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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR
- ------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _________________ TO _________________
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Commission File Number 1-13993
FREEDOM SECURITIES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3335712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Beacon Street
Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 725-2000
Indicate by checkmark 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 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 August 9, 1999 the Company had 19,117,788 shares of common stock
outstanding.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income - Three and six months
ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows - Six months
ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FREEDOM SECURITIES CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED)
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,691 $ 11,292
Receivables from brokers and dealers 68,283 88,674
Securities purchased under agreements to resell 60,370 119,861
Securities owned, at market 277,952 252,478
Fixed assets, net of accumulated depreciation and amortization 21,625 19,479
Goodwill, net of accumulated amortization 37,290 34,875
Exchange memberships owned, at cost 5,955 5,939
Deferred taxes 10,560 10,477
Other receivables 45,810 31,356
Other assets 42,243 31,819
-------- --------
Total assets $574,779 $606,250
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payables to brokers and dealers $ 78,762 $ 85,306
Securities sold under agreements to repurchase 21,884 28,582
Securities sold, not yet purchased, at market 135,459 124,148
Accrued compensation and benefits 51,993 81,099
Accounts payable and accrued expenses 52,382 47,016
Notes payable to banks 11,102 16,709
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Total liabilities 351,582 382,860
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Stockholders' equity:
Common stock (60,000,000 shares authorized, 20,421,651 and
20,155,395 shares issued in 1999 and 1998, respectively,
$.01 par value) 204 201
Additional paid-in capital 185,371 181,391
Retained earnings 55,437 42,970
Treasury stock (1,088,018 and 76,290 shares in 1999 and 1998,
respectively, at cost) (17,815) (1,172)
-------- --------
Total stockholders' equity 223,197 223,390
-------- --------
Total liabilities and stockholders' equity $574,779 $606,250
======== ========
</TABLE>
See accompanying notes.
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FREEDOM SECURITIES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Commissions $ 54,455 $ 43,834 $ 108,122 $ 86,870
Principal transactions 32,779 25,420 65,334 50,430
Investment banking 16,858 32,680 30,339 46,769
Asset management 16,845 11,134 31,451 21,039
Other 2,412 3,023 4,460 4,842
--------- --------- --------- ---------
Total operating revenues 123,349 116,091 239,706 209,950
Interest income 15,297 12,608 28,545 25,873
--------- --------- --------- ---------
Total revenues 138,646 128,699 268,251 235,823
Interest expense 8,114 7,038 15,079 14,052
--------- --------- --------- ---------
Net revenues 130,532 121,661 253,172 221,771
Non-interest expenses
Compensation and benefits 85,002 79,979 164,853 146,358
Occupancy and equipment 7,110 5,727 13,701 11,154
Communications 5,417 4,636 10,603 8,615
Brokerage and clearance 5,138 3,559 9,875 6,625
Promotional 4,388 3,728 8,043 6,481
Other 11,224 10,680 22,386 19,240
--------- --------- --------- ---------
Total non-interest expenses 118,279 108,309 229,461 198,473
Operating pre-tax income 12,253 13,352 23,711 23,298
Acquisition interest expense -- 114 -- 1,464
--------- --------- --------- ---------
Income before income taxes 12,253 13,238 23,711 21,834
Income taxes 4,801 5,603 9,461 9,170
--------- --------- --------- ---------
Net income before extraordinary item $ 7,452 $ 7,635 $ 14,250 $ 12,664
Extraordinary item (net of tax of $922) -- (1,276) -- (1,276)
--------- --------- --------- ---------
Net income after extraordinary item $ 7,452 $ 6,359 $ 14,250 $ 11,388
========= ========= ========= =========
Net income per share:
Basic before extraordinary item $ 0.38 $ 0.39 $ 0.72 $ 0.73
Basic after extraordinary item $ 0.38 $ 0.32 $ 0.72 $ 0.66
Diluted before extraordinary item $ 0.36 $ 0.36 $ 0.69 $ 0.69
Diluted after extraordinary item $ 0.36 $ 0.30 $ 0.69 $ 0.62
Cash dividends declared per share $ 0.05 $ 0.04 $ 0.09 $ 0.04
Weighted average common shares outstanding:
Basic 19,677 19,792 19,750 17,322
Diluted 20,646 21,190 20,698 18,478
</TABLE>
See accompanying notes
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FREEDOM SECURITIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,250 $ 11,388
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 2,549 2,307
Amortization 6,863 3,938
Non-cash compensation 82 549
Extraordinary item; write-off capitalized debt costs -- 2,198
Changes in assets and liabilities, net of effects of acquisitions
(Increase) decrease in operating assets:
Receivables from brokers and dealers 27,361 (2,828)
Securities purchased under agreements to resell 59,491 33,388
Securities owned, at market (24,167) 78,375
Deferred taxes (83) (152)
Other receivables (14,454) (9,360)
Other assets (13,229) (6,780)
Increase (decrease) in operating liabilities:
Payables to brokers and dealers (6,544) 6,699
Securities sold under agreements to repurchase (6,698) 6,846
Securities sold, not yet purchased, at market 11,078 (116,215)
Accrued compensation and benefits (30,248) (6,807)
Accounts payable and accrued expenses 587 1,754
--------- ---------
Net cash provided by operating activities 26,838 5,300
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (4,276) (1,762)
Acquisitions, net of cash acquired (9,458) (2,860)
--------- ---------
Net cash used in investing activities (13,734) (4,622)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 546 1,347
Proceeds from initial public offering, net -- 76,734
Purchases of treasury stock, net (16,644) --
Payment of dividends (1,781) --
Repayment of notes payable to banks (1,826) (82,321)
--------- ---------
Net cash used in financing activities (19,705) (4,240)
Decrease in cash and cash equivalents (6,601) (3,562)
Cash and cash equivalents, beginning of period 11,292 12,936
--------- ---------
Cash and cash equivalents, end of period $ 4,691 $ 9,374
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 11,191 $ 7,943
Interest $ 14,304 $ 15,230
</TABLE>
See accompanying notes
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FREEDOM SECURITIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
Freedom Securities Corporation is a holding company which together with its
wholly owned subsidiaries (collectively, the "Company") is a full-service,
regionally focused retail brokerage and investment banking firm. The Company is
engaged primarily in the retail and institutional brokerage business including
corporate finance and underwriting services. The consolidated financial
statements include the accounts of the Company and its primary operating
subsidiaries: Tucker Anthony Incorporated ("Tucker Anthony"), Sutro & Co.
