-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HDN7oj+yEUzQbAZ7/C2o8I2BAs3MyW86N8NLmkj5DB9CqImnYu6H2x9j7aqFL6LE Z//O3ar5XzqO6GnyF7KP/w== /in/edgar/work/20000814/0000950123-00-007642/0000950123-00-007642.txt : 20000921 0000950123-00-007642.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950123-00-007642 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINE WEBBER GROUP INC CENTRAL INDEX KEY: 0000075754 STANDARD INDUSTRIAL CLASSIFICATION: [6211 ] IRS NUMBER: 132760086 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07367 FILM NUMBER: 700091 BUSINESS ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127132000 MAIL ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: PAINE WEBBER INC DATE OF NAME CHANGE: 19840523 10-Q 1 e10-q.txt PAINE WEBBER GROUP INC 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ COMMISSION FILE NUMBER 1-7367 PAINE WEBBER GROUP INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-2760086 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 713-2000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] On August 4, 2000 the Registrant had outstanding 147,784,526 shares of common stock of $1 par value. 2 PAINE WEBBER GROUP INC. FORM 10-Q JUNE 30, 2000 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page --------------------- ---- Item 1. Financial Statements. Condensed Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 2000 and 1999. 2 Condensed Consolidated Statements of Financial Condition (unaudited) at June 30, 2000 and December 31, 1999. 3 Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2000 and 1999. 4 Notes to Condensed Consolidated Financial Statements (unaudited). 5-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 14-20 PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings. 21 Item 6. Exhibits and Reports on Form 8-K. 21 Signature. 22
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PAINE WEBBER GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands of dollars except share and per share amounts)
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- --------------------------------- 2000 1999 2000 1999 --------------- --------------- --------------- --------------- REVENUES Commissions $ 560,510 $ 488,878 $ 1,236,682 $ 967,751 Principal transactions 181,428 279,846 490,717 594,054 Asset management 300,705 224,487 578,993 430,538 Investment banking 155,647 160,133 277,827 286,086 Interest 1,074,208 770,271 2,055,755 1,527,431 Other 43,928 47,363 81,573 88,428 ---------- ---------- ---------- ----------- Total revenues 2,316,426 1,970,978 4,721,547 3,894,288 Interest expense 905,254 623,071 1,713,270 1,231,490 ---------- ---------- ---------- ----------- Net revenues 1,411,172 1,347,907 3,008,277 2,662,798 ---------- ---------- ---------- ----------- NON-INTEREST EXPENSES Compensation and benefits 839,603 780,078 1,789,389 1,548,792 Office and equipment 99,695 89,330 196,287 170,782 Communications 46,807 42,645 90,930 84,848 Business development 41,776 28,534 80,677 52,401 Brokerage, clearing & exchange fees 20,300 23,487 47,603 47,877 Professional services 50,455 32,397 99,881 62,849 Other 100,466 81,769 201,221 160,563 ---------- ---------- ---------- ----------- Total non-interest expenses 1,199,102 1,078,240 2,505,988 2,128,112 ---------- ---------- ---------- ----------- INCOME BEFORE TAXES AND MINORITY INTEREST 212,070 269,667 502,289 534,686 Provision for income taxes 76,503 98,102 182,312 194,461 ---------- ---------- ---------- ----------- INCOME BEFORE MINORITY INTEREST 135,567 171,565 319,977 340,225 Minority interest 8,061 8,061 16,122 16,122 ---------- ---------- ---------- ----------- NET INCOME $ 127,506 $ 163,504 $ 303,855 $ 324,103 ========== ========== =========== =========== Net income applicable to common shares $ 127,506 $ 157,555 $ 303,855 $ 312,205 ========== ========== =========== =========== Earnings per common share: Basic $ 0.87 $ 1.08 $ 2.09 $ 2.14 Diluted $ 0.82 $ 1.02 $ 1.98 $ 2.02 Weighted-average common shares: Basic 146,067,820 145,742,741 145,324,940 145,631,920 Diluted 154,576,404 154,960,397 153,233,875 154,305,795 Dividends declared per common share $ 0.12 $ 0.11 $ 0.24 $ 0.22
Results for the quarter and six months ended June 30, 2000 include J.C. Bradford merger-related costs of $30 million, $18.8 million after taxes. See notes to condensed consolidated financial statements. 2 4 PAINE WEBBER GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (In thousands of dollars except share and per share amounts)
June 30, December 31, 2000 1999 ---------------- ------------------ ASSETS Cash and cash equivalents $ 429,002 $ 176,401 Cash and securities segregated and on deposit for federal and other regulations 719,651 823,059 Financial instruments owned 23,577,357 21,144,830 Securities received as collateral 907,299 1,079,976 Securities purchased under agreements to resell 15,313,111 15,923,948 Securities borrowed 10,517,232 10,526,638 Receivables, net of allowance for doubtful accounts of $21,301 and $30,039 at June 30, 2000 and December 31, 1999, respectively 12,215,893 10,287,937 Office equipment and leasehold improvements, net of accumulated depreciation and amortization of $591,129 and $527,718 at June 30, 2000 and December 31, 1999, respectively 747,931 579,819 Other assets 1,975,026 1,069,768 ------------ ----------- $ 66,402,502 $61,612,376 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 2,255,603 $ 1,884,250 Financial instruments sold, not yet purchased 4,275,325 7,099,208 Securities sold under agreements to repurchase 27,918,155 25,740,196 Securities loaned 7,249,077 5,661,200 Obligation to return securities received as collateral 907,299 1,079,976 Payables 11,882,125 8,448,217 Other liabilities and accrued expenses 3,121,054 3,164,496 Long-term borrowings 5,209,136 5,223,826 ------------ ----------- 62,817,774 58,301,369 ------------ ----------- Commitments and contingencies Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts holding solely Company Guaranteed Related Subordinated Debt 393,750 393,750 Stockholders' Equity: Common stock, $1 par value, 400,000,000 shares authorized, issued 195,719,680 shares and 193,145,152 shares at June 30, 2000 and December 31, 1999, respectively 195,720 193,145 Additional paid-in capital 1,755,825 1,672,085 Retained earnings 2,439,962 2,171,080 Treasury stock, at cost; 48,971,281 shares and 47,557,064 shares at June 30, 2000 and December 31, 1999, respectively (1,191,934) (1,113,736) Accumulated other comprehensive income (8,595) (5,317) ------------- ------------ 3,190,978 2,917,257 ------------ ------------- $ 66,402,502 $61,612,376 ============ =============
See notes to condensed consolidated financial statements. 3 5 PAINE WEBBER GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands of dollars)
Six Months Ended June 30, ------------------------------------------ 2000 1999 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 303,855 $ 324,103 Adjustments to reconcile net income to cash provided by (used for) operating activities: Noncash items included in net income: Depreciation and amortization 63,815 49,206 Deferred income taxes 14,268 (10,317) Amortization of deferred charges 53,729 51,736 Stock-based compensation (3,126) 11,480 (Increase) decrease in operating assets: Cash and securities on deposit 103,685 (54,585) Financial instruments owned (2,156,799) (2,200,354) Securities purchased under agreements to resell 610,837 (306,902) Securities borrowed 234,592 (197,510) Receivables (1,031,176) (1,032,062) Other assets (306,671) (243,111) Increase (decrease) in operating liabilities: Financial instruments sold, not yet purchased (2,823,883) 2,863,254 Securities sold under agreements to repurchase 2,177,959 1,697,395 Securities loaned 1,319,954 14,021 Payables 2,603,232 (1,204,663) Other (312,241) 73,936 ------------ -------------- Cash provided by (used for) operating activities 852,030 (164,373) ------------ -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for: Net assets acquired in business acquisition (621,667) - Office equipment and leasehold improvements (196,740) (110,289) ------------ ------------ Cash used for investing activities (818,407) (110,289) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from (payments on) short-term borrowings 337,151 (233,289) Proceeds from: Long-term borrowings 346,762 875,985 Employee stock transactions 88,365 56,593 Payments for: Long-term borrowings (403,560) (190,180) Repurchases of common stock (114,767) (121,080) Dividends (34,973) (43,706) ------------ -------------- Cash provided by financing activities 218,978 344,323 ----------- ------------ Increase in cash and cash equivalents 252,601 69,661 Cash and cash equivalents, beginning of period 176,401 228,359 ----------- ------------ Cash and cash equivalents, end of period $ 429,002 $ 298,020 ========== ===========
