<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 8-K/A
----------------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 2, 2000
LABRANCHE & CO INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 001-15251 13-4064735
- ---------------------------- ----------- -------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One Exchange Plaza, New York, New York, 10006 10006
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 425-1144
--------------
Not Applicable
---------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 2, 2000, pursuant to the terms of a Stock Purchase Agreement,
dated December 23, 1999 and amended as of February 1, 2000 (the "Henderson
Agreement"), by and between LaBranche & Co Inc. (the "Registrant"), Henderson
Brothers Holdings, Inc. ("Henderson") and the stockholders of Henderson (the
"Henderson Stockholders"), the Registrant completed its acquisition of all
the outstanding capital stock of Henderson for approximately $230.0 million
in cash, subject to adjustment after the closing. The amount of the purchase
price was determined based upon arm's-length negotiations between the
Registrant and the Henderson Stockholders. An aggregate of $25.5 million of
the purchase price was placed in escrow to secure certain obligations of the
Henderson Stockholders. The Registrant funded the purchase price with
proceeds from a private offering and issuance of approximately $250 million
aggregate principal amount of its 12% Senior Subordinated Notes. Henderson
owns all the issued and outstanding stock of Henderson Brothers, Inc., a
registered broker-dealer and, until the Registrant's acquisition of
Henderson, a New York Stock Exchange specialist firm.
In connection with the completion of the foregoing acquisition, the
Registrant issued the press release filed herewith as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Incorporated by reference to pages F-30 through F-50
of the Company's Registration Statement on Form S-4, File
No. 333-35922, filed April 28, 2000, relating to the consolidated
financial statements of Henderson Brothers Holdings Inc. and
subsidiary, and for the parent company only, as of December 31, 1999
and 1998 and for each of the three years in the period ended
December 31, 1999.
(b) PRO FORMA FINANCIAL INFORMATION.
Incorporated by reference to pages F-3 through F-9 of the
Company's Registration Statement on Form S-4, File No. 333-35922,
filed April 28, 2000, relating to the pro forma condensed
consolidated financial information of the Company as of and for
the year ended December 31, 1999, to give effect to, among other
things, the acquisition of Henderson Brothers Holdings Inc.
(c) EXHIBITS
10.1 Stock Purchase Agreement, dated as of December 23, 1999,
among the Registrant, Henderson Brothers Holdings, Inc.
and the stockholders listed on Schedule A thereto.*
10.2 Amendment to Stock Purchase Agreement, dated as of
February 1, 2000, by and among the Registrant, Henderson
Brothers Holdings, Inc., and the authorized
representatives of the persons listed on Schedule A
thereto.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Goldstein Golub Kessler & Company, P.C.
99.1 Press release, dated March 3, 2000.*
99.2 Pages F-30 through F-50 of the Company's Registration
Statement on Form S-4, File No. 333-35922, relating to
the consolidated financial statements of Henderson
Brothers Holdings, Inc. as of December 31, 1999 and 1998
and for each of the three years in the period ended
December 31, 1999.
99.3 Pages F-3 to F-9 of the Company's Registration Statement
on Form S-4, File No. 333-35922 relating to the pro
forma condensed consolidated financial information
as of and for the year ended December 31, 1999, to
give effect to, among other things, the Henderson
Brothers acquisition.
All other Items of this report are inapplicable.
---------------------------
* previously filed
2-
<PAGE>
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 hereunto duly authorized.
LABRANCHE & CO INC.
Date: May 17, 2000 By: /s/ Harvey Traison
-----------------------------------
Name: Harvey Traison
Title: Senior Vice President and
Chief Financial Officer
3-
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Report on Form
8-K/A under the Securities Exchange Act of 1934 of LaBranche & Co Inc.
of our report dated January 28, 2000 relating to the financial statements of
Henderson Brothers Holdings, Inc. and Subsidiary (which expressed an unqualified
opinion with an emphasis of a matter relating to the pending sale of Henderson
Brothers Holdings, Inc. to LaBranche & Co Inc.) appearing in the Registration
Statement on Form S-4 (File No. 333-35922), and of our report dated
January 28, 2000 relating to the financial statement schedules of
Henderson Brothers Holdings, Inc. appearing elsewhere in the Form S-4.
/s/ Deloitte & Touche LLP
New York, New York
May 12, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors and Stockholders of
Henderson Brothers Holdings, Inc.
We hereby consent to the incorporation by reference in this Report on
Form 8-K/A of LaBranche & Co Inc. of our report, dated February 16, 1998, on
the consolidated statements of income, cash flows, and changes in
stockholders' equity of Henderson Brothers Holdings, Inc. and subsidiary for
the year ended December 31, 1997, which appear in LaBranche & Co Inc.'s
registration statement on Form S-4 (File No. 333-35922). We also consent to
the reference to our Firm under the caption "Expert" in such Prospectus.
/s/ GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
May 15, 2000
<PAGE>
Exhibit 99.2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Henderson Brothers Holdings, Inc. and Subsidiary
We have audited the accompanying consolidated statements of financial
condition of Henderson Brothers Holdings, Inc. and Subsidiary (the "Company") as
of December 31, 1999 and 1998, and the related consolidated statements of
income, cash flows and changes in stockholders' equity for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
of the Company for the year ended December 31, 1997 were audited by other
auditors whose report, dated February 16, 1998, expressed an unqualified opinion
on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 1999 and 1998 consolidated financial statements present
fairly, in all material respects, the financial position of Henderson Brothers
Holdings, Inc. and Subsidiary at December 31, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
As discussed in Note 11, on December 23, 1999 the stockholders of the
Company executed an agreement to sell all the outstanding capital stock of the
Company to LaBranche & Co Inc.
/s/ Deloitte & Touche LLP
New York, New York
January 28, 2000
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Henderson Brothers Holdings, Inc.
We have audited the accompanying consolidated statements of income, cash
flows and changes in stockholders' equity of Henderson Brothers Holdings, Inc.