Incorporated ("Sutro"), Tucker Anthony Cleary Gull ("Tucker Cleary"), and
Freedom Capital Management Corporation ("Freedom Capital").
The Company was formed in November 1996 to effect the acquisition (the
"Acquisition") of Freedom Securities Holding Corporation and its subsidiaries
from John Hancock Mutual Life Insurance Company ("Hancock"). The consideration
paid to Hancock was financed with equity contributions from two private investor
groups and certain employee investors, bank financing and excess cash of the
Company.
On April 2, 1998, the Company completed its initial public offering, whereby
4.2 million shares of common stock were sold by the Company resulting in net
proceeds to the Company of $75.7 million.
On May 3, 1999, the Company's Cleary Gull & Reiland Inc. ("Cleary Gull")
subsidiary, which was acquired by the Company in the second quarter of 1998,
joined with Tucker Anthony's equity capital markets group to form Tucker Anthony
Cleary Gull, an institutional capital markets and investment management firm.
All significant intercompany accounts and transactions have been eliminated
in consolidation. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from these
estimates. Certain prior period amounts have been reclassified to conform with
the current period's financial statement presentation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for audited
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three and six months ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. The
information included in this Form 10-Q should be read in conjunction with the
audited financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
2. ACQUISITION OF HOPPER SOLIDAY & CO., INC.
On January 19, 1999 the Company acquired the investment and municipal
banking firm Hopper Soliday & Co., Inc. ("Hopper Soliday") and merged it with
Tucker Anthony. The consolidated financial statements include Hopper Soliday's
results after December 31, 1998. The purchase price was $9.0 million paid in
cash and the acquisition was accounted for using the purchase method of
accounting. The excess of the purchase price over the estimated fair value of
net assets acquired, which was recorded as goodwill, was $1.5 million and is
being amortized over 15 years using the straight-line method of amortization. In
addition, the Company has agreed to make certain incentive and retention
payments with a total value of $2.0 million (the majority of which are subject
to a three-year vesting period).
3. ACQUISITION OF CHARTER INVESTMENT GROUP, INC.
On February 1, 1999 the Company, through its Sutro subsidiary, acquired
Charter Investment Group, Inc. ("Charter"), a brokerage firm based in Portland,
Oregon. The consolidated financial statements include the results
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of Charter from the date of acquisition and the acquisition was accounted for
using the purchase method of accounting. The purchase price was $3.6 million
which included 203,665 shares of the Company's Common Stock valued at $3.1
million and $0.5 million paid in cash. The excess of the purchase price over the
estimated fair value of net assets acquired, which was recorded as goodwill, was
$2.4 million and is being amortized over 15 years using the straight-line method
of accounting.
4. NET CAPITAL REQUIREMENTS
Certain subsidiaries of the Company are subject to the net capital
requirements of the New York Stock Exchange ("Exchange") and the Uniform Net
Capital requirements of the Securities and Exchange Commission ("Commission")
under Rule 15c3-1. The Exchange and the Commission rules also provide that
equity capital may not be withdrawn or cash dividends paid if certain minimum
net capital requirements are not met. The Company's principal regulated
subsidiaries are discussed below.
Under a clearing arrangement with Wexford Clearing Services Corporation
("Wexford"), Tucker Anthony, Sutro and Tucker Cleary are required to maintain
certain minimum levels of net capital and comply with other financial ratio
requirements. At June 30, 1999, Tucker Anthony, Sutro and Tucker Cleary were in
compliance with all such requirements.
Tucker Anthony is a registered broker and dealer. At June 30, 1999, Tucker
Anthony had net capital of approximately $38.7 million which was $37.7 million
in excess of the $1.0 million amount required to be maintained at that date.
Sutro is a registered broker and dealer. At June 30, 1999, Sutro had net
capital of approximately $9.6 million which was $8.6 million in excess of the
$1.0 million amount required to be maintained at that date.
Tucker Cleary is a registered broker and dealer. At June 30, 1999, Tucker
Cleary had net capital of approximately $2.4 million which was $1.3 million in
excess of the $1.1 million amount required to be maintained at that date.
Freedom Trust Company ("FTC") is a subsidiary of Freedom Capital and is a
limited purpose trust company. Pursuant to state regulations, FTC is required to
meet and maintain certain capital minimums and ratios. At June 30, 1999, FTC's
regulatory capital, as defined, was $1.2 million and FTC was in compliance with
all such requirements.
5. COMMITMENTS AND CONTINGENCIES
The Company leases office space and various types of equipment under
noncancelable leases generally varying from one to ten years, with certain
renewal options for like terms.
