<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended May 31, 1995 Commission file number 0-15948
WATERHOUSE INVESTOR SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3400568
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
100 Wall Street, New York, NY 10005
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (212) 806-3500
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.
X Yes No
------ ------
The number of shares outstanding of Common Stock (par value $.01 per share) as
of May 31, 1995 was 9,153,678.
<PAGE> 2
WATERHOUSE INVESTOR SERVICES, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended May 31, 1995
Index
<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION PAGE
<C>
<S>
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of
May 31, 1995 and August 31, 1994 3
Consolidated Statements of Income for the Three and Nine
Months Ended May 31, 1995 and May 31, 1994 4
Consolidated Statements of Cash Flows for the Nine Months
Ended May 31, 1995 and May 31, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
EXHIBIT A 12
EXHIBIT B 13
2
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WATERHOUSE INVESTOR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Unaudited)
May 31, August 31,
1995 1994
----------- -----------
<C> <C>
<S>
ASSETS:
Cash and due from banks $ 11,188,911 $ 7,728,832
Interest bearing deposits with other banks 17,000,000 ---
Fed funds sold 24,400,000 ---
Investment securities 27,346,290 7,532,305
Receivable from brokers and dealers 6,863,312 10,260,515
Receivable from customers, net 294,662,130 275,821,544
Deposits with clearing organizations 3,732,604 3,527,517
Notes Receivable 5,000,000 ---
Furniture, equipment and leasehold improvements, net 6,483,106 7,382,326
Memberships in exchanges 698,000 698,000
Other assets 4,038,984 2,829,401
------------ ------------
Total assets $401,413,337 $315,780,440
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Broker loans and overdrafts $ 73,365,339 $ 76,283,181
Deposits 49,058,230 ---
Payable to brokers and dealers 18,315,240 17,502,736
Payable to customers 127,359,686 106,028,013
Dividends payable --- 1,830,736
6% convertible subordinated notes 48,500,000 48,500,000
Accounts payable, taxes payable, accrued expenses
and other liabilities 22,350,739 16,032,541
------------ ------------
Total liabilities 338,949,234 266,177,207
============ ============
Stockholders' Equity:
Common stock, $.01 par value, 20,000,000 shares
authorized and 9,403,680 shares issued 94,038 94,038
Additional paid in capital 9,167,551 9,167,551
Retained earnings 54,210,884 41,350,014
Less:
Treasury Stock, 250,002 shares, at cost (1,008,370) (1,008,370)
----------- -----------
Total stockholders' equity 62,464,103 49,603,233
----------- -----------
Total liabilities and stockholders' equity $401,413,337 $315,780,440
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
WATERHOUSE INVESTOR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE> Three Months Ended Nine Months Ended
<CAPTION> May 31, May 31, May 31, May 31,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Margin loans $ 6,110,191 $ 3,915,118 $17,014,821 $10,707,633
Short-term investments 702,880 --- 1,279,610 15,038
Other interest income 171,238 63,377 414,265 166,885
---------- ---------- ---------- ----------
Total interest income 6,984,309 3,978,495 18,708,696 10,889,556
========== ========== ========== ==========
INTEREST EXPENSE:
Broker loans and overdrafts 1,381,295 817,787 4,028,220 2,319,429
6% convertible subordinated notes 727,500 742,500 2,182,500 1,334,167
Other 603,775 72,473 1,105,765 160,236
---------- ---------- ---------- ----------
Total interest expense 2,712,570 1,632,760 7,316,485 3,813,832
---------- ---------- ---------- ----------
Net interest income 4,271,739 2,345,735 11,392,211 7,075,724
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Commissions and clearing fees 23,876,115 18,884,024 61,903,719 59,729,619
Mutual fund revenues 2,558,246 1,815,355 6,757,172 5,129,868
Other 3,195,195 2,315,076 8,645,697 7,180,821
---------- ---------- ---------- ----------
Total noninterest income 29,629,556 23,014,455 77,306,588 72,040,308
---------- ---------- ---------- ----------
Total income 33,901,295 25,360,190 88,698,799 79,116,032
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Employee compensation and benefits 10,563,021 8,639,795 28,608,207 25,285,185