and Subsidiary for the year ended December 31, 1997. These financial statements
and the condensed financial statements referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Henderson Brothers Holdings, Inc. and Subsidiary for the year ended
December 31, 1997 in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The condensed financial statements
(Parent Company Only) appearing on pages F-47 through F-50 are presented for the
purpose of complying with the Securities and Exchange Commission's rules and are
not part of the basic financial statements. Such statements have been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
February 16, 1998
F-31
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash........................................................ $ 3,396,238 $ 10,670,335
Cash deposited with clearing organizations or segregated in
compliance with federal regulations....................... 6,342,123 4,935,397
Securities purchased under agreement to resell.............. 19,500,000 --
Financial instruments owned--at fair value:
U.S. government obligations............................. 46,138,239 41,914,281
Equities................................................ 29,720,166 37,913,511
Receivables:
Brokers, dealers and clearing organizations............. 96,233,541 97,188,681
Customers............................................... 1,172,860 1,268,070
Income taxes............................................ 1,557,209 279,231
Exchange memberships:
Owned by the Company, at cost (market value, $43,700,000
and $23,275,000, respectively)......................... 8,835,620 8,835,620
Contributed by stockholders for the use of the Company,
at market value........................................ 4,600,000 2,450,000
Other assets................................................ 1,726,878 4,902,876
------------ ------------
TOTAL ASSETS................................................ $219,222,874 $210,358,002
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank loan................................................... $ 1,000 $ 1,000
Financial instruments (equities) sold, but not yet
purchased--at fair value.................................. 20,804,633 15,483,439
Payables:
Brokers, dealers and clearing organizations............. 68,702,105 78,364,047
Customers............................................... 6,551,799 4,567,875
Correspondents.......................................... 1,016,462 579,556
Deferred income taxes................................... 740,934 1,402,871
Former stockholders..................................... -- 6,442,368
Dividends............................................... 943,341 745,402
Accounts payable and accrued expenses....................... 7,832,593 6,508,734
------------ ------------
106,592,867 114,095,292
------------ ------------
Subordinated liabilities.................................... 58,669,100 56,252,100
------------ ------------
Commitments (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $1 par value (stated value of
$1,000) 175.5 shares authorized, no shares outstanding.... -- --
Preferred stock, Series B, $1 par value (stated value of
$917.18) 84 shares authorized, no shares outstanding...... -- --
Preferred stock, $1 par value, 100,744 shares authorized, no
shares issued............................................. -- --
Preferred stock, Series C, $1 par value (stated value of
$137) 99,995 shares authorized, 68,857 shares outstanding
in 1999 and 1998.......................................... 9,433,409 9,433,409
Common stock, non-voting, $1 par value, 40,000 shares
authorized 4,260 shares outstanding in 1999 and 1998...... 4,260 4,260
Common stock, voting, $1 par value, 20,000 shares authorized
4,238 shares outstanding in 1999 and 1998................. 4,238 4,238
Additional paid-in-capital.................................. 11,964,776 11,964,776
Retained earnings........................................... 36,577,520 25,169,854
Notes receivable--stockholders.............................. (4,023,296) (6,565,927)
------------ ------------
Total stockholders' equity.................................. 53,960,907 40,010,610
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $219,222,874 $210,358,002
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Principal transactions as a specialist............ $52,469,688 $36,863,958 $37,978,596
Commissions....................................... 23,663,386 21,697,106 19,069,990
Dividends and interest............................ 5,012,169 4,614,675 3,393,502
Net gain from investment accounts................. 334,509 451,907 618,176
Other............................................. 609,190 716,903 543,577
----------- ----------- -----------
Total revenues................................ 82,088,942 64,344,549 61,603,841
----------- ----------- -----------
EXPENSES:
Employee compensation and benefits................ 43,263,227 38,261,765 36,422,258
Stock exchange fees and clearance charges......... 1,765,338 1,230,554 1,159,328
Professional fees................................. 887,042 949,100 1,170,087
Contributions..................................... 463,695 346,530 322,036
Rent.............................................. 216,726 216,515 198,432
Interest expense.................................. 4,177,998 4,403,833 3,369,011
Travel and entertainment.......................... 864,458 781,458 711,422
Communications.................................... 137,430 137,101 121,528
Insurance......................................... 511,921 668,479 444,519
Other............................................. 5,132,947 2,226,495 2,430,278
----------- ----------- -----------
Total expenses................................ 57,420,782 49,221,830 46,348,899
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES.............. 24,668,160 15,122,719 15,254,942
PROVISION FOR INCOME TAXES............................ 12,317,153 7,195,641 6,982,480
----------- ----------- -----------
NET INCOME............................................ $12,351,007 $ 7,927,078 $ 8,272,462
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $12,351,007 $ 7,927,078 $ 8,272,462
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 256,365 182,115 205,159
Bad debt expense........................................ 1,321,684 42,102 --
Deferred income taxes................................... (661,937) 87,091 (251,713)
(Increase) decrease in operating assets:
Cash deposited with clearing organizations or
segregated in compliance with federal regulations.... (1,406,726) (4,294,711) 1,217,099
Securities purchased under agreement to resell........ (19,500,000) -- --
Financial instruments owned........................... 3,969,387 (5,900,114) (40,519,128)
Receivables from brokers, dealers and clearing
organizations........................................ 955,140 (14,245,199) (7,631,849)
Receivables from customers............................ 95,210 3,619,966 (2,710,919)
Income taxes receivable............................... (1,277,978) (33,013) 2,251,756
Other assets.......................................... 1,737,593 (590,083) (1,174,809)
Increase (decrease) in operating liabilities:
Financial instruments (equities) sold, not yet
purchased............................................ 5,321,194 783,667 4,252,228
Payables to brokers, dealers and clearing
organizations........................................ (9,661,942) 22,696,863 8,896,613
Payables to customers................................. 1,983,924 696,228 967,860
Payables to correspondents............................ 436,906 (8,995) (14,502,449)
Payables to former stockholders....................... (6,442,368) 6,442,368 --
Accounts payable and accrued expenses................. 1,323,859 799,127 1,131,423
----------- ----------- -----------
Net cash (used in) provided by operating
activities.......................................... (9,198,682) 18,204,490 (39,596,267)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (139,644) (105,003) (88,503)
Purchase of exchange memberships.......................... -- -- (1,200,000)
----------- ----------- -----------
Cash used in investing activities................... (139,644) (105,003) (1,288,503)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subordinated liabilities.................... 1,373,000 3,714,100 39,325,000
Repayments of subordinated liabilities.................... (1,106,000) -- --
Dividends paid............................................ (745,402) (638,916) (638,916)
Decrease (increase) in notes receivable--stockholders..... 2,542,631 (4,953,178) 278,222
Retirement of common stock................................ -- (5,227,178) --
Issuance of common stock.................................. -- 5,227,178 386,227
Proceeds from bank loans.................................. -- -- 1,700,000
Repayment of bank loans................................... -- (4,701,000) --
Redemption of preferred stock............................. -- (1,215,190) --
----------- ----------- -----------
Net cash provided by (used in) financing
activities.......................................... 2,064,229 (7,794,184) 41,050,533
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH............................. (7,274,097) 10,305,303 165,763
CASH, BEGINNING OF YEAR..................................... 10,670,335 365,032 199,269
----------- ----------- -----------
CASH, END OF YEAR........................................... $ 3,396,238 $10,670,335 $ 365,032
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................ $ 4,233,744 $ 4,174,670 $ 2,774,815
=========== =========== ===========
Income taxes............................................ $14,264,331 $ 7,069,662 $ 6,010,000
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Decrease in secured demand notes receivable and
liabilities subordinated to the claims of general
creditors............................................... $ -- $(2,000,000) $(6,900,000)
=========== =========== ===========
Increase (decrease) in market value of exchange
memberships contributed by stockholders for use by the
Company and liabilities subordinated to the claims of
general creditors....................................... $ 2,150,000 $(1,050,000) $ 1,050,000
=========== =========== ===========
Return of exchange memberships contributed for the use of
the Company and liabilities subordinated to the claims
of general creditors.................................... $ -- $ -- $(1,225,000)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED COMMON STOCK ADDITIONAL NOTES
STOCK -------------------- PAID-IN RETAINED RECEIVABLE-
SERIES C NONVOTING VOTING CAPITAL EARNINGS STOCKHOLDERS TOTAL
----------- --------- -------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996........ $10,648,599 $4,209 $4,201 $ 6,677,650 $15,255,619 $(1,890,971) $30,699,307
Net income........................ -- -- -- -- 8,272,462 -- 8,272,462
Dividend declared................. -- -- -- -- (638,916) -- (638,916)
Loans to stockholders............. -- -- -- -- -- 278,222 278,222
Issuance of common stock--44
shares voting and 44 shares non-
voting.......................... -- 44 44 386,139 -- -- 386,227
----------- ------ ------ ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997........ $10,648,599 $4,253 $4,245 $ 7,063,789 22,889,165 (1,612,749) 38,997,302
Net income........................ -- -- -- -- 7,927,078 -- 7,927,078
Dividend declared................. -- -- -- -- (745,402) -- (745,402)
Reclassification of stock......... -- 7 (7) -- -- -- --
Loans to stockholders............. -- -- -- -- -- (4,953,178) (4,953,178)
Preferred stock retired--8,870
shares Series C................. (1,215,190) -- -- -- (1,215,190)
----
Purchase of common stock--396
shares voting and 397 shares
nonvoting....................... -- (397) (396) (325,398) (4,900,987) -- (5,227,178)
Reissuance of common stock--396
shares voting and 397 shares
nonvoting....................... -- 397 396 5,226,385 -- -- 5,227,178
----------- ------ ------ ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998........ 9,433,409 4,260 4,238 11,964,776 25,169,854 (6,565,927) 40,010,610
Net income........................ -- -- -- -- 12,351,007 -- 12,351,007
Dividend declared................. -- -- -- -- (943,341) -- (943,341)
Repayment of loans to
stockholders.................... -- -- -- -- -- 2,542,631 2,542,631
----------- ------ ------ ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999........ $ 9,433,409 $4,260 $4,238 $11,964,776 $36,577,520 $(4,023,296) $53,960,907
=========== ====== ====== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of Henderson Brothers Holdings, Inc. (the "Corporation"), its wholly
owned subsidiary, Henderson Brothers, Inc. (the "Subsidiary"), and the
Subsidiary's wholly owned subsidiary, Henderson Brothers Futures Corporation
("HBFC"), an inactive company (collectively the "Company"). All material
intercompany transactions and balances have been eliminated.
