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Investment Technology Group Reports Second Quarter 2011 Results


GAAP Results Include Previously Announced Charges for Goodwill Impairment, Restructuring and Acquisition Costs
International Profitability Improves Over Prior Year

NEW YORK, Aug. 4, 2011 /PRNewswire via COMTEX/ -- Investment Technology Group, Inc. (NYSE: ITG), a leading agency research broker and financial technology firm, today reported results for the quarter ended June 30, 2011.

Second quarter 2011 highlights included:

  • A GAAP net loss of $196.1 million, or $4.77 per diluted share compared to GAAP net income of $7.5 million, or $0.17 per diluted share in the second quarter of 2010. The GAAP net loss for the second quarter of 2011 included (i) a non-cash goodwill impairment charge attributable to ITG's U.S. business of $225.0 million, or $4.61 per diluted share after taxes; (ii) a restructuring charge associated with a cost reduction plan of $17.7 million, or $0.27 per diluted share after taxes; and (iii) costs related to the acquisition of the Ross Smith Energy Group (RSEG) of $2.5 million, or $0.04 per diluted share after taxes. GAAP net income for the second quarter of 2010 included (i) restructuring charges primarily associated with the closing of ITG's on-shore Japanese operations of $2.3 million, or $0.06 per diluted share after taxes; and (ii) a non-cash goodwill impairment charge attributable to ITG's Australian operations of $5.4 million, or $0.12 per diluted share after taxes.
  • Adjusted net income of $5.8 million, or $0.14 per diluted share, compared to adjusted net income of $15.3 million, or $0.35 per diluted share in the second quarter of 2010.
  • Revenues of $142.6 million, compared to $155.3 million in the second quarter of 2010.
  • Expenses of $377.2 million compared to expenses of $136.0 million in the second quarter of 2010.
  • Adjusted expenses of $132.0 million compared to adjusted expenses of $128.2 million in the second quarter of 2010. Second quarter 2011 adjusted expenses included $8.1 million of costs from ITG Investment Research (including post-acquisition operating expenses for RSEG) and an increase from the second quarter of 2010 of $3.4 million from foreign currency translations.
  • Average daily trading volume in the U.S. of 191 million shares, down 4% from the second quarter of 2010. POSIT average daily U.S. volume was 82.7 million shares, up 20% from the second quarter of 2010.
  • The expansion of ITG's data-driven research platform with the acquisition of RSEG, a Calgary-based independent provider of research on the oil and gas industry for more than 200 clients in North America and Europe.
  • The repurchase of 340,000 shares of common stock under the Company's authorized share repurchase program for a total of $5.2 million.

ITG's U.S. revenues were $93.9 million in the second quarter of 2011, compared to U.S. revenues of $108.1 million in the second quarter of 2010. ITG's U.S. operations incurred a GAAP net loss of $196.3 million and generated adjusted net income of $3.7 million in the second quarter of 2011, compared to GAAP net income of $14.3 million in the second quarter of 2010. There were no adjustments to GAAP net income in the U.S. during the second quarter of 2010.

ITG's International revenues were $48.7 million in the second quarter of 2011, compared to $47.2 million in the second quarter of 2010. ITG's International operations generated GAAP net income of $0.1 million and adjusted net income of $2.2 million in the second quarter of 2011, compared to a GAAP net loss of $6.8 million and adjusted net income of $1.1 million in the second quarter of 2010.

As previously announced on July 12, 2011, ITG initiated a cost reduction plan to improve margins and enhance stockholder returns primarily focused on employment, consulting, and infrastructure costs in the U.S. and Europe. This plan is expected to generate pre-tax cost savings in 2012 of more than $20 million, or approximately $0.30 per diluted share after taxes. The cost savings will begin to take effect during the third quarter of 2011.

"Record revenues and a narrowing loss in the Asia Pacific region helped drive improvement in our international operations," said Bob Gasser, ITG's Chief Executive Officer and President. "With the lack of institutional trading activity negatively impacting our overall results, we are taking the necessary steps to position the firm for future growth by lowering the cost base of our core execution platform while we continue to build out our research offering."

Year-to-Date Results

For the six months ended June 30, 2011, revenues were $292.7 million, GAAP net loss was $186.6 million, or $4.52 per diluted share, and adjusted net income was $15.4 million, or $0.37 per diluted share. For the first six months of 2010, revenues were $302.0 million, GAAP net income was $15.9 million, or $0.36 per diluted share, and adjusted net income was $27.2 million, or $0.62 per diluted share.

The discussion above includes adjusted expenses and adjusted net income and related per share amounts, which are non-GAAP financial measures that are described in the attached tables along with a reconciliation of these non-GAAP financial measures.

Conference Call

ITG has scheduled a conference call today at 11:00 a.m. ET to discuss second quarter results. Those wishing to listen to the call should dial 1-866-831-6162 (1-617-213-8852outside the US) and enter the passcode 57736819 at least 10 minutes prior to the start of the call to ensure connection. The webcast and accompanying slideshow presentation can be downloaded from ITG's web site at http://www.itg.com/. For those unable to listen to the live broadcast of the call, a replay will be available for one week by dialing 888-286-8010 (1-617-801-6888 outside the US) and entering the passcode 88829104. The replay will be available starting approximately two hours after the completion of the conference call.