Communications and data processing 4,810,340 3,947,919 13,265,821 11,434,146
Advertising and promotion 1,962,495 975,442 5,256,022 2,899,315
Stationery and postage 1,708,350 1,393,019 3,578,203 3,509,023
Clearing fees 1,148,568 1,100,125 3,242,130 3,190,802
Occupancy 1,115,604 917,997 3,140,547 2,704,065
Professional fees 814,951 493,540 2,316,566 1,146,337
Depreciation and amortization 592,867 515,792 1,691,792 1,202,567
Other 2,375,471 1,237,023 5,520,783 3,809,468
---------- ---------- ---------- ----------
Total operating expenses 25,091,667 19,220,652 66,620,071 55,180,908
---------- ---------- ---------- ----------
Income before income taxes 8,809,628 6,139,538 22,078,728 23,935,124
Income tax provision 3,652,663 2,717,378 9,217,858 10,524,554
---------- ---------- ---------- ----------
Net income $ 5,156,965 $ 3,422,160 $12,860,870 $13,410,570
=========== =========== =========== ===========
Weighted average shares outstanding 9,190,592 9,166,132 9,174,120 9,167,620
Primary earnings per share $ .56 $ .37 $1.40 $1.46
Fully diluted earnings per share $ .51 $ .35 $1.30 $1.42
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
WATERHOUSE INVESTOR SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
May 31, May 31,
<TABLE> 1995 1994
<CAPTION> ----------- -----------
<C> <C>
<S>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $12,860,870 $13,410,570
Non cash items included in net income:
Amortization of debt issuance costs 105,354 114,465
Depreciation and amortization 1,691,792 1,202,567
(Increases) decreases in operating assets:
Receivable from brokers and dealers 3,397,203 (3,440,487)
Receivable from customers, net (18,840,586) (56,248,740)
Deposits with clearing organizations (205,087) (915,970)
Other assets (1,314,937) (743,293)
Increases (decreases) in operating liabilities:
Broker loans and overdrafts (2,917,842) (10,893,948)
Payable to brokers and dealers 812,504 1,361,055
Payable to customers 21,331,673 20,814,180
Accounts payable, taxes payable, accrued expenses,
and other liabilities 6,318,198 (343,332)
----------- -----------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 23,239,142 (35,682,933)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
6% convertible subordinated notes --- 48,500,000
Deposits 49,058,230 ---
Debt issuance costs, net --- (1,449,000)
Dividends paid (1,830,736) (1,521,494)
Proceeds from exercise of stock options --- 90,544
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES 47,227,494 45,620,050
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Interest bearing deposits with other banks (17,000,000) ---
Fed funds sold (24,400,000) ---
Investment securities purchased (39,194,985) ---
Proceeds from maturities of investment securities 19,381,000 ---
Notes Receivable issued (5,000,000) ---
Purchase of furniture, equipment and
leasehold improvements (792,572) (4,112,538)
----------- -----------
CASH (USED IN) INVESTING ACTIVITIES (67,006,557) (4,112,538)
----------- -----------
INCREASE IN CASH AND DUE FROM BANKS 3,460,079 5,824,579
CASH AND DUE FROM BANKS, beginning of period 7,728,832 5,806,314
----------- -----------
CASH AND DUE FROM BANKS, end of period $11,188,911 $11,630,893
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 5,585,758 $ 2,225,764
=========== ===========
Cash paid for income taxes $ 7,227,797 $12,607,206
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
WATERHOUSE INVESTOR SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF ACCOUNTING PRINCIPLES
The accompanying consolidated financial statements include the accounts
of Waterhouse Investor Services, Inc. (the "Company") and its wholly-
owned subsidiaries, the most significant of which is Waterhouse
Securities, Inc. ("Waterhouse Securities"), a securities brokerage firm
which is registered with the Securities and Exchange Commission (the
"SEC"). Effective October 13, 1994, the Company became registered as a
bank holding company. Such statements have been prepared by the Company,
without audit, pursuant to the Rules and Regulations of the SEC and
reflect all adjustments (which include only normal recurring adjustments)
which are necessary to present a fair statement of the results for the
interim periods reported. Certain footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for
the year ended August 31, 1994.
