<PAGE> 1
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
- ------ SEPTEMBER 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 _________________
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 November 9, 1999 the Company had 21,657,813 shares of common stock
outstanding.
<PAGE> 2
TABLE OF CONTENTS
-----------------
PAGE
----
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income - Three and nine months
ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows - Nine months
ended September 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 18
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBIT INDEX 21
2
<PAGE> 3
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>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(unaudited)
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,417 $ 11,292
Receivables from brokers and dealers 74,261 88,674
Securities purchased under agreements to resell 96,682 119,861
Securities owned, at market 423,974 252,478
Fixed assets, net of accumulated depreciation and amortization 22,700 19,479
Goodwill, net of accumulated amortization 62,600 34,875
Exchange memberships owned, at cost 5,955 5,939
Deferred taxes 10,757 10,477
Other receivables 56,944 31,356
Other assets 47,200 31,819
--------- ---------
Total assets $ 809,490 $ 606,250
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payables to brokers and dealers $ 138,795 $ 85,306
Securities sold under agreements to repurchase 40,104 28,582
Securities sold, not yet purchased, at market 225,501 124,148
Accrued compensation and benefits 65,376 81,099
Accounts payable and accrued expenses 57,882 47,016
Notes payable to banks 36,052 16,709
--------- ---------
Total liabilities 563,710 382,860
--------- ---------
Stockholders' equity:
Common stock (60,000,000 shares authorized, 20,443,276 and
20,155,395 shares issued in 1999 and 1998, respectively, $.01 par value) 204 201
Additional paid-in capital 187,396 181,391
Retained earnings 58,462 42,970
Treasury stock (19,340 and 76,290 shares in 1999 and 1998, respectively, at cost) (282) (1,172)
--------- ---------
Total stockholders' equity 245,780 223,390
--------- ---------
Total liabilities and stockholders' equity $ 809,490 $ 606,250
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FREEDOM SECURITIES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
1999 1998 1999 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues
Commissions $ 52,197 $ 44,790 $160,320 $ 131,660
Principal transactions 31,683 17,320 97,017 67,751
Investment banking 23,025 16,581 53,363 63,350
Asset management 17,413 12,683 48,863 33,722
Other 2,106 2,083 6,566 6,926
-------- -------- -------- ---------
Total operating revenues 126,424 93,457 366,129 303,409
Interest income 17,489 12,825 46,093 38,698
-------- -------- -------- ---------
Total revenues 143,913 106,282 412,222 342,107
Interest expense 10,081 6,420 25,219 20,472
-------- -------- -------- ---------
Net revenues 133,832 99,862 387,003 321,635
Non-interest expenses
Compensation and benefits 88,521 63,001 253,374 209,361
Occupancy and equipment 7,331 6,155 21,032 17,309
Communications 5,570 4,580 16,173 13,195
Brokerage and clearance 4,811 3,729 14,624 10,376
Promotional 4,124 3,370 12,166 9,851
Other 12,516 8,406 34,965 27,623
-------- -------- -------- ---------
Total non-interest expenses 122,873 89,241 352,334 287,715
Operating pre-tax income 10,959 10,621 34,669 33,920
Acquisition interest expense 125 -- 125 1,464
-------- -------- -------- ---------
Income before income taxes 10,834 10,621 34,544 32,456
Income taxes 3,830 3,951 13,290 13,122
-------- -------- -------- ---------
Net income before extraordinary item $ 7,004 $ 6,670 $ 21,254 $ 19,334
Extraordinary item (net of tax of $922) -- -- -- (1,276)
-------- -------- -------- ---------
Net income after extraordinary item $ 7,004 $ 6,670 $ 21,254 $ 18,058
======== ======== ======== =========
Net income per share:
Basic before extraordinary item $ 0.36 $ 0.33 $ 1.08 $ 1.06
Basic after extraordinary item $ 0.36 $ 0.33 $ 1.08 $ 0.99
Diluted before extraordinary item $ 0.34 $ 0.32 $ 1.03 $ 1.00
Diluted after extraordinary item $ 0.34 $ 0.32 $ 1.03 $ 0.94
Cash dividends declared per share $ 0.05 $ 0.04 $ 0.14 $ 0.08
Weighted average common shares outstanding:
Basic 19,565 20,029 19,688 18,228
Diluted 20,466 20,978 20,622 19,268
</TABLE>
See accompanying notes.
