===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
|_| 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 001-14205
JWGENESIS FINANCIAL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0811010
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 North Federal Highway o Suite 310
Boca Raton, Florida 33432
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 338-2600
Indicate by check mark 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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 12, 1999
--------------------------------------- --------------------------------
Common stock, $.001 par value per share 5,952,782
Exhibit index is located on page 16.
Total number of pages including cover page - 16.
===============================================================================
<PAGE>
JWGENESIS FINANCIAL CORP.
INDEX
<TABLE>
<CAPTION>
Page
----
Part I. Financial Information
Item 1. Financial Statements.
<S> <S> <C>
Consolidated Condensed Statements of Financial Condition
at September 30, 1999 and December 31, 1998 3
Consolidated Condensed Statements of Income for the Three Month and
Nine Month Periods Ended September 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows for the Nine Month Periods
Ended September 30, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1999 1998(*)
-------------------------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash and cash equivalents $ 57,399,000 $ 16,978,000
Receivable from customers, net -- 117,579,000
Receivable from brokers and dealers 4,669,000 6,915,000
Securities owned, at estimated fair value 9,686,000 13,746,000
Cost in excess of the value of net assets acquired 15,252,000 14,838,000
Furniture, equipment and leasehold improvements, net of accumulated
depreciation and amortization of $3,327,000 and $3,035,000 2,963,000 3,386,000
Deferred tax asset 4,249,000 --
Other, net 8,647,000 6,952,000
------------------------------
$102,865,000 $ 180,394,000
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Short-term borrowings from banks $ -- $ 16,988,000
Accounts payable, accrued expenses and other liabilities 13,016,000 17,319,000
Payable to customers -- 49,218,000
Payable to brokers and dealers 2,598,000 42,283,000
Securities sold, not yet purchased, at estimated fair value 1,826,000 305,000
Lines of credit -- 3,000,000
Income taxes payable 1,744,000 656,000
Deferred gain 14,500,000 --
Deferred tax liabilities -- 356,000
------------------------------
33,684,000 130,125,000
------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value - authorized 5,000,000 shares; no shares issued
or outstanding -- --
Common stock, $.001 par value - authorized 30,000,000 shares; issued
and outstanding 5,952,782 and 5,501,054 6,000 6,000
Additional paid-in capital 25,439,000 22,987,000
Retained earnings 46,942,000 (7,000)
------------------------------
Total stockholders' equity 69,181,000 50,269,000
------------------------------
$102,865,000 $ 180,394,000
==============================
</TABLE>
* - Derived from audited consolidated financial statements contained in
JWGenesis Financial Corp. Annual Report on Form 10-K for the fiscal year ended
December 31, 1998. See Note 2.
(The accompanying Notes to Consolidated Condensed
Financial Statements are an integral part of
these financial statements.)
Page 3
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Nine Months Ended
Ended September September 30,
30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 22,929,000 $ 16,793,000 $79,446,000 $43,974,000
Market making and principal transactions, net 2,242,000 5,769,000 13,890,000 16,255,000
Gain on sale of subsidiary - - 23,877,000 -
Interest 1,562,000 3,834,000 8,578,000 10,814,000
Clearing fees - 2,164,000 5,327,000 6,625,000
Other 2,185,000 1,299,000 5,849,000 3,332,000
----------------------------------- -----------------------------------
28,918,000 29,859,000 136,967,000 81,000,000
----------------------------------- -----------------------------------
Expenses:
Commissions and clearing costs 17,006,000 14,620,000 58,356,000 41,077,000
Employee compensation and benefits 4,562,000 5,962,000 21,540,000 14,847,000
Selling, general and administrative 5,828,000 6,751,000 21,990,000 14,881,000
Interest 21,000 1,564,000 2,792,000 4,277,000
----------------------------------- -----------------------------------
27,417,000 28,897,000 104,678,000 75,082,000
----------------------------------- -----------------------------------
Income before income taxes 1,501,000 962,000 32,289,000 5,918,000
Provision for income taxes 676,000 456,000 12,630,000 2,366,000
=================================== ===================================
Net income $ 825,000 $ 506,000 $ 19,659,000 $ 3,552,000
=================================== ===================================
Earnings per common share:
Basic $0.14 $.10 $3.41 $.81
=================================== ===================================
Diluted $0.12 $.09 $3.02 $.72
=================================== ===================================
Weighted average common shares outstanding:
Basic 5,840,308 5,324,990 5,756,227 4,395,018
=================================== ===================================
Diluted 6,752,809 5,739,114 6,499,069 4,938,635
=================================== ===================================
(The accompanying Notes to Consolidated Condensed
Financial Statements are an integral part of
these financial statements.)
