**SECURITIES AND 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  September 30, 2003**                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                   |                                                                                                |
| **OR**                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                   |                                                                                                |
| **o**                                                                                                                                                                                                                                                  | **Transition  Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934** |
|                                                                                                                                                                                                                                                   |                                                                                                |
| **For the transition period from                     to                   ** |
|                                                                                                                                                                                                                                                   |                                                                                                |
| **Commission File Number 001-15251**                                                                                                                                                                                                                   |

 

**LABRANCHE & CO INC.**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                                                                         |   | **13-4064735**                        |
|--------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                     |   | (I.R.S. Employer  Identification No.) |
|                                                                                 |   |                                  |
| **One Exchange Plaza, New York, New York 10006**                                     |
| (Address of principal  executive offices)                                            |
|                                                                                 |
| **(212) 425-1144**                                                                   |
| (Registrant’s telephone  number, including area code)                           |
|                                                                                 |
| **Not  Applicable**                                                                  |
| (Former name, former  address and former fiscal year,  if changed since last report) |

 

Indicate by check markwhether the registrant:  (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes ý            No o

 

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

 

The number of shares ofthe registrant’s common stock outstanding as of November 14, 2003 was59,791,036.

 

 

----

 

**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 |   |
|                                     |                                                                                                        |   |   |
|                                     |                                                                                                        | CERTIFICATIONS |   |

 

2

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# **PART I**                          FINANCIALINFORMATION

 

## **Item 1.**                              Financial Statements.

 

**LaBRANCHE& CO INC. and SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS(UNAUDITED)(000’s omitted except per share data)**

** **

 
|                                                           |   | **Three Months Ended  September 30,** |   | **Nine Months Ended****September 30,** |   |
|----------------------------------------------------------------|--------|--------------------------------------------|--------|---------------------------------------------|--------|
|                                                           |   | **2003**                                   |   | **2002**                                    |   | **2003** |   | **2002** |   |
|                                                           |   | **(unaudited)**                            |   | **(unaudited)**                             |   | **(unaudited)** |   | **(unaudited)** |   |
| REVENUES:                                                      |   |                                       |   |                                        |   |   |   |   |   |
| Net gain on principal transactions                             |   | $                                          | 45,019 |                                        | $      | 93,829 |   | $ | 157,013 |   | $ | 255,684 |   |
| Commissions                                                    |   | 23,371                                     |   | 24,383                                      |   | 70,746 |   | 67,776 |   |
| Other                                                          |   | 2,514                                      |   | 53                                          |   | 7,283 |   | 15,593 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| Total revenues                                                 |   | 70,904                                     |   | 118,265                                     |   | 235,042 |   | 339,053 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| EXPENSES:                                                      |   |                                       |   |                                        |   |   |   |   |   |
| Employee compensation and related benefits                     |   | 25,324                                     |   | 36,085                                      |   | 76,239 |   | 98,238 |   |
| Interest                                                       |   | 12,113                                     |   | 12,554                                      |   | 36,041 |   | 38,238 |   |
| Exchange, clearing and brokerage fees                          |   | 9,260                                      |   | 11,105                                      |   | 30,858 |   | 28,085 |   |
| Lease of exchange memberships                                  |   | 6,118                                      |   | 6,380                                       |   | 18,773 |   | 19,487 |   |
| Depreciation and amortization of intangibles                   |   | 3,128                                      |   | 3,366                                       |   | 9,717 |   | 10,055 |   |
| Other                                                          |   | 8,665                                      |   | 8,092                                       |   | 23,812 |   | 22,527 |   |
| Total expenses                                                 |   | 64,608                                     |   | 77,582                                      |   | 195,440 |   | 216,630 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| Income before minority interest and provision for income taxes |   | 6,296                                      |   | 40,683                                      |   | 39,602 |   | 122,423 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| MINORITY INTEREST                                              |   | 167                                        |   | —                                      |   | 294 |   | — |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| Income before provision for income taxes                       |   | 6,129                                      |   | 40,683                                      |   | 39,308 |   | 122,423 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| PROVISION FOR INCOME TAXES                                     |   | 2,917                                      |   | 19,306                                      |   | 18,979 |   | 58,453 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| Net income                                                     |   | $                                          | 3,212  |                                        | $      | 21,377 |   | $ | 20,329 |   | $ | 63,970 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| Series A Preferred dividends and discount accretion            |   | 950                                        |   | 1,600                                       |   | 3,059 |   | 5,417 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| Net income available to common stockholders                    |   | $                                          | 2,262  |                                        | $      | 19,777 |   | $ | 17,270 |   | $ | 58,553 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| Weighted average shares outstanding:                           |   |                                       |   |                                        |   |   |   |   |   |
| Basic                                                          |   | 59,649                                     |   | 59,008                                      |   | 59,557 |   | 58,858 |   |
| Diluted                                                        |   | 60,171                                     |   | 59,784                                      |   | 60,134 |   | 59,813 |   |
|                                                           |   |                                       |   |                                        |   |   |   |   |   |
| Earnings per share:                                            |   |                                       |   |                                        |   |   |   |   |   |
| Basic                                                          |   | $                                          | 0.04   |                                        | $      | 0.34 |   | $ | 0.29 |   | $ | 0.99 |   |
| Diluted                                                        |   | $                                          | 0.04   |                                        | $      | 0.33 |   | $ | 0.29 |   | $ | 0.98 |   |

 

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

 

3

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**LaBRANCHE & CO INC. andSUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**

**(000’s omitted except share data)**

 
|                                                                                                                                     |   | **As  of**                   |      |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                                                                                     |   | **September 30,  2003** |      | **December 31,  2002** |   |
|                                                                                                                                     |   | **(unaudited)**              |      | **(audited)** |   |
| **ASSETS**                                                                                                                               |   |                         |      |   |   |
|                                                                                                                                     |   |                         |      |   |   |
| Cash and cash equivalents                                                                                                                |   | $                            | 334,977   |   | $ | 77,033 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Cash and securities segregated under federal regulations                                                                                 |   | 7,062                        |      | 16,012 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Securities purchased under agreements to resell                                                                                          |   | 10,700                       |      | 26,000 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Receivable from brokers, dealers and clearing  organizations                                                                             |   | 221,063                      |      | 145,387 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Receivable from customers                                                                                                                |   | 4,357                        |      | 12,425 |   |
|                                                                                                                                     |   |                         |      |   |   |
| United States Government obligations                                                                                                     |   | —                       |      | 395,840 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Securities owned, at market value:                                                                                                       |   |                         |      |   |   |
| Corporate equities                                                                                                                       |   | 253,037                      |      | 106,295 |   |
| Exchange-traded funds                                                                                                                    |   | 149,524                      |      | 21,455 |   |
| Options                                                                                                                                  |   | 64,799                       |      | 61,478 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Commissions receivable                                                                                                                   |   | 4,463                        |      | 4,379 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Exchange memberships contributed for use, at market value                                                                                |   | 22,800                       |      | 26,176 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Exchange memberships owned, at cost (market value of  $74,480 and $78,337, respectively)                                                 |   | 77,834                       |      | 77,815 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Office equipment and leasehold improvements, at cost, less  accumulated depreciation and amortization of $8,439 and $6,987, respectively |   | 4,879                        |      | 6,089 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Intangible assets, net of accumulated amortization:                                                                                      |   |                         |      |   |   |
| Specialist stock lists                                                                                                                   |   | 374,174                      |      | 381,956 |   |
| Trade name                                                                                                                               |   | 25,011                       |      | 25,011 |   |
| Goodwill                                                                                                                                 |   | 470,536                      |      | 470,598 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Other assets                                                                                                                             |   | 47,403                       |      | 58,853 |   |
|                                                                                                                                     |   |                         |      |   |   |
| Total assets                                                                                                                             |   | $                            | 2,072,619 |   | $ | 1,912,802 |   |

 

4

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|                                                                                                                                                                                                            |   | **As of**                   |      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
|                                                                                                                                                                                                            |   | **September 30, 2003** |      | **December 31, 2002** |   |
|                                                                                                                                                                                                            |   | **(unaudited)**             |      | **(audited)** |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                  |   |                        |      |   |   |
|                                                                                                                                                                                                            |   |                        |      |   |   |
| Liabilities:                                                                                                                                                                                                    |   |                        |      |   |   |
| Payable to brokers and  dealers                                                                                                                                                                                 |   | $                           | 33,410    |   | $ | 16,417 |   |
| Payable to customers                                                                                                                                                                                            |   | 24,943                      |      | 21,971 |   |
| Securities sold, but not  yet purchased, at market value:                                                                                                                                                       |   |                        |      |   |   |
| Corporate equities                                                                                                                                                                                              |   | 229,380                     |      | 106,685 |   |
| Exchange-traded funds                                                                                                                                                                                           |   | 86,258                      |      | 4,359 |   |
| Options                                                                                                                                                                                                         |   | 62,800                      |      | 63,695 |   |
| Accrued compensation                                                                                                                                                                                            |   | 40,304                      |      | 55,185 |   |
| Accounts payable and other  accrued expenses                                                                                                                                                                    |   | 28,913                      |      | 50,268 |   |
| Income taxes payable                                                                                                                                                                                            |   | 11,050                      |      | 13,201 |   |
| Deferred tax liabilities                                                                                                                                                                                        |   | 182,114                     |      | 179,924 |   |
| Short term debt                                                                                                                                                                                                 |   | 101,960                     |      | 2,000 |   |
| Long term debt                                                                                                                                                                                                  |   | 255,452                     |      | 354,948 |   |
| Subordinated liabilities:                                                                                                                                                                                       |   |                        |      |   |   |
| Exchange memberships, at  market value                                                                                                                                                                          |   | 22,800                      |      | 26,176 |   |
| Other subordinated  indebtedness                                                                                                                                                                                |   | 20,285                      |      | 28,285 |   |
| Total liabilities                                                                                                                                                                                               |   | 1,099,669                   |      | 923,114 |   |
|                                                                                                                                                                                                            |   |                        |      |   |   |
| Minority interest                                                                                                                                                                                               |   | 294                         |      | — |   |
|                                                                                                                                                                                                            |   |                        |      |   |   |
| Commitments and  contingencies                                                                                                                                                                                  |   |                        |      |   |   |
|                                                                                                                                                                                                            |   |                        |      |   |   |
| Preferred stock,  liquidation value of $1,000 per share; 10,000,000 shares authorized; 39,186  and 63,836 shares issued and outstanding as of September 30, 2003 and  December 31, 2002, respectively |   | 38,151                      |      | 61,361 |   |
|                                                                                                                                                                                                            |   |                        |      |   |   |
| Common stock, $.01 par  value, 200,000,000 shares authorized; 59,789,590 and 59,504,148 shares issued  and outstanding as of September 30, 2003 and December 31, 2002,  respectively                  |   | 598                         |      | 595 |   |
|                                                                                                                                                                                                            |   |                        |      |   |   |
| Additional paid-in-capital                                                                                                                                                                                      |   | 682,197                     |      | 679,601 |   |
| Retained earnings                                                                                                                                                                                               |   | 252,043                     |      | 249,065 |   |
| Unearned compensation                                                                                                                                                                                           |   | (333                        | )         | (934 | ) |
| Total stockholders’ equity                                                                                                                                                                                 |   | 972,656                     |      | 989,688 |   |
|                                                                                                                                                                                                            |   |                        |      |   |   |
| Total liabilities and  stockholders’ equity                                                                                                                                                                |   | $                           | 2,072,619 |   | $ | 1,912,802 |   |

 

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

 

5

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**LaBRANCHE& CO INC. and SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS(UNAUDITED)(000’s omitted)**

 
|                                                                               |   | **Nine Months Ended**       |   |
|------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                               |   | **September 30, 2003** |   | **September 30, 2002** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |                        |   |   |   |
|                                                                               |   |                        |   |   |   |
| Net income                                                                         |   | $                           | 20,329 |   | $ | 63,970 |   |
|                                                                               |   |                        |   |   |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |   |                        |   |   |   |
| Depreciation and amortization of intangibles                                       |   | 9,717                       |   | 10,055 |   |
| Amortization of bond discount and debt issuance  costs                             |   | 1,596                       |   | 1,567 |   |
| Minority interest in income of consolidated  subsidiary                            |   | 294                         |   | — |   |
| Compensation expense related to stock-based  compensation                          |   | 2,611                       |   | 2,349 |   |
| Deferred tax provision                                                             |   | 4,510                       |   | 1,874 |   |
| Acceleration of preferred stock discount accretion                                 |   | 918                         |   | 1,844 |   |
| Tax benefit related to employee stock transactions                                 |   | 433                         |   | 5,085 |   |
| Changes in operating assets and liabilities:                                       |   |                        |   |   |   |
| Cash and securities segregated under federal  regulations                          |   | 8,950                       |   | 45,747 |   |
| Securities purchased under agreements to resell                                    |   | 15,300                      |   | 53,113 |   |
| Receivable from brokers, dealers and clearing  organizations                       |   | (75,676                     | )      | (23,370 | ) |
| Receivable from customers                                                          |   | 8,068                       |   | (347 | ) |
| United States Government obligations                                               |   | 395,840                     |   | (9,392 | ) |
| Securities owned, at market value:                                                 |   |                        |   |   |   |
| Corporate equities                                                                 |   | (146,742                    | )      | 43,451 |   |
| Exchange-traded funds                                                              |   | (128,069                    | )      | — |   |
| Options and other                                                                  |   | (3,321                      | )      | (8,708 | ) |
| Commissions receivable                                                             |   | (84                         | )      | 438 |   |
| Other assets                                                                       |   | 2,318                       |   | (10,949 | ) |
| Payable to brokers and dealers                                                     |   | 16,993                      |   | (4,130 | ) |
| Payable to customers                                                               |   | 2,972                       |   | (34,947 | ) |
| Securities sold, but not yet purchased, at market  value:                          |   |                        |   |   |   |
| Corporate equities                                                                 |   | 122,695                     |   | (8,017 | ) |
| Exchange-traded funds                                                              |   | 81,899                      |   | — |   |
| Options                                                                            |   | (895                        | )      | 15,622 |   |
| Accrued compensation                                                               |   | (14,881                     | )      | 4,745 |   |
| Accounts payable and other accrued expenses                                        |   | (19,585                     | )      | (36,485 | ) |
| Income taxes payable                                                               |   | (4,471                      | )      | 3,017 |   |
|                                                                               |   |                        |   |   |   |
| Net cash provided by operating activities                                          |   | 301,719                     |   | 116,532 |   |
|                                                                               |   |                        |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |   |                        |   |   |   |
|                                                                               |   |                        |   |   |   |
| Payments for office equipment and leasehold  improvements                          |   | (721                        | )      | (2,151 | ) |
| Payments for exchange memberships                                                  |   | (19                         | )      | — |   |
|                                                                               |   |                        |   |   |   |
| Net cash used in investing activities                                              |   | (740                        | )      | (2,151 | ) |
|                                                                                    |        |                             |        |  |  |  |  |

