<PAGE>
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 Commission file number: 0 - 23644
ended September 25, 1998
INVESTMENT TECHNOLOGY GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13 - 3757717
- ----------------------------------- -------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
380 Madison Avenue, New York, New York (212) 588 - 4000
- ------------------------------------------- --------------------------------
(Address of Principal Executive Offices) (Registrant's Telephone Number,
Including Area Code)
10017
-----------------------------------------------------
(Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 5, 1998, the Registrant had 18,425,712 shares of common stock,
$0.01 par value, outstanding.
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
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Page
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Item 1. Financial Statements
Consolidated Statement of Financial Condition:
September 25, 1998 (unaudited) and December 31, 1997.................. 3
Consolidated Statement of Operations (unaudited):
Nine Months Ended September 25, 1998 and September 26, 1997........... 4
Three Months Ended September 25, 1998 and September 26, 1997.......... 5
Consolidated Statement of Changes in Stockholders' Equity (unaudited):
Nine Months Ended September 25, 1998.................................. 6
Consolidated Statement of Cash Flows (unaudited):
Nine Months Ended September 25, 1998 and September 26, 1997........... 7
Notes to Consolidated Financial Statements (unaudited).................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 13
PART II..OTHER INFORMATION
Item 5. Other Information......................................................... 19
Item 6. Exhibits and Reports on Form 8-K.......................................... 19
Signature............................................................................... 20
</TABLE>
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, including information under "The Year
2000 Issue", below. 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, new products and
services, and customers, vendors, and securities industry participants'
responses to Year 2000 issues.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 2 of 20
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 25, DECEMBER 31,
1998 1997
------------------- ------------------
ASSETS (UNAUDITED)
<S> <C>
Cash and cash equivalents................................. $ 97,702 $ 51,263
Securities owned.......................................... 272 358
Investment in limited partnership (at market; cost $10,000) 11,308 10,935
Trade receivables, net of allowance for doubtful accounts
of $194 and $308...................................... 11,862 7,071
Trade receivable from affiliate........................... 5,377 2,931
Due from affiliates....................................... 391 1,365
Premises and equipment.................................... 19,270 19,506
Capitalized software...................................... 7,947 5,973
Other assets.............................................. 8,640 9,857
Goodwill.................................................. 1,510 1,922
Deferred tax asset........................................ 2,373 2,460
------------------- ------------------
$ 166,652 $ 113,641
------------------- ------------------
------------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses..................... $ 31,178 $ 12,725
Software royalties payable................................ 4,488 2,663
Securities sold, not yet purchased........................ 170 3
Due to affiliates......................................... 1,983 2,999
Income taxes payable to affiliate......................... 1,468 1,488
------------------- ------------------
39,287 19,878
------------------- ------------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01; shares authorized:
5,000,000; shares issued: none ...................... - -
Common stock, par value $0.01; shares authorized:
30,000,000; shares issued: 19,194,731 at September 25,
1998 and 18,818,468 at December 31, 1997............. 192 188
Additional paid-in capital............................. 46,276 38,554
Retained earnings...................................... 92,705 61,531
Common stock held in treasury, at cost; shares: 771,700
at September 25, 1998 and 597,500 at
December 31, 1997.................................... (11,587) (6,510)
Accumulated other comprehensive loss:
Currency translation adjustment...................... (221) -
------------------- ------------------
Total stockholders' equity............................. 127,365 93,763
------------------- ------------------
$ 166,652 $ 113,641
------------------- ------------------
------------------- ------------------
Book value per share...................................... $ 6.91 $ 5.15
------------------- ------------------
------------------- ------------------
</TABLE>
SEE ACCOMPANYING UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 3 of 20
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1998 1997
-----------------------------------------
<S> <C> <C>
Revenues................................................ $ 149,989 $ 100,770
-----------------------------------------
Expenses:
Compensation and employee benefits................. 36,962 21,479
Transaction processing............................. 19,281 15,695
Software royalties................................. 11,175 7,269
Occupancy and equipment............................ 8,691 6,389
Consulting......................................... 1,449 1,531
Telecommunications and data processing services.... 6,285 4,617
Net gain on long-term investments ................. (1,545) -
Spin-off costs .................................... 1,104 -
Other general and administrative................... 9,139 7,178
-----------------------------------------
Total expenses......................... 92,541 64,158
-----------------------------------------
Earnings before income tax expense................. 57,448 36,612
Income tax expense...................................... 26,274 15,604
-----------------------------------------
Net earnings............................................ $ 31,174 21,008
-----------------------------------------
-----------------------------------------
Basic net earnings per share of common stock............ $ 1.70 $ 1.16
-----------------------------------------
-----------------------------------------
Diluted net earnings per share of common stock.......... $ 1.63 $ 1.11
-----------------------------------------
-----------------------------------------
Basic weighted average shares outstanding............... 18,325 18,175
-----------------------------------------
-----------------------------------------
Diluted weighted average shares and common stock
equivalents outstanding............................ 19,136 18,879
-----------------------------------------
-----------------------------------------
</TABLE>
SEE ACCOMPANYING UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 4 of 20
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1998 1997