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Operating activities
Net income $ 19,659,000 $ 3,552,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization on furniture, 482,000 422,000
equipment and leasehold improvements
Amortization of costs in excess of fair value of 1,283,000 --
net assets acquired and other
Change in assets and liabilities, net of effect of acquisition:
Receivable from customers 117,579,000 (7,205,000)
Receivable from brokers and dealers (202,000) (1,475,000
Securities owned 4,060,000 (4,685,000)
Deferred tax asset (4,605,000) (48,000)
Other assets (3,399,000) (1,534,000)
Accounts payable, accrued expenses and other liabilities (1,623,000) (1,721,000)
Payable to customers (49,218,000) (16,557,000)
Payable to brokers and dealers (38,956,000) 22,316,000
Securities sold, not yet purchased 1,521,000 (300,000
Deferred gain 14,500,000 --
Income taxes payable 1,088,000 (1,576,000
-------------------------------
Net cash provided by (used in) operating activities 62,169,000 (5,659,000)
-------------------------------
Investing activities
Purchases of furniture, equipment and leasehold improvements (1,100,000) (866,000)
Acquisition of cost in excess of the values of net assets acquired (1,677,000) --
Disposal of furniture, equipment and leasehold improvements 75,000 --
-------------------------------
Net cash used in investing activities (2,702,000) (866,000)
-------------------------------
Financing activities
Change in short-term borrowings from banks (16,809,000) 8,678,000
Change in notes payable to affiliate -- (5,113,000)
Change in lines of credit (3,000,000) 2,110,000
Acquisition of treasury shares (1,689,000) --
Issuance of common stock 2,452,000 2,047,000
-------------------------------
Net cash provided by (used in) financing activities (19,046,000) 7,722,000
-------------------------------
Net increase in cash and cash equivalents 40,421,000 1,197,000
Cash and cash equivalents at beginning of period 16,978,000 11,512,000
-------------------------------
Cash and cash equivalents at end of period $ 57,399,000 $ 12,709,000
===============================
</TABLE>
(Continued on next page)
Page 5
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $17,190,000 $ 954,000
=========================================
Cash paid during the period for interest $1,615,000 $ 2,713,000
=========================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On March 3, 1999, the Company acquired 284,375 shares of treasury stock on
connection with its divestiture of JWGenesis Capital Markets, LLC. In exchange
for these shares, the Company transferred $1,689,000 of cash and net assets of
$1,765,000.
On July 15, 1999, the Company granted options for the purchase of an aggregate
of 500,000 shares of common stock at an exercise price of $13.40; the options
are fully vested and immediately exercisable, and have a five-year term.
(The accompanying Notes to Consolidated Condensed Financial Statements are an
integral part of these financial statements.)
</TABLE>
Page 6
<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
As discussed in the Company's 1998 Annual Report on Form 10-K, on June 12, 1998,
JWGenesis Financial Corp. ("JWGenesis" or the "Company") and its predecessor JW
Charles Financial Services, Inc. ("JWCFS") consummated a series of transactions
(the "Combination") in which the Company acquired Genesis Merchant Group
Securities LLC ("Genesis") and JWCFS, the latter pursuant to a statutory share
exchange of one share of JWGenesis common stock for each outstanding share of
JWCFS common stock. As a result of the Combination, JWGenesis succeeded to the
business and operations of JWCFS and Genesis, with both becoming wholly-owned
subsidiaries of the Company. Information relating to periods prior to June 12,
1998 is derived solely from information and financial statements of JWCFS and,
except as otherwise expressly indicated, relates to matters prior to the
Combination.
The interim financial information included herein is unaudited; however, such
information reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the periods indicated.