See notes to condensed consolidated financial statements. 4 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The condensed consolidated financial statements include the accounts of Paine Webber Group Inc. ("PWG") and its wholly owned subsidiaries, including its principal subsidiary PaineWebber Incorporated ("PWI") (collectively, the "Company"). All material intercompany balances and transactions have been eliminated. Certain reclassifications have been made to prior year amounts to conform to current year presentations. The December 31, 1999 Condensed Consolidated Statement of Financial Condition was derived from the audited consolidated financial statements of the Company. The financial information as of and for the periods ended June 30, 2000 and 1999 is unaudited. All normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation have been made. Certain financial information that is normally in annual financial statements but is not required for interim reporting purposes has been condensed or omitted. The condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States which require management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year. Statement of Cash Flows Total interest payments, which relate principally to agreements to repurchase, short-term borrowings, securities loaned and long-term borrowings, were $1,763,452 and $1,211,332 for the six months ended June 30, 2000 and 1999, respectively. Income taxes paid were $202,888 and $118,274 for the six months ended June 30, 2000 and 1999, respectively. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes revised accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity measure all derivative instruments at fair value and recognize such instruments as either assets or liabilities in the consolidated statements of financial condition. The accounting for changes in the fair value of a derivative instrument will depend on the intended use of the derivative as either a fair value hedge, a cash flow hedge or a foreign currency hedge. The effect of the changes in fair value of the derivatives and, in certain cases, the hedged items are to be reflected in either the consolidated statements of income or as a component of other comprehensive income, based upon the resulting designation. As issued, SFAS No. 133 was effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No. 133 for one year to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities--an Amendment to FASB Statement No. 133". The Company has not yet determined the impact of these statements on the Company's Consolidated Financial Statements, taken as a whole. NOTE 2: SUBSEQUENT EVENT On July 12, 2000, PWG entered into an agreement and plan of merger with UBS AG ("UBS") and a subsidiary of UBS, pursuant to which PWG will merge with and into that subsidiary. Under the terms of the agreement, PWG's shareholders will have the right to elect to receive either $73.50 in cash or 0.4954 of an ordinary share of UBS AG stock for each share of PWG's common stock, $1 par value ("common stock") that they own. The percentage of PWG's common stock that will be converted into the right to receive UBS AG stock is fixed at 50 percent. Adjustments to elections may therefore be necessary so that, in the aggregate, 50 percent of the shares of PWG's common stock is converted into the right to receive UBS AG stock, and 50 percent is converted into the right to receive cash. The transaction, which is expected to be completed in the fourth quarter of 2000, has been approved by PWG's Board of Directors and is subject to customary closing conditions, including certain regulatory approvals and the approval of PWG's shareholders. 5 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3: MERGER WITH J.C. BRADFORD On June 9, 2000, the Company completed its merger with J.C. Bradford & Co. L.L.C. ("J.C. Bradford"), a leading privately-held brokerage firm in the Southeastern U.S., for approximately $622,000 in cash. The merger was accounted for as a purchase and, accordingly, the excess of the purchase cost over the fair value of the net assets acquired of approximately $185,000, resulted in the Company recording $560,000 in goodwill, which is being amortized over 25 years on a straight-line basis. The consolidated financial statements of the Company include the results of J.C. Bradford from the closing date. As a result of the merger, the Company recorded after-tax costs of approximately $18,800 ($30,000 pre-tax) relating primarily to elimination of the Company's duplicate facilities, severance and other costs. NOTE 4: FINANCIAL INSTRUMENTS OWNED AND SOLD, NOT YET PURCHASED At June 30, 2000 and December 31, 1999, financial instruments owned and financial instruments sold, not yet purchased consisted of the following:
June 30, December 31, 2000 1999 -------------- -------------- Financial instruments owned: U.S. government and agencies $ 6,859,578 $ 5,864,331 Mortgages and mortgage-backed 9,585,261 9,012,415 Corporate debt 1,972,518 1,875,361 Commercial paper and other short-term debt 2,196,741 1,744,036 Equities and other 2,342,821 2,030,986 State and municipals 620,438 617,701 ------------- -------------- $ 23,577,357 $ 21,144,830 ============= ============= Financial instruments sold, not yet purchased: U.S. government and agencies $ 2,907,693 $ 5,804,259 Mortgages and mortgage-backed 144,194 123,049 Corporate debt 940,826 785,890 Equities 239,698 348,485 State and municipals 42,914 37,525 -------------- ------------- $ 4,275,325 $ 7,099,208 ============= =============
NOTE 5: LONG-TERM BORROWINGS Long-term borrowings at June 30, 2000 and December 31, 1999 consisted of the following:
June 30, December 31, 2000 1999 -------------- -------------- U.S. Dollar-Denominated: Fixed Rate Notes $ 2,608,917 $ 2,757,851 Fixed Rate Subordinated Notes 198,809 174,765 Medium-Term Senior Notes 2,186,350 2,143,010 Medium-Term Subordinated Notes 85,200 148,200 Other 11,037 - Non-U.S. Dollar-Denominated: Medium-Term Notes 118,823 - ------------- ------------- $ 5,209,136 $ 5,223,826 ============= =============
At June 30, 2000, interest rates on the U.S. dollar-denominated fixed rate notes and fixed rate subordinated notes ranged from 6.25 percent to 9.25 percent and the weighted-average interest rate was 7.19 percent. Interest on the notes is payable semi-annually. The fixed rate notes and fixed rate subordinated notes outstanding at June 30, 2000 had an average maturity of 5.6 years. At June 30, 2000, the Company had outstanding U.S. dollar-denominated fixed rate Medium-Term Notes of $1,292,100 and variable rate Medium-Term Notes of $979,450. The Medium-Term Notes outstanding at June 30, 2000 had an average maturity of 3.9 years and a weighted-average interest rate of 6.36 percent. At June 30, 2000, the Non-U.S. dollar-denominated Medium-Term Notes outstanding had a weighted-average interest rate of 1.18 percent and an average maturity of 2.4 years. 6 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In 2000, the Company issued to certain employees, 6.25% Convertible Debentures (the "Debentures") due 2007. The Debentures are convertible, at the option of the holders, into 1,931,250 shares of Convertible Preferred Stock, which are then convertible into 1,931,250 shares of common stock of the Company. The Debentures are convertible beginning on January 20, 2003. At June 30, 2000 and December 31, 1999, the fair values of long-term borrowings were $4,998,397 and $5,140,331, respectively, as compared to the carrying amounts of $5,209,136 and $5,223,826, respectively. The estimated fair value of long-term borrowings is based upon quoted market prices for the same or similar issues and pricing models. However, for substantially all of its fixed rate debt, the Company enters into interest rate swap agreements to convert its fixed rate payments into floating rate payments. The net fair values of the interest rate swaps were $125,726 and $127,097 payable at June 30, 2000 and December 31, 1999, respectively. The fair value of interest rate swaps used to hedge the Company's long-term borrowings is based upon the amounts the Company would receive or pay to terminate the agreements, taking into account current interest rates. The carrying amounts of the interest rate swap agreements included in the Company's Condensed Consolidated Statements of Financial Condition at June 30, 2000 and December 31, 1999 were net receivables of $6,233 and $12,075, respectively. See Note 7 for further discussion of interest rate swap agreements used for hedging purposes. NOTE 6: CAPITAL REQUIREMENTS PWI, a registered broker-dealer, is subject to the Securities and Exchange Commission Uniform Net Capital Rule and New York Stock Exchange Growth and Business Reduction capital requirements. Under the method of computing capital requirements adopted by PWI, minimum net capital shall not be less than 2 percent of combined aggregate debit items arising from client transactions, plus excess margin collected on securities purchased under agreements to resell, as defined. A reduction of business is required if net capital is less than 4 percent of such aggregate debit items. Business may not be expanded if net capital is less than 5 percent of such aggregate debit items. As of June 30, 2000, PWI's net capital of $1,196,312 was 9.1 percent of aggregate debit items and its net capital in excess of the minimum required was $921,545. Effective June 9, 2000, the Company completed its merger with J.C. Bradford, a registered broker-dealer. As a registered broker-dealer, J.C. Bradford is subject to the Securities and Exchange Commission Uniform Net Capital Rule and New York Stock Exchange Growth and Business Reduction capital requirements, similar to PWI. As of June 30, 2000, J.C. Bradford's net capital of $376,146 was 41.3 percent of aggregate debit items and its net capital in excess of the minimum required was $357,940. NOTE 7: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK Held or Issued for Trading Purposes Set forth below are the gross contract or notional amounts of the Company's outstanding off-balance-sheet derivative and other financial instruments held or issued for trading purposes. These amounts are not reflected in the Condensed Consolidated Statements of Financial Condition and are indicative only of the volume of activity at June 30, 2000 and December 31, 1999. They do not represent amounts subject to market risks, and in many cases, limit the Company's overall exposure to market losses by hedging other on- and off-balance-sheet transactions. 7 9 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Notional or Contract Amount ----------------------------------------------------------------------------------- June 30, 2000 December 31, 1999 -------------------------------------- --------------------------------------- Purchases Sales Purchases Sales ----------------- ------------------ ------------------ ------------------ Mortgage-backed forward contracts and options written and purchased $14,862,935 $20,758,712 $14,417,186 $17,540,786 Foreign currency forward contracts, futures contracts, and options written and purchased 2,047,008 2,014,695 1,380,925 1,373,981 Equity securities contracts including stock index futures, forwards, and options written and purchased 202,385 359,693 144,034 239,682 Other fixed income securities contracts including futures, forwards, and options written and purchased 5,930,773 7,913,074 3,557,193 5,538,887 Interest rate swaps and caps 1,591,267 3,737,418 1,688,762 419,989
Set forth below are the fair values of derivative financial instruments held or issued for trading purposes as of June 30, 2000 and December 31, 1999. The fair value amounts are netted by counterparty when specific conditions are met.