4
<PAGE> 5
FREEDOM SECURITIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 21,254 $ 18,058
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 3,616 3,754
Amortization 12,070 3,632
Non-cash compensation 123 590
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 21,383 (29,425)
Securities purchased under agreements to resell 23,179 20,239
Securities owned, at market (114,650) 206,212
Deferred taxes (280) (353)
Other receivables (23,488) (6,916)
Other assets (20,007) (4,857)
Increase (decrease) in operating liabilities:
Payables to brokers and dealers 18,542 20,735
Securities sold under agreements to repurchase 11,522 28,029
Securities sold, not yet purchased, at market 96,047 (241,171)
Accrued compensation and benefits (16,896) (5,667)
Accounts payable and accrued expenses 68 (3,569)
--------- ---------
Net cash provided by operating activities 32,483 11,489
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (6,086) (3,058)
Acquisitions, net of cash acquired (28,747) (2,910)
--------- ---------
Net cash used in investing activities (34,833) (5,968)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 702 1,963
Proceeds from initial public offering, net -- 75,741
Purchases of treasury stock, net (21,613) --
Payment of dividends (2,738) (800)
Proceeds from (repayments of) bank borrowings, net 23,124 (83,517)
--------- ---------
Net cash used in financing activities (525) (6,613)
Decrease in cash and cash equivalents (2,875) (1,092)
Cash and cash equivalents, beginning of period 11,292 12,936
--------- ---------
Cash and cash equivalents, end of period $ 8,417 $ 11,844
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 14,799 $ 9,163
Interest $ 26,135 $ 21,495
</TABLE>
See accompanying notes.
5
<PAGE> 6
FREEDOM SECURITIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
retail brokerage and investment banking firm. The Company is engaged primarily
in the retail and institutional brokerage business including corporate finance,
underwriting services and asset management. 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").
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 nine months ended September 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 GIBRALTAR SECURITIES CO.
On September 1, 1999, the Company acquired Gibraltar Securities Co.
("Gibraltar"), a regional brokerage and investment advisory service firm, and
merged it with Tucker Anthony. The acquisition was accounted for using the
purchase method of accounting and the consolidated financial statements include
Gibraltar's results from the acquisition date. The purchase price was $40.3
million which included 1,380,626 shares of the Company's common stock, valued at
$19.5 million, and $19.3 million in cash. In addition, stock options to purchase
shares of Gibraltar capital stock were converted into options with a net value
of $1.5 million to purchase shares of the Company's common stock. The excess of
the purchase price over the estimated fair value of net assets acquired, which
was recorded as goodwill, was $26.1 million and is being amortized over 15 years
using the straight-line method of amortization.
3. 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.
6
<PAGE> 7
3. NET CAPITAL REQUIREMENTS (CONTINUED)
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 September 30, 1999, Tucker Anthony, Sutro and Tucker Cleary
were in compliance with all such requirements.
Tucker Anthony is a registered broker and dealer. At September 30, 1999,
Tucker Anthony had net capital of approximately $16.6 million which was $15.6
million in excess of the $1.0 million amount required to be maintained at that
date.
Sutro is a registered broker and dealer. At September 30, 1999, Sutro had
net capital of approximately $8.2 million which was $7.2 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 September 30, 1999,
Tucker Cleary had net capital of approximately $1.8 million which was $0.5
million in excess of the $1.3 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 September 30, 1999,
FTC's regulatory capital, as defined, was $1.2 million and FTC was in compliance
with all such requirements.
4. 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 position or 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 September
30, 1999 have subsequently settled and had no material effect on the
consolidated statements of income and financial condition.
