**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

** **

| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |       |
|------------|------------|------------------------------------------------------------------------------------------------|------------|
|       |       |                                                                                           |       |
|       |       | **For the quarterly period ended March 31, 2005**                                              | ** ** |
|       |       |                                                                                           |       |
|       |       | **OR**                                                                                         | ** ** |
|       |       |                                                                                           |       |
| **o**      | ** ** | **Transition  Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934** | ** ** |

 

**For thetransition period from              to              **

 

**Commission FileNumber 001-15251**

** **

**LABRANCHE & COINC.**

(Exactname of registrant as specified in its charter)

 
| **Delaware**                     | ** ** | **13-4064735**      |
|----------------------------------|------------|---------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer    |
| incorporation or  organization)  |       | Identification No.) |

 

**One ExchangePlaza, New York, New York 10006**

(Addressof principal executive offices)

 

**(212) 425-1144**

(Registrant’stelephone number, including area code)

 

**NotApplicable**

(Formername, former address and former fiscal year,if changed since last report)

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý              Noo

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

 

The number of shares ofthe registrant’s common stock outstanding as of May 6, 2005 was 60,623,819.

 

 

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**TABLE OFCONTENTS**

 
| PART I                                                    | FINANCIAL  INFORMATION                                            |   |
|-----------------------------------------------------------|-------------------------------------------------------------------|--------|
|                                                      |                                                              |   |
| Item 1.                                                   | Financial  Statements                                             |   |
|                                                      |                                                              |   |
| CONDENSED  CONSOLIDATED STATEMENTS OF OPERATIONS          |                                                              |
|                                                      |                                                              |   |
| CONDENSED  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION |                                                              |
|                                                      |                                                              |   |
| CONDENSED  CONSOLIDATED STATEMENTS OF CASH FLOWS          |                                                              |
|                                                      |                                                              |   |
| NOTES  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS     |                                                              |
|                                                      |                                                              |   |
| Item  2.                                                  | Management’s  Discussion and Analysis of Financial Condition |   |
| and  Results of Operations                                |                                                              |
|                                                      |                                                              |   |
| Item  3.                                                  | Quantitative  and Qualitative Disclosures About Market Risk       |   |
|                                                      |                                                              |   |
| Item 4.                                                   | Controls and Procedures                                           |   |
|                                                      |                                                              |   |
| PART II                                                   | OTHER  INFORMATION                                                |   |
|                                                      |                                                              |   |
| SIGNATURES                                                |                                                              |

 

2

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# **PART I  FINANCIAL INFORMATION**

# ** **

# **Item 1.  FinancialStatements.**

# ** **

**LaBRANCHE & CO INC. andSUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

**(UNAUDITED)**

**(000’s omitted except per sharedata)**

 
| ** **                                                      | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                      | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| ** **                                                      | ** ** | **(unaudited)**                           | ** ** | **(unaudited)** | ** ** |
| REVENUES:                                                       |       |                                      |       |   |   |
| Net gain on  principal transactions                             |       | $                                         | 40,041     |   | $ | 52,298 |   |
| Commissions                                                     |       | 23,563                                    |       | 25,523 |   |
| Other                                                           |       | 3,699                                     |       | 2,092 |   |
| Total revenues                                                  |       | 67,303                                    |       | 79,913 |   |
| EXPENSES:                                                       |       |                                      |       |   |   |
| Employee  compensation and related benefits                     |       | 21,903                                    |       | 27,791 |   |
| Interest                                                        |       | 16,583                                    |       | 12,358 |   |
| Exchange,  clearing and brokerage fees                          |       | 9,994                                     |       | 8,894 |   |
| Lease of  exchange memberships                                  |       | 1,012                                     |       | 4,143 |   |
| Depreciation and  amortization of intangibles                   |       | 3,053                                     |       | 3,055 |   |
| Other                                                           |       | 11,046                                    |       | 10,031 |   |
| Total expenses                                                  |       | 63,591                                    |       | 66,272 |   |
|                                                            |       |                                      |       |   |   |
| Income before  minority interest and provision for income taxes |       | 3,712                                     |       | 13,641 |   |
|                                                            |       |                                      |       |   |   |
| MINORITY  INTEREST                                              |       | 3⁄4                                    |       | 175 |   |
|                                                            |       |                                      |       |   |   |
| Income before  provision for income taxes                       |       | 3,712                                     |       | 13,466 |   |
|                                                            |       |                                      |       |   |   |
| PROVISION FOR  INCOME TAXES                                     |       | 1,466                                     |       | 5,552 |   |
|                                                            |       |                                      |       |   |   |
| NET INCOME                                                      |       | 2,246                                     |       | 7,914 |   |
| Preferred  dividends and discount accretion                     |       | 3⁄4                                    |       | 1,056 |   |
| Net income  available to common stockholders                    |       | $                                         | 2,246      |   | $ | 6,858 |   |
|                                                            |       |                                      |       |   |   |
| Weighted-average  common shares outstanding:                    |       |                                      |       |   |   |
| Basic                                                           |       | 60,596                                    |       | 59,806 |   |
| Diluted                                                         |       | 60,866                                    |       | 60,224 |   |
| Earnings per  share:                                            |       |                                      |       |   |   |
| Basic                                                           |       | $                                         | 0.04       |   | $ | 0.11 |   |
| Diluted                                                         |       | $                                         | 0.04       |   | $ | 0.11 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

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**LaBRANCHE & CO INC. andSUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF FINANCIAL CONDITION**

**(UNAUDITED)**

**(000’somitted except per share data)**

 
| ** **                                                                                                                                                                    | ** ** | **As of**           | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
| ** **                                                                                                                                                                    | ** ** | **(unaudited)**     | ** ** | **(audited)** | ** ** |
| **ASSETS**                                                                                                                                                                    | ** ** | ** **          | ** ** | ** ** | ** ** |
|                                                                                                                                                                          |       |                |       |   |   |
| Cash and cash  equivalents                                                                                                                                                    |       | $                   | 456,353    |   | $ | 444,446 |   |
| Cash and  securities segregated under federal regulations                                                                                                                     |       | 5,670               |       | 13,511 |   |
| Securities  purchased under agreements to resell                                                                                                                              |       | 92,000              |       | 87,000 |   |
| Receivable from  brokers, dealers and clearing organizations                                                                                                                  |       | 391,469             |       | 158,421 |   |
| Receivable from  customers                                                                                                                                                    |       | 4,593               |       | 10,555 |   |
| Securities  owned, at market value:                                                                                                                                           |       |                |       |   |   |
| Corporate  equities                                                                                                                                                           |       | 320,508             |       | 319,378 |   |
| Options                                                                                                                                                                       |       | 105,251             |       | 110,705 |   |
| Exchange-traded  funds                                                                                                                                                        |       | 237,164             |       | 128,214 |   |
| U.S. Government  obligations                                                                                                                                                  |       | 8                   |       | 8 |   |
| Commissions  receivable                                                                                                                                                       |       | 5,520               |       | 5,428 |   |
| Exchange  memberships contributed for use, at market value                                                                                                                    |       | 13,500              |       | 9,450 |   |
| Exchange  memberships owned, at adjusted cost (market value of $59,773 and $41,696,  respectively)                                                                            |       | 59,657              |       | 59,332 |   |
| Office equipment  and leasehold improvements, at cost, less accumulated depreciation and  amortization of $11,113 and $10,655, respectively                                   |       | 3,343               |       | 3,459 |   |
| Intangible  assets, net of accumulated amortization:                                                                                                                          |       |                |       |   |   |
| Specialist stock  lists                                                                                                                                                       |       | 358,610             |       | 361,204 |   |
| Trade name                                                                                                                                                                    |       | 25,011              |       | 25,011 |   |
| Goodwill                                                                                                                                                                      |       | 250,569             |       | 250,569 |   |
| Other assets                                                                                                                                                                  |       | 64,791              |       | 68,406 |   |
| Total assets                                                                                                                                                                  |       | $                   | 2,394,017  |   | $ | 2,055,097 |   |
|                                                                                                                                                                          |       |                |       |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                 |       |                |       |   |   |
| ** **                                                                                                                                                                    |       |                |       |   |   |
| Liabilities:                                                                                                                                                                  |       |                |       |   |   |
| Payable to  brokers and dealers                                                                                                                                               |       | $                   | 137,983    |   | $ | 120,434 |   |
| Payable to  customers                                                                                                                                                         |       | 5,117               |       | 3,830 |   |
| Securities sold,  but not yet purchased, at market value:                                                                                                                     |       |                |       |   |   |
| Corporate  equities                                                                                                                                                           |       | 330,395             |       | 265,078 |   |
| Options                                                                                                                                                                       |       | 107,916             |       | 92,580 |   |
| Exchange-traded  funds                                                                                                                                                        |       | 234,538             |       | 142,735 |   |
| U.S. Government  obligations                                                                                                                                                  |       | 151,912             |       | 3⁄4 |   |
| Accrued  compensation                                                                                                                                                         |       | 17,774              |       | 38,195 |   |
| Accounts payable  and other accrued expenses                                                                                                                                  |       | 28,487              |       | 18,245 |   |
| Other  liabilities                                                                                                                                                            |       | 12,705              |       | 12,510 |   |
| Income taxes  payable                                                                                                                                                         |       | 1,671               |       | 1,671 |   |
| Deferred tax  liabilities                                                                                                                                                     |       | 156,778             |       | 156,294 |   |
| Short term debt                                                                                                                                                               |       | 2,000               |       | 2,000 |   |
| Long term debt                                                                                                                                                                |       | 481,457             |       | 481,448 |   |
| Subordinated  liabilities:                                                                                                                                                    |       |                |       |   |   |
| Exchange  memberships contributed for use, at market value                                                                                                                    |       | 13,500              |       | 9,450 |   |
| Other  subordinated indebtedness                                                                                                                                              |       | 15,395              |       | 17,285 |   |
| Total  liabilities                                                                                                                                                            |       | 1,697,628           |       | 1,361,755 |   |
|                                                                                                                                                                          |       |                |       |   |   |
| Minority  interest                                                                                                                                                            |       | 3⁄4              |       | 356 |   |
|                                                                                                                                                                          |       |                |       |   |   |
| Commitments and  contingencies                                                                                                                                                |       |                |       |   |   |
|                                                                                                                                                                          |       |                |       |   |   |
| Common stock,  $.01 par value, 200,000,000 shares authorized; 60,623,819 and 60,532,080  shares issued and outstanding at March 31, 2005 and December 31, 2004,  respectively |       | 606                 |       | 605 |   |
| Additional  paid-in capital                                                                                                                                                   |       | 688,196             |       | 687,040 |   |
| Retained  earnings                                                                                                                                                            |       | 7,587               |       | 5,341 |   |
| Total  stockholders’ equity                                                                                                                                              |       | 696,389             |       | 692,986 |   |
| Total  liabilities and stockholders’ equity                                                                                                                              |       | $                   | 2,394,017  |   | $ | 2,055,097 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

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**LaBRANCHE & CO INC. andSUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(UNAUDITED)**