The Company has been named as defendant in a number of civil actions and
arbitrations primarily relating to its broker-dealer activities. The Company is
also involved, from time to time, in proceedings with, and investigations by,
governmental agencies and self regulatory organizations. While the ultimate
outcome of litigation involving the Company cannot be predicted with certainty,
management believes, based on currently available information, it has
meritorious defenses to all such actions and intends to defend each of these
vigorously.
While there can be no assurance that such actions, proceedings,
investigations and litigation will not have a material adverse effect on the
financial results of operations of the Company in any future period, it is the
opinion of management that the resolution of any such actions, proceedings,
investigations and litigation will not have a material adverse effect on the
consolidated financial position and results of operations of the Company.
The Company has outstanding underwriting agreements and when-issued
contracts which commit it to purchase securities at specified future dates and
prices. The Company presells such issues to manage risk exposure related to
these off-balance sheet commitments. Transactions which were open at June 30,
1999 have subsequently settled and had no material effect on the consolidated
statements of income and financial condition.
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6. EARNINGS PER SHARE
The Company computes its earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") 128, "Earnings Per Share." The following
table sets forth the computation for basic and diluted earnings per share (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1999 1998 1999 1998
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
NUMERATOR
Net income before extraordinary item $ 7,452 $ 7,635 $ 14,250 $ 12,664
Less: extraordinary item (net of tax of $922) -- (1,276) -- (1,276)
-------- ---------- -------- --------
Net income after extraordinary item $ 7,452 $ 6,359 $ 14,250 $ 11,388
DENOMINATOR
Weighted average shares outstanding 19,677 19,792 19,750 17,322
Dilutive effect of:
Stock options and other exercisable shares 969 1,398 948 1,156
-------- --------- -------- --------
Adjusted weighted average shares outstanding 20,646 21,190 20,698 18,478
Basic earnings per share before extraordinary item $ 0.38 $ 0.39 $ 0.72 $ 0.73
Less: extraordinary item (net of tax) 0.00 (0.07) 0.00 (0.07)
-------- --------- -------- --------
Basic earnings per share after extraordinary item $ 0.38 $ 0.32 $ 0.72 $ 0.66
Diluted earnings per share before extraordinary item $ 0.36 $ 0.36 $ 0.69 $ 0.69
Less: extraordinary item (net of tax) 0.00 (0.06) 0.00 (0.07)
-------- --------- -------- --------
Diluted earnings per share after extraordinary item $ 0.36 $ 0.30 $ 0.69 $ 0.62
</TABLE>
7. SEGMENT REPORTING DATA
In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company has two reportable segments:
broker-dealer and asset management. The Company's broker-dealer segment includes
the retail, equity capital markets and trading businesses of its three brokerage
subsidiaries, Tucker Anthony, Sutro and Tucker Cleary, since they generally
offer similar products and services and are subject to uniform regulatory
requirements. The Company offers its broker-dealer clients a wide range of
products and services, including retail brokerage, investment banking,
institutional sales and fixed income products. The asset management segment
includes the Company's asset management subsidiary, Freedom Capital, Tucker
Cleary's Investment Management Services group and asset management business from
Tucker Anthony and Sutro. The Company offers its asset management clients
investment advisory, portfolio management and custodial services. Substantially
all of the Company's business is transacted in the United States. The following
table presents information about the Company's segments (amounts in thousands):
<TABLE>
<CAPTION>
Asset
Broker-Dealer Management Other (a) Total
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<S> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999
Operating revenues $106,376 $16,845 $ 128 $123,349
Income (loss) before income taxes 9,182 3,754 (683) 12,253
- ----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1998
Operating revenues $104,920 $11,135 $ 36 $116,091
Income (loss) before income taxes 11,442 2,184 (388) 13,238
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
Operating revenues $208,093 $31,451 $ 162 $239,706
Income (loss) before income taxes 17,068 7,323 (680) 23,711
Total assets 476,135 48,034 50,610 574,779
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998
Operating revenues $188,838 $21,040 $ 72 $209,950
Income (loss) before income taxes 19,558 4,302 (2,026) 21,834
Total assets 536,036 55,171 64,259 655,466
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Other reflects the activities of the Company's holding companies. Income
(loss) before income taxes mainly reflects amortization of goodwill and
acquisition related expenses. Total assets primarily consist of goodwill and
deferred taxes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto appearing in Item 1 of this
report. This Form 10-Q may contain or incorporate by reference statements which
may constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Prospective investors are cautioned that any
such forward-looking statements are not guarantees for future performance and
involve risks and uncertainties, and that actual results may differ materially
from those contemplated by such forward-looking statements.
BUSINESS ENVIRONMENT
The Company's retail securities brokerage activities, as well as its
investment banking, asset management, institutional sales and trading and equity
research services, are highly competitive and subject to various risks including
volatile trading markets and fluctuations in the volume of market activity.
These markets are affected by general economic and market conditions, including
fluctuations in interest rates, volume and price levels of securities and flows
of investor funds into and out of mutual funds and pension plans and by factors
that apply to particular industries such as technological advances and changes
in the regulatory environment. The first half of 1999 saw a continuation of
positive monetary conditions and low inflation which continued to propel the
equity markets in the United States. Financial market conditions remained
favorable in 1999 despite some uncertainty over the direction of U.S. interest
rates in the second quarter. The Company's financial results have been and may
continue to be subject to fluctuations due to these and other factors.
Consequently, the results of operations for a particular period may not be
indicative of results to be expected for other periods.