The accompanying consolidated condensed financial statements include the
accounts of the Company and its subsidiaries. Certain information and footnote
disclosures normally included in financial statements prepared in conformity
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
These consolidated condensed financial statements should be read in conjunction
with the consolidated financial statements and related notes contained in the
Company's 1998 Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the three
and nine month periods ended September 30, 1999 are not necessarily indicative
of the results of operations to be expected for the fiscal year ending December
31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
- ----------------------
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries which are: JWGenesis Financial Services, Inc.
formerly JW Charles Financial Services, Inc. ("JWGFS") Corporate Securities
Group, Inc. ("CSG"), JWGenesis Securities, Inc. formerly JW Charles Securities,
Inc. ("JWG Securities"), JWGenesis Capital Markets, Inc. formerly JWGenesis
Capital Corp. ("JWG Markets"), JWGenesis Insurance Services, Inc. formerly First
Investors Life Agency, Inc. ("JWG Insurance"), DMG Securities, Inc. ("DMG") and
GSG Securities, Inc. formerly Discount Securities Group, Inc. ("GSG"). In
addition, the accompanying consolidated financial statements include the
accounts of JWGenesis Capital Markets, LLC ("JWG Capital") (effective June 12,
1998) (See Note 5, "Acquisitions and Divestitures") and JWGenesis Clearing Corp.
("JWG Clearing) through May 31, 1999 (See Note 5, "Acquisitions and
Divestitures"). All significant intercompany transactions have been eliminated
in consolidation.
Reclassifications
- -----------------
Certain amounts in the prior period's consolidated condensed financial
statements have been reclassified to conform to the current period's
presentation. These reclassifications are not material to the consolidated
condensed financial statements.
3. CONTINGENCIES
The Company is involved in various claims and possible actions arising out of
the normal course of its business. Although the ultimate outcome of these claims
cannot be ascertained at this time, it is the opinion of the Company, based on
knowledge of facts and advice of counsel, that the resolution of such actions
will not have a material adverse effect on the Company's financial condition and
results of operations.
Page 7
<PAGE>
4. NET CAPITAL
The broker-dealer subsidiaries of the Company are subject to the requirements of
Rule 15c3-1 under the Securities Exchange Act of 1934. This rule requires that
aggregate indebtedness, as defined, not exceed fifteen times net capital, as
defined. At September 30, 1999, the net capital positions of the Company's
broker- dealer subsidiaries were as follows:
CSG:
Ratio of aggregate indebtedness to net capital 1.22
Net capital $3,435,000
Required net capital $280,000
JWG Securities:
Ratio of aggregate indebtedness to net capital 4.18
Net capital $1,434,000
Required net capital $400,000
GSG:
Ratio of aggregate indebtedness to net capital 2.89
Net capital $515,000
Required net capital $100,000
DMG:
Ratio of aggregate indebtedness to net capital .32
Net capital $296,000
Required net capital $100,000
5. ACQUISITIONS AND DIVESTITURES
On June 12, 1998, the Company acquired JWG Capital, formerly known as Genesis
Merchant Group Securities, LLC, a San Francisco-based investment banking firm.
The acquisition (which was accounted for under the purchase method) was
accomplished by the Company through the issuance of 1,500,000 shares of its
authorized but unissued common stock in exchange for a 100% ownership in JWG
Capital. The purchase price of $18,650,000 exceeded the fair value of net assets
acquired by approximately $15,250,000, which is being amortized on a
straight-line basis over 20 years.
On March 3, 1999, the Company divested JWG Capital, whose operations consisted
primarily of the Company's San Francisco-based brokerage processing services
unit that had been acquired in the Combination on June 12, 1998, to an investor
group led by certain former owners of JWG Capital in exchange for 284,375 shares
of common stock of the Company and various mutual releases. As part of the
divestiture, JWG Capital transferred its investment banking, corporate finance
and portions of its capital markets business to another Company subsidiary, so
that those operations would be retained by the Company. The Company assumed
responsibility for and retained occupancy of the New York City office of JWG
Capital.
On June 1, 1999, the Company completed the sale of JWG Clearing to Fiserv, Inc.