 

6

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|                                                                      |   | **Nine Months Ended**       |    |
|---------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                      |   | **September 30, 2003** |    | **September 30, 2002** |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                     |   |                        |    |   |   |
|                                                                      |   |                        |    |   |   |
| Proceeds from the exercise of stock options                               |   | 216                         |    | 4,196 |   |
| Payment of common stock dividends                                         |   | (14,288                     | )       | — |   |
| Payment of preferred stock dividends                                      |   | (4,313                      | )       | (7,238 | ) |
| Payment for preferred stock buyback                                       |   | (24,650                     | )       | (28,164 | ) |
| Repayment of subordinated debt and promissory notes                       |   | —                      |    | (35,131 | ) |
|                                                                      |   |                        |    |   |   |
| Net cash used in financing activities                                     |   | (43,035                     | )       | (66,337 | ) |
|                                                                      |   |                        |    |   |   |
| Increase in cash and cash equivalents                                     |   | 257,944                     |    | 48,044 |   |
|                                                                      |   |                        |    |   |   |
| CASH AND CASH EQUIVALENTS, beginning of the period                        |   | 77,033                      |    | 52,043 |   |
|                                                                      |   |                        |    |   |   |
| CASH AND CASH EQUIVALENTS, end of the period                              |   | $                           | 334,977 |   | $ | 100,087 |   |
|                                                                      |   |                        |    |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:                                 |   |                        |    |   |   |
|                                                                      |   |                        |    |   |   |
| Interest                                                                  |   | $                           | 42,203  |   | $ | 44,719 |   |
| Income taxes                                                              |   | 16,193                      |    | 56,920 |   |
|                                                                      |   |                        |    |   |   |
| SUPPLEMENTAL NON-CASH FINANCING AND INVESTING  ACTIVITIES:                |   |                        |    |   |   |
| Net increase in additional paid-in capital related  to stock based awards |   | 3,198                       |    | 8,331 |   |
| Satisfaction of secured demand notes through release  of collateral       |   | 8,000                       |    | 1,000 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated statements.

 

7

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**LaBRANCHE& CO INC. and SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(UNAUDITED)**

 

**1.****                                      ORGANIZATIONAND DESCRIPTION OF BUSINESS**

 

The condensedconsolidated financial statements include the accounts of LaBranche & CoInc., a Delaware corporation (the “Holding Company”), and its subsidiaries,LaBranche & Co. LLC, a New York limited liability company (“LaBranche”),LaBranche Financial Services, Inc., a New York corporation (“LFSI”), LaBrancheStructured Products, LLC, a New York limited liability company (“LSP”), LABDRServices, Inc., a Delaware corporation (“LABDR”), and LaBranche & Co. B.V.,a Netherlands private limited liability company (“BV” and collectively with theHolding Company, LaBranche, LFSI, LSP and LABDR, the “Company”). The HoldingCompany is the sole member of LaBranche and LSP, the 100% stockholder of LFSIand LABDR, and the sole owner of BV. LaBranche is a registered broker-dealerand operates primarily as a specialist in equity securities and rights listedon the New York Stock Exchange (the “NYSE”) and in equity securities on theAmerican Stock Exchange (the “AMEX”). LFSI is a registered broker-dealer and amember of the NYSE and other exchanges, and provides securities clearing,securities execution and other related services to its own retail customers,customers of introducing brokers and institutional customers, includingtraders, professional investors and broker-dealers. LFSI also providesdirect-access floor brokerage services to institutional customers. LSP is aregistered broker-dealer and operates as a specialist in options,Exchange-Traded Funds (“ETFs”) and futures on the AMEX and the New York Boardof Trade (“NYBOT”) and acts as a market-marker in ETFs, futures and options onseveral exchanges. LABDR was recently incorporated to provide disaster recoveryservices and back-up facilities to other Holding Company subsidiaries. BV represents LaBranche in European markets andprovides client services to LaBranche’s European listed companies.

 

**2.****                                      INTERIMCONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL INFORMATION**

 

The unauditedinterim condensed consolidated financial information as of September 30,2003 and for the three and nine months ended September 30, 2003 and 2002is presented in the accompanying condensed consolidated financial statements.The unaudited interim condensed consolidated financial statements have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America for interim financial information and with the instructionsto Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do notinclude all of the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialinformation. The unaudited interim condensed consolidated financial informationreflects all adjustments which are, in the opinion of management, necessary fora fair presentation of the results for such periods. This unaudited interimcondensed consolidated financial information as of September 30, 2003should be read in conjunction with the audited consolidated financialstatements and notes thereto as of December 31, 2002 included in theCompany’s Form 10-K filed with the

 

8

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Securities and ExchangeCommission (“SEC”) on March 20, 2003. Results of the interim periods arenot necessarily indicative of results to be obtained for a full fiscal year.

 

**3.****                                      GOODWILLAND OTHER INTANGIBLE ASSETS**

 

With the adoptionof Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill andOther Intangible Assets” on January 1, 2002, which was issued by theFinancial Accounting Standards Board (“FASB”), the acquired trade name andgoodwill are no longer amortized. The acquired specialist stock lists, however,will continue to be amortized over their respective lives. The Company testsgoodwill for impairment at least annually or when events and circumstancesindicate impairment testing may be necessary by applying a fair-value basedtest in accordance with SFAS No. 142. Additionally, the Company tests its otherintangible assets and long-lived assets whenever events and circumstancesindicate that their carrying amount may not be recoverable by applying animpairment test in accordance with SFAS No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets.” It is possible that in the future, afterperiodic testing, the Company may incur impairment charges related to thecarrying value of acquired goodwill and intangible assets recorded in itsfinancial statements.

 

The gross carryingamount, accumulated amortization and net carrying amount of the Company’sacquired specialist stock lists are set forth below (000’s omitted):

 
|                     |   | **As of September 30, 2003** |    | **As of December 31, 2002** |   |
|--------------------------|--------|-----------------------------------|---------|----------------------------------|--------|
|                     |   |                              |    |                             |   |
| Gross carrying amount    |   | $                                 | 406,190 |                             | $      | 406,190 |   |
| Accumulated amortization |   | (32,016                           | )       | (24,234                          | )      |
|                     |   |                              |    |                             |   |
| Net carrying amount      |   | $                                 | 374,174 |                             | $      | 381,956 |   |

 

Amortizationexpense associated with the Company’s acquired specialist stock lists was $2.6million and $7.8 million, respectively, for each of the three-month andnine-month periods ended September 30, 2003 and 2002. Estimatedamortization expense for the existing specialist stock lists is $10.4 millionfor each of the fiscal years ending December 31, 2004 throughDecember 31, 2008.

 

**4.****                                      INCOMETAXES**

 

The Companyaccounts for income taxes in accordance with SFAS No. 109, “Accounting forIncome Taxes,” which requires the recognition of tax benefits or expenses ontemporary differences between the financial reporting and tax bases of itsassets and liabilities. Deferred tax assets and liabilities primarily relate tostock-based compensation, other compensation accruals, amortization periods ofcertain intangibles and differences between the financial accounting and taxbases of assets acquired. The Company’s effective tax rate differs from thecombined federal, state and local statutory rates primarily due to itsnon-deductible amortization of intangible assets and the non-deductible expenserecorded due to the acceleration of the discount accretion as a result of therepurchase of the Company’s Series A preferred stock in 2002 and 2003.

 

9

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The components ofthe provision for income taxes reflected on the condensed consolidatedstatements of operations are set forth below (000’s omitted):

 

 
|                                   |   | **Three  Months Ended September 30,** |   | **Nine  Months Ended September 30,** |   |
|----------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|
|                                   |   | **2003**                                   |   | **2002**                                  |   | **2003** |   | **2002** |   |
| Current federal, state and local taxes |   | $                                          | (440   | )                                         | $      | 22,280 |   | $ | 14,469 |   | $ | 56,579 |   |
| Deferred tax (benefit)/provision       |   | 3,357                                      |   | (2,974                                    | )      | 4,510 |   | 1,874 |   |
| Total provision for income taxes       |   | $                                          | 2,917  |                                      | $      | 19,306 |   | $ | 18,979 |   | $ | 58,453 |   |

 

**5.****                                      CAPITALAND NET LIQUID ASSET REQUIREMENTS**

 

LaBranche, as aspecialist and member of the NYSE and AMEX, is subject to SEC Rule 15c3-1, asadopted and administered by the NYSE, AMEX and the SEC. LaBranche is requiredto maintain minimum net capital, as defined, equivalent to the greater of$100,000 or 1/15 of aggregateindebtedness, as defined.

 

As ofSeptember 30, 2003 and December 31, 2002, LaBranche’s net capital, asdefined under SEC Rule 15c3-1, was $463.7 million and $472.0 million,respectively, which exceeded the minimum requirements by $462.0 million and$467.4 million, respectively. LaBranche’s aggregate indebtedness to net capitalratio on those dates was .05 to 1 and .15 to 1, respectively.

 

The NYSE generally requires its specialist firms to maintain a minimumdollar regulatory capital amount in order to establish that they can meet, withtheir own net liquid assets, their position requirement.

 

As ofSeptember 30, 2003 and December 31, 2002, LaBranche’s NYSE minimumrequired dollar amount of net liquid assets, as defined, was $446.0 million,compared to actual net liquid assets, as defined, of $473.1 million and $465.2million, respectively.

 

The AMEX generallyrequires its equity specialist firms to maintain a cash or liquid assetposition of the greater of (a) $600,000, or (b) an amount sufficient to assumea position of sixty trading units of each security in which the specialist isregistered. As of September 30, 2003, LaBranche satisfied the AMEX equityspecialist liquid asset requirements.

 

As a registeredbroker-dealer and NYSE member firm, LFSI is also subject to SEC Rule 15c3-1, asadopted and administered by the NYSE and the SEC. Under the alternative methodpermitted by the rule, the minimum required net capital for LFSI is equal tothe greater of $1.5 million or 2% of aggregate debit items, as defined. As ofSeptember 30, 2003 and December 31, 2002, LFSI’s net capital, asdefined under SEC Rule 15c3-1, was $15.5 million and $19.4 million, respectively,which exceeded the minimum requirements by $14.0 million and $17.9 million,respectively.

 

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 maintain

 

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minimum net capital, asdefined, equivalent to the greater of $100,000 or 1/15 ofaggregate indebtedness, as defined. As of September 30, 2003 andDecember 31, 2002, LSP’s net capital, as defined under SEC Rule 15c3-1,was $18.6 million and $6.9 million, respectively, which exceeded minimumrequirements by $18.5 million and $6.8 million, respectively.

 

**6.****                                      RECENTTRANSACTION**

** **

On April 22,2003, LSP formed an options specialist joint account on the AMEX (the “JointAccount”) with Botta Capital Management, LLC (“Botta”). LSP contributed $1.5million of capital for the operations of the Joint Account and manages theJoint Account’s business on the trading floor of the AMEX. Botta contributedits right to act as specialist in certain AMEX option listings. Net profits ofthe Joint Account, on an annual basis, generated from specialist activities inthe Joint Account’s AMEX listed options are shared by LSP and Botta at a ratioof 66% and 34%, respectively. However, LSP bears 100% of any net lossesincurred on an annual basis. After the fourth anniversary of the formation ofthe Joint Account, Botta will no longer have any interest in the Joint Accountor the AMEX option listings it contributed to the Joint Account.

 

The results of theJoint Account have been included in the Company’s condensed consolidatedfinancial statements since April 22, 2003, in accordance with FASBInterpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities.”Botta’s share of the net income and net assets of the Joint Account areclassified as minority interest on the condensed consolidated statements ofoperations and financial condition, respectively.

 

**7.****                                      DERIVATIVEFINANCIAL INSTRUMENTS**

 

LSP usesderivative financial instruments, including exchange-traded options, ETFs anddomestic and foreign futures contracts, for trading purposes and to financiallyhedge other positions or transactions as part of its specialist andmarket-making business and overall risk management process. These financialinstruments subject LSP to varying degrees of market, credit and foreignexchange risk. LSP records its derivative trading activities at market value,with corresponding gains or losses recorded in net gain on principal transactions.Gains or losses from foreign currency transactions are also recorded in netgain on principal transactions. In order to minimize risk, managementcontinually monitors positions, gain and loss, volatility and other standardrisk measures on a real-time basis and communicates its risk tolerance to LSP’straders.