2. CAPITAL ADEQUACY
Since being approved as a bank holding company, the Company closely
monitors its capital levels to provide for normal business needs and to
comply with regulatory requirements. As summarized below the Company's
capital ratios were in excess of the regulatory requirements to be
deemed "Well Capitalized" for the period ended May 31, 1995.
<TABLE>
<CAPTION>
Regulatory Waterhouse
Minimum to be Company's National Bank's
"Well Capitalized" Capital Ratio Capital Ratios
------------------ ------------- ---------------
<S> <C> <C> <C>
Total Risk Based Capital Ratio 10.0% 18.73% 62.19%
Tier 1 Risk Capital Ratio 6.0% 18.73% 62.19%
Tier 1 Leverage Ratio 5.0% 15.56% 11.07%
</TABLE>
As a broker-dealer, Waterhouse Securities is subject to the SEC's Uniform
Net Capital Rule. Waterhouse Securities has elected the alternative
method allowed by the Rule under which net capital, as defined, shall not
be less than 2% of aggregate debit items, as defined. At May 31, 1995,
Waterhouse Securities had net capital of $29,599,000 in excess of its
required net capital of $6,267,000.
3. RECLASSIFICATION
The consolidated statements of income and cash flows for the three and
nine months ended May 31, 1994 have been reclassified to conform with the
presentation adopted for the three and nine months ended May 31, 1995
because of the Company's registration as a bank holding company. Certain
prior period amounts have been reclassified to conform to the current
period presentation.
4. INVESTMENT SECURITIES
The Investment Securities are held by Waterhouse National Bank and carried
at amortized cost since the bank has the intent and the ability to hold
these instruments to maturity. The maturity of these instruments range
from 6/1/95 to 4/26/96. The following is a comparison of the carrying
amount and approximate market values:
<TABLE>
<CAPTION>
May 31, 1995 August 31, 1994
Carrying Approximate Carrying Approximate
Amount Market Value Amount Market Value
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
U.S. Government $25,896,290 $25,947,000 $7,082,305 $7,075,863
and Agency Securities
Other securities 1,450,000 1,450,000 450,000 450,000
----------- ----------- ---------- ----------
Total $27,346,290 $27,397,000 $7,532,305 $7,525,863
</TABLE> =========== =========== ========== ====
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Waterhouse Investor Services, Inc. was formed in 1987 as a holding company and
became registered as a bank holding company in 1994. The principal operating
subsidiary of the Company is Waterhouse Securities which was established
in 1978. Waterhouse Securities, a member firm of the NYSE and other principal
exchanges, conducts business as a discount broker offering reduced commission
rates to individual investors. Waterhouse National Bank was established in
1994 as a wholly-owned subsidiary of the Company and will provide the Company
with the ability to offer expanded financial services and products to the
customer base of Waterhouse Securities.
The securities industry has always been subject to volatility and sizable
market swings. In the past, this volatility has had little effect on the
financial condition of Waterhouse Securities. In addition, management feels
that the effect of this volatility on the results of the Company's operations
for any specific period of time may not be representative of the general trend
in the securities industry or operations of Waterhouse Securities.
RESULTS OF OPERATIONS
The Company has experienced rapid growth in customer accounts, trade processing
activity and revenues during the past several years. The Company believes that
favorable market conditions and increasing participation of individual
investors have contributed substantially to this growth. However, the Company
also believes that its historical growth is attributable in large measure to
the expansion of its branch office network, the introduction of new products
and services, increased advertising and marketing expenditures, and growth in
the number of individuals comprising the Company's target market.