**(000’s omitted)**

 
| ** **                                                                         | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                | 2,246      |   | $ | 7,914 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                             |       |   |   |
| Depreciation and  amortization of intangibles                                      |       | 3,053                            |       | 3,055 |   |
| Amortization of  debt issuance costs and bond discount                             |       | 419                              |       | 568 |   |
| Minority interest  in consolidated subsidiary                                      |       | 3⁄4                           |       | 175 |   |
| Compensation  expense related to stock-based compensation                          |       | 1,157                            |       | 1,371 |   |
| Deferred taxes,  net                                                               |       | 22,235                           |       | 6,679 |   |
| Changes in  operating assets and liabilities:                                      |       |                             |       |   |   |
| Cash and  securities segregated under federal regulations                          |       | 7,841                            |       | (1,860 | ) |
| Securities  purchased under agreements to resell                                   |       | (5,000                           | )          | 4,000 |   |
| Receivable from  brokers, dealers and clearing organizations                       |       | (233,048                         | )          | (104,974 | ) |
| Receivable from  customers                                                         |       | 5,962                            |       | (3,906 | ) |
| Securities  owned, at market value:                                                |       |                             |       |   |   |
| Corporate  equities                                                                |       | (1,130                           | )          | 24,620 |   |
| Options                                                                            |       | 5,454                            |       | (22,447 | ) |
| Exchange-traded  funds                                                             |       | (108,950                         | )          | (166,395 | ) |
| U.S. Government  obligations                                                       |       | 3⁄4                           |       | (4,043 | ) |
| Commissions  receivable                                                            |       | (92                              | )          | (266 | ) |
| Other assets                                                                       |       | (18,545                          | )          | 942 |   |
| Payable to  brokers and dealers                                                    |       | 17,549                           |       | 7,039 |   |
| Payable to  customers                                                              |       | 1,287                            |       | 7,598 |   |
| Securities sold,  but not yet purchased, at market value:                          |       |                             |       |   |   |
| Corporate  equities                                                                |       | 65,317                           |       | 145,706 |   |
| Options                                                                            |       | 15,336                           |       | 16,793 |   |
| Exchange-traded  funds                                                             |       | 91,803                           |       | 112,373 |   |
| U.S. Government  obligations                                                       |       | 151,912                          |       | 15,260 |   |
| Accrued  compensation                                                              |       | (20,421                          | )          | (17,724 | ) |
| Accounts payable  and other accrued expenses                                       |       | 10,242                           |       | (9,604 | ) |
| Other  liabilities                                                                 |       | 195                              |       | 3⁄4 |   |
| Income taxes  payable                                                              |       | 3⁄4                           |       | (1,663 | ) |
| Net cash  provided by operating activities                                         |       | 14,822                           |       | 21,211 |   |
|                                                                               |       |                             |       |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Payments for  purchases of office equipment and leasehold improvements             |       | (344                             | )          | (135 | ) |
| Payments for  purchases of exchange memberships                                    |       | (325                             | )          |   |   |
| Net cash used in  investing activities                                             |       | (669                             | )          | (135 | ) |
|                                                                               |       |                             |       |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Payment to  minority interest holder                                               |       | (356                             | )          | (322 | ) |
| Principal  payments of subordinated debt                                           |       | (1,890                           | )          | 3⁄4 |   |
| Net cash used in  financing activities                                             |       | (2,246                           | )          | (322 | ) |
| Increase in cash  and cash equivalents                                             |       | $                                | 11,907     |   | $ | 20,754 |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                                    |       | 444,446                          |       | 491,885 |   |
| CASH AND CASH  EQUIVALENTS, end of period                                          |       | $                                | 456,353    |   | $ | 512,639 |   |
|                                                                               |       |                             |       |   |   |   |   |
| **SUPPLEMENTAL  DISCLOSURE OF CASH PAID DURING THE PERIOD FOR:**                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Interest                                                                           |       | $                                | 1,558      |   | $ | 20,407 |   |
| Income taxes                                                                       |       | $                                | 168        |   | $ | 8 |   |
|                                                                               |       |                             |       |   |   |   |   |
| **SUPPLEMENTAL  SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:**         |       |                             |       |   |   |
| Net increase in  additional paid-in capital related to stock-based awards          |       | $                                | 1,157      |   | $ | 1,371 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

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**LaBRANCHE& CO INC. and SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

** **

**1.**                                      ORGANIZATION AND DESCRIPTION OF BUSINESS

 

The condensed consolidated financial statementsinclude the accounts of LaBranche & Co Inc., a Delaware corporation (the “HoldingCompany”), and its subsidiaries, LaBranche & Co. LLC, a New York limitedliability company, LaBranche Financial Services, Inc., a New York corporation (“LFSI”),LaBranche Structured Products, LLC, a New York limited liability company (“LSP”),LaBranche Structured Products Specialists, LLC, a New York limited liabilitycompany (“LSPS”), LaBranche Structured Products Europe Limited, a UnitedKingdom single member private company (“LSPE”), LABDR Services, Inc., aDelaware corporation (“LABDR”), and LaBranche & Co. B.V., a Netherlandsprivate limited liability company (“BV” and collectively with the Holding Company,LaBranche & Co. LLC, LFSI, LSP, LSPS, LSPE and LABDR, the “Company”). TheHolding Company is the sole member of LaBranche & Co. LLC, LSP and LSPS,the 100% stockholder of LFSI and LABDR, and the sole owner of BV. LSP is thesole owner of LSPE.  LaBranche & Co.LLC is a registered broker-dealer and operates primarily as a specialist inequity securities and rights listed on the New York Stock Exchange (“NYSE”) andin equity securities on the American Stock Exchange (“AMEX”). LFSI is aregistered broker-dealer and a member of the NYSE and other exchanges, andprovides securities execution, securities clearing and other related servicesto its own customers and customers of introducing brokers. LFSI also providesdirect-access floor brokerage services to institutional customers. LSP is aregistered broker-dealer and operates as a specialist in options andExchange-Traded Funds (“ETFs”) on the AMEX and the Philadelphia Stock Exchange(“PHLX”), and as a market-marker in options, ETFs and futures on several exchanges,including the New York Board of Trade (“NYBOT”). LSPS is a registeredbroker-dealer and operates as a specialist in ETFs traded on the NYSE. LSPE wasorganized to operate as a market-maker for ETFs in Europe, and is in theprocess of registering as a broker-dealer with the United Kingdom’s FinancialSecurities Authority. LABDRprovides disaster recovery services and back-up facilities to other HoldingCompany subsidiaries. BV represents LaBranche & Co. LLC in European marketsand provides client services to LaBranche & Co. LLC’s European listedcompanies.

 

**2.**                                      INTERIM CONDENSED CONSOLIDATED FINANCIALSTATEMENTS AND FINANCIAL INFORMATION

 

The unaudited interim condensed consolidated financialinformation as of March 31, 2005 and for the three months ended March 31, 2005and 2004 is presented in the accompanying condensed consolidated financialstatements. The unaudited interim condensed consolidated financial statementshave been prepared in accordance with U.S. generally accepted accountingprinciples for interim financial information and with the instructions to Form10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all ofthe information and footnotes required by U.S. generally accepted accountingprinciples for complete financial information. The unaudited interim condensedconsolidated financial information reflects all adjustments which are, in theopinion of management, necessary for a

 

6

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fair presentation of the results for such periods. Thepreparation of condensed consolidated financial statements in conformity withU.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities at the date of the condensed consolidated financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from these estimates and assumptions. The unauditedinterim condensed consolidated financial information as of March 31, 2005should be read in conjunction with the audited consolidated financialstatements and notes thereto as of December 31, 2004 included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2004 filed with theSecurities and Exchange Commission (“SEC”) on March 16, 2005, as amended onApril 15, 2005 (the “2004 10-K”). Results of the first quarter 2005 interimperiod are not necessarily indicative of results to be obtained for a fullfiscal year.

 

## **3.**             INCOME TAXES

 

The Company accounts for income taxes in accordancewith SFAS No. 109, “Accounting for Income Taxes,” which requires therecognition of tax benefits or expenses based on the estimated future taxeffects of temporary differences between the financial statement and tax basesof its assets and liabilities. Deferred tax assets and liabilities primarilyrelate to tax basis differences on stock-based compensation, other compensationaccruals, amortization periods of certain intangible assets and differencesbetween the financial statement and tax bases of assets acquired.

 

The components of the provision for income taxesreflected on the condensed consolidated statements of operations are set forthbelow (000’s omitted):

 

| ** **                              | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|
| ** **                              | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Current federal,  state and local taxes |       | $                                | (20,769    | ) | $ | (1,126 | ) |
| Deferred tax  provision                 |       | 22,235                           |       | 6,678 |   |
| Total provision  for income taxes       |       | $                                | 1,466      |   | $ | 5,552 |   |

 

**4.**             CAPITAL AND NET LIQUID ASSET REQUIREMENTS

 

LaBranche & Co. LLC, as a specialist and member ofthe NYSE and AMEX, is subject to the provisions of SEC Rule 15c3-1, as adoptedand administered by the SEC, NYSE and AMEX. LaBranche & Co. LLC is requiredto maintain minimum net capital, as defined, equivalent to the greater of $100,000or 1/15 of aggregate indebtedness, as defined.

 

As of March 31, 2005 and December 31, 2004, LaBranche& Co. LLC’s net capital, as defined under SEC Rule 15c3-1, was $465.1million and $455.1 million, respectively, which exceeded the minimumrequirements by $464.1 million and $453.2 million, respectively. LaBranche& Co. LLC’s aggregate indebtedness to net capital ratio on those dates was..03 to 1 and .06 to 1, respectively.

 

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The NYSE generally requires itsspecialist firms to maintain a minimum dollar regulatory capital amount inorder to establish that they can meet, with their own net liquid assets, theirposition requirement.As of March 31, 2005 and December 31, 2004, LaBranche & Co. LLC’s and LSPS’NYSE minimum required combined dollar amount of net liquid assets, as defined,was $447.0 million. LaBranche & Co. LLC’s actual net liquid assets, asdefined, were $461.6 million and $458.7 million as of March 31, 2005 andDecember 31, 2004, respectively. As of March 31, 2005 and December 31, 2004,since LaBranche & Co. LLC’s actual net liquid assets exceeded the combinednet liquid assets requirement of LaBranche & Co. LLC and LSPS, LSPSsatisfied its net liquid assets requirement as of those dates. Of the Company’stotal consolidated $456.4 million of cash and cash equivalents as of March 31,2005, $370.8 million of LaBranche & Co. LLC’s cash and cash equivalents wasused to satisfy a portion of the NYSE’s $447.0 million minimum combined netliquid assets requirement.

 

The AMEX generally requires its equity specialistfirms to maintain a cash or liquid asset position of the greater of (a) $1.0million or (b) an amount sufficient to assume a position of sixty trading unitsof each security in which the equity specialist is registered. As of March 31,2005, LaBranche & Co. LLC satisfied the AMEX equity specialist liquid assetrequirements.

 

As a registered broker-dealer and member firm of theNYSE, LFSI is also subject to SEC Rule 15c3-1, as adopted and administered bythe SEC and the NYSE. Under the alternative method permitted by this rule, theminimum required net capital is equal to the greater of $1.5 million or 2.0% ofaggregate debit items, as defined. As of March 31, 2005 and December 31, 2004,LFSI’s net capital, as defined, was $11.1 million and $12.5 million,respectively, which exceeded minimum requirements by $9.6 million and $11.0million, respectively.

 

As a clearing broker-dealer,LFSI is subject to SEC Rule 15c3-3, as adopted and administered by the SEC. Asof April 4, 2005, to comply with its March 31, 2005 requirement, cash and U.S.Treasury Bills in the amount of $0.9 million were segregated in a specialreserve account for the exclusive benefit of customers exceeding actualrequirements by $0.9 million. As of January 4, 2005, to comply with itsDecember 31, 2004 requirement, cash and U.S. Treasury Bills in the amount of$0.1 million were segregated in a special reserve account for the exclusivebenefit of customers exceeding actual requirements by $0.1 million. Inaddition, the Proprietary Accounts of Introducing Brokers (“PAIB”) Calculationis computed in order for correspondent firms to classify their assets held byLFSI as allowable assets in the correspondents’ net capital calculation.  As of April 4, 2005, to comply with LFSI’sMarch 31, 2005 requirement, cash and U.S. Treasury Bills in the amount of $4.5million were segregated in a special reserve account for the exclusive benefitof customers exceeding actual requirements by $2.2 million. As of January 4, 2005, tocomply with LFSI’s December 31, 2004 requirement, cash and U.S. Treasury Billsin the amount of $4.4 million were segregated in a special reserve account forthe exclusive benefit of customers exceeding actual requirements by $3.4million.

 

As a registered broker-dealer and AMEX member firm,LSP is subject to SEC Rule 15c3-1, as adopted and administered by the SEC andthe AMEX. LSP is required to maintain

 

8

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minimum net capital, as defined, equivalent to thegreater of $100,000 or 1/15 of aggregate indebtedness,as defined. As of March 31, 2005 and December 31, 2004, LSP’s net capital,as defined, was $35.0 million and $23.8 million, respectively, which exceededminimum requirements by $34.8 million and $23.2 million, respectively.

 

LSPS, as a specialist and member of the NYSE, issubject to the provisions of SEC Rule 15c3-1, as adopted and administered bythe SEC and NYSE. LSPS is required to maintain minimum net capital, as defined,equivalent to the greater of $100,000 or 1/15 ofaggregate indebtedness, as defined. As of March 31, 2005 and December 31,2004, LSPS’ net capital, as defined under SEC Rule 15c3-1, was $4.6 million and$4.4 million, respectively, which exceeded the minimum requirements by $4.5million and $4.3 million, respectively. LSPS’ aggregate indebtedness to netcapital ratio on those dates was .24 to 1 and .13 to 1, respectively.