 

The followingtable indicates the fair value of LSP’s ETFs, exchange-traded options andfutures contracts:

 
|                      |   | **As of September 30,  2003** |    | **As of  December 31,  2002** |   |
|---------------------------|--------|------------------------------------|---------|------------------------------------|--------|
| **(000’s  omitted)** |   | **Assets**                         |    | **Liabilities**                    |   | **Assets** |   | **Liabilities** |   |
| ETFs                      |   | $                                  | 149,524 |                               | $      | 86,258 |   | $ | 21,455 |   | $ | 4,359 |   |
| Exchange-traded options   |   | 64,799                             |    | 62,800                             |   | 61,478 |   | 63,695 |   |
| Futures contracts         |   | 1,385                              |    | 755                                |   | 97 |   | 41 |   |
|                           |        |                                    |         |                                    |        |  |  |  |  |  |  |  |  |

 

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**8.****                                      EARNINGSPER SHARE**

** **

Earnings per share(“EPS”) are computed in accordance with SFAS No. 128, “Earnings Per Share.”Basic EPS is calculated by dividing net income available to common stockholdersby the weighted-average number of common shares outstanding. Diluted EPS includesthe determinants of basic EPS and, in addition, gives effect to dilutivepotential common shares.

 

The computationsof basic and diluted EPS are set forth below (000’s omitted, except per sharedata): 

 
|                                                                                                    |   | **Three  Months Ended September 30,** |   | **Nine Months  Ended September 30,** |   |
|---------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                    |   | **2003**                                   |   | **2002**                                  |   | **2003** |   | **2002** |   |
| Net income                                                                                              |   | $                                          | 3,212  |                                      | $      | 21,377 |   | $ | 20,329 |   | $ | 63,970 |   |
| Less preferred dividends and discount accretion                                                         |   | 950                                        |   | 1,600                                     |   | 3,059 |   | 5,417 |   |
| Numerator for basic and diluted earnings per share – net income available  to common stockholders  |   | $                                          | 2,262  |                                      | $      | 19,777 |   | $ | 17,270 |   | $ | 58,553 |   |
| Denominator for basic earnings per share – weighted-average number of  common shares outstanding   |   | 59,649                                     |   | 59,008                                    |   | 59,557 |   | 58,858 |   |
| Dilutive shares:                                                                                        |   |                                       |   |                                      |   |   |   |   |   |
| Stock  options                                                                                          |   | 403                                        |   | 543                                       |   | 453 |   | 710 |   |
| Restricted  stock                                                                                       |   | —                                     |   | —                                    |   | — |   | — |   |
| Restricted stock  units                                                                                 |   | 119                                        |   | 233                                       |   | 124 |   | 245 |   |
| Denominator for diluted earnings per share – weighted-average number  of common shares outstanding |   | 60,171                                     |   | 59,784                                    |   | 60,134 |   | 59,813 |   |
|                                                                                                    |   |                                       |   |                                      |   |   |   |   |   |
| Basic earnings per share                                                                                |   | $                                          | 0.04   |                                      | $      | 0.34 |   | $ | 0.29 |   | $ | 0.99 |   |
|                                                                                                    |   |                                       |   |                                      |   |   |   |   |   |
| Diluted earnings per share                                                                              |   | $                                          | 0.04   |                                      | $      | 0.33 |   | $ | 0.29 |   | $ | 0.98 |   |

 

The exercise prices for options to purchase anaggregate of 1,807,500 and 1,732,500 shares of common stock exceeded theaverage market price of the Company’s common stock for the three and ninemonths ended September 30, 2003 and 2002, respectively. Accordingly thecalculation of diluted earnings per share does not include the antidilutiveeffect of these options for the three and nine months ended September 30,2003 and 2002.

 

**9.**                                      EMPLOYEEINCENTIVE PLANS

 

DuringMarch 2003, the board of directors of the Company approved, subject to thesubsequent approval of the Company’s shareholders, the adoption of the SeniorExecutive Bonus Plan, effective as of January 1, 2003. The purpose of theSenior Executive Bonus Plan is to provide for the payment, to the Company’sChief Executive Officer and next four most highly compensated executiveofficers, of bonuses which are exempt from the $1.0 million deductionlimitation imposed by Section 162(m) of the Internal Revenue Code of 1986,as

 

12

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amended. The adoption of the Senior Executive Bonus Plan was approvedby a majority of the stockholders of the Company at its annual meeting ofstockholders on May 20, 2003.

 

InDecember 2002, the FASB issued SFAS No. 148, “Accounting for Stock-BasedCompensation-Transition and Disclosure, an Amendment of FASB Statement No.123.” SFAS No. 148 provides two additional methods, the modified prospectiveand the retroactive restatement methods, for an entity that voluntarily changesto the fair-value based method of accounting for stock-based employeecompensation, in addition to the prospective method required by SFAS No. 123.Prior to January 1, 2003, the Company elected to account for stock basedemployee compensation in accordance with Accounting Principles Board Opinion(“APB”) No. 25. Pursuant to APB No. 25, the Company did not recognize any compensationexpense since, on the date of grant, the Company’s stock options had nointrinsic value. On January 1, 2003, the Company adopted the prospectivemethod provided by SFAS No. 148 to account for stock-based employeecompensation. Accordingly, the Company expenses the fair value, as of the dateof grant, of stock options issued to employees on or after January 1, 2003over the related service periods. The Company has not issued any stock optionssince January 1, 2003.

 

If the Company hadrecognized compensation expense for options granted prior to January 1,2003 under the fair-value based method of SFAS No. 123, its net incomeavailable to common stockholders would have decreased by approximately $1.8million for each of the three-month periods ended September 30, 2003 and2002, and approximately $5.4 million for each of the nine-month periods endedSeptember 30, 2003 and 2002, resulting in pro forma net income andearnings per share as follows:

 
|                                                                                      |   | **Three Months  Ended September 30,** |   | **Nine Months  Ended September 30,** |   |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|
| **(000’s omitted, except per share  data)**                                          |   | **2003**                                   |   | **2002**                                  |   | **2003** |   | **2002** |   |
|                                                                                      |   |                                       |   |                                      |   |   |   |   |   |
| Net  income available to common stockholders, asreported                                  |   | $                                          | 2,262  |                                      | $      | 19,777 |   | $ | 17,270 |   | $ | 58,553 |   |
| Add:  Stock-based compensation expense included inreported net income (net of tax effect) |   | 431                                        |   | 388                                       |   | 1,359 |   | 1,226 |   |
| Less:  Stock-based compensation expense under SFAS 123 (net of tax effect)                |   | (2,223                                     | )      | (2,221                                    | )      | (6,737 | ) | (6,657 | ) |
| Pro  forma net income available to commonstockholders                                     |   | 470                                        |   | 17,944                                    |   | 11,892 |   | 53,122 |   |
|                                                                                      |   |                                       |   |                                      |   |   |   |   |   |
| Diluted  EPS, as reported                                                                 |   | $                                          | 0.04   |                                      | $      | 0.33 |   | $ | 0.29 |   | $ | 0.98 |   |
| Pro  forma diluted EPS                                                                    |   | $                                          | 0.01   |                                      | $      | 0.30 |   | $ | 0.20 |   | $ | 0.89 |   |

 

The effect of applying SFAS No. 123 in the proforma disclosure above may not be representative of the potential effect stock-basedcompensation would have on net income in future periods.

 

**10.****                               SHORTTERM DEBT**

 

On August 24,1999, the Holding Company issued $100.0 million aggregate principal amountof Senior Notes. The Senior Notes bear interest at a rate of 9.5% annually andmature

 

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on August 15, 2004.The carrying value of the Senior Notes as of September 30, 2003 andDecember 31, 2002 was $99.9 million. The indenture covering theSenior Notes includes certain covenants that, among other things, limits theCompany’s ability to borrow money, pay dividends or repurchase stock, makeinvestments, engage in transactions with stockholders and affiliates, createliens on assets, and sell assets or engage in mergers and consolidations exceptin accordance with certain specified conditions.

 

In addition, as ofSeptember 30, 2003 and December 31, 2002, the Holding Company had apromissory note for $2.0 million, which was assumed in connection with the ROBBPECK McCOOEY Financial Services, Inc. (“RPM”) acquisition and was issued to afamily member of a former employee of RPM. The note matures in June 2004and bears an annual interest rate of 8.0%, payable on a quarterly basis.

 

**11.****                               BUSINESSSEGMENTS**

 

Segmentinformation is presented in accordance with SFAS No. 131, “Disclosures aboutSegments of an Enterprise and Related Information.” Currently, the Companyviews its business as operating principally in two separate segments: theSpecialist segment and the Execution and Clearing segment. The Company’sbusiness segments are based upon the nature of the financial services provided,their revenue sources and the Company’s management organization.

 

The Company’sSpecialist segment operates as a specialist in equities and rights on the NYSEand in equities, options, ETFs and futures on the AMEX and the NYBOT andprovides support services for the specialist activities. In addition, thissegment acts as a market-maker in ETFs, options and futures on severalexchanges. The Specialist segment currently includes the operations ofLaBranche, LSP, LABDR and BV.

 

The Company’sExecution and Clearing segment provides securities execution, securitiesclearing and other related services to its own retail customers, customers ofintroducing brokers and institutional customers, including traders,professional investors and broker-dealers. This segment also providesdirect-access floor brokerage services to institutional customers. TheExecution and Clearing segment currently includes the operations of LFSI.

 

Revenues andexpenses directly associated with each segment are included in determining itsoperating results. Other expenses, such as certain employee compensation andcompany-wide professional fees, which are not directly attributable to aparticular segment, generally are allocated to each segment based on itsresource usage levels or other appropriate measures. Certain revenues,administrative expenses and corporate overhead expenses are not specificallyallocated by management when reviewing the segments’ performance, and appear inthe Other section. Selected financial information for each segment is set forthbelow (000’s omitted):

 

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|                                      |   | **Three Months Ended September 30,** |   | **Nine Months Ended September 30,** |   |
|-------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|
|                                      |   | **2003**                                  |   | **2002**                                 |   | **2003** |   | **2002** |   |
| **Specialist Segment:**                   |   |                                      |   |                                     |   |   |   |   |   |
| Revenues                                  |   | $                                         | 58,218 |                                     | $      | 107,757 |   | $ | 197,591 |   | $ | 300,372 |   |
| Operating  expenses                       |   | 34,681                                    |   | 44,900                                   |   | 101,385 |   | 123,392 |   |
| Depreciation and  amortization expense    |   | 2,917                                     |   | 3,089                                    |   | 8,796 |   | 9,231 |   |
| Income before minority interest and taxes |   | 20,620                                    |   | 59,768                                   |   | 87,410 |   | 167,749 |   |
| Segment Goodwill                          |   | 466,485                                   |   | 461,941                                  |   | 466,485 |   | 461,941 |   |
| Segment Assets                            |   | 1,894,260                                 |   | 1,774,025                                |   | 1,894,260 |   | 1,774,025 |   |
|                                      |   |                                      |   |                                     |   |   |   |   |   |
| **Execution and Clearing Segment:**       |   |                                      |   |                                     |   |   |   |   |   |
| Revenues                                  |   | $                                         | 11,758 |                                     | $      | 12,855 |   | $ | 36,159 |   | $ | 31,824 |   |
| Operating  expenses                       |   | 13,259                                    |   | 14,536                                   |   | 43,147 |   | 39,070 |   |
| Depreciation and  amortization expense    |   | 176                                       |   | 273                                      |   | 865 |   | 812 |   |
| Loss before minority interest and taxes   |   | (1,677                                    | )      | (1,954                                   | )      | (7,853 | ) | (8,058 | ) |
| Segment Goodwill                          |   | 4,051                                     |   | 4,053                                    |   | 4,051 |   | 4,053 |   |
| Segment Assets                            |   | 86,704                                    |   | 109,546                                  |   | 86,704 |   | 109,546 |   |
|                                      |   |                                      |   |                                     |   |   |   |   |   |
| **Other (1):**                            |   |                                      |   |                                     |   |   |   |   |   |
| Revenues (loss)                           |   | $                                         | 928    |                                     | $      | (2,347 | ) | $ | 1,292 |   | $ | 6,857 |   |
| Operating  expenses                       |   | 13,540                                    |   | 14,780                                   |   | 41,191 |   | 44,113 |   |
| Depreciation and  amortization expense    |   | 35                                        |   | 4                                        |   | 56 |   | 12 |   |
| Loss before minority interest and taxes   |   | (12,647                                   | )      | (17,131                                  | )      | (39,955 | ) | (37,268 | ) |
| Segment Assets                            |   | 91,655                                    |   | 65,410                                   |   | 91,655 |   | 65,410 |   |
|                                      |   |                                      |   |                                     |   |   |   |   |   |
| **Total:**                                |   |                                      |   |                                     |   |   |   |   |   |
| Revenues                                  |   | $                                         | 70,904 |                                     | $      | 118,265 |   | $ | 235,042 |   | $ | 339,053 |   |
| Operating  expenses                       |   | 61,480                                    |   | 74,216                                   |   | 185,723 |   | 206,575 |   |
| Depreciation and  amortization expense    |   | 3,128                                     |   | 3,366                                    |   | 9,717 |   | 10,055 |   |
| Income before minority interest and taxes |   | 6,296                                     |   | 40,683                                   |   | 39,602 |   | 122,423 |   |
| Goodwill                                  |   | 470,536                                   |   | 465,994                                  |   | 470,536 |   | 465,994 |   |
| Assets                                    |   | 2,072,619                                 |   | 1,948,981                                |   | 2,072,619 |   | 1,948,981 |   |

 

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(1)                                  Otheris comprised primarily of the interest on the Holding Company’s indebtedness,unallocated corporate administrative expenses, including legal costs,unallocated revenues (primarily income from non-marketable investments as wellas interest income), and elimination entries.

