==============================================================================
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 JUNE 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 August 12, 1999
--------------------------------------- -----------------------------
Common stock, $.001 par value per share 5,804,855
Exhibit index is located on page 16.
Total number of pages including cover page - 16.
<PAGE>
JWGENESIS FINANCIAL CORP.
-------------------------
INDEX
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Condensed Statements of Financial Condition
at June 30, 1999 and December 31, 1998 3
Consolidated Condensed Statements of Income for the Three Month and
Six Month Periods Ended June 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows for the Six Month Periods
Ended June 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 4. Submission of Matters to Vote of Security Holders 16
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
June 30, December 31,
1999 1998(*)
---------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 63,654,000 $ 16,978,000
Receivable from customers, net -- 117,579,000
Receivable from brokers and dealers 5,811,000 6,915,000
Securities owned, at estimated fair value 15,227,000 13,746,000
Cost in excess of the value of net assets acquired 15,531,000 14,838,000
Furniture, equipment and leasehold improvements, net of accumulated
depreciation and amortization of $3,327,000 and $3,035,000 2,958,000 3,386,000
Deferred tax asset 4,051,000 --
Other, net 8,225,000 6,952,000
--------------------------------
$ 115,457,000 $ 180,394,000
--------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term borrowings from banks $ -- $ 16,988,000
Accounts payable, accrued expenses and other liabilities 14,803,000 17,319,000
Payable to customers -- 49,218,000
Payable to brokers and dealers 2,930,000 42,283,000
Securities sold, not yet purchased, at estimated fair value 2,853,000 305,000
Lines of credit -- 3,000,000
Income taxes payable 13,258,000 656,000
Deferred gain 14,875,000 --
Deferred tax liabilities -- 356,000
--------------------------------
48,719,000 130,125,000
--------------------------------
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 5,755,379 and 5,501,054 6,000 6,000
Additional paid-in capital 23,821,000 22,987,000
Retained earnings 46,117,000 27,283,000
Treasury stock, at cost, 285,275 and 900 shares (3,206,000) (7,000)
--------------------------------
Total stockholders' equity 66,738,000 50,269,000
--------------------------------
$ 115,457,000 $ 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.
(Th 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 Six Months Ended
Ended June 30, June 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 28,474,000 $ 14,052,000 $56,517,000 $27,181,000
Market making and principal transactions, net 4,899,000 5,618,000 11,648,000 10,486,000
Gain on sale of subsidiary 23,877,000 - 23,877,000 -
Interest 3,395,000 3,818,000 7,016,000 6,980,000
Clearing fees 2,122,000 2,642,000 5,327,000 4,461,000
Other 1,913,000 738,000 3,664,000 2,033,000
----------------------------------- -----------------------------------
64,680,000 26,868,000 108,049,000 51,141,000
----------------------------------- -----------------------------------
EXPENSES:
Commissions and clearing costs 21,018,000 13,782,000 41,350,000 26,457,000
Employee compensation and benefits 10,234,000 4,437,000 16,978,000 8,885,000
Selling, general and administrative 7,570,000 4,277,000 16,162,000 8,130,000
Interest 1,292,000 1,458,000 2,771,000 2,713,000
----------------------------------- -----------------------------------
40,114,000 23,954,000 77,261,000 46,185,000
----------------------------------- -----------------------------------
Income before income taxes 24,566,000 2,914,000 30,788,000 4,956,000
Provision for income taxes 9,510,000 1,138,000 11,954,000 1,910,000
=================================== ===================================
Net income $ 15,056,000 $1,776,000 $ 18,834,000 $ 3,046,000
=================================== ===================================
Earnings per common share:
Basic $2.61 $.43 $3.27 $.78
=================================== ===================================
Diluted $2.36 $.38 $3.00 $.67
=================================== ===================================
Weighted average common shares outstanding:
Basic 5,759,282 4,090,801 5,756,227 3,918,753
=================================== ===================================
Diluted 6,369,754 4,646,906 6,285,200 4,519,065
=================================== ===================================
</TABLE>
(The accompanying Notes to Consolidated Condensed
Financial Statements are an integral part of
these financial statements.)