7
<PAGE> 8
5. 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ------------------------
1999 1998 1999 1998
------- ------- ------- ----------
<S> <C> <C> <C> <C>
NUMERATOR
Net income before extraordinary item $ 7,004 $ 6,670 $21,254 $19,334
Less: extraordinary item (net of tax of $922) -- -- -- (1,276)
------- ------- ------- -------
Net income after extraordinary item $ 7,004 $ 6,670 $21,254 $18,058
DENOMINATOR
Weighted average shares outstanding 19,565 20,029 19,688 18,228
Dilutive effect of:
Stock options and other exercisable shares 901 949 934 1,040
------- ------- ------- -------
Adjusted weighted average shares outstanding 20,466 20,978 20,622 19,268
Basic earnings per share before extraordinary item $ 0.36 $ 0.33 $ 1.08 $ 1.06
Less: extraordinary item (net of tax) -- -- -- (0.07)
------- ------- ------- -------
Basic earnings per share after extraordinary item $ 0.36 $ 0.33 $ 1.08 $ 0.99
Diluted earnings per share before extraordinary item $ 0.34 $ 0.32 $ 1.03 $ 1.00
Less: extraordinary item (net of tax) -- -- -- (0.06)
------- ------- ------- -------
Diluted earnings per share after extraordinary item $ 0.34 $ 0.32 $ 1.03 $ 0.94
</TABLE>
6. 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 the asset management business
of Tucker Anthony and Sutro. The Company offers its asset management clients
8
<PAGE> 9
6. SEGMENT REPORTING DATA (CONTINUED)
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
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Operating revenues $108,902 $17,413 $109 $126,424
Income (loss) before income taxes 7,813 3,880 (859) 10,834
- ---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998
Operating revenues $80,519 $12,683 $255 $93,457
Income (loss) before income taxes 7,154 3,126 341 10,621
- ---------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999
Operating revenues $316,995 $48,863 $271 $366,129
Income (loss) before income taxes 24,874 11,208 (1,538) 34,544
Total assets 693,689 64,595 51,206 809,490
- ---------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating revenues $269,355 $33,722 $332 $303,409
Income (loss) before income taxes 26,596 7,541 (1,681) 32,456
Total assets 419,765 79,707 66,411 565,883
- ---------------------------------------------------------------------------------------------------------------------
</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.
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, including but not limited to those identified
in the following paragraph, 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, 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 nine months 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 remain
favorable in 1999 despite some uncertainty over the direction of U.S. interest
rates in the second and third quarters. 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.
9
<PAGE> 10
COMPANY DEVELOPMENTS
The Company continues to expand its key businesses through acquisitions.
During the nine months ended September 30, 1999, the Company has acquired Hopper
Soliday & Co., Inc. ("Hopper Soliday"), an investment and municipal banking
firm; Charter Investment Group ("Charter"), a brokerage firm based in Oregon;
and Gibraltar Securities Co. ("Gibraltar"), a regional brokerage and investment
advisory service firm.
In addition, on October 29, 1999, the Company completed its previously
announced acquisition of Hill, Thompson, Magid & Co., Inc. ("Hill Thompson"),
headquartered in Jersey City, New Jersey. Hill Thompson is a wholesale market
maker in over-the-counter ("OTC") trading in NASDAQ Small Cap, Bulletin Board
and Pink Sheet stocks. The total consideration for the acquisition of Hill
Thompson was $45 million paid in a combination of cash (approximately 60%) and
common stock (approximately 40%). In connection with the acquisition, the
Company entered into employment agreements with certain employees of Hill
Thompson and established a retention program consisting of $10 million in
restricted common stock. Hill Thompson will operate as a subsidiary of the
Company within its broker-dealer segment and its results will be included in the
Company's consolidated financial statements in the fourth quarter of 1999.
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, 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,
third party correspondent clearing fees and other transaction 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. 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. Communications expense includes charges for
telecommunications, news and market data services. Brokerage and clearance
expense includes the cost of securities clearance, floor brokerage and exchange
fees. Promotional expense includes travel, entertainment and advertising. Other
expenses include general and administrative expenses, such as professional
services, litigation expenses, goodwill amortization, data processing and
miscellaneous expenses. Acquisition interest expense represents interest expense
related to borrowings under revolving credit agreements.