 

**12.****                               STOCKHOLDERS’EQUITY**

 

OnJanuary 16, 2003, the board of directors declared an $0.08 per share cashdividend payable on February 14, 2003 to holders of record of theCompany’s common stock on January 31, 2003. This dividend was paid onFebruary 14, 2003.

 

On April 14,2003, the board of directors declared an $0.08 per share cash dividend payableon May 14, 2003 to holders of record of the Company’s common stock onApril 30, 2003. This dividend was paid on May 14, 2003.

 

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On July 17,2003, the board of directors declared an $0.08 per share cash dividend payableon August 14, 2003 to holders of record of the Company’s common stock onJuly 31, 2003. This dividend was paid on August 14, 2003.

 

OnOctober 20, 2003, the board of directors suspended the payment ofdividends with respect to the Company’s common stock because of the recentdecline in its profitability and because recent earnings have not beensufficient to support payment of further dividends in compliance with certainof the financial covenants contained in the indentures governing its SeniorNotes and Senior Subordinated Notes. The payment of future dividends is withinthe discretion of the board of directors and will depend on the Company’sfuture earnings, capital requirements, applicable regulatory restrictions,financial condition, the application of the financial covenants contained inthe indentures governing its Senior Notes and Senior Subordinated Notes andother relevant factors.

 

On January 2,2003 and July 1, 2003 the Company paid dividends of $2.6 million and $1.6million, respectively, with respect to the outstanding shares of its Series Apreferred stock on those dates.

 

DuringJanuary 2003, the Company offered to repurchase up to 30,000 shares of itsoutstanding Series A preferred stock for $1,000 per share, plus accrued andunpaid dividends up to but not including the date of purchase. OnFebruary 4, 2003, the offer expired, and on February 6, 2003, theCompany purchased all of the approximately 24,650 shares that had been tenderedfor approximately $24.8 million, including accrued but unpaid dividends. As aresult of the purchase, the Company recorded an expense due to the accelerationof the discount accretion on the shares purchased of approximately $0.9million, which was included in other expenses.

 

**13.****                               COMMITMENTSAND CONTINGENCIES**

 

On April 22, 2003, the NYSE announced that it was reviewing thetrading practices of several specialist firms, including LaBranche. Initially,the NYSE advised that its investigation was focused on whether specialists hadimproperly intervened in natural matches between buyers and sellers – so-called“interpositioning.”

 

Over the course of the next several months, the NYSE MarketSurveillance Division and Division of Enforcement took on-the-record testimonyfrom 39 LaBranche employees and LaBranche produced to the NYSE approximately70,000 pages of documents and many thousands of e-mails, but LaBranche refusedto produce personal e-mails of employees in order to protect their privacyrights and because these e-mails had no bearing on any of its businessactivities and were not at all relevant to the NYSE’s investigation. OnJuly 18, 2003, the NYSE Division of Enforcement served LaBranche with a“Charge Memorandum” asserting that LaBranche had violated NYSE rules byrefusing to produce the requested e-mails and thus failing to cooperate in theNYSE’s investigation. On August 27, 2003, a NYSE Hearing Panel determinedthat LaBranche had failed to cooperate with the NYSE investigation, and in awritten decision issued on September 4, 2003, the NYSE Hearing Panel orderedthat LaBranche be censured and fined $150,000. Shortly after the NYSE HearingPanel announced

 

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its findings, but beforethe issuance of its formal decision, LaBranche produced to the NYSE Division ofEnforcement all the personal e-mails it had previously refused to produce.LaBranche subsequently appealed the NYSE Hearing Panel’s decision to the NYSE’sBoard of Directors on September 9, 2003, and requested that the Board ofDirectors reverse the Hearing Panel’s determination and imposition of penalty.A hearing with respect to this appeal is scheduled for December 3, 2003.

 

OnSeptember 26, 2003, the NYSE Division of Enforcement informed LaBranche’srepresentatives of its belief that interpositioning by LaBranche specialistsamounted in the aggregate to approximately $5.0 million during the three-yearperiod 2000 – 2002. LaBranche requested an opportunity to review the tradingdata supporting the NYSE Division of Enforcement’s position, but no data wasfurnished to LaBranche in response to this request.

 

OnOctober 15, 2003 the NYSE Division of Enforcement orally informedLaBranche that a new NYSE Market Surveillance Division study, using differentmethodologies and criteria than previously used, indicated that LaBranchespecialists improperly traded ahead of customer orders in certain situations,and that this “specialist advantage” trading during the 2000-2002 periodamounted in the aggregate to approximately $38.5 million. Again, LaBrancherequested an opportunity to review the data supporting the NYSE’s claim. Afterinitially denying these requests, the NYSE delivered to LaBranche’srepresentatives on October 29, 2003 a portion of the data alleged tosupport the NYSE’s positions regarding both “interpositioning” and “specialistadvantage” trading. Another portion of data was received on November 7,2003. LaBranche’s representatives have begun to analyze this data incooperation with other NYSE specialist firms under investigation by the NYSE.LaBranche has yet to receive any written documentation from the NYSEsubstantiating either the $5.0 million or the $38.5 million of allegedviolations.

 

OnOctober 16, 2003 the NYSE announced that it had determined to bringdisciplinary action against the five largest NYSE specialist firms and seek toimpose substantial fines against them by reason of their alleged trading aheadof customer orders in certain situations over the 2000-2002 period.

 

OnOctober 17, 2003, the SEC issued a formal Order of Investigation withrespect to the five largest NYSE specialist firms’ trading practices, and onOctober 30, 2003 issued to LaBranche a subpoena seeking certain documentsin connection with its investigation, many of which were previously furnishedby LaBranche to the NYSE and to the SEC’s Office of Compliance, Inspections andExaminations.

 

Based on theavailable data which LaBranche and its outside consultants have reviewed thusfar, LaBranche believes it has actedproperly. The NYSE and SECinvestigations are ongoing, however, and there can be no assurance as to theoutcome of the investigations or the timing of their resolution. As aconsequence and in accordance with its accounting policy, the Company hasaccrued a reserve for assessments in an amount estimated to be the minimum ofthe potential range of loss with respect thereto.

 

A number ofpurported class action proceedings were initiated against the Holding Company,LaBranche and certain of the Holding Company’s officers and directors in theUnited States District

 

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Court for the SouthernDistrict of New York. Certain of these lawsuits assert that by reason ofLaBranche’s allegedly illegal specialist trading activity during the periodcovered by the NYSE investigation, the Company violated Section 10(b) ofthe Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder bymaterially misrepresenting its financial performance during class periodsalleged to have begun as early as August 1999 and to conclude onOctober 15, 2003 and that the named plaintiffs suffered economic harm byreason of the resulting decline in the public trading price of shares of theCompany’s common stock. The remaining purported class action lawsuits have beencommenced against the Holding Company, LaBranche and certain of the HoldingCompany’s officers and directors and other large NYSE specialist firms in theUnited States District Court for the Southern District of New York on behalf ofpersons or entities who purchased and/or sold shares of stocks of NYSE andAmerican Stock Exchange listed companies for which the named firms acted asspecialists during a class period alleged to have begun on October 17,1998 and to conclude on October 15, 2003. Additionally, a purportedshareholder derivative action proceeding has been initiated in the SupremeCourt of the State of New York, New York County by two shareholders of theHolding Company alleging breach of fiduciary duty by the directors and certainofficers of the Holding Company in connection with the alleged wrongdoingdescribed above. As stated above, the Company believes that LaBranche has acted properly. Thedefendants deny all allegations of wrongdoing in all of these proceedings. Asalso stated above, however, there can be no assurance as to the outcome of the NYSE and SEC investigations orthe timing of their resolution and thus, there can be no assurance as to theultimate outcome or timing of the resolution of these proceedings. As notedabove, LaBranche is still awaiting materials from the NYSE explaining thenature, scope and basis supporting the NYSE’s claims and, in turn, the claimsin the class and derivative action proceedings described in this paragraph. Asa consequence, the Company is unable to estimate the amount or potential range ofany loss with respect thereto.

 

The range ofpossible resolutions in both the NYSE and SEC investigations and the classaction proceedings against the Holding Company and LaBranche could includedeterminations and judgments against the Holding Company and LaBranche orsettlements that could require substantial payments by the Company, includingthe costs of defending such investigations and suits, which could have amaterial adverse effect on the Company’s financial condition, results ofoperations and cash flows.

 

The Company and,in particular, certain of the business operations conducted by LFSI’spredecessor in interest, ROBB PECK McCOOEY Clearing Corporation, have been thetarget, from time to time, of various claims and lawsuits incidental to the ordinarycourse of their respective businesses. While the ultimate outcome of thoseclaims and lawsuits which currently are pending cannot be predicted withcertainty, the Company believes, based on its understanding of the facts ofthese proceedings, that their ultimate resolution, in the aggregate, will nothave a material adverse effect on the Company’s financial condition or resultsof operations.

 

**14. SUBSEQUENT EVENTS**

** **

                Robert M. Murphy,a director of the Holding Company and the Chief Executive Officer of LaBranche,has tendered his resignation from his positions with the Company.  Alfred O. Hayward, Jr., a director andExecutive Vice President of the Holding Company, has been named to succeed Mr.Murphy as Chief Executive Officer of LaBranche.

 

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## **Item2.**                              Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

 

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

* *

*This discussion should beread in conjunction with the Company’s Condensed Consolidated FinancialStatements and the Notes thereto contained in this report.*

 

*General*

 

We currently view our business as operatingprincipally in two separate segments: the specialist segment and the executionand clearing segment. Our specialist segment operates as a specialist inequities and rights on the New York Stock Exchange (the “NYSE”) and inequities, options, Exchange-Traded Funds (“ETFs”) and futures on the AmericanStock Exchange (the “AMEX”) and the New York Board of Trade (“NYBOT”) and as amarket-maker in ETFs, options and futures on several exchanges, and providessupport services for our specialist activities. Our execution and clearingsegment provides securities clearing, securities execution and other relatedservices to its own retail customers, customers of introducing brokers andinstitutional customers, including traders, professional investors andbroker-dealers. Our execution and clearing segment also provides direct-accessfloor brokerage services to institutional customers.Certain revenues and administrative and corporate overheadexpenses, which consist primarily of interest on our public debt, are notspecifically related to our two principal segments, and thus are treated as“other” revenues and expenses. Ourspecialist segment currently includes the operations of our LaBranche & Co.LLC, LaBranche Structured Products, LLC (“LSP”), LABDR Services, Inc. (“LABDR”)and LaBranche & Co. B.V. (“BV”) subsidiaries. Our execution and clearingsegment currently includes the operations of our LaBranche Financial Services,Inc. (“LFSI”) subsidiary.

 

*RecentDevelopments*

 

In January 2003, the Financial AccountingStandard Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46,“Consolidation of Variable Interest Entities.” FIN 46 requires a company toconsolidate a variable interest entity (“VIE”) if the company has variableinterests that give it a majority of the expected losses or a majority of theexpected residual returns of the entity. FIN 46 is effective immediately forVIEs created after January 31, 2003. For VIEs created prior toFebruary 1, 2003, FIN 46 will apply in the first interim period or fiscalyear ending after December 15, 2003. We do not expect the implementationof FIN 46 will have a material impact on our financial statements.

 

In May 2003, the FASB issued Statement ofFinancial Standards (“SFAS”) No. 150, “Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150establishes standards for how an issuer classifies and measures certainfinancial instruments with characteristics of both liabilities and equity. SFASNo. 150 is

 

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effective for financial instruments entered into ormodified after May 31, 2003, and otherwise is effective for the interimperiod beginning after June 15, 2003. We have not entered into or modifiedany financial instruments with characteristics of both liabilities and equityas defined under SFAS No. 150 since May 31, 2003. Additionally, we have nomandatorily-redeemable stock. The implementation of SFAS No. 150 has had noimpact on our financial statements.

 

*CriticalAccounting Policies*

 

All of our principal securities transactions and therelated gains and losses are recorded on a trade-date basis. Customersecurities transactions are recorded on a settlement-date basis and the relatedrevenues and expenses are recorded on a trade-date basis. Corporate equities,ETFs, options, futures and other securities owned, and securities sold, but notyet purchased, are reflected at market value and unrealized gains and lossesare reflected in net gain on principal transactions. United States Governmentobligations, together with related interest receivable as reported in otherassets, are reflected at market value, with interest income included in otherincome. The market value for equity securities for which we act as specialiston both the AMEX and NYSE is based on the closing price posted by the exchangeon which they are traded. The market value for ETFs and futures contracts isalso based on the closing price posted on the exchanges on which they aretraded. The market value of our exchange-traded options is based on thenational best bid/offer as determined by our options clearing agent.

 

Investments in non-marketable securities consist ofprivate equity, limited liability company and limited partnership investments,and are included in other assets on the statement of financial condition. Theseinvestments do not have readily available price quotations. These investmentsare accounted for under the equity method, which approximates fair value, orare accounted for at fair value as estimated by our management. In determiningthe estimated fair value, we consider all appropriate factors relevant to suchinvestments and consistently apply industry standard methodology for arrivingat fair value. Gains and losses for changes in fair value are included in otherrevenues in the accompanying consolidated statement of operations.

 

We recognize liabilities for contingencies when wehave an exposure that, when fully analyzed, indicates it is both probable thata liability has been incurred and the amount of the potential loss can bereasonably estimated. When a range of probable losses can be estimated, weaccrue the most likely amount or at least the minimum of the range of probableloss.