 

## **5.**             EARNINGS PER SHARE

## ** **

Earnings per share are computed in accordance withSFAS No. 128, “Earnings Per Share.” Basic earnings per share is calculated bydividing net income available to common stockholders by the weighted-averagenumber of common shares outstanding. Diluted earnings per share includes thedeterminants of basic earnings per share and, in addition, gives effect todilutive potential common shares.

 

The computations of basic and diluted earnings pershare are set forth below (000’s omitted, except per share data): 

 

| ** **                                                                                              | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                              | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Net income                                                                                              |       | $                                | 2,246      |   | $ | 7,914 |   |
| Less: preferred  dividends and discount accretion                                                       |       | 3⁄4                           |       | 1,056 |   |
|                                                                                                    |       |                             |       |   |   |
| Numerator for  basic and diluted earnings per share – net income available to common  stockholders |       | $                                | 2,246      |   | $ | 6,858 |   |
|                                                                                                    |       |                             |       |   |   |
| Denominator for  basic earnings per share – weighted-average number of common shares  outstanding  |       | 60,596                           |       | 59,806 |   |
|                                                                                                    |       |                             |       |   |   |
| Dilutive shares:                                                                                        |       |                             |       |   |   |
| Stock options                                                                                           |       | 3⁄4                           |       | 196 |   |
| Restricted stock  units                                                                                 |       | 270                              |       | 222 |   |
| Denominator for  diluted earnings per share – weighted-average number of common shares outstanding |       | 60,866                           |       | 60,224 |   |
|                                                                                                    |       |                             |       |   |   |
| Earnings per  share:                                                                                    |       |                             |       |   |   |
| Basic                                                                                                   |       | $                                | 0.04       |   | $ | 0.11 |   |
| Diluted                                                                                                 |       | $                                | 0.04       |   | $ | 0.11 |   |

 

Options to purchase an aggregate of 2,319,167 and3,063,001 shares of common stock were outstanding during the three months endedMarch 31, 2005 and 2004, respectively, but

 

9

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were not included in the computation of dilutedearnings per share because the options’ exercise prices were greater than theaverage market price of the Company’s common stock.  In addition, potential common shares relatingto restricted stock and restricted stock units for the three months ended March31, 2005 and 2004 totaling 931,398 and 649,011 shares, respectively, were antidilutive.  The calculation of diluted earnings per sharedoes not include the antidilutive effect of these stock-based awards.

 

## **6.**             EMPLOYEE INCENTIVE PLANS

## ** **

Effective January 1, 2003, the Company began toaccount for stock-based employee compensation in accordance with theprospective method prescribed by SFAS No. 148, “Accounting for Stock-BasedCompensation-Transition and Disclosure, an Amendment of FASB Statement No. 123.”Under this method, compensation expense is recognized over the related serviceperiods based on the fair value, as of the date of grant, of stock options andrestricted stock units granted to employees on or after January 1, 2003. Suchstock options and restricted stock units are included in “Stockholders’ equity”under SFAS No. 148 and are expensed over the period that an employee providesservice in exchange for the award.

 

Compensation expense resulting from stock-based awardsgranted for the year ended December 31, 2002 and prior years is accounted forunder the intrinsic value-based method prescribed by APB No. 25, “Accountingfor Stock Issued to Employees,” as permitted by SFAS No. 123, “Accountingfor Stock-Based Compensation.” In accordance with APB No. 25, nocompensation expense is recognized for stock options issued for years prior tofiscal 2003 that had no intrinsic value on the date of grant. In addition,compensation expense was not recognized for those stock options issued inconnection with the Company’s acquisition of ROBB PECK McCOOEY FinancialServices, Inc. (“RPM”) in March 2001 and were treated as part of the purchaseprice of RPM in accordance with the rules of purchase accounting.

 

Had the Company recognized compensation expense overthe relevant service period under the fair value-based method of SFASNo. 123 with respect to stock options granted for the year ended December31, 2002 and prior years, net income available to common stockholders wouldhave been reduced, resulting in pro forma net income available to commonstockholders and earnings per share as presented below:

 

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| ** **                                                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| **(000’s  omitted, except per share data)**                                           | ** ** | **2005**                          | ** ** | **2004** | ** ** |
|                                                                                       |       |                              |       |   |   |
| Net income  available to common stockholders, as reported                                  |       | $                                 | 2,246      |   | $ | 6,858 |   |
| Add: Stock-based  compensation expense included in reported net income (net of tax effect) |       | 505                               |       | 622 |   |
| Less:  Stock-based compensation expense under SFAS 123 (net of tax effect)                 |       | (690                              | )          | (2,105 | ) |
| Pro forma net  income available to common stockholders                                     |       | $                                 | 2,061      |   | $ | 5,375 |   |
|                                                                                       |       |                              |       |   |   |
| Diluted earnings  per share, as reported                                                   |       | $                                 | 0.04       |   | $ | 0.11 |   |
| Pro forma  diluted earnings per share                                                      |       | $                                 | 0.03       |   | $ | 0.09 |   |

 

The effect of applying SFAS No. 123 in the proforma disclosure above may not be representative of the potential effectstock-based compensation could have on net income in future periods.

 

## **7.**             BUSINESS SEGMENTS

 

Segment information is presented in accordance withSFAS No. 131, “Disclosures About Segments of an Enterprise and RelatedInformation.” The Company’s business segments are based on the nature of thefinancial services provided, their revenue source and the Company’s managementorganization.

 

The Company’s Specialist segment operates as aspecialist in equities, rights and ETFs listed on the NYSE, as a specialist inequities, options, ETFs and futures on several exchanges,****andas a market-maker in ETFs, futures and options on several exchanges. Thissegment also provides support services for the NYSE specialist activities. TheSpecialist segment currently includes the operations of LaBranche & Co.LLC, LSP, LSPS, LABDR and BV.

 

The Company’s Execution and Clearing segment providessecurities execution, securities clearing and other related services to its owncustomers and customers of introducing brokers. This segment also providesdirect-access floor brokerage services to institutional customers. TheExecution and Clearing segment currently includes the operations of LFSI.

 

Revenues and expenses directly associated with eachsegment are included in determining its operating results. Other expenses,including corporate overhead, which are not directly attributable to aparticular segment, generally are allocated to each segment based on itsresource usage levels or other appropriate measures. Interest with respect tothe Company’s $459.9 million aggregate principal amount of senior notesoutstanding, certain administrative expenses, corporate overhead expenses andother sources of revenues are not specifically allocated by management whenreviewing the Company’s segments’ performance, and appear in the “Other”section. Selected financial information for each segment is set forth below(000’s omitted):

 

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| ** **                                    | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| **Specialist  Segment:**                      |       |                             |       |   |   |
| Revenues                                      |       | $                                | 54,488     |   | $ | 66,344 |   |
| Operating expenses                            |       | 32,091                           |       | 34,381 |   |
| Depreciation and  amortization of intangibles |       | 2,914                            |       | 2,904 |   |
| Income before minority interest and taxes     |       | 19,483                           |       | 29,059 |   |
| Segment goodwill                              |       | 250,569                          |       | 289,593 |   |
| Segment assets                                |       | $                                | 2,181,635  |   | $ | 2,104,583 |   |
|                                          |       |                             |       |   |   |
| **Execution  and Clearing Segment:**          |       |                             |       |   |   |
| Revenues                                      |       | $                                | 12,195     |   | $ | 13,240 |   |
| Operating  expenses                           |       | 12,801                           |       | 14,131 |   |
| Depreciation and  amortization of intangibles |       | 109                              |       | 127 |   |
| Loss before minority interest and taxes       |       | (715                             | )          | (1,018 | ) |
| Segment assets                                |       | $                                | 59,787     |   | $ | 59,043 |   |
|                                          |       |                             |       |   |   |
| **Other****(1):**                             |       |                             |       |   |   |
| Revenues                                      |       | $                                | 620        |   | $ | 329 |   |
| Operating  expenses                           |       | 15,646                           |       | 14,705 |   |
| Depreciation and  amortization of intangibles |       | 30                               |       | 24 |   |
| Loss before minority interest and taxes       |       | (15,056                          | )          | (14,400 | ) |
| Segment assets                                |       | $                                | 152,595    |   | $ | 75,940 |   |
|                                          |       |                             |       |   |   |
| **Total:**                                    |       |                             |       |   |   |
| Revenues                                      |       | $                                | 67,303     |   | $ | 79,913 |   |
| Operating  expenses                           |       | 60,538                           |       | 63,217 |   |
| Depreciation and  amortization of intangibles |       | 3,053                            |       | 3,055 |   |
| Income before minority interest and taxes     |       | 3,712                            |       | 13,641 |   |
| Goodwill                                      |       | 250,569                          |       | 289,593 |   |
| Assets                                        |       | $                                | 2,394,017  |   | $ | 2,239,566 |   |

 

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**(1)**                                 *Other* is comprised primarily of the intereston the Holding Company’s indebtedness, unallocated corporate administrativeexpenses, including professional and legal costs, unallocated revenues(primarily interest income and net gains from non-marketable investments) andelimination entries.

 

## **8.**             CONTINGENCIES

 

There have been no material new developments in theCompany’s legal proceedings since the filing of the 2004 10-K, except asfollows:

 

Specialist TradingInvestigations.  On April 12, 2005, as part of theindustry-wide investigations relating to activities of NYSE floor specialistsin recent years, criminal and civil charges were announced against a number ofindividuals employed or formerly employed as specialists at the five largestNYSE specialist firms, including a specialist formerly employed by LaBranche& Co. LLC.  The Company will continueto cooperate with any continuing investigations.

 

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Last Atlantis/Rule.  On March30, 2005, the Court dismissed the Last Atlantis action.  On April 13, 2005, plaintiffs filed a motionfor reconsideration of the dismissal.

 

TheCompany believes that the claims asserted against it by the plaintiffs in thepending proceedings described in the 2004 10-K, as updated above, are withoutmerit, and the Company denies all allegations of wrongdoing.  There can be no assurance, however, as to theoutcome or timing of the resolution of these proceedings.  The Company therefore is unable to estimatethe amount or potential range of any loss that may arise out of theseproceedings.  The range of possibleresolutions could include determinations and judgments against the Company orsettlements that could require substantial payments by the Company that couldhave a material adverse effect on the Company’s financial condition, results ofoperations and cash flows.

 

Inaddition to the proceedings described in the 2004 10-K, as updated above, theCompany and its operating subsidiaries have been the target, from time to time,of various claims and lawsuits incidental to the ordinary course of theirrespective businesses. While the ultimate outcome of those claims and lawsuitswhich currently are pending cannot be predicted with certainty, the Company believes,based on its understanding of the facts of these proceedings, that theirultimate resolution will not, in the aggregate, have a material adverse effecton the Company’s financial condition, results of operations or cash flows.

 

## **9**.             SUBSEQUENT EVENTS

## ** **

On April 20, 2005, the NYSE announced a plan to mergewith Archipelago Holdings Inc. (“Archipelago”), a publicly-tradedelectronic-trading exchange. The proposed merger, as publicly announced by theNYSE and Archipelago, is expected to close no later than the first quarter of2006, and is subject to SEC approval as well as approval by the NYSE membersand Archipelago shareholders.  Managementis unable to predict the effect this transaction may have on the Company’sfinancial condition, results of operations or cash flows.

 

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## **Item2.**    Management’s Discussion and Analysis of FinancialCondition and Results of Operations.