10
<PAGE> 11
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
The following table compares third quarter results (amounts in millions) in 1999
and 1998:
<TABLE>
<CAPTION>
THREE MONTHS PERIOD TO PERIOD PERCENTAGE OF
ENDED SEPTEMBER 30, INCREASE/(DECREASE) NET REVENUES
--------------------- ----------------------- ----------------------
1999 1998 AMOUNT PERCENT 1999 1998
------ ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions $ 52.2 $ 44.8 $ 7.4 17% 39% 45%
Principal transactions 31.7 17.3 14.4 83 24 17
Investment banking 23.0 16.6 6.4 39 17 17
Asset management 17.4 12.7 4.7 37 13 13
Other 2.1 2.1 - - 2 2
------ ------ ----- --- ---
Total operating revenues 126.4 93.5 32.9 35 95 94
Interest income 17.5 12.8 4.7 36 13 12
------ ------ ----- --- ---
Total revenues 143.9 106.3 37.6 35 108 106
Interest expense 10.1 6.4 3.7 57 8 6
------ ------ ----- --- ---
Net revenues 133.8 99.9 33.9 34 100 100
Non-interest expenses:
Compensation and benefits 88.5 63.0 25.5 41 66 63
Occupancy and equipment 7.4 6.2 1.2 19 6 6
Communications 5.6 4.6 1.0 22 4 5
Brokerage and clearance 4.8 3.7 1.1 29 4 4
Promotional 4.1 3.4 0.7 22 3 3
Other 12.5 8.4 4.1 49 9 8
------ ------ ----- --- ---
Total non-interest expenses 122.9 89.3 33.6 38 92 89
------ ------ ----- --- ---
Operating pre-tax income 10.9 10.6 0.3 3 8 11
Acquisition interest expense 0.1 - 0.1 100 0 0
------ ------ ----- --- ---
Income before income taxes 10.8 10.6 0.2 2 8 11
Income taxes 3.8 3.9 (0.1) (3) 3 4
------ ------ ----- --- ---
Net income $ 7.0 $ 6.7 $ 0.3 5% 5% 7%
====== ====== ===== === ===
</TABLE>
Net income was $7.0 million in the third quarter of 1999, up 5% from $6.7
million in the third quarter of 1998. Earnings per share for the quarter were
$0.34, compared with $0.32 a year ago. Third quarter 1999 financial results
reflect increased revenues in all of the Company's principal businesses, higher
costs related to growth and current year acquisitions.
Total operating revenues increased $32.9 million to a record $126.4 million
in the 1999 third quarter, an increase of 35% from $93.5 million a year ago. Net
revenues (including the effect of interest income and interest expense) also
were a record $133.8 million in the 1999 third quarter, up 34% from $99.9
million in the 1998 third quarter.
Commission revenues increased 17% to $52.2 million in the 1999 third
quarter from $44.8 million in the 1998 third quarter. The higher commission
revenues were attributable to both production from new investment executives as
a result of the Company's aggressive hiring during the past year and increased
productivity from existing investment executives.
Revenues from principal transactions were $31.7 million in the third
quarter of 1999, up $14.4 million from a year ago due to an increase in the
Company's fixed income business as well as significantly higher proprietary
trading revenues.
11
<PAGE> 12
Investment banking revenues rose 39% to $23.0 million in the current
quarter from $16.6 million in the third quarter of 1998 largely due to increased
merger and acquisitions, advisory and municipal finance fees.
The Company's asset management revenues grew 37% to $17.4 million in the
third quarter of 1999 compared with $12.7 million in the third quarter of 1998.
At September 30, 1999 the Company had a record $10.2 billion in assets under
management, compared with $8.0 billion a year ago, mostly reflecting new money
added to the funds.