Fair Value at Fair Value at June 30, 2000 December 31, 1999 --------------------------------------- --------------------------------------- Assets Liabilities Assets Liabilities ------------------ ------------------ ------------------ ------------------ Mortgage-backed forward contracts and options written and purchased $93,514 $110,055 $159,228 $114,838 Foreign currency forward contracts, futures contracts, and options written and purchased 21,160 20,211 20,274 20,158 Equity securities contracts including stock index futures, forwards, and options written and purchased 41,655 16,051 152,024 48,835 Other fixed income securities contracts including futures, forwards, and options written and purchased 12,327 6,436 29,584 20,177 Interest rate swaps and caps 21,000 41,489 31,569 11,087
Set forth below are the average fair values of derivative financial instruments held or issued for trading purposes for the three months ended June 30, 2000 and the twelve months ended December 31, 1999. The average fair value is based on the average of the month-end balances during the periods indicated. 8 10 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Average Fair Value Average Fair Value June 30, 2000 December 31, 1999 --------------------------------------- --------------------------------------- Assets Liabilities Assets Liabilities ------------------ ------------------ ------------------ ------------------ Mortgage-backed forward contracts and options written and purchased $121,674 $112,297 $171,113 $163,954 Foreign currency forward contracts, futures contracts, and options written and purchased 31,807 31,218 22,549 22,377 Equity securities contracts including stock index futures, forwards, and options written and purchased 88,125 31,563 63,624 40,321 Other fixed income securities contracts including futures, forwards, and options written and purchased 16,163 6,017 11,932 49,800 Interest rate swaps and caps 29,344 26,051 18,593 6,754
The Company also sells securities, at predetermined prices, which have not yet been purchased. The Company is exposed to market risk since to satisfy the obligation, the Company must acquire the securities at market prices, which may exceed the values reflected on the Condensed Consolidated Statements of Financial Condition. The off-balance-sheet derivative trading transactions are generally short-term. At June 30, 2000 substantially all of the off-balance-sheet trading-related derivative and other financial instruments had remaining maturities of less than one year. The Company's risk of loss in the event of counterparty default is limited to the current fair value or the replacement cost on contracts in which the Company has recorded an unrealized gain. These amounts are reflected as assets on the Company's Condensed Consolidated Statements of Financial Condition and amounted to $189,656 and $392,679 at June 30, 2000 and December 31, 1999, respectively. Options written do not expose the Company to credit risk since they do not obligate the counterparty to perform. Transactions in futures contracts are conducted through regulated exchanges which have margin requirements, and are settled in cash on a daily basis, thereby minimizing credit risk. The following table summarizes the Company's principal transactions revenues by business activity for the three months and six months ended June 30, 2000 and 1999. Principal transactions revenues include realized and unrealized gains and losses on trading positions and principal investing activities, including hedges. In assessing the profitability of its trading activities, the Company views net interest and principal transactions revenues in the aggregate.
Principal Transactions Revenues ----------------------------------------------------------- Three Months Six Months Ended June 30, Ended June 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ------------ --------- Taxable fixed income (includes futures, forwards, options contracts and other securities) $ 61,901 $137,646 $119,672 $332,050 Equities (includes stock index futures, forwards and options contracts) 71,983 107,424 278,805 192,331 Municipals (includes futures and options contracts) 47,544 34,776 92,240 69,673 -------- -------- -------- -------- $181,428 $279,846 $490,717 $594,054 ======== ======== ======== ========
9 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Held or Issued for Purposes Other Than Trading The Company enters into interest rate swap agreements to manage the interest rate characteristics of its assets and liabilities. As of June 30, 2000 and December 31, 1999, the Company had outstanding interest rate swap agreements with commercial banks with notional amounts of $3,896,010 and $4,206,010, respectively. These agreements effectively converted substantially all of the Company's fixed rate debt at June 30, 2000 into floating rate debt. The interest rate swap agreements entered into have had the effect of increasing net interest expense on the Company's fixed rate debt by $2,359 for the six months ended June 30, 2000, and decreasing net interest expense by $13,791 for the six months ended June 30, 1999. The Company had no deferred gains or losses related to terminated swap agreements on the Company's long-term borrowings at June 30, 2000 and December 31, 1999. The Company is subject to market risk as interest rates fluctuate. The interest rate swaps contain credit risk to the extent the Company is in a receivable or gain position and the counterparty defaults. However, the counterparties to the agreements generally are large financial institutions, and the Company has not experienced defaults in the past, and management does not anticipate any counterparty defaults in the foreseeable future. See Note 5 for further discussion of interest rate swap agreements used for hedging purposes. NOTE 8: RISK MANAGEMENT Transactions involving derivative and non-derivative financial instruments involve varying degrees of both market and credit risk. The Company monitors its exposure to market and credit risk on a daily basis and through a variety of financial, security position and credit exposure reporting and control procedures. Market Risk Market risk is the potential change in value of the financial instrument caused by unfavorable changes in interest rates, equity prices, and foreign currency exchange rates. The Company has a variety of methods to monitor its market risk profile. The senior management of each business group is responsible for reviewing trading positions, exposures, profits and losses, and trading strategies. The Company also has an independent risk management group which reviews the Company's risk profile and aids in setting and monitoring risk management policies of the Company, including monitoring adherence to the established limits, performing market risk modeling, and reviewing trading positions and hedging strategies. The Asset/Liability Management Committee, comprised of senior corporate and business group managers, is responsible for establishing trading position and exposure limits. Market risk modeling is based on estimating loss exposure through sensitivity testing. These results are compared to established limits, and exceptions are subject to review and approval by senior management. Other market risk control procedures include monitoring inventory agings, reviewing traders' marks and holding regular meetings between the senior management of the business groups and the risk management group. Credit Risk in Proprietary Transactions Counterparties to the Company's proprietary trading, hedging, financing and arbitrage activities are primarily financial institutions, including banks, brokers and dealers, investment funds and insurance companies. Credit losses could arise should counterparties fail to perform and the value of any collateral proves inadequate. The Company manages credit risk by monitoring net exposure to individual counterparties on a daily basis, monitoring credit limits and requiring additional collateral where appropriate. Derivative credit exposures are calculated, aggregated and compared to established limits by the credit department. Credit reserve requirements are determined by senior management in conjunction with the Company's continuous credit monitoring procedures. Historically, reserve requirements arising from instruments with off-balance-sheet risk have not been material. Receivables and payables with brokers and dealers, agreements to resell and repurchase securities, and securities borrowed and loaned are generally collateralized by cash, government and government-agency securities, and letters of credit. The market value of the initial collateral received approximates or is greater than the contract value. Additional collateral is requested when considered necessary. The Company may pledge clients' margined securities as collateral in support of securities loaned and bank loans, as well as to satisfy margin requirements at clearing organizations. The amounts loaned or pledged are limited to the extent permitted by applicable margin regulations. Should the counterparty fail to return the clients' securities, the Company may be required to replace them at prevailing market prices. At June 30, 2000, the market value of client securities loaned to other brokers approximated the amounts due or collateral obtained. 