COMPANY DEVELOPMENTS
On July 1, 1999, the Company announced that it had signed a definitive
agreement to acquire Gibraltar Securities Co. ("Gibraltar"), a leading regional
independent brokerage firm located in New Jersey. The total consideration for
the acquisition of Gibraltar is about $40 million payable in a combination of
cash (approximately 50%) and common stock (approximately 50%). In connection
with the acquisition, the Company will enter into employment agreements with
certain employees of Gibraltar and will establish a retention program consisting
of $6 million in cash and $750,000 of venture capital fund participation units
to retain Gibraltar employees. Following the acquisition, Gibraltar will operate
as a division of the Company's Tucker Anthony subsidiary.
COMPONENTS OF REVENUES AND EXPENSES
Revenues. Commission revenues include retail and institutional commissions
received by the Company as an agent in securities transactions, including all
exchange listed, over-the-counter agency, mutual fund, insurance and annuity
transactions. Principal transactions revenues include principal sales credits
and dividends as well as gains and losses from the trading of securities by the
Company as principal. Investment banking revenues include selling concessions,
underwriting fees and management fees received from the underwriting of
corporate or municipal securities as well as fees earned from providing merger
and acquisition and other financial advisory services. Asset management revenues
include fees generated from providing investment advisory, portfolio management
and custodial services to clients, as well as managed account fees and 12b-1
distribution fees. Other revenues primarily consist of retirement plan revenue
and third party correspondent clearing fees. Interest income primarily consists
of interest earned on margin loans made to customers, securities purchased under
agreements to resell and fixed income securities held in the Company's trading
accounts. Net revenues equal total revenues less interest expense. Interest
expense includes interest paid under its Wexford financing arrangement and on
bank borrowings, securities sold under agreements to repurchase, fixed asset
financing and cash balances in customer accounts.
Expenses. Compensation and benefits expense includes sales, trading and
incentive compensation, which are primarily variable based on revenue production
and/or business unit profit contribution, and salaries, payroll taxes and
employee benefits which are relatively fixed in nature. Incentive compensation,
including bonuses for eligible employees, is accrued proratably throughout the
year based on actual or estimated annual amounts. Brokerage and clearance
expense includes the cost of securities clearance, floor brokerage and exchange
fees. Communications expense includes service charges for telecommunications,
news and market data services. Occupancy and equipment expense includes rent and
operating expenses for facilities, expenditures for repairs and maintenance, and
depreciation and amortization of furniture, fixtures and leasehold improvements.
Promotional expense includes
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travel, entertainment and advertising. Other expenses include general and
administrative expenses, including professional services, litigation expenses,
goodwill amortization, data processing and other miscellaneous expenses.
Acquisition interest expense represents the interest expense incurred under the
previous revolving credit agreement, the balance of which was repaid with
proceeds from the Company's initial public offering in April 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
The following table compares second quarter results (amounts in millions) in
1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS PERIOD TO PERIOD PERCENTAGE OF
ENDED JUNE 30, INCREASE/(DECREASE) NET REVENUES
------------------ ------------------- ----------------
1999 1998 AMOUNT PERCENT 2Q99 2Q98
---- ---- ------ ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions $ 54.4 $ 43.8 $ 10.6 24% 42% 36%
Principal transactions 32.8 25.4 7.4 29 25 21
Investment banking 16.9 32.7 (15.8) (48) 13 27
Asset management 16.8 11.1 5.7 51 13 9
Other 2.4 3.0 (0.6) (20) 2 3
------ ------ ------ --- ---
Total operating revenues 123.3 116.0 7.3 6 95 96
Interest income 15.3 12.6 2.7 21 11 10
------ ------ ------ --- ---
Total revenues 138.6 128.6 10.0 8 106 106
Interest expense 8.1 7.0 1.1 15 6 6
------ ------ ------ --- ---
Net revenues 130.5 121.6 8.9 7 100 100
Non-interest expenses:
Compensation and benefits 85.0 80.0 5.0 6 65 66
Occupancy and equipment 7.1 5.7 1.4 24 6 5
Communications 5.4 4.6 0.8 17 4 4
Brokerage and clearance 5.1 3.6 1.5 44 4 3
Promotional 4.4 3.7 0.7 18 3 3
Other 11.2 10.7 0.5 5 9 8
------ ------ ------ --- ---
Total non-interest expenses 118.2 108.3 9.9 9 91 89
------ ------ ------ --- ---
Operating pre-tax income 12.3 13.3 (1.0) (8) 9 11
Acquisition interest expense -- 0.1 (0.1) (100) 0 0
------ ------ ------ --- ---
Income before income taxes 12.3 13.2 (0.9) (7) 9 11
Income taxes 4.8 5.6 (0.8) (14) 3 5
------ ------ ------ --- ---
Net income before extraordinary item 7.5 7.6 (0.1) (2) 6 6
Extraordinary item (net of tax) -- (1.2) 1.2 100 0 1
------ ------ ------ --- ---
Net income after extraordinary item $ 7.5 $ 6.4 $ 1.1 17% 6% 5%
====== ====== ====== === ===
</TABLE>
Net income was $7.5 million in the 1999 second quarter, compared with net
income before extraordinary item of $7.6 million in the same quarter last year.
The second quarter of 1998 included an extraordinary item in connection with the
write-off of capitalized debt costs resulting from the early retirement of debt
with proceeds from the Company's initial public offering. The current quarter's
results reflect the continued execution of the Company's business strategy which
has been to aggressively expand its retail operations, consolidate its Tucker
Anthony and Cleary Gull equity capital markets groups and grow through new
acquisitions.
Total operating revenues increased $7.3 million to a record $123.3 million
in the 1999 second quarter, up 6% from $116.0 million a year ago. Net revenues
(including the effect of interest income and interest expense) also were a
record $130.5 million in the 1999 second quarter, up 7% from $121.6 million in
the 1998 second quarter.
