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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, 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 001-15251
LABRANCHE & CO INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-4064735
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE EXCHANGE PLAZA, NEW YORK, NEW YORK 10006
(Address of principal executive offices)
(212) 425-1144
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year,
if changed since last report)
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 past 90 days.
Yes [X] No [ ]
The number of shares of the registrant's common stock outstanding as of October
30, 2000 was 48,975,352.
LABRANCHE & CO INC.
FORM 10-Q
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TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION...................................................4
Item 1. Financial Statements....................................................4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.................................4
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION........................5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS.................................7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............22
PART II OTHER INFORMATION......................................................24
Item 6. Exhibits and Reports on Form 8-K.......................................24
SIGNATURES.....................................................................25
</TABLE>
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Explanatory Note
AS OF JUNE 30, 2000, THE COMPANY COMPLETED A RESTRUCTURING OF ITS
SUBSIDIARIES. LaB INVESTING CO. L.L.C. ("LaB INVESTING"), A NEW YORK LIMITED
LIABILITY COMPANY, OF WHICH THE COMPANY WAS THE SOLE MEMBER, WAS MERGED WITH AND
INTO LABRANCHE & CO., A NEW YORK LIMITED PARTNERSHIP OF WHICH THE COMPANY WAS
THE SOLE LIMITED PARTNER AND LAB INVESTING WAS THE SOLE GENERAL PARTNER.
LABRANCHE & CO. WAS THE SURVIVOR OF SUCH MERGER. ON THE DATE THE MERGER WAS
EFFECTIVE, LABRANCHE & CO. WAS ALSO CONVERTED INTO A LIMITED LIABILITY COMPANY
AND ITS NAME WAS CHANGED TO "LABRANCHE & CO. LLC". AS A RESULT, THE COMPANY IS
THE SOLE MEMBER OF LABRANCHE & CO. LLC. HENDERSON BROTHERS HOLDINGS, INC. WAS
DISSOLVED AS OF JUNE 30, 2000 AND, IN DOING SO, DISTRIBUTED ALL OF ITS ASSETS,
INCLUDING THE STOCK IN ITS WHOLLY-OWNED SUBSIDIARY, HENDERSON BROTHERS, INC., TO
THE COMPANY.
IN ACCORDANCE WITH THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION,
PART I OF THIS REPORT CONTAINS HISTORICAL FINANCIAL INFORMATION, MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
3
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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<CAPTION>
LABRANCHE & CO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000'S OMITTED EXCEPT PER SHARE DATA)
For the Three Months Ended For the Nine Months Ended
September 30 September 30
--------------------------------- ----------------------------
2000 1999 2000 1999
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Net gain on principal transactions $ 64,460 $ 30,862 $ 203,174 $ 109,528
Commissions 12,035 8,777 32,367 26,662
Other 4,727 2,003 11,995 8,945
--------------- ------------- ------------ -------------
Total revenues 81,222 41,642 247,536 145,135
--------------- ------------- ------------ -------------
EXPENSES:
Employee compensation and related benefits 18,667 7,743 64,435 19,042
Interest 11,860 2,319 29,910 4,515
Depreciation and amortization of intangibles 4,779 1,212 12,404 2,905
Lease of exchange memberships 2,789 2,121 8,127 6,286
Exchange, clearing and brokerage fees 1,258 879 3,631 2,876
Other 3,010 1,806 8,636 4,600
--------------- ------------- ------------ -------------
Total expenses before managing directors' compensation and
limited partners' interest in earnings of subsidiary and
provision for income taxes 42,363 16,080 127,143 40,224
--------------- ------------- ------------ -------------
Income before managing directors' compensation
and limited partners' interest in earnings of subsidiary
and provision for income taxes 38,859 25,562 120,393 104,911
MANAGING DIRECTORS' COMPENSATION -- 7,977 -- 56,191
--------------- ------------- ------------ -------------
Income before limited partners' interest in earnings of
subsidiary and provision for income taxes 38,859 17,585 120,393 48,720
LIMITED PARTNERS' INTEREST IN
EARNINGS OF SUBSIDIARY -- 4,290 -- 25,344
--------------- ------------- ------------ -------------
Income before provision for income taxes 38,859 13,295 120,393 23,376
PROVISION FOR INCOME TAXES 19,911 6,124 60,764 9,913
--------------- ------------- ------------ -------------
Net income $ 18,948 $ 7,171 $ 59,629 $ 13,463
=============== ============= ============ =============
Weighted average common shares outstanding:
Basic 48,675 41,536 47,970 38,612
Diluted 49,331 41,536 48,272 38,612
Earnings per share:
Basic $ 0.39 $ 0.17 $ 1.24 $ 0.35
Diluted 0.38 0.17 1.24 0.35
The accompanying notes are an integral part of these condensed consolidated statements.
