<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 MARCH 31, 2000
- --- 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
TUCKER ANTHONY SUTRO
- --------------------------------------------------------------------------------
(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 May 8, 2000 the Company had 22,484,585 shares of common stock
outstanding.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Income - Three months
ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 2000 and 1999 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 12
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TUCKER ANTHONY SUTRO
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(unaudited)
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 42,582 $ 24,647
Receivables from brokers and dealers 106,513 103,568
Securities purchased under agreements to resell 51,181 41,250
Securities owned, at market 440,447 414,245
Fixed assets, net of accumulated depreciation and amortization 25,291 24,644
Deferred income taxes 11,075 10,936
Goodwill, net of accumulated amortization 85,466 87,083
Other receivables 61,952 56,684
Other assets 66,543 54,946
--------- ---------
Total assets $ 891,050 $ 818,003
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payables to brokers and dealers $ 98,237 $ 88,811
Securities sold under agreements to repurchase 5,005 10,983
Securities sold, not yet purchased, at market 265,619 234,026
Accrued compensation and benefits 85,122 94,341
Accounts payable and accrued expenses 76,625 56,323
Notes payable to banks 60,041 61,303
--------- ---------
Total liabilities 590,649 545,787
--------- ---------
Stockholders' equity:
Common stock, $.01 par value (60,000,000 shares authorized,
22,451,839 and 21,773,841 shares issued in 2000 and 1999,
respectively) 225 218
Additional paid-in capital 215,999 207,134
Retained earnings 84,343 65,175
Treasury stock (11,709 and 21,967 shares in 2000 and 1999,
respectively, at cost) (166) (311)
--------- ---------
Total stockholders' equity 300,401 272,216
--------- ---------
Total liabilities and stockholders' equity $ 891,050 $ 818,003
========= =========
</TABLE>
See accompanying notes.
3
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TUCKER ANTHONY SUTRO
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues
Commissions $ 90,170 $ 54,020
Principal transactions 89,687 32,555
Investment banking 29,851 13,482
Asset management 19,101 14,251
Net interest income (net of interest expense of
$16,457 in 2000 and $6,965 in 1999) 9,927 6,283
Other 3,991 2,048
-------- --------
Net revenues 242,727 122,639
Non-interest expenses
Compensation and benefits 156,898 79,851
Occupancy and equipment 8,264 6,591
Communications 6,584 5,186
Brokerage and clearance 9,165 4,934
Promotional 5,646 3,654
Other 21,180 10,966
-------- --------
Total non-interest expenses 207,737 111,182
-------- --------
Income before income taxes 34,990 11,457
Income taxes 14,586 4,659
-------- --------
Net income $ 20,404 $ 6,798
======== ========
Earnings per share:
Basic $ 0.93 $ 0.34
Diluted $ 0.90 $ 0.33
Cash dividends declared per share $ 0.05 $ 0.04
Weighted-average common shares outstanding:
Basic 21,938 19,823
Diluted 22,681 20,726
</TABLE>
See accompanying notes.
4
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TUCKER ANTHONY SUTRO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,404 $ 6,798
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,775 2,774
Deferred income taxes (139) (42)
Non-cash compensation 41 41
Changes in assets and liabilities, net of effects of acquisitions
(Increase) decrease in operating assets:
Receivables from brokers and dealers (2,945) 29,311
Securities purchased under agreements to resell (9,931) 60,248
Securities owned, at market (26,202) (20,850)
Other receivables (5,268) (11,868)
Other assets (15,960) (10,429)
Increase (decrease) in operating liabilities:
Payables to brokers and dealers 9,426 (17,582)
Securities sold under agreements to repurchase (5,978) (2,780)
Securities sold, not yet purchased, at market 31,593 31,239
Accrued compensation and benefits (4,620) (43,672)
Accounts payable and accrued expenses 21,376 (1,494)
-------- --------
Net cash provided by operating activities 21,572 21,694
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (3,317) (2,172)
Acquisitions, net of cash acquired -- (9,458)
-------- --------
Net cash used in investing activities (3,317) (11,630)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 2,033 2,056
Purchases of treasury stock -- (12,938)
Payment of dividends (1,091) (792)
Repayments of bank borrowings (1,262) (986)
-------- --------
Net cash used in financing activities (320) (12,660)
-------- --------
Increase (decrease) in cash and cash equivalents 17,935 (2,596)
Cash and cash equivalents, beginning of period 24,647 11,292
-------- --------
Cash and cash equivalents, end of period $ 42,582 $ 8,696
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 5,222 $ 4,021
Interest $ 14,755 $ 6,445
</TABLE>
See accompanying notes.