 

*Unless the contextotherwise requires, the “Company” or “we” shall mean LaBranche & Co Inc.and its wholly-owned subsidiaries.*

* *

*This Management’sDiscussion and Analysis of Financial Condition and Results of Operations shouldbe read in conjunction with our Annual Report on Form 10-K for the fiscal yearended December 31, 2004 filed with the Securities and Exchange Commission(“SEC”) on March 16, 2005, as amended on April 15, 2005 (the “2004 10-K”)and our Condensed Consolidated Financial Statements and the Notes theretocontained in this report.*

* *

***ExecutiveOverview***

* *

*Our netincome available to common stockholders was $2.2 million—or $0.04 per dilutedshare—for the first quarter of 2005, a 67.2% decrease compared with the sameperiod last year. Our first quarter results reflect lower volatility andincreased program trading throughout the quarter. These two key drivers of ourNYSE equity specialist operations resulted in fewer opportunities to commit ourcapital for principal trades. However, our expanded trading of ETFs, futuresand options mitigated the less desirable performance of our equity specialisttrading.*

* *

*To betteraddress investor demands of speed and more certainty of executions, and theprospects of an evolving market structure, we and major exchanges are working todeliver the best possible technology, which will allow for more directelectronic access to the point of sale on the NYSE. We continue to developsystems internally that will respond to changes in the securities markets underthe SEC’s newly-approved Regulation NMS.*

* *

*The NYSE’srecently announced plan to merge with Archipelago Holdings Inc. (“Archipelago”),in a transaction that will effectively transform the NYSE into apublicly-traded for-profit enterprise, represents the NYSE’s response to expandits electronic trading platform and to remain competitive. While we believethis strategy will provide investors with more execution options on the NYSE,it will not eliminate the need for effective management of market imbalances instock prices of NYSE-listed companies. We believe that the specialist, and nottechnology, is the central mechanism through which market imbalances aremanaged and best execution is achieved. Accordingly, we believe, and the NYSEhas stated, that specialists will continue to be an integral part of the NYSE’scurrent and future market structure.*

* *

*Our business,by its nature, does not produce predictable earnings. In any given period, ourresults can be materially affected by general economic and other conditions,especially those directly related to securities trading. The NYSE’s plannedmerger with Archipelago may pose significant opportunities and challenges forus, but we cannot predict the effect this proposed transaction will have on ourfinancial condition or results of operations. As proposed, the planned mergeris expected to provide the current NYSE members an approximate 70.0% ownershipstake in the new combined entity. Since the announcement of the proposedtransaction, the value of an NYSE membership has risen significantly.*

 

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On March 29, 2004, we entered into an agreement withthe NYSE and the SEC to settle their investigations concerning our NYSEspecialist trading activity and agreed to comply with the undertakingsdescribed in our 2004 10-K.  Our compliance with these undertakings has enhanced,and will continue to improve, our risk management activities related to ourspecialist trading activity.

 

**NewAccounting Developments**

 

In December 2004, the FASB issued a revision to SFASNo. 123, “Accounting for Stock-Based Compensation,” SFAS No. 123(R), “ShareBased Payment.” SFAS No. 123(R) will require compensation costs related toshare-based payment transactions to be recognized in the financial statementsover the period that an employee provides service in exchange for the award.SFAS No. 123(R) replaces SFAS No. 123 and supersedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees.” Effective April 15, 2005, the SEC issued finalrule No. 33-8568, which amended the date for compliance with SFAS No. 123(R)for registrants that do not file as small business issuers to the first interimor annual reporting period of the registrant’s fiscal year beginning on orafter June 15, 2005, which for us is January 1, 2006. We do not expect theadoption of SFAS No. 123(R) will have a material impact on our financialcondition or results of operations.

 

**CriticalAccounting Estimates**

 

*Goodwill and Other IntangibleAssets*

 

We determine the fair value of each of our reportingunits and the fair value of each reporting unit’s goodwill under the provisionsof Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill andOther Intangible Assets.”  In determiningfair value, we use standard analytical approaches to business enterprisevaluation (“BEV”), such as the market comparable approach and the incomeapproach. The market comparable approach is based on comparisons of the subjectcompany to similar companies engaged in an actual merger or acquisition or topublic companies whose stocks are actively traded.  As part of this process, multiples of valuerelative to financial variables, such as earnings or stockholders’ equity, aredeveloped and applied to the appropriate financial variables of the subjectcompany to indicate its value.  Theincome approach involves estimating the present value of the subject company’sfuture cash flows by using projections of the cash flows that the business isexpected to generate, and discounting these cash flows at a given rate ofreturn. Each of these BEV methodologies requires the use of management estimatesand assumptions. For example, under the market comparable approach, we assign acertain control premium to the public market price of our common stock as ofthe valuation date in estimating the fair value of our specialist reportingunit.  Similarly, under the incomeapproach, we assume certain growth rates for our revenues, expenses, earningsbefore interest, income taxes, depreciation and amortization, returns onworking capital, returns on other assets and capital expenditures, amongothers.  We also assume certain discountrates and certain terminal growth rates in our calculations.  Given the subjectivity involved in selectingwhich BEV approach to use and in determining the input variables for use in ouranalyses, it is possible that a different valuation model and the selection

 

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of different input variables could produce amaterially different estimate of fair value of our goodwill.

 

We review the reasonableness of the carrying value ofour goodwill annually as of December 31, unless an event or change incircumstances requires an interim reassessment of impairment. During the threemonths ended March 31, 2005, there were no changes in circumstances thatnecessitated goodwill impairment testing. We cannot provide assurance thatfuture goodwill impairment testing will not result in impairment charges insubsequent periods.

 

Our other intangible asset, as defined under SFAS No.142, is our trade name. We determine the fair value of our trade name by applyingthe income approach using the royalty savings methodology. This method assumesthat the trade name has value to the extent we are relieved of the obligationto pay royalties for the benefits received from it.  Application of this methodology requiresestimating an appropriate royalty rate, which is typically expressed as apercentage of revenue. Estimating an appropriate royalty rate includesreviewing evidence from comparable licensing agreements and consideringqualitative factors affecting the trade name. Given the subjectivity involvedin selecting which BEV approach to use and in determining the input variablesfor use in our analyses, it is possible that a different valuation model andthe selection of different input variables could produce a materially differentestimate of fair value of our trade name.

 

We review the reasonableness of the carrying amount ofour trade name on an annual basis in conjunction with our goodwill impairmentassessment. We cannot provide assurance that future trade name impairmenttesting will not result in impairment charges in subsequent periods.

 

*Exchange Memberships*

 

The determination of the fair value of our exchangememberships is a critical accounting estimate. Exchange memberships owned by usare originally carried at cost, pursuant to the American Institute of CertifiedPublic Accountants (“AICPA”) *Audit and AccountingGuide—Brokers and Dealers in Securities*.  Adjustments to carrying value are made if wedeem that an “other-than-temporary” decline in value, as defined in (a)Emerging Issues Task Force (“EITF”) Issue No. 03-1, *TheMeaning of Other-Than-Temporary Impairment and Its Application to CertainInvestments,*and (b) Section M of Topic 5 of the SEC staffaccounting bulletin series (“SAB No. 59”), has occurred. In determining whether thevalue of our owned exchange memberships is impaired (*i.e*.,fair market value is below cost) and whether such impairment is temporary orother-than-temporary, we consider many factors, including, but not limited to,information regarding recent sale and lease prices of exchange memberships,historical trends of sale and lease prices of memberships on a particularexchange and their duration, the current condition of the particular exchange’smarket structure, legal and regulatory developments affecting the particularexchange’s market structure and earnings capability, trends in new listings onthe particular exchange, general global and national economic factors and ourknowledge and judgment of the specialist and execution and clearing industriesand the securities market as a whole. As a result of our

 

16

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analysis of the above-mentioned factors for the threemonths ended March 31, 2005, the carrying values of our owned exchangememberships were not impaired.

 

We cannot provide assurance that the consistentapplication of this accounting policy to future reporting periods will notresult in further adjustments to the carrying value of our exchangememberships.

 

**Results of Operations**

 

# **Specialist Segment Operating Results**

 

| ** **                                | ** ** | **For the Three  Months Ended  March 31,** | ** ** | **Percentage** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|----------------|------------|
| **(000’s  omitted)**                 | ** ** | **2005**                                   | ** ** | **2004**       | ** ** | **Change** | ** ** |
|                                      |       |                                       |       |           |       |   |   |
| Revenues:                                 |       |                                       |       |           |       |   |   |
| Net gain on  principal transactions       |       | $                                          | 40,041     |           | $          | 52,298 |   | (23.4 | )% |
| Commissions                               |       | 11,557                                     |       | 12,506         |       | (7.6 | ) |
| Other                                     |       | 2,890                                      |       | 1,540          |       | 87.7 |   |
| Total segment  revenues                   |       | 54,488                                     |       | 66,344         |       | (17.9 | ) |
|                                      |       |                                       |       |           |       |   |   |
| Operating  expenses                       |       | 35,005                                     |       | 37,285         |       | (6.1 | ) |
|                                      |       |                                       |       |           |       |   |   |
| Income before minority interest and taxes |       | $                                          | 19,483     |           | $          | 29,059 |   | (33.0 | )% |

 

Revenues from our Specialist segment consist primarilyof net gain earned from principal transactions in securities for which we actas specialist and market-maker. Net gain on principal transactions representstrading gains net of trading losses and SEC transaction fees, where applicable,and are earned by us when we act as principal buying and selling our specialiststocks, rights, options, ETFs and futures. Also included in net gain onprincipal transactions are net gains and losses resulting from our market-makingactivities in ETFs, options and futures, the net gains and losses resultingfrom trading of foreign currencies, futures and equities underlying the rights,ETFs and options for which we act as specialist, and accrued dividendsreceivable or payable on our equity positions. These revenues are primarilyaffected by changes in share volume traded and fluctuations in the prices ofstocks, rights, options, ETFs and futures in which we are the specialist or inwhich we make a market.

 

Commissions revenue consists primarily of fees earnedwhen our specialists act as agents by executing, after a specified period oftime, limit orders in equities on behalf of brokers, professional traders andbroker-dealers. We do not earn commissions when we match market orders or whenwe act as a market-maker.

 

Other revenue at our Specialist segment consistsprimarily of interest income, proprietary trading gains or losses and gains orlosses from an investment in a hedge fund.

 

***KeyMetrics of our NYSE Equity Specialist Business—***When assessing the performance andfinancial results of a specific period, management examines certain metrics to

 

17

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ascertain their impact on our NYSE equity specialist’sfinancial results. Some of the key metrics that we review, and their values forthe three month periods ended March 31, 2005 and 2004, are as follows:

 

| ** **                                                                           | ** ** | **For the Three  Months Ended  March 31,** | ** ** | **Percentage** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|----------------|------------|
| ** **                                                                           | ** ** | **2005**                                   | ** ** | **2004**       | ** ** | **Change** | ** ** |
|                                                                                 |       |                                       |       |           |       |   |   |
| NYSE average  daily share volume (in millions)                                       |       | 1,629.0                                    |       | 1,538.5        |       | 5.9 | % |
| LAB share volume  on the NYSE (in billions)                                          |       | 25.2                                       |       | 26.0           |       | (3.1 | ) |
| LAB dollar value  on the NYSE (in billions)                                          |       | $                                          | 813.6      |           | $          | 743.4 |   | 9.4 |   |
| Share volume of  principal shares traded (in billions)                               |       | 5.2                                        |       | 6.6            |       | (21.2 | ) |
| Dollar value of  principal shares traded (in billions)                               |       | $                                          | 176.6      |           | $          | 196.0 |   | (9.9 | ) |
| Average closing  price of the CBOE Volatility Index                                  |       | 12.8                                       |       | 16.7           |       | (23.4 | )% |
| Program trading  as an approximate percentage of NYSE average daily share volume (1) |       | 55.9                                       | %          | 42.3           | %          | 13.6 |  (2) |

 

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(1)          The program tradingpercentage is determined using the average of weekly percentages throughout theappropriate time periods. Due to the weekly basis of our source data, thevalues indicated do not exactly coincide with our three-month reportingperiods.

 

(2)          Change represents percentagepoints.

 

Generally, an increase in the average daily sharevolume on the NYSE, an increase in market volatility (as measured by theaverage closing price of the Chicago Board of Options Exchange’s VolatilityIndex®, or the “VIX”), an increase in the dollar value and share volume of stocksin which specialists trade or a decline in the level of program trading enablesthe specialist to increase its level of principal participation and thus itsability to realize gains on principal transactions. While we monitor thesemetrics each period, they are not the sole indicators or factors that determineour level of revenues, profitability or overall performance in any givenperiod. Other factors, such as extreme price movements, unanticipated listedcompany news and events and other uncertainties may influence our financialperformance either positively or negatively.