</TABLE>
4
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<TABLE>
<CAPTION>
LABRANCHE & CO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(000'S OMITTED)
As of
-------------------------------------
ASSETS SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(unaudited)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 67,927 $ 83,774
CASH SEGREGATED UNDER FEDERAL REGULATIONS 2,537 --
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 156,709 25,422
RECEIVABLE FROM BROKERS AND DEALERS 82,510 37,497
RECEIVABLE FROM CUSTOMERS 1,274 --
SECURITIES OWNED, at market value:
Corporate equities 131,127 148,563
United States Government obligations -- 1,471
Other 4,538 2,515
EXCHANGE MEMBERSHIPS CONTRIBUTED FOR USE, at market value 19,800 20,700
EXCHANGE MEMBERSHIPS OWNED, at cost (market value of $42,900 and $9,200) 50,300 6,300
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost,
less accumulated depreciation and amortization of $1,776 and $1,250, 2,779 1,355
respectively
INTANGIBLE ASSETS, net of accumulated amortization
Specialist Stock List 187,184 92,789
Trade Name 25,842 26,340
Goodwill 179,228 51,212
OTHER ASSETS 20,458 7,187
--------------- -----------------
Total assets $ 932,213 $ 505,125
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Payable to brokers and dealers $ 2,071 $ 7,726
Payable to customers 3,767 --
Securities sold, but not yet purchased, at market value 49,706 36,900
Accounts payable and other accrued expenses 43,894 17,538
Income taxes payable 2,666 7,959
Deferred tax liabilities 61,788 --
--------------- -----------------
163,892 70,123
--------------- -----------------
</TABLE>
5
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<TABLE>
<CAPTION>
LABRANCHE & CO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(000'S OMITTED)
(continue)
As of
-------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
<S> <C> <C>
LONG TERM DEBT 355,775 115,822
--------------- -----------------
SUBORDINATED LIABILITIES
Exchange memberships, at market value 19,800 20,700
Other subordinated indebtedness 46,508 46,508
--------------- -----------------
66,308 67,208
--------------- -----------------
PREFERRED STOCK, $.01 par value, 10,000,000 shares authorized;
None issued and outstanding -- --
COMMON STOCK, $.01 par value, 200,000,000 shares authorized;
48,975,352 and 45,875,000 shares issued and outstanding for September 30, 2000
and December 31, 1999 respectively 490 459
ADDITIONAL PAID-IN-CAPITAL 271,498 228,771
RETAINED EARNINGS 82,371 22,742
UNEARNED COMPENSATION (8,121) --
--------------- -----------------
346,238 251,972
--------------- -----------------
Total liabilities and stockholders' equity $ 932,213 $ 505,125
=============== =================
The accompanying notes are an integral part of these condensed consolidated statements.
</TABLE>
6
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<TABLE>
<CAPTION>
LABRANCHE & CO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000'S OMITTED)
Nine Months Ended
---------------------------------------------
September 30, 2000 September 30, 1999
--------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 59,629 $ 13,463
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 13,439 3,490
Compensation expense related to stock based compensation 2,325 309
Undistributed limited partners interest in earnings of subsidiary -- 96
Deferred tax benefit (49) --
Change in assets and liabilities:
Securities purchased under agreements to resell (131,287) 2,124
Receivable from brokers and dealers (45,013) (27,623)
Receivable from customers (1,274) --
Corporate equities 17,436 41,884
United States Government obligations 1,471 15
Other securities owned (2,023) (375)
Other assets (13,271) (28)
Payable to brokers and dealers (5,655) (2,472)
Payable to customers 3,767 921
Securities sold, but not yet purchased 12,806 (44,284)
Accounts payable and other accrued expenses 26,356 (16,905)
Income taxes payable (5,293) 5,529
----------------- -------------------
Net cash used in operating activities (66,636) (23,856)
----------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash received from Webco acquisition 8,370 --
Net cash paid for Henderson acquisition (192,734) --
Repayment of note payable (6,000) --
Payments to limited partners for redemption of interest upon reorganization -- (140,186)
Payments for office equipment and leasehold improvements (2,003) --
----------------- ---------------
Net cash used in investing activities (192,367) (140,186)
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash received from issuance of senior subordinated debt 245,693 3,435
Repayment of subordinated debt -- (5,000)
Net proceeds from initial public offering -- 134,794
Net proceeds from long term debt -- 97,276
Payments to members upon reorganization -- (9,025)
Proceeds from contributions of capital -- 18,096
Payments for distributions of capital -- (8,095)
----------------- ---------------
Net cash provided by financing activities 245,693 231,481
----------------- ---------------
(Decrease)/Increase in cash and cash equivalents (13,310) 67,439
----------------- ---------------
</TABLE>
7
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<TABLE>
<CAPTION>
LABRANCHE & CO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000'S OMITTED)
(continued)
Nine Months Ended
---------------------------------------------
September 30, 2000 September 30, 1999
--------------------- --------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS, beginning of period 83,774 4,722
CASH AND CASH EQUIVALENTS, end of the period $ 70,464 $ 72,161
================= ==============
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest $ 28,640 $ 4,624
Income taxes 66,848 6,200
SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES:
Acquisitions:
Intangibles assets $ 171,936 $ --
Fair value of tangible assets acquired, other than cash 33,863 --
Deferred tax liabilities related to intangible assets 61,774 --
Common stock issuance 32,312 --
Increase in additional paid in capital related to stock based compensation 2,325 --
Issuance of restricted stock to employees 8,313 --
Issuance of subordinated debt and common stock for redemption of limited
partner interests upon reorganization -- 23,821
The accompanying notes are an integral part of these condensed consolidated statements
</TABLE>
8
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LABRANCHE & CO INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The condensed consolidated financial statements include the accounts of
LaBranche & Co Inc., a Delaware corporation (the "Holding Company"), and its
subsidiaries, LaBranche & Co. LLC, a New York limited liability company
("LaBranche"), and Henderson Brothers, Inc., a Delaware corporation ("Henderson
Brothers" and, collectively with the Holding Company and LaBranche, the
"Company"). The Holding Company is the sole member of LaBranche and 100% owner
of Henderson Brothers. LaBranche is a registered broker-dealer and operates
primarily as a specialist in certain equity securities listed on the New York
Stock Exchange, Inc. (the "NYSE").
On August 24, 1999, the Company reorganized from partnership to
corporate form and completed its initial public offering. In that offering, the
Company sold 10,500,000 shares of common stock and received net proceeds of
$134.8 million. Concurrently with the offering, the Company issued $100.0
million aggregate principal amount of Senior Notes that bear interest at a rate
of 9.5% annually and mature on August 15, 2004.