Commission revenues rose 24% to $54.4 million in the second quarter of 1999.
The strong expansion of the Company's retail business combined with higher
average productivity from existing investment executives led to the current
quarter increase. During the second quarter of 1999, the Company opened five new
retail branches and hired 34 new investment executives.
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Revenues from principal transactions were $32.8 million, up 29% from $25.4
million in the 1998 second quarter, mainly due to revenue growth in the
Company's proprietary trading and fixed income businesses.
Investment banking revenues for the 1999 second quarter were $16.9 million
compared with $32.7 million a year ago. The decline in revenues primarily
reflects a reduction from the record high level of underwriting and advisory
activity in 1998 and, to a lesser extent, certain transitional effects of the
consolidation of the equity capital markets groups of Tucker Anthony and Cleary
Gull.
The Company's asset management revenues grew 51% to $16.8 million in the
1999 second quarter, representing 13% of the Company's net revenues compared to
$11.1 million or 9% in the prior year's second quarter. Assets under management
reached a record $10 billion at June 30, 1999, up $2.2 billion from June 30,
1998, mainly reflecting new money added to the funds.
Net interest income, the aggregate of interest income of $15.3 million and
interest expense of $8.1 million, was $7.2 million for the current quarter, up
29% from $5.6 million in the comparable 1998 period. The increase in net
interest income was mainly attributable to higher customer margin balances
resulting from growth in the Company's retail business.
Compensation and benefits expense was $85.0 million in the second quarter of
1999 versus $80.0 million in the prior year primarily reflecting increased
incentive and production-related compensation, front-end loaded costs of
recruiting new investment executives and the inclusion of Hopper Soliday and
Charter which were acquired in 1999.
Total non-compensation operating expenses were $33.2 million in the 1999
second quarter, compared with $28.3 million in the second quarter of 1998. The
1999 second quarter includes $1.7 million of non-compensation operating expenses
from Hopper Soliday and Charter which were acquired in 1999. Excluding expenses
related to these acquired companies, non-compensation operating expenses rose
$3.2 million reflecting increased occupancy and equipment costs related to new
branches, greater investments in technology and additional clearing costs
resulting from higher business volumes.
The Company's income tax provisions for the quarters ended June 30, 1999 and
1998 were $4.8 million and $5.6 million, respectively. The effective tax rate
was 39% for the second quarter of 1999, down from 42% for the comparable 1998
period mainly due to reductions in state taxes as a result of lower taxable
income in states with high tax rates.
11
<PAGE> 12
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998.
The following table compares first half results (dollars in millions)
in 1999 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS PERIOD TO PERIOD PERCENTAGE OF
ENDED JUNE 30, INCREASE/(DECREASE) NET REVENUES
------------------ ------------------ ----------------
1999 1998 AMOUNT PERCENT 1999 1998
---- ---- ------ ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions $108.1 $ 86.9 $ 21.2 24% 43% 39%
Principal transactions 65.3 50.4 14.9 30 26 23
Investment banking 30.3 46.8 (16.5) (35) 12 21
Asset management 31.5 21.0 10.5 49 12 10
Other 4.5 4.8 (0.3) (8) 2 2
------ ------ ------ --- ---
Total operating revenues 239.7 209.9 29.8 14 95 95
Interest income 28.6 25.9 2.7 10 11 11
------ ------ ------ --- ---
Total revenues 268.3 235.8 32.5 14 106 106
Interest expense 15.1 14.0 1.1 7 6 6
------ ------ ------ --- ---
Net revenues 253.2 221.8 31.4 14 100 100
Non-interest expenses:
Compensation and benefits 164.9 146.4 18.5 13 65 66
Occupancy and equipment 13.7 11.2 2.5 23 6 5
Communications 10.6 8.6 2.0 23 4 4
Brokerage and clearance 9.9 6.6 3.3 49 4 3
Promotional 8.0 6.5 1.5 24 3 3
Other 22.4 19.2 3.2 16 9 8
------ ------ ------ --- ---
Total non-interest expenses 229.5 198.5 31.0 16 91 89
------ ------ ------ --- ---
Operating pre-tax income 23.7 23.3 0.4 2 9 11
Acquisition interest expense -- 1.5 (1.5) (100) 0 1
------ ------ ------ --- ---
Income before income taxes 23.7 21.8 1.9 9 9 10
Income taxes 9.4 9.2 0.2 3 3 4
------ ------ ------ --- ---
Net income before extraordinary item 14.3 12.6 1.7 13 6 6
Extraordinary item (net of tax) -- (1.2) 1.2 100 0 1
------ ------ ------ --- ---
Net income after extraordinary item $ 14.3 $ 11.4 $ 2.9 25% 6% 5%
====== ====== ====== ==== ====
</TABLE>
Net income was $14.3 million for the first six months of 1999, up 13% from
net income before extraordinary item of $12.6 million in the same period a year
ago.
Total operating revenues for the first half of 1999 increased 14% to $239.7
million from $209.9 million in the comparable 1998 period. Year-to-date net
revenues were also up 14% to $253.2 million versus $221.8 million in the
comparable 1998 period.
Commission revenues were $108.1 million, up 24% from $86.9 million in the
first six months of 1998. This increase resulted from the Company's efforts to
expand its retail operations through the opening of new branch offices and
aggressive hiring of new investment executives as well as higher average
productivity from existing investment executives.
Principal transactions revenues rose 30% to $65.3 million for the first half
of 1999 from $50.4 million in the same 1998 period, primarily due to higher
proprietary trading profits combined with revenue growth in the Company's fixed
income and over the counter businesses.