 

Our statements of financial condition containsignificant intangible assets. These intangible assets are comprised of ourspecialist stock lists, trade name and goodwill acquired in connection with ourvarious acquisitions and the limited partner buyout that occurred in 1999 inconnection with our reorganization from partnership to corporate form. Theallocations of purchase price and determinations of useful lives were based onindependent appraisals for material acquisitions through March 2001. Theuseful lives of the acquired specialist stock lists were determined based onanalysis of historical turnover characteristics of the specialist stockscomprising these lists. For acquisitions subsequent to March 2001, theallocations of purchase price and determinations of useful lives were based onmanagement’s analysis of revenues, consideration paid, common stock listingsand other relevant data and ratios. This information

 

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was analyzed and compared with the results of theindependent appraisals conducted on acquisitions through March 2001.

 

Since the implementation of SFAS No. 142, “Goodwilland Other Intangible Assets,” on January 1, 2002, acquired trade name andgoodwill are no longer amortized. Our acquired specialist stock lists, however,continue to be amortized over their respective useful lives. We test goodwillfor impairment at least annually or when events and circumstances indicateimpairment testing may be necessary by applying a fair-value based test inaccordance with SFAS No. 142. The fair value test involves a comparison of thefair value of the reporting unit to the carrying value of the reporting unit.The fair value of the reporting unit is determined using both its marketcapitalization, when applicable, and the present value of its estimated futurecash flows based on certain management assumptions. If the carrying amount ofthe reporting unit exceeds its estimated fair value, we will determine if animpairment charge is necessary through additional testing. Additionally, wetest our specialist stock lists and trade name intangible assets wheneverevents or circumstances indicate that their carrying amount may not berecoverable by applying an impairment test in accordance with SFAS No. 144,“Accounting for Impairment or Disposal of Long-Lived Assets.” If the carryingvalue of the specialist stock lists and trade name exceeds their fair value, animpairment loss would be recognized for the excess of carrying value over fairvalue. The fair value of the specialist stock lists and trade name is the sumof the undiscounted cash flows expected to result from the use and eventualdisposition of these intangibles. It is possible that in the future, as aresult of periodic testing, we may incur impairment charges related to thecarrying value of goodwill and other intangible assets recorded in ourfinancial statements.

 

**Results of Operations**

 

# **SpecialistSegment Operating Results**

 
|                                      |   | **For the Three Months  Ended September 30,** |   | **For the Nine Months  Ended September 30,** |   | **Three Months  2003 vs 2002  Percentage** |   | **Nine Months  2003 vs 2002  Percentage** |    |
|-------------------------------------------|--------|----------------------------------------------------|--------|---------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|---------|
| **(000’s  omitted)**                 |   | **2003**                                           |   | **2002**                                          |   | **2003**                                   |   | **2002**                                  |    | **Change** |   | **Change** |   |
|                                      |   |                                               |   |                                              |   |                                       |   |                                      |    |   |   |   |   |
| Revenues:                                 |   |                                               |   |                                              |   |                                       |   |                                      |    |   |   |   |   |
| Net gain on principal transactions        |   | $                                                  | 45,019 |                                              | $      | 93,829                                     |   | $                                         | 157,013 |   | $ | 255,684 |   | (52.0 | )% | (38.6 | )% |
| Commissions                               |   | 11,678                                             |   | 12,644                                            |   | 35,309                                     |   | 38,841                                    |    | (7.6 | ) | (9.1 | ) |
| Other                                     |   | 1,521                                              |   | 1,284                                             |   | 5,269                                      |   | 5,847                                     |    | 18.5 |   | (9.9 | ) |
| Total segment revenues                    |   | 58,218                                             |   | 107,757                                           |   | 197,591                                    |   | 300,372                                   |    | (46.0 | ) | (34.2 | ) |
|                                      |   |                                               |   |                                              |   |                                       |   |                                      |    |   |   |   |   |
| Operating expenses                        |   | 37,598                                             |   | 47,989                                            |   | 110,181                                    |   | 132,623                                   |    | (21.7 | ) | (16.9 | ) |
|                                      |   |                                               |   |                                              |   |                                       |   |                                      |    |   |   |   |   |
| Income before minority interest and taxes |   | $                                                  | 20,620 |                                              | $      | 59,768                                     |   | $                                         | 87,410  |   | $ | 167,749 |   | (65.5 | ) | (47.9 | ) |
|                                           |        |                                                    |        |                                                   |        |                                            |        |                                           |         |  |  |  |  |  |  |  |  |  |

 

Revenues from our specialist segment consist primarilyof net gain earned from principal transactions in securities for which we actas specialist. Net gain on principal transactions represents trading gains netof trading losses and Securities and Exchange Commission (“SEC”) transactionfees, where applicable, and are earned by us when we act as principal buyingand selling our specialist stocks, rights, options, ETFs and futures. Also

 

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included in net gain on principal transactions areaccrued dividends receivable or payable on our stock positions, net gains andlosses resulting from our market-making activities in ETFs, the trading offoreign currencies, the trading of futures used to hedge our ETF positions, andthe trading of equities underlying the rights, ETFs and options for which weact as specialist. These revenues are primarily affected by changes in sharevolume traded and fluctuations in price of our stocks, options, ETFs andfutures, in which we are the specialist or in which we make a market.

 

Commissions revenue generated by our specialistsegment consists primarily of fees earned when our equity specialists act asagents by executing limit orders on behalf of brokers, professional traders andbroker-dealers after a specified period of time; we do not earn commissionswhen we match market orders or when we 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 by LaBranche & Co. LLC.

 

## **Three Months Ended September 30, 2003 Compared toThree Months Ended September 30, 2002**

## ** **

Net gain on principal transactions decreased as aresult of a decrease in the dollar value and share volume of principal sharestraded during the third quarter of 2003 as compared to the same period in 2002.During the third quarter of 2003, the aggregate dollar value of principaltrades decreased 28.7% to $176.2 billion from $247.2 billion for the sameperiod in 2002, and the aggregate share volume of principal trades decreased30.9% to 6.5 billion shares during the third quarter of 2003 from 9.4 billionshares for the same period in 2002. Of the total $45.4 million and $93.8million of net gain on principal transactions during the third quarter of 2003and 2002, respectively, $5.0 million and $1.4 million, respectively, were fromour derivative trading activities.

 

Commissions revenue earned by our specialist segmentdecreased due to a decline in total share volume executed by us as agent, aswell as the competitive price pressures within the marketplace. The total sharevolume executed by us as agent in our specialist stocks decreased 23.1% to 2.0billion shares for the three months ended September 30, 2003, from 2.6billion shares for the same period in 2002.

 

Other revenue earned by our specialist segmentincreased as a result of additional interest income related to stock-borrowtransactions from our expanded LSP operations. Also contributing to theincrease was a reduction in proprietary trading losses in the current quarteras compared to the third quarter of 2002 and an increase in earnings from ourhedge fund investment for the third quarter of 2003 as compared to the sameperiod in 2002. These increases were partially offset by a decrease in interestincome at LaBranche & Co. LLC due to significantly lower interest rates forour short term investments and stock-borrow transactions.

 

Operating expenses for our specialist segmentdecreased primarily due to a reduction in employee compensation and relatedbenefits expense, as well as a reduction in lease of exchange membershipexpense. These decreases were partially offset by an increase in

 

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exchange, clearing and brokerage fees and otherexpense. For a further discussion of operating expenses, see “OperatingExpenses” below.

 

## **Nine Months Ended September 30, 2003 Compared toNine Months Ended September 30, 2002**

## ** **

Net gain on principal transactions decreased as aresult of a decrease in the dollar value and share volume of principal sharestraded throughout the first nine months of 2003. The aggregate dollar value ofprincipal trades decreased 27.0% to $555.9 billion for the nine months endedSeptember 30, 2003 from $761.6 billion for the same period in 2002, andthe aggregate share volume of principal trades decreased 20.3% to 21.6 billionshares for the nine months ended September 30, 2003, from 27.1 billionshares for the same period in 2002. Of the total $157.3 million and $255.7million of net gain on principal transactions, during the first nine months of2003 and 2002, respectively, $11.9 million and $0.6 million, respectively, werefrom our derivative trading activities.

 

Commissions revenue earned by our specialist segmentdecreased due to a slight decrease in the share volume executed by us as agentand the effect of competitive price pressures on our billing structure. Thetotal share volume executed by us as agent in our specialist stocks decreased1.4% to 6.45 billion shares for the nine months ended September 30, 2003from 6.54 billion shares for the same period in 2002.

 

Other revenue earned by our specialist segmentdecreased primarily due to a decline in interest income as a result ofsignificantly lower interest rates for our short term investments andstock-borrow transactions. The decrease in other revenue was partially offsetby an increase in proprietary trading revenues, an increase in earnings fromour hedge fund investment as well as an increase in interest income related tostock-borrow transactions at our LSP subsidiary due to expanded trading activities.

 

Operating expenses for our specialist segmentdecreased primarily due to a reduction in employee compensation and relatedbenefits expense, interest expense and lease of exchange membership expense.These decreases were partially offset by an increase in exchange, clearing andbrokerage fees and other expenses. For a further discussion of operatingexpenses, see “Operating Expenses” below.

 

# **Executionand Clearing Segment Operating Results**

 
|                                    |   | **For the Three Months  Ended September 30,** |   | **For the Nine Months  Ended September 30,** |   | **Three Months  2003 vs 2002  Percentage** |   | **Nine Months  2003 vs 2002  Percentage** |   |
|-----------------------------------------|--------|----------------------------------------------------|--------|---------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|
| **(000’s  omitted)**               |   | **2003**                                           |   | **2002**                                          |   | **2003**                                   |   | **2002**                                  |   | **Change** |   | **Change** |   |
|                                    |   |                                               |   |                                              |   |                                       |   |                                      |   |   |   |   |   |
| Revenues:                               |   |                                               |   |                                              |   |                                       |   |                                      |   |   |   |   |   |
| Commissions                             |   | $                                                  | 11,693 |                                              | $      | 11,739                                     |   | $                                         | 35,437 |   | $ | 28,935 |   | (0.4 | )% | 22.5 | % |
| Other                                   |   | 65                                                 |   | 1,116                                             |   | 722                                        |   | 2,889                                     |   | (94.2 | ) | (75.0 | ) |
|                                    |   |                                               |   |                                              |   |                                       |   |                                      |   |   |   |   |   |
| Total segment revenues                  |   | 11,758                                             |   | 12,855                                            |   | 36,159                                     |   | 31,824                                    |   | (8.5 | ) | 13.6 |   |
|                                    |   |                                               |   |                                              |   |                                       |   |                                      |   |   |   |   |   |
| Operating expenses                      |   | 13,435                                             |   | 14,809                                            |   | 44,012                                     |   | 39,882                                    |   | (9.3 | ) | 10.4 |   |
|                                    |   |                                               |   |                                              |   |                                       |   |                                      |   |   |   |   |   |
| Loss before minority interest and taxes |   | $                                                  | (1,677 | )                                                 | $      | (1,954                                     | )      | $                                         | (7,853 | ) | $ | (8,058 | ) | 14.2 |   | 2.5 |   |

 

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Our execution and clearing segment’s commissionsrevenue includes fees charged to customers for execution, clearance anddirect-access floor brokerage services.

 

Our execution and clearing segment’s other revenuesconsist of interest income, proprietary trading gains or losses and feescharged to customers for the use of our proprietary front-end order executionsystem.

 

## **Three Months Ended September 30, 2003 Compared toThree Months Ended September 30, 2002**

## ** **

Commissions revenue from our execution and clearingsegment decreased slightly primarily due to a decline in direct-accessactivities, which was partially offset by an increase in revenue from ourinstitutional execution services.

 

Other revenue from our execution and clearing segmentdecreased due to a decline in interest income as a result of significantlylower interest rates for our short-term investments and reduced marginbalances, as well as a decline in proprietary trading revenue.

 

The decrease in operating expenses for our executionand clearing segment was primarily due to a decline in exchange, clearing andbrokerage fees expense. This decrease was partially offset by an increase inemployee compensation and related benefits expense and other expenses. For afurther discussion of operating expenses, see “Operating Expenses” below.

 

## **Nine Months Ended September 30, 2003 Compared toNine Months Ended September 30, 2002**

## ** **

Commissions revenue from our execution and clearingsegment increased primarily due to the growth and expansion of ourinstitutional execution services. This increase was partially offset by areduction in commission revenue from clearance and direct-access activities.

 

Other revenue from our execution and clearing segmentdecreased primarily due to a decline in interest income as a result ofsignificantly lower interest rates for our short-term investments and reducedmargin balances, as well as a decline in proprietary trading revenues. Thisdecrease was also due to a decline in fees received from customers using ourproprietary front-end order execution system.

 

The increase in operating expenses for our executionand clearing segment was primarily due to an increase in employee compensationand related benefits expense and other expenses, which was slightly offset by adecrease in exchange, clearing and brokerage fees expense. For a furtherdiscussion of operating expenses, see “Operating Expenses” below.

