LaBranche & Co Inc. Reports Third Quarter 2008 Results

Friday, October 17, 2008 8:04 AM

Symbols: LAB

LaBranche & Co Inc. (NYSE: LAB) (the “Company”) today reported financial results for the third quarter and nine months ended September 30, 2008. The third quarter 2008 results include an unrealized loss on the Company's shares of NYSE Euronext, Inc. common stock (the "NYX shares") of $19.2 million. As a result, the Company reported a net loss of $5.6 million, or $0.09 per share, for the 2008 third quarter. This compares to net income of $6.0 million, or $0.10 per share, for the 2007 third quarter, which also includes a $10.1 million unrealized gain on the Company's NYX shares.

On a pro-forma basis, the Company reported net income of $13.6 million for the third quarter of 2008, or $0.22 per diluted share, compared to a pro-forma net loss of $4.1 million, or $0.07 per share, for the third quarter of 2007. Included in these results are non-cash charges of $3.0 million and $1.9 million in the third quarter of 2008 and 2007, respectively. These pro-forma results exclude the unrealized loss or gain on the NYX shares in each period.

The Company’s results for the first nine months of 2008 include an unrealized loss on the Company's NYX shares of $86.6 million and a $3.6 million expense on early extinguishment of $249.9 million of our public debt. As a result, the Company reported a net loss of $67.2 million, or $1.08 per share, for the nine months ended September 30, 2008. This compares to a net loss of $368.5 million, or $6.00 per share, for the nine months ended September 30, 2007, which also included a $25.1 million pre-tax unrealized loss on the Company's NYX shares as well as a non-cash impairment charge related to the Company’s goodwill and stock listing rights of $155.7 million and $189.0 million, respectively.

On a pro-forma basis, the Company reported net income for the nine months ended September 30, 2008 of $23.1 million, or $0.37 per diluted share, compared to pro-forma net loss of $0.7 million, or $0.01 per share, for the nine months ended September 30, 2007. Included in these results are non-cash charges of $7.3 million and $12.6 million for the nine months ended September 30, 2008 and 2007, respectively. These pro-forma results exclude the unrealized loss on the NYX shares in each period, the expense on early extinguishment of debt in 2008 and the impairment charge related to the Company’s goodwill and stock listing rights in 2007.

The Company is the parent of LaBranche & Co. LLC, one of the largest specialists in exchange-listed securities. The Company is also the parent of LaBranche Structured Holdings, Inc., whose subsidiaries are specialists and market-makers in options, exchange-traded funds and futures on various exchanges domestically and internationally. Another subsidiary of the Company, LaBranche Financial Services, LLC, provides mainly securities execution and brokerage services to institutional investors.

Certain statements contained in this release, including without limitation, statements containing the words "believes", "intends", "expects", "anticipates", and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that any such forward-looking statements are not guarantees of future performance, and since such statements involve risks and uncertainties, the actual results and performance of the Company and the industry may turn out to be materially different from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Company also disclaims any obligation to update its view of any such risks or uncertainties or to publicly announce the result of any revisions to the forward-looking statements made in this release.

TABLES TO FOLLOW

LaBranche & Co Inc. Condensed Consolidated Statements of Operations (all data in thousands, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
REVENUES:
Net gain on principal transactions	$	84,634	$	33,345	$	189,731	$	146,278
Commissions and other fees		10,890		11,070		30,849		35,757
Net (loss) gain on investments		(35,343)		17,398		(153,112)		(41,130)
Interest income		16,129		54,874		63,523		186,879
Other		1,000		1,187		2,403		2,470
Total revenues		77,310		117,874		133,394		330,254

Interest Expense:
Debt		6,455		12,333		25,822		38,210
Inventory financing		23,841		63,825		75,461		213,628
Total interest expense		30,296		76,158		101,283		251,838
Revenues, net of interest expense		47,014		41,716		32,111		78,416

EXPENSES:
Employee compensation and related benefits		34,955		13,522		83,079		61,608
Exchange, clearing and brokerage fees		12,357		10,062		32,758		29,713
Lease of exchange memberships and trading license fees		429		614		1,272		1,926
Depreciation and amortization of intangibles		925		1,000		2,722		8,128
Goodwill impairment		--		--		--		164,100
Stock list impairment		--		--		--		335,264
Restructuring		--		25		--		1,098
Early extinguishment of debt		--		--		6,005		--
Other		7,215		9,587		21,483		29,152
Total expenses		55,881		34,810		147,319		630,989

(Loss) income before benefit for income taxes		(8,867)		6,906		(115,208)		(552,573)

(BENEFIT) PROVISION FOR INCOME TAXES		(3,280)		903		(48,046)		(184,077)

Net (loss) income	$	(5,587)	$	6,003	$	(67,162)	$	(368,496)

Weighted average common shares outstanding:
Basic		61,946		61,471		61,931		61,404
Diluted		61,946		61,645		61,931		61,404

(Loss) income per share:
Basic	$	(0.09)	$	0.10	$	(1.08)	$	(6.00)
Diluted	$	(0.09)	$	0.10	$	(1.08)	$	(6.00)