5
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TUCKER ANTHONY SUTRO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
Tucker Anthony Sutro (formerly Freedom Securities Corporation) is a holding
company which together with its wholly-owned subsidiaries (collectively, the
"Company") is a full-service retail brokerage, asset management and investment
banking firm. The consolidated financial statements include the accounts of the
Company and its operating subsidiaries: Tucker Anthony Incorporated ("Tucker
Anthony"), a full-service brokerage and investment firm, and its divisions:
Tucker Anthony Cleary Gull, an investment banking and institutional brokerage
firm, Gibraltar Securities, a brokerage and investment advisory firm and Tucker
Anthony MidAtlantic, a municipal finance and underwriting brokerage firm; Sutro
& Co. Incorporated ("Sutro"), a West Coast brokerage and investment banking
firm; Hill, Thompson, Magid & Co., Inc. ("Hill Thompson"), a New Jersey-based
over-the-counter trading firm; Freedom Capital Management Corporation ("Freedom
Capital"), a Boston-based asset management firm; and Cleary Gull Investment
Management Services, Inc. ("Cleary Gull IMS"), a Milwaukee-based asset
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. Management believes that the estimates
utilized in preparing its financial statements are reasonable and prudent.
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 months ended March 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. 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, 1999.
2. NET CAPITAL REQUIREMENTS
Certain subsidiaries of the Company are subject to the net capital
requirements of the New York Stock Exchange, Inc. ("Exchange") and the Uniform
Net Capital requirements of the Securities and Exchange Commission
("Commission") under Rule 15c 3-1. 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.
Tucker Anthony is a registered broker and dealer. At March 31, 2000, Tucker
Anthony had net capital of approximately $25.4 million which was $24.4 million
in excess of the $1.0 million amount required to be maintained at that date.
6
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2. NET CAPITAL REQUIREMENTS (CONTINUED)
Sutro is a registered broker and dealer. At March 31, 2000, Sutro had net
capital of approximately $11.0 million which was $10.0 million in excess of the
$1.0 million amount required to be maintained at that date.
Hill Thompson is a registered broker and dealer. At March 31, 2000, Hill
Thompson had net capital of approximately $31.8 million which was $30.8 million
in excess of the $1.0 million amount required to be maintained at that date. In
addition, at March 31, 2000, Hill Thompson had $ 0.2 million in cash segregated
in a special reserve bank account for the exclusive benefit of customers
pursuant to the reserve formula requirements of Rule 15c 3-3.
Cleary Gull IMS is a registered broker and dealer. At March 31, 2000, Cleary
Gull IMS had net capital of approximately $0.3 million which was $0.2 million in
excess of the $0.1 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 March 31, 2000, FTC's
regulatory capital, as defined, was $1.3 million and FTC was in compliance with
all such requirements.
Under a clearing arrangement with Wexford Clearing Services Corporation
("Wexford"), Tucker Anthony, Sutro and Cleary Gull IMS are required to maintain
certain minimum levels of net capital and comply with other financial ratio
requirements. At March 31, 2000, Tucker Anthony, Sutro and Cleary Gull IMS were
in compliance with all such requirements.
3. 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, that 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 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 March 31, 2000 have subsequently
settled and had no material effect on the consolidated statements of income and
financial condition.