The Subsidiary is a broker-dealer registered with the Securities and
Exchange Commission (the "SEC") and a member of the New York Stock
Exchange, Inc. (the "NYSE"). Its primary business is to act as a specialist on
the NYSE. A specialist is required to maintain a fair and orderly market in
those securities which the specialist has been assigned. In its capacity as a
specialist, the Subsidiary deals only with other members of the NYSE.
Additionally, the Subsidiary executes certain transactions for its customers for
which it receives a commission. The Subsidiary receives, acquires and holds
funds and securities for its customers.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts in prior years were reclassified to conform with the current
year's presentation.
FINANCIAL INSTRUMENTS--The Company records proprietary transactions in
securities and the related commission revenues and expenses on a trade date
basis. Financial instruments owned and financial instruments sold, but not yet
purchased, have been valued at quoted market values with the resulting net
unrealized gains and losses reflected in operations. Securities borrowed are
recorded at the amount of cash collateral advanced to the lender. These
transactions require the Subsidiary to deposit cash or other collateral with the
lender. The Subsidiary monitors the market value of securities borrowed on a
daily basis with additional collateral provided or excess collateral refunded,
as necessary.
SECURITIES TRANSACTIONS--The Subsidiary records customers' securities
transactions on a settlement date basis with related commission revenues and
expenses recorded on a trade date basis. Receivables from and payables to
customers include amounts due on cash and margin transactions. Securities owned
by customers are held as collateral for receivables. Such collateral is not
reflected in the consolidated financial statements.
RESALE AGREEMENTS--Securities purchased under agreements to resell are
accounted for as collateralized financings and are carried at the amounts the
securities will subsequently be resold. It is the policy of the Company to
obtain possession or have a third party obtain possession on their behalf, of
collateral with a market value equal to or in excess of the principal amount
loaned under resale agreements. Collateral is valued daily, and the Company may
require counterparties to deposit additional collateral or return collateral
pledged when appropriate.
INCOME TAXES--The Company utilizes the asset and liability method to
calculate deferred tax assets and liabilities. Deferred taxes are recognized
based on the differences between financial reporting and income tax basis of
assets and liabilities using enacted income tax rates.
F-36
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (CONTINUED)
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
about Fair Value of Financial Instruments," requires the Company to report the
fair value of financial instruments, as defined. Substantially all of the
Company's assets and liabilities are carried at fair value or contracted amounts
which approximate fair value.
3. RECEIVABLES FROM BROKERS, DEALERS AND CLEARING ORGANIZATIONS
The balances presented as receivable from and payable to brokers, dealers
and clearing organizations consist of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Receivable from brokers, dealers and clearing organizations:
Unsettled trades.......................................... $77,213,008 $81,697,237
Securities borrowed....................................... 14,638,500 11,262,000
Receivable from clearing organizations.................... 2,014,185 1,785,795
Securities failed to deliver.............................. 245,820 357,825
Commissions receivable.................................... 2,122,028 2,085,824
----------- -----------
$96,233,541 $97,188,681
=========== ===========
Payable to brokers, dealers and clearing organizations:
Unsettled trades.......................................... $61,134,401 $76,012,373
Securities failed to receive.............................. 7,369,573 2,023,869
Commissions payable....................................... 198,131 327,805
----------- -----------
$68,702,105 $78,364,047
=========== ===========
</TABLE>
Unsettled trades are shown net by counterparty.
4. SUBORDINATED LIABILITIES
Subordinated liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Subordinated debentures..................................... $54,069,100 $53,802,100
NYSE memberships contributed by certain stockholders of the
Corporation............................................... 4,600,000 2,450,000
----------- -----------
$58,669,100 $56,252,100
=========== ===========
</TABLE>
The amounts and maturities of the subordinated debentures at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
MATURITY INTEREST RATE AMOUNT
- -------- ---------------------------------- -----------
<S> <C> <C>
January 1, 2001................................... Broker call rate less 1% $ 1,700,000
November 18, 2004................................. 8.04% 32,000,000
January 31, 2005.................................. Broker call rate less 1% 20,369,100
-----------
$54,069,100
===========
</TABLE>
F-37
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (CONTINUED)
4. SUBORDINATED LIABILITIES (CONTINUED)
The Subsidiary's subordinated liabilities totaling $43,200,000 and
$41,050,000 in 1999 and 1998, respectively, which include $4,900,000 payable to
the Corporation in each year, have been approved by the NYSE and are thus
available to the Subsidiary in computing net capital pursuant to the SEC's
Uniform Net Capital Rule (15c3-1).
Subordinated liabilities are withdrawable by the lender at stated maturity
dates or withdrawal can be accelerated upon six month's notice. Subordinated
debt can be repaid only if, after giving effect to such repayment, the
Subsidiary meets the SEC's capital regulations governing withdrawal of
subordinated debt.
The subordinated debt maturing on January 31, 2005 is due to stockholders of
the Corporation. The outstanding balance at December 31, 1999 and 1998 was
$20,369,100 and $20,102,100, respectively.
Aggregate interest expense on subordinated liabilities was approximately
$3,938,000, $4,122,000 and $2,900,000 for the years ended December 31, 1999,
1998 and 1997, respectively, which includes $1,260,700, $1,316,447 and $0,
respectively, due to stockholders of the Corporation.
The subordinated debenture maturing on November 18, 2004 contains certain
restrictive covenants which require, among other things, that the Subsidiary
maintain specified levels of capital. At December 31, 1999 the Subsidiary was in
compliance with these restrictive covenants.
5. RELATED PARTY TRANSACTIONS
Notes receivable from stockholders are reflected as an offset to
stockholders' equity. Interest earned on these notes amounted to approximately
$151,000, $61,000 and $73,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
Included in other assets are employee and affiliate loans and related
interest totaling approximately $412,150 and $2,000,000 in 1999 and 1998,
respectively. These receivables bear interest at 4.5% and are payable upon
demand.