10 12 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Credit Risk in Client Activities Client transactions are entered on either a cash or margin basis. In a margin transaction, the Company extends credit to a client for the purchase of securities, using the securities purchased and/or other securities in the client's account as collateral for amounts loaned. Receivables from customers are substantially collateralized by customer securities. Amounts loaned are limited by margin regulations of the Federal Reserve Board and other regulatory authorities and are subject to the Company's credit review and daily monitoring procedures. Market declines could, however, reduce the value of any collateral below the principal amount loaned, plus accrued interest, before the collateral can be sold. Client transactions include positions in commodities and financial futures, trading liabilities and written options. The risk to the Company's clients in these transactions can be substantial, principally due to price volatility which can reduce the clients' ability to meet their obligations. Margin deposit requirements pertaining to commodity futures and exchange-traded options transactions are generally lower than those for exchange-traded securities. To the extent clients are unable to meet their commitments to the Company and margin deposits are insufficient to cover outstanding liabilities, the Company may take market action and credit losses could be realized. Client trades are recorded on a settlement date basis. Should either the client or broker fail to perform, the Company may be required to complete the transaction at prevailing market prices. Trades pending at June 30, 2000 were settled without material adverse effect on the Company's consolidated financial statements, taken as a whole. Concentrations of Credit Risk Concentrations of credit risk that arise from financial instruments (whether on- or off-balance-sheet) exist for groups of counterparties when they have similar economic characteristics that would cause their ability to meet obligations to be similarly affected by economic, industry or geographic factors. As a major securities firm, the Company engages in underwriting and other financing activities with a broad range of clients, including other financial institutions, municipalities, governments, financing companies, and commercial real estate investors and operators. These activities could result in concentrations of credit risk with a particular counterparty, or group of counterparties operating in a particular geographic area or engaged in business in a particular industry. The Company seeks to control its credit risk and the potential for risk concentration through a variety of reporting and control procedures described above. The Company's most significant industry concentration, which arises within its normal course of business activities, is financial institutions including banks, brokers and dealers, investment funds, and insurance companies. NOTE 9: COMMITMENTS AND CONTINGENCIES At June 30, 2000 and December 31, 1999, the Company was contingently liable under unsecured letters of credit totaling $204,868 and $139,156, respectively, which approximated fair value. At June 30, 2000 and December 31, 1999 certain of the Company's subsidiaries were contingently liable as issuer of approximately $45,000 of notes payable to managing general partners of various limited partnerships pursuant to certain partnership agreements. In addition, as part of the 1995 limited partnership settlements, the Company has agreed, under certain circumstances, to provide to class members additional consideration including assignment of fees the Company is entitled to receive from certain partnerships. In the opinion of management, these contingencies will not have a material adverse effect on the Company's consolidated financial statements, taken as a whole. In meeting the financing needs of certain of its clients, the Company may also issue standby letters of credit which are collateralized by customer margin securities. At June 30, 2000 and December 31, 1999, the Company had outstanding $142,503 and $101,400, respectively, of such standby letters of credit. At June 30, 2000 and December 31, 1999, securities with fair value of $3,414,277 and $2,536,073, respectively, had been loaned or pledged as collateral for securities borrowed of approximately equal fair value. In the normal course of business, the Company enters into when-issued transactions, underwriting and other commitments. Also, at June 30, 2000 and December 31, 1999, the Company had commitments of $1,411,297 and $858,122, respectively, consisting of secured credit lines to real estate operators, mortgage and asset-backed originators, and commitments to investment partnerships, in certain of which key employees are limited partners. Settlement of these transactions at June 30, 2000 would not have had a material impact on the Company's consolidated financial statements, taken as a whole. 11 13 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company has been named as defendant in numerous legal actions in the ordinary course of business. While the outcome of such matters cannot be predicted with certainty, in the opinion of management of the Company, after consultation with various counsel handling such matters, these actions will be resolved with no material adverse effect on the Company's consolidated financial statements, taken as a whole. NOTE 10: COMPREHENSIVE INCOME Comprehensive income is calculated in accordance with SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income combines net income and certain items that directly affect stockholders' equity, such as foreign currency translation adjustments. The components of comprehensive income for the three months and six months ended June 30, 2000 and 1999 were as follows:
Three Months Ended Six Months Ended June 30, June 30, ----------------------------------------- ----------------------------------------- 2000 1999 2000 1999 ----------------- ----------------- ----------------- ----------------- Net income $127,506 $ 163,504 $303,855 $324,103 Foreign currency translation adjustment (2,396) (1,419) (3,278) (2,931) ----------------- ----------------- ----------------- ----------------- Total comprehensive income $125,110 $ 162,085 $300,577 $321,172 ----------------- ----------------- ----------------- -----------------
NOTE 11: EARNINGS PER COMMON SHARE Earnings per common share are computed in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share excludes the dilutive effects of options and convertible securities and is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects all potentially dilutive securities. Set forth below is the reconciliation of net income applicable to common shares and weighted-average common and common equivalent shares of the basic and diluted earnings per common share computations:
Three Months Ended Six Months Ended ------------------ ----------------- June 30, June 30, -------- ------- 2000 1999 2000 1999 -------------- -------------- -------------- ----------- NUMERATOR: Net income $ 127,506 $ 163,504 $ 303,855 $ 324,103 Preferred stock dividends - (5,949) - (11,898) -------------- -------------- -------------- ----------- Net income applicable to common shares for basic earnings per share 127,506 157,555 303,855 312,205 ============== ============== ============== =========== Net income applicable to common shares for diluted earnings per share $ 127,506 $ 157,555 $ 303,855 $ 312,205 ============== ============== ============== =========== DENOMINATOR: Weighted-average common shares for basic earnings per share 146,067,820 145,742,741 145,324,940 145,631,920 Weighted-average effect of dilutive employee stock options and awards 8,508,584(1) 9,217,656 7,908,935(1) 8,673,875 -------------- ------------- -------------- ------------ Dilutive potential common shares 8,508,584 9,217,656 7,908,935 8,673,875 -------------- ------------- -------------- ------------ Weighted-average common and common equivalent shares for diluted earnings per share 154,576,404 154,960,397 153,233,875 154,305,795 ============== ============= ============== ============ EARNINGS PER SHARE: Basic $ 0.87 $ 1.08 $ 2.09 $ 2.14 ============== ============== ============== ============ Diluted $ 0.82 $ 1.02 $ 1.98 $ 2.02 ============== ============== ============== ============
- ---------------------------- (1) Included in the calculation of employee stock options and awards was the dilutive effective of 1,931,250 instruments related to convertible debentures. 12 14 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12: SEGMENT REPORTING DATA The Company offers a wide variety of products and services, primarily those of a full service domestic broker-dealer to a domestic market, through its two operating segments: Individual and Institutional. The Individual segment offers brokerage services and products (such as the purchase and sale of securities, insurance annuity contracts, mutual funds, wrap fee products, and margin and securities lending), asset management and other investment advisory and portfolio management products and services, and execution and clearing services for transactions originated by individual investors. The Institutional segment principally includes capital market products and services (such as the placing of securities and other financial instruments for - and the execution of trades on behalf of - institutional clients, investment banking services such as the underwriting of debt and equity securities, and mergers and acquisitions advisory services). Segment revenues and expenses in the table below consist of those that are directly attributable to the segment under which they are reported, combined with segment amounts based on Company allocation methodologies (for example, allocating a portion of investment banking revenues to the Individual segment; relative utilization of the Company's square footage for certain cost allocations).