-----------------------------------------
<S> <C> <C>
Revenues................................................ $ 57,697 $ 33,437
-----------------------------------------
Expenses:
Compensation and employee benefits................. 14,152 7,599
Transaction processing............................. 6,917 5,110
Software royalties................................. 4,416 2,306
Occupancy and equipment............................ 3,071 2,521
Consulting......................................... 357 585
Telecommunications and data processing services.... 2,179 1,504
Net gain on long-term investments ................. (3,632) -
Spin-off costs .................................... 479 -
Other general and administrative................... 4,027 2,486
-----------------------------------------
Total expenses......................... 31,966 22,111
-----------------------------------------
Earnings before income tax expense................. 25,731 11,326
Income tax expense...................................... 11,847 4,857
-----------------------------------------
Net earnings............................................ $ 13,884 $ 6,469
-----------------------------------------
-----------------------------------------
Basic net earnings per share of common stock............ $ 0.75 $ 0.36
-----------------------------------------
-----------------------------------------
Diluted net earnings per share of common stock.......... $ 0.72 $ 0.34
-----------------------------------------
-----------------------------------------
Basic weighted average shares outstanding............... 18,420 18,144
-----------------------------------------
-----------------------------------------
Diluted weighted average shares and common stock
equivalentsoutstanding.............................. 19,234 19,104
-----------------------------------------
-----------------------------------------
</TABLE>
SEE ACCOMPANYING UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 5 of 20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 25, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Common
Additional Stock Accumulated Total
Preferred Common Paid-in Retained Held in Comprehensive Stockholders'
Stock Stock Capital Earnings Treasury Loss Equity
---------- ---------- ---------- ---------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997............... $ - $ 188 $ 38,554 $ 61,531 $ (6,510) $ - $ 93,763
Issuance of common stock in connection
with the employee stock option plan
(364,127 shares)......................... 4 7,412 7,416
Issuance of common stock in connection
with the employee stock purchase plan
(12,136 shares)........................ - 310 310
Purchase of common stock for treasury
(174,200 shares)....................... (5,077) (5,077)
Comprehensive income/(loss):
Net earnings........................... 31,174 31,174
Other comprehensive loss, net of tax:
Currency translation adjustment.... (221) (221)
-------------
Comprehensive income....................... 30,953
-------------------------------------------------------------------------------------
Balance at September 25, 1998.............. $ - $ 192 $ 46,276 $ 92,705 $ (11,587) $ (221) $ 127,365
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 6 of 20
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1998 1997
-----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................................... $ 31,174 $ 21,008
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Deferred income tax expense (benefit) ..................................... 87 (419)
Depreciation and amortization.............................................. 6,677 4,653
Unrealized gain on investment in limited partnership....................... (373) (616)
Undistributed loss of affiliates........................................... 52 487
Provision for doubtful accounts receivable................................. 72 63
Decrease (increase) in operating assets:
Securities owned............................................................ 85 1,888
Trade receivables........................................................... (4,863) (2,108)
Trade receivables from affiliate............................................ (2,445) (533)
Due from affiliates......................................................... 974 173
Other assets................................................................ 1,090 (8,377)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses....................................... 18,529 4,529
Software royalties payable.................................................. 1,825 61
Securities sold, not yet purchased.......................................... 166 (1,143)
Due to affiliates........................................................... (1,016) 2,952
Income taxes payable to affiliate........................................... (20) (1,635)
-----------------------------------
Net cash provided by operating activities.................................. 52,014 20,983
-----------------------------------
Cash flows from financing activities:
Purchase of common stock for treasury....................................... (5,077) (2,746)
Issuance of common stock.................................................... 7,726 1,315
-----------------------------------
Net cash provided by (used in) financing activities...................... 2,649 (1,431)
Cash flows from investing activities:
Purchase of premises and equipment.......................................... (4,517) (13,404)
Investment in limited partnership........................................... - (5,000)
Capitalization of software development costs................................ (3,486) (3,258)
-----------------------------------
Net cash used in investing activities...................................... (8,003) (21,662)
-----------------------------------
Effect of foreign currency translation on cash and cash equivalents............. (221) -
Net increase (decrease) in cash and cash equivalents....................... 46,439 (2,110)
Cash and cash equivalents - beginning of period................................. 51,263 43,955
-----------------------------------
Cash and cash equivalents - end of period....................................... $ 97,702 $ 41,845
-----------------------------------
-----------------------------------
Supplemental cash flow information:
Interest paid............................................................... $ 31 $ 107
-----------------------------------
-----------------------------------
Income taxes paid .......................................................... $ 23,530 $ 17,876
-----------------------------------
-----------------------------------
</TABLE>
SEE ACCOMPANYING UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 7 of 20
<PAGE>
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, Incorporated. ("Global Trading")
which is a 50% partner in the Global POSIT joint venture, ITG Australia
Holdings Pty Limited ("ITG-Australia"), which is a 50% partner in ITG Pacific
Holdings, ITG Ventures Inc., and ITG International Limited ("ITG-Europe") and
its wholly-owned subsidiary ITG Investment Technology Group (Israel) Ltd.