 

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# **OtherOperating Results**

 
|                                    |   | **For the Three Months  Ended September 30,** |    | **For the Nine Months  Ended September 30,** |   | **Three Months  2003 vs 2002  Percentage** |   | **Nine Months  2003 vs 2002  Percentage** |    |
|-----------------------------------------|--------|----------------------------------------------------|---------|---------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|---------|
| **(000’s  omitted)**               |   | **2003**                                           |    | **2002**                                          |   | **2003**                                   |   | **2002**                                  |    | **Change** |   | **Change** |   |
|                                    |   |                                               |    |                                              |   |                                       |   |                                      |    |   |   |   |   |
| Other revenues (losses)                 |   | $                                                  | 928     |                                              | $      | (2,347                                     | )      | $                                         | 1,292   |   | $ | 6,857 |   | 139.5 | % | (81.2 | )% |
|                                    |   |                                               |    |                                              |   |                                       |   |                                      |    |   |   |   |   |
| Total segment revenues                  |   | 928                                                |    | (2,347                                            | )      | 1,292                                      |   | 6,857                                     |    | 139.5 |   | (81.2 | ) |
|                                    |   |                                               |    |                                              |   |                                       |   |                                      |    |   |   |   |   |
| Operating expenses                      |   | 13,575                                             |    | 14,784                                            |   | 41,247                                     |   | 44,125                                    |    | (8.2 | ) | (6.5 | ) |
|                                    |   |                                               |    |                                              |   |                                       |   |                                      |    |   |   |   |   |
| Loss before minority interest and taxes |   | $                                                  | (12,647 | )                                                 | $      | (17,131                                    | )      | $                                         | (39,955 | ) | $ | (37,268 | ) | 26.2 |   | (7.2 | ) |

 

The portion of our revenues that is not generated fromour two principal business segments consists primarily of appreciation ordepreciation of our non-marketable investments and interest income.

 

## **Three Months Ended September 30, 2003 Compared toThree Months Ended September 30, 2002**

## ** **

Other revenue increased primarily due to write-offsduring the third quarter of 2002 related to certain of our non-marketableinvestments.

 

Operating expenses decreased primarily due to adecline in interest and other expenses. For a further discussion of operatingexpenses see, “Operating Expenses” below.

 

## **Nine Months Ended September 30, 2003 Compared toNine Months Ended September 30, 2002**

## ** **

Other revenue decreased approximately $5.7 million dueto an appreciation in the value of our non-marketable investments during thenine months ended September 30, 2002. Other revenues also decreased due toa decline in interest income as a result of significantly lower interest ratesfor our short to medium term investments.

 

Operating expenses decreased primarily due to adecline in interest expense, a reduction in charges related to the repurchasesof our Series A preferred stock as well as a decline in other expenses. For afurther discussion of operating expenses see, “Operating Expenses” below.

 

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# **Operating Expenses**

 
|                                              |   | **For the Three Months  Ended September 30,** |       | **For the Nine Months  Ended September 30,** |       | **Three Months  2003 vs 2002  Percentage** |       | **Nine Months  2003 vs 2002  Percentage** |       |
|---------------------------------------------------|--------|----------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| **(000’s omitted)**                          |   | **2003**                                           |       | **2002**                                          |       | **2003**                                   |       | **2002**                                  |       | **Change** |   | **Change** |   |
|                                              |   |                                               | ** ** |                                              | ** ** |                                       | ** ** |                                      | ** ** |   | ** ** |   | ** ** |
| Expenses:                                         |   |                                               |       |                                              |       |                                       |       |                                      |       |   |   |   |   |
| Employee compensation and related benefits        |   | $                                                  | 25,324     |                                              | $          | 36,085                                     |       | $                                         | 76,239     |   | $ | 98,238 |   | (29.8 | )% | (22.4 | )% |
| Interest                                          |   | 12,113                                             |       | 12,554                                            |       | 36,041                                     |       | 38,238                                    |       | (3.5 | ) | (5.7 | ) |
| Exchange, clearing and brokerage fees             |   | 9,260                                              |       | 11,105                                            |       | 30,858                                     |       | 28,085                                    |       | (16.6 | ) | 9.9 |   |
| Other operating expenses                          |   | 17,911                                             |       | 17,838                                            |       | 52,302                                     |       | 52,069                                    |       | 0.4 |   | 0.4 |   |
|                                              |   |                                               |       |                                              |       |                                       |       |                                      |       |   |   |   |   |
| Total expenses before minority interest and taxes |   | 64,608                                             |       | 77,582                                            |       | 195,440                                    |       | 216,630                                   |       | (16.7 | ) | (9.8 | ) |
|                                              |   |                                               |       |                                              |       |                                       |       |                                      |       |   |   |   |   |
| Provision for income taxes                        |   | $                                                  | 2,917      |                                              | $          | 19,306                                     |       | $                                         | 18,979     |   | $ | 58,453 |   | (84.9 | ) | (67.5 | ) |

 

Our largest operating expense is employee compensationand related benefits. Our specialist segment’s employee compensation andrelated benefits expense consists of salaries, wages and profitability-basedcompensation paid to our floor traders and related support staff. The employeecompensation and related benefits expense related to our execution and clearingsegment consists of salaries, wages and profitability-based compensation paidto our execution and clearing professionals, as well as compensation based oncommissions earned by various trading professionals. Profitability-basedcompensation may include cash awards and stock-based compensation paid orgranted to managing directors, trading professionals and other employees basedon our profitability.

 

Interest expense is primarily generated from theindebtedness not allocated to either of our two principal segments. Thisindebtedness was incurred in connection with our reorganization frompartnership to corporate form in 1999, our subsequent acquisitions and theissuance of promissory notes in exchange for our preferred stock. The interestexpense at our specialist segment is primarily the result of subordinatedindebtedness that has been approved by the NYSE for inclusion in our netcapital as well as margin interest expense related to our derivative specialistand market-making business. Customers’ free credit balances and bank loansgenerate interest expense at our execution and clearing segment.

 

Exchange, clearing and brokerage fees expense at ourspecialist segment consists primarily of fees paid by us to the NYSE, AMEX, theDepository Trust Clearing Corporation (“DTCC”) and to third party execution andclearing companies. The fees paid by us to these entities are primarily basedon the volume of transactions executed by us as principal and as agent, a feebased on exchange seat use, an allocation fee requiring specialist firms toshare the cost of newly allocated listings, technology fees, a flat annual feeand execution and clearing fees. Our execution and clearing segment’s exchange,clearing and brokerage fees expense consists of commissions paid to thirdparties for introduction of customers, use of certain proprietary informationand third party execution fees.

 

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**Three Months Ended September 30,2003 Compared to Three Months Ended September 30, 2002**

 

Employee compensation and related benefits expensedecreased as a result of a reduction in profitability-based compensationaccruals and other employee benefit accruals. The decrease was partially offsetby an increase in employee salaries due to the hiring of additional trading andsupport personnel for LSP’s trading activities and for LFSI’s institutionalexecution group, which increased our average number of employees by 12individuals for the three months ended September 30, 2003, as compared tothe same period in 2002. Employee compensation and related benefits expenseincreased to 35.7% of total revenues for the three months endedSeptember 30, 2003, from 30.5% of total revenues for the same period in2002.

 

Interest expense decreased as the result of ourrepayment of $20.0 million senior subordinated notes during 2002, as well asthe repayment of $16.4 million principal amount of subordinated indebtednessduring the fourth quarter of 2002. This decrease was partially offset by anincrease in margin interest charges as a result of the growth and expansion ofderivative trading activities. Interest expense increased to 17.1% of totalrevenues for the three months ended September 30, 2003, from 10.6% oftotal revenues for the same period in 2002.

 

Exchange, clearing and brokerage fees expensedecreased primarily due to a decrease in commission expense at our executionand clearing segment as a result of reduced direct-access and clearanceactivities. The decrease was also due to a reduction in odd lot fees at ourspecialist segment as a result of decreased share volume during the threemonths ended September 30, 2003. This decrease at our specialist segmentwas partially offset by an increase in commission expense due to the expansionof our derivative trading business. Exchange, clearing and brokerage feesexpense increased to 13.1% of total revenues for the three months endedSeptember 30, 2003, from 9.4% of total revenues for the same period in2002.

 

Other operating expenses increased primarily due to anincrease in communication and directed brokerage arrangement expenses as theresult of the growth and expansion of our execution and clearing segment. Inaddition, the increase was due to a contingency accrual made during the thirdquarter of 2003. This increase was partially offset by a reduction in legal andprofessional fees as well as a decline in lease of exchange membershipsexpense, the result of a slight decrease in the number of NYSE seats leasedduring the three months ended September 30, 2003, as well as a reductionin average seat rental cost on the AMEX.

 

Provision for income taxes decreased due to thedecline in our income before provision for income taxes.

 

## **Nine Months Ended September 30, 2003 Compared toNine Months Ended September 30, 2002**

## ** **

Employee compensation and related benefits expensedecreased as a result of a reduction in profitability-based compensationaccruals and other employee benefit accruals. The decrease was partially offsetby an increase in employee salaries due to the hiring of additional trading andsupport personnel for LSP’s trading activities and for LFSI’s institutionalexecution group, which increased our average number of employees by 27individuals for the nine months ended September 30, 2003, as compared tothe same period in

 

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2002. Employee compensation and related benefitsexpense increased to 32.4% of total revenues for the nine months endedSeptember 30, 2003, from 29.0% of total revenues for the same period in2002.

 

Interest expense decreased as the result of ourrepayment of $20.0 million senior subordinated notes duringSeptember 2002, as well as the repayment of $34.8 million principal amountof subordinated indebtedness and promissory notes. This decrease was partiallyoffset by an increase in margin interest charges as a result of the growth andexpansion of our derivative trading activities, as well as the interest expenserelated to the $8.0 million aggregate principal amount of notes issued by us inAugust 2002 in exchange for 8,000 shares of our Series A preferred stock.Interest expense increased to 15.3% of total revenues for the nine months endedSeptember 30, 2003, from 11.3% of total revenues for the same period in2002.

 

Exchange, clearing and brokerage fees expenseincreased at our specialist segment due to the expansion of our derivativetrading business, which led to an increase in commission expense, a new NYSEtechnology fee that was effective from January 1, 2003 to July 31,2003, as well as an increase in NYSE allocation fees. This increase waspartially offset by a decrease in commission expense at our execution andclearing segment as a result of reduced direct-access and clearance activities.Exchange, clearing and brokerage fees expense increased to 13.1% of totalrevenues for the nine months ended September 30, 2003, from 8.3% of totalrevenues for the same period in 2002.

 

Other operating expenses increased primarily due to anincrease in communication and directed brokerage arrangement expenses due tothe growth and expansion of our execution and clearing segment. This increasewas partially offset by a decline in legal and professional fees, as well aslease of exchange memberships expense, which was the result of a slight decreasein the number of NYSE seats leased during the nine months endedSeptember 30, 2003, as well as a reduction in average seat rental cost onthe AMEX.

 

Provision for income taxes decreased due to thedecline in our income before provision for income taxes.

 

**Liquidity**

 

As of September 30, 2003, we had $2,072.6 millionin assets, of which $352.7 million consisted of cash and short-term investmentsprimarily in United States Government obligations maturing within three months,cash and securities segregated under federal regulations and overnightrepurchase agreements. As of September 30, 2003 cash and cash equivalentsincreased, as compared to December 31, 2002, in part as a result ofinvesting cash in United States Government obligations with original maturitiesof 90 days or less, which are classified as cash and cash equivalents.

 

In October 2003, our LaBranche & Co. LLCsubsidiary extended its $200.0 million committed line-of-credit agreement witha U.S. commercial bank to October 29, 2004 on the same terms andconditions as the expiring agreement. The line-of-credit may be extended byLaBranche & Co. LLC, subject to the bank’s approval, for additionalone-year terms by giving

 

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written notice to the bank at least 30 days prior tothe then-current scheduled termination date. Amounts outstanding under the U.S.commercial bank credit facility would be secured by our inventory of specialiststocks and bear interest at the U.S. commercial bank’s broker loan rate. Todate, we have not utilized this facility. In order to maintain the availabilityof funds under this credit facility, we must comply with certain financial andother covenants.  We currently are incompliance with these covenants.

 

In connection with our acquisition of ROBB PECKMcCOOEY Financial Services, Inc. (“RPM”), we assumed its liabilities andobligations under its deferred compensation plan. The deferred compensationplan provides for the payment, on or before December 15, 2007, of approximately$30.2 million, plus interest at 8.0% per year, to certain former employees ofRPM. The amounts payable under this deferred compensation plan may be reducedto satisfy certain indemnification obligations of the plan participants to usunder the agreements governing our acquisition 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. In addition, payments of benefits under the RPM deferredcompensation plan must be deferred if we are not current in the payment ofdividends with respect to the outstanding shares of our Series A preferred stock.During the nine months ended September 30, 2003, we paid $3.6 million indeferred compensation plan benefits and during October 2003, we paid anadditional $0.8 million in deferred compensation plan benefits. After takinginto account all payments of deferred compensation plan benefits throughOctober 2003, approximately $22.0 million, plus interest, remains payableunder the terms of the RPM deferred compensation plan. If the plan isterminated, the deferred compensation benefits (including interest) of allparticipants, to the extent not previously paid, must be distributed to theparticipants in one lump sum.

 

We also assumed RPM’s liabilities and obligationsunder its retention bonus pool. The retention bonus pool requires $9.0 millionto be paid as bonus compensation on March 15, 2004 to as many as 31 formeremployees of RPM, provided they are still employed on the payment date. Theportion of this retention bonus pool payable to each of these former employeeswill be determined by the majority vote of a committee consisting of Robert M.Murphy, George E. Robb, Jr. and Michael LaBranche or their respectivesuccessors. Payments out of the retention bonus pool must be deferred if we arenot current in the payment of dividends with respect to the outstanding sharesof our Series A preferred stock.

 

In connection with our acquisition of RPM, we alsoissued 100,000 shares of our Series A preferred stock, which arenonconvertible, to the former stockholders of RPM. Each outstanding share ofour Series A preferred stock entitles the holder to cumulative preferred cashdividends at an annual rate of 8.0% of the liquidation preference per shareuntil March 15, 2005, 10.0% until March 15, 2006, and 10.8%thereafter. Dividends are payable on the first day of January and thefirst day of July of each year (or if such date is not a regular businessday, then the next business day thereafter), with the first payment made onJuly 1, 2001. Dividends on the issued and outstanding shares ofSeries A preferred stock are preferred and cumulative and accrue dailyfrom the date on which they were originally issued. We have made all dividendpayments to the holders of shares of our Series A preferred stock on theappropriate dates since issuance.