Three months ended June 30, 2000 -------------------------------------------------------------- Individual Institutional Total ------------------ -------------------- ---------------------- Total revenues $1,422,061 $ 894,365 $2,316,426 Net revenues 1,142,750 268,422 1,411,172 Income before taxes and minority interest 199,050 13,020 212,070
Three months ended June 30, 1999 -------------------------------------------------------------- Individual Institutional Total -------------------- -------------------- -------------------- Total revenues $1,135,946 $835,032 $1,970,978 Net revenues 980,018 367,889 1,347,907 Income before taxes and minority interest 152,980 116,687 269,667
Six months ended June 30, 2000 -------------------------------------------------------------- Individual Institutional Total ------------------ -------------------- ---------------------- Total revenues $2,892,812 $1,828,735 $4,721,547 Net revenues 2,394,028 614,249 3,008,277 Income before taxes and minority interest 398,244 104,045 502,289
Six months ended June 30, 1999 ------------------------------------------------------------- Individual Institutional Total -------------------- -------------------- ------------------- Total revenues $2,240,355 $1,653,933 $3,894,288 Net revenues 1,935,131 727,667 2,662,798 Income before taxes and minority interest 304,873 229,813 534,686
Total assets for the Individual and Institutional segments were $26,786,776 and $39,615,726, respectively, at June 30, 2000 and $21,828,324 and $39,784,052, respectively at December 31, 1999. 13 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's principal business activities are, by their nature, affected by many factors, including general economic and financial conditions, the level and volatility of interest rates, currency and security valuations, competitive conditions, counterparty risk, transactional volume, market liquidity and technological changes. As a result, revenues and profitability have been in the past, and are likely to continue to be, subject to fluctuations reflecting the impact of these factors. Certain statements included in this discussion and in other parts of this report include "forward-looking statements" that involve known and unknown risks and uncertainties including (without limitation) those mentioned above, the impact of current, pending and future legislation and regulation, and other risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Company disclaims any obligation or undertaking to update publicly or revise any forward-looking statements. During the second quarter of 2000, economic conditions in the U.S. were generally positive, but the performance of the financial markets was mixed. The annualized rate of U.S. Real Gross Domestic Product growth in the second quarter was 5.2 percent, versus 4.8 percent in the first quarter of 2000 and 2.5 percent in the second quarter of 1999. Inflation was above year-ago levels. The Consumer Price Index rose 3.6 percent in the second quarter of 2000, slightly below the 4.0 percent rate in the first quarter of 2000 but well above 2.6 percent in the second quarter of 1999. To reduce inflationary pressure, the Federal Reserve tightened monetary policy in May, raising the Fed funds rate from 6.0 percent to 6.5 percent. However, interest rates ended the quarter at the same levels that they began it. Despite considerable intra-quarter volatility, the yield on the 90-day U.S. Treasury bill held steady at 5.88 percent and the 10-year Treasury bond remained at 6.03 percent. The equity market was somewhat weak during the second quarter of 2000. The Dow Jones Industrial Average declined 4.3 percent during the second quarter of 2000, compared to a 12.1 percent increase during the second quarter of 1999. The S&P 500 declined 2.9 percent as compared to a 6.7 percent increase during the second quarter of 1999. The NASDAQ Composite Index fell 13.3 percent in the second quarter of 2000, as compared to a 9.1 percent gain in the second quarter of 1999. Despite relatively weak stock prices, equity market volume was heavy, easily beating the 1999 figures. Average daily volume on the New York Stock Exchange was 970 million shares in the second quarter of 2000, as compared with 791 million in the year-ago quarter. NASDAQ volume was 1.5 billion shares per day in the second quarter of 2000, 54 percent above the volume in the second quarter of 1999. SUBSEQUENT EVENT On July 12, 2000, PWG entered into an agreement and plan of merger with UBS AG ("UBS") and a subsidiary of UBS, pursuant to which PWG will merge with and into that subsidiary. Under the terms of the agreement, PWG's shareholders will have the right to elect to receive either $73.50 in cash or 0.4954 of an ordinary share of UBS AG stock for each share of PWG's common stock, $1 par value ("common stock") that they own. The percentage of PWG's common stock that will be converted into the right to receive UBS AG stock is fixed at 50 percent. Adjustments to elections may therefore be necessary so that, in the aggregate, 50 percent of the shares of PWG's common stock is converted into the right to receive UBS AG stock, and 50 percent is converted into the right to receive cash. The transaction, which is expected to be completed in the fourth quarter of 2000, has been approved by PWG's Board of Directors and is subject to customary closing conditions, including certain regulatory approvals and the approval of PWG's shareholders. MERGER WITH J.C. BRADFORD On June 9, 2000, the Company completed its merger with J.C. Bradford & Co. L.L.C. ("J.C. Bradford"), a leading privately-held brokerage firm in the Southeastern U.S., for approximately $622 million in cash. The merger was accounted for as a purchase and, accordingly, the excess of the purchase cost over the fair value of the net assets acquired of approximately $185 million, resulted in the Company recording $560 million in goodwill, which is being amortized over 25 years on a straight-line basis. The consolidated financial statements of the Company include the results of J.C. Bradford from the closing date. As a result of the merger, the Company recorded after-tax costs of approximately $18.8 million ($30.0 million pre-tax) relating primarily to elimination of the Company's duplicate facilities, severance and other costs. 14 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS Quarter Ended June 30, 2000 compared to Quarter Ended June 30, 1999 The Company's net income for the quarter ended June 30, 2000, was $146.3 million, or $1.00 per basic share ($0.95 per diluted share), before merger-related after-tax costs of $18.8 million ($30.0 million pre-tax) associated with the Company's merger with J.C. Bradford. Including these costs, the Company's net income was $127.5 million, or $0.87 per basic share ($0.82 per diluted share). This compares to net income of $163.5 million, or $1.08 per basic share ($1.02 per diluted share) earned during the second quarter of 1999. During the second quarter of 2000, revenues, net of interest expense, were $1,411.2 million, 4.7% higher than the second quarter of 1999. Commission revenues earned during the second quarter of 2000 were $560.5 million, 14.7 percent higher than the $488.9 million earned during the prior year quarter. Mutual fund and insurance commissions increased $50.5 million or 38.6 percent, commissions from over-the-counter securities and commodities increased $11.8 million or 16.5 percent and commissions on the sale of listed securities and options increased $9.3 million or 3.3 percent compared to the prior year quarter. Principal transactions revenues declined from the second quarter of 1999 to $181.4 million from $279.8 million, or 35.2 percent. The decline was attributable to lower results in taxable fixed income and equities slightly offset by an increase in municipals. Asset management fees increased $76.2 million, or 34.0 percent to a record $300.7 million, reflecting higher revenues earned on managed and fee-based accounts. Average assets in wrap and trust accounts during the second quarter of 2000 were approximately 50 percent higher than during the second quarter of 1999. At June 30, 2000, assets in wrap and trust accounts reached a record $58.5 billion. The increase in revenues also reflects higher investment advisory fees earned on assets managed in long-term and money market funds. The average assets under management in money market, institutional and long-term mutual funds were approximately $72 billion during the second quarter of 2000 and approximately $62 billion during the second quarter of 1999. At June 30, 2000, assets under management were $73.1 billion. Investment banking revenues earned during the second quarter of 2000 were $155.6 million, $4.5 million less than the $160.1 million earned during the second quarter of 1999. The current year quarter reflects decreases in municipal and corporate securities underwriting fees, management fees and selling concessions on lower volume of lead-managed and co-managed issues while private placement and other fees remained relatively flat. Net interest increased $21.8 million, or 14.8 percent to $169.0 million primarily due to an increased level of margin lending to clients during the period. In June 2000, the Company recorded $30.0 million in pre-tax costs associated with the Company's merger with J.C. Bradford. These costs relate primarily to elimination of the Company's duplicate facilities, severance and other costs and are reflected in compensation and benefits, and other operating expenses. Compensation and benefits expenses for the quarter ended June 30, 2000 were $839.6 million, a 7.6 percent increase as compared to $780.1 million during the prior year quarter. The number of employees at June 30, 2000 increased approximately 4,700, or 26 percent, as compared to June 30, 1999 reflecting an additional 1,436 Private Client Group financial advisors (including 831 J.C. Bradford financial advisors), related financial advisor support personnel, and technology specialists hired to implement the Company's technology initiatives. The ratio of compensation and benefits as a percent of net revenues increased to 59.5 percent versus 57.9 percent in the prior year quarter. All other operating expenses increased $61.3 million, or 20.6 percent to $359.5 million, as compared to $298.2 million for the prior year quarter. Office and equipment expenses increased $10.4 million, or 11.6 percent principally due to J.C. Bradford merger-related costs as well as an increase in office space and equipment necessary to support the additional headcount. Professional services expenses increased $18.1 million, or 55.7 percent principally due to consultants used in the Company's advanced technology implementation, recruiting