Jefferies Group, Inc. ("Jefferies Group") owned over 80% of the Company's
common stock at September 25, 1998.
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 1997 annual report on Form 10-K.
BUSINESS SEGMENT
Through its wholly-owned, broker/dealer subsidiary, ITG, the Company is a
leading provider of technology-based equity trading services and transaction
research to institutional investors and brokers. ITG services help clients to
access liquidity, execute trades more efficiently and make better trading
decisions.
GOODWILL
In May 1991, Jefferies Group acquired Integrated Analytics Corporation
("IAC") and contributed its business to ITG in 1992. IAC's principal product,
MarketMind, was used to develop the Company's QuantEX product. Goodwill, which
represents the excess of purchase price for IAC over the fair value of the IAC
net assets acquired, is amortized on a straight-line basis over ten years. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. At September 25, 1998 and December 31, 1997, goodwill amounted to
$1.5 million and $1.9 million, net of accumulated amortization of $3.8 million
and $3.4 million, respectively.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (generally
three to five years). Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives of the
related assets or the non-cancelable lease term.
REVENUES
REVENUES primarily consist of commission revenues. TRADE RECEIVABLE FROM
AFFILIATE consists of commissions receivable. Transactions in securities,
commission revenues and related expenses are recorded on a trade-date basis.
EXPENSES
COMPENSATION AND EMPLOYEE BENEFITS include base salaries, bonuses,
employment agency fees, part-time employees, commissions paid to Jefferies &
Company, Inc. ("Jefferies & Co.") employees, the employee portion of capitalized
software and fringe benefits, including employer contributions for medical
insurance, life insurance, retirement plans and payroll taxes. TRANSACTION
PROCESSING consists of floor brokerage and clearing fees. SOFTWARE ROYALTIES are
payments to
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 8 of 20
<PAGE>
BARRA Inc. ("BARRA"), the Company's joint venture partner in POSIT1. Royalty
payments are calculated at an effective rate of 13.1% of adjusted POSIT
revenues. The royalty payments related to Global Trading are calculated at an
effective rate of 50% of pretax earnings. OCCUPANCY AND EQUIPMENT includes rent,
depreciation, amortization of leasehold improvements, maintenance, utilities,
occupancy taxes and property insurance. CONSULTING is for equity research,
product development and other activities which the Company believes it is
advantageous to out-source. TELECOMMUNICATIONS AND DATA PROCESSING SERVICES
include costs for computer hardware, office automation and workstations, data
center equipment, market data services and voice, data, telex and network
communications. NET GAIN ON LONG-TERM INVESTMENTS includes goodwill
amortization, equity loss pick-up, and initial start up costs associated with a
European and Australian joint venture and the net gain on the sale of the
investment in the LongView Group, Inc. OTHER GENERAL AND ADMINISTRATIVE includes
goodwill amortization, legal, audit, tax and promotional expenses. SPIN-OFF
EXPENSES include legal, accounting, consulting and various other expenses.
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.
Deferred tax assets and liabilities reflect the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Past effects of such changes in the rates were not material to the combined
financial statements.
In June 1998, the Company received a "30-day letter" proposing certain
adjustments which, if sustained, would result in a tax deficiency of
approximately $9.6 million plus interest. The adjustments proposed relate to (i)
the disallowance of deductions taken in connection with the termination of
certain compensation plans at the time of the Company's initial public offering
in 1994 and (ii) the disallowance of tax credits taken in connection with
certain research and development expenditures. The company believes that the tax
benefits in question were taken properly and intends to vigorously contest the
proposed adjustments. The Company is unable to predict when this matter will be
resolved or the costs associated with its resolution.
CAPITALIZED SOFTWARE
The Company capitalizes software development costs where technological
feasibility of the product has been established. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs requires considerable judgment by
management with respect to certain external factors, including, but not
limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technologies.
The Company is amortizing capitalized software costs using the straight-line
method over the estimated economic useful life, the average life of which is
generally under two years. Amortization begins when the product is available
for release to customers.