Effective March 2, 2000, the Holding Company acquired all the
outstanding capital stock of Henderson Brothers Holdings, Inc., which in turn
wholly owned Henderson Brothers, for an aggregate purchase price of
approximately $228.4 million. In addition, effective March 9, 2000, the Holding
Company acquired, through a merger, Webco Securities, Inc. ("Webco"), a
specialist on the NYSE, for an aggregate purchase price of $11.0 million in
cash, $3.0 million in senior promissory notes and 2.8 million shares of the
Company's common stock. In connection with the acquisitions of Henderson
Brothers Holdings, Inc. and Webco, the Holding Company issued $250.0 million
aggregate principal amount of Senior Subordinated Notes that bear interest at a
rate of 12.0% annually and mature on March 2, 2007.
2. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL INFORMATION
The unaudited interim condensed consolidated financial information as
of September 30, 2000 and for the three months ended September 30, 2000 and 1999
are presented in the accompanying condensed consolidated financial statements.
The unaudited interim condensed 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 complete
financial information. The unaudited interim condensed consolidated financial
information reflects all adjustments, which are, in the opinion of management,
necessary for a fair presentation of the results for such periods. This interim
condensed consolidated financial information as of September 30, 2000 should be
read in conjunction with the audited consolidated financial statements and notes
thereto as of December 31, 1999 included in the Company's Form 10-K
9
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filed with the Securities and Exchange Commission ("SEC") on March 30, 2000, as
amended. Results of the interim periods are not necessarily indicative of
results to be obtained for a full fiscal year.
3. INCOME TAXES
Prior to its conversion to corporate form, the Company operated as a
partnership and generally was not subject to U.S. federal and state income
taxes. The earnings of the Company, however, were subject to local
unincorporated business taxes. The members of LaB Investing and the limited
partners of LaBranche were taxed on their respective proportionate shares of
LaBranche's taxable income or loss. Effective with its conversion from
partnership to corporate form on August 24, 1999, the Company became subject to
U.S. federal, state and local corporate income taxes. Prior to LaBranche's
conversion to a limited liability company, as of June 30, 2000, LaBranche
remained subject to unincorporated business tax. The Company accounts for taxes
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes", which requires the recognition of tax benefits or
expenses on temporary differences between the financial reporting and tax bases
of its assets and liabilities. Deferred tax assets and liabilities relate to
stock-based compensation, amortization of intangibles and differences in the
accounting and tax basis of certain assets acquired. The Company's effective tax
rate for the three months ended September 30, 2000 differs from the federal
statutory rate primarily due to non-deductible amortization of intangibles. The
components of provision for income taxes reflected on the condensed consolidated
statements of operations are set forth below (000's omitted):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Current federal, state and local taxes $ 20,032 $ 5,529 $ 59,488 $ 5,529
Deferred tax (benefit)/provision (121) 96 (49) 96
Unincorporated business tax -- 499 1,325 4,288
--------------------- --------------------- ---------------------- ----------------------
Total provision for income taxes $ 19,911 $ 6,124 $ 60,764 $ 9,913
===================== ===================== ====================== ======================
</TABLE>
4. REGULATORY REQUIREMENTS
LaBranche, a specialist and member of the NYSE and subsidiary of the
Holding Company, is subject to SEC Rule 15c3-1 adopted and administered by the
NYSE and the SEC. LaBranche is required to maintain minimum net capital, as
defined, equivalent to the greater of $100,000 or 1/15 of aggregate
indebtedness, as defined.
As of September 30, 2000 and as of December 31, 1999, LaBranche's net
capital, as defined under SEC Rule 15c3-1, was $313.4 million and $161.4
million, respectively, and exceeded minimum requirements by $310.9 million and
$159.9 million, respectively. LaBranche's aggregate indebtedness to net capital
ratio as of September 30, 2000 and December 31, 1999 was .12 to 1 and .13 to 1,
respectively.
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The NYSE generally requires members registered as specialists to
maintain a minimum dollar regulatory capital amount in order to establish that
they can meet, with their own net liquid assets, their position requirement.
As of September 30, 2000 and December 31, 1999, LaBranche's NYSE
minimum required dollar amount of net liquid assets, as defined, was $284.3
million and $93.6 million, respectively, compared to actual net liquid assets,
as defined, of $326.0 million and $175.9 million, respectively.
5. COMMITMENTS
Minimum rental commitments under existing non-cancelable leases for
office space and equipment are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
-----------------------
<S> <C>
2000 $1,000,756
2001 1,082,358
2002 1,026,650
2003 807,750
2004 807,750
Thereafter 2,687,020
</TABLE>
These leases contain escalation clauses providing for increased rentals
based upon maintenance and tax increases.
During the third quarter 2000, the Company agreed to invest up to
$2.0 million in a joint venture in an electronic trading and communications
network.
6. SUBORDINATED LIABILTITES
LaBranche is a party to subordinated loan agreements under which it has
indebtedness approved by the NYSE for inclusion as net capital, as defined.
Interest is payable quarterly at various annual rates. Six of the agreements,
representing $4,173,000, mature within the last three months of 2000, one
agreement, representing $400,000, matures within the first six months of 2001,
five agreements, representing $2,650,000, mature within the last six months of
2001 and six agreements, representing $2,985,000, mature within the first six
months of 2002. These agreements all have automatic rollover provisions, and the
scheduled maturity date of each agreement will be extended an additional year,
unless the lender gives LaBranche seven months' advance notice that the maturity
date will not be extended. Two of the holders representing $850,000 of
subordinated loan agreements maturing in November 2000 have notified LaBranche
that the scheduled maturity date will not be extended. In addition, five holders
representing $3,723,000 of subordinated loan agreements maturing December 2000
and January 2001 have notified LaBranche that the scheduled maturity date will
not be extended.
During the quarter ended September 30, 2000 the Company loaned to
certain employees an aggregate of $4.5 million, with an annual interest rate
equal to the monthly broker call rate. This loan was secured by shares of the
Company's common stock owned by such employees.
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The principal amount and all accrued and unpaid interest will be forgiven and
recognized as compensation expense over three years, subject to the employees'
continuing service with the Company and other restrictions.