("Fiserv") through its wholly owned subsidiary Fiserv Clearing, Inc. ("Fiserv
Clearing"). JWG Clearing had functioned primarily as the Company's securities
clearing, execution, and back office services unit, and only those operations
comprised JWG Clearing at the time the sale was consummated. For the sale to
Fiserv, the Company received cash consideration of $58,870,000, and may receive
additional consideration based on the outcome of various matters. Of this
amount, $18,870,000 represented the net book value of JWG Clearing and $40
million represented the purchase price in excess of the net book value of JWG
Clearing. Of the $40 million, $25 million was recorded as income (reduced by
certain expenses related to the sale) in the current period under the caption
"gain on sale of subsidiary" and the remaining $15 million was recorded as a
deferred gain and will be accreted into income ratably over 10 years.
Page 8
<PAGE>
In connection with the sale, (i) the Company entered into a Transition Services
Agreement pursuant to which, following the sale, it will continue to provide
certain assistance and services to JWG Clearing and Fiserv Clearing, and will
permit JWG Clearing and Fiserv Clearing to use certain facilities during a
transition period for a monthly fee approximating actual costs; (ii) the Company
agreed not to compete for ten years in the securities clearing and execution
business and not to solicit personnel of JWG Clearing or Fiserv and its
affiliates; and (iii) the Company agreed, subject to certain limitations and
exclusions (primarily related to independent contractor registered
representatives, possible future acquisitions, and a one-year phase-in period),
to use and cause its subsidiaries and affiliates to use the clearing services of
designated Fiserv affiliates for at least 90% of their securities brokerage
transactions, and, in the case of independent contractor registered
representatives, to impose a surcharge on certain such transactions that are not
cleared through a Fiserv affiliate, during the 10-year period following the
sale. The Company has the right, however, to be released from the above
obligations to use Fiserv affiliates or to impose a surcharge by repaying to
Fiserv a portion of the sales price based on a prescribed formula that takes
into account the price paid in the sale and the amount of clearing services
business then being generated by the Company or its affiliate seeking the
release.
As a result of the sale and the above agreements, the Company ceased providing
clearing services, both to third party correspondents (such as broker dealers,
banks, and other financial institutions) and for its own securities brokerage
transactions.
6. SEGMENT ANALYSIS
The Company's reportable segments are: captive retail distribution,
independently owned retail distribution, clearing and trading, capital markets
and other. The captive retail distribution segment includes the 22 retail
branches of JWG Securities and GSG located in Florida, California, Georgia,
Illinois, Colorado, Connecticut and New York. These branches provide securities
brokerage services including the sale of equities, mutual funds, fixed income
products and insurance to their retail clients. The independently owned retail
distribution segment includes the 118 CSG offices and one DMG office, all of
which are located in the U.S., providing securities brokerage services including
the sale of equities, mutual funds, fixed income products and insurance to their
retail clients. The clearing and trading segment now comprises primarily of the
trading of equities and fixed income products as principal, investments in
trading firms including Knight/Trimark Group, Inc. and Strike Technologies LLC,
and proceeds from the sale of JWG Clearing. Until June 1, 1999, this segment
also included securities clearing, execution, and related back office services,
none of which the Company now provides. The capital markets segment includes
management and participation in underwritings (exclusive of sales credits, which
are included in the distribution segments), mergers and acquisitions, public
finance, institutional trading, institutional research and market making for
institutional research. Segment data includes charges allocating corporate
overhead to each segment. Intersegment revenues and charges are eliminated
between segments. The Company evaluates the performance of its segments and
allocates resources to them based on return on investment. The Company has not
disclosed asset information by segment as the information is not produced
internally.
All long-lived assets are located in the U.S. The Company's business is
predominantly in the U.S.