- -----------------------
1 POSIT is a registered service mark of the POSIT Joint Venture.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 9 of 20
<PAGE>
CASH AND CASH EQUIVALENTS
The Company generally invests its excess cash in money market funds and
other short-term investments that generally mature within 90 days. At September
25, 1998 and December 31, 1997, such cash equivalents amounted to $97.5 million
and $49.3 million, respectively.
INVESTMENT IN LIMITED PARTNERSHIP
INVESTMENT IN LIMITED PARTNERSHIP consists of an investment in the TQA
Arbitrage Fund L.P. (the "Fund"), a Delaware limited partnership. The Fund
invests primarily in convertible securities, and seeks capital appreciation from
its convertible securities portfolio through a combination of convertible
securities purchases and short sales of related stocks focusing on the current
income and capital appreciation available from such strategies with
convertibles. The Company may withdraw any or all of its investment from the
Fund upon at least thirty days notice. Investment in limited partnership is
valued at market, and unrealized gains or losses are reflected in revenues.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all of the Company's financial instruments are carried at fair
value or amounts approximating fair value.
SECURITIES OWNED
Securities owned are valued at market, and unrealized gains or losses are
reflected in revenues. Securities owned consisted of equity securities and
municipal securities as of September 25, 1998 and December 31, 1997,
respectively.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at September 25, 1998 and December
31, 1997 consisted of the following;
<TABLE>
<CAPTION>
SEPTEMBER 25, DECEMBER 31,
1998 1997
------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued expenses .. $ 9,495 $ 4,411
Accrued bonus expense .................. 6,756 2,849
Employee stock unit award program ...... 1,967 -
Employee deferred stock options ........ 2,778 64
Soft dollars payable ................... 5,813 3,125
Loan payable ........................... 2,000 -
Accrued rent ........................... 2,369 2,276
-----------------------
Total .................................. $31,178 $12,725
-----------------------
-----------------------
</TABLE>
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 10 of 20
<PAGE>
OTHER COMPREHENSIVE LOSS
The following summarizes other comprehensive loss as of September 25,
1998 (dollars in thousands):
<TABLE>
<CAPTION>
TAX NET
PRE-TAX (EXPENSE) OF TAX
AMOUNT OR BENEFIT Amount
------------- ------------------- ------------
<S> <C> <C> <C>
Currency translation adjustment............................... $ (221) $ - $ (221)
------------- ------------------- ------------
Other Comprehensive Loss...................................... $ (221) $ - $ (221)
------------- ------------------- ------------
------------- ------------------- ------------
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
CURRENCY OTHER
TRANSLATION COMPREHENSIVE
ADJUSTMENT LOSS
------------- -------------------
<S> <C> <C>
Balance at December 31, 1997............................. $ - $ -
Change during nine months ended September 25, 1998....... (221) (221)
------------- -------------------
Balance at September 25, 1998............................ $ (221) $ (221)
------------- -------------------
------------- -------------------
</TABLE>
EARNINGS PER SHARE
Net earnings per share of common stock is based upon an adjusted
weighted average number of shares of common stock outstanding. The average
number of outstanding shares for the nine months ended September 25, 1998 and
September 26, 1997 were 18.3 million and 18.2 million, respectively. The average
number of outstanding shares for the three months ended September 25, 1998 and
September 26, 1997 were 18.4 million and 18.1 million, respectively.
The following is a reconciliation of the basic and diluted earnings per
share computations for the nine months ended September 25, 1998 and September
26, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 25, SEPTEMBER 26,
1998 1997
--------------- ---------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net earnings for basic and diluted earnings per share .... $31,174 $21,008
--------------- ---------------
--------------- ---------------
Shares of common stock and common stock equivalents:
Average number of common shares .................... 18,325 18,175
--------------- ---------------
Average shares used in basic computation............ 18,325 18,175
Effect of dilutive securities - options .......... 811 704
--------------- ---------------
Average shares used in diluted ..................... 19,136 18,879
--------------- ---------------
--------------- ---------------
Earnings per share:
Basic .............................................. $ 1.70 $ 1.16
--------------- ---------------
--------------- ---------------
Diluted ............................................ $ 1.63 $ 1.11
--------------- ---------------
--------------- ---------------
</TABLE>
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 11 of 20
<PAGE>
The following is a reconciliation of the basic and diluted earnings per share
computations for the three months ended September 25, 1998 and September 26,
1997.
<TABLE>
<CAPTION>
SEPTEMBER 25, SEPTEMBER 26,
1998 1997
--------------- ---------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net earnings for basic and diluted earnings per share ...... $13,884 $ 6,469
--------------- ---------------
--------------- ---------------
Shares of common stock and common stock equivalents:
Average number of common shares ...................... 18,420 18,144
--------------- ---------------
Average shares used in basic computation ............. 18,420 18,144
Effect of dilutive securities - options .............. 814 960
--------------- ---------------
Average shares used in diluted ....................... 19,234 19,104
--------------- ---------------
--------------- ---------------
Earnings per share:
Basic ................................................ $ 0.75 $ 0.36
--------------- ---------------
--------------- ---------------
Diluted .............................................. $ 0.72 $ 0.34
--------------- ---------------
--------------- ---------------
</TABLE>
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues and expenses and the
disclosure of contingent assets, liabilities, revenues and expenses to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's amounts to
conform to the current year's presentation.