6. COMMITMENTS
The Subsidiary has an operating lease for office space expiring on
December 31, 2002. The lease contains provisions for escalations based on
certain costs incurred by the lessor.
At December 31, 1999, minimum future lease payments were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- --------
<S> <C>
2000................................................. $224,900
2001................................................. 224,900
2002................................................. 224,900
--------
$674,700
========
</TABLE>
7. PROFIT-SHARING PLAN
The Subsidiary maintains a profit-sharing plan for all of its employees.
Contributions to the plan are based on compensation as defined in the plan and
are at the discretion of management. Profit-
F-38
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (CONTINUED)
7. PROFIT-SHARING PLAN (CONTINUED)
sharing contributions were $1,625,000, $1,448,000 and $1,374,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
In connection with the pending sale of the Company, as described in
Note 11, it is the intention of management to terminate the profit-sharing plan.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT
RISK
In the normal course of business, the Company enters into various
securities transactions as principal or agent. The execution, settlement and
financing of those transactions can result in off-balance sheet risk and
concentration of credit risk.
In connection therewith, the Subsidiary may be exposed to a risk of loss not
reflected on the accompanying consolidated statement of financial condition for
securities sold, not yet purchased, should the value of the securities rise.
In the normal course of business, the Subsidiary's clearing activities
involve settlement and financing of various customer securities transactions.
These activities may expose the Subsidiary to off-balance sheet risk in the
event the customer or other broker is unable to fulfill its contractual
obligations and the Subsidiary has to purchase or sell securities at a loss.
The Subsidiary's customer securities activities are transacted on either a
cash or margin basis. In connection with these activities, the Subsidiary
executes and clears customer transactions involving the sale of securities, not
yet purchased, substantially all of which are transacted on a delivery vs.
payment basis. For margin transactions, the Subsidiary may be exposed to
significant off-balance sheet risk in the event margin requirements are not
sufficient to fully cover losses that customers may incur. In the event the
customer fails to satisfy its obligations, the Subsidiary may be required to
purchase or sell financial instruments at prevailing market prices to fulfill
customer obligations.
The Subsidiary seeks to control the risks associated with customer
activities by requiring customers to maintain margin collateral in compliance
with various regulatory and internal guidelines. The Subsidiary monitors margin
levels daily and, pursuant to such guidelines, requires customers to deposit
additional collateral or to reduce positions, when necessary.
The Subsidiary is engaged in various brokerage activities whose
counterparties primarily include broker-dealers, banks and other financial
institutions. The Subsidiary may be exposed to the risk of default which depends
on the creditworthiness of the counterparty. It is the Subsidiary's policy to
review, as necessary, the credit standing of each counterparty with which it
conducts business.
9. REGULATORY REQUIREMENTS
As a registered broker-dealer and member firm of the NYSE, the Subsidiary is
subject to the SEC's Uniform Net Capital Rule 15c3-1. The Subsidiary computes
its net capital under the alternative method permitted by the rule, which
requires that minimum net capital be equal to the greater of $250,000 or 2% of
the Rule 15c3-3 aggregate debit items, as defined. At December 31, 1999 and
1998, the Subsidiary had net capital of $72,306,426 and $76,624,072,
respectively, which exceeded the minimum requirement by $72,056,426 and
$76,374,072, respectively.
F-39
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (CONTINUED)
9. REGULATORY REQUIREMENTS (CONTINUED)
The NYSE also requires certain specialists to maintain a minimum amount of
net liquid assets, as defined, which shall be the greater of $1,000,000 or 25%
of their position requirement ("Rule 104.2"). At December 31, 1999 and 1998, the
Subsidiary's NYSE minimum required dollar amount of net liquid assets, as
defined, was $23,970,445 and $27,699,242, respectively, compared to actual net
liquid assets, as defined, of $75,322,599 and $79,907,493, respectively.
10. INCOME TAXES
The Company's federal income tax return is filed on a consolidated basis.
The Company's state and local income tax returns are filed on a combined basis.
The provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.......................... $ 8,084,981 $4,444,872 $4,648,000
State and local.................. 4,894,109 2,663,678 2,586,193
----------- ---------- ----------
12,979,090 7,108,550 7,234,193
----------- ---------- ----------
Deferred:
Federal.......................... (384,784) 50,626 (146,320)
State and local.................. (277,153) 36,465 (105,393)
----------- ---------- ----------
(661,937) 87,091 (251,713)
----------- ---------- ----------
Income tax expense................... $12,317,153 $7,195,641 $6,982,480
=========== ========== ==========
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences
between the financial reporting and tax basis of assets and liabilities.
Included in deferred income taxes payable is the remaining tax effect of the
Company's change to market value from LIFO cost for certain marketable
securities, which is being recognized over a 15 year period.
A reconciliation of the difference between the expected income tax expense
on income computed at the U.S. statutory income tax rate and the Company's
actual income tax expense is shown in the following table:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Book income at federal statutory rate.............. 35.0% 35.0% 35.0%
State and local taxes (net of federal benefit)..... 11.9% 11.8% 10.6%
Non-deductible expenses............................ 3.0% .8% .2%
---- ---- ----
Income tax expense................................. 49.9% 47.6% 45.8%
==== ==== ====
</TABLE>
11. PENDING SALE OF THE COMPANY
On December 23, 1999 the Stockholders' of the Company entered into an
agreement with LaBranche & Co Inc. to sell all the outstanding capital stock of
the Company for approximately $230 million in cash. Pursuant to the agreement,
the Company is required to deliver at the closing, working capital, as defined
in the agreement, of $49 million and 19 NYSE memberships. The closing is
contingent on LaBranche & Co Inc.'s ability to obtain financing for the
transaction.
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Henderson Brothers Holdings, Inc. and Subsidiary:
We have audited the consolidated financial statements of Henderson Brothers
Holdings, Inc. and Subsidiary (the "Company") as of December 31, 1999 and 1998,
and for the years then ended, and have issued our report thereon dated
January 28, 2000, which report expresses an unqualified opinion and included an
emphasis of a matter relating to the pending sale of the Company to LaBranche &
Co Inc. Such consolidated financial statements and our report are included
elsewhere in this prospectus. (The consolidated financial statements of the
Company for the year ended December 31, 1997 were audited by other auditors
whose report, dated February 16, 1998, expressed an unqualified opinion on those
statements.) Our audits also include the financial statement schedule of the
Company, listed elsewhere in this prospectus. Such financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
New York, New York
January 28, 2000
F-41
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash........................................................ $ 2,578,443 $ 80,229
Financial instruments owned--U.S. government obligations.... 15,001,441 --
Investment in subsidiary, at equity......................... 51,541,438 56,807,581
Receivables:
Subordinated loans........................................ 4,900,000 4,900,000
Receivable from subsidiary................................ 2,412,795 6,062,398
Income taxes.............................................. -- 22,397
Other assets................................................ 99,930 744,322
----------- -----------
TOTAL ASSETS................................................ $76,534,047 $68,616,927
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Dividends payable......................................... $ 943,341 $ 745,402
Due to former stockholders................................ -- 6,442,368
Accounts payable and accrued expenses..................... 1,260,699 1,316,447
----------- -----------
2,204,040 8,504,217
----------- -----------
Subordinated notes.......................................... 20,369,100 20,102,100
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $1 par value (stated value of
$1,000) 175.5 shares authorized, no shares
outstanding............................................. -- --
Preferred stock, Series B, $1 par value (stated value of
$917.18) 84 shares authorized, no shares outstanding.... -- --
Preferred stock, $1 par value, 100,744 shares authorized,
no shares issued........................................ -- --
Preferred stock, Series C, $1 par value (stated value of
$137) 99,995 shares authorized, 68,857 shares
outstanding in 1999 and 1998............................ 9,433,409 9,433,409
Common stock, non-voting, $1 par value, 40,000 shares
authorized 4,260 shares outstanding in 1999 and 1998.... 4,260 4,260
Common stock, voting, $1 par value, 20,000 shares
authorized 4,238 shares outstanding in 1999 and 1998.... 4,238 4,238
Additional paid-in capital................................ 11,964,776 11,964,776
Retained earnings......................................... 36,577,520 25,169,854
Notes receivable--stockholders............................ (4,023,296) (6,565,927)
----------- -----------
Total stockholders' equity.............................. 53,960,907 40,010,610
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $76,534,047 $68,616,927
=========== ===========
</TABLE>
See notes to condensed financial statements.