Page 9
<PAGE>
Information concerning operations in these segments of business is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ----------------------------------
1999 1998 1999 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Captive retail distribution $ 15,230,000 $ 7,030,000 $ 48,398,000 $ 22,143,000
Independently owned distribution 12,132,000 9,146,000 37,575,000 30,708,000
Clearing and trading 1,249,000 8,378,000 46,801,000 21,752,000
Capital markets 304,000 5,276,000 4,187,000 6,320,000
Other 3,000 29,000 6,000 77,000
------------ ------------ ------------- ------------
Total $ 28,918,000 $ 29,859,000 $ 136,967,000 $ 81,000,000
============ ============ ============= ============
Pre-tax income:
Captive retail distribution $ (170,000) $ (133,000) $ 856,000 $ 912,000
Independently owned distribution 989,000 540,000 2,854,000 2,546,000
Clearing and trading 1,282,000 2,621,000 29,738,000 4,378,000
Capital markets (120,000) (2,029,000) (303,000) (2,029,000)
Other (480,000) (37,000) (856,000) 111,000
------------ ------------ ------------- ------------
Total $ 1,501,000 $ 962,000 $ 32,289,000 $ 5,918,000
============ ============ ============= ============
</TABLE>
Page 10
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
FORWARD LOOKING STATEMENTS
From time to time, information provided by the Company or statements
made by its directors, officers or employees may constitute "forward-looking
statements" under the meaning of the Private Securities Litigation Reform Act of
1995. Any statements made in this Form 10-Q, including any statements
incorporated herein by reference, that are not statements of historical fact are
forward-looking statements. Such forward-looking statements and other
forward-looking statements made by the Company or its representatives are based
upon a number of assumptions and involve a number of risks and uncertainties,
and, accordingly, actual results could differ materially. Factors that may cause
such differences include, but are not limited to, those set forth under the
heading "Risk Factors" contained in the JWGenesis Financial Corp. Annual Report
on Form 10-K for the year ended December 31, 1998.
GENERAL
As discussed in detail in the Company's Annual Report on Form 10-K for
the 1998 fiscal year (the "1998 10-K"), on June 12, 1998, the Company acquired
Genesis (which subsequently became JWG Capital) as part of the Combination and
succeeded to the respective businesses and operations of both JWGFS and Genesis.
The discussions relating to any period prior to June 12, 1998, however, reflect
the operations of JWGFS only as if it were the Company during such period, and
do not reflect any operations of Genesis before the Combination. The results of
all of Genesis' operations are reflected in the Company's results for the
portion of the fiscal year 1999 period through March 3, 1999, on which date the
Company divested Genesis in a transaction in which the Company nonetheless
retained the corporate finance services operations that it had been conducting
through Genesis, while divesting Genesis' brokerage processing services ("BPS")
business unit. Management does not believe the effects of the divestiture will
be material for the Company's operations. However, the inclusion of Genesis'
operations for most of the 1999 period does have some impact on the Company's
data and this analysis.
As discussed in the 1998 10-K, on January 1, 1999, the Company used its
subsidiary GSG to acquire certain assets of six retail securities branch offices
(and three satellite offices) from Chatfield Dean Holdings, Inc. ("CDH"). As a
result of this transaction, the Company added approximately 200 registered
representatives and approximately 50 salaried management and support personnel.
Results from the activities of these additional registered representatives and
related support personnel from CDH are included only in the Company's results
from the 1999 period and not in the results from any period prior to January 1,
1999; such inclusion does have some impact on the Company's data and this
analysis.
On June 1, 1999, the Company sold its clearing subsidiary, JWG
Clearing, to Fiserv Clearing, Inc. Accordingly, the nine-month period ended
September 30, 1999, includes the results of JWG Clearing for five months,
whereas JWG Clearing was not part of the Company during the three-month period
ended September 30, 1999. By way of comparison, the results of JWG Clearing are
included in the entire nine- and three month periods ended September 30, 1998.
The inclusion or exclusion, as the case may be, of results attributable
to any of JWG Capital, GSG and JWG Clearing affects the results of operations or
financial condition reported by the Company, and in several cases these effects
are significant and account for a material portion of the change from period to
period.