LaBranche & Co Inc. Condensed Consolidated Statements of Financial Condition (all data in thousands)

	September 30, 2008		December 31, 2007 (1)
ASSETS	(unaudited)		(audited)
Cash and cash equivalents	$	227,920	$	504,654
Cash and securities segregated under federal regulations		1,471		1,573
Receivable from brokers, dealers and clearing organizations		91,842		343,729
Financial instruments owned, at fair value		3,867,064		4,267,395
Commissions and other fees receivable		--		23
Exchange memberships owned, at adjusted cost (market value of $6,693 and $7,790, respectively)		1,315		1,315
Office equipment and leasehold improvements, at cost, less accumulated depreciation and amortization of $13,416 and $10,990, respectively		16,716		17,652
Goodwill and other intangible assets, net		109,229		109,229
Income tax receivable		502		11,802
Other assets		41,898		41,219

Total assets	$	4,357,957	$	5,298,591

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Payable to brokers, dealers and clearing organizations	$	412,783	$	104,759
Payable to customers		36		93
Financial instruments sold, but not yet purchased, at fair value		3,172,981		4,062,995
Accrued compensation		37,310		16,729
Accounts payable and other accrued expenses		35,039		36,980
Other liabilities		12,363		12,583
Deferred tax liabilities		17,578		71,024
Short term debt		--		5,700
Long term debt		209,888		459,811

Total liabilities		3,897,978		4,770,674

Total stockholders’ equity		459,979		527,917

Total liabilities and stockholders' equity	$	4,357,957	$	5,298,591

(1) Certain of the Company’s December 31, 2007 balances have been reclassified to conform to the presentation in the current period, deferred tax assets were netted against deferred tax liabilities and non-marketable investments were re-classed from Financial instruments owned, at fair value to Other assets. This reclassification did not affect stockholders’ equity or earnings.

LaBranche & Co Inc.

Regulation G Requirement: Reconciliation of Non-GAAP Financial Measures

(all data in thousands, except per share data)

(unaudited)

In evaluating the Company's financial performance, management reviews results from operations, which excludes non-operating charges. Pro-forma earnings per share is a non-GAAP (generally accepted accounting principles) performance measure, but the Company believes that it is useful to assist investors in gaining an understanding of the trends and operating results for the Company's core business. Pro-forma earnings per share should be viewed in addition to, and not in lieu of, the Company's reported results under U.S. GAAP.

The following is a reconciliation of U.S. GAAP results to pro-forma results for the periods presented:

	Three Months Ended September 30,
	2008						2007
	Amounts as reported		Adjustments		Pro forma amounts		Amounts as reported		Adjustments		Pro forma amounts
Revenues, net of interest expense	$	47,014	$	31,937 (1)	$	78,951	$	41,716	$	(16,877) (1)	$	24,839
Total expenses		55,881		--		55,881		34,810		--		34,810
(Loss) income before (benefit) provision for income taxes		(8,867)		31,937		23,070		6,906		(16,877)		(9,971)
(Benefit) provision for income taxes		(3,280)		12,775		9,495		903		(6,751)		(5,848)
Net (loss) income applicable to common stockholders	$	(5,587)	$	19,162	$	13,575	$	6,003	$	(10,126)	$	(4,123)
Basic per share	$	(0.09)	$	0.31	$	0.22	$	0.10	$	(0.17)	$	(0.07)
Diluted per share	$	(0.09)	$	0.31	$	0.22	$	0.10	$	(0.17)	$	(0.07)

	Nine Months Ended September 30,
	2008						2007
	Amounts as reported		Adjustments		Pro forma amounts		Amounts as reported		Adjustments		Pro forma amounts
Revenues, net of interest expense	$	32,111	$	144,389 (1)	$	176,500	$	78,416	$	41,910 (1)	$	120,326
Total expenses		147,319		(6,005) (2)		141,314		630,989		(499,364) (3)		131,625
(Loss) income before (benefit) provision for income taxes		(115,208)		150,394		35,186		(552,573)		541,274		(11,299)
(Benefit) provision for income taxes		(48,046)		60,158		12,112		(184,077)		173,488		(10,589)
Net (loss) income applicable to common stockholders	$	(67,162)	$	90,236	$	23,074	$	(368,496)	$	367,786	$	(710)
Basic per share	$	(1.08)	$	1.45	$	0.37	$	(6.00)	$	5.99	$	(0.01)
Diluted per share	$	(1.08)	$	1.45	$	0.37	$	(6.00)	$	5.99	$	(0.01)

(1)		Revenue adjustment reflects loss in each accounting period, based on the change in fair market value of the Company's restricted and unrestricted NYX shares at the end of each such period versus the beginning of such period.
(2)		Expense adjustment reflects costs associated with early extinguishment of debt in accounting period.
(3)		Relates to the write-down of the carrying value of the Company's goodwill and stock listing rights to reflect the results of the Company's impairment evaluation under SFAS No's 142 and 144.