F-42
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
REVENUES:
Dividends and interest.................................... $ 618,606 $ 801,960
Management fees........................................... 2,100,000 2,100,000
----------- ----------
Total revenues.......................................... 2,718,606 2,901,960
----------- ----------
EXPENSES:
Employee compensation and benefits........................ 625,050 767,400
Interest expense.......................................... 1,260,700 1,316,447
Other..................................................... 715,706 26,670
----------- ----------
Total expenses.......................................... 2,601,456 2,110,517
----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND EQUITY IN
EARNINGS OF SUBSIDIARY.................................... 117,150 791,443
Provision for income taxes.................................. 55,050 371,910
----------- ----------
INCOME BEFORE EQUITY IN EARNINGS OF SUBSIDIARY.............. 62,100 419,533
Equity in earnings of subsidiary, net of tax................ 12,288,907 7,507,545
----------- ----------
NET INCOME.................................................. $12,351,007 $7,927,078
=========== ==========
</TABLE>
See notes to condensed financial statements
F-43
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $12,351,007 $7,927,078
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Equity in subsidiary's earnings......................... (12,288,907) (7,507,545)
(Increase) decrease in operating assets:
Financial instruments owned............................. (15,001,441) --
Receivables from related parties........................ 3,704,653 (3,994,543)
Income taxes receivable................................. 22,397 (22,397)
Other assets............................................ 644,392 40,872
Increase (decrease) in operating liabilities:
Due to former stockholders.............................. (6,442,368) 6,442,368
Accounts payable and accrued expenses................... (55,748) 229,163
----------- ----------
Net cash (used in) provided by operating activities... (17,066,015) 3,114,996
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received from subsidiary........................ 17,500,000 --
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subordinated note........................... 1,373,000 3,714,100
Repayment of subordinated liabilities..................... (1,106,000) --
Redemption of preferred stock............................. -- (1,215,190)
Decrease (increase) in notes receivable--stockholders..... 2,542,631 (4,953,178)
Dividends paid............................................ (745,402) (638,916)
Retirement of common stock................................ -- (5,227,178)
Issuance of common stock.................................. -- 5,227,178
----------- ----------
Cash provided by (used in) financing activities....... 2,064,229 (3,093,184)
----------- ----------
NET INCREASE IN CASH........................................ 2,498,214 21,812
CASH, BEGINNING OF YEAR..................................... 80,229 58,417
----------- ----------
CASH, END OF YEAR........................................... $ 2,578,443 $ 80,229
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................ $ 1,316,447 $1,087,284
=========== ==========
Taxes settled with the Subsidiary through the
intercompany accounts................................. $ 55,050 $ 371,910
=========== ==========
</TABLE>
See notes to condensed financial statements.
F-44
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
PREFERRED COMMON STOCK ADDITIONAL NOTES
STOCK -------------------- PAID-IN RETAINED RECEIVABLE-
SERIES C NONVOTING VOTING CAPITAL EARNINGS STOCKHOLDERS TOTAL
----------- --------- -------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997.... $10,648,599 $4,253 $4,245 $ 7,063,789 $22,889,165 $(1,612,749) $38,997,302
Net income.................... -- -- -- -- 7,927,078 -- 7,927,078
Dividend declared............. -- -- -- -- (745,402) -- (745,402)
Reclassification of stock..... -- 7 (7) -- -- -- --
Loans to stockholders......... -- -- -- -- -- (4,953,178) (4,953,178)
Preferred stock retired--8,870
shares Series C............. (1,215,190) -- -- -- -- -- (1,215,190)
Purchase of common stock--396
shares voting and 397 shares
nonvoting................... -- (397) (396) (325,398) (4,900,987) -- (5,227,178)
Reissuance of common stock--
396 shares voting and 397
shares nonvoting............ -- 397 396 5,226,385 -- -- 5,227,178
----------- ------ ------ ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998.... 9,433,409 4,260 4,238 11,964,776 25,169,854 (6,565,927) 40,010,610
Net income.................... -- -- -- -- 12,351,007 -- 12,351,007
Dividend declared............. -- -- -- -- (943,341) -- (943,341)
Payment of loans to
stockholders................ -- -- -- -- -- 2,542,631 2,542,631
----------- ------ ------ ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999.... $ 9,433,409 $4,260 $4,238 $11,964,776 $36,577,520 $(4,023,296) $53,960,907
=========== ====== ====== =========== =========== =========== ===========
</TABLE>
See notes to condensed financial statements.
F-45
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. BASIS OF PRESENTATION
The condensed unconsolidated financial statements of Henderson Brothers
Holdings, Inc. (the "Parent") should be read in conjunction with the
Consolidated Financial Statements of Henderson Brothers Holdings, Inc. and
Subsidiary and the notes thereto.
2. SUBORDINATED NOTES
The amounts and maturities of the subordinated notes at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
MATURITY INTEREST RATE AMOUNT
- -------- ------------- -----------
<S> <C> <C>
January 31, 2005 Broker call rate less 1% $20,369,100
</TABLE>
These notes are due to stockholders.
3. RELATED PARTY TRANSACTIONS
The Parent charges Henderson Brothers, Inc. (the "Subsidiary") a management
fee for services performed by the Parent. Additionally, the Parent is allocated
a portion of employee compensation and benefits expense from the Subsidiary.
The Parent loaned the Subsidiary $4,900,000 in the form of a subordinated
debenture. This amount is due from the Subsidiary on February 28, 2001 and bears
interest at the broker call rate. Interest income was $350,216 for year ended
December 31, 1999.
4. DIVIDENDS RECEIVED FROM SUBSIDIARY
For the year ended December 31, 1999, the Parent received dividends of
$17,500,000 from its subsidiary.
F-46
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue:
Interest.................................................. $ 464,603
Management fees........................................... 2,100,000
----------
Total revenue............................................... 2,564,603
----------
Expenses:
Employee compensation and benefits........................ 773,775
Interest.................................................. 1,087,283
Other..................................................... 26,424
----------
Total expenses.............................................. 1,887,482
Income before provision for income taxes and equity in
earnings of subsidiary.................................... 677,121
Provision for income taxes.................................. 333,000
----------
Income before equity in earnings of subsidiary.............. 344,121
Equity in earnings of subsidiary net of tax................. 7,928,341
----------
Net income.................................................. $8,272,462
==========
</TABLE>
See note to condensed financial statements.