Net interest income, the aggregate of interest income of $17.5 million and
interest expense of $10.1 million, was $7.4 million for the current quarter, up
16% from $6.4 million in the 1998 third quarter. The increase in net interest
income was primarily due to higher customer margin balances driven by growth in
the Company's retail business.
Compensation and benefits expense was $88.5 million in the third quarter of
1999 compared with $63.0 million a year ago. As a result of continuing to
execute the Company's growth strategy, the current quarter includes costs of
$5.5 million related to the acquisitions of Hopper Soliday, Charter, and
Gibraltar during 1999 as well as front-end loaded costs of $5.7 million related
to hiring new investment executives. The Company expects such expenses to
continue as it acquires additional companies, including Hill Thompson in October
1999. The current quarter increase also reflects $11.8 million of higher
production and incentive-related compensation attributable to increased business
levels.
Total non-compensation operating expenses were $34.4 million in the 1999
third quarter, compared with $26.3 million in the third quarter of 1998. The
1999 third quarter includes $3.1 million of non-compensation operating expenses
related to companies which were acquired in 1999. Excluding expenses related to
these acquired companies, non-compensation operating expenses rose $5.0 million
principally as a result of higher occupancy, equipment, communications and other
costs connected with the Company's ongoing expansion of its retail business,
greater investments in technology and clearing costs resulting from higher
business volumes.
The Company's income tax provisions for the quarters ended September 30,
1999 and 1998 were $3.8 million and $3.9 million, respectively. The effective
tax rate was 35% for the third quarter of 1999, down from 37% for the comparable
1998 period primarily reflecting changes in state taxes as a result of higher
taxable income in states with lower tax rates.
12
<PAGE> 13
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998.
The following table compares nine month results (dollars in millions) in 1999
and 1998:
<TABLE>
<CAPTION>
NINE MONTHS PERIOD TO PERIOD PERCENTAGE OF
ENDED SEPTEMBER 30, INCREASE/(DECREASE) NET REVENUES
--------------------------- --------------------------- --------------------------
1999 1998 AMOUNT PERCENT 1999 1998
------------- ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions $160.3 $131.7 $28.6 22% 41% 41%
Principal transactions 97.0 67.8 29.2 43 25 21
Investment banking 53.4 63.3 (9.9) (16) 14 20
Asset management 48.9 33.7 15.2 45 13 10
Other 6.5 6.9 (0.4) (5) 2 2
------------- ------------- ------------- ------------ ------------
Total operating revenues 366.1 303.4 62.7 21 95 94
Interest income 46.1 38.7 7.4 19 12 12
------------- ------------- ------------- ------------ ------------
Total revenues 412.2 342.1 70.1 20 107 106
Interest expense 25.2 20.5 4.7 23 7 6
------------- ------------- ------------- ------------ ------------
Net revenues 387.0 321.6 65.4 20 100 100
Non-interest expenses:
Compensation and benefits 253.4 209.4 44.0 21 65 65
Occupancy and equipment 21.0 17.3 3.7 22 6 5
Communications 16.2 13.2 3.0 23 4 4
Brokerage and clearance 14.6 10.4 4.2 41 4 3
Promotional 12.1 9.8 2.3 24 3 3
Other 35.0 27.6 7.4 27 9 9
------------- ------------- ------------- ------------ ------------
Total non-interest expenses 352.3 287.7 64.6 22 91 89
------------- ------------- ------------- ------------ ------------
Operating pre-tax income 34.7 33.9 0.8 2 9 11
Acquisition interest expense 0.1 1.5 (1.4) (91) 0 1
------------- ------------- ------------- ------------ ------------
Income before income taxes 34.6 32.4 2.2 6 9 10
Income taxes 13.3 13.1 0.2 1 3 4
------------- ------------- ------------- ------------ ------------
Net income before extraordinary item 21.3 19.3 2.0 10 6 6
Extraordinary item (net of tax) - (1.2) 1.2 100 0 0
------------- ------------- ------------- ------------ ------------
Net income after extraordinary item $ 21.3 $ 18.1 $ 3.2 18% 6% 6%
============= ============= ============= ============ ============
</TABLE>
Net income was $21.3 million for the first nine months of 1999, up $2.0
million or 10% from net income before extraordinary item of $19.3 million in the
comparable 1998 period. Year-to-date 1998 financial results 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.
