<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 September 26, 1997
Commission file number: 0 - 23644
INVESTMENT TECHNOLOGY GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13 - 3757717
- --------------------------------------------------- ----------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
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 November 7, 1997, the Registrant had 18,186,868 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:
September 26, 1997 (unaudited) and December 31, 1996.............. 3
Consolidated Statement of Operations (unaudited):
Nine Months Ended September 26, 1997 and September 27, 1996....... 4
Three Months Ended September 26, 1997 and September 27, 1996...... 5
Consolidated Statement of Changes in Stockholders' Equity (unaudited):
Nine Months Ended September 26, 1997.............................. 6
Consolidated Statement of Cash Flows (unaudited):
Nine Months Ended September 26, 1997 and September 27 ,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 6. Exhibits and Reports on Form 8-K...................................... 13
Signature ........................... ........................................ 14
</TABLE>
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 2 of 14
<PAGE> 3
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
September 26, December 31,
1997 1996
----------------- ---------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 41,845 $ 43,955
Securities owned 2,920 4,808
Investment in limited partnership (at market; cost $10,000) 10,809 5,193
Trade receivables 6,851 4,806
Trade receivable from affiliate 3,345 2,812
Due from affiliates 1,287 1,459
Premises and equipment 18,740 8,442
Capitalized software 5,151 3,028
Other assets 11,283 3,467
Goodwill 2,059 2,471
Deferred tax asset 2,776 2,357
========= =========
$ 107,066 $ 82,798
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 13,103 $ 8,648
Software royalties payable 2,335 2,274
Securities sold, not yet purchased 83 1,226
Due to affiliates 4,875 1,922
Income taxes payable to affiliate -- 1,635
--------- ---------
20,396 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: 18,758,368 188 187
Additional paid-in capital 37,369 36,055
Retained earnings 55,622 34,614
Common stock held in treasury, at cost; shares:597,500 at September 26, 1997
and 445,200 at December 31, 1996
(6,509) (3,763)
--------- ---------
Total stockholders' equity 86,670 67,093
--------- ---------
$ 107,066 $ 82,798
========= =========
Book value per share $ 4.77 $ 3.68
========= =========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 3 of 14
<PAGE> 4
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
September 26, September 27,
1997 1996
-------- --------
<S> <C> <C>
Revenues ........................................... $100,770 $ 81,664
Expenses:
Compensation and employee benefits ............ 21,479 18,100
Transaction processing ........................ 15,695 11,815
Software royalties ............................ 7,269 6,515
Occupancy and equipment ....................... 6,389 4,183
Consulting .................................... 1,531 1,998
Telecommunications and data processing services 4,617 3,393
Other general and administrative .............. 7,178 5,967
-------- --------
64,158 51,971
-------- --------
Earnings before income tax expense ............ 36,612 29,693
Income tax expense ................................. 15,604 12,853
-------- --------
Net earnings ....................................... $ 21,008 $ 16,840
======== ========
Primary earnings per share ......................... $ 1.11 $ 0.91
======== ========
Fully diluted earnings per share ................... $ 1.10 $ 0.90
======== ========
Primary weighted average shares of common stock and
common stock equivalents outstanding ............... 18,878 18,482
======== ========
Fully diluted weighted average shares of common
stock and common stock equivalents outstanding ..... 19,041 18,726
======== ========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 4 of 14
<PAGE> 5
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
September 26, September 27,
1997 1996
------- -------
<S> <C> <C>
Revenues ............................................ $33,437 $28,684
Expenses:
Compensation and employee benefits ............. 7,599 6,225
Transaction processing ......................... 5,110 4,340
Software royalties ............................. 2,306 2,272
Occupancy and equipment ........................ 2,521 1,899
Consulting ..................................... 585 452
Telecommunications and data processing services 1,504 1,217
Other general and administrative ............... 2,486 2,072
------- -------
22,111 18,477
------- -------
Earnings before income tax expense ............. 11,326 10,207
Income tax expense .................................. 4,857 4,330
------- -------
Net earnings ........................................ $ 6,469 $ 5,877
======= =======
Primary earnings per share .......................... $ 0.34 $ 0.32
======= =======
Fully diluted earnings per share .................... $ 0.34 $ 0.31
======= =======
Primary weighted average shares of common stock and
common stock equivalents outstanding ................ 19,102 18,572
======= =======
Fully diluted weighted average shares of common stock
and common stock equivalents outstanding
19,102 18,691
======= =======
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 5 of 14
<PAGE> 6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 26, 1997
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
Common Total
Additional Stock Stock-
Preferred Common Paid-in Retained Held in holders'
Stock Stock Capital Earnings Treasury Equity
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ...... $ -- $ 187 $ 36,055 $ 34,614 $ (3,763) $ 67,093
Issuance of common stock - Note (1) 1 1,314 1,315
Purchase of common stock
for treasury (152,300 shares) .... (2,746) (2,746)
Net earnings ...................... 21,008 21,008
======== ======== ======== ======== ======== ========
Balance at September 26, 1997 ..... $ -- $ 188 $ 37,369 $ 55,622 $ (6,509) $ 86,670
======== ======== ======== ======== ======== ========
</TABLE>
Note (1): 34,149 shares of common stock were issued during 1997, from options
exercised under the 1994 Stock Option and Long-Term Incentive Plan. 24,219
shares of common stock were issued during the third quarter of 1997, in
connection with an equity investment.