Waterhouse has historically derived nearly all its revenue from commissions
charged on securities transactions and from interest earned on customer margin
balances. As a result, the revenues and earnings of the Company are directly
and materially affected by changes in the volume and price level of securities
transactions, the amount of customer margin loans and the Company's cost of
funds used to finance such loans. Accordingly, the Company's revenues and
earnings have fluctuated materially from quarter to quarter.
7
<PAGE> 8
The following table sets forth selected consolidated financial data as
percentages of total revenues and the percentage increase in each item over
the amount for the previous period:
<TABLE> Increase %
Third Quarter
FY 1995
Percentage of Total Revenues compared to
<CAPTION> Third Quarter Third Quarter Third Quarter
FY 1995 FY 1994 FY 1994
------------- ------------- -------------
<S> <C> <C> <C>
Income:
Net interest income 12.6% 9.2% 82.1%
Commissions and clearing fees 70.4% 74.5% 26.4%
Mutual fund revenues 7.5% 7.2% 40.9%
Other noninterest income 9.5% 9.1% 38.0%
------ ------
100.0% 100.0% 33.7
------ ------
Operating Expenses:
Employee compensation 31.2% 34.1% 22.3%
Communications, clearing
and stationery 22.6% 25.4% 19.0%
Advertising 5.8% 3.8% 101.2%
Occupancy 3.3% 3.6% 21.5%
Other operating expenses 11.1% 8.9% 68.4%
------ ------
74.0% 75.8% 30.5%
Income before income taxes 26.0% 24.2% 43.5%
Income tax provision 10.8% 10.6% 34.4%
------ ------
Net income 15.2% 13.6% 50.7%
====== ======
</TABLE>
INCOME
NET INTEREST INCOME. Currently, Waterhouse Securities' primary source of
interest income is margin loans to customers. These loans are financed
primarily through bank loans, credit balances in customer accounts (known as
free credit balances) and subordinated debt. Net interest income (interest
income less interest expense) is directly affected by the level of such loans,
the interest rate charged on those loans, which is based on the then-applicable
broker call rate, and the cost of financing. Net interest income increased for
both the third quarter and first nine months of fiscal year 1995 by 82% and
61%,respectively, from that of the same periods in the prior year. Such
increase in net interest income is primarily a result of a 8% increase in
average customer margin loans, and an increase in the broker call rate from
5.25% to 7.75% during the period. As Waterhouse National Bank becomes fully
operational, net interest income is expected to further increase and become a
greater percentage of total income.
COMMISSIONS AND CLEARING FEES. Waterhouse Securities acts primarily as an
agent for customer trading activity, and therefore, the commissions earned by
Waterhouse Securities are directly affected by the number of trades executed
and cleared, as well as the average commission rate per trade. During the
third quarter and first nine months of fiscal year 1995, the number of trades
executed and cleared by Waterhouse Securities was up 30% and 10%, respectively,
while the average commission rate per trade was down 3% and 6%, as compared
with the same periods of fiscal 1994.
MUTUAL FUND REVENUES. Included in mutual fund revenues are commission fees on
mutual fund and money market transfers. Such revenues increased 41% for the
third quarter of fiscal year 1995, and 32% for the first nine months over the
same periods in the prior year, primarily due to a corresponding increase in
money market balances.
8
<PAGE> 9
OTHER NONINTEREST INCOME. Included in other noninterest income are payments
received for order flow and other miscellaneous revenues. The increase of 38%
for the third quarter and 20% for the first nine months of fiscal year 1995
were a result of increased participation by the Company in the order flow
rebate market. The SEC has issued new regulations requiring additional
disclosure of fees received by brokers for order flow. No assurance can be
given that any such additional disclosure will not have an adverse effect on
the Company's revenues.
EXPENSES
EMPLOYEE COMPENSATION. Employee compensation represented approximately 42% of
total pre-tax operating expenses in the third quarter and first nine months of
fiscal 1995, the Company's largest expense. This expense primarily includes
salaries, bonuses, profit sharing plan contributions and other related benefits
and taxes. Employee compensation expense is directly impacted by the number of
employees, and partially impacted by the profits of the Company, as the bonuses
and contributions to the profit sharing plan are dependent on income before
taxes.
