Investment Technology Group Reports First Quarter 2011 Results

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

Three Months Ended

March 31,

2011

2010

Revenues:

Commissions and fees

$

118,676

$

121,918

Recurring

27,221

21,971

Other

4,181

2,801

Total revenues

150,078

146,690

Expenses:

Compensation and employee benefits

57,478

53,464

Transaction processing

23,026

20,659

Occupancy and equipment

14,942

15,197

Telecommunications and data processing services

15,071

13,635

Other general and administrative

22,160

28,070

Interest expense

270

224

Total expenses

132,947

131,249

Income before income tax expense

17,131

15,441

Income tax expense

7,582

7,009

Net income

$

9,549

$

8,432

Earnings per share:

Basic

$

0.23

$

0.19

Diluted

$

0.23

$

0.19

Basic weighted average number of common shares outstanding

41,435

43,827

Diluted weighted average number of common shares outstanding

42,180

44,415

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except share amounts)

March 31,

2011

December 31,

2010

(unaudited)

Assets

Cash and cash equivalents

$

267,012

$

317,010

Cash restricted or segregated under regulations and other

68,905

68,965

Deposits with clearing organizations

17,389

14,235

Securities owned, at fair value

7,738

25,789

Receivables from brokers, dealers and clearing organizations

1,556,288

865,251

Receivables from customers

705,847

606,256

Premises and equipment, net

35,815

34,790

Capitalized software, net

63,049

62,507

Goodwill

468,610

468,479

Other intangibles, net

35,831

36,784

Income taxes receivable

6,667

5,561

Deferred taxes

2,252

4,902

Other assets

25,136

20,324

Total assets

$

3,260,539

$

2,530,853

Liabilities and Stockholders' Equity

Liabilities:

Accounts payable and accrued expenses

$

146,979

$

195,109

Short-term bank loans

34,207

—

Payables to brokers, dealers and clearing organizations

1,521,040

1,139,958

Payables to customers

645,592

272,027

Securities sold, not yet purchased, at fair value

2,952

19,362

Income taxes payable

8,152

16,215

Deferred taxes

30,218

18,114

Total liabilities

2,389,140

1,660,785

Commitments and contingencies

Stockholders' Equity:

Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding

—

—

Common stock, $0.01 par value; 100,000,000 shares authorized; 51,835,395 and 51,790,608 shares issued at March 31, 2011 and December 31, 2010, respectively

518

518

Additional paid-in capital

233,723

246,085

Retained earnings

842,682

833,133

Common stock held in treasury, at cost; 10,587,882 and 10,524,757 shares at March 31, 2011 and December 31, 2010, respectively

(219,276)

(220,161)

Accumulated other comprehensive income (net of tax)

13,752

10,493

Total stockholders' equity

871,399

870,068

Total liabilities and stockholders' equity

$

3,260,539

$

2,530,853

INVESTMENT TECHNOLOGY GROUP, INC.

Reconciliation of U.S. GAAP Results to Adjusted Results

In evaluating ITG's financial performance, management reviews results from operations which excludes non-operating or one-time charges.  Adjusted net income, adjusted earnings per share and adjusted expenses are non-GAAP (generally accepted accounting principles) performance measures, but the Company believes that they are useful to assist investors in gaining an understanding of the trends and operating results for ITG's core businesses. Adjusted net income, adjusted earnings per share and adjusted expenses should be viewed in addition to, and not in lieu of, ITG's reported results under U.S. GAAP.

The following tables present a reconciliation of U.S. GAAP results to adjusted results for the periods presented (in thousands except per share amounts):

Consolidated

Three Months Ended

March 31,

December  31,

2011

2010

2010

(unaudited)

(unaudited)

(unaudited)

Total revenues

$ 150,078

$ 146,690

$ 138,346

Total expenses

132,947

131,249

135,198

  Less:

  Acquisition related costs (1)

—

—

(2,409)

  Software write-off (2)

—

(6,091)

—

  Restructuring charges (3)

—

—

(1,812)

Adjusted expenses

132,947

125,158

130,977

Income before income tax expense

17,131

15,441

3,148

 Effect of adjustments

—

6,091

4,221

Adjusted pre-tax operating income

17,131

21,532

7,369

Income tax expense

7,582

7,009

1,318

  Tax effect of adjustments

—

2,589

1,318

Adjusted income tax expense

7,582

9,598

2,636

Net income

9,549

8,432

1,830

   Net effect of adjustments

—

3,502

2,903

Adjusted net income

$ 9,549

$ 11,934

$ 4,733

Diluted earnings per share

$ 0.23

$ 0.19

$ 0.04

 Net effect of adjustments

—

0.08

0.07

Adjusted diluted earnings per share

$ 0.23

$ 0.27

$ 0.11

Notes:

(1) During the fourth quarter of 2010, ITG acquired Majestic Research Corp. ("Majestic"), a privately-held, independent provider of data-driven equity research for the institutional investment community.  In connection with the acquisition, ITG incurred approximately $2.4 million of acquisition related costs, including legal fees and other professional fees, accelerated employee equity awards and severance costs.

(2) As part of the fourth quarter 2009 restructuring, ITG made certain changes to its product priorities and wrote off $2.4 million of capitalized development initiatives that were not yet deployed. As ITG's product development plan continued to evolve in the first quarter of 2010, it was determined that additional amounts capitalized in 2009 were not likely to be used and a further $6.1 million write-off was recorded.

(3) During the fourth quarter of 2010, in connection with the integration of Majestic, ITG decided to close its Westchester, NY office and relocate the staff, primarily sales traders and support, to the midtown Manhattan office and incurred a one-time charge of $2.3 million, as reflected in restructuring charges.  This charge was partially offset by a gain of $0.4 million in restructuring charges related to historical foreign exchange translation gains following the substantial liquidation of our Japanese subsidiary.

U.S. Region

Three Months Ended March 31,

2011

2010

(unaudited)

(unaudited)

Total revenues

$

100,511

$

99,908

Total expenses

86,961

86,695

  Less:

  Software write-off (1)

—

(6,091)

Adjusted expenses

86,961

80,604

Income before income tax expense

13,550

13,213

 Effect of adjustment

—

6,091

Adjusted pre-tax operating income

13,550

19,304

Income tax expense

5,763

5,406

  Tax effect of adjustment

—

2,589

Adjusted income tax expense

5,763

7,995

Net income

7,787

7,807

   Net effect of adjustment

—

3,502

Adjusted net income

$

7,787

$

11,309

Diluted earnings per share

$

0.19

$

0.17

 Net effect of adjustment

—

0.08

Adjusted diluted earnings per share

$

0.19

$

0.25

Notes:

(1) As part of the fourth quarter 2009 restructuring, ITG made certain changes to its product priorities and wrote off $2.4 million of capitalized development initiatives that were not yet deployed. As ITG's product development plan continued to evolve in the first quarter of 2010, it was determined that additional amounts capitalized in 2009 were not likely to be used and a further $6.1 million write-off was recorded.