Page 4
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
-----------------------------------------
1999 1998
-----------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 18,834,000 $ 3,047,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization on furniture, 354,000 241,000
equipment and leasehold improvements
Amortization of costs in excess of fair value of 829,000 -
net assets acquired and other
Change in assets and liabilities, net of effect of acquisition:
Receivable from customers 117,579,000 (24,981,000)
Receivable from brokers and dealers (1,344,000) 994,000
Securities owned (1,481,000) (2,382,000)
Deferred tax asset (4,407,000) (27,000)
Other assets (2,737,000) (1,667,000)
Accounts payable, accrued expenses and other liabilities 164,000 (1,972,000)
Payable to customers (49,218,000) (16,013,000)
Payable to brokers and dealers (38,624,000) 28,527,000
Securities sold, not yet purchased 2,548,000 133,000
Deferred gain 14,875,000 -
Income taxes payable 12,602,000 955,000
-----------------------------------------
Net cash provided by (used in) operating 69,974,000 (13,145,000)
activities
-----------------------------------------
INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (967,000) (521,000)
Acquisition of cost in excess of the values of net assets acquired (1,742,000) -
Disposal of furniture, equipment and leasehold improvements 75,000 -
-----------------------------------------
Net cash used in investing activities (2,634,000) (521,000)
-----------------------------------------
FINANCING ACTIVITIES
Change in short-term borrowings from banks (16,809,000) 17,834,000
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 834,000 400,000
-----------------------------------------
Net cash provided by (used in) financing activities (20,664,000) 15,231,000
-----------------------------------------
Net increase in cash and cash equivalents 46,676,000 1,565,000
Cash and cash equivalents at beginning of period 16,978,000 12,999,000
=========================================
Cash and cash equivalents at end of period $ 63,654,000 $14,564,000
=========================================
</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 $4,759,000 $ 954,000
=========================================
Cash paid during the period for interest $5,655,000 $ 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.
(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 six month periods ended June 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 June 30, 1999, the net capital positions of the Company's broker-
dealer subsidiaries were as follows:
CSG:
Ratio of aggregate indebtedness to net capital 2.65
Net capital $3,047,000
Required net capital $334,000
JWG Securities:
Ratio of aggregate indebtedness to net capital 3.56
Net capital $2,579,000
Required net capital $613,000
GSG:
Ratio of aggregate indebtedness to net capital 2.30
Net capital $706,000
Required net capital $108,000
DMG:
Ratio of aggregate indebtedness to net capital .30
Net capital $275,000
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
Page 8
<PAGE>
certain expenses related to the sale) in the current period under the caption
"gain on sale of subsidiary" and the remaining $15 was recorded as a deferred
gain and will be accreted into income ratably over 10 years.
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 12 retail
branches of JWG Securities located in Florida, California, Georgia 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 102
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.
Information concerning operations in these segments of business is as follows:
Page 9
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<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Captive retail distribution $ 17,186,000 $ 7,952,000 $ 33,168,000 $16,044,000
Independently owned distribution 13,911,000 11,176,000 25,443,000 21,562,000
Clearing and trading 32,978,000 6,877,000 45,290,000 12,523,000
Capital markets 364,000 -- 3,883,000 --
Other 241,000 863,000 265,000 1,012,000
------------ ----------- ------------- -----------
Total $ 64,680,000 $26,868,000 $ 108,049,000 $51,141,000
============ =========== ============= ===========
Pre-tax income:
Captive retail distribution $ 580,000 $ 742,000 $ 1,026,000 $ 1,045,000
Independently owned distribution 1,009,000 1,004,000 1,865,000 2,006,000
Clearing and trading 23,005,000 1,071,000 28,456,000 1,757,000
Capital markets (19,000) -- (183,000) --
Other (9,000) 97,000 (376,000) 148,000
------------ ----------- ------------- -----------
Total $ 24,566,000 $ 2,914,000 $ 30,788,000 $ 4,956,000
============ =========== ============= ===========
</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 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 six- and three-month periods
ended June 30, 1999, only include the results of JWG Clearing for five months
and two months, respectively, whereas the results of JWG Clearing are included
in the entire six- and three-month periods ended June 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
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RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 (THE "1999 PERIOD") VS. JUNE 30, 1998 (THE "1998 PERIOD")
Three Months Ended June 30,
--------------------------------------------------------------
1999 1998 1997
(000's) % Change (000's) % Change (000's)
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Commissions $28,474 103 $14,052 33 $10,528
Market making and principal
transactions, net 4,899 -13 5,618 4 5,399
Gain on sale of subsidiary 23,877 NM - - -
Interest 3,395 -11 3,818 37 2,781
Clearing fees 2,122 -20 2,642 3 2,573
Other 1,913 159 738 2 724
============ ============ =========== ============ ============
$64,680 141 $26,868 22 $22,005
============ ============ =========== ============ ============
<CAPTION>
Three Months Ended June 30,
--------------------------------------------------------------
1999 1998 1997
(000's) % Change (000's) % Change (000's)
------------ ------------ ----------- ------------ ------------
EXPENSES:
