electronic trading
desk service revenues were a larger mix of the total revenues. The QuantEX
product and electronic trading desk services have slightly lower margins than
POSIT because there are no floor brokerage expenses associated with POSIT. In
addition, the international business has increased 400% over Second Quarter
1996, causing an increase in international clearing fees.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Software royalties expense $2.6 $2.0 $0.6 30%
Software royalties expense as a percentage
of POSIT revenues 13.1% 13.1% - 0%
</TABLE>
The increase is due to higher revenue associated with POSIT.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Occupancy and equipment expense $2.0 $1.3 $0.7 54%
</TABLE>
The increase is due primarily to increased depreciation from the purchase of
additional equipment associated with increased headcount. In addition, in Second
Quarter 1997, the Company recorded a $100,000 loss on lease termination related
to the Company's previous corporate headquarters.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Consulting expense $0.6 $0.7 ($0.1) (14%)
</TABLE>
Consulting is primarily for functions which the Company currently believes are
advantageous to out-source. The decrease is due primarily to the Firm
undertaking nonrecurring special projects in Second Quarter 1996 related to
contingency planning and systems' security.
Investment Technology Group, Inc. and Subsidiaries
Page 11 of 15
<PAGE> 12
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Telecommunications and data processing
services expense $2.2 $0.9 $1.3 144%
</TABLE>
The increase is primarily due to communications costs incurred in 1995 and 1996
relating to the POSIT Joint Venture, which were presented for payment in Second
Quarter 1997. In addition, duplicate services were required for 900 Third Avenue
and 380 Madison Avenue in connection with the move of the Company's
headquarters.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Other general and administrative expense $2.7 $1.8 $0.9 50%
</TABLE>
Software amortization for the Second Quarter 1997 increased over the Second
Quarter 1996. In addition, outside legal fees increased due to the fact that the
Company did not have in-house counsel, and required outside legal services to
evaluate and draft joint venture agreements the Company has been involved in.
There was also an increase in charges for services provided by Jefferies &
Company Inc. as a result of contract renegotiation and an increase in firm
travel and entertainment.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
June 27, 1997 June 28, 1996 Amount Percentage
------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Income tax expense $5.9 $4.3 $1.6 37%
</TABLE>
The increase is primarily due to the increase in pretax earnings partially
offset by a decrease in the effective tax rate from 43.5% to 42.5% from research
and development credits taken in 1997. There were no similar benefits in the
Second Quarter 1996 due to a temporary expiration of the credits in the First
Half 1996.
Investment Technology Group, Inc. and Subsidiaries
Page 12 of 15
<PAGE> 13
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Date of Meeting - May 6, 1997
Type of Meeting - Annual Meeting of Stockholders
(b) At the meeting, the following directors were elected by the
stockholders to hold office until the next annual meeting of
stockholders or until their successors have been duly elected and
qualified:
Frank E. Baxter
Richard G. Dooley
William I. Jacobs
Raymond L. Killian, Jr.
Robert L. King
Michael L. Klowden
Scott P. Mason
Dale A. Prouty
Mark A. Wolfson
(c) At the meeting, with respect to the election of the directors, the
following votes were cast in the following manner:
<TABLE>
<CAPTION>
Election of Directors
NAME FOR WITHHELD
- --------------------------------------------------------------------
<S> <C> <C>
Frank E. Baxter 16,682,249 16,481
Richard G. Dooley 16,682,249 16,481
William I. Jacobs 16,682,249 16,481
Raymond L. Killian, Jr. 16,682,249 16,481
Robert L. King 16,682,249 16,481
Michael L. Klowden 16,682,249 16,481
Scott P. Mason 16,682,249 16,481
Dale A. Prouty 16,682,249 16,481
Mark A. Wolfson 16,682,249 16,481
</TABLE>
Approval of the 1994 Stock Option and Long-Term Incentive Plan, as amended and
restated.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 16,744,774
Against 233,000
Abstain 20,956
Brokers non-votes 0
</TABLE>
Investment Technology Group, Inc. and Subsidiaries
Page 13 of 15
<PAGE> 14
Approval of the Pay-for-Performance Incentive Plan.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 16,941,484
Against 2,500
Abstain 17,856
Broker non-votes 36,890
</TABLE>
(d) Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Earning per share
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended June
27, 1997.
Investment Technology Group, Inc. and Subsidiaries
Page 14 of 15
<PAGE> 15
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 11, 1997 By: /s/ John R. MacDonald
--------------------- ----------------------
John R. MacDonald
Chief Financial Officer and
Duly Authorized Signatory of
Registrant
Investment Technology Group, Inc. and Subsidiaries
Page 15 of 15
<PAGE> 16
EXHIBIT INDEX
Exhibit 11 - Earning per share
Exhibit 27 - Financial Data Schedule.
<PAGE> 1
EXHIBIT 11.
COMPUTATION OF EARNINGS PER SHARE.
(Amounts in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- ----------------------
June 27, June 28, June 27, June 28,
1997 1996 1997 1996
------ ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings ..................................... 8,008 $ 5,567 $14,539 $10,963
====== ======= ======= =======
Shares of common stock and common stock
equivalents:
Average number of common shares .................. 18,105 18,260 18,179 18,306
Average common stock equivalents shares
related to employee stock based plans ........... 583 314 576 299
------ ------- ------- -------
Average shares used in primary computation ....... 18,688 18,574 18,755 18,606
Adjust average common stock equivalents to
period-end market price, if higher than
average price ................................... 213 -- 220 --
------ ------- ------- -------
Average shares used in fully diluted computation . 18,901 18,574 18,975 18,606
====== ======= ======= =======
Earnings per share:
Primary .......................................... $ 0.43 $ 0.30 $ 0.78 $ 0.59
====== ======= ======= =======
Fully diluted .................................... $ 0.42 $ 0.30 $ 0.77 $ 0.59
====== ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENT OF
OPERATIONS AS OF JUNE 27, 1997 AND FOR THE SIX MONTHS THEN ENDED AND THE NOTES
THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS FILED IN THE 1997 INVESTMENT TECHNOLOGY GROUP, INC. SECOND QUARTER
10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-27-1997
<CASH> 48,974
<RECEIVABLES> 12,174
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 10,071
<PP&E> 16,904
<TOTAL-ASSETS> 100,149
<SHORT-TERM> 0
<PAYABLES> 16,333
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 79
<LONG-TERM> 0
0
0
<COMMON> 187
<OTHER-SE> 78,763
<TOTAL-LIABILITY-AND-EQUITY> 100,149
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 1,307
<COMMISSIONS> 66,026
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 100
<COMPENSATION> 13,380
<INCOME-PRETAX> 25,286
<INCOME-PRE-EXTRAORDINARY> 25,286
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,539
<EPS-PRIMARY> .78
<EPS-DILUTED> .77
</TABLE>