About ITG

Investment Technology Group, Inc. is an independent agency research broker that partners with asset managers globally to improve performance throughout the investment process. A leader in electronic trading since launching the POSIT® crossing network in 1987, ITG takes a consultative approach in delivering the highest quality institutional liquidity, execution services, analytical tools, and proprietary research insights grounded in data. Asset managers rely on ITG's independence, experience, and intellectual capital to help mitigate risk, improve performance, and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe, and the Asia Pacific region. For more information on ITG, please visit http://www.itg.com/.

In addition to historical information, this press release may contain "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 ITG's 2010 Annual Report on Form 10-K, and its Form 10-Qs and include, but are not limited to, the actions of both current and potential new competitors, fluctuations in market trading volumes, financial market volatility, changes in commission pricing, potential impairment charges related to goodwill and other long-lived assets, evolving industry regulations, errors or malfunctions in ITG's systems or technology, rapid changes in technology, cash flows into or redemptions from equity funds, effects of inflation, ability to meet liquidity requirements related to the clearing of customers' trades, customer trading patterns, the success of ITG's products and service offerings, ITG's ability to continue to innovate and meet the demands of customers for new or enhanced products, ITG's ability to successfully integrate acquired companies, changes in tax policy or accounting rules, fluctuations in foreign exchange rates, adverse changes or volatility in interest rates, ITG's ability to attract and retain talented employees, general economic, business, credit and financial market conditions, internationally or nationally, as well as ITG's ability to achieve cost savings from its cost reduction plan. The forward-looking statements included herein represent ITG's views as of the date of this release. ITG undertakes no obligation to revise or update publicly any forward-looking statement for any reason unless required by law.

ITG Media/Investor Contact: J.T. Farley (212) 444-6259 corpcomm@itg.com

INVESTMENT TECHNOLOGY GROUP, INC.Consolidated Statements of Operations (unaudited)(In thousands, except per share amounts)


Three Months Ended
Six Months Ended


2011
2010
2011
2010
Revenues:








Commissions and fees
$ 111,850
$ 130,500
$ 230,526
$ 252,418
Recurring
26,514
22,761
53,735
44,732
Other
4,253
2,061
8,434
4,862
Total revenues
142,617
155,322
292,695
302,012










Expenses:








Compensation and employee benefits
55,679
54,587
113,157
108,051
Transaction processing
23,104
23,581
46,130
44,240
Occupancy and equipment
15,063
14,969
30,005
30,166
Telecommunications and data processing services
14,870
12,971
29,941
26,606
Other general and administrative
22,762
21,928
44,922
50,085
Goodwill impairment
225,035
5,375
225,035
5,375
Restructuring charges
17,678
2,337
17,678
2,250
Acquisition related costs
2,523
--
2,523
--
Interest expense
494
206
764
430
Total expenses
377,208
135,954
510,155
267,203
(Loss) income before income tax (benefit) expense
(234,591)
19,368
(217,460)
34,809
Income tax (benefit) expense
(38,448)
11,860
(30,866)
18,869
Net (loss) income
$ (196,143)
$ 7,508
$ (186,594)
$ 15,940










(Loss) earnings per share:








Basic
$ (4.77)
$ 0.17
$ (4.52)
$ 0.37
Diluted
$ (4.77)
$ 0.17
$ (4.52)
$ 0.36










Basic weighted average number of common shares outstanding
41,112
43,226
41,272
43,525
Diluted weighted average number of common shares outstanding
41,112
43,704
41,272
44,129

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIESConsolidated Statements of Financial Condition(In thousands, except share amounts)


June 30,
December 31,


(unaudited)


Assets




Cash and cash equivalents
$ 268,832
$ 317,010
Cash restricted or segregated under regulations and other
68,495
68,965
Deposits with clearing organizations
19,567
14,235
Securities owned, at fair value
8,481
25,789
Receivables from brokers, dealers and clearing organizations
1,834,343
865,251
Receivables from customers
1,140,878
606,256
Premises and equipment, net
36,977
34,790
Capitalized software, net
63,264
62,507
Goodwill
274,289
468,479
Other intangibles, net
41,770
36,784
Income taxes receivable
7,583
5,561
Deferred taxes
12,795
4,902
Other assets
25,307
20,324
Total assets
$ 3,802,581
$ 2,530,853






Liabilities and Stockholders' Equity




Liabilities:




Accounts payable and accrued expenses
$ 176,874
$ 195,109
Short-term bank loan

19,874

--
Payables to brokers, dealers and clearing organizations
1,407,236
1,139,958
Payables to customers
1,478,360
272,027
Securities sold, not yet purchased, at fair value
3,305
19,362
Income taxes payable
12,350
16,215
Deferred taxes
356
18,114
Term loan
25,469
--
Total liabilities
3,123,824
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 June 30, 2011 and December 31, 2010, respectively
518
518
Additional paid-in capital
240,860
246,085
Retained earnings
646,539
833,133
Common stock held in treasury, at cost; 10,892,939 and 10,524,757 shares at June 30, 2011 and December 31, 2010, respectively
(223,709)
(220,161)
Accumulated other comprehensive income (net of tax)
14,549
10,493
Total stockholders' equity
678,757
870,068
Total liabilities and stockholders' equity
$ 3,802,581
$ 2,530,853