Commissions and clearing costs $21,018 53 $13,782 26 $10,927
Employee compensation and benefits 10,234 131 4,437 8 4,114
Selling, general and administrative 7,570 77 4,277 5 4,056
Interest 1,292 -11 1,458 35 1,077
============ ============ =========== ============ ============
$40,114 67 $23,954 19 $20,174
============ ============ =========== ============ ============
</TABLE>
Total revenues of $64,680,000 recorded in the 1999 Period increased by
141% compared to last year's $26,868,000. JWG Capital (which had previously been
Genesis) added $725,000 to revenues, GSG added $5,941,000 to revenues, and the
sale of JWG Clearing added $23,877,000; without these developments, revenues for
the 1999 Period would have been $34,137,000 or a 27% increase compared to the
1998 Period.
Of total revenues, commissions increased by 103% to $28,474,000 from
$14,052,000, of which 1999 Period total, GSG contributed $5,572,000. Without
GSG, commission revenues would have been $22,902,000 in the 1999 Period,
resulting in a 63% increase. This increase in commissions without GSG is largely
attributable to the industry wide increase in market activity in the second
quarter of 1999 as a result of strength in the general securities market, 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 13%, which also reflects the above
shift in emphasis. Clearing fees decreased by $520,000 or 20% as a result of the
sale of JWG Clearing. Other revenues increased $1,175,000 primarily due to
amounts added in the 1999 Period by the presence of GSG and JWG Capital, which
were $288,000 and $364,000, respectively.
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), increased in the 1999 Period by
$3,507,000 due to GSG alone. Without including GSG, commissions and clearing
costs would have increased by 27% to $17,511,000, which relates directly to the
level of increase in combined commission and principal transaction revenue that
would have resulted without GSG.
Employee compensation and benefits increased by $5,797,000 or 131%
primarily as a result of two factors: $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 $693,000 of the total in the 1999 Period.
Excluding those factors, employee compensation and benefits increased by
$1,375,000 or 31% due to the industry wide increase in market activity discussed
above, which caused employees who receive incentive compensation related to
sales activity and profitability to receive greater amounts in the 1999 Period.
Page 12
<PAGE>
Selling, general and administrative costs increased by $3,293,000 or
77% primarily as a result of the inclusion of GSG and JWG Capital, which
contributed $722,000 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.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 (THE "1999 PERIOD") VS. JUNE 30, 1998 (THE "1998 PERIOD")
Six Months Ended June 30,
--------------------------------------------------------------
1999 1998 1997
(000's) % Change (000's) % Change (000's)
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Commissions $56,517 108 $27,181 23 $22,066
Market making and principal transactions,
net 11,648 11 10,486 4 10,045
Gain on sale of subsidiary 23,877 NM - - -
Interest 7,016 1 6,980 36 5,115
Clearing fees 5,327 19 4,461 2 4,381
Other 3,664 80 2,033 -20 2,530
============ ============ =========== ============ ============
$108,049 111 $51,141 16 $44,137
============ ============ =========== ============ ============
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------
1999 1998 1997
(000's) % Change (000's) % Change (000's)
------------ ------------ ----------- ------------ ------------
EXPENSES:
Commissions and clearing costs $41,350 56 $26,457 18 $22,485
Employee compensation and benefits 16,978 91 8,885 7 8,269
Selling, general and administrative 16,162 99 8,130 3 7,905
Interest 2,771 2 2,713 32 2,062
============ ============ =========== ============ ============
$77,261 67 $46,185 13 $40,721
============ ============ =========== ============ ============
</TABLE>
Total revenues of $108,049,000 recorded in the 1999 Period increased by
111% compared to last year's $51,141,000. JWG Capital (which had previously been
Genesis) added $3,883,000 to revenues, GSG added $11,951,000 to revenues, and
the sale of JWG Clearing added $23,877,000; without these developments, revenues
for the 1999 Period would have been $68,338,000 or a 34% increase compared to
the 1998 Period.
Of total revenues, commissions increased by 108% to $56,517,000 from
$27,181,000, of which 1999 Period total, GSG contributed $11,216,000 and JWG
Capital contributed $3,032,000. Without GSG and JWG Capital, commission revenues
would have been $42,269,000 in the 1999 Period, resulting in a 56% increase.
This increase in commissions without GSG and JWG Capital is largely attributable
to the industry wide increase in market activity in the first half of 1999 as a
result of strength in the general securities market. Market making and principal
transactions, net increased 11%, primarily due to the inclusion of realized and
unrealized gains totaling $6,324,000 related to the Company's investment in
Knight/Trimark Group, Inc. (NASDAQ: NITE). Exclusive of this gain, market making
and principal transactions, net would have decreased by $5,162,000 or 49%,
reflecting the shift in the Company's emphasis away from market making
activities. Clearing fees increased by $866,000 or 19% as a result of the
industry wide increase in market activity in the first half of 1999, even though
the 1999 Period results only include five months of clearing fees because of the
sale of JWG Clearing on June 1, 1999. Other revenues increased $1,631,000
primarily due to amounts added in the 1999 Period by the presence of GSG and JWG
Capital, which were $586,000 and $725,000, respectively.