7
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4. 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):
THREE MONTHS ENDED
MARCH 31, 2000
------------------
2000 1999
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NUMERATOR
Net income $20,404 $ 6,798
DENOMINATOR
Weighted-average shares outstanding 21,938 19,823
Dilutive effect of:
Stock options and other exercisable shares (a) 743 903
------- -------
Adjusted weighted-average shares outstanding 22,681 20,726
EARNINGS PER SHARE
Basic $0.93 $0.34
Diluted $0.90 $0.33
(a) Options to purchase 743,339 shares of the Company's common stock were
outstanding at March 31, 2000 but were not included in the computation of
diluted earnings per share. Also excluded from the computation were
666,667 shares of restricted stock that were not vested at March 31,
2000. The inclusion of such options and restricted stock would have had
an antidilutive effect on the diluted earnings per share calculation
because the options' exercise prices and restricted stock prices were
greater than the average market price of the Company's common shares for
the 2000 first quarter.
5. SEGMENT REPORTING DATA
The Company has two reportable segments: broker-dealer and asset management.
The Company's broker-dealer segment includes the retail operations, equity
capital markets and trading businesses of Tucker Anthony, Sutro and Hill
Thompson 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 Freedom Capital, Cleary Gull IMS 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 reported segments
(amounts in thousands):
<TABLE>
<CAPTION>
ASSET
BROKER-DEALER MANAGEMENT OTHER(a) TOTAL
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2000
<S> <C> <C> <C> <C>
Net revenues $222,397 $19,146 $ 1,184 $242,727
Income (loss) before income taxes 38,954 4,232 (8,196) 34,990
Total assets 735,723 75,303 80,024 891,050
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
Net revenues $107,743 $14,355 $ 541 $122,639
Income before income taxes 8,024 3,425 8 11,457
Total assets 457,903 61,085 52,235 571,223
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Other reflects the activities of the Company's holding companies. Income
(loss) before income taxes includes amortization of goodwill and
acquisition related expenses. Total assets primarily consist of goodwill
and deferred taxes of Tucker Anthony Sutro.
8
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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 statements which 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 in highly competitive markets 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, 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 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.
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. 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. Net interest
income equals interest income less interest expense. 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. Interest expense includes interest paid under its
Wexford financing arrangement and on bank borrowings, securities sold under
agreements to repurchase and cash balances in customer accounts held by Wexford.
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 other
miscellaneous expenses.
9
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
The following table compares first quarter results (amounts in millions) in 2000
and 1999:
<TABLE>
<CAPTION>
THREE MONTHS PERIOD TO PERIOD PERCENTAGE OF
ENDED MARCH 31, INCREASE/(DECREASE) NET REVENUES
-------------------------- -------------------------- -------------------
2000 999(a) AMOUNT PERCENT 2000 1999
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<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions $ 90.2 $ 54.0 $ 36.2 67 37 44
Principal transactions 89.7 32.6 57.1 175 37 27
Investment banking 29.8 13.5 16.3 121 12 11
Asset management 19.1 14.2 4.9 34 8 12
Net interest income (b) 9.9 6.3 3.6 58 4 5
Other 4.0 2.0 2.0 95 2 1
-------- -------- -------- -------- --------
Net revenues 242.7 122.6 120.1 98 100 100
Non-interest expenses:
Compensation and benefits 156.9 79.9 77.0 96 65 65
Occupancy and equipment 8.3 6.6 1.7 25 3 5
Communications 6.5 5.2 1.3 27 3 4
Brokerage and clearance 9.2 4.9 4.3 86 4 4
Promotional 5.6 3.6 2.0 55 2 3
Other 21.2 11.0 10.2 93 9 10
-------- -------- -------- -------- --------
Total non-interest expense 207.7 111.2 96.5 87 86 91
Income before income taxes 35.0 11.4 23.6 205 14 9
Income taxes 14.6 4.6 10.0 213 6 3
-------- -------- -------- -------- --------
Net income $ 20.4 $ 6.8 $ 13.6 200 8 6
======== ======== ======== ======== ========
</TABLE>
(a) Certain amounts have been reclassified to conform with 2000 financial
statement presentation.