Page 11
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (THE "1999 PERIOD") VS. SEPTEMBER 30, 1998
(THE "1998 PERIOD")
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------
1999 1998 1997
(000's) % Change (000's) % Change (000's)
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $22,929 37 $16,793 16 $14,450
Market making and principal transactions,
net 2,242 -61 5,769 21 4,763
Interest 1,562 -59 3,834 38 2,774
Clearing fees - -100 2,164 -35 3,312
Other 2,185 68 1,299 73 750
---------------------------------------------------------------
$28,918 -3 $29,859 15 $26,049
===============================================================
Three Months Ended September 30,
--------------------------------------------------------------
1999 1998 1997
(000's) % Change (000's) % Change (000's)
------------ ------------ ----------- ------------ ------------
Expenses:
Commissions and clearing costs $17,006 16 $14,620 6 $13,846
Employee compensation and benefits 4,562 -23 5,962 39 4,297
Selling, general and administrative 5,828 -14 6,751 101 3,352
Interest 21 -99 1,564 51 1,033
--------------------------------------------------------------
$27,417 -5 $28,897 28 $22,528
===============================================================
</TABLE>
Total revenues of $28,918,000 recorded in the 1999 Period decreased by
3% compared to last year's $29,859,000. The comparability of total revenues in
the 1999 Period versus the 1998 Period is significantly impacted by (i) the
January 1, 1999 acquisition by GSG of assets of CHD; (ii) the June 12, 1998
acquisition of Genesis and the subsequent divestiture of its BPS Operations on
March 3, 1999; (iii) the sale of JWG Clearing on June 1, 1999; and, (iv) the
unrealized and realized gains recorded on the Company's investment in
Knight/Trimark Group, Inc. (Nasdaq:NITE) (collectively the "Events"). Excluding
the revenues from the Events, total revenues would have increased to $21,956,000
from $15,217,000 for the 1999 Period compared to the 1998 Period.
Commissions increased by 37% to $22,929,000 from $16,793,000 primarily
as a result of GSG's aforementioned acquisition. Without the Events, commission
revenues would have been $17,854,000 and $11,703,000 in the 1999 Period and 1998
Period, respectively. This increase in commissions is largely attributable to
the industry wide increase in market activity in 1999 as compared to the third
quarter of 1998, along with the Company's shift in emphasis from market making
and principal transactions to brokerage transactions that generate commissions.
Market making and principal transactions, net decreased $3,527,000 or 61%, of
which $1,646,000 is attributable to the excess in the unrealized gain recorded
on the Company's investment in Knight/Trimark Group, Inc. in the 1998 Period as
compared to the 1999 Period. Interest income decreased by $2,272,000 or 59% due
to the sale of JWG Clearing, offset slightly by the interest income earned on
the net sales proceeds received in the sale; JWG Clearing had generated interest
income in the 1998 Period of $3,025,000. No clearing fees were recorded in the
1999 period due to the sale of JWG Clearing on June 1, 1999. Other revenues
increased by $886,000 primarily due to $527,000 added in the 1999 Period by the
presence of GSG.
Commissions and clearing costs, which represent the portion of fee
income payable by the Company to registered representatives or other
broker-dealers as a result of securities transactions (and the related costs
associated with the execution of such trades), after eliminating the effect of
the Events, increased $2,701,000 or 25% from $10,761,000 to $13,462,000. This
increase is primarily due to the increase in commission revenues.
Employee compensation and benefits decreased by $1,400,000 or 23%
primarily as a result of a net reduction in employee compensation and benefits
due to the (i) sale of JWG Clearing (ii) divestiture of JWG Capital and the GSG
acquisition.
Page 12
<PAGE>
Selling, general and administrative costs decreased by $923,000 or 14%
as a result of the Events.
Interest expense decreased $1,543,000, reflecting that JWG Clearing
incurred $1,478,000 of interest in the 1998 Period, but was sold on June 1,
1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 (THE "1999 PERIOD") VS. SEPTEMBER 30, 1998
(THE "1998 PERIOD")
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------
1999 1998 1997
(000's) % Change (000's) % Change (000's)
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $79,446 81 $43,974 20 $36,516
Market making and principal transactions,
net 13,890 -15 16,255 10 14,808
Gain on sale of subsidiary 23,877 NM - - -
Interest 8,578 -21 10,814 37 7,889
Clearing fees 5,327 -20 6,625 -14 7,693
Other 5,849 73 3,332 2 3,280
---------------------------------------------------------------
$136,967 69 $81,000 15 $70,186
===============================================================
Nine Months Ended September 30,
--------------------------------------------------------------
1999 1998 1997
(000's) % Change (000's) % Change (000's)
---------------------------------------------------------------
Expenses:
Commissions and clearing costs $58,356 42 $41,077 13 $36,331
Employee compensation and benefits 21,540 45 14,847 18 12,566
Selling, general and administrative 21,990 48 14,881 32 11,257
Interest 2,792 -35 4,277 38 3,095
---------------------------------------------------------------
$104,678 39 $75,082 19 $63,249
===============================================================
</TABLE>
Total revenues of $136,967,000 recorded in the 1999 Period increased by
69% compared to last year's $81,000,000. The comparability of total revenues in
the nine-month 1999 Period versus the nine-month 1998 Period is significantly
impacted by the same Events discussed above as impacting the respective
three-month periods. Excluding the revenues from these events, total revenues
would have increased to $73,782,000 from $54,347,000 for the 1999 Period
compared to the 1998 Period.