fees and other consulting expenses. Business development expenses increased $13.2 million, or 46.4 percent reflecting higher promotional costs associated with PaineWebber EDGE and PaineWebber InsightOne and other expenses associated with increased business 15 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) activities. Other expenses increased $18.7 million, or 22.9 percent principally due to increased meeting and seminar expenses and other office-related expenses associated with increased business activities, as well as J.C. Bradford merger-related costs. The ratio of non-compensation expenses as a percentage of net revenues was 25.5 percent for the quarter ended June 30, 2000 compared to 22.1 percent for the prior year quarter. The effective income tax rate was 36.1 percent for the quarter ended June 30, 2000 which was comparable to the 36.4 percent from the prior year quarter. Six Months Ended June 30, 2000 compared to Six Months Ended June 30, 1999 The Company's net income was $322.6 million, for the six months ended June 30, 2000, or $2.22 per basic share ($2.11 per diluted share), before merger-related after-tax costs of $18.8 million ($30.0 million pre-tax) associated with the Company's merger with J.C. Bradford. Including these costs, the Company's net income for the six months ended June 30, 2000 was $303.9 million, or $2.09 per basic share ($1.98 per diluted share). This compares to net income of $324.1 million, or $2.14 per basic share ($2.02 per diluted share) earned during the first six months of 1999. During the first six months of 2000, revenues, net of interest expense, were a record $3,008.3 million, 13.0 percent higher than the corresponding period a year ago. Commission revenues earned during the first six months of 2000 were a record $1,236.7 million, 27.8 percent higher than the $967.8 million earned during the prior year period. Mutual fund and insurance commissions increased $122.8 million or 48.1 percent, commissions from over-the-counter securities and commodities increased $80.1 million or 57.4 percent, and commissions on the sale of listed securities and options increased $65.4 million or 11.4 percent. Principal transactions revenues decreased $103.3 million, or 17.4 percent, to $490.7 million attributable to lower results in taxable fixed income offset by increases in equities and municipals. Asset management fees increased $148.5 million, or 34.5 percent to a record $579.0 million, reflecting higher revenues earned on managed accounts. Average assets in wrap and trust accounts during the first six months of 2000 were approximately 51 percent higher than during the corresponding period of 1999. At June 30, 2000, assets in wrap and trust accounts reached a record $58.5 billion. The increase also reflects higher investment advisory and distribution fees earned on assets managed in long-term and money market funds. The average assets under management in money market, institutional and long-term mutual funds were approximately $71 billion during the first six months of 2000, up from the approximately $62 billion during the first six months of 1999. Investment banking revenues earned during the first six months of 2000 were $277.8 million, $8.3 million lower than the $286.1 million earned during the same period last year. The current year period reflects declines in underwriting fees, management fees and selling concessions on lower volume of lead-managed and co-managed corporate issues. Partially offsetting these declines were increases in private placement and other fees. Net interest increased $46.5 million, or 15.7 percent to a record $342.5 million reflecting primarily an increased level of margin lending to clients during the period. In June 2000, the Company recorded $30.0 million in pre-tax costs associated with the Company's merger with J.C. Bradford. These costs relate primarily to elimination of the Company's duplicate facilities, severance and other costs and are reflected in compensation and benefits, and other operating expenses. Compensation and benefits expenses for the six months ended June 30, 2000 were $1,789.4 million, a 15.5 percent increase as compared to $1,548.8 million during the prior year period. The number of employees at June 30, 2000 increased approximately 4,700, or 26 percent, as compared to June 30, 1999 reflecting an additional 1,436 Private Client Group financial advisors (including 831 J.C. Bradford financial advisors), related financial advisor support personnel, and technology specialists hired to implement the Company's technology initiatives. The ratio of compensation and benefits as a percent of net revenues increased to 59.5 percent versus 58.2 percent in the prior year period. All other operating expenses increased $137.3 million, or 23.7 percent to $716.6 million, as compared to $579.3 million for the prior year period. Office and equipment expenses increased $25.5 million, or 14.9 percent principally due to an 16 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) increase in office space and equipment necessary to support the additional headcount and J.C. Bradford merger-related costs. Professional services expenses increased $37.0 million, or 58.9 percent principally due to consultants used in the Company's advanced technology implementation, recruiting fees and other consulting expenses. Business development expenses increased $28.3 million, or 54.0 percent reflecting higher promotional costs associated with PaineWebber EDGE and PaineWebber InsightOne and other expenses associated with increased business activities. Other expenses increased $40.7 million, or 25.3 percent principally due to increased meeting and seminar expenses and other office-related expenses associated with increased business activities, as well as J.C. Bradford merger-related costs. The ratio of non-compensation expenses as a percentage of net revenues was 23.8 percent for the six months ended June 30, 2000 compared to 21.8 percent for the prior year period. The effective income tax rate for the six months ended June 30, 2000 was 36.3 percent which was comparable to the 36.4 percent from the prior year period. LIQUIDITY AND CAPITAL RESOURCES The primary objectives of the Company's funding policies are to ensure ample liquidity at all times and a strong capital base. These objectives are met by maximization of self-funded assets, diversification of funding sources, maintenance of prudent liquidity and capital ratios, and contingency planning. Liquidity The Company maintains a highly liquid balance sheet with the majority of assets consisting of trading assets, securities purchased under agreements to resell, securities borrowed, and receivables from clients, brokers and dealers, which are readily convertible into cash. The nature of the Company's business as a securities dealer results in carrying significant levels of trading assets and liabilities in order to meet its client and proprietary trading needs. The Company's total assets may fluctuate from period to period as the result of changes in the level of trading positions held to facilitate client transactions, the volume of resale and repurchase transactions, and proprietary trading strategies. These fluctuations depend significantly upon economic and market conditions, and transactional volume. The Company's total assets at June 30, 2000 were $66.4 billion compared to $61.6 billion at December 31, 1999, primarily attributable to an increase in receivables from clients and financial instruments owned. The majority of the Company's assets are financed by daily operations such as securities sold under agreements to repurchase, free credit balances in client accounts and securities lending activity. The Company regularly reviews its mix of assets and liabilities to maximize self-funding. Additional financing sources are available through bank loans and commercial paper, committed and uncommitted lines of credit, and long-term borrowings. The Company maintains committed and uncommitted credit facilities from a diverse group of banks. The Company has a $1.2 billion unsecured revolving credit agreement, which extends through September 2000, with provisions for renewal through 2001. This credit agreement is in the process of being renewed. Certain of the Company's subsidiaries also have a secured revolving credit facility to provide up to an aggregate of $1.0 billion through August 2000. The secured borrowings under this facility can be collateralized using a variety of securities. The facilities are available for general corporate purposes and are tested on a regular basis. The Company is in the process of replacing this facility with a new $1.0 billion revolving credit agreement. At June 30, 2000, there were no outstanding borrowings under either facility. Additionally, the Company had $5.1 billion in uncommitted lines of credit at June 30, 2000. The Company maintains public shelf registration statements with the SEC for the issuance of debt securities of the Company and for the issuance of preferred securities of PWG Capital Trusts III, IV and V ("Preferred Trust Securities"), business trusts formed under the Delaware law which are wholly owned subsidiaries of the Company. During the second quarter of 2000, the Company issued $156.6 million of debt under these registration statements. At June 30, 2000, the Company had $757.6 million in debt securities available for issuance under a shelf registration statement and $706.2 million in Preferred Trust Securities and debt securities of the Company available for issuance under another registration statement. Capital Resources and Capital Adequacy The Company's businesses are capital intensive. In addition to a funding policy that provides for diversification of funding sources and maximization of liquidity, the Company maintains a strong capital base. 17 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company's total capital base, which includes long-term borrowings, Preferred Trust Securities and stockholders' equity, grew to $8.8 billion, an increase of $259.0 million from December 31, 1999. The growth in total capital is primarily due to the net increase in stockholders' equity of $273.7 million offset by a net decrease in long-term borrowings of $14.7 million. The net decrease in long-term borrowings primarily reflected the maturity of $200 million U.S. dollar-denominated 7 percent senior notes on March 1, 2000 and net maturities of U.S. dollar-denominated medium-term notes of $25.7 million, partially offset by the issuance of $119.1 million non-U.S. dollar-denominated medium-term notes and the issuance of $73.5 million U.S. dollar-denominated 6.25 percent convertible debentures due 2007. The increase in stockholders' equity was primarily the result