F-47
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $8,272,462
Adjustments to reconcile net income to net cash used in
operating activities:
Amortization............................................ 25,000
Equity in subsidiary's earnings......................... (7,928,341)
(Increase) decrease in operating assets:
Interest receivable................................... 21,172
Receivables from subsidiary........................... (1,804,558)
Increase (decrease) in operating liabilities:
Dividend payable...................................... 106,486
Payable to subsidiary................................. (72,723)
Taxes payable......................................... 333,000
Bond interest payable................................. 287,482
----------
Net cash used in operating activities............... (760,020)
----------
Cash flows from investing activities:
Investment in subordinated note........................... (4,900,000)
----------
Cash used in investing activities................... (4,900,000)
----------
Cash flows from financing activities:
Decrease in notes receivable--stockholders................ 278,222
Issuance of common stock.................................. 386,227
Proceeds from subordinated liabilities.................... 5,625,000
Dividends paid............................................ (638,916)
----------
Net cash provided by financing activities........... 5,650,533
Net decrease in cash........................................ (9,487)
Cash, beginning of year..................................... 67,904
----------
Cash, the end of the year................................... $ 58,417
==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 104,297
==========
</TABLE>
See note to condensed financial statements.
F-48
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREFERRED COMMON STOCK ADDITIONAL NOTES
STOCK -------------------- PAID-IN RETAINED RECEIVABLE-
SERIES C NONVOTING VOTING CAPITAL EARNINGS STOCKHOLDERS TOTAL
----------- --------- -------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996........... $10,648,599 $4,209 $4,201 $6,677,650 $15,255,619 $(1,890,971) $30,699,307
Net income........................... -- -- -- -- 8,272,462 -- 8,272,462
Dividend declared.................... -- -- -- -- (638,916) -- (638,916)
Loans to stockholders................ -- -- -- -- -- 278,222 278,222
Issuance of common stock--44 shares
voting and 44 shares non-voting.... -- 44 44 386,139 -- -- 386,227
----------- ------ ------ ---------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1997........... $10,648,599 $4,253 $4,245 $7,063,789 $22,889,165 $(1,612,749) $38,997,302
=========== ====== ====== ========== =========== ============ ===========
</TABLE>
See note to condensed financial statements.
F-49
<PAGE>
HENDERSON BROTHERS HOLDINGS, INC.
(PARENT COMPANY ONLY)
NOTE TO CONDENSED FINANCIAL STATEMENTS
1. NOTE TO CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of Henderson Brothers Holdings, Inc.
(Parent Company Only) should be read in conjunction with the consolidated
financial statements of Henderson Brothers Holdings, Inc. and Subsidiary and the
notes thereto contained elsewhere in this prospectus.
F-50
<PAGE>
Exhibit 99.3
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
OVERVIEW
GENERAL
The following pro forma condensed consolidated financial information is
based on the historical consolidated financial statements of LaBranche &
Co Inc. and Subsidiaries (together the "Company") after giving effect to the
reorganization and related transactions to convert from a partnership to
corporate form (the "Reorganization Transactions"), the pending acquisitions of
Henderson Brothers Holdings, Inc. ("Henderson Brothers") and Webco
Securities, Inc. ("Webco") including (i) the application of proceeds of the
offering of the senior subordinated notes as payment for the Henderson Brothers
acquisition and a portion of the cash purchase price for the Webco acquisition
and (ii) the issuance of senior promissory notes and common stock and the
payment of the remaining cash purchase price in connection with the purchase of
Webco (the "Acquisition Transactions"). The Reorganization Transactions and the
Acquisition Transactions are described in greater detail below. The pro forma
condensed consolidated statement of financial condition presents the Acquisition
Transactions as if they occurred on December 31, 1999. The pro forma condensed
consolidated statement of operations for the year ended December 31, 1999
presents the results of the Company as if the Reorganization Transactions and
the Acquisition Transactions occurred on January 1, 1999.
The pro forma condensed consolidated financial information has been prepared
by the Company's management and is not necessarily indicative of the results
that would have been achieved had the Reorganization Transactions and the
Acquisition Transactions occurred on the dates indicated or that may be achieved
in the future. The unaudited pro forma financial information should be read in
conjunction with the audited historical financial statements of the Company,
Henderson Brothers and Webco included elsewhere in this prospectus.
REORGANIZATION TRANSACTIONS
On August 24, 1999, the Company completed an initial public offering of
common stock and concurrently completed the following Reorganization
Transactions:
- The limited partners of LaBranche & Co. redeemed their interests for
$140.2 million in cash, a $16.0 million note, $350,000 of subordinated
indebtedness and 558,666 shares of common stock of LaBranche & Co Inc.
with a value of $7.8 million, for a total purchase price of
$164.4 million.
- The members of LaB Investing Co. L.L.C. exchanged their membership
interests in LaB Investing Co. L.L.C. for $9.0 million in cash and
34,816,334 shares of common stock of LaBranche & Co Inc.
- $5.0 million of subordinated debt at an interest rate of 10.0% was repaid.
In addition, simultaneously with the initial public offering, LaBranche &
Co Inc. incurred indebtedness with a principal amount of $100.0 million.
Prior to the reorganization, as a limited liability company, LaB Investing
Co. L.L.C. was not subject to federal or state income taxes, but was subject to
New York City unincorporated business tax. Subsequent to the reorganization, the
Company is subject to federal, state and local income taxes.
F-3
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
OVERVIEW
The redemption of limited partnership interests was accounted for as a step
acquisition under the purchase method of accounting. The excess of purchase
price over the limited partners' capital accounts was allocated to intangible
assets with corresponding respective lives as follows:
<TABLE>
<CAPTION>
INTANGIBLE ASSET AMOUNT LIFE
- ---------------- -------- --------
<S> <C> <C>
Specialist Stock Listing.................................. $ 93.6 40 years
Trade Name................................................ 26.6 40 years
Goodwill.................................................. 7.2 15 years
------
$127.4
======
</TABLE>
ACQUISITIONS SUBSEQUENT TO YEAR END
The Company will account for the acquisitions of Henderson Brothers and
Webco under the purchase method of accounting. Accordingly, the Company will
establish a new basis of accounting for Henderson Brothers and Webco's assets
and liabilities based upon their fair values and the purchase price including
the costs associated with the acquisitions. The purchase accounting adjustments
made in connection with the development of pro forma condensed consolidated
financial statements are preliminary and have been made solely for purposes of
developing such pro forma consolidated financial information. The Company
expects to finalize the purchase accounting in its financial statements for the
quarter ended March 31, 2000. The pro forma adjustments do not reflect any
operating efficiencies or cost savings that may be achieved with respect to the
combined company.
Actual compensation expense for Henderson Brothers and Webco has been
adjusted for eighteen employees who were extended employment contracts. No other
compensation adjustments have been made in connection with the development of
the pro forma condensed consolidated results of operations. Additionally,
compensation expense includes $8.2 million for three employees of Henderson
Brothers and five employees of Webco who retired upon the completion of the
acquisitions. Accordingly, management believes the pro forma compensation
expense may not reflect future cost savings once comprehensive compensation
policies are implemented for the combined companies.