Commissions increased by 81% to $79,446,000 from $43,974,000. Without
the Events referred to above, commission revenues would have been $60,230,000
and $38,145,000 in the 1999 Period and 1998 Period, respectively. The latter
increase in commissions is largely attributable to the industry wide increase in
market activity in 1999 as compared to 1998, along with the Company's shift in
emphasis from market making and principal transactions to more general brokerage
transactions that generate commissions. Market making and principal
transactions, net decreased $2,365,000 or 15% due primarily to the Company's
shift in emphasis away from market making and principal transactions. Interest
income decreased by $2,236,000 or 21% primarily due to the sale of JWG Clearing,
offset slightly by the interest income earned on the net proceeds received in
the sale; JWG Clearing had generated interest income in the 1999 Period of
$5,861,000 versus $8,868,000 in the 1998 Period. Clearing fees decreased due to
the sale of JWG Clearing which resulted in clearing fees being earned for 9
months in the 1998 Period versus only 5 months in the 1999 Period. Other
revenues increased by $2,517,000 primarily due to GSG's acquisition and improved
investment banking revenues.
Page 13
<PAGE>
Commissions and clearing costs, which represent the portion of fee
income payable by the Company to registered representatives or other
broker-dealers as a result of securities transactions (and the related costs
associated with the execution of such trades), after eliminating the effect of
the Events, increased $9,268,000 or 26% from $35,972,000 to $45,240,000. This
increase is primarily due to the increase in commission revenues.
Employee compensation and benefits increased in the 1999 Period by
$6,693,000 or 45% primarily as a result of $3,729,000 in bonuses recorded in
connection with the sale of JWG Clearing, and the inclusion of GSG and JWG
Capital, which together accounted for $2,735,000 of the total in the 1999 Period
versus $2,205,000 in the 1998 Period. Adjusted for those factors, employee
compensation and benefits increased by $2,434,000 or 16% due to the industry
wide increase in market activity previously discussed that caused employees who
receive incentive compensation related to sales activity and profitability to
receive greater amounts in the 1999 Period, in addition to additional personnel,
salary increases and amounts paid to officers of JWG Capital in connection with
the divestiture of JWG Capital.
Selling, general and administrative costs increased by $7,109,000 or
48% primarily as a result of the inclusion of GSG, which contributed $5,034,000
in the 1999 Period, and the amortization of cost in excess of the value of net
assets acquired, amortization of the nonsolicitation and non compete agreements
entered into with certain officers, increased advertising and general Company
promotional expenditures, in addition to a general increase related to the
Company's higher level of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a highly liquid balance sheet, with the majority
of the Company's assets consisting of cash and cash equivalents, and securities
owned, which are marked to market. The nature of the Company's business as a
market maker and securities dealer requires it to carry significant levels of
securities inventories in order to meet its customer and internal trading needs.
Additionally, the Company's role as a financial intermediary for customer
activities, which it conducts on a principal basis, results in significant
levels of customer related balances, which while carried on the books and
records of its clearing firm, continue to remain the responsibility of the
Company in the event of nonperformance by a customer.
At September 30, 1999, the Company had stockholders' equity of
$69,181,000, representing an increase of $18,912,000 from December 31, 1998, and
the Company had cash and cash equivalents of $57,399,000. The increase in
stockholders' equity is primarily related to net income of $19,659,000 recorded
for the nine month period ended September 30, 1999, plus the proceeds from
option exercises and stock purchases in the amount of $834,000, less treasury
stock acquired in connection with the divestiture of JWG Capital in the amount
of $3,199,000. At September 30, 1999, the Company had $12,000,000 available
under its committed lines of credit.