7. EARNINGS PER SHARE
Earnings per share ("EPS") are computed in accordance with SFAS No.
128, "Earnings Per Share". Basic EPS is calculated by dividing net income by the
weighted-average number of common shares outstanding. Diluted EPS includes the
determinants of basic EPS and, in addition, gives effect to dilutive potential
common shares. For purposes of determining weighted average shares outstanding
for periods prior to the Company's reorganization from partnership to corporate
form, the outstanding shares were determined based on the conversion ratio of
members' capital to common stock issued to the members upon reorganization.
The computations of basic and diluted EPS are set forth below (000's
omitted, except per share data):
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and
Diluted earnings per share
- net income $ 18,948 $ 7,171 $ 59,629 $ 13,463
Denominator for basic
Earnings per share -
Weighted-average number
of common shares 48,675 41,536 47,970 38,612
Stock options 270 -- 90 --
Restricted stock 22 -- 7 --
Restricted stock units 364 -- 205 --
---------------------------------------------------------------------
Denominator for diluted
Earnings per share -
Weighted-average number
of common shares 49,331 41,536 48,272 38,612
Basic earnings per share $0.39 $0.17 $1.24 $0.35
Diluted earnings per share $0.38 $0.17 $1.24 $0.35
</TABLE>
8. EMPLOYEE INCENTIVE PLANS
During August and September 2000 the Company issued to certain newly
hired employees an aggregate of 200,000 and 100,000 shares of restricted
stock, respectively, each with an issue cost of $.01 and a fair market value
of $26.50 and $30.13 per share, respectively. The restricted stock, which is
subject to continuing service with the Company, will vest in three annual
installments on each anniversary of the grant date. For purposes of
determining compensation
12
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expense, the total expense of approximately $8.3 million is being recognized
over the three-year vesting period on a straight-line basis.
9. PRO FORMA FINANCIAL INFORMATION
The following 1999 pro forma consolidated results give effect to the
Company's August 1999 reorganization from partnership to corporate form and
related transactions, which include the acquisition of LaBranche's limited
partnership interests, and the application of the net proceeds from the
Company's August 1999 initial public offering and Senior Note offering (the
"Reorganization Transactions") as if the Reorganization Transactions occurred as
of January 1, 1999. In addition, the 1999 pro forma consolidated results give
effect to the acquisition of all the outstanding capital stock of Henderson
Brothers, the acquisition of Webco Securities and the issuance of the Senior
Subordinated Notes as if they occurred as of January 1, 1999. The 2000 pro forma
consolidated results give effect to the March 2000 acquisitions of Henderson
Brothers and Webco Securities and the issuance of the Senior Subordinated Notes
as if they all occurred as of January 1, 2000. The pro forma impact on revenues,
pre-tax income and earnings are as follows (000's omitted, except per share
data):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
---- ----
(PRO-FORMA) (PRO-FORMA)
<S> <C> <C>
Revenues $ 260,178 $ 170,405
Pre-Tax Income 101,585 63,245
Net Income 48,214 28,755
EPS $ 0.99 $ 0.69
</TABLE>
10. SUBSEQUENT EVENTS
Subsequent to September 30, 2000 the Company entered into a letter of
intent to acquire ROBB PECK MCCOOEY Financial Services, Inc. ("Robb Peck
McCooey") for an aggregate of approximately 6.7 million shares of the Company's
common stock and shares of the Company's nonconvertible preferred stock having
an aggregate liquidation preference equal to a specified percentage of the net
book value, as defined, of Robb Peck McCooey as of the closing date of the
transaction. In addition, the Company would assume Robb Peck McCooey's
obligations under the outstanding option agreements with Robb Peck McCooey's
employees. Thus, pursuant to these assumed option agreements, the Company would
be required to issue upon exercise of such options an aggregate of approximately
3.0 million shares of the Company's common stock and issue shares of the
Company's nonconvertible preferred stock having a liquidation preference equal
to a specified percentage of the net book value, as defined, of Robb Peck
McCooey as of the closing date of the transaction. The acquisition will be
accounted for under the purchase method and the results of Robb Peck McCooey
operations will be included in the Company's consolidated financial statements
from the closing date of the transaction.
13
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY," "LABRANCHE" OR
"WE" SHALL MEAN LABRANCHE & CO INC. AND ITS WHOLLY-OWNED SUBSIDIARIES.
LABRANCHE'S QUARTERLY AND ANNUAL OPERATING RESULTS ARE AFFECTED BY A
WIDE VARIETY OF FACTORS THAT COULD MATERIALLY AND ADVERSELY AFFECT ACTUAL
RESULTS, INCLUDING: A DECREASE IN TRADING VOLUME ON THE NEW YORK STOCK EXCHANGE,
VOLATILITY IN THE EQUITY SECURITIES MARKET AND CHANGES IN THE VALUE OF OUR
SECURITIES POSITIONS. AS A RESULT OF THESE AND OTHER FACTORS, LABRANCHE MAY
EXPERIENCE MATERIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS ON A QUARTERLY OR
ANNUAL BASIS, WHICH COULD MATERIALLY AND ADVERSELY AFFECT ITS BUSINESS,
FINANCIAL CONDITION, OPERATING RESULTS AND STOCK PRICE. AN INVESTMENT IN
LABRANCHE INVOLVES VARIOUS RISKS, INCLUDING THOSE MENTIONED ABOVE AND THOSE THAT
ARE DETAILED FROM TIME TO TIME IN LABRANCHE'S SEC FILINGS.