For the first six months of 1999, investment banking revenues were $30.3
million, compared with $46.8 million in the same period a year ago. Despite a
significant improvement in municipal finance fees, year-to-date investment
banking revenues were down due to reduced underwriting and advisory activity
and, to a lesser extent, certain transitional effects of the consolidation of
the equity capital markets groups of Tucker Anthony and Cleary Gull.
Year-to-date asset management revenues grew 49% to $31.5 million from $21.0
million for the first six months of 1998. This increase reflects the overall
growth in assets under management, the majority of which was due to new money
added to the funds.
12
<PAGE> 13
Net interest income, the aggregate of interest income and interest expense,
was $13.5 million for the first six months of 1999, an increase of $1.6 million
when compared with $11.9 million a year ago, due primarily to higher customer
margin balances generated by the Company's retail operations.
For the first six months of 1999, compensation and benefits expense was
$164.9 million, compared with $146.4 million in the same 1998 period. Of the
year-over-year increase, 56% or $10.3 million was attributable to acquired
companies with the remainder reflecting higher incentive and production-related
compensation and costs of recruiting new investment executives.
Total non-compensation operating expenses for the first six months of 1999
were $64.6 million, versus $52.1 million for the same 1998 period. Year-to-date
non-compensation costs include approximately $5.1 million of operating expenses
of acquired companies. Excluding expenses related to these acquired companies,
non-compensation operating expenses rose 14% reflecting higher levels of
business activity.
The Company's income tax provisions for the first half of 1999 and 1998 were
$9.4 million and $9.2 million, respectively. The effective tax rate was 40% for
the first six months of 1999, down from 42% for the first half of 1998 primarily
due to reductions in state taxes as a result of lower taxable income in states
with high tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company receives dividends, interest on loans and other payments from
its subsidiaries, which are the Company's primary source of funds to pay
expenses, service debt and pay dividends. Distributions and interest payments to
the Company from its registered broker-dealer subsidiaries, the Company's
primary sources of liquidity, are restricted as to amounts which may be paid by
applicable law and regulations. The net capital rules are the primary regulatory
restrictions regarding capital resources. The Company's rights to participate in
the assets of any subsidiary are also subject to prior claims of the
subsidiary's creditors, including customers of the broker-dealer subsidiaries.
The assets of the Company's primary operating subsidiaries are highly liquid
with the majority of such assets consisting of securities inventories and
collateralized receivables, both of which fluctuate depending on the levels of
customer business. Collateralized receivables consist mainly of securities
purchased under agreements to resell, which are secured by U.S. government and
agency securities. A relatively small percentage of total assets is fixed or
held for a period of longer than one year.
The majority of the subsidiaries' assets are financed through Wexford, by
securities sold under repurchase agreements and by securities sold, not yet
purchased. The Company's principal source of short-term financing is based on
its clearing arrangement with Wexford under which the Company can borrow on an
uncommitted collateralized basis against its proprietary inventory positions.
This financing generally is obtained from Wexford at rates based upon prevailing
market conditions. The Company monitors overall liquidity by tracking the extent
to which unencumbered marketable assets exceed short-term unsecured borrowings.
Repurchase agreements are used primarily for customer accommodation purposes
and to finance the Company's inventory positions in U.S. government and agency
securities. These positions provide products and liquidity for customers and are
not maintained for the Company's investment or market speculation. The level of
activity fluctuates depending on customer and inventory needs; however, these
fluctuations have not materially affected liquidity or capital resources. The
Company monitors the collateral position and counterparty risk on these
transactions daily.
The subsidiaries' total assets and short-term liabilities and the individual
components thereof may vary significantly from period to period because of
changes relating to customer needs and economic and market conditions.
The Company's operating activities generate cash resulting from net income
earned during the period and fluctuations in the Company's current assets and
liabilities. The most significant fluctuations have resulted from changes in the
level of customer activity and securities inventory changes resulting from
proprietary arbitrage trading strategies dictated by prevailing market
conditions.
13
<PAGE> 14
In addition to normal operating requirements, capital is required to satisfy
financing and regulatory requirements. The Company's overall capital needs are
continually reviewed to ensure that its capital base can appropriately support
the anticipated capital needs of the subsidiaries. The excess regulatory net
capital of the Company's broker-dealer subsidiaries may fluctuate throughout the
year reflecting changes in inventory levels and/or composition, investment
banking commitments and balance sheet components. Management believes that
existing capital funds provided from operations, the credit arrangements with
Wexford and the unutilized Credit Agreement from participating banks will be
sufficient to finance the operating subsidiaries' ongoing businesses.
Borrowings under the previous revolving credit agreement were repaid in full
in April 1998 with the net proceeds from the Company's initial public offering
and available cash. In August 1998, the Company entered into a new unsecured
revolving credit agreement (the "Credit Agreement") whereby participating banks
have made commitments totaling $50 million. Under the Credit Agreement, the
Company has the option to borrow at the federal funds rate or the eurodollar
rate (each plus applicable margin as defined, ranging from 0.50% to 0.75% based
on a calculated leverage ratio) or the agent's base rate. Borrowings under the
Credit Agreement, which matures on August 21, 2001, may be prepaid without
penalty. Additionally, the Company must pay a quarterly commitment fee for the
new credit facility calculated at 0.15% per year on the unused facility. At June
30, 1999, the Company did not have any borrowings under the Credit Agreement.
The Company anticipates financing the cash payments for the acquisition of
Gibraltar through borrowings under either the existing Credit Agreement or a new
credit facility.