IMPACT OF YEAR 2000 ISSUE
Generally, the year 2000 risk involves computer programs and computer
hardware that may not perform accurately into the year 2000. The arrival of the
year 2000 poses a unique worldwide challenge to the ability of all systems to
correctly recognize the date change from December 31, 1999 to January 1, 2000
and beyond. If the Company's systems did not correctly recognize such a date
change, computer applications that directly or indirectly rely on the date field
could fail or create erroneous results. Such erroneous results could affect the
Company's ability to conduct retail securities brokerage or engage in other
normal business activities. If it is not adequately addressed by the Company or
its suppliers, the year 2000 issue could result in a material adverse impact on
the Company's financial condition and results of operations.
Page 14
<PAGE>
JWGenesis' State of Readiness
The Company has been assessing its Year 2000 readiness since 1998. It
formed a committee charged with the task of identifying and remediating date
recognition problems in both information technology ("IT") and non-IT systems
that include microcontrollers and other embedded computer technology. Guided by
requirements of and examination by securities regulators, the committee has
developed a comprehensive plan to assess the Company's year 2000 readiness with
respect to both IT and non-IT systems. Its inventory of both types of systems is
complete, and the Company has either remediated or replaced, all noncompliant
systems. The Company believes that mission-critical systems have been
remediated.
Testing commenced in 1998, and further testing has occurred and will
continue to occur during 1999 of systems that have been remediated. The Company
believes that it has identified all major internal business and operational
functions that will be impacted by the year 2000 date change.
Costs to Address Year 2000 Issues
The total costs for the evaluation, remediation and testing of the
Company's IT and non-IT systems in connection with the year 2000 issue was
approximately $1.25 million to $1.5 million, all of which has been incurred to
date. All of the expected expenditures were present in the Company's 1998 and
1999 internal capital expenditures budgets.
Risks of Third-Party Year 2000 Issues
The impact of year 2000 noncompliance by outside parties with whom the
Company transacts business cannot be accurately gauged. The Company has surveyed
its major business partners to ascertain their year 2000 readiness. Although all
are not year-2000 compliant at this date, the Company has received certain
assurances that such third parties will be ready for the year 2000 date change
by the end of 1999. Moreover, securities regulators have prescribed year
2000-related programs for many of the Company's major business partners, and
monitored those companies' progress in remediating their noncompliant systems.
If the systems of major business correspondents were not compliant and
suffered serious year 2000-related failures, the Company's brokerage processing
operations would be materially impeded. Electronic ordering and clearing of
securities transactions might fail or be interrupted.
JWGenesis' Contingency Plans
The Company has developed a formal contingency plan which was designed
to ensure the continuation of normal business operations of mission-critical
systems in the event of one or more year 2000 related failures. The contingency
plan is designed to facilitate the Company in providing uninterrupted services
to its internal users and external customers until a normal level of services
can be restored. If the Company's transaction processing systems suffer year
2000- related failures, retail brokerage and communication of orders might be
processed telephonically or by other means. If major business partners with whom
the Company maintains clearing arrangements suffer systems failures, the Company
could clear securities transactions through other businesses with compliant
systems. If vendors or suppliers suffer failures, the Company will seek
alternative vendors and suppliers with compliant systems. Contingency plans in
the event of widespread failures in the securities industry are difficult to
formulate, but in such event the Company would seek to conduct its operations
via methods not dependent on noncompliant systems, and cooperate with any
industry-wide contingency plans.
Page 15
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
(i) Reporting date - July 15, 1999.
Item Reported - Item 5, Other Events.
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.
JWGENESIS FINANCIAL CORP.
Date: November 15, 1999 By: /s/ Gregg S. Glaser
Gregg S. Glaser
(Duly Authorized Officer)
and
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001057412
<NAME> JWGENESIS FINANCIAL CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-01-1999
<CASH> 57,399,000
<SECURITIES> 9,686,000
<RECEIVABLES> 4,816,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,277,000
<DEPRECIATION> 3,461,000
<TOTAL-ASSETS> 102,865,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 69,175,000
<TOTAL-LIABILITY-AND-EQUITY> 102,865,000
<SALES> 0
<TOTAL-REVENUES> 136,967,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 101,886,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,792,000
<INCOME-PRETAX> 32,289,000
<INCOME-TAX> 12,630,000
<INCOME-CONTINUING> 19,659,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,659,000
<EPS-BASIC> 3.41
<EPS-DILUTED> 3.02
</TABLE>