Employee compensation increased 22% in the third quarter and 13% for the first
nine months, respectively, of fiscal 1995 over the same periods of fiscal 1994,
primarily as a result of an increase in the number of employees from 775 in
May 1994 to 815 in May 1995. These increases were necessary to support the
rapid branch expansion from 60 as of May 31, 1994 to 68 as of May 31, 1995, as
well as the staffing of Waterhouse National Bank.
COMMUNICATIONS AND DATA PROCESSING, CLEARING FEES AND STATIONERY AND POSTAGE.
These categories are primarily composed of variable charges related to
executing and clearing customer transactions, telephone, computer service,
quotation, clearance, floor brokerage, envelopes and postage charges. These
charges increased 19% for the third quarter and 11% for the first nine months,
respectively, of fiscal year 1995 due to increased customer transactions and
the continuous upgrading of the company's technology, which includes Trade
Direct.
ADVERTISING. As the branch network expanded at its rapid rate over the past
several years, Waterhouse Securities increased its advertising campaign with
larger and more frequent advertising. The Company's advertisements appear on
a regular basis in national publications, such as The Wall Street Journal,
Barron's and Investor's Daily, and run regularly on CNBC and other cable
television networks. In addition, the Company introduced a host of new
services during fiscal 1995. As a result, advertising and promotion expense
increased 101% and 81% for the third quarter and first nine months of fiscal
year 1995 over the same periods of the prior year.
OCCUPANCY. Occupancy expense increased 22% in the third quarter and 16% for
the first nine months, respectively, of fiscal 1995 vs. the same periods in
fiscal 1994. This increase was primarily attributable to an increase in rental
expense resulting from the expansion of the Company's branch office network
and corporate headquarters.
OTHER OPERATING EXPENSES. Included in other operating expenses are
depreciation and amortization, insurance, professional fees and other
miscellaneous expenses. Other operating expenses amounted to $3.8 million in
the third quarter and $9.5 million for the first nine months of fiscal year
1995, resulting in increases of 68% and 55% as compared to the third quarter
and first nine months of fiscal 1994, respectively. This increase is primarily
attributable to equipment purchased used in the general expansion of the
Company's business during the period.
9
<PAGE> 10
FINANCIAL CONDITION
As of May 31, 1995, the Company's financial position remained strong with
over 97% of total assets consisting of cash, interest bearing deposits with
other banks, fed funds sold, investment securities and receivables. The
Company's assets primarily consist of receiveables from other broker-dealers
and customers. Customer receivables of $295 million at May 31, 1995 are
secured by readily marketable securities, some of which are used to
collateralize bank loans of $73 million. The Company's other assets consist
principally of office and operating equipment.
Stockholders' equity as of May 31, 1995 was over $62 million, an increase of
almost $13 million since August 31, 1994. Such increase was due to earnings
during the first nine months of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
With the establishment of the Waterhouse National Bank on October 13, 1994,
the Company became subject to regulation as a registered bank holding company
under the Bank Holding Company Act. As such, the Company is subject to
examination by the FRB, regulatory reporting requirements, minimum capital
requirements and ratios, certain restrictions on non-banking activities,
transactions with affiliates, tie-in arrangements, changes in control,
dividend payments, redemptions and other payments to security holders, and
other restrictions. Under FRB policy, the Company, as a bank holding company,
will be expected to act as a source of financial strength to Waterhouse
National Bank and to commit resources to support the Bank. Currently, both
the Company and the Bank have adequate capital, in excess of minimum
requirements.
Waterhouse Securities is subject to rules adopted by the SEC, the NASD, the
NYSE and various state securities law administrators which are designed to
measure the general financial integrity and liquidity of broker-dealers by
determining the amount of their net capital. Waterhouse Securities may not
pay dividends, distribute capital, prepay subordinated indebtedness or redeem
or repurchase shares of its capital stock if, thereafter, it would be in
violation of any such rules. In the past, Waterhouse Securities has at all
times maintained net capital in excess of the minimum amount of net capital
required to be maintained by such rules, and, as of May 31, 1995, Waterhouse
Securities had net capital in excess of the minimum amount of net capital
required to be so maintained.