CERTAIN STATEMENTS CONTAINED IN THIS REPORT, INCLUDING WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES", "INTENDS", "EXPECTS",
"ANTICIPATES" AND WORDS OF SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. READERS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE, AND SINCE SUCH STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES, THE ACTUAL RESULTS AND PERFORMANCE OF LABRANCHE AND THE
SPECIALIST INDUSTRY MAY TURN OUT TO BE MATERIALLY DIFFERENT FROM THE RESULTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. GIVEN THESE
UNCERTAINTIES, READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS. LABRANCHE ALSO DISCLAIMS ANY OBLIGATION TO UPDATE
ITS VIEW OF ANY SUCH RISKS OR UNCERTAINTIES OR TO PUBLICLY ANNOUNCE THE RESULT
OF ANY REVISIONS TO THE FORWARD-LOOKING STATEMENTS MADE IN THIS REPORT.
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH LABRANCHE'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO CONTAINED IN
THIS REPORT.
REVENUES
Our revenues consist primarily of net gains earned from principal
transactions in securities for which we act as specialist, and commissions
revenue earned from specialist activities. Net gain on principal transactions
represents trading gains net of trading losses and transaction fees, and are
earned by us when we act as principal buying and selling our specialist stocks.
Commissions revenue consists of commissions we earn when acting as agent to
match buyers and sellers for limit orders executed by us on behalf of brokers
after a specified period of time; we do not earn commissions when we match
market orders. Other revenue consists of proprietary trading revenue, an
investment in a hedge fund and interest income earned on short-term investments.
For the three months ended September 30, 2000, net gain on principal
transactions represented 79.4% of our total revenues, commissions revenue
represented 14.8% of our total revenues, and other revenues represented 5.8% of
our total revenues. For the nine months ended September 30, 2000, net gain on
principal transactions represented 82.1% of our
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total revenues, commissions revenue represented 13.1% of our total revenues, and
other revenues represented 4.8% of our total revenues.
EXPENSES
Our largest operating expense is compensation and related benefits.
Employee compensation and benefits primarily consist of salaries, wages and
profitability-based compensation. Profitability-based compensation includes
compensation and benefits paid to managing directors, trading professionals and
other employees based on our profitability and each employee's overall
performance.
Prior to our reorganization from partnership to corporate form, a large
portion of the compensation payments to our managing directors had not been
presented as part of operating expenses. The aggregate amount of these
compensation payments generally approximated LaB Investing Co. L.L.C.'s interest
in the income of LaBranche & Co., before managing directors' compensation.
Generally, these payments of compensation were allocated among our managing
directors based on their respective percentage interests in the profits of LaB
Investing Co. L.L.C. Subsequent to the reorganization transactions, we include
payments to managing directors in employee compensation and benefits expense.
Therefore, historical income before managing directors' compensation, limited
partnership interest in earnings of subsidiary and provision for income taxes
understates our operating costs.
INCOME TAXES
As a partnership, we generally were not subject to U.S. federal, state
and local income taxes, apart from the 4% New York City unincorporated business
tax. As a result of our restructuring to a corporation, we are subject to U.S.
federal, state and local income taxes.
DECIMAL PRICING
The NYSE approved a conversion to decimal pricing in June 1997 and
became decimal ready in April 2000. On August 28, 2000 seven stock issues were
priced in dollars and cents and on September 25, 2000 an additional 57 stocks
began trading in decimal format. On December 4, 2000 an additional 94 stocks
will begin decimal pricing. Of the 64 issues currently priced in decimal format,
LaBranche acts as the specialist for six. Pending further analysis and
evaluations, the NYSE plans to extend decimalization to all NYSE-listed stocks
in January 2001. Our business has not experienced any adverse impact as the
result of decimal pricing, and we do not presently anticipate any negative
impact as all equity issues will be traded in dollars and cents.
PENDING ACQUISITION
Subsequent to September 30, 2000 the Company entered into a letter of
intent to acquire ROBB PECK MCCOOEY Financial Services, Inc. ("Robb Peck
McCooey") for an aggregate of approximately 6.7 million shares of the Company's
common stock and shares of the Company's nonconvertible preferred stock having
an aggregate liquidation preference equal to a specified percentage of the net
book value, as defined, of Robb Peck McCooey as of the closing date of the
transaction. In addition, the Company would assume Robb Peck McCooey's
obligations under
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the outstanding option agreements with Robb Peck McCooey's employees. Thus,
pursuant to these assumed option agreements, the Company would be required to
issue upon exercise of such options an aggregate of approximately 3.0 million
shares of the Company's common stock and issue shares of the Company's
nonconvertible preferred stock having a liquidation preference equal to a
specified percentage of the net book value, as defined, of Robb Peck McCooey as
of the closing date of the transaction. The acquisition will be accounted for
under the purchase method and the results of Robb Peck McCooey operations will
be included in the Company's consolidated financial statements from the closing
date of the transaction.
ACQUISITIONS COMPLETED DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2000
On March 2, 2000, we completed the acquisition of all the outstanding
capital stock of Henderson Brothers for approximately $228.4 million in cash. In
addition, on March 9, 2000, we acquired Webco through a merger for 2.8 million
shares of our common stock, $11.0 million in cash and senior promissory notes in
the aggregate principal amount of $3.0 million bearing interest of 10.0% per
annum. These acquisitions were accounted for under the purchase method and the
excess of cost over estimated fair value of the net assets acquired of $204.9
million for Henderson Brothers and $28.8 million for Webco was allocated to
intangible assets. The results of the specialist operations of each of these
acquired companies are included in our consolidated financial statements
beginning on the date of completion of the acquisition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES
Total revenues increased 95.2% to $81.2 million for the three months
ended September 30, 2000, from $41.6 million for the same period in 1999,
principally due to the increase in revenue from net gain on principal
transactions. Net gain on principal transactions increased 108.7% to $64.5
million for the three months ended September 30, 2000, from $30.9 million for
the same period in 1999. This increase was primarily due to the Henderson
Brothers and Webco acquisitions, as a result of which we became the specialist
for 147 additional common stock listings, as well as increased share volume in
principal trading in our specialist stocks traded on the NYSE. Our share volume
as principal increased 125.0% to 4.5 billion shares for the three months ended
September 30, 2000, from 2.0 billion shares for the same period in 1999.