(b) Net interest income is net of interest expense of $16.5 million in 2000
and $7.0 million in 1999.
Net income for the first quarter ended March 31, 2000 increased 200% to a
record $20.4 million compared with $6.8 million a year ago. Earnings per share
(diluted) for the quarter were $0.90, up 173% from $0.33 in the first quarter of
last year. Net revenues were $242.7 million in this year's first quarter, up
$120.1 million or 98% from $122.6 million a year ago. These results reflect the
impact of the Company's successful integration of its acquisitions, benefits
from growth of its core businesses and strong market conditions during the first
quarter of 2000.
Commission revenues rose 67% to a record $90.2 million in the 2000 first
quarter from $54.0 million in the same period a year ago. The higher commission
revenues stem from increased productivity per investment executive as well as an
overall increase in new investment executives as a result of acquisitions and
the Company's recruiting efforts throughout 1999.
Revenues from principal transactions were $89.7 million in the first quarter
of 2000, up $57.1 million or 175% from $32.6 million a year ago, primarily due
to the acquisitions of Hill Thompson and Gibraltar in late 1999 which
contributed $52.9 million of the increase in the current quarter. Of the $52.9
million increase attributable to Hill Thompson and Gibraltar, $44.9 million or
85% stems from Hill Thompson whose primary business is market making in NASDAQ
Small Cap, OTC Bulletin Board and Pink Sheet stocks. Hill Thompson benefited
from high levels of market activity in OTC traded securities during the first
quarter.
Investment banking revenues increased 121% to $29.8 million in the current
quarter from $13.5 million in the first quarter of 1999, primarily due to
increased volume in merger and acquisitions and, to a lesser extent, from
private transactions and underwriting.
10
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Asset management revenues grew 34% to $19.1 million in the first quarter of
2000 compared with $14.2 million in the first quarter of 1999, mainly due to
growth in assets under management, which grew to $11.8 billion at March 31, 2000
from $9.4 billion in 1999.
Net interest income was $9.9 million for the current quarter, up $3.6
million or 58% from $6.3 million in the 1999 first quarter, mostly due to higher
customer margin balances.
Non-interest expenses were $207.7 million in the first quarter of 2000, an
increase of 87% from the $111.2 million in the first quarter of 1999. Included
in the current quarter expenses are costs of $22.6 million from Hill Thompson
and $10.7 million from Gibraltar, which were both acquired in late 1999.
Compensation and benefits expense as a percentage of net revenues was down to
64.6% from 65.1% in the prior year quarter. Non-compensation operating expenses
were $50.8 million in the first quarter of 2000 (including $6.3 million from
Hill Thompson and Gibraltar) versus $31.3 million a year ago and increased
primarily due to growth in the Company's net revenues. Despite the increase in
costs, non-compensation operating expenses declined as a percentage of net
revenues to 20.9 % for the current quarter from 25.5% a year ago.
The Company's income tax provisions for the quarters ended March 31, 2000
and 1999 were $14.6 million and $4.6 million, respectively. The effective tax
rate was 42% for the first quarter of 2000, up from 41% for the same period last
year mainly due to an increase in income and transactions that are not subject
to preferential tax treatment.
LIQUIDITY AND CAPITAL RESOURCES
The Company receives dividends, interest on loans and other payments from
its subsidiaries, which are the Company's main 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 their 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.
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 of 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 its current assets and liabilities.
11
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 a description of the
Company's net capital requirements, see Note 2 of the Notes to the Financial
Statements. Management believes that existing capital, funds provided by
operations, the credit arrangement with Wexford and funds available from a
revolving credit agreement will be sufficient to finance the operating
subsidiaries' ongoing businesses. In 1999, the Company financed acquisitions
with cash, stock or a combination of both. Future acquisitions, if any, would
likely be financed in the same manner. Funds available from a revolving credit
agreement are expected to be sufficient to finance acquisitions in the near
future.