The Company maintains, through two subsidiaries, a fixed asset credit
facility (the "Fixed Asset Facility") with BancBoston Leasing Inc. which matures
in 2001, is secured by the subsidiaries' fixed assets, and had an outstanding
balance at June 30, 1999 of $11.1 million. The Company has historically financed
capital expenditures through internal cash generation and through the Fixed
Asset Facility. In January 1999, the Company refinanced a portion of the Fixed
Asset Facility and secured lease financing for a $4.7 million upgrade of its
computer system. This financing bears interest at 5.00% annually and is payable
in equal monthly installments through May 2003.
In September 1998, the Board of Directors approved a stock repurchase
program that permits the Company's management to purchase at its discretion up
to five percent of its common stock outstanding or approximately one million
shares. In April 1999, the Board of Directors authorized the purchase of an
additional one million shares. The Company may fund its stock repurchases from
internal sources or through borrowings and can use the shares for issuance of
stock under employee stock option and stock purchase plans, or retain the shares
as treasury stock. During the first six months of 1999, the Company repurchased
1,372,270 shares at an average price of $15.82 per share, issued 187,299 shares
of treasury stock to employees as a matching contribution under the Company's
profit sharing plan and distributed 173,243 shares of treasury stock sold under
the Company's Employee Stock Purchase Plan. Included in the shares repurchased,
but not part of the stock repurchase program, are 494,748 shares acquired from
SCP Private Equity Partners, L.P., one of the original equity investors in the
Company, which were approved by the Company's Board of Directors, and 258,280
shares acquired in private transactions.
CASH FLOWS
Cash and cash equivalents at June 30, 1999 and 1998 totaled $4.7 million and
$9.4 million, respectively. For the six months ended June 30, 1999, funds
generated from operating activities of $26.8 million, including net income of
$14.3 million, along with available cash were used primarily for purchases of
fixed assets, the acquisitions of Hopper Soliday and Charter and purchases of
treasury stock.
14
<PAGE> 15
YEAR 2000 COMPLIANCE
The securities industry is, to a significant extent, technologically driven
and dependent. In addition to internally utilized technological applications,
the Company's businesses are materially dependent upon the performance of
exchanges, market centers, counterparties, customers and vendors (collectively
"the Company's material third parties") who, in turn, may be heavily reliant on
technological applications. In sum, the securities industry is pervasively
interdependent with each "link of the chain" strengthened or weakened by the
quality and performance of its attendant information and embedded technology.
The Company is aware that the Year 2000 provides potential problems with the
programming code in existing computer systems. The "Year 2000 problem" is
extensive and complex as virtually every computer operation will be affected to
some degree by the change of the two digit year value to 00. The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or fail.
The failure or faulty performance of computer systems could potentially have
a far ranging impact on the Company's businesses such as a diminution in its
ability to (a) ascertain information vital to strategic decision making by both
the Company and its customers; (b) perform interest rate and pricing
calculations; (c) execute and settle proprietary and customer transactions; (d)
undertake regulatory surveillance and risk management; (e) maintain accurate
books and records and provide timely reports; (f) maintain appropriate internal
financial operations and accounting; and (g) access credit facilities for both
the Company and its customers. Accordingly it is necessary for the Company, to
the extent reasonably practicable, to identify the internal computer systems and
software which are likely to have a critical impact on its operations, make an
assessment of its Year 2000 readiness and modify or replace information and
embedded technology as needed. In addition, the Company must make a Year 2000
readiness assessment of the Company's material third parties.
In the fourth quarter of 1995, the Company began to strategically assess the
need for renovation, replacement or retirement of all business applications.
This assessment was coincident with the conversion of the Company's principal
broker-dealer subsidiaries to clear securities transactions through Wexford, an
unaffiliated broker-dealer. During the first half of 1996, in connection with
the conversion to Wexford, a substantial portion of all application and vendor
code were modified to be Year 2000 compliant and these changes were tested and
verified to be materially effective.
Although Wexford is the contracting party for the provision of clearing
services, it in fact delivers those services through the operations of its
guaranteeing parent company, Prudential Securities Incorporated ("Prudential"),
a leading registered broker and dealer. Consequently, it is the readiness of
Prudential that is critical when assessing the Year 2000 compliance of the
clearing and operations capacity of the Company's active broker-dealer
subsidiaries. Prudential has been assessed, by internal industry standards
established by the Securities Industry Association, to be within the top tier of
Year 2000 readiness. In recent industry-wide testing conducted by the Securities
Industry Association, in which Prudential took part, Prudential and other
participants were able to input transactions and send them to the appropriate
markets for execution, confirmation and clearance under simulated Year 2000
conditions.
Additionally, the Company has assessed the state of readiness of all known
technologically oriented service vendors and believes, based on letters of
certification, that these vendors are Year 2000 compliant. This determination
does not mean that the Company's material third parties pose no Year 2000 risk
to the Company. First, the Company is relying in large measure on these parties'
assessments of their readiness. Second, there are several vendors, which account
for a substantial portion of the Company's mission critical operations, which
may be partially or largely, but not fully, Year 2000 compliant. Finally,
certain critical third parties, such as exchanges, clearing houses, depositories
and other service vendors have no direct functional contact with the Company (as
they operate directly with Wexford) but may impact the Company's operations.
The Company has completed its written plan to assess and take measures to
enhance its Year 2000 readiness. In January 1999, the Company successfully
tested the Year 2000 readiness of its data network components. The Company's
major vendor for market data certified its system as Year 2000 compliant in
February 1999. At this juncture the remainder of the Company's Year 2000
remediation efforts include installation of new desktop computers to be
completed by August 31, 1999. To date, the Company's Year 2000 costs have been
minimal. The Company believes that, going forward, it will incur Year 2000 costs
of approximately $100,000 which will be
15
<PAGE> 16
funded out of its working capital. Provided there is an absence of unanticipated
critical events, the Company does not expect Year 2000 costs to have a material
effect on its operating results, financial condition or cash flows.