Commissions revenue increased 36.4% to $12.0 million for the three
months ended September 30, 2000, from $8.8 million for the same period in 1999.
This increase was primarily due to the increase in the number of our common
stock listings as a result of the Henderson Brothers and Webco acquisitions, and
to increased share volume in our specialist stocks traded on the NYSE in which
we acted as agent. The share volume executed by us as agent in our specialist
stocks increased 50.0% to 1.5 billion shares for the three months ended
September 30, 2000, from 1.0 billion shares for the same period in 1999.
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Other revenue increased 135.0% to $4.7 million for the three months
ended September 30, 2000, from $2.0 million for the same period in 1999. This
increase was primarily due to an increase in our short term interest income and
in our proprietary trading revenues.
EXPENSES
Total expenses before managing directors' compensation and limited
partners' interest in earnings of subsidiary and provision for income taxes
increased 163.4% to $42.4 million for the three months ended September 30, 2000
from $16.1 million for the same period in 1999. This increase is primarily due
to the increase in both interest expense and amortization of intangibles expense
due to the Henderson Brothers and Webco acquisitions. In addition, the increase
is the result of the inclusion of managing directors' salary, incentive-based
compensation and related benefits in employee compensation for a full quarter.
Employee compensation and related benefits increased 142.9% to $18.7
million for the three months ended September 30, 2000, from $7.7 million for the
same period in 1999. This increase was primarily due to the inclusion of
managing directors' salary, incentive-based compensation and related benefits in
employee compensation subsequent to our reorganization, and due to the Henderson
Brothers and Webco acquisitions that resulted in our employment of 97 additional
individuals. As a percentage of total revenues, employee compensation increased
to 23.0% of total revenues for the three months ended September 30, 2000, from
18.6% of total revenues for the same period in 1999.
Interest expense increased 417.4% to $11.9 million for the three months
ended September 30, 2000, from $2.3 million for the same period in 1999. This
increase was primarily due to the issuance, in connection with the Henderson
Brothers and Webco acquisitions, of $250.0 million of indebtedness that began
accruing interest on March 2, 2000. In addition, the increase was due to a full
quarter of interest on the $116.4 million of indebtedness issued in connection
with our reorganization that began accruing interest from August 24, 1999. As a
percentage of total revenues, interest increased to 14.6% of total revenues for
the three months ended September 30, 2000, from 5.6% of total revenues for the
same period in 1999.
Depreciation and amortization of intangibles expense increased 300.0%
to $4.8 million for the three months ended September 30, 2000, from $1.2 million
for the same period in 1999. Amortization of intangibles increased as a result
of the $233.7 million of intangible assets recorded as a result of our
acquisitions of Henderson Brothers and Webco on March 2, 2000 and March 9, 2000,
respectively. In addition, the increase was due to a full quarter of
amortization on the $127.4 of intangible assets recorded as a result of our
acquisition of all the limited partner interests in LaBranche & Co. in
connection with our reorganization transactions. As a percentage of total
revenues, depreciation and amortization of intangibles increased to 5.9% of
total revenues for the three months ended September 30, 2000, from 2.9% of total
revenues for the same period in 1999.
Lease of exchange memberships expense increased 33.3% to $2.8 million
for the three months ended September 30, 2000, from $2.1 million for the same
period in 1999. This increase was due to the increase in the number of leased
memberships from 44 to 48, and was also due to
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an increase in the average annual leasing cost of a membership from
approximately $192,000 to $276,000.
Exchange, clearing and brokerage fees consist primarily of fees paid by
us as a specialist to the NYSE and to clearing houses. Fees paid by us to the
NYSE primarily include fees based on the volume of transactions executed as
principal and as agent, as well as a flat annual fee. Exchange, clearing and
brokerage fees expense increased 44.4% to $1.3 million for the three months
ended September 30, 2000, from $0.9 million during the same period in 1999. This
increase was primarily due to the increased trading volumes as a result of the
Henderson Brothers and Webco acquisitions.
Other expenses increased 57.9% to $3.0 million for the three months
ended September 30, 2000, from $1.9 million for the same period in 1999. This
increase was primarily the result of an increase in advertising and promotional
costs, legal and professional fees, as well as an increase in printing and
filing fees.
INCOME BEFORE MANAGING DIRECTORS' COMPENSATION, LIMITED PARTNERS' EARNINGS IN
INTEREST OF SUBSIDIARY AND PROVISION FOR INCOME TAXES
Income before managing directors' compensation and limited partners'
interest in earnings of subsidiary and before provision for income taxes
increased 52.0% to $38.9 million for the three months ended September 30, 2000,
from $25.6 million for the same period in 1999. The increase was primarily the
result of the Henderson Brothers and Webco acquisitions, as a result of which we
became the specialist for 147 additional common stock listings which increased
both net gain on principal transactions and commissions revenue. In addition,
increased share volume in principal trading and increased executions by us as
agent in our existing specialist stocks, increased short term interest income
and increased revenues from proprietary trading all contributed to the increase
in income before managing directors' compensation, limited partners' interest in
earnings of subsidiary and provision for income taxes.
INCOME TAXES
Provision for income taxes increased 226.2% to $19.9 million for the
three months ended September 30, 2000, from $6.1 million for the same period in
1999, as a result of the federal, state and local income taxes to which we are
subject for a full quarter as a result of our reorganization from partnership to
corporate form, a significant increase in nondeductible amortization of
intangibles and our increased profitability.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES
Total revenues increased 70.6% to $247.5 million for the nine months
ended September 30, 2000, from $145.1 million for the same period in 1999,
principally due to the increase in revenue from net gain on principal
transactions. Net gain on principal transactions increased 85.6% to $203.2
million for the nine months ended September 30, 2000, from $109.5 million for
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the same period in 1999. This increase was primarily due to the Henderson
Brothers and Webco acquisitions in March 2000, as a result of which we became
the specialist for 147 additional common stock listings, as well as increased
share volume in principal trading in our specialist stocks traded on the NYSE.