JEFFERIES GROUP AND THE COMPANY ANNOUNCE INTENTION TO CONSIDER SEPARATING INTO
TWO INDEPENDENT COMPANIES
On March 17, 1998, Jefferies Group and the Company jointly announced
that they are considering the separation of Jefferies & Co. and other Jefferies
Group subsidiaries ("JEFCO") from the Company through a spin-off.
If the separation is completed, Jefferies Group shareholders will own
100% of JEFCO and approximately 81.4% of the Company. The public Company
shareholders will continue to own 18.6% of the Company. (The Company percentage
ownership interests could change slightly as a result of the Company's stock
repurchases or issuances before the transaction closing date.) The spin-off will
be accomplished by a tax-free distribution of 100% of the shares of a new
company, JEFCO, to Jefferies Group shareholders. Jefferies Group's 15 million
shares of the Company would then be its only asset. The spin-off would be
followed immediately by a tax-free merger of Jefferies Group and the Company,
with the Company's public shareholders receiving shares of Jefferies Group.
Jefferies Group would then be renamed Investment Technology Group, Inc.
The spin-off and restructuring transactions are contingent on a number
of factors, including receipt of all Board of Directors and shareholder
approvals of Jefferies Group and the Company, receipt of a favorable tax ruling
from the Internal Revenue Service and other required regulatory and contractual
approvals. Current plans call for effecting the spin-off in late January 1999
assuming these contingencies are satisfied.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 12 of 20
<PAGE>
DIVIDENDS
Any future payments of dividends will be at the discretion of the Company's
Board of Directors and will depend on the Company's financial condition, results
of operations, capital requirements and other factors deemed relevant. The
Company is contemplating a special dividend in conjunction with the proposed
spin-off.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIRST NINE MONTHS 1998 VERSUS FIRST NINE MONTHS 1997 (Dollars in millions,
except as noted)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Revenues......................................... $150.0 $100.8 $49.2 49%
Number of Trading Days........................... 185 187 (2) (1%)
Revenues per Trading Day (Dollars in thousands).. $ 811 $ 539 $ 272 50%
</TABLE>
Total revenues for the nine months ended September 25, 1998 ("First Nine
Months 1998"), increased by 49% to $150.0 million over the same period for
the nine months ended September 26, 1997, ("First Nine Months 1997"). The
Electronic Trading Desk continued its strong revenue growth, posting a 59% or
$12.8 million increase over First Nine Months 1997. The POSIT system crossed
approximately 4.3 billion shares in the First Nine Months 1998 versus 2.7
billion shares in the First Nine Months 1997, an increase of 59%. POSIT
revenues in turn increased in the First Nine Months 1998 by 54% or $30.0
million over the First Nine Months 1997. QuantEX2 revenues were up 31% or
$6.9 million over the First Nine Months 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Compensation and employee benefits expense........ $37.0 $21.5 $15.5 72%
Number of employees at period end................. 241 198 43 22%
Revenues per employee (Dollars in thousands)...... $ 622 $ 509 $ 113 22%
Compensation and employee benefits expense per
employee (Dollars in thousands).............. $ 154 $ 109 $ 45 41%
</TABLE>
The Company's salaries, bonuses and related employee benefits increased
approximately $12.7 million over the First Nine Months 1997. The increase is
primarily attributable to the overall headcount increase of 43 employees of
which more than 50% represented increases in technology, product development
and production infrastructure staffing. Further increases resulted from the
Company's profitability based compensation plan and increases in compensation
to attract and retain quality personnel. In addition, the Company's Board of
Directors voted to accelerate the vesting of the options of its recently
deceased Chief Executive Officer, Scott P. Mason, resulting in a $2.8 million
charge to compensation expense.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ --------- ------
<S> <C> <C> <C> <C>
Transaction processing expense.................. $19.3 $15.7 $3.6 23%
Transaction processing expense as a percentage
of revenues................................ 12.9% 15.6% (2.7pts.) (17%)
</TABLE>
The increase is primarily due to the ticket charges associated with a higher
volume of transactions in First Nine Months 1998. The increase in ticket
charges of 26% did not follow a direct linear pattern with the increase in
revenues of 49% due to volume discounts associated with clearing and
execution services. A decrease in mil rates charged by specialists of 30% and
floor broker fees of 14% in the First Nine Months 1998, was offset by the
volume increases in shares executed by specialists and floor brokers of 45%
and 93%, respectfully, resulting in an net increase in transaction processing
expenses.