For the first nine months of 1999, total operating revenues were $366.1
million, an increase of $62.7 million or 21% from $303.4 million in the same
period a year ago. Year-to-date net revenues increased 20% to $387.0 million
from $321.6 million in the comparable 1998 period.
Commission revenues grew 22% to $160.3 million in the first nine months of
1999. The increase was driven by the expansion of the Company's retail
operations through the opening of new branch offices and aggressive hiring of
new investment executives as well as higher productivity from existing
investment executives.
Principal transactions revenues increased 43% to $97.0 million for the
first nine months of 1999 from $67.8 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.
13
<PAGE> 14
For the first nine months of 1999, investment banking revenues were $53.4
million, compared with $63.3 million in the same period a year ago. Despite a
significant improvement in municipal finance fees, year-to-date investment
banking revenues were lower than the prior year because of reduced underwriting
and advisory activity in the second quarter of 1999 versus the record high level
in 1998 and, to a lesser extent, certain transitional effects of the
consolidation of equity capital markets groups into Tucker Cleary.
Year-to-date asset management revenues rose 45% to $48.9 million from $33.7
million for the first nine months of 1998, largely a result of overall growth of
$2.2 billion in assets under management from the prior year.
Net interest income, the aggregate of interest income and interest expense,
was $20.9 million for the first nine months of 1999, up $2.7 million or 15% from
$18.2 million a year ago, due primarily to higher customer margin balances
generated by the Company's retail operations.
Year-to-date compensation and benefits expense was $253.4 million, compared
with $209.4 million in the same 1998 period. Of the year-over-year increase,
$15.8 million was attributable to companies acquired since April 1998 with the
remainder primarily reflecting higher incentive and production-related
compensation and costs of recruiting new investment executives.
Total non-compensation operating expenses for the first nine months of 1999
were $98.9 million, versus $78.3 million a year ago. Year-to-date
non-compensation expenses include approximately $8.6 million of operating
expenses related to companies acquired since second quarter 1998. Excluding
expenses related to the acquired companies, non-compensation operating expenses
rose $12.0 million or 15% from the prior year. Occupancy, equipment,
communications and other costs increased, mostly due to retail branch expansion.
Expenses also increased as a result of clearing costs reflecting higher business
volumes and greater investments in technology.
The Company's income tax provisions for the first nine months of 1999 and
1998 were $13.3 million and $13.1 million, respectively. The effective tax rate
was 38% for the first nine months of 1999, down from 40% for the first nine
months of 1998 primarily reflecting changes in state taxes as a result of higher
taxable income in states with lower 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.
14
<PAGE> 15
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 stems from 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.
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. For example, Tucker Anthony's
excess net capital declined at September 30, 1999 primarily due to higher
securities inventory positions and increased receivables from affiliates.
Management believes that funds provided from operations, the credit arrangements
with Wexford and funds from revolving credit agreements will be sufficient to
finance the operating subsidiaries' ongoing businesses.
Borrowings under a 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
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
credit facility calculated at 0.15% per year on the unused facility. At
September 30, 1999, the Company had borrowed $26 million under the Credit
Agreement to finance cash payments related to the acquisition of Gibraltar. In
October 1999, the balance remaining of $24 million was drawn down in connection
with the acquisition of Hill Thompson. In November 1999, the Company secured
additional financing of $50 million through an amendment to its existing Credit
Agreement.
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 September 30, 1999 of $10 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.