As a contingency plan, the Company intends to have information systems
personnel on site, from December 31, 1999 through January 2, 2000, on a 24-hour
basis, to insure that any Year 2000 problems that arise will be addressed and
corrected immediately. The Company has been informed by Prudential that it
intends to implement a similar contingency plan. The Company believes these
measures will be sufficient because of the following reasons: (1) the Company
has substantially modified, to the extent it can ascertain the problem, most
mission critical code and embedded technology; and (2) the Company's vendors
have represented that they are Year 2000 compliant.
However, it is the Company's position that there are no alternatives in the
event the exchanges or other market centers fail to perform, and the Company
believes it is highly likely that the factors which may prevent a particular
clearing firm from performing, would similarly affect all other clearing firms,
which would either preclude the availability of alternative clearing service
providers or overwhelm the resources of surviving alternative clearing service
providers. In other words, the Year 2000 presents a problem which is not likely
to be susceptible to remediation at a future date, if it is not fixed in
advance.
The Company is cautiously optimistic about its current state of readiness
and its ability to make any further necessary modifications to internal systems
in time for the Year 2000. The Company also believes that its major third party
service provider, Prudential, has undertaken a systematic approach to the Year
2000 problem and will complete its plan which is designed to achieve a state of
readiness. However, there are factors outside the control of the Company which
make certainty impossible such as: (1) the inability to assess the readiness of
market counterparties and customers; (2) the inability to achieve assurance as
to any material third parties' representations of readiness; (3) the global
exposure of material third parties to Year 2000 problems outside the United
States which have a "knock-on" effect within the domestic securities markets and
operations; and (4) the limitations in anticipating all aspects of a problem
with which there is no prior historical experience. The presence of any or all
of these and other factors may well have a material adverse effect on the
Company's businesses, operating results, financial condition and cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the six months ended June 30, 1999 does not
differ materially from that discussed under Item 7a of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company and its subsidiaries are named
as defendants in various legal proceedings and litigation primarily relating to
its broker-dealer activities. The Company believes that it has adequately
reserved for such legal proceedings and litigation matters and that they will
not have a material adverse effect on the Company's financial condition or
results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Unregistered Securities:
---------------------------
During the 1999 second quarter, the Company issued 3,739 shares of Common
Stock in a private placement transaction exempt under section 4(2) of the
Securities Act to John Hancock Subsidiaries, Inc. pursuant to the Additional
Share Agreement entered into in connection with the Acquisition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
16
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on June 10, 1999
stockholders voted upon the following proposals:
PROPOSAL NO. 1 - ELECTION OF TEN DIRECTORS:
- --------------
NAMES SHARES FOR SHARES AGAINST
- ----- ---------- --------------
John H. Goldsmith 16,201,930 120,075
John F. Luikart 16,202,839 119,166
David P. Prokupek 16,175,569 146,436
Robert H. Yevich 16,191,931 130,074
C. Hunter Boll 16,194,539 127,466
Winston J. Churchill 16,202,839 119,166
Thomas M. Hagerty 16,202,839 119,166
David V. Harkins 16,202,839 119,166
Hugh R. Harris 16,202,839 119,166
Seth W. Lawry 16,202,839 119,166
There were no abstentions or broker non-votes with respect to the election of
directors.
PROPOSAL NO. 2 - RATIFICATION OF AUDITORS
- --------------
Ratification of the firm of Ernst & Young, LLP as our independent
accountants for the Company for the fiscal year ending December 31, 1999.
SHARES FOR SHARES AGAINST ABSTENTIONS
---------- -------------- ----------
16,301,879 13,976 6,150
A total of 16,322,005 shares were present in person or by proxy at the Annual
Meeting.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following exhibits are included herein or are
incorporated by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
17
<PAGE> 18
SIGNATURES
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.
FREEDOM SECURITIES CORPORATION
(REGISTRANT)
DATE: August 12, 1999 BY: /s/ JOHN H. GOLDSMITH
-------------------------------------
JOHN H. GOLDSMITH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DATE: August 12, 1999 BY: /s/ WILLIAM C. DENNIS, JR.
--------------------------------------
WILLIAM C. DENNIS, JR.
CHIEF FINANCIAL OFFICER
18
<PAGE> 19
EXHIBIT INDEX
-------------
ITEM NO. DESCRIPTION SEQUENTIAL PAGE NO.
- --------- ----------- -------------------
27 Financial Data Schedule 20
19
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,691
<RECEIVABLES> 114,093
<SECURITIES-RESALE> 60,370
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 277,952
<PP&E> 21,625
<TOTAL-ASSETS> 574,779
<SHORT-TERM> 0
<PAYABLES> 183,137
<REPOS-SOLD> 21,884
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 135,459
<LONG-TERM> 11,102
0
0
<COMMON> 204
<OTHER-SE> 222,993
<TOTAL-LIABILITY-AND-EQUITY> 574,779
<TRADING-REVENUE> 65,334
<INTEREST-DIVIDENDS> 28,545
<COMMISSIONS> 108,122
<INVESTMENT-BANKING-REVENUES> 30,339
<FEE-REVENUE> 31,451
<INTEREST-EXPENSE> 15,079
<COMPENSATION> 164,853
<INCOME-PRETAX> 23,711
<INCOME-PRE-EXTRAORDINARY> 14,250
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,250
<EPS-BASIC> 0.72
<EPS-DILUTED> 0.69
</TABLE>