of net income for the six months ended June 30, 2000 of $303.9 million and the issuance of approximately 4,140,000 shares of common stock related to employee compensation and stock purchase programs. Issuances and tax credits related to these programs had the net effect of increasing equity capital by $121.6 million in the first six months of 2000. These increases were offset by the repurchase in the first six months of 2000 of approximately 3,000,000 shares of common stock for $114.8 million and dividends of $35.0 million. At June 30, 2000, the remaining number of shares authorized to be repurchased, in the open market or otherwise, under the Company's common stock repurchase program was approximately 34 million. On August 2, 2000, the Board of Directors declared a regular quarterly cash dividend on the Company's common stock of $0.12 per share payable on October 4, 2000 to stockholders of record on September 6, 2000. PWI is subject to the net capital requirements of the Securities and Exchange Commission, the New York Stock Exchange, Inc. and the Commodity Futures Trading Commission which are designed to measure the financial soundness and liquidity of broker-dealers. PWI has consistently maintained net capital in excess of the minimum requirements imposed by these agencies. In addition, the Company has other banking and securities subsidiaries, both domestic and foreign, which have also consistently maintained net regulatory capital in excess of requirements. Effective June 9, 2000, the Company merged with J.C. Bradford, a registered broker-dealer, which is subject to net capital requirements similar to PWI. Merchant Banking and Highly Leveraged Transactions In connection with its merchant banking, principal investing, commercial real estate, and asset finance activities, the Company has provided financing and made investments in companies and other entities, some of which are involved in highly leveraged transactions. Positions taken or commitments made by the Company may involve credit or market risk from any one issuer or industry. At June 30, 2000, the Company had investments which were affected by liquidity, reorganization or restructuring issues amounting to $137.1 million. These investments have not had a material effect on the Company's results of operations. The Company's activities include underwriting and market-making transactions in high-yield corporate debt and non-investment-grade mortgage-backed securities, and emerging market securities (collectively, "high-yield securities"). These securities generally involve greater risks than investment-grade corporate debt securities because these issuers usually have high levels of indebtedness and lower credit ratings and are, therefore, more vulnerable to general economic conditions. At June 30, 2000, the Company held $376.9 million of high-yield securities, with approximately 24 percent of such securities attributable to four issuers. The Company continually monitors its risk positions associated with high-yield securities and establishes limits with respect to overall market exposure, industry group and individual issuer. The Company accounts for these positions at fair value, with unrealized gains and losses reflected in principal transactions revenues. These high-yield securities have not had a material effect on the Company's results of operations. DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument is a contractual agreement between counterparties that derives its value from changes in the value of some underlying asset such as the price of another security, interest rates, currency exchange rates, specified rates (e.g. LIBOR) or indices (e.g. S&P 500), or other value referenced in the contract. Derivatives, such as futures, certain option contracts and structured products (e.g. indexed warrants) are traded on exchanges, while derivatives such as forward contracts, certain option contracts, interest rate swaps, caps and floors, and other structured products are negotiated in over-the-counter markets. 18 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In the normal course of business, the Company engages in a variety of derivative transactions in connection with its proprietary trading activities and asset and liability management, as well as on behalf of its clients. As a dealer, the Company regularly makes a market in and trades a variety of securities. The Company is also engaged in creating structured products that are sold to clients. In connection with these activities, the Company attempts to reduce its exposure to market risk by entering into offsetting hedging transactions, which may include derivative financial instruments. The Company also enters into interest rate swap contracts to manage the interest rate characteristics of its assets and liabilities. The notional amount of a derivative contract is used to measure the volume of activity and is not reflected on the Condensed Consolidated Statement of Financial Condition. The Company had off-balance-sheet derivative contracts outstanding with gross notional amounts of $63.3 billion and $50.5 billion at June 30, 2000 and December 31, 1999, respectively. These amounts included $33.2 billion and $30.9 billion, respectively, related to "to be announced" mortgage-backed securities requiring forward settlement. Also included in these amounts were $3.9 billion and $4.2 billion notional amounts of interest rate swap agreements used to change the interest rate characteristics of the Company's fixed rate debt at June 30, 2000 and December 31, 1999, respectively. For further discussion on the Company's derivative financial instruments, see Note 7 in the Notes to Condensed Consolidated Financial Statements. The Company records any unrealized gains and losses on its derivative contracts used in a trading capacity by marking-to-market the contracts on a daily basis. The unrealized gain or loss is recorded on the Condensed Consolidated Statements of Financial Condition with the related profit or loss reflected in principal transactions revenues. The Company accrues interest income and expense on interest rate swap agreements used to change the interest rate characteristics of the Company's fixed rate debt. These interest rate swap agreements had the effect of increasing net interest expense on the Company's fixed rate debt by $2.4 million for the six months ended June 30, 2000 and of reducing net interest expense on the Company's fixed rate debt $13.8 million for the six months ended June 30, 1999, respectively. The Company had no deferred gains or losses recorded at June 30, 2000 and December 31, 1999 related to terminated swap agreements on the Company's long-term borrowings. The fair value of an exchange-traded derivative financial instrument is determined by quoted market prices, while over-the-counter derivatives are valued based upon pricing models which consider time value and volatility, as well as other economic factors. The fair values of the Company's derivative financial instruments held for trading purposes at June 30, 2000 were $189.7 million and $194.2 million for assets and liabilities, respectively, and are reflected on the Condensed Consolidated Statements of Financial Condition. The fair values of these instruments at December 31, 1999 were $392.7 million and $215.1 million for assets and liabilities, respectively. The Company's exposure to market risk relates to changes in interest rates, equity prices, foreign currency exchange rates or the market values of the assets underlying the financial instruments. The Company's exposure to credit risk at any point is represented by the fair value or replacement cost on contracts in which the Company has recorded an unrealized gain. At June 30, 2000 and December 31, 1999, the fair values amounted to $189.7 million and $392.7 million, respectively. The risks inherent in derivative financial instruments are managed consistent with the Company's overall risk management policies. (See Risk Management section below) RISK MANAGEMENT Risk is an inherent part of the Company's principal business activities. Managing risk is critical to the Company's profitability and to reducing the likelihood of earnings volatility. The Company's risk management policies and procedures have been established to continually identify, monitor and manage risk. The Company's principal risks are market, credit, liquidity, legal and operating risks. Included below is a discussion on market risk. For further discussion on the Company's principal risks, see the Company's 1999 Annual Report to Stockholders. The Company seeks to manage risk and its impact on earnings volatility through strategic planning and by focusing on the diversification of its business activities. Through capital allocation, and the establishment of trading limits by product and credit limits by counterparty, the Company manages the risk associated with the various businesses. The Company may reallocate or deploy capital to the business groups based upon changes in market conditions or opportunities in the marketplace that are consistent with the Company's long-term strategy. The discussion of the Company's principal risks and the estimated amounts of the Company's market risk exposure generated from the sensitivity analysis performed by the Company are forward-looking statements assuming certain adverse conditions occur. Actual results in the future may differ materially from these projected results due to actual 19 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) events in the markets in which the Company operates and other factors. The analysis methods used by the Company to assess and mitigate risks discussed below should not be considered projections of future events or losses. Market Risk All financial instruments involve market risk. Market risk is the potential change in value of the financial instrument caused by unfavorable changes in interest rates, equity prices and foreign currency exchange rates. Market risk is inherent to both derivative and non-derivative financial instruments. The Company actively monitors its market risk profile through a variety of control procedures including market risk modeling, review of trading positions and hedging strategies, and monitoring adherence to established limits. Each department's trading positions, exposures, profits and losses, and trading strategies are reviewed by the senior management of each business group. Independent of the trading departments is a risk management group. The Company's risk management group reviews the Company's risk profile and adherence to established trading limits, and aids in the development of risk management policies. In addition, the Company has in place committees and management controls to