- -------------------------------------------------------------------------------
2 QuantEX is a registered trademark of the Company.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 13 of 20
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Software royalties expense........................... $11.2 $7.3 $3.9 53%
Software royalties expense as a percentage
of POSIT revenues............................... 13.1% 13.1% - N/A
</TABLE>
Software royalties are a contractually fixed percentage of POSIT revenues.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Occupancy and equipment expense...................... $8.7 $6.4 $2.3 36%
</TABLE>
Additional depreciation, amortization of leasehold improvements and rent expense
related to the expansion and relocation of the Company's corporate headquarters,
combined with increases in headcount, primarily accounted for the increase. The
depreciation expense increases are attributable, more specifically, to the
Company's purchases of additional and technologically advanced equipment and
software.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Consulting expense..................................... $1.4 $1.5 $(0.1) (7%)
</TABLE>
When it is advantageous to do so, the Company outsources certain expertise for
implementation of some tactical projects. During the First Nine Months 1998,
costs were incurred in assisting in a major network conversion. During the First
Nine Months 1997, there were various technological projects being addressed,
which have been completed in 1998, resulting in the reduction.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Telecommunications and data processing
services expense.............................. $6.3 $4.6 $1.7 37%
</TABLE>
The First Nine Months 1998 increase stems from the data feed upgrades for
clients, primarily market data line connections. In addition, increased expenses
relating to a telecommunication network conversion and contingency planning were
incurred in the First Nine Months 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Net gain on long-term investments............. $(1.5) - $(1.5) N/A
</TABLE>
In the First Nine Months 1998 the Company recorded a net gain from long-term
investments. These investments are made to enhance products and enter new
markets worldwide. In August 1998, the Company sold its equity investment in the
LongView Group, Inc. which generated a gross gain of $3.8 million. This was
offset by initial start-up costs in a European joint venture of $1.3 million
and, the combined costs of equity loss pick-up and amortization of goodwill on
ITG-Australia and the LongView Group, Inc, of $0.2 million and $0.8 million,
respectfully.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 14 of 20
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Spin-off costs................................. $1.1 - $1.1 N/A
</TABLE>
The increase is attributable to the Company's legal, accounting, consulting and
other expenses incurred for the proposed spin-off, as discussed in the Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Other general and administrative expense ......... $9.1 $7.2 $1.9 26%
</TABLE>
The Company recorded a 100% reserve for a net receivable owed to the Company
from joint venture activities of approximately $1 million. Further
contributing to the increase were accelerated software amortization for
specific products, which was reserved for during the First Nine Months 1998.
Additionally, increases in business development costs, such as advertising
and active sales efforts to promote ITG products and increase the ITG client
base, and additional administrative costs, associated with ITG-Europe, were
also responsible for the overall increase.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------- %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Income tax expense..................................... $26.3 $15.6 $10.7 69%
</TABLE>
The increase is primarily due to the increase in pretax earnings. The effective
tax rate increased from 42.6% in the First Nine Months 1997 to 45.7% in the
First Nine Months 1998. The increased rate was due to certain non-deductible
expenses, such as goodwill amortization and spin-off costs and the inability to
offset international losses with United States profits in calculating income tax
expense, that were not present in the First Nine Months 1997.
THIRD QUARTER 1998 VERSUS THIRD QUARTER 1997 (Dollars in millions, except as
noted)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Revenues......................................... $57.7 $33.4 $24.3 73%
Number of Trading Days........................... 63 63 - N/A
Revenues per Trading Day (Dollars in thousands).. $916 $531 $385 73%
</TABLE>
POSIT posted strong revenue growth, a $16.3 million or 92% increase for the
three months ended September 25, 1998 ("Third Quarter 1998") above the
comparable three months ended September 26, 1997 ("Third Quarter 1997"). During
Third Quarter 1998, POSIT crossed a record breaking average of 26.9 million
shares per day. Increases in the Company's Electronic Trading Desk revenues of
$5.1 million or 67% and client QuantEX revenues of $3.9 million or 49%, above
the Third Quarter 1997, can be attributed to the Company's ability to connect to
most of the major liquidity sources, such as exchanges, market makers, and ATSs
("Alternative Trading Systems"), including POSIT.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 15 of 20
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Compensation and employee benefits expense........ $14.2 $7.6 $6.6 87%
Number of employees at period end................. 241 198 43 22%
Revenues per employee (Dollars in thousands)...... $ 239 $169 $ 70 41%
Compensation and employee benefits expense per
employee (Dollars in thousands).............. $59 $ 38 $ 21 55%
</TABLE>
The Company's salaries, bonuses and related employee benefits increased
approximately $3.8 million over the Third Quarter 1997. The increase is