 

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On January 6, 2003, we offered to repurchase upto 30,000 shares of our outstanding Series A preferred stock for $1,000 pershare, plus accrued and unpaid dividends up to but not including the date ofpurchase. On February 4, 2003, the offer expired, and on February 6,2003, we purchased all of the approximately 24,650 shares that had beentendered for approximately $24.8 million, including accrued but unpaiddividends. As a result of the purchase, we recorded an expense due to the accelerationof the discount accretion on the shares purchased of approximately $0.9million, which was included in other expenses. As of September 30, 2003,approximately 39,186 shares of our Series A preferred stock were outstanding.Of these remaining shares, 9,760 shares are held in escrow in order to satisfythe potential indemnification obligations of the former RPM stockholders to usunder the agreements governing our acquisition of RPM.

 

On January 16, 2003, our board of directorsdeclared an $0.08 per share cash dividend payable on February 14, 2003 toholders of record of our common stock on January 31, 2003. This dividendwas paid on February 14, 2003. On April 14, 2003, our board ofdirectors declared an $0.08 per share cash dividend payable on May 14,2003 to holders of record of our common stock on April 30, 2003. Thisdividend was paid on May 14, 2003. On July 17, 2003, our board ofdirectors declared an $0.08 per share cash dividend payable on August 14,2003 to holders of record of our common stock on July 31, 2003. Thisdividend was paid on August 14, 2003. On October 20, 2003 our boardof directors suspended the payment of dividends with respect to our commonstock because of the recent decline in its profitability and because recentearnings have not been sufficient to support payment of further dividends incompliance with certain of the financial covenants contained in the indenturesgoverning our Senior Notes and Senior Subordinated Notes, as described morefully below. The payment of future dividends is within the discretion of ourboard of directors and will depend on our future earnings, capitalrequirements, applicable regulatory restrictions, financial condition, theapplication of the financial covenants contained in the indentures governingour Senior Notes and Senior Subordinated Notes and other relevant factors.

 

As of September 30, 2003, the subordinatedindebtedness of LaBranche & Co. LLC aggregated $20.3 million (excludingsubordinated liabilities related to contributed exchange memberships) andconsisted of senior subordinated notes and junior subordinated notes. Thesenotes mature on various dates between August 2004 and June 2008, andbear interest at annual rates ranging from 7.69% to 10.0%. The juniorsubordinated notes have automatic rollover provisions, which extend thematurities for an additional year, unless the lender provides at least sevenmonths advance notice prior to maturity. LaBranche & Co. LLC is entitled toprepay the junior subordinated notes without penalty under the terms of theagreements relating thereto. In July 2003, LaBranche & Co. LLCprepaid, without penalty, through the release of collateral, the secured demandnote in the principal amount of $8.0 million, plus accrued interest. The notehad an annual interest rate of 11.0% on the cash collateral and 4.0% on thenon-cash collateral securing the note.

 

As ofSeptember 30, 2003, $10.0 million of our outstanding indebtednessconsisted of one note of $2.0 million, which matures in June 2004 andbears interest at an annual rate of 8.0%. The remaining notes in the aggregateprincipal amount of $8.0 million mature in August 2007 and bear interestat annual rates ranging from 9.0% to 10.0%.

 

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On August 24, 1999, we issued $100.0 millionaggregate principal amount of Senior Notes. The Senior Notes bear interest at arate of 9.5% annually and mature in August 2004. On March 2, 2000, weissued $250.0 million aggregate principal amount of Senior Subordinated Notes. TheseSenior Subordinated Notes bear interest at a rate of 12.0% annually and maturein March 2007. The indentures governing each of the Senior Notes and theSenior Subordinated Notes include certain covenants that, among other things,limit our ability to incur additional indebtedness, pay dividends on our stockor repurchase our stock, make certain investments, engage in transactions withstockholders and affiliates, create liens on our assets, and sell assets orengage in mergers and consolidations, except in accordance with certainspecified conditions.****Under one of these financialcovenants, our ability to incur additional indebtedness, pay dividends orredeem stock is limited if our “consolidated fixed charge coverage ratio”,which incorporates the financial information of the preceding four quarters, isat or below a threshold of 2.75:1.  The"consolidated fixed charge coverage ratio" basically reflects acomparison between (1) our consolidated earnings before interest, income tax,depreciation and amortization expenses ("EBITDA"), and (2) the sum ofour interest expenses and a tax-effected multiple of dividend payments withrespect to the outstanding shares of our preferred stock.

 

As of September 30, 2003, we were not in defaultof the indentures governing our Senior Notes and Senior Subordinated Notes, butour consolidated fixed charge coverage ratio had fallen below 2.75:1. As aconsequence, our ability to take such actions as pay dividends with respect to,or repurchase, shares of our capital stock, repay any other of our outstandingindebtedness prior to maturity, engage in certain investments and incur certainkinds of additional indebtedness currently is limited, although we currentlymay incur indebtedness pursuant to working capital facilities, including the$200.0 million line of credit maintained by our LaBranche & Co. LLCsubsidiary, in an amount not exceeding 70% of the value of the securitiessecuring such indebtedness. Moreover, under the terms of our Series A preferredstock, in the event the full amount of cumulative dividends with respect to theoutstanding shares of our Series A preferred stock has not been paid as andwhen due, we may not (i) repurchase (or set aside funds to repurchase) sharesof our common stock, (ii) pay (or set aside funds to pay) dividends withrespect to the outstanding shares of our common stock (other than dividendspayable solely in shares of common stock), and (iii) pay bonuses to ouremployees. Accordingly, unless our EBITDA increases above recent levels and ourconsolidated fixed charge coverage ratio again exceeds the 2.75:1 threshold,the continuing application of these limitations could restrict our access tocertain sources of financing and our ability to distribute earnings to ourstockholders and strategically and flexibly deploy our capital.

 

The Senior Subordinated Notes also require us, within150 days after the end of each fiscal year, to offer to redeem from all holdersof the Senior Subordinated Notes a principal amount equal to our Excess CashFlow, as defined, at a price equal to 103.0% of the principal amount beingoffered for purchase plus accrued and unpaid interest, if any, to the date ofredemption. Each holder is entitled to be offered his or her pro rata sharebased upon his or her ownership percentage of the outstanding SeniorSubordinated Notes. Excess Cash Flow is defined for this purpose as 40.0% ofthe amount by which our consolidated EBITDA exceeds the sum of our interestexpense, tax expense, increase in net capital or net liquid asset requirements,capital expenditures, any cash amounts related to acquisitions of NYSEspecialists or any cash payments related to our payment at maturity of theprincipal amount of our existing or certain other indebtedness. On May 13,2003, we offered to purchase approximately $30.5 million aggregate principalamount of Senior Subordinated Notes based on our Excess Cash Flow for the yearended December 31, 2002. This offer expired on June 11,

 

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2003 without the tender of any Senior SubordinatedNotes. If our consolidated fixed charge coverage ratio is below 2.75:1, we maynot offer to redeem any Senior Subordinated Notes.

 

Management is currently considering several optionswith respect to the maturity of the Senior Notes. Depending on the level of ourcash flows from operations, working capital needs, net liquid assetrequirements under NYSE and AMEX rules, capital requirements under SECregulations and other liquidity factors, the Senior Notes may be repaid in fullon the scheduled maturity date or refinanced. Although we believe we will beable to refinance the Senior Notes on reasonably acceptable terms, there can beno assurance in this regard.

 

As a broker-dealer, LaBranche & Co. LLC is subjectto regulatory requirements intended to ensure the general financial soundnessand liquidity of broker-dealers and requiring the maintenance of minimum levelsof net capital, as defined in SEC Rule 15c3-1. LaBranche & Co. LLC isrequired to maintain minimum net capital, as defined, equivalent to the greaterof $100,000 or 1/15 of aggregate indebtedness, as defined. NYSE Rule 326(c)also prohibits a broker-dealer from repaying subordinated borrowings, payingcash dividends, making loans to any parent, affiliates or employees, orotherwise entering into transactions which would result in a reduction of itstotal net capital to less than 150.0% of its required minimum capital.Moreover, broker-dealers are required to notify the SEC prior to repayingsubordinated borrowings, paying dividends and making loans to any parent,affiliates or employees, or otherwise entering into transactions which, ifexecuted, would result in a reduction of 30.0% or more of their excess netcapital (net capital less minimum requirement). The SEC has the ability toprohibit or restrict such transactions if the result is deemed detrimental tothe financial integrity of the broker-dealer. As of September 30, 2003,LaBranche & Co. LLC’s net capital, as defined under SEC Rule 15c3-1, was$463.7 million, which exceeded the minimum requirements by $462.0 million.

 

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 September 30, 2003, LaBranche & Co.LLC’s NYSE minimum required dollar amount of net liquid assets, as defined, was$446.0 million, compared to actual net liquid assets, as defined, of $473.1million.

 

The AMEX generally requires its equity specialistfirms to maintain a cash or liquid asset position of the greater of (a)$600,000, or (b) an amount sufficient to assume a position of sixty tradingunits of each security in which the specialist is registered. As ofSeptember 30, 2003, LaBranche satisfied the AMEX equity specialist liquidasset requirements.

 

As a registered broker-dealer and member firm of theNYSE, LFSI also is subject to SEC Rule 15c3-1, as adopted and administered bythe NYSE and the SEC. Under the alternative method permitted by the rule, theminimum required net capital of LFSI as of September 30, 2003 was equal tothe greater of $1.5 million or 2.0% of aggregate debit items as defined. As ofSeptember 30, 2003, LFSI’s net capital, as defined under SEC Rule 15c3-1,was $15.5 million and exceeded minimum net capital requirements by $14.0million.

 

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As a registered broker-dealer and AMEX member firm,LSP is subject to SEC Rule 15c3-1, as adopted and administered by the AMEX andthe SEC. LSP 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 September 30, 2003, LSP’snet capital, as defined under SEC Rule 15c3-1, was $18.6 million, whichexceeded minimum net capital requirements by $18.5 million.

 

Failure by any of our broker-dealer subsidiaries tomaintain its required net capital and net liquid assets, where appropriate, maysubject it to suspension or revocation of its SEC registration or itssuspension or expulsion by the NYSE and/or AMEX.

 

We currently anticipate that our available cashresources and credit facilities will be sufficient to meet our working capital,regulatory capital and capital expenditure requirements through at least thenext twelve months.

 

***Credit Ratings***

 

Our $100.0 million Senior Notes and our $250.0 millionSenior Subordinated Notes were both sold to public investors on theirrespective issuance dates. The following table sets forth the credit ratings onboth of these issues as of September 30, 2003:

 

|                      |   | **Moody’s Investors Services** |   | **Standard & Poor’s** |   |
|---------------------------|--------|-------------------------------------|--------|--------------------------------|--------|
|                      |   |                                |   |                           |   |
| Senior Notes              |   | Baa3                                |   | BB+                            |   |
|                      |   |                                |   |                           |   |
| Senior Subordinated Notes |   | Ba1                                 |   | BB-                            |   |

 

**OnOctober 16, 2003 Standard & Poor’s downgraded our Senior Notes to a BBrating and our Senior Subordinated Notes to a B+ rating, and placed us oncredit watch with negative implications. In addition, on October 23, 2003,Moody’s Investor Service changed our rating outlook to negative from stable.**

 

## **Item 3.**                              Quantitative and QualitativeDisclosures about Market Risk.

 

Because our specialist equity 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 toreduce risks by enabling us to incorporate up-to-date market information in themanagement of our inventory, subject to our specialist obligations. We havedeveloped a trading related risk management process which is designed tobalance our ability to profit from our specialist activities with our exposureto potential losses. Our trading related risk management process includesparticipation by our executive operating committee, our floor managementcommittee, our floor team captains and our specialists.

 

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*Executive Operating Committee.*  Our executive operating committee iscomposed of three executive officers of LaBranche & Co. LLC. This committeeis responsible for approving all risk management policies and tradingguidelines for particular specialist stocks, after receiving input andproposals from the floor management committee. In addition, our executiveoperating committee reviews all unusual situations reported to it by our floormanagement committee.

 

*Floor Management Committee.*  Our floor management committee is composedof seven senior floor specialists. This committee is responsible forformulating and overseeing our overall risk management policies and riskguidelines for each of our specialist stocks. In arriving at these policies andguidelines, our floor management committee considers the advice and input fromour floor team captains. Our floor management committee meets with all floorteam captains to review and, if necessary, revise the risk management policiesfor LaBranche & Co. LLC and/or for particular specialist stocks. Inaddition, a member of our floor management committee is always available on thetrading floor to review and assist with any unusual situations reported by acaptain. Our floor management committee reports to our executive operatingcommittee about each of these situations.

 

*Floor Team Captains.*  We have 28 floor team captains who monitorthe activities of LaBranche & Co. LLC’s specialists throughout the tradingday from various positions at LaBranche & Co. LLC’s trading posts. Thecaptains observe trades and constantly review trading positions on a real-timebasis through our information systems. In addition, the captains are readilyavailable to assist LaBranche & Co. LLC’s specialists in determining whento deviate from our policies and guidelines to react to any unusual situationsor market conditions. The captains must report these unusual situations tofloor management, including any deviations from our policies and guidelines.Captains meet with each specialist to evaluate the specialist’s adherence toour risk management policies and guidelines. Captains also meet to review riskpolicies and guidelines and, if appropriate, make new recommendations to thefloor management committee.

 

*Specialists.*  LaBranche & Co. LLC’s specialistsconduct auctions based on the conditions of the marketplace. In doing so,specialists observe our risk management policies and guidelines in tandem withtheir responsibility to create a fair and orderly market. Specialists mustimmediately notify a captain of any unusual situations or market conditionsrequiring a deviation from our policies and guidelines.