The Company maintains a revolving credit agreement (the "Credit Agreement")
whereby participating banks have made commitments totaling $100 million. At
March 31, 2000, the Company had borrowings of $50.0 million at interest rates
ranging from 1% to 1.45% above the federal funds rate. In addition, the Company
must pay a commitment fee of 0.20% on the unused available credit. The Credit
Agreement matures in November 2003 with all outstanding notes payable at that
date. The Company must comply with certain financial covenants under the Credit
Agreement and was in compliance with such covenants at March 31, 2000.
The Company maintains, through two subsidiaries, a fixed asset credit
facility (the "Fixed Asset Facility") secured by certain of the Company's fixed
assets. At March 31, 2000, the Company had borrowings outstanding under the
Fixed Asset Facility of $10.0 million, of which $7.9 million is payable in
monthly installments until December 2001 and $2.1 million is payable in monthly
installments through June 2003. The Company has historically financed capital
expenditures through internal cash generation and through the Fixed Asset
Facility. For the three months ended March 31, 2000 and 1999, the Company had
capital expenditures of $3.3 million and $2.2 million, respectively, which were
funded from operations.
The Company has a stock repurchase program that permits it to purchase
approximately two million shares of its common stock outstanding. To date, the
Company has funded its stock repurchases from internal sources and, as of March
31, 2000, the Company had 906,758 shares available for purchase under the
program.
CASH FLOWS
For the three months ended March 31, 2000, cash and cash equivalents
increased $17.9 million. Funds generated from operating activities were $21.6
million including net income of $20.4 million and depreciation, amortization and
other non-cash charges to net income of $9.7 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the three months ended March 31, 2000
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, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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, that it has
meritorious defenses to all such actions and intends to defend each of these
vigorously.
12
<PAGE> 13
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) UNREGISTERED SECURITIES:
During the first quarter of 2000, the Company issued 62,490 additional
shares of its common stock to the former owners of The Hill Thompson Group, Ltd.
to finalize the acquisition of their firm in a private placement transaction
exempt under section 4(2) of the Securities Act.
Additionally, during the first quarter of 2000 the Company issued 10,258
shares of common stock 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 in 1996.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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 - The following reports were filed with the
Securities and Exchange Commission during the quarter ended March 31, 2000:
January 25, 2000 (Item 5)
Disclosed that Kenneth S. Klipper had been named Chief Financial
Officer and an Executive Vice President of the Company and a member of
its Operating Committee.
Disclosed that the Company issued a press release announcing its
financial results for the 1999 fourth quarter.
13
<PAGE> 14
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.
TUCKER ANTHONY SUTRO
(REGISTRANT)
DATE: May 12, 2000 BY: /s/ JOHN H. GOLDSMITH
-------------------------------------------
JOHN H. GOLDSMITH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DATE: May 12, 2000 BY: /s/ KENNETH S. KLIPPER
-------------------------------------------
KENNETH S. KLIPPER
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
14
<PAGE> 15
EXHIBIT INDEX
ITEM NO. DESCRIPTION SEQUENTIAL PAGE NO.
-------- ----------- -------------------
27 Financial Data Schedule 16
15
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<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 42,582
<RECEIVABLES> 168,465
<SECURITIES-RESALE> 51,181
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 440,447
<PP&E> 25,291
<TOTAL-ASSETS> 891,050
<SHORT-TERM> 0
<PAYABLES> 259,984
<REPOS-SOLD> 5,005
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 265,619
<LONG-TERM> 60,041
0
0
<COMMON> 225
<OTHER-SE> 300,176
<TOTAL-LIABILITY-AND-EQUITY> 891,050
<TRADING-REVENUE> 89,687
<INTEREST-DIVIDENDS> 26,384
<COMMISSIONS> 90,170
<INVESTMENT-BANKING-REVENUES> 29,851
<FEE-REVENUE> 19,101
<INTEREST-EXPENSE> 16,457
<COMPENSATION> 156,898
<INCOME-PRETAX> 34,990
<INCOME-PRE-EXTRAORDINARY> 34,990
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,404
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.90
</TABLE>