15
<PAGE> 16
In September 1998, the Board of Directors approved a stock repurchase
program that permits the Company to purchase 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. To
date, the Company has funded its stock repurchases from internal sources. During
the first nine months of 1999, the Company's treasury stock activities consisted
of repurchased shares of 1,771,670 at an average price of $15.61 per share,
208,351 shares of stock issued to employees as a matching contribution under
profit sharing plans, distribution of 231,885 shares of stock sold under the
Company's Employee Stock Purchase Plan, and 1,388,384 shares issued in
conjunction with acquisitions. 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 September 30, 1999 totaled $8.4 million
compared with $11.8 million at September 30, 1998. Year-to-date 1999 cash flows
from operating activities provided $32.5 million, including net income of $21.3
million. In addition, $23.8 million was provided primarily by net proceeds from
bank borrowings. These cash inflows and available cash were used for the
acquisitions of Hopper Soliday, Charter and Gibraltar totaling $28.7 million,
for net purchases of $21.6 million of treasury stock, to purchase $6.1 million
of fixed assets and to pay dividends of $2.7 million.
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.
16
<PAGE> 17
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 was 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 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. The Company's Year 2000 costs have been minimal and, 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
17
<PAGE> 18
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 could 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 nine months ended September 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 period covered by this report, the Company issued 1,380,626
shares of common stock to the former owners of Gibraltar to acquire their firm
in a private placement transaction exempt under section 4(2) of the Securities
Act.
Additionally, the Company issued 4,191 shares of common stock during the
1999 third quarter in private placement transactions 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 of
the Company's subsidiaries from John Hancock.
Also during the period covered by this report, the Company signed a
definitive agreement for the acquisition of Hill Thompson. The acquisition,
which was completed on October 29, 1999, included the issuance of 1,233,405
shares of common stock in transactions exempt under section 4(2) of the
Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
<PAGE> 19
ITEM 5. OTHER INFORMATION
In early November 1999, the Company appointed John B. Mullin to serve as
Chief Financial Officer on an interim basis while an industry-wide search is in
progress to identify a successor to William C. Dennis, Jr. A decision was
reached by the Company that Mr. Dennis would no longer continue in his role as
Chief Financial Officer. Mr. Dennis still remains employed by the Company.
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 - The following reports were filed with the
Securities and Exchange Commission during the quarter ended September 30,
1999:
July 9, 1999 (Item 5)
Disclosed the Company's anticipated acquisition of Gibraltar, a
regional brokerage and investment advisory firm, that was merged
with its Tucker Anthony subsidiary.
September 22, 1999 (Item 5)
Disclosed the Company's anticipated acquisition of Hill Thompson,
a wholesale market maker in OTC trading in NASDAQ Small Cap,
Bulletin Board and Pink Sheet stocks which will operate as a
subsidiary of the Company.
19
<PAGE> 20
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: November 12 , 1999 BY: /s/ JOHN H. GOLDSMITH
-----------------------------------------
JOHN H. GOLDSMITH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DATE: November 12 , 1999 BY: /s/ JOHN B. MULLIN
-----------------------------------------
JOHN B. MULLIN
CHIEF FINANCIAL OFFICER
20
<PAGE> 21
EXHIBIT INDEX
-------------
ITEM NO. DESCRIPTION SEQUENTIAL PAGE NO.
- -------- ----------- -------------------
27 Financial Data Schedule 20
21
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,417
<RECEIVABLES> 131,205
<SECURITIES-RESALE> 96,682
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 423,974
<PP&E> 22,700
<TOTAL-ASSETS> 809,490
<SHORT-TERM> 0
<PAYABLES> 262,053
<REPOS-SOLD> 40,104
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 225,501
<LONG-TERM> 36,052
0
0
<COMMON> 204
<OTHER-SE> 245,576
<TOTAL-LIABILITY-AND-EQUITY> 809,490
<TRADING-REVENUE> 97,017
<INTEREST-DIVIDENDS> 46,093
<COMMISSIONS> 160,320
<INVESTMENT-BANKING-REVENUES> 53,363
<FEE-REVENUE> 48,863
<INTEREST-EXPENSE> 25,344
<COMPENSATION> 253,374
<INCOME-PRETAX> 34,544
<INCOME-PRE-EXTRAORDINARY> 21,254
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,254
<EPS-BASIC> 1.08
<EPS-DILUTED> 1.03
</TABLE>
