INVESTMENT TECHNOLOGY GROUP INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	for the fiscal period ended September 30, 2004

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	for the transition period from to

Commission File Number 0-23644

INVESTMENT TECHNOLOGY GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE		95 – 2848406
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer 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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2)

Yes ý No o

As of October 22, 2004, the Registrant had 41,922,920 shares of common stock, $0.01 par value, outstanding.

FORWARD-LOOKING STATEMENTS

In addition to the historical information contained throughout this Quarterly Report on Form 10-Q, there are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements regarding our expected future financial condition, results of operations, cash flows, dividends, financing plans, business strategies, competitive positions, plans and objectives of management for future operations, and concerning securities markets and economic trends are forward-looking statements. Although we believe our expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements herein include, among others, the actions of both current and potential new competitors, rapid changes in technology, fluctuations in market trading volumes, financial market volatility, evolving industry regulations, risk of errors or malfunctions in our systems or technology, cash flows into or redemptions from equity funds, effects of inflation, customer trading patterns, the success of our new products and services offerings as well as general economic and business conditions, internationally or nationally, securities, credit and financial market conditions, and adverse changes or volatility in interest rates. Certain of these factors, and other factors, are more fully discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations - Issues and Uncertainties - in our annual report on Form 10-K for the year ended December 31, 2003, which you are encouraged to read. Our 2003 Annual Report to Shareholders and Form 10-K are also available through our website at http:/ /www.itginc.com/investor.

PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements

INVESTMENT TECHNOLOGY GROUP, INC.

Condensed Consolidated Statements of Financial Condition

(In thousands, except share amounts)

	September 30, 2004			December 31, 2003
	(unaudited)
Assets
Cash and cash equivalents	$	200,928		$	239,013
Cash restricted or segregated	12,362			11,892
Securities owned, at fair value	72,027			24,174
Receivables from brokers, dealers and other, net	614,694			219,860
Investments in limited partnerships	20,069			19,529
Premises and equipment, net	22,479			25,088
Capitalized software, net	8,152			6,575
Goodwill	87,354			77,143
Other Intangibles	2,829			4,747
Deferred taxes	11,642			12,147
Other assets	12,166			9,680
Total assets	$	1,064,702		$	649,848

Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable and accrued expenses	$	97,200		$	82,554
Payables to brokers, dealers and other	577,531			187,764
Software royalties payable	3,389			4,209
Securities sold, not yet purchased, at fair value	18,112			1,264
Income taxes payable	14,892			12,754
Total liabilities	711,124			288,545

Commitments and contingencies
Stockholders’ Equity:
Preferred stock, par value $0.01; shares authorized: 1,000,000; shares issued: none	—			—
Common stock, par value $0.01; shares authorized: 100,000,000; shares issued: 51,327,388 and 51,262,743 at September 30, 2004 and December 31, 2003, respectively and 41,898,101 and 44,740,279 shares outstanding at September 30, 2004 and December 31, 2003, respectively	513			513
Additional paid-in capital	160,991			157,319
Retained earnings	362,300			333,978
Common stock held in treasury, at cost; shares: 9,429,287 and 6,522,464 at September 30, 2004 and December 31, 2003, respectively	(178,088		)	(138,641		)
Accumulated other comprehensive income:
Currency translation adjustment	7,862			8,134
Total stockholders’ equity	353,578			361,303
Total liabilities and stockholders’ equity	$	1,064,702		$	649,848

See accompanying unaudited notes to condensed consolidated financial statements.

INVESTMENT TECHNOLOGY GROUP, INC.

Condensed Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

	Three Months Ended				Nine Months Ended
	September 30, 2004		September 26, 2003		September 30, 2004		September 26, 2003
Revenues:
Commissions:
POSIT	$	25,639	$	36,557	$	77,221	$	95,620
Electronic Trading Desk	27,271		27,683		80,558		86,806
Client Site Trading Products	26,657		18,830		71,970		57,954

PART I. – Financial Information

Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition: September 30, 2004 (unaudited) and December 31, 2003	4

	Condensed Consolidated Statements of Income (unaudited): Three and Nine Months Ended September 30, 2004 and September 26, 2003	5

	Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited): Nine Months Ended September 30, 2004	6

	Condensed Consolidated Statements of Cash Flows (unaudited): Nine Months Ended September 30, 2004 and September 26, 2003	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	24

Item 4.	Controls and Procedures	24

PART II. - Other Information

Item 1.	Legal Proceedings	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 4.	Submission of Matters to a Vote of Security Holders	26

Item 5.	Other Information	26

Item 6.	Exhibits	26

	Signature	26