The Company had available formal and informal lines of credit of approximately
$255 million (of which $73 million was utilized) at May 31, 1995, which
require collateralization upon utilization. These lines of credit, payables
to customers, and the convertible subordinated notes are the primary sources
of liquidity for the Company. Management believes that these primary sources
of liquidity, along with the equity of the Company, are sufficient to meet the
working capital needs of its subsidiaries including expansion of the
securities, clearing and banking operations, as well as any possible future
acquisitions.
EFFECTS OF INFLATION
For the nine month period ended May 31, 1995, there was no material effect
on the Company due to inflation.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of its business the Company is involved in
certain routine legal matters in which, in the opinion of management,
based on its discussions with counsel, are not expected to have a
material adverse effect on the Company's consolidated financial
condition.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibit A - Computation of Earnings Per Common and Common
Equivalent Shares
Exhibit B - Computation of Ratio of Earnings to Fixed Charges
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WATERHOUSE INVESTOR SERVICES, INC.
Date: July 12, 1995 By: /s/ Lawrence M. Waterhouse Jr.
------------------------------
Lawrence M. Waterhouse, Jr.
Chairman & Chief Executive Officer
Date: July 12, 1995 By: /s/ Bernard Siegel
------------------------------
M. Bernard Siegel
Chief Financial Officer
??
11
<PAGE> 1
EXHIBIT A
WATERHOUSE INVESTOR SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION> Nine Months Ended Nine Months Ended
May 31, 1995 May 31, 1994
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Number of common shares
outstanding at beginning
of period 9,401,438 9,401,438 9,397,952 9,397,952
Weighted average number
of common shares issued
pursuant to the exercise
of stock options -- -- 1,296 1,301
Weighted average number of
common shares issuable
assuming full conversion
of 6% convertible
subordinated notes -- 1,658,120 -- 568,455
Weighted average number of
common shares held in
treasury (250,002) (250,002) (250,002) (250,002)
Common shares issuable
assuming stock options
outstanding were exercised
at the beginning of the
period with applicable
proceeds used to purchase
treasury stock at the
average market price during
the period 22,684 52,324 18,369 18,369
------- ------- ------- -------
Weighted average number of
common and common equivalent
shares outstanding at end
of period 9,174,120 10,861,880 9,167,615 9,736,075
========== ========== ========== ==========
Earnings applicable for
common shares $12,860,870 $14,126,719 $13,410,570 $13,829,578
Earnings per common and
common equivalent shares $1.40 $1.30 $1.46 $1.42
</TABLE>
12
<PAGE> 1
EXHIBIT B
WATERHOUSE INVESTOR SERVICES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Fiscal Years Ended August 31, Nine Months Ended
--------------------------------------------------------------- May 31,
1990 1991 1992 1993 1994 1995
---------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Earnings Before Taxes On Income $2,506,460 $5,689,134 $15,163,052 $25,791,806 $28,009,177 $22,078,728
---------- ---------- ----------- ----------- ----------- -----------
Fixed Charges:
Interest 2,190,386 1,388,577 1,958,817 3,043,570 5,791,799 7,316,485
Interest Factor in Rent 418,695 418,685 618,012 899,371 1,206,530 1,046,849
--------- --------- --------- --------- --------- ---------
Total Fixed Charges 2,609,081 1,807,262 2,576,829 3,942,941 6,998,329 8,363,334
--------- --------- --------- --------- --------- ---------
Earnings Before Taxes On Income
and Fixed Charges $5,115,541 $7,496,396 $17,739,881 $29,734,747 $35,007,506 $30,442,062
========== ========== =========== =========== =========== ===========
Ratio Of Earnings to Fixed Charges 1.96 4.15 6.88 7.54 5.00 3.64
</TABLE>
13
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