 

## **Three Months Ended March 31, 2005 versus March 31,2004**

 

Net gain on principaltransactions during the first quarter of 2005 decreased primarily as a resultof the decline in NYSE equity specialist principal trading revenue to $28.6million for the three months ended March 31, 2005 from $45.3 million for thesame period in 2004.  Despite theincrease in the NYSE average daily share volume period over period, ourprincipal shares traded decreased significantly due to the reducedopportunities for our equity specialists to participate as principal.  This was the result of the continuing andsignificant decline in

 

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marketvolatility along with an increase in program trading as a percentage of NYSEaverage daily share volume. Mitigating this performance in NYSE equity tradingwas increased trading revenues from ETFs, options and other derivatives. Netgain on principal transactions from our derivatives specialist andmarket-making business increased to $11.4 million for the three months endedMarch 31, 2005 from $7.0 million for the same period in 2004 as a result of anincrease in the number of products traded, market-maker professionals andexchanges on which we trade.

 

Other revenue increased dueto higher interest income from our short term investments and from our stockborrow transactions, resulting from increased trading activity.  These increases were partially offset by adecrease in proprietary trading revenues for the three months ended March 31,2005 as compared to the same period in 2004.

 

For a discussion of operating expenses, see “OurOperating Expenses” below.

 

# **Execution and Clearing SegmentOperating Results**

 

| ** **                              | ** ** | **For the Three  Months Ended  March 31,** | ** ** | **Percentage** | ** ** |
|-----------------------------------------|------------|--------------------------------------------|------------|----------------|------------|
| **(000’s  omitted)**               | ** ** | **2005**                                   | ** ** | **2004**       | ** ** | **Change** | ** ** |
|                                    |       |                                       |       |           |       |   |   |
| Revenues:                               |       |                                       |       |           |       |   |   |
| Commissions                             |       | $                                          | 12,006     |           | $          | 13,016 |   | (7.8 | )% |
| Other                                   |       | 189                                        |       | 224            |       | (15.6 | ) |
| Total segment  revenues                 |       | 12,195                                     |       | 13,240         |       | (7.9 | ) |
|                                    |       |                                       |       |           |       |   |   |
| Operating  expenses                     |       | 12,910                                     |       | 14,258         |       | (9.5 | ) |
|                                    |       |                                       |       |           |       |   |   |
| Loss before minority interest and taxes |       | $                                          | (715       | )              | $          | (1,018 | ) | (29.8 | )% |

 

Our Execution and Clearing segment’s commissionsrevenue includes fees charged to customers for execution, clearance anddirect-access floor brokerage services and net gains from riskless principaltransactions.

 

Our Execution and Clearing segment’s other revenuesconsist of interest income earned on customer margin balances, short term U.S.Treasury Bill investments and stock borrow transactions.

 

## **Three Months Ended March 31, 2005 versus March 31,2004**

## ** **

Commission revenuesdecreased as a result of a decline in direct-access floor brokers order flowand reduced trade volume from clearance customers.

 

For a discussion of operating expenses, see “OurOperating Expenses” below.

 

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# **Other Segment Operating Results**

 

| ** **                              | ** ** | **For the Three Months  Ended March 31,** | ** ** | **Percentage** | ** ** |
|-----------------------------------------|------------|-------------------------------------------|------------|----------------|------------|
| **(000’s  omitted)**               | ** ** | **2005**                                  | ** ** | **2004**       | ** ** | **Change** | ** ** |
|                                    |       |                                      |       |           |       |   |   |
| Other revenues                          |       | $                                         | 620        |           | $          | 329 |   | 88.4 | % |
| Total segment  revenues                 |       | 620                                       |       | 329            |       | 88.4 |   |
|                                    |       |                                      |       |           |       |   |   |
| Operating  expenses                     |       | 15,676                                    |       | 14,729         |       | 6.4 |   |
|                                    |       |                                      |       |           |       |   |   |
| Loss before minority interest and taxes |       | $                                         | (15,056    | )              | $          | (14,400 | ) | 4.6 | % |
|                                         |            |                                           |            |                |            |  |  |  |  |  |  |

 

The portion of our revenues that is not generated fromour two principal business segments consists primarily of interest income andnet gains or losses from our non-marketable investments.

 

## **Three Months Ended March 31, 2005 versus March 31,2004**

 

Other revenues increasedprimarily as a result of increases in interest income on our short terminvestments, as a result of higher interest rates and an increase in netunrealized gains on our non-marketable investments.

 

For a discussion of operating expenses, see “OurOperating Expenses” below.

 

# **Our Operating Expenses**

                

| ** **                                         | ** ** | **For the Three  Months Ended  March 31,** | ** ** | **Percentage** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------|------------|----------------|------------|
| **(000’s  omitted)**                          | ** ** | **2005**                                   | ** ** | **2004**       | ** ** | **Change** | ** ** |
| ** **                                         | ** ** | ** **                                 | ** ** | ** **     | ** ** | ** ** | ** ** |
| Expenses:                                          |       |                                       |       |           |       |   |   |
| Employee  compensation and related benefits        |       | $                                          | 21,903     |           | $          | 27,791 |   | (21.2 | )% |
| Interest                                           |       | 16,583                                     |       | 12,358         |       | 34.2 |   |
| Exchange,  clearing and brokerage fees             |       | 9,994                                      |       | 8,894          |       | 12.4 |   |
| Lease of  exchange memberships                     |       | 1,012                                      |       | 4,143          |       | (75.6 | ) |
| Depreciation and  amortization of intangibles      |       | 3,053                                      |       | 3,055          |       | (0.1 | ) |
| Other                                              |       | 11,046                                     |       | 10,031         |       | 10.1 |   |
|                                               |       |                                       |       |           |       |   |   |
| Total expenses  before minority interest and taxes |       | 63,591                                     |       | 66,272         |       | (4.0 | ) |
|                                               |       |                                       |       |           |       |   |   |
| Provision for  income taxes                        |       | $                                          | 1,466      |           | $          | 5,552 |   | (73.6 | )% |

 

Our Specialist segment’s employee compensation andrelated benefits consists of salaries, wages and performance-based compensationpaid to our traders and related support staff. The employee compensation andrelated benefits associated with our Execution and Clearing segment consists ofsalaries, wages and performance-based compensation paid to our execution andclearing professionals, as well as incentive-based compensation paid to varioustrading professionals, which is based on their earned commissions.Performance-based

 

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compensation may include cash compensation andstock-based compensation granted to managing directors, trading professionalsand other employees based on our operating results.

 

Interest expense is incurred primarily from our outstanding9.5% $199.9 million aggregate principal amount of senior notes due May 2009(the “2009 Notes”) and 11.0% $260.0 million aggregate principal amount ofsenior notes due May 2012 (the “2012 Notes” and, together with the 2009 Notes,the “Senior Notes”). Interestexpense at our Specialist segment is mainly the result of margin interest on derivatives trading positions and interest onsubordinated indebtedness. Customers’ free credit balances, bank loans andstock loans generate interest expense at our Execution and Clearing segment.

 

Exchange, clearing and brokerage fees expense at ourSpecialist segment consists of fees paid by us to the NYSE, AMEX, otherexchanges, the Depository Trust Clearing Corporation (“DTCC”) and third-partyexecution and clearing companies. These fees are based primarily on the volumeof transactions executed by us as principal and as agent, a fee based onexchange seat use, an allocation fee requiring specialist firms to share thecost of newly-allocated listings, technology fees, a flat annual fee andexecution and clearing fees. Our Execution and Clearing segment’s exchange,clearing and brokerage fees expense consists of floor brokerage fees paid todirect-access floor brokers and fees paid to various exchanges.

 

## **Three Months Ended March 31, 2005 versus March 31,2004**

## ** **

Employee compensation andrelated benefits decreased as a result of the decline in (a) salaries andperformance-based compensation at our NYSE equity specialist and (b) salariesand incentive-based compensation at our Execution and Clearing segment. Thesedeclines are the result of a reduction in personnel and lower operatingresults. Also contributing to the decline was the expiration and payment of aretention bonus plan liability and a decrease in deferred compensation expense,both related to a prior acquisition.

 

Interest expense increasedprimarily due to higher interest costs associated with the issuance of ourSenior Notes during the second quarter of 2004 and increased margin interest inour Specialist segment due to the growth and expansion of its derivativestrading activity.

 

Exchange, clearing andbrokerage fees increased primarily due to higher fees incurred at our Specialistsegment, which included higher allocation fees for new listings, an increase inodd lot fees, and an increase in regulatory fees.  Partially offsetting these increases weredecreases in clearing and brokerage fees at our Execution and Clearing segmentdue to lower direct-access floor broker revenues.

 

Lease of exchangememberships expense decreased due to the lower average annual lease cost of ourNYSE leased memberships since January 1, 2005. Average annual lease cost of an NYSE membership declined toapproximately $71,000 for the three months ended March 31, 2005 from $238,000for the 2004 comparable period. Additionally, we leased twelve fewer NYSE memberhsips as of March 31,2005 than we did as of March 31, 2004.

 

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The increase in otheroperating expenses was primarily the result of an increase in legal andprofessional fees. This increase was due to the additional auditing andconsulting fees related to Sarbanes-Oxley compliance and increased legal feesrelated to ongoing litigation.

 

## **Liquidity and Capital Resources**

## ** **

*Financial Leverage*

 

Given the nature of our specialist, market-making andclearing activities, certain line items on our balance sheet may fluctuate fromtime to time. Our total assets at March 31, 2005 increased to $2,394.0 millionfrom $2,055.1 million at December 31, 2004. The increase was primarilyattributable to increases in cash and cash equivalents, receivable frombrokers, dealers and clearing organizations, and securities owned at marketvalue (principally our ETF positions), partially offset by decreases indeferred tax assets, cash segregated under federal regulations and net intangibleassets. Of our total assets at March 31, 2005, $554.0 million consisted of cashand short term investments, primarily in government obligations maturing withinthree months, cash and securities segregated under federal regulations andovernight repurchase agreements. Our total capital base, which consists of longterm obligations (inclusive of subordinated debt, other than those related tocontributed exchange memberships) and total stockholders’ equity, increasedslightly to $1,193.2 million at March 31, 2005 from $1,191.7 million atDecember 31, 2004. This change was mainly due to an increase in equityassociated with higher additional paid-in capital and retained earnings,partially offset by a net decrease in long term obligations.

 

To date, we have financed our operations primarilywith retained earnings from operations and proceeds from our debt and equityofferings. Due to the nature of the securities business and our role as aspecialist, market-maker and execution agent, the amount of our cash and short terminvestments, as well as operating cash flow, may vary considerably due to anumber of factors, including the dollar value of our positions as principal,whether we are net buyers or sellers of securities, the dollar volume ofexecutions by our customers and clearing house requirements, among others.Certain regulatory requirements constrain the use of a portion of our liquidassets for financing, investing or operating activities. Similarly, the natureof our business lines, the capital necessary to maintain current operations andour current funding needs subject our cash and cash equivalents to differentrequirements and uses.

 

*CapitalResources*

 

Our outstanding Senior Noteswere issued pursuant to an indenture, which includes certain covenants that,among other things, limit our ability to make certain investments, engage intransactions with stockholders and affiliates, create liens on our assets andsell assets or engage in mergers and consolidations, except in accordance withcertain specified conditions.****Inaddition, our ability to incur additional indebtedness (other than certain “permittedindebtedness”), pay dividends, redeem stock, repurchase subordinatedindebtedness prior to maturity or make certain investments will be limited ifour consolidated fixed charge coverage ratio—calculated on a four-quartertrailing basis—is at or below a threshold of 2.00:1 on and after December 31,2004. The “consolidated fixed charge coverage ratio” reflects a comparison

 

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between (1) our consolidatedearnings before interest, taxes, depreciation and amortization expenses, or “EBITDA,”and (2) the sum of our consolidated interest expense and a tax-effectedmultiple of any dividend payments that we might make with respect to preferredstock.  As of March 31, 2005, ourconsolidated fixed charge coverage ratio was approximately 1.66:1.  The indenture provides for an exception tothe limitations on restricted payments, which allows us to make restrictedpayments up to an aggregate of $15.0 million over the life of the indenture,regardless of our consolidated fixed charge coverage ratio.

 

In addition, under the indenture governing the SeniorNotes, if, at any time, our cumulative “restricted payments” since May 18, 2004generally are greater than (i) the sum of (A) 50.0% of our cumulativeconsolidated net income since July 1, 2004 (or, if such calculation is a loss,minus 100.0% of such loss) and (B) 100.0% of the net cash proceeds receivedfrom any issuance or sale of our capital stock since July 1, 2004, plus (ii)$15.0 million, we will not be entitled to make a “restricted payment” at suchtime.  While we have not made anyrestricted payments since May 18, 2004, we cannot be sure if, when or to whatextent this covenant will prevent us from making restricted payments higherthan an aggregate of $15.0 million in the future.