Commissions and clearing costs increased in the 1999 Period by
$7,246,000 and $1,615,000 due to GSG and JWG Capital, respectively. Without
including GSG and JWG Capital, commissions and clearing costs would have
increased by 23% to $32,489,000, which relates directly to the level of increase
in combined commissions and principal transaction revenue that would have
resulted without GSG and JWG Capital.
Page 13
<PAGE>
Employee compensation and benefits increased in the 1999 Period by
$8,093,000 or 91% 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 $2,234,000 of the total in the 1999
Period. Excluding those factors, employee compensation and benefits increased by
only $2,130,000 or 24% 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.
Selling, general and administrative costs increased by $8,032,000 or
99%, with GSG and JWG Capital contributing $4,806,000 of the 1999 Period total
amount. The remaining increase of $3,226,000 is primarily due to the same
factors discussed in connection with the three-month results.
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 June 30, 1999, the Company had stockholders' equity of $66,738,000,
representing an increase of $16,469,000 from December 31, 1998, and the Company
had cash and cash equivalents of $63,654,000. The increase in stockholders'
equity is primarily related to net income of $18,834,000 recorded for the six
month period ended June 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
June 30, 1999, the Company had $5,000,000 available under its committed bank
lines of credit.
At June 30, 1999, the Company owned approximately 150,000 shares of
common stock of Knight/Trimark Group, Inc. ("NITE"), which have a historical
cost of $5,000 and are included in securities owned at estimated fair market
value of $7,500,000. Approximately 30,000 of these shares were allocated to
Company management. Between July 1 and August 12, 1999, approximately 134,000 of
the NITE shares were sold for approximately $7.5 million.
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.
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
or are nearing completion of remediation. The Company expects that all
Page 14
<PAGE>
noncompliant systems will be repaired, replaced or otherwise remediated by
September 30, 1999, although there can be no assurance that the Company's year
2000 remediation program will be complete by then.
Testing commenced in 1998, and further testing has occurred and will
continue to occur during 1999 of systems that have been or will be 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 Company does not anticipate that the year 2000 related costs will
be material to its financial condition or results of operations. The Company
estimates that its total costs for the evaluation, remediation and testing of
its IT and non-IT systems in connection with the year 2000 issue will range from
$1.25 million to $1.5 million, $1 million of which has been incurred to date.
All of the expected expenditures are 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 is in the process of developing a formal contingency plan
which is being 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 being 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 4. Submission of Matters to Vote of Security Holders
- ------- -------------------------------------------------
The Company held its annual meeting of stockholders on June 22, 1999,
at which only the election of six nominees for directors was voted on. All six
nominees were elected, with the following vote totals:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES WITHHOLD
------- --------- --------------
<S> <C> <C>
Marshall T. Leeds 3,553,904 13,878
Joel E. Marks 3,553,904 13,878
Gregg S. Glaser 3,553,904 13,878
Jeffrey H. Lehman 3,553,904 13,878
Wm. Dennis Ferguson 3,553,868 13,914
Sanford D. Cohen 3,553,904 13,878
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
99(i) Nonsolicitation Agreement between the Company and
Joel E. Marks (replacing an incorrect version thereof
inadvertently filed as Exhibit 99(i) to the Company's
1998 Form 10-K; the previous filing is hereby deleted
in its entirety).
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
(i) Reporting date - April 16, 1999. Item Reported - Item
5, Other Events, and Item 7, Financial Statements,
Pro Forma Financial Information and Exhibits.
(ii) Reporting date - June 1, 1999. Item Reported - Item
2, Acquisition or Disposition of Assets, and Item 7,
Financial Statements, Pro Forma Financial Information
and Exhibits.
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: August 12, 1999 By:/s/ Gregg S. Glaser
-----------------------------------------
(Duly Authorized Officer)
and
(Principal Financial and Accounting Officer)
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001057412
<NAME> JWGENESIS FINANCIAL CORP.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 63,654,000
<SECURITIES> 15,227,000
<RECEIVABLES> 5,811,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,285,000
<DEPRECIATION> 3,327,000
<TOTAL-ASSETS> 115,457,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 66,732,000
<TOTAL-LIABILITY-AND-EQUITY> 115,457,000
<SALES> 0
<TOTAL-REVENUES> 108,049,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 74,490,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,771,000
<INCOME-PRETAX> 30,778,000
<INCOME-TAX> 11,954,000
<INCOME-CONTINUING> 18,834,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,834,000
<EPS-BASIC> 3.27
<EPS-DILUTED> 3.00
</TABLE>