primarily attributable to the overall headcount increase of 43 employees of
which more than 50% represented increases in technology, product development and
production infrastructure staffing. Further increases resulted from the
Company's profitability based compensation plan and increases in compensation to
attract and retain quality personnel. In addition, the Company's Board of
Directors voted to accelerate the vesting of the options of its recently
deceased Chief Executive Officer, Scott P. Mason, resulting in a $2.8 million
charge to compensation expense in the Third Quarter 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ --------- ------
<S> <C> <C> <C> <C>
Transaction processing expense...................... $6.9 $5.1 $1.8 35%
Transaction processing expense as a percentage
of revenues.................................... 12.0% 15.3% (3.3pts.) (22%)
</TABLE>
The increase is primarily due to the ticket charges associated with a higher
volume of transactions in the Third Quarter 1998. The increase in ticket charges
of 25% did not follow a direct linear pattern with the increase in revenues of
73% due to volume discounts associated with clearing and execution services. A
decrease in mil rates charged by specialists of 25% and floor broker fees of 27%
in the Third Quarter 1998, was offset by the volume increases in shares executed
by specialists and floor brokers of 66% and 5%, respectfully, resulting in an
net increase in transaction processing expenses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Software royalties expense..................... $4.4 $2.3 $2.1 91%
Software royalties expense as a percentage
of POSIT revenues......................... 13.1% 13.1% - N/A
</TABLE>
Software royalties are a contractually fixed percentage of POSIT revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Occupancy and equipment expense ..................... $3.1 $2.5 $0.6 24%
</TABLE>
The increase was primarily due to increased depreciation, amortization of
leasehold improvements and equipment purchases related to the increase in the
number of employees and upgrades to existing computer hardware and software, as
well as, for Year 2000 related issues.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 16 of 20
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Consulting expense................................. $0.4 $0.6 ($0.2) (33%)
</TABLE>
When it is advantageous to do so, the Company outsources certain expertise for
implementation of some tactical projects. During the Third Quarter 1998, costs
were incurred in exploring joint venture opportunities and assisting in a major
network conversion.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Telecommunications and data processing services
expense........................................ $2.2 $1.5 $0.7 47%
</TABLE>
The Third Quarter 1998 increase stems from the data feed upgrades for clients,
primarily market data line connections. In addition, increased expenses relating
to a telecommunication network conversion and contingency planning were incurred
in the Third Quarter 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Net gain on long-term investments.................... $(3.6) - $(3.6) N/A
</TABLE>
In the Third Quarter 1998 the Company recorded a net gain from long-term
investments. In August 1998, the Company sold its equity investment in the
LongView Group, Inc. which generated a gross gain of $3.8 million. This was
offset by initial start-up costs in a European joint venture of approximately
$81,000 and the combined costs of equity loss pick-up and amortization of
goodwill on ITG-Australia and the LongView Group, Inc, of approximately $31,000
and $9,000, respectfully.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Spin-off costs................................. $0.5 - $0.5 N/A
</TABLE>
The increase is attributable to Company's legal, accounting, consulting and
other expenses incurred for the proposed spin-off, as discussed in the Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Other general and administrative expense .............. $4.0 $2.5 $1.5 60%
</TABLE>
In Third Quarter 1998, the Company recorded a 100% reserve for a net receivable
owed to the Company from joint venture activities of approximately $1 million.
The other major factor contributing to the increase was the additional software
amortization for specific products, which were currently brought into the market
place during the Third Quarter 1998.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 17 of 20
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ %
SEPTEMBER 25, 1998 SEPTEMBER 26, 1997 CHANGE CHANGE
------------------ ------------------ ------ ------
<S> <C> <C> <C> <C>
Income tax expense.............................. $11.8 $4.9 $6.9 141%
</TABLE>
The increase is primarily due to the increase in pretax earnings. The effective
tax rate increased from 42.9% in the Third Quarter 1997 to 46.0% in the Third
Quarter 1998. Also responsible for the increase were due to certain
non-deductible expenses, such as goodwill amortization and spin-off costs and
the inability to offset international losses with United States profits in
calculating income tax expense, that were not present in the Third Quarter 1997.
THE YEAR 2000 ISSUE
OVERVIEW
Some computer systems and software products were originally designed to
accept only two digit entries in the data code field. As a result, certain
computer systems and software packages will not be able to interpret dates
beyond December 31, 1999 and thus will interpret dates beginning January 1, 2000
incorrectly. This could potentially result in computer failure or
miscalculations, causing operating disruptions, including an inability to
process transactions, send invoices or engage in normal business operations.
Therefore, companies may have to upgrade or replace computer and software
systems in order to comply with the "Year 2000" requirements.