 

The indenture also permitsus to redeem some or all of the 2009 Senior Notes on or after May 15, 2007 andsome or all of the 2012 Senior Notes on or after May 15, 2008 at varyingredemption prices, depending on the date of redemption.  In addition, we have the option to redeem upto 33.0% of the aggregate principal amount of the 2009 Senior Notes at a redemptionprice of 109.5% and up to 33.0% of the aggregate principal amount of the 2012Senior Notes at a redemption price of 111.0% using the proceeds of certainequity offerings which we may complete on or prior to May 15, 2007.  Under the terms of the indenture, if we sellsubstantially all our assets or experience specific kinds of changes incontrol, we will be required to offer to repurchase Senior Notes, on a pro ratabasis, at a price in cash equal to 101.0% of their principal amount, plusaccrued and unpaid interest, if any, to the date of purchase.

 

We also have outstanding$13.6 million aggregate principal amount of 12.0% senior subordinated notes due2007 (the “2007 Notes”) that were not tendered for repurchase in connectionwith our May 2004 debt refinancing. Until their maturity on March 2, 2007, the2007 Notes will continue to accrue interest at a rate of 12.0% per annum.

 

In connection with the saleof our investment in Lava Trading Inc. (“Lava”) pursuant to an acquisition ofLava in August 2004, we received cash of approximately $39.0 million at theclosing. Additional consideration of approximately $9.5 million is being heldin escrow to secure our indemnification obligations as a stockholder of Lavaunder the merger agreement and may be released in whole or in part 15 monthsafter the acquisition is consummated, subject to the final determination of anythen-outstanding indemnification claims and any claims regarding taxes.  Under the terms of the indenture governingthe Senior Notes, to the extent we do not use the net after-tax proceeds of theLava transaction to repurchase certain of our secured indebtedness, repay theindebtedness of our subsidiaries or purchase “replacement assets,” we will berequired, on the 361st day following the closing of the Lavatransaction, to offer to purchase Senior Notes in an aggregate principal amountequal to such net after-tax proceeds at a price equal to 100.0% of theprincipal amount of such Senior Notes.

 

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As of March 31, 2005, thesubordinated indebtedness of LaBranche & Co. LLC aggregated $15.4 million(excluding subordinated liabilities related to contributed exchangememberships). This subordinated debt is comprised of senior subordinated notesand junior subordinated notes, which mature on various dates between December2005 and June 2008 and bear interest at annual rates ranging from 7.7% to10.0%. The seniorsubordinated notes were originally issued in the aggregate principal amount of$15.0 million, and, in accordance with their terms, $3.0 million in principalamount must be repaid on June 3 of each of 2004, 2005, 2006, 2007 and 2008.LaBranche & Co. LLC may prepay, at a premium, all or any part of suchsenior subordinated notes at any time, provided that the amount prepaid is notless than 5.0% of the aggregate principal amount of such senior subordinatednotes then outstanding. Upon the occurrence of a change of control, LaBranche& Co. LLC may, but is not required to, make one irrevocable separate offerto each holder of the senior subordinated notes to prepay all the seniorsubordinated notes then held by that holder. The occurrence of a change ofcontrol also constitutes an event of acceleration under the senior subordinatednotes.  Each of the juniorsubordinated notes has an automatic rollover provision, which extends thematurity for an additional year, unless the lender provides at least sevenmonths advance notice of its intention not to renew at maturity. LaBranche& Co. LLC is entitled to prepay—with written consent from the NYSE—thejunior subordinated notes without penalty under the terms of the agreementsrelating thereto. During the first quarter of 2005, we repaid approximately$1.9 million aggregate principal amount, plus accrued but unpaid interest,relating to these notes.

 

As of March 31, 2005, $10.0 million of ouroutstanding indebtedness consisted of one note for $2.0 million, which maturesin June 2005 and bears interest at an annual rate of 8.0%, and eight separatenotes, each in the principal amount of $1.0 million, which mature in August2007 and bear interest at an annual rate of 9.0%.

 

A potential source ofliquidity for LaBranche & Co. LLC is the $200.0 million committed line ofcredit that it maintains with a bank, which expires on October 28, 2005, unlessrenewed. Amounts outstanding under this credit facility would be secured by ourinventory of specialist stocks and bear interest at the bank’s broker loanrate. This facility can only be used to finance inventory requirements atLaBranche & Co. LLC. In order to maintain the availability of funds underthis credit facility, we must comply with certain financial and othercovenants.

 

*RegulatedSubsidiaries*

 

As a specialist andmarket-maker, we are required to maintain certain levels of capital and liquidassets as promulgated by various regulatory agencies, which regulate ourbusiness. As part of our overall risk management procedures (for furtherdiscussion, refer to Part I, Item 3. “Quantitative and Qualitative Disclosuresabout Market Risk”), we balance our responsibility as specialist, market-makerand broker-dealer with our overall capital resources. These requirements mayrestrict our ability to make use of cash and other liquid assets for corporateactions, such as repaying our debt, repurchasing stock or making acquisitions.

 

As a broker-dealer,LaBranche & Co. LLC is subject to regulatory requirements intended toensure the general financial soundness and liquidity of broker-dealers andrequiring

 

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the maintenance of minimumlevels of net capital, as defined in SEC Rule 15c3-1. LaBranche & Co. LLCis required to maintain minimum net capital, as defined, equivalent to thegreater of $100,000 or 1/15 of aggregate indebtedness, asdefined. NYSE Rule 326(c) also prohibits a broker-dealer from repayingsubordinated borrowings, paying cash dividends, making loans to any parent,affiliates or employees, or otherwise entering into transactions which wouldresult in a reduction of its total net capital to less than 150.0% of itsrequired minimum capital. Moreover, broker-dealers are required to notify theSEC prior to repaying subordinated borrowings, paying dividends and makingloans to any parent, affiliates or employees, or otherwise entering intotransactions which, if executed, would result in a reduction of 30.0% or moreof their excess net capital (net capital less minimum requirement). The SEC hasthe ability to prohibit or restrict such transactions if the result is deemeddetrimental to the financial integrity of the broker-dealer. As of March 31,2005, LaBranche & Co. LLC’s net capital, as defined, was $465.1 million,which exceeded the minimum requirements by $464.1 million.

 

TheNYSE generally requires its specialist firms to maintain a minimum dollarregulatory capital amount in order to establish that they can meet, with theirown net liquid assets, their position requirement. As of March 31, 2005, LaBranche & Co. LLC’s and LSPS’minimum required combined dollar amount of net liquid assets, as defined, was$447.0 million. LaBranche& Co. LLC’s actual net liquid assets, as defined, were $461.6 million as ofMarch 31, 2005. As of March 31, 2005, since LaBranche & Co. LLC’s actualnet liquid assets exceeded the combined net liquid assets requirement ofLaBranche & Co. LLC and LSPS, LSPS satisfied its net liquid assetsrequirement. Of our total consolidated $456.4 million of cash and cashequivalents as of March 31, 2005, $370.8 million of LaBranche & Co. LLC’scash and cash equivalents was used to satisfy a portion of the NYSE’s $447.0million minimum combined net liquid assets requirement. The NYSE iscurrently reviewing its net liquid asset requirements with an announced viewtoward reducing the required amounts for specialists such as LaBranche &Co. LLC. The timing and extent of any such reduction, however, has not beenfinally determined. A reduction in LaBranche & Co. LLC’s net liquid assetsrequirement would allow funds no longer needed for net liquid assets purposesto be used for other corporate purposes.

 

The AMEX generally requiresits equity specialist firms to maintain a cash or liquid asset position of thegreater of (a) $1.0 million or (b) an amount sufficient to assume a position ofsixty trading units of each security in which the specialist is registered. Asof March 31, 2005, LaBranche & Co. LLC satisfied the AMEX equity specialistliquid asset requirements.

 

As a registeredbroker-dealer and member firm of the NYSE, LFSI also is subject to SEC Rule15c3-1, as adopted and administered by the NYSE and the SEC. Under thealternative method permitted by the rule, the minimum required net capital ofLFSI as of March 31, 2005 was equal to the greater of $1.5 million or 2.0% ofaggregate debit items, as defined. As of March 31, 2005, LFSI’s net capital, asdefined, was $11.1 million, which exceeded its minimum net capital requirementby $9.6 million.

 

As a clearing broker-dealer,LFSI is subject to SEC Rule 15c3-3, as adopted and administered by the SEC. Asof April 4, 2005, to comply with LFSI’s March 31, 2005

 

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requirement, cash and U.S.Treasury Bills in the amount of $0.9 million were segregated in a specialreserve account for the exclusive benefit of customers exceeding actualrequirements by $0.9 million. In addition, the Proprietary Accounts ofIntroducing Brokers (“PAIB”) Calculation is computed in order for correspondentfirms to classify their assets held by LFSI as allowable assets in thecorrespondents’ net capital calculation. As of April 4, 2005, to comply with LFSI’s March 31, 2005 requirement,cash and U.S. Treasury Bills in the amount of $4.5 million were segregated in aspecial reserve account for the exclusive benefit of customers exceeding actualrequirements by $2.2 million.

 

As a registeredbroker-dealer and AMEX member firm, LSP is subject to SEC Rule 15c3-1, asadopted and administered by the AMEX and the SEC. LSP is required to maintainminimum net capital, as defined, equivalent to the greater of $100,000 or 1/15of aggregate indebtedness, as defined. As of March 31, 2005, LSP’s netcapital, as defined, was $35.0 million, which exceeded its minimum net capitalrequirement by $34.8 million.

 

As a specialist and member of the NYSE, LSPS issubject to the provisions of SEC Rule 15c3-1, as adopted and administered bythe SEC and NYSE. LSPS is required to maintain minimum net capital, as defined,equivalent to the greater of $100,000 or 1/15 ofaggregate indebtedness, as defined. As of March 31, 2005, LSPS’ netcapital, as defined under SEC Rule 15c3-1, was $4.6 million, which exceeded theminimum requirements by $4.5 million.

 

Failure by any of ourbroker-dealer subsidiaries to maintain its required net capital and net liquidassets, where applicable, may subject it to suspension or revocation of its SECregistration or its suspension or expulsion by the NYSE, the AMEX and/or anyother exchange of which it is a member firm.

 

As evidenced by theforegoing requirements, our broker-dealer subsidiaries require a substantialamount of capital. In particular, LaBranche & Co. LLC’s and LSPS’ combinednet liquid asset requirement of $447.0 million limits our ability to utilize asubstantial portion of our liquid assets for other corporate purposes. Althougha portion of the combined net liquid asset requirement of $447.0 million is metby LaBranche & Co. LLC’s and LSPS’ securities positions, pending trades andother assets associated with its equity and ETF specialist activities, asubstantial portion of LaBranche & Co. LLC’s cash and cash equivalents asof March 31, 2005 was used to meet their combined net liquid asset requirement.

 

*OtherContractual Obligations*

 

In connection with ouracquisition of ROBB PECK McCOOEY Financial Services, Inc. (“RPM”) in March2001, we assumed its liabilities and obligations under its deferredcompensation plan. The deferred compensation plan provides for the payment, onor before December 15, 2007, of approximately $30.2 million, plus interest at arate of 8.0% per year, to certain former employees of RPM. While the payment ofbenefits under this deferred compensation plan may be accelerated in certaincircumstances, no more than $6.0 million in deferred compensation benefits(including interest) may be paid in any 12 consecutive month period beginningMarch 15, 2001. After taking into account all payments of deferred compensationplan benefits through March 31, 2005, approximately $13.8 million, plus

 

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interest, remains payableunder the RPM deferred compensation plan. If the plan is terminated, the deferred compensation benefits (includinginterest) of all participants—to the extent not previously paid—must bedistributed to the participants in one lump sum.

 

*CashFlows*

 

Our cash and cash equivalents during the three-monthperiod ended March 31, 2005 increased $11.9 million to $456.4 million. Theincrease was the result of (a) $14.8 million provided by our operatingactivities primarily from increases in our securities sold, but not yetpurchased, accounts payable and other accrued expenses and payable to brokersand dealers, partially offset by increases in receivable from brokers, dealersand clearing organizations, securities owned, and other assets and a decreasein accrued compensation; (b) $0.7 million used in investing activities forcapital expenditures and purchases of exchange memberships; and (c) $2.2million used in financing activities primarily from payments on subordinateddebt.