Our share volume as principal increased 103.1% to 13.2 billion shares for the
nine months ended September 30, 2000, from 6.5 billion shares for the same
period in 1999.
Commissions revenue increased 21.3% to $32.4 million for the nine
months ended September 30, 2000, from $26.7 million for the same period in 1999.
This increase was primarily due to the increase in the number of our common
stock listings as a result of the Henderson Brothers and Webco acquisitions and
to increased share volume in our specialist stocks traded on the NYSE in which
we acted as agent. The share volume executed by us as agent in our specialist
stocks increased 41.4% to 4.1 billion shares for the nine months ended September
30, 2000, from 2.9 billion shares for the same period in 1999.
Other revenue increased 34.8% to $12.0 million for the nine months
ended September 30, 2000, from $8.9 million for the same period in 1999. This
increase was primarily due to an increase in our interest income and the
additional income generated by Henderson Brothers, which was also offset by a
decrease in our proprietary trading revenues and other investments.
EXPENSES
Total expenses before managing directors' compensation and limited
partners' interest in earnings of subsidiary and provision for income taxes
increased 216.2% to $127.1 million for the nine months ended September 30, 2000
from $40.2 million for the same period in 1999.
Employee compensation and related benefits increased 238.9% to $64.4
million for the nine months ended September 30, 2000, from $19.0 million for the
same period in 1999. This increase was primarily due to the inclusion of
managing directors' salary, incentive-based compensation and related benefits in
employee compensation subsequent to our reorganization, and due to the Henderson
Brothers and Webco acquisitions that resulted in our employment of 97 additional
individuals as of the respective acquisition dates. As a percentage of total
revenues, employee compensation increased to 26.0% of total revenues for the
nine months ended September 30, 2000, from 13.1% of total revenues for the same
period in 1999.
Interest expense increased 564.4% to $29.9 million for the nine months
ended September 30, 2000, from $4.5 million for the same period in 1999. This
increase was primarily due to the issuance, in connection with the Henderson
Brothers and Webco acquisitions, of $250.0 million of indebtedness that began
accruing interest on March 2, 2000. In addition, the increase was due to the
issuance of $116.4 million of indebtedness, in connection with our
reorganization, that began accruing interest from August 24, 1999. As a
percentage of total revenues, interest increased to 12.1% of total revenues for
the nine months ended September 30, 2000, from 3.1% of total revenues for the
same period in 1999.
Depreciation and amortization of intangibles expense increased 327.6%
to $12.4 million for the nine months ended September 30, 2000, from $2.9 million
for the same period in 1999.
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Amortization of intangibles increased as a result of the $233.7 million of
intangible assets recorded as a result of our acquisition of Henderson Brothers
and Webco. In addition, the increase was due to the $127.4 of intangible assets
recorded as a result of our acquisition of all the limited partner interests in
LaBranche & Co. in connection with our reorganization transactions. As a
percentage of total revenues, depreciation and amortization of intangibles
increased to 5.0% of total revenues for the nine months ended September 30,
2000, from 2.0% of total revenues for the same period in 1999.
Lease of exchange memberships expense increased 28.6% to $8.1 million
for the nine months ended September 30, 2000, from $6.3 million for the same
period in 1999. This increase was due to the increase in the number of leased
memberships from 44 to 48, and was also due to an increase in the average annual
leasing cost of a membership from approximately $192,000 to $276,000.
Exchange, clearing and brokerage fees consist primarily of fees paid by
us as a specialist to the NYSE and to clearing houses. Fees paid by us to the
NYSE primarily include fees based on the volume of transactions executed as
principal and as agent, as well as a flat annual fee. Exchange, clearing and
brokerage fees expense increased 24.1% to $3.6 million for the nine months ended
September 30, 2000, from $2.9 million during the same period in 1999. This
increase was primarily due to the increased trading volumes as a result of the
Henderson Brothers and Webco acquisitions.
Other expenses increased 87.0% to $8.6 million for the nine months
ended September 30, 2000, from $4.6 million for the same period in 1999. This
increase was primarily the result of increased legal and filing fees associated
with various filings and acquisitions, additional fees incurred in connection
with the increase and extension of our line-of-credit with a U.S. commercial
bank, increased charitable contributions, as well as an increase in advertising
and promotional costs.
INCOME BEFORE MANAGING DIRECTORS' COMPENSATION, LIMITED PARTNERS' EARNINGS IN
INTEREST OF SUBSIDIARY AND PROVISION FOR INCOME TAXES
Income before managing directors' compensation and limited partners'
interest in earnings of subsidiary and before provision for income taxes
increased 14.8% to $120.4 million for the nine months ended September 30, 2000,
from $104.9 million for the same period in 1999. This increase was primarily due
to the additional revenues generated by the Henderson Brothers and Webco
acquisitions which was offset by the inclusion of managing directors' salary and
incentive based compensation in employee compensation and related benefits and
the additional interest and amortization of intangibles expense as a result of
the acquisitions.
INCOME TAXES
Provision for income taxes increased 514.1% to $60.8 million for the
nine months ended September 30, 2000, from $9.9 million for the same period in
1999, as a result of the federal, state and local income taxes to which we are
subject as a result of our reorganization from
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partnership to corporate form, a significant increase in nondeductible
amortization of intangibles and our increased profitability.
LIQUIDITY
Prior to our initial public offering of common stock and our 9-1/2 %
Senior Notes offering, we had financed our business primarily through members'
capital and the issuance of subordinated indebtedness. As of September 30, 2000,
we had $932.2 million in assets, of which $224.6 million consisted of cash and
short-term investments, which primarily consist of commercial paper maturing
within thirty days and overnight repurchase agreements.