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 6 of 14
<PAGE> 7
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
September 26, September 27,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ............................................. $ 21,008 $ 16,840
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Deferred income tax benefit .......................... (419) (1,502)
Depreciation and amortization ........................ 4,653 2,824
Unrealized gain on investment in limited partnership . (616) (176)
Undistributed loss of affiliates ..................... 487 --
Provision for doubtful accounts receivable ........... 63 211
Decrease (increase) in operating assets:
Securities owned ................................ 1,888 1,651
Trade receivables ............................... (2,108) (1,745)
Trade receivable from affiliate ................. (533) 5,066
Due from affiliates ............................. 173 4,356
Other assets .................................... (8,377) (5,138)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses ........... 4,529 4,987
Software royalties payable ...................... 61 486
Securities sold, not yet purchased .............. (1,143) 1,189
Due to affiliates ............................... 2,952 479
Income taxes payable to affiliate ............... (1,635) (482)
-------- --------
Net cash provided by operating activities ................ 20,983 29,046
-------- --------
Cash flows from financing activities:
Purchase of common stock for treasury .................... (2,746) (1,723)
Issuance of common stock ............................... 1,315 --
-------- --------
Net cash used by financing activities .................... (1,431) (1,723)
Cash flows from investing activities:
Purchase of premises and equipment ....................... (13,404) (3,415)
Investment in limited partnership ...................... (5,000) --
Capitalization of software development costs ............. (3,258) (1,882)
-------- --------
Net cash used by investing activities .................... (21,662) (5,297)
-------- --------
Net (decrease) increase in cash and cash equivalents ..... (2,110) 22,026
Cash and cash equivalents - beginning of period ............... 43,955 17,960
======== ========
Cash and cash equivalents - end of period ..................... $ 41,845 $ 39,986
======== ========
Supplemental cash flow information:
Interest paid ............................................ $ 107 $ 87
======== ========
Income taxes paid to affiliate ........................... $ 17,876 $ 14,837
======== ========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 7 of 14
<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 September 26, 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 nine months ended September 26, 1997 and
the nine months ended September 27, 1996 of $0.05 and $0.01, respectfully. The
impact is expected to result in an increase in primary earnings per share for
the three months ended September 26, 1997 of $0.02 and no change for September
27, 1996. Fully diluted earnings per share for both the nine months ended
September 26, 1997 and September 27, 1996 will increase by $0.01. The impact is
expected to have no effect on fully diluted earnings per share for the three
months ended September 26, 1997 and is expected to increase by $0.01 for the
three months ended September 27, 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 14
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIRST NINE MONTHS 1997 VERSUS FIRST NINE MONTHS 1996 (Dollars in millions,
except as noted)
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Revenues $ 100.8 $ 81.7 $ 19.1 23.4%
Number of Trading Days 187 189 (2) (1.1)%
Revenues per Trading Day (Dollars in thousands) $ 539 $ 432 $ 107 24.8%
</TABLE>
Increased revenues were attributed to a growing use of POSIT, QuantEX and the
Company's other electronic trading desk services. For the nine months ended
September 26, 1997 ("First Nine Months 1997"), POSIT revenues were approximately
12% or $6.0 million above the nine months ended September 27, 1996 ("First Nine
Months 1996"), while QuantEX revenues were approximately 21% or $4.1 million
above the First Nine Months 1996. For the First Nine Months 1997, other
electronic trading desk services were 72% or $8.6 million above First Nine
Months 1996.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Compensation and employee benefits expense $ 21.5 $ 18.1 $ 3.4 18.8%
Number of employees at period end 198 153 45 29.4%
Revenues per employee (Dollars in thousands) $ 509 $ 534 ($ 25) (4.7%)
Compensation and employee benefits expense per
employee (Dollars in thousands) $ 109 $ 118 ($ 9) (7.6%)
</TABLE>
The increase is due to an increase in the number of employees offset by an
increase in capitalized software. Capitalized software development costs
increased approximately $1.4 million over the comparable First Nine Months 1996