Under the terms of the Henderson Brothers agreement, the Company acquired
the outstanding capital stock of Henderson Brothers for approximately
$230.0 million in cash. Pursuant to the agreement, Henderson Brothers was
required to deliver at the closing, a minimum working capital, as defined in the
agreement, of $49.0 million and 19 NYSE memberships. The excess of the purchase
price over fair value of approximately $207.7 million will be allocated to
intangible assets with the corresponding respective lives as follows:
<TABLE>
<CAPTION>
INTANGIBLE ASSET AMOUNT LIFE
- ---------------- -------- --------
<S> <C> <C>
Specialist Stock Listing.................................. $ 87.7 40 years
Goodwill.................................................. 120.0 15 years
------
$207.7
======
</TABLE>
Under the terms of the Webco agreement, the Company acquired Webco for
2.8 million shares of the Company's common stock, approximately $9.2 million in
cash and senior promissory notes in the aggregate of $3.0 million, each bearing
interest at 10% per annum. Pursuant to the agreement, Webco was obligated to
deliver a minimum working capital, as defined, of $18.0 million. The excess of
the
F-4
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
OVERVIEW
purchase price over fair value of approximately $28.2 million will be allocated
to intangible assets with the corresponding respective lives as follows:
<TABLE>
<CAPTION>
INTANGIBLE ASSET AMOUNT LIFE
- ---------------- -------- --------
<S> <C> <C>
Specialist Stock Listing.................................. $ 9.8 36 years
Goodwill.................................................. 18.4 15 years
------
$ 28.2
======
</TABLE>
With respect to both of the acquisitions, the allocation of purchase price
and determination of useful lives was based upon an independent appraisal as of
a preliminary date. The useful life of the specialist stock list was determined
based upon analysis of historical turnover characteristics of the specialist
stocks.
The Company incurred indebtedness with a principal amount of
$250.0 million. The proceeds of the indebtedness, net of a discount of
approximately $4.3 million and estimated issuance costs of approximately
$7.1 million, were used for the acquisition of Henderson Brothers and partially
for the acquisition of Webco and to pay related transaction costs of both
acquisitions.
F-5
<PAGE>
LABRANCHE & CO INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1999
(UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
(A) (B) ADJUSTMENTS FOR THE ADJUSTED FOR THE
WEBCO HENDERSON ACQUISITION ACQUISITION
HISTORICAL SECURITIES BROTHERS TRANSACTIONS TRANSACTIONS
---------- ---------- --------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS...................... 83,774 1,574 9,738 238,638 (c) 87,552
(230,000)(d)
(9,200)(d)
(3,396)(e)
(3,576)(c)
SECURITIES PURCHASED UNDER AGREEMENTS TO
RESELL....................................... 25,422 19,500 (19,500)(e) 25,422
RECEIVABLE FROM BROKERS AND DEALERS............ 33,662 11,848 96,234 141,744
RECEIVABLE CUSTOMERS........................... 1,173 1,173
SECURITIES OWNED, at market value:
Corporate equities........................... 148,563 3,222 29,720 181,505
U.S. Government Obligations.................. 1,471 7,207 46,138 (31,173)(e) 23,643
Other........................................ 2,515 2,515
COMMISSIONS RECEIVABLE......................... 3,835 3,835
INCOME TAXES RECEIVABLE........................ 1,557 1,557
EXCHANGE MEMBERSHIPS CONTRIBUTED FOR USE, at
market value................................. 20,700 2,550 4,600 27,850
EXCHANGE MEMBERSHIPS OWNED, at cost (market
value of).................................... 6,300 1,301 8,836 33,863 (f) 50,300
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
net.......................................... 1,355 1,355
INTANGIBLE ASSETS.............................. 170,341 235,964 (g) 406,305
OTHER ASSETS................................... 7,187 15 1,727 7,054 (c) 15,983
-------- -------- -------- ---------- ---------
Total assets................................... $505,125 $ 27,717 $219,223 $ 218,674 $ 970,739
======== ======== ======== ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Payable to brokers and dealers............... 7,726 68,702 76,428
Securities sold, but not yet purchased, at
market value............................... 36,900 1,377 20,805 59,082
Accrued compensation......................... 12,016 5,000 (h) 17,016
Accounts payable and other accrued
expenses................................... 5,522 4,031 8,777 18,330
Payable to customers......................... 6,552 6,552
Payable to correspondents.................... 1,016 1,016
Income tax liabilities....................... 7,959 741 8,700
Deferred tax liabilities..................... 60,458 (g) 60,458
-------- -------- -------- ---------- ---------
70,123 5,408 106,593 65,458 247,582
-------- -------- -------- ---------- ---------
LONG TERM DEBT................................. 115,822 245,693 (i) 361,515
3,000 (j) 3,000
-------- -------- -------- ---------- ---------
115,822 248,693 364,515
-------- ---------- ---------
SUBORDINATED LIABITIIES
Exchange memberships, at market value........ 20,700 2,550 4,600 27,850
Other subordinated indebtedness.............. 46,508 54,069 (54,069)(e) 46,508
-------- -------- -------- ---------- ---------
67,208 2,550 58,669 (54,069) 74,358
-------- -------- -------- ---------- ---------
32,312 (d)
STOCKHOLDERS' EQUITY........................... 251,972 19,759 53,961 (73,720)(k) 284,284
-------- -------- -------- ---------- ---------
Total liabilities and stockholders' equity..... $505,125 $ 27,717 $219,223 $ 218,674 $ 970,739
======== ======== ======== ========== =========
</TABLE>
F-6
<PAGE>
LABRANCHE & CO INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTED
FOR THE FOR THE (T) (U)
REORGANIZATION REORGANIZATION WEBCO HENDERSON
HISTORICAL TRANSACTIONS TRANSACTIONS SECURITIES BROTHERS
---------- -------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Net gain on principal transactions........... 150,971 150,971 7,474 52,470
Commissions.................................. 37,222 37,222 5,714 23,663
Other........................................ 12,844 12,844 555 5,956
-------- ------- -------- ------- -------
Total revenues............................. 201,037 -- 201,037 13,743 82,089
-------- ------- -------- ------- -------
EXPENSES:
Employee compensation and related benefits... 34,268 25,214 (l) 59,482 7,912 43,263
Lease of exchange memberships................ 8,416 8,416 392
Interest..................................... 8,286 6,160 (m) 15,144 4,178
1,002 (n)
18 (o)
(322)(p)
Amortization of intangibles.................. 4,623 2,243 (q) 6,866
Exchange, clearing and brokerage fees........ 3,709 3,709 609 1,765
Occupancy.................................... 1,411 1,411 119 217
Communications............................... 1,193 1,193 137
Legal and professional fees.................. 1,622 1,622 887
Other........................................ 3,041 3,041 537 6,974
-------- ------- -------- ------- -------
Total expenses before Managing Directors'
compensation, Limited Partners' interest
in earnings of subsidiary and taxes...... 66,569 34,315 100,884 9,569 57,421
-------- ------- -------- ------- -------
Income before Managing Directors'
compensation, Limited Partners' interest
in earnings of subsidiary and taxes...... 134,468 (34,315) 100,153 4,174 24,668
MANAGING DIRECTORS' COMPENSATION............... 56,191 (56,191)(r) -- -- --
-------- ------- -------- ------- -------
Income before limited partners' interest in
earnings of sub and provision for
taxes.................................... 78,277 21,876 100,153 4,174 24,668
LIMITED PARTNERS' INTEREST IN EARNINGS OF
SUBSIDIARY................................... 25,344 (25,344)(s) -- -- --
-------- ------- -------- ------- -------
Income before provision for income taxes... 52,933 47,220 100,153 4,174 24,668
PROVISION FOR INCOME TAXES..................... 23,899 22,266 46,165 1,914 12,317
-------- ------- -------- ------- -------
Net income................................. $ 29,034 $24,954 $ 53,988 $ 2,260 $12,351
======== ======= ======== ======= =======
Pro forma weighted average shares
outstanding.............................. 40,443
========
Pro forma basic and diluted net earnings
per share................................ $ 0.72
========
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTED
ADJUSTMENTS FOR THE
FOR THE REORGANIZATION
ACQUISITION AND ACQUISITION
TRANSACTIONS TRANSACTIONS
-------------- ---------------
<S> <C> <C>
REVENUES:
Net gain on principal transactions........... 210,915
Commissions.................................. 66,599
Other........................................ 19,355
-------- -------
Total revenues............................. -- 296,869
-------- -------
EXPENSES:
Employee compensation and related benefits... (6,197)(v) 104,460
Lease of exchange memberships................ 8,808
Interest..................................... 31,078 (w) 46,712
250 (x)
(3,938)(y)
Amortization of intangibles.................. 11,693 (z) 18,559
Exchange, clearing and brokerage fees........ 6,083
Occupancy.................................... 1,747
Communications............................... 1,330
Legal and professional fees.................. 2,509
Other........................................ 10,552
-------- -------
Total expenses before Managing Directors'
compensation, Limited Partners' interest
in earnings of subsidiary and taxes...... 32,886 200,760
-------- -------
Income before Managing Directors'
compensation, Limited Partners' interest
in earnings of subsidiary and taxes...... (32,886) 96,109
MANAGING DIRECTORS' COMPENSATION............... --
-------- -------
Income before limited partners' interest in
earnings of sub and provision for
taxes.................................... (32,886) 96,109
LIMITED PARTNERS' INTEREST IN EARNINGS OF
SUBSIDIARY................................... -- --
-------- -------
Income before provision for income taxes... (32,886) 96,109
PROVISION FOR INCOME TAXES..................... (8,137)(aa) 52,259
-------- -------
Net income................................. $(24,749) $43,850
======== =======
Pro forma weighted average shares
outstanding.............................. 48,675
=======
Pro forma basic and diluted net earnings
per share................................ $ 0.90
=======
</TABLE>
F-7
<PAGE>
LABRANCHE & CO INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
a. Reflects the historical balance sheet of Webco as of October 31, 1999.