INVESTMENT TECHNOLOGY GROUP, INC.Reconciliation of
In evaluating ITG's financial performance, management reviews results from operations which excludes non-operating or one-time charges. Adjusted expenses and adjusted net income and related per share amounts 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 the Company's core businesses. These measures should be viewed in addition to, and not in lieu of, the Company's reported results under GAAP.
The following is a reconciliation of GAAP results to adjusted results for the periods presented (in thousands except per share amounts):

Three Months Ended June 30,
Six Months Ended June 30,

2011 2010
20011 2010

(unaudited) (unaudited)
(unaudited) (unaudited)
Total revenues $ 142,617 $ 155,322
$ 292,695 $ 302,012






Total expenses 377,208 135,954
510,155 267,203
Less:




Goodwill impairment (1)(2) (225,035) (5,375)
(225,035) (5,375)
Acquisition related costs (3) (2,523) --
(2,523) --
Software Write-Off (4) -- --
-- (6,091)
Restructuring charges (5)(6) (17,678) (2,337)
(17,678) (2,250)
Adjusted expenses 131,972 128,242
264,919 253,487






(Loss) income before income tax (benefit) expense (234,591) 19,368
(217,460) 34,809
Effect of adjustments 245,236 7,712
245,236 13,716
Adjusted pre-tax income 10,645 27,080
27,776 48,525






Income tax (benefit) expense (38,448) 11,860
(30,866) 18,869
Tax effect of adjustments 43,260 (72)
43,260 2,482
Adjusted income tax expense 4,812 11,788
12,394 21,351






Net (loss) income (196,143) 7,508
(186,594) 15,940
Net effect of adjustments 201,976 7,784
201,976 11,234
Adjusted net income $ 5,833 $ 15,292
$ 15,382 $ 27,174






Diluted (loss) earnings per share $ (4.77) $ 0.17
$ (4.52) $ 0.36
Net effect of adjustments 4.91 0.18
4.89 0.26
Adjusted diluted earnings per share $ 0.14 $ 0.35
$ 0.37 $ 0.62



U.S.
International

Three Months
Three Months Three Months 2010

(unaudited)
(unaudited) (unaudited)
Total revenues $ 93,893
$ 48,724 $ 47,233





Total expenses 330,143
47,065 52,038
Less:



Goodwill impairment (1)(2) (225,035)
-- (5,375)
Acquisition related costs (3) (2,523)
-- --
Restructuring charges (5)(6) (15,444)
(2,234) (2,502)
Adjusted expenses 87,141
44,831 44,161





(Loss) income before income tax (benefit) expense (236,250)
1,659 (4,805)
Effect of adjustments 243,002
2,234 7,877
Adjusted pre-tax income 6,752
3,893 3,072





Income tax (benefit) expense (39,966)
1,518 2,013
Tax effect of adjustments 43,041
219 (6)
Adjusted income tax expense 3,075
1,737 2,007





Net (loss) income (196,284)
141 (6,818)
Net effect of adjustments 199,961
2,015 7,883
Adjusted net income $ 3,677
$ 2,156 $ 1,065





Diluted (loss) earnings per share $ (4.77)
$ -- $ (0.16)
Net effect of adjustments 4.86
0.05 0.18
Adjusted diluted earnings per share $ 0.09
$ 0.05 $ 0.02


Notes:

(1) In the second quarter of 2011, goodwill with a carrying value of $470.1 million relating to ITG's U.S. operations was deemed impaired and its fair value was determined to be $245.1 million, resulting in an impairment charge of $225.0 million.(2) In 2010, goodwill with a carrying value of $5.4 million in the Asia Pacific operating segment relating to ITG's Australian operations was deemed impaired and its fair value was determined to be zero, resulting in an impairment charge of $5.4 million.(3) During the second quarter of 2011, ITG acquired Ross Smith Energy Group Ltd, a Calgary-based independent provider of research on the oil and gas industry. In connection with the acquisition, ITG incurred approximately $2.5 million of acquisition related costs, including legal and other professional fees and contract termination costs.(4) As part of the fourth quarter 2009 restructuring, ITG made certain(5) In the second quarter of 2011, ITG established a plan to improve margins and enhance stockholder returns primarily focused on reducing workforce, consulting and infrastructure costs in the U.S. and Europe. The cost reduction plan resulted in a restructuring charge of $17.7 million, consisting of employee separation and related costs ($17.4 million) and lease consolidation costs ($0.3 million). (6) During the fourth quarter 2010, in connection with the integration of Majestic Research Corp., ITG closed its Westchester, NY office and relocated the staff, primarily sales traders and support, to its midtown Manhattan office and incurred a restructuring charge of $2.3 million.

SOURCE Investment Technology Group, Inc.

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