primarily due to additional projects and an increase in staff engaged in
software development.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Transaction processing expense $ 15.7 $ 11.8 $ 3.9 33.1%
Transaction processing expense as a percentage
of revenues 15.6% 14.4% 1.2 pts. 8.3%
</TABLE>
The increase is primarily due to the expense associated with a higher volume of
transactions and shares in First Nine Months 1997. The increase as a percentage
of revenues increased by 1.2 points primarily from a shift in the business mix
towards QuantEX and electronic trading desk services. Those products have
slightly lower margins than POSIT due to charges for floor brokerage fees which
are not incurred with the POSIT business.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Software royalties expense $ 7.3 $ 6.5 $ 0.8 12.3%
Software royalties expense as a percentage
of POSIT revenues 13.1% 13.1% -- --
</TABLE>
The increase is due to higher revenues associated with POSIT. Software royalties
are a fixed percentage of POSIT revenue.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 9 of 14
<PAGE> 10
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Occupancy and equipment expense $6.4 $4.2 $2.2 52.4%
</TABLE>
The increase is due primarily to the Company's relocation of its corporate
headquarters from 900 Third Avenue to 380 Madison Avenue in mid-June. Rent
expense increased accordingly as the rentable square footage increased by more
than 100%. The Company also had to accelerate the write-off of the unamortized
leasehold improvements from the 900 Third Avenue Location. In addition,
depreciation increased as a result of purchases of additional equipment
associated with the move and increased headcount.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Consulting expense $1.5 $2.0 ($0.5) (25.0%)
</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 Nine Months 1996 related to
contingency planning and systems' security.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Telecommunications and data processing
services expense $ 4.6 $ 3.4 $ 1.2 35.3%
</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>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Other general and administrative expense $ 7.2 $ 6.0 $ 1.2 20.0%
</TABLE>
The increase is largely attributable to increases in headcount of 45 employees.
Related costs, primarily services provided by Jefferies & Company, Inc.
increased accordingly by approximately $270,000. Travel and entertainment costs
increased by approximately $506,000 primarily from an increased effort to
promote the Company's products and increased headcount. Lastly, legal fees
increased by approximately $380,000 as a result of exploring strategic
initiatives and not having the benefit of in house counsel on staff.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Income tax expense $ 15.6 $ 12.9 $ 2.7 20.9%
</TABLE>
The increase is primarily due to the increase in pretax earnings partially
offset by a decrease in the effective tax rate from 43.3% to 42.6% from research
and development credits taken in 1997. There were no similar benefits in the
First Six Months 1996 due to a temporary expiration of the credits.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 10 of 14
<PAGE> 11
THIRD QUARTER 1997 VERSUS THIRD QUARTER 1996 (Dollars in millions, except as
noted)
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Revenues $ 33.4 $ 28.7 $ 4.7 16.4%
Number of Trading Days 63 63 -- --
Revenues per Trading Day (Dollars in thousands) $ 531 $ 455 $ 76 16.7%
</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
September 26, 1997 ("Third Quarter 1997"), POSIT revenues were approximately
1.7% or $0.3 million above the comparable three months ended September 27, 1996
("Third Quarter 1996"), while QuantEX revenues were approximately 20% or $1.3
million above the Third Quarter 1996. For the Third Quarter 1997, other
electronic trading desk services were 75% or $3.2 million above the Third
Quarter 1996.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Compensation and employee benefits expense $ 7.6 $ 6.2 $ 1.4 22.6%
Number of employees at period end 198 153 45 29.4%
Revenues per employee (Dollars in thousands) $ 169 $ 187 ($ 18) (9.6%)
Compensation and employee benefits expense per
employee (Dollars in thousands) $ 38 $ 41 ($ 3) (7.3%)
</TABLE>
The increase is primarily due to an increase in salary and related employee
benefits as a result of the increase in the number of employees. This was offset
by an increase in capitalized software costs from additional development
projects and an increase in staff engaged in software development.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Transaction processing expense $ 5.1 $ 4.3 $ 0.8 18.6%
Transaction processing expense as a percentage
of revenues 15.3% 15.1% 0.2pts. 1.3%
</TABLE>
The increase is primarily due to the expense associated with a higher volume of
transactions and shares in Third Quarter 1997. As a percentage of revenues,