review inventory positions, other asset accounts and asset agings on a regular basis. Trading position and exposure limits are established by the Asset/Liability Management Committee, which meets regularly and is comprised of senior corporate and business group managers. The following is a discussion of the Company's primary market risk exposures at June 30, 2000 and December 31, 1999 and how those exposures are managed: Interest Rate Risk In connection with the Company's dealer activities, the Company is exposed to interest rate risk due to changes in the level or volatility of interest rates, changes in the yield curve, mortgage prepayments and credit spreads. The Company attempts to mitigate its exposure to interest rate risk by entering into hedging transactions such as U.S. government and Eurodollar forwards and futures contracts, options, and interest rate swap and cap agreements. The Company also issues fixed rate instruments in connection with its nontrading activities, which expose the Company to interest rate risk. The Company enters into interest rate swap agreements that are designed to mitigate its exposure by effectively converting its fixed rate liabilities into floating rate liabilities. Equity Price Risk In connection with the Company's dealer activities, the Company buys and sells equity and equity derivative instruments. The Company is exposed to equity price risk due to changes in the level or volatility of equity prices. The Company attempts to mitigate its exposure to equity price risk by entering into hedging transactions including equity option agreements. Sensitivity Analysis For purposes of the SEC disclosure requirements, the Company has elected to use a sensitivity approach to express the potential loss in future earnings of its financial instruments. In preparing the analysis, the Company has combined both derivative and non-derivative financial instruments held for trading purposes with those held for purposes other than trading because the amounts were not material. The sensitivity calculation employed to analyze interest rate risk on its fixed income financial instruments was based on a proprietary methodology which converted substantially all the Company's interest rate sensitive financial instruments at June 30, 2000 and December 31, 1999, into a uniform benchmark (a ten year U.S. Treasury note equivalent), and evaluated the impact assuming an 11 basis point change to the ten-year U.S. Treasury note at June 30, 2000 and December 31, 1999, respectively. The hypothetical basis point change was derived from a proprietary model which uses a one-day interval and a 95 percent confidence level, and was based on historical data over a one-year period. This analysis does not consider other factors that may influence these results, such as credit spread risk, prepayment risk on mortgage-backed securities or changes in the shape of the yield curve. The sensitivity calculation employed to analyze equity price risk on its equity financial instruments was based on a proprietary model which stress tests the firm inventory positions by shocking those positions for a two standard deviation move in the market (95 percent confidence interval) using historical data over a one-year period. Based upon the aforementioned methodologies, the Company's potential daily loss in future earnings at June 30, 2000 was approximately $4 million and $0.3 million for interest rate risk and equity price risk, respectively, and the Company's potential daily loss in future earnings at December 31, 1999 was approximately $3 million and $0.1 million for interest rate risk and equity price risk, respectively. 20 22 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No significant events have occurred since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and Form 10-Q for the quarter ended March 31, 2000, except as described below: NEWTON V. MERRILL LYNCH, ET AL. SECURITIES LITIGATION On May 12, 2000, the Third Circuit Court of Appeals granted plaintiffs permission to file an immediate interlocutory appeal from the District Court's denial of plaintiffs' motion for class certification. ASKIN LITIGATION* Kidder Peabody has moved for summary judgment, which motion is expected to be fully briefed by September 1, 2000. There is no firm date set for trial of this matter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit 12.1 - Computation of Ratio of Earnings to Fixed Charges Exhibit 12.2 - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated July 14, 2000 with the Securities and Exchange Commission reporting under "Item 5 - Other Events" and "Item 7 - Exhibits" relating to the Company's press release which reported that the Company entered into an agreement and plan of merger with UBS AG and Neptune Merger Subsidiary, Inc., a subsidiary of UBS AG and described certain terms of the agreement. The Company filed a Current Report on Form 8-K dated July 17, 2000 with the Securities and Exchange Commission reporting under "Item 5 - Other Events" and "Item 7 - Exhibits" relating to the merger agreement entered into between the Company, UBS AG and Neptune Merger Subsidiary, Inc., a subsidiary of UBS AG. - ----------------------------------- * This item relates to a matter involving Kidder, Peabody & Co. Incorporated which was acquired by the Company in August 1997. In connection with the acquisition, the seller and its parent General Electric Company agreed to indemnify the Company for all losses relating to this matter. 21 23 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Paine Webber Group Inc. ----------------------- (Registrant) Date: August 14, 2000 By: /s/ Jerome T. Fadden ---------------- -------------------------- Jerome T. Fadden Senior Vice President and Chief Financial Officer (principal financial and accounting officer) 22 EX-12.1 2 ex12-1.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 PAINE WEBBER GROUP INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (In thousands of dollars)
Six Months Years Ended December 31, Ended June 30, ------------------------------------------------------ 2000 (1) 1999 (1) 1998 (1) 1997 (1) ------------------- --------------- ----------------- ---------------- Income before taxes $ 486,167 $ 1,002,558 $ 682,763 $ 644,075 ------------ --------------- ----------------- ---------------- Fixed charges: Interest 1,729,392 2,564,822 2,876,712 2,573,582 Interest factor in rents 32,351 61,322 56,139 53,665 ------------ --------------- ----------------- ---------------- Total fixed charges 1,761,743 2,626,144 2,932,851 2,627,247 ------------ -------------- ----------------- ---------------- Income before taxes and fixed charges $ 2,247,910 $3,628,702 $ 3,615,614 $3,271,322 ============ =============== ================= ================ Ratio of earnings to fixed charges 1.3 1.4 1.2 1.2 ============ =============== ================= ================
Years Ended December 31, ------------------------------------ 1996 (1) 1995 ---------------- ---------------- Income before taxes $ 558,999 $ 102,677 ---------------- ---------------- Fixed charges: Interest 1,971,788 1,969,811 Interest factor in rents 54,537 59,491 ---------------- ---------------- Total fixed charges 2,026,325 2,029,302 ---------------- ---------------- Income before taxes and fixed charges $2,585,324 $2,131,979 ================ ================ Ratio of earnings to fixed charges 1.3 1.1 ================ ================
For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income before taxes and fixed charges. "Fixed charges" consist principally of interest expense incurred on securities sold under agreements to repurchase, short-term borrowings, long-term borrowings, preferred trust securities and that portion of rental expense estimated to be representative of the interest factor. (1) Income before taxes includes minority interest in wholly owned subsidiary trusts. EX-12.2 3 ex12-2.txt COMP OF RATIOS OF EARNINGS TO COMBINED FIXED CHRGS 1 EXHIBIT 12.2 PAINE WEBBER GROUP INC. COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (In thousands of dollars)
Six Months Ended June 30, Years Ended December 31, ----------------------------------------------------------------------------- 2000 (1) 1999 (1) 1998 (1) 1997 (1) 1996 (1) 1995 ------------ ------------- --------------- --------------- ------------ ------------ Income before taxes $ 486,167 $ 1,002,558 $ 682,763 $ 644,075 $ 558,999 $ 102,677 ----------- -------------- --------------- --------------- ------------ ------------ Preferred stock dividends - 129,689 (2) 35,433 44,186 43,712 36,260 ----------- -------------- --------------- --------------- ------------ ------------ Fixed charges: Interest 1,729,392 2,564,822 2,876,712 2,573,582 1,971,788 1,969,811 Interest factor in rents 32,351 61,322 56,139 53,665 54,537 59,491 ----------- --------------- --------------- --------------- ------------ ------------ Total fixed charges 1,761,743 2,626,144 2,932,851 2,627,247 2,026,325 2,029,302 ----------- --------------- --------------- --------------- ------------ ------------ Total fixed charges and preferred stock dividends 1,761,743 2,755,833 2,968,284 2,671,433 2,070,037 2,065,562 ----------- --------------- --------------- --------------- ------------ ------------- Income before taxes and fixed charges $ 2,247,910 $ 3,628,702 $ 3,615,614 $ 3,271,322 $ 2,585,324 $ 2,131,979 =========== =============== =============== =============== ============ ============= Ratio of earnings to fixed charges and preferred stock dividends 1.3 1.3 1.2 1.2 1.2 1.0 =========== =============== =============== =============== ============ =============
For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends (tax effected), "earnings" consist of income before taxes and fixed charges. "Fixed charges" consist principally of interest expense incurred on securities sold under agreements to repurchase, short-term borrowings, long-term borrowings, preferred trust securities and that portion of rental expense estimated to be representative of the interest factor. (1) Income before taxes includes minority interest in wholly owned subsidiary trusts. (2) Amount includes a charge to equity of $59,883 resulting from the redemption of preferred stock on December 16, 1999. EX-27 4 ex27.txt FINANCIAL DATA SCHEDULE
BD THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PAINE WEBBER GROUP INC. FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JUN-30-2000 1,148,653 12,215,893 15,313,111 10,517,232 23,577,357 747,931 66,402,502 2,255,603 11,882,125 27,918,155 7,249,077 4,275,325 5,209,136 393,750 0 195,720 2,995,258 66,402,502 490,717 2,055,755 1,236,682 277,827 578,993 1,713,270 1,789,389 502,289 502,289 0 0 303,855 2.09 1.98
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