 

Wecurrently anticipate that we will be able to meet our working capital, regulatorycapital and capital expenditure requirements through at least the next twelvemonths.

 

**Credit Ratings**

 

Following our May 2004 debt refinancing, $13.6million aggregate principal amount of our 2007 Notes remain outstanding. These2007 Notes are publicly held but are no longer rated. The following table setsforth the credit ratings on our Senior Notes as of March 31, 2005:

 
| ** **        | ** ** | **Moody’s  Investors Service** | ** ** | **Standard &  Poor’s** | ** ** |
|-------------------|------------|-------------------------------------|------------|---------------------------------|------------|
|              |       |                                |       |                            |       |
| 2009 Senior Notes |       | Ba1                                 |       | B                               |       |
|              |       |                                |       |                            |       |
| 2012 Senior Notes |       | Ba1                                 |       | B                               |       |

 

## **Item3.**            Quantitative and Qualitative Disclosures about MarketRisk.

## ** **

Because our equity specialist activities on the NYSEand AMEX expose our capital to significant risks, managing these risks is aconstant priority for us. Our central role in the auction process helps us tomanage risks by incorporating up-to-date market information in the managementof our inventory, subject to our specialist obligations. We have developed arisk management process that is designed to balance our ability to profit fromour specialist activities with our exposure to potential losses.

 

*Compliance Risk*

 

Our LaBranche & Co. LLC risk management processincludes participation by our corporate compliance committee, executiveoperating committee, floor management committee, post managers, floor captainsand specialists. These parties’ roles are as follows:

 

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*CorporateCompliance Committee*.  Our corporate compliance committee was establishedin February 2002 and consists of representatives from executive and seniormanagement, compliance personnel, including our on-floor compliance officer,our general counsel and several additional senior floor specialists, known aspost managers. The role of the corporate compliance committee is to implement,monitor and report to senior management on the statutory and regulatorycompliance efforts of our specialist business. The corporate compliance committee also establishes, reviews and revisesour policies and procedures governing LaBranche & Co. LLC’s regulatorycompliance structure.

 

*Executive Operating Committee.* Our executive operating committee is composed of two executive officersof LaBranche & Co. LLC. This committee is responsible for approving allrisk management procedures and trading guidelines for our specialist stocks,after receiving recommendations from our floor management committee. Inaddition, our executive operating committee reviews all unusual situationsreported to it by our floor management committee.

 

*Floor Management Committee.*  Our floor management committee is composed ofsix post managers. This committee is responsible for formulating and overseeingour overall risk management procedures and trading guidelines for each of ourspecialist stocks. In determining these procedures and guidelines, our floormanagement committee considers the recommendations of our floor captains. Ourpost managers meet with their respective floor captains on a weekly basis toreview and, if necessary, revise the risk management procedures and tradingguidelines for LaBranche & Co. LLC and/or for particular specialist stocks.In addition, post managers are always available on the trading floor to reviewand assist with any unusual trading situations reported by any floor captain.Our floor management committee reports to our executive operating committeeabout each of these unusual trading situations as they occur.

 

*Floor Captains.* We have thirteen floor captains who monitor the activities of LaBranche& Co. LLC’s specialists throughout the trading day from various positionsat their trading posts. The floor captains observe trades and constantly reviewtrading activities on a real-time basis. In addition, the floor captains arereadily available to assist LaBranche & Co. LLC’s specialists in determiningwhen to deviate from our procedures and guidelines in reacting to any unusualsituations or market conditions. The floor captains report these unusualsituations and any deviations from our procedures and guidelines to theirrespective post managers. Floor captains meet with each specialist at leastonce a week to evaluate each specialist’s adherence to our risk managementprocedures and trading guidelines. Floor captains also meet to review riskprocedures and guidelines and, if appropriate, make recommendations to thefloor management committee.

 

*Specialists.* LaBranche & Co. LLC’s specialists conduct auctions of our specialiststocks based upon the conditions of the marketplace. In doing so, specialistsobserve our risk management procedures and trading guidelines in tandem withtheir responsibility to create and maintain a fair and orderly market.Specialists immediately notify a floor captain of any unusual situations ormarket conditions requiring a deviation from our procedures and guidelines.

 

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We believe that theenhancements we have made to our compliance procedures and guidelines inconnection with the undertakings set forth in our March 2004 settlement withthe SEC and NYSE have improved our LaBranche & Co. LLC risk managementprocess.

 

Our equity specialist operations on the AMEX areconducted by six equity specialists. We have one post manager on the AMEX whomonitors the trading activities of the AMEX equity specialists by observingtrades and reviewing positions on a real-time basis. As a member of the floormanagement committee, the post manager regularly communicates with othermembers of the floor management committee regarding any deviations from ourAMEX procedures and guidelines set by LaBranche & Co. LLC’s executiveoperating committee.

 

Our AMEX derivatives specialist operations areconducted by seven derivates specialists, including a “head specialist” whosupervises the trading activities of the other specialists on the tradingfloor. Under the supervision of the head specialist, each specialist reports onany trading issues that may arise.  LSP’scompliance department conducts regular meetings with senior management and thespecialists to review all appropriate compliance-related issues and providecompliance guidance and education.

 

With respect to our other derivatives specialist and market-makingoperations, LSP’s compliance department monitors compliance with applicable SECand exchange rules on a daily basis. LSP’s compliance department also conductstraining sessions and holds regular meetings with senior management and ourspecialist and market-maker employees to communicate and reinforce ourcompliance procedures.

 

*Circuit Breaker Rules.* The NYSE and AMEX have certain circuit breaker rules intended to halttrading in all NYSE/AMEX listed stocks in the event of a severe market decline.The circuit breaker rules impose temporary halts in trading when the Dow JonesIndustrial Average drops a certain number of points. Current circuit breakerlevels are set quarterly at 10, 20 and 30 percent of the Dow JonesIndustrial Average closing values of the previous month, rounded to the nearest50 points. These rules provide investors extra time to respond to severe marketdeclines and provide us an additional opportunity to assure compliance with ourrisk management procedures.

 

*Equity Market Risk*

 

We have developed a risk management process, which isintended to balance our ability to profit from our equity specialist activitieswith our exposure to potential losses. We have invested substantial capital,along with the NYSE, in real-time, on-line systems which give our managementinstant access to specific trading information at any time during the tradingday, including our aggregate long and short positions and our capital andprofit-and-loss information on an aggregate or per issue basis.  Subject to the specialist’s obligation tomaintain a fair and orderly market and to applicable regulatory requirements,we constantly seek to manage our trading positions relative to existing marketconditions.

 

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A high concentration of LaBranche & Co. LLC’sprincipal trading revenue is generated from its ten and twenty-five mostprofitable NYSE specialist stocks. The percentage of LaBranche & Co. LLC’sequity specialist trading revenue generated from its ten most profitablespecialist stocks has increased slightly from 18.4% to 19.8% of total principaltrading revenue for the three months ended March 31, 2004 and 2005,respectively. The percentage of LaBranche & Co. LLC’s equity specialisttrading revenue generated from its twenty-five most profitable specialiststocks has increased from 34.4% to 39.6% of total principal trading revenue forthe three months ended March 31, 2004 and 2005, respectively.  Despite these increases, LaBranche & Co.LLC is not overly reliant on a particular group of specialist stocks, as thecomposition of its ten and twenty-five most profitable specialist stockschanges frequently.

 

Our equity specialist trading activities are subjectto a number of risks, including risks of price fluctuations, rapid changes inthe liquidity of markets and foreign exchange risk related to AmericanDepositary Receipts (“ADRs”). In any period, we may incur trading losses in ourspecialist stocks for a variety of reasons, including price fluctuations of ourspecialist stocks and carrying out our specialist obligations. From time totime, we may have large position concentrations in securities of a singleissuer or issuers engaged in a specific industry. In general, because ourinventory of securities is marked-to-market on a daily basis, any significantprice movement in these securities could result in a reduction of our revenuesand operating profits.

 

*Derivatives Market Risk*

 

As a specialist in options, ETFs and futures, LSP hasa responsibility to maintain a fair and orderly market, and trades securitiesas principal out of both obligation and inclination. LSP’s options, ETFs,futures, U.S. Government obligations and foreign currency trading exposes it tocertain risks, such as price and interest rate fluctuations, volatility risk,credit risk, foreign currency movements and changes in the liquidity ofmarkets. LSP maintains a market-making capacity in options, ETFs and futuresand trades as principal out of inclination. In its market-making function, LSPbrings immediacy and liquidity to the markets when it chooses to participate.LSP’s market-making activities expose it to certain risks including, but notlimited to, price fluctuations and volatility.

 

As a specialist in ETFs on the NYSE, LSPS isresponsible for maintaining a fair and orderly market and trades ETFs asprincipal out of both obligation and inclination.  LSPS’ ETF trading exposes it to certainrisks, including price fluctuations, foreign currency movements and changes inthe liquidity of markets.

 

Certain members of LSP’s and LSPS’ management areresponsible for managing these risks. These individuals utilize a third-partysoftware application to monitor LSP’s and LSPS’ positions on a real-time basis.By monitoring actual and theoretical profit and loss, volatility and otherstandard risk measures, these individuals seek to assure that all LSP and LSPStraders operate within the parameters set by management. LSP’s and LSPS’traders purchase and sell futures, options, the stocks underlying certainpositions, U.S. Government securities and foreign currencies in an attempt tohedge market and foreign currency risk. LSP’s and LSPS’

 

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aggregate risk is under constant evaluation by certainmembers of management and its traders, and all significant trading strategiesand positions are closely monitored. LSP’s and LSPS’ options, futures and ETFtrading is executed on national and foreign exchanges. These trades clearthrough the Options Clearing Corporation, the National Securities ClearingCorporation or the applicable exchange clearing organization, thereby reducingpotential credit risk.

 

The following chart illustrates how specifiedmovements in the underlying securities prices of LSP’s and LSPS’ entireportfolios would have impacted profits and losses from their tradingactivities: 

 
| ** **               | ** ** | **Profit or (Loss) if the underlying securities move:** | ** ** |
|--------------------------|------------|---------------------------------------------------------|------------|
| **(000’s omitted)** | ** ** | **-15.0%**                                              | ** ** | **-5.0%** | ** ** | **0%** | ** ** | **+5.0%** | ** ** | **+15.0%** | ** ** |
| **Portfolio as of:**     | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| March 31, 2005           |       | $                                                       | (10,167    | ) | $ | 8,609 |   | $ | (20 | ) | $ | 6,028 |   | $ | 15,930 |   |
|                          |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The information in the above table is based on certaintheoretical assumptions, and thus does not fully represent the profit or lossexposure to changes in volatility, interest rates and dividends. The zeropercent change column represents the profit or loss LSP and LSPS wouldexperience on a daily basis if the relevant market remained unchanged.

 

*Foreign Currency Risk*

 

In connection with LaBranche & Co. LLC’s tradingof U.S.-registered shares of foreign issuers, it is exposed to varying degreesof foreign currency risk. The pricing of these securities is based on the valueof the ordinary securities as denominated in their local currencies. Thus, achange in a foreign currency rate relative to the U.S. dollar will result in achange in the value of U.S.-registered shares in which LaBranche & Co. LLCacts as the specialist.

 

LSP and LSPS trade international ETFs that are denominatedand settled in U.S. dollars, but the pricing of these ETFs is also affected bychanges in the relevant foreign currency rates. LSP and LSPS hold variousforeign currencies in order to lessen the risks posed by changing foreigncurrency rates. In addition, LSP and LSPS trade derivatives denominated inforeign currencies, which creates exposure to foreign currency risk for LSP.

 

The following chart illustrates how the specifiedmovements in foreign currencies relative to the U.S. dollar to which LSP, LSPSand LaBranche & Co. LLC are exposed would have impacted profits and lossesfrom their trading activities:

 

| ** **               | ** ** | **Profit or (Loss) if the foreign currencies relative  to the U.S. dollar move:** | ** ** |
|--------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **(000’s omitted)** | ** ** | **-15.0%**                                                                        | ** ** | **-5.0%** | ** ** | **+5.0%** | ** ** | **+15.0%** | ** ** |
| **Portfolio as of**:     |       |                                                                              |       |   |   |   |   |   |   |
| March 31, 2005           |       | $                                                                                 | (1,487     | ) | $ | (496 | ) | $ | 496 |   | $ | 1,487 |   |
|                          |            |                                                                                   |            |  |  |  |  |  |  |  |  |  |  |

 

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The information in the abovetable is based on certain assumptions and it does not fully represent theprofit and loss exposure to changes in security prices, volatility, interestrates and other related factors.