transaction processing expenses increased by 0.2 points 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>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Software royalties expense $ 2.3 $ 2.3 $ -- --
Software royalties expense as a percentage
of POSIT revenues 13.1% 13.1% -- --
</TABLE>
Software royalties are a fixed percentage of POSIT revenues. POSIT revenues
increased by 1.7% over Third Quarter 1996.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 11 of 14
<PAGE> 12
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Occupancy and equipment expense $ 2.5 $ 1.9 $ 0.6 31.6%
</TABLE>
The increase is due primarily to the Company's relocation of its corporate
headquarters from 900 Third Avenue to 380 Madison Avenue in mid-June. Rent
expense increased accordingly as the rentable square footage increased by more
than 100%. In addition, depreciation increased as a result of purchases of
additional equipment associated with the move and increased headcount.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Consulting expense $ 0.6 $ 0.5 $ 0.1 20.0%
</TABLE>
Consulting is primarily for functions which the Company currently believes are
advantageous to out-source. The increase is due primarily to risk management and
compensation consulting projects undertaken in 1997.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Telecommunications and data processing
services expense $ 1.5 $ 1.2 $ 0.3 25.0%
</TABLE>
The 1997 increase stems from the Company's growth both in client base and
headcount. In addition, the Company incurred miscellaneous move related costs in
July 1997.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Other general and administrative expense $ 2.5 $ 2.1 $ 0.4 19.0%
</TABLE>
The increase is largely attributable to increases in headcount of 45 employees.
Related costs, primarily services provided by Jefferies & Company, Inc.
increased accordingly by approximately $95,000. Travel and entertainment costs
increased by approximately $400,000 primarily from timing of travel and
entertainment submissions by employees and increased headcount. Finally, legal
fees increased by approximately $115,000 primarily from an increased usage in
outside legal counsel, whereas in the same period in 1996 the Company had
benefited from in house counsel. This increase was primarily offset by a
decrease in software amortization of $ 400,000.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 26, 1997 September 27, 1996 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Income tax expense $ 4.9 $ 4.3 $ 0.6 14.0%
</TABLE>
The increase is primarily due to the increase in pretax earnings.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 12 of 14
<PAGE> 13
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Earnings 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
September 26, 1997.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 13 of 14
<PAGE> 14
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: November 7, 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 14 of 14
<PAGE> 1
EXHIBIT 11.
COMPUTATION OF EARNINGS PER SHARE.
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ------------------------------
Sept 26, Sept 27, Sept 27, Sept 28,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $ 6,469 $ 5,877 $21,008 $16,840
======= ======= ======= =======
Shares of common stock and common stock equivalents:
Average number of common shares 18,143 18,256 18,175 18,294
Average common stock equivalents shares
related to employee stock based plans 959 316 703 188
------- ------- ------- -------
Average shares used in primary computation 19,102 18,572 18,878 18,482
Adjust average common stock equivalents to
period-end market price, if higher than
average price -- 119 163 244
------- ------- ------- -------
Average shares used in fully diluted computation 19,102 18,691 19,041 18,726
======= ======= ======= =======
Earnings per share:
Primary $ 0.34 $ 0.32 $ 1.11 $ 0.91
======= ======= ======= =======
Fully diluted $ 0.34 $ 0.31 $ 1.10 $ 0.90
======= ======= ======= =======
</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 SEPTEMBER 26, 1997 AND FOR THE NINE 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. THIRD QUARTER
10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-26-1997
<CASH> 41,845
<RECEIVABLES> 11,483
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 13,729
<PP&E> 18,740
<TOTAL-ASSETS> 107,066
<SHORT-TERM> 0
<PAYABLES> 15,438
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 83
<LONG-TERM> 0
0
0
<COMMON> 188
<OTHER-SE> 86,482
<TOTAL-LIABILITY-AND-EQUITY> 107,066
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 2,019
<COMMISSIONS> 98,751
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 107
<COMPENSATION> 21,479
<INCOME-PRETAX> 36,612
<INCOME-PRE-EXTRAORDINARY> 36,612
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,008
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
</TABLE>