ITG'S STRATEGY
The Company is well aware of and is actively addressing the Year 2000
issue and the potential problems that can arise in any computer and software
system. Planning and evaluation work began in 1997 including the identification
of those systems affected. A "Year 2000 working group" was established to
address the Company's Year 2000 issue. The Company has targeted its efforts into
three major areas:
i) VENDORS;
ii) COMPANY PROPRIETARY PRODUCTS; AND
iii) CLIENTS.
VENDORS - The Company's ability to successfully meet the Year 2000 challenge is
in part dependent on its vendors. The Company has contacted its vendors to
determine the status of their Year 2000 programs and has created a database
recording each vendor's readiness status. The Company is in the process of
integrating Year 2000 compliant versions of its vendors' software and hardware
with the Company's proprietary products.
COMPANY PROPRIETARY PRODUCTS - The Company has evaluated its trading systems and
has endeavored to examine all code contained in its internally produced
software. Remediation and internal testing of all mission critical systems is
scheduled to be completed by the end of 1998. The Company plans to release Year
2000 compliant versions of its products by the beginning of 1999. The Company
also intends to participate in the Securities Industry Association's
industry-wide testing program in 1999.
CLIENTS - A letter explaining the Company's Year 2000 strategy was sent to all
clients in July of 1998. In addition, clients have been contacted on a project
by project basis to ascertain compatibility between the Company's systems and
changes made to the clients' systems. In 1999, the Company plans to provide
point-to-point-testing opportunities for its clients.
The Company is in the early stages of establishing a contingency plan
to deal with both internal and external failures of critical systems. The
contingency plan is intended to address failures of internal systems, client
connections,
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 18 of 20
<PAGE>
connections to trading destinations, as well as failures of major
infrastructure components. The Company intends to have its contingency plan in
place by July of 1999 and to update and refine such plan as needed throughout
the remainder of 1999.
RISKS
The Company currently expects to implement the necessary changes to ensure
that its internal operations are Year 2000 compliant prior to December 31, 1999.
However, if such changes are not completed in a timely manner, the Year 2000
issue could have a material impact on the Company's operations. The Company does
not believe that the costs incurred to ready its systems for the Year 2000 will
have a material effect on its financial condition. Total costs for the whole
project are estimated to be between $2.5 and $3.0 million, which includes the
cost of personnel, consultants and software and hardware costs. To date, the
Company has spent approximately $1,170,000 on the Year 2000 project.
The Year 2000 issue, however, can affect all businesses that rely heavily
on automated systems. A general failure of computer and communication systems
relied upon by the securities industry (such as the systems provided by long
distance telephone companies, the exchanges, Nasdaq, the Depository Trust
Company and ADP Brokerage Services) would prevent the Company from operating in
whole or in part until such systems have been restored. In such case or if the
Year 2000 issue adversely affects the Company's customers, this in turn could
have a material adverse effect on the Company's trading revenues and
collections. Should the Company, third party information vendors, other third
party electronic vendors, or the Company's customers fail to adequately address
this issue, the Company's business, financial condition and results of
operations could be materially adversely affected.
PART II. - OTHER INFORMATION
Item 5. Other Information
On September 22, 1998, the Company's Board of Directors unanimously elected
Raymond L. Killian, Jr., Chairman of the Company, to the additional posts of
President and Chief Executive Officer. Mr. Killian, 61, succeeds Scott P. Mason
in these posts, who died of cancer in early September.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
On November 6, 1998, the Company filed a Form 8-K reporting
updated financial information regarding the previously announced
plan by Jefferies Group, Inc. ("Group") and the Company to
separate Group's 100% owned subsidiary, Jefferies & Company, Inc.
and Group's 81.4% owned subsidiary, the Company, through a
proposed spin-off and related transactions.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 19 of 20
<PAGE>
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 6, 1998 By: /s/ John R. MacDonald
------------------- ----------------------
John R. MacDonald
Chief Financial Officer and
Duly Authorized Signatory of Registrant
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 20 of 20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE IS SUMMARY FINANCIAL INFORMATION FROM THE CONSOLIDATED STATEMENT
OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS OF
9/25/98 AND FOR THE 9 MONTHS THEN ENDED AND THE NOTES THERETO AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FILED IN THE 1998
INVESTMENT TECHNOLOGY GROUP, INC. 3RD QTR 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-25-1998
<CASH> 97,702
<RECEIVABLES> 17,630
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 11,580
<PP&E> 19,270
<TOTAL-ASSETS> 166,652
<SHORT-TERM> 0
<PAYABLES> 35,666
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 192
<OTHER-SE> 127,173
<TOTAL-LIABILITY-AND-EQUITY> 166,652
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 2,411
<COMMISSIONS> 147,578
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 8
<COMPENSATION> 36,962
<INCOME-PRETAX> 57,448
<INCOME-PRE-EXTRAORDINARY> 57,448
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,174
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.63
</TABLE>