 

*Execution and Clearing Risk*

 

In connection with their specialist and market-makingactivities, LaBranche & Co. LLC, LSP and LSPS are engaged in varioussecurities trading and lending activities and assume positions in stocks,rights, options, ETFs, U.S. Government securities, futures and foreigncurrencies for which they are exposed to credit risk associated with thenonperformance of counterparties in fulfilling their contractual obligationspursuant to these securities transactions. LaBranche & Co. LLC, LSP andLSPS are also exposed to market risk associated with the sale of securities notyet purchased, which can be directly impacted by volatile trading on the NYSE,AMEX and other exchanges. Additionally, in the event of nonperformance andunfavorable market price movements, LaBranche & Co. LLC, LSP and LSPS maybe required to purchase or sell financial instruments at a loss.

 

LFSI’s execution andclearing activities require that LFSI execute transactions in accordance withcustomer instructions and accurately record and process the resultingtransactions. Any failure, delay or error in executing, recording andprocessing transactions, whether due to human error or failure of LFSI’sinformation or communication systems, could cause substantial losses forbrokers, customers and/or LFSI and could subject LFSI to claims for losses.

 

Clearing activities includesettling each transaction with both the contra broker and the customer. Inconnection with LFSI’s institutional and direct access floor brokerageactivities, a transaction is settled either when the customer pays forsecurities purchased and takes delivery, or delivers securities sold forpayment. Settling transactions for retail customers and professional investorsinvolves financing the transaction until the customer makes payment or, formargin accounts, advancing credit to the customer within regulatory andinternal guidelines. Clearing direct access brokers’ transactions includesguaranteeing their transactions to the contra broker on the exchange floor.

 

These clearing activitiesmay expose LFSI to off-balance sheet risk in the event customers or brokers areunable to fulfill their contractual obligations and it is necessary to purchaseor sell securities at a loss. For margin transactions, LFSI may be exposed tooff-balance sheet risk in the event margin requirements are not sufficient tofully cover losses that customers may incur in their accounts.

 

The amount of risk relatedto LFSI’s execution and clearance activities is linked to the size of thetransaction, market volatility and the creditworthiness of customers andbrokers. LFSI’s largest transactions involve those for institutional and directaccess floor brokerage customers.

 

LFSI systematically monitorsits open transaction risk starting when the transaction occurs and continuinguntil the designated settlement date. Transactions that remain unsettled

 

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after settlement date arescrutinized and necessary action to reduce LFSI’s risk is taken. Credit riskthat could result from contra brokers defaulting is minimized since much of thesettlement risk for transactions with brokers is essentially transferred to theNational Stock Clearing Corporation. The credit risk associated withinstitutional and direct access clearing customers is minimized since thesecustomers have been qualified by the Depository Trust Company (“DTC”) or theDTC participants or have met the prime broker qualification standards at otherbrokerage firms. Before conducting business with a prospective customer, LFSI’ssenior management, in conjunction with its compliance department, reviews theprospective customer’s experience in the securities industry, financialcondition and personal background, including a background check with a riskreporting agency. For retail customers and professional investors, LFSI seeksto control the risks associated with customer activities by requiring customersto maintain margin collateral in compliance with various regulatory andinternal guidelines. LFSI monitors margin levels daily pursuant to suchguidelines and requires customers to deposit additional collateral or reducepositions when necessary.

 

*Operational Risk*

 

Operational risk relates to the risk of loss fromexternal events, and from failures in internal processes or informationsystems. In each of our business segments, we rely heavily on our informationsystems in managing our risk. Accordingly, working in conjunction with theNYSE, we have made significant investments in our trade processing andexecution systems. Our use of, and dependence on, technology has allowed us tosustain our growth over the past several years. Management members and floorcaptains at our NYSE and AMEX operations must constantly monitor our positionsand transactions in order to mitigate our risks and identify troublesome trendsshould they occur. The substantial capital we have invested, along with theNYSE, in real-time, on-line systems affords management instant access tospecific trading information at any time during the trading day, including:

 

•                  our aggregate long and short positions;

 

•                  the various positions of each of ourtrading professionals;

 

•                  our overall position in a particularstock; and

 

•                  capital and profit-and-loss informationon an aggregate, per specialist or per issue basis.

 

Our information systems send and receive data from theNYSE and AMEX through dedicated data feeds. The NYSE supplies us withspecialist position reporting system terminals both on the trading floor and inour offices. These terminals allow us to monitor our NYSE trading profits andlosses, as well as our positions. For our AMEX equity operations, our in-housetechnology staff has developed applications to monitor our current positionsand profits and losses.  Our derivativestrading operation utilizes a third-party software application to monitor itspositions and profits and losses on a real-time basis.

 

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We have developed and implemented a businesscontinuity plan, which includes a comprehensive disaster recovery plan. We haveback-up disaster recovery centers in New York and New Jersey.

 

*Legal and Regulatory Risk*

 

Substantial legal liability or a significantregulatory action against us could have a material adverse effect on ourfinancial condition or cause significant harm to our reputation, which in turncould negatively affect our business prospects.

 

As registered broker-dealers, LaBranche & Co. LLC,LFSI, LSP and LSPS are subject to certain regulatory requirements intended toinsure their general financial soundness and liquidity. These subsidiaries aresubject to SEC Rules 15c3-1, 15c3-3 and other requirements adopted andadministered by both the NYSE and AMEX.

 

The USA PATRIOT Act of 2001 requires U.S. financialinstitutions, including banks, broker-dealers, futures commission merchants andinvestment companies, to implement policies, procedures and controls which arereasonably designed to detect and report instances of money laundering and thefinancing of terrorism. We actively monitor and update our anti-moneylaundering practices.

 

## **Item 4.**            Controls and Procedures

 

As of the end of the periodcovered by this report, an evaluation of the effectiveness of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934) was performed under the supervision and with theparticipation of our management, including our Chief Executive Officer and ChiefFinancial Officer. Based on that evaluation, our Chief Executive Officer andChief Financial Officer concluded that these disclosure controls and procedureswere effective as of the end of the period covered by this report. In addition,no change in our internal control over financial reporting (as defined in Rule13a-15(f) under the Securities Exchange Act of 1934) occurred during our mostrecent fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

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## **PART II   OTHERINFORMATION**

 

## **Item 1.**            Legal Proceedings

## ** **

There have been no material new developments in ourlegal proceedings since the filing of the 2004 10-K, except as follows:

 

Specialist TradingInvestigations.  On April 12, 2005, as part of theindustry-wide investigations relating to activities of NYSE floor specialistsin recent years, criminal and civil charges were announced against a number ofindividuals employed or formerly employed as specialists at the five largestNYSE specialist firms, including a specialist formerly employed by LaBranche& Co. LLC.  We will continue tocooperate with any continuing investigations.

 

Brown.  OnApril 22, 2005, our Board of Directors determined to refuse the demand.

 

Henik.  OnMarch 23, 2005, another shareholder, Guy C. Lewis, commenced an identicalaction in the United States District Court for the Southern District of NewYork (No. 05 CV 3165).  On April 15,2005, the cases were consolidated.

 

Last Atlantis/Rule.  OnMarch 30, 2005, the Court dismissed the Last Atlantis action.  On April 13, 2005, plaintiffs filed a motionfor reconsideration of the dismissal.

 

Webelieve that the claims asserted against us by the plaintiffs in the pendingproceedings described in the 2004 10-K, as updated above, are without merit,and we deny all allegations of wrongdoing. There can be no assurance, however, as to the outcome or timing of theresolution of these proceedings.  Wetherefore are unable to estimate the amount or potential range of any loss thatmay arise out of these proceedings.  Therange of possible resolutions could include determinations and judgmentsagainst us or settlements that could require substantial payments by us thatcould have a material adverse effect on our financial condition, results ofoperations and cash flows.

 

Inaddition to the proceedings described in the 2004 10-K, as updated above, weand our operating subsidiaries have been the target, from time to time, ofvarious claims and lawsuits incidental to the ordinary course of our and theirrespective businesses. While the ultimate outcome of those claims and lawsuitswhich currently are pending cannot be predicted with certainty, we believe,based on our understanding of the facts of these proceedings, that theirultimate resolution will not, in the aggregate, have a material adverse effecton our financial condition, results of operations or cash flows.

 

## **Item 5.**            Other Information.

## ** **

*We have included in this Form 10-Qfiling, and from time to time our management may make, statements which mayconstitute “forward-looking statements” within the meaning of the safe harborprovisions of The Private Securities Litigation Reform Act of 1995. Our*

 

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*quarterly and annual operatingresults are affected by a wide variety of factors that could materially andadversely affect actual results, including a decrease in trading volume on theNYSE or the AMEX, excessive volatility in the equity securities market andchanges in the value of our securities positions. As a result of these andother factors, we may experience material fluctuations in future operatingresults on a quarterly or annual basis, which could materially and adverselyaffect our business, financial condition, operating results and stock price. Aninvestment in us involves various risks, including those mentioned above andthose that are detailed from time to time in our SEC filings.*

* *

Certain statements contained in this report, includingwithout limitation, statements containing the words “believe,” “intend,” “expect,”“anticipate” and words of similar import, also may constitute “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. Readers are cautioned that any such forward-looking statements are notguarantees of future performance, and since such statements involve risks anduncertainties, our actual results and performance and the performance of thespecialist industry as a whole, may turn out to be materially different fromthe results expressed or implied by such forward-looking statements. Giventhese uncertainties, readers are cautioned not to place undue reliance on suchforward-looking statements. We also disclaim any obligation to update our viewof any such risks or uncertainties or to publicly announce the result of anyrevisions to the forward-looking statements made in this report.

 

## **Item 6.**            Exhibits.

 
|   | 31.1   |   | Certification of George M.L. LaBranche, IV,  Chairman, Chief Executive Officer and President, pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                            |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                 |
|   | 31.2   |   | Certification of Harvey S. Traison, Senior Vice  President and Chief Financial Officer, pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                                                                 |
|   | 32.1   |   | Certification of George M.L. LaBranche, IV,  Chairman, Chief Executive Officer and President, pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002, regarding the information contained in  LaBranche & Co Inc.’s Quarterly Report on Form 10-Q for the period ended  March 31, 2005. |
|   |   |   |                                                                                                                                                                                                                                                                                                 |
|   | 32.2   |   | Certification of Harvey S. Traison, Senior Vice  President and Chief Financial Officer, pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, regarding the information contained in LaBranche  & Co Inc.’s Quarterly Report on Form 10-Q for the period ended March 31,  2005.       |
|   |   |   |                                                                                                                                                                                                                                                                                                 |
|   |   |   | All other items of this  report are inapplicable.                                                                                                                                                                                                                                                    |

 

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**SIGNATURES**

** **

Pursuant to the requirements of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 

 
| May 10, 2005 | LABRANCHE & CO INC. |
|--------------|-------------------------|
|         |                    |
|         |                    |   |
|         | By:                     | /s/ Harvey S. Traison |   |
|         | Name:                   | Harvey S. Traison |
|         | Title:                  | Senior Vice President and Chief |
|         |                    | Financial Officer |

 

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EXHIBIT INDEX

 
| **Exhibit No.** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                           |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                 |
| 31.1            |       | Certification of George M.L. LaBranche, IV,  Chairman, Chief Executive Officer and President, pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 31.2            |       | Certification of Harvey S. Traison, Senior Vice  President and Chief Financial Officer, pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 32.1            |       | Certification of George M.L. LaBranche, IV,  Chairman, Chief Executive Officer and President, pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002, regarding the information contained in  LaBranche & Co Inc.’s Quarterly Report on Form 10-Q for the period ended  March 31, 2005. |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 32.2            |       | Certification of Harvey S. Traison, Senior Vice  President and Chief Financial Officer, pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, regarding the information contained in LaBranche  & Co Inc.’s Quarterly Report on Form 10-Q for the period ended March 31,  2005.       |

 

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