On August 24, 1999, we issued $100.0 million aggregate principal amount
of Senior Notes. The Senior Notes bear interest at a rate of 9-1/2 % annually
and mature in August 2004. The indenture covering the Senior Notes includes
certain covenants that, among other things, limit our ability to borrow money,
pay dividends or purchase our stock, make investments, engage in transactions
with stockholders and affiliates, create liens on our assets, and sell assets or
engage in mergers and consolidations, subject to certain exceptions.
At approximately the same time as our 9-1/2 % Senior Notes offering and
the initial public offering of our common stock, we issued a $16.0 million
senior note as partial payment for the acquisition of a certain limited
partnership interest in LaBranche & Co. The note is payable in three annual
installments, with $6.0 million of the aggregate principal amount already having
been paid on the first anniversary of issuance. The remaining principal amount
is payable in $5.0 million installments on each of the second and third
anniversaries of issuance, and bears interest at the annual rate of 9-1/2%.
LaBranche & Co. also entered into a $350,000 cash subordinated loan agreement,
bearing interest at an annual rate of 8.0%, in connection with the acquisition
of a certain limited partner interest.
In connection with our acquisitions of Henderson Brothers and Webco, we
issued $250.0 million aggregate principal amount of the Senior Subordinated
Notes on March 2, 2000. These notes bear interest at a rate of 12% annually and
mature in March 2007. The indenture covering these notes includes certain
covenants that, among other things, limit our ability to borrow money, pay
dividends or purchase our stock, make investments, engage in transactions with
stockholders and affiliates, create liens on our assets, and sell assets or
engage in mergers and consolidations, subject to certain exceptions.
The Senior Subordinated Notes also require us, within 150 days after
the end of each fiscal year, to offer to redeem from all holders of the Notes a
principal amount equal to the Excess Cash Flow at a price equal to 103% of the
principal amount being offered for purchase plus accrued and unpaid interest, if
any, to the date of redemption. Each holder is entitled to be offered his pro
rata share based upon his ownership percentage of the outstanding Notes. Excess
Cash Flow is defined for this purpose as 40% of the amount by which our
consolidated EBITDA, computed on an annual basis, exceeds the sum of our
interest expense, tax expense, increase in net capital or net liquid asset
requirements, capital expenditures, any cash amounts related to acquisitions of
NYSE specialists or any cash payments related to our payment at maturity of the
principal amount of our existing or certain other indebtedness.
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As a broker-dealer, LaBranche & Co. is subject to regulatory
requirements intended to ensure the general financial soundness and liquidity of
broker-dealers and requiring the maintenance of minimum levels of net capital,
as defined in SEC Rule 15c3-1. LaBranche & Co. is required to maintain minimum
net capital, as defined, equivalent to the greater of $100,000 or 1/15 of
aggregate indebtedness, as defined. NYSE Rule 326(c) also prohibits a
broker-dealer from repaying subordinated borrowings, paying cash dividends,
making loans to any parent, affiliates or employees, or otherwise entering into
transactions which would result in a reduction of its total net capital to less
than 150% of its required minimum capital.
At September 30, 2000, LaBranche & Co. had net capital of $313.4
million, which was $310.9 million in excess of its required net capital of $2.5
million.
The NYSE generally requires members registered as specialists to
maintain a minimum dollar regulatory capital amount in order to establish that
they can meet, with their own net liquid assets, their position requirement. Our
current net liquid asset requirement is $284.3 million. Upon the completion of
our pending acquisition of Robb Peck McCooey, our new net liquid asset
requirement is expected to be approximately $405.0 million, which represents the
current combined net liquid asset requirement of the two firms. As of September
30, 2000, our actual net liquid assets were approximately $326.0 million. We
anticipate that our net liquid assets will exceed our requirement upon the
completion of the acquisition.
Failure to maintain the required net capital and net liquid assets may
subject us to suspension or revocation of SEC registration or suspension or
expulsion by the NYSE.
We currently anticipate that our available cash resources and credit
facilities will be sufficient to meet our anticipated working capital,
regulatory capital and capital expenditure requirements through the end of 2000.
Since our acquisition of Henderson Brothers, the clearing operations of
Henderson Brothers have been operated as a separate subsidiary. As a clearing
broker, pursuant to SEC Rule 15c3-1, Henderson Brothers is required to maintain
a minimum net capital of $250,000. As of September 30, 2000, Henderson Brothers
had net capital of $10.7 million, which was $10.5 million in excess of its
required minimum net capital.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A majority of our specialist related revenues are derived from trading
as principal. We also operate a proprietary trading desk separately from our
NYSE specialist operations, which represented .5% of our total revenues in the
nine months ended September 30, 2000 and 3.8% of our total revenues in the same
period in 1999. These activities involve primarily the purchase, sale or short
sale of securities for our own account. These activities are subject to a number
of risks, including risks of price fluctuations and rapid changes in the
liquidity of markets. In any period, we may incur trading losses in our
specialist stocks for a variety of reasons, including price declines of our
specialist stocks, lack of trading volume in our specialist stocks and the
performance of our specialist obligations. From time to time, we have large
position concentrations in securities of a single issuer or issuers engaged in a
specific industry. In general,
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because our inventory of securities is marked to market on a daily basis, any
downward price movement in these securities will result in a reduction of our
revenues and operating profits.
We have developed a risk management process that is intended to balance
our ability to profit from our specialist activities with our exposure to
potential losses. In addition, we have trading limits relating to our
proprietary trading activities.
Although we have adopted risk management policies, we cannot be sure
that these policies have been formulated properly to identify or limit our
risks. Even if these policies are formulated properly, we cannot be sure that we
will successfully implement these policies. As a result, we may not be able to
manage our risks successfully or avoid trading losses.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
NONE.
All other items of this report are inapplicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
November 14, 2000 LABRANCHE & CO INC.
By: /s/ HARVEY S. TRAISON
-----------------------
Name: Harvey S. Traison
Title: Chief Financial Officer