b. Reflects the historical statement of financial condition of Henderson
Brothers as of December 31, 1999.
c. Reflects the proceeds received of $238.6 million from the issuance of
the senior subordinated notes at a discount of approximately
$4.3 million, net of the debt issuance costs of approximately
$7.1 million.
d. Reflects the acquisition of Henderson Brothers assuming cash paid of
$230.0 million and the acquisition of Webco assuming cash paid of
$9.2 million and issuance of $32.3 million in common stock. For purposes
of determining consideration paid, the measurement date is used for
valuing the shares to be issued. The measurement date, for accounting
purposes, will be the last date the number of shares becomes fixed
without subsequent revision, pursuant to the merger agreement. For
purposes of determining the consideration paid for the pro forma
financial statements, 2.8 million shares of common stock were assumed to
be issued at a market price of $11.54 per share. The market price was
calculated using an average of the closing price of the stock for the
5 days before and the 5 days after December 27, 1999, the announcement in
the acquisition.
e. Reflects the repayment of approximately $54.1 million of subordinated
debt of Henderson Brothers prior to the completion of the acquisition.
Repayment is assumed to be applied first to reduce available cash, second
to reduce securities purchased under agreements to resell and the
remainder to reduce securities owned.
f. Reflects the write-up of the exchange memberships acquired in the
Henderson Brothers and Webco acquisitions to fair market value from
historical cost, as of the acquisition dates.
g. Reflects a total of approximately $236.0 million of purchase price
allocated to intangibles for the acquisitions of Henderson Brothers and
Webco, adjusted to record deferred tax liabilities at an estimated rate
of 46% related to the excess of purchase price allocated to exchange
memberships and intangible assets, other than goodwill.
h. Reflects the accrural related to consulting agreements entered into with
two former Henderson Brothers stockholders which stipulate for future
payments in the aggregate of $5.0 million.
i. Reflects the issuance of $250.0 million of principal amount of senior
subordinated notes net of a discount of approximately $4.3 million. The
net proceeds are assumed to be used for the acquisitions of Henderson
Brothers and Webco and the related transaction costs.
j. Reflects the issuance of $3.0 million aggregate amount of senior
promissory notes issued to Webco stockholders.
k. Reflects the elimination of the stockholders' equity of Henderson
Brothers and Webco.
l. Employee compensation and benefits was adjusted to reflect managing
directors' compensation based on the revised compensation policies which
were implemented at the time of the reorganization. Under this policy, a
compensation pool of up to 30% of pre-tax income is set aside for
managing directors and other employees. The pro forma compensation
adjustment reflects managing directors' compensation, which is comprised
of an annual base salary of approximately $8.5 million (34 managing
directors at $250,000), and the remaining balance as bonus. The pro forma
adjustment also includes compensation expenses related to employee
restricted stock awards of $14.8 million which vest over 5 years and
result in an
F-8
<PAGE>
LABRANCHE & CO INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
annual expense of approximately $3.0 million. The pro forma adjustment
does not include any other compensation expenses related to employees who
are not managing directors.
m. Reflects the annual interest expense for the $100.0 million of senior
notes, issued on August 24, 1999, based upon an interest rate of 9.5%.
n. Reflects the annual interest expense for the $16.0 million senior note,
issued on August 24, 1999, based on an interest rate of 9.5%.
o. Reflects the annual interest expense for the $350,000 of subordinated
indebtedness, issued on August 24, 1999, based on an interest rate of
8.0%.
p. Reflects the reversal of the actual interest expense, incurred prior to
the reorganization, related to the $5.0 million of subordinated
indebtedness repaid, based on an interest rate of 10.0%.
q. Reflects the annual amortization of intangibles, on a straight line
basis, related to the redemption of limited partners' interest.
r. Managing directors' compensation was adjusted to reverse the actual
amounts recorded prior to the reorganization.
s. Reflects reversal of actual limited partners' interest in earnings of
subsidiary prior to the reorganization.
t. Reflects the historical results of operations of Webco for the year
ended October 31, 1999.
u. Reflects the historical results of operations of Henderson Brothers for
the year ended December 31, 1999.
v. Employee compensation and benefits was adjusted to reverse actual
compensation paid to Henderson Brothers and Webco employees based upon
new compensation arrangements which were implemented at the time of the
closing. Eighteen Henderson Brothers and Webco employees will be added to
the LaBranche & Co Inc. Annual Incentive Plan and were paid a base annual
compensation and bonus as described in Note l above.
w. Reflects the annual interest expense for the $250.0 million of principal
amount of senior subordinated notes, including the accretion of
approximately $4.3 million of discount and the amortization of
$7.1 million of debt issuance costs based on an effective interest rate
of approximately 13.0%. This excludes any payment made pursuant to an
Excess Cash Flow Offer.
x. Reflects the annual interest expense for $2.5 million of the
$3.0 million senior promissory notes, assuming that $500,000 aggregate
amount of such promissory notes is paid within less than one year, at an
interest rate of 10.0%.
y. Reflects the reversal of the actual interest expense incurred for the
repayment of Henderson Brothers' subordinated debt.
z. Reflects the annual amortization of intangibles, on a straight line
basis, related to the acquisitions of Henderson Brothers and Webco.
aa. Reflects the consolidated federal, state and local taxes for the
combined company at an estimated tax rate of approximately 46%,
including the deferred tax benefit related to the amortization of the
deferred tax liability established in connection with the recording of
the specialist stock listings at the respective estimated life of the
intangible assets.
F-9