 

Our equity specialist operations on the AMEX areconducted by five equity specialists. We have one floor captain on the AMEX whomonitors the trading activities of the AMEX equity specialists by observingtrades and reviewing positions on a real time basis. The floor captainregularly communicates with management to ensure that our AMEX equity specialistsadhere to all risk management policies set by LaBranche & Co. LLC’sexecutive operating committee.

 

*CircuitBreaker Rules.*  TheNYSE and AMEX have instituted 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 Jones

 

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Industrial Average drops a certain number of points.Current circuit breaker levels are set quarterly at 10, 20 and 30 percentof the Dow Jones Industrial Average closing values of the previous month,rounded to the nearest 50 points. These rules provide investors extra time torespond to severe market declines and provide us an opportunity to insurecompliance with our risk management policies.

 

*EquityMarket Risk*

 

As a specialist on the NYSE, a high concentration ofLaBranche & Co. LLC’s trading revenue is generated from its ten andtwenty-five most profitable specialist stocks. However, the percentage ofLaBranche & Co. LLC’s specialist trading revenue generated from its tenmost profitable specialist stocks has decreased from 42.4% to 21.7% and 29.3%to 19.6% of total principal trading revenue for the three and nine months endedSeptember 30, 2002 and 2003, respectively. The percentage of LaBranche& Co. LLC’s specialist trading revenue generated from its twenty-five mostprofitable specialist stocks has decreased from 64.7% to 39.9% and 50.0% to37.3% of total principal trading revenue for the three and nine months endedSeptember 30, 2002 and 2003, respectively. LaBranche & Co. LLC is notoverly reliant on a particular group of specialist stocks, as the compositionof its ten and twenty-five most profitable specialist stocks changes continuously.

 

Our specialist activities are subject to a number ofrisks, including risks of price fluctuations, rapid changes in the liquidity ofmarkets and foreign exchange risk related to American Depositary Receipts(“ADRs”). In any period, we may incur trading losses in our specialist stocksfor a variety of reasons, including price fluctuations of our specialiststocks, lack of trading volume in our specialist stocks and the performance ofour specialist obligations. From time to time, we may have large positionconcentrations in securities of a single issuer or issuers engaged in aspecific industry. In general, because our inventory of securities is marked tomarket on a daily basis, any significant price movement in these securitiescould result in a reduction of our revenues and operating profits.

 

We have developed a risk management process which isintended to balance our ability to profit from our specialist activities withour exposure to potential losses. We have invested substantial capital, alongwith the NYSE, in real-time, on-line systems which give management instantaccess to specific trading information at any time during the trading day,including our aggregate long and short positions, our capital andprofit-and-loss information on an aggregate or per issue basis. Subject to thespecialist’s obligation to maintain a fair and orderly market and to applicableregulatory requirements, we constantly seek to manage our trading positionsrelative to our principal trading revenues.

 

*DerivativesMarket Risk*

 

As a specialist and market maker in options, ETFs andfutures, LSP is responsible for creating a fair and orderly market, and tradessecurities as principal out of both obligation and inclination. LSP’s options,ETFs, futures and foreign currency trading exposes it to certain risks, such asprice fluctuations, foreign currency movements and changes in the liquidity of

 

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markets. In addition, these derivative instrumentsexpose LSP to volatility, credit and foreign exchange risk, among other typesof risks.

 

In order to manage these risks, LSP has a riskmanagement team. These individuals utilize a third party software applicationto monitor LSP’s positions on a real-time basis. By monitoring actual andtheoretical profit and loss, volatility and other standard risk measures, theseindividuals seek to ensure that all LSP traders are within the parameters setby management. LSP’s traders use futures, the stocks underlying certainpositions and foreign currencies in an attempt to hedge market and foreigncurrency risk. LSP’s aggregate risk is under constant evaluation by both therisk management team and traders, and all significant trading strategies andpositions are discussed between both groups. LSP’s option, future and ETFtrading is executed solely on national and foreign exchanges. These tradesclear through the Options Clearing Corporation, the National SecuritiesClearing Corporation or the applicable exchange clearing organization, therebyreducing potential credit risk.

 

The following chart illustrates how the specifiedmovements in the underlying securities prices of LSP’s entire portfolio wouldhave impacted profits and losses from its trading activities: 

 

|                     |   | **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,  2003     |   | $                                                        | 610    |   | $ | 396 |   | $ | (5 | ) | $ | 194 |   | $ | (44 | ) |
| June 30,  2003      |   | (930                                                     | )      | (47 | ) | (8 | ) | 295 |   | 610 |   |
| September 30,  2003 |   | 3,963                                                    |   | 144 |   | (16 | ) | 176 |   | 2,486 |   |
|                          |        |                                                          |        |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The numbers in the above table are based on certaintheoretical assumptions and thus do not fully represent the profit or lossexposure to changes in volatility, interest rates and dividends. The zeropercent change column represents the loss LSP would experience on a daily basisif the market remained unchanged.

 

*Execution,Clearing and Operational Risk*

 

As a specialist on the NYSE and AMEX and a marketmaker for certain securities, LaBranche & Co. LLC and LSP are engaged invarious securities trading and lending activities. In connection with theiractivities as specialists and market makers, LaBranche & Co. LLC and LSPassume positions in stocks, rights, options, ETFs, futures and foreigncurrencies. LaBranche & Co. LLC and LSP are exposed to credit riskassociated with the nonperformance of counterparties in fulfilling theircontractual obligations pursuant to these securities transactions. LaBranche& Co. LLC and LSP also are exposed to market risk associated with the saleof securities not yet purchased, which can be directly impacted by volatiletrading on the NYSE, AMEX and other exchanges. Additionally, in the event ofnonperformance and unfavorable market price movements, LaBranche & Co. LLCand LSP may be required to purchase or sell financial instruments, which mayresult in a loss.

 

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LFSI’s execution and clearing services involvesettlement and financing of various customer securities transactions on a cashor margin basis. These activities may expose LFSI to off-balance sheet risk inthe event customers or other brokers are unable to fulfill their contractualobligations and it has to purchase or sell securities at a loss. For margintransactions, LFSI may be exposed to significant off-balance sheet risk in theevent margin requirements are not sufficient to fully cover losses thatcustomers may incur in their accounts.

 

Before conducting business with a prospectivecustomer, LFSI reviews the prospective customer’s experience in the securitiesindustry, financial condition and personal background. For current customers,LFSI seeks to control the risks associated with customer activities byrequiring customers to maintain margin collateral in compliance with variousregulatory and internal guidelines. LFSI monitors margin levels daily andpursuant to such guidelines, requires customers to deposit additionalcollateral or to reduce positions when necessary. In addition, LFSI performs abackground check on every customer.

 

In each of our segments, we rely heavily on ourinformation systems in conducting our risk management. Accordingly, working inconjunction with the NYSE, we have made significant investments in our tradeprocessing and execution systems. Our use of, and dependence on, technology hasallowed us to sustain our significant growth over the past several years.Management members and floor captains at our NYSE and AMEX operations mustconstantly monitor our positions and transactions in order to mitigate ourrisks and identify troublesome trends should they occur. The substantialcapital we have invested, along with the NYSE, in real-time, on-line systemsgive management instant access to specific trading information at any timeduring the trading day, including:

 

•                  our aggregatelong and short positions;

 

•                  the variouspositions of each of our trading professionals;

 

•                  our overallposition in a particular stock; and

 

•                  capital andprofit-and-loss information on 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 derivative trading operation utilizes a third-partysoftware application to monitor its positions and profits and losses on areal-time basis.

 

During 2002, we developed and implemented a businesscontinuity plan which includes a comprehensive disaster recovery plan. We havea back-up disaster recovery center in New Jersey which has connectivity withour LaBranche & Co. LLC, LFSI and LSP

 

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subsidiaries. We are in the process of establishing asecond back-up facility which will serve our LFSI and LSP subsidiaries in anotherNew York state location and also will act as a secondary disaster recoveryfacility for our LaBranche & Co. LLC operations. We expect this second siteto be fully operational by December 31, 2003.

 

*RegulatoryRisk*

 

As registered broker-dealers, LaBranche & Co. LLC,LFSI and LSP are subject to certain regulatory requirements intended to insuretheir general financial soundness and liquidity. These subsidiaries are subjectto SEC Rule 15c3-1, 15c3-3 and other requirements as adopted and administeredby both the NYSE and AMEX.

 

LFSI must comply with the rules and regulationsrelated to the custody of customers’ assets issued under the SecuritiesExchange Act of 1934 and by the exchanges of which it is a member. In addition,the recently-enacted USA Patriot Act requires U.S. financial institutions,including banks, broker-dealers, futures commission merchants and investmentcompanies, to implement policies, procedures and controls which are reasonablydesigned to detect and report instances of money laundering and the financingof terrorism. LFSI has hired a compliance professional who is responsible forestablishing and monitoring LFSI’s anti-money laundering practices.

 

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

## ** **

As of the end ofthe period covered by this report, we carried out an evaluation, under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures pursuant to Rule13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based uponthat evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures are effective, in allmaterial respects, with respect to the recording, processing, summarizing andreporting, within the time periods specified in the Securities and ExchangeCommission’s rules and forms, of information required to be disclosed by us inthe reports that we file or submit under the Exchange Act.

 

There have notbeen any changes in our internal control over financial reporting during thefiscal quarter to which this report relates that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

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**PARTII****   OTHER INFORMATION**

 

## **Item 1. Legal Proceedings**

## ** **

On April 22, 2003, the NYSEannounced that it was reviewing the trading practices of several specialistfirms, including our LaBranche & Co. LLC subsidiary. Initially, the NYSEadvised that its investigation was focused on whether specialists hadimproperly intervened in natural matches between buyers and sellers – so-called“interpositioning.”

 

Over the course of the next severalmonths, the NYSE Market Surveillance Division and Division ofEnforcement took on-the-record testimony from 39 LaBranche & Co. LLCemployees and LaBranche & Co. LLC produced to the NYSE approximately 70,000pages of documents and many thousands of e-mails, but LaBranche & Co. LLCrefused to produce personal e-mails of employees in order to protect theirprivacy rights and because these e-mails had no bearing on any of its businessactivities and were not at all relevant to the NYSE’s investigation. OnJuly 18, 2003, the NYSE Division of Enforcement served LaBranche & Co.LLC with a “Charge Memorandum” asserting that LaBranche & Co. LLC hadviolated NYSE rules by refusing to produce the requested e-mails and thusfailing to cooperate in the NYSE’s investigation. On August 27, 2003, aNYSE Hearing Panel determined that LaBranche & Co. LLC had failed tocooperate with the NYSE investigation, and in a written decision issued onSeptember 4, 2003, the NYSE Hearing Panel ordered that LaBranche & Co.LLC be censured and fined $150,000. Shortly after the NYSE Hearing Panelannounced its findings, but before the issuance of its formal decision,LaBranche & Co. LLC produced to the NYSE Division of Enforcement all thepersonal e-mails it had previously refused to produce. LaBranche & Co. LLCsubsequently appealed the NYSE Hearing Panel’s decision to the NYSE’s Board ofDirectors on September 9, 2003, and requested that the Board of Directorsreverse the Hearing Panel’s determination and imposition of penalty. A hearingwith respect to this appeal is scheduled for December 3, 2003.

 

On September 26, 2003, the NYSE Division ofEnforcement informed LaBranche & Co. LLC's representatives of its beliefthat interpositioning by LaBranche & Co. LLC specialists amounted in theaggregate to approximately $5.0 million during the three-year period 2000-2002.LaBranche & Co. LLC requested an opportunity to review the trading datasupporting the NYSE Division of Enforcement’s position, but no data wasfurnished to LaBranche & Co. LLC in response to this request.

 

On October 15, 2003, the NYSE Division ofEnforcement orally informed LaBranche & Co. LLC that a new NYSE MarketSurveillance Division study, using different methodologies and criteria thanpreviously used, indicated that LaBranche & Co. LLC specialists improperlytraded ahead of customer orders in certain situations, and that this“specialist advantage” trading during the 2000-2002 period amounted in theaggregate to approximately $38.5 million. Again, LaBranche & Co. LLC requestedan opportunity to review the data supporting the NYSE’s claim. After initiallydenying these requests, the NYSE delivered to LaBranche & Co. LLC’srepresentatives on October 29, 2003 a portion of the data alleged tosupport the NYSE’s positions regarding both “interpositioning” and “specialistadvantage” trading. Another portion of data was received on November 7,2003. LaBranche &

 

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Co. LLC’s representatives have begun to analyze thisdata in cooperation with other NYSE specialist firms under investigation by theNYSE. LaBranche & Co. LLC has yet to receive any written documentation fromthe NYSE substantiating either the $5.0 million or the $38.5 million of allegedviolations.

 

On October 16, 2003 the NYSE announced that ithad determined to bring disciplinary action against the five largest NYSEspecialist firms and seek to impose substantial fines against them by reason oftheir alleged trading ahead of customer orders in certain situations over the2000-2002 period.

 

On October 17, 2003, the SEC issued a formalOrder of Investigation with respect to the five largest NYSE specialist firms’trading practices, and on October 30, 2003 issued to LaBranche & Co.LLC a subpoena seeking certain documents in connection with its investigation,many of which were previously furnished by LaBranche & Co. LLC to the NYSEand to the SEC’s Office of Compliance, Inspections and Examinations.

 

Based on the available data which LaBranche & Co.LLC and its outside consultants have reviewed thus far, we believe that LaBranche & Co. LLC has acted properly. The NYSE and SEC investigations are ongoing,however, and there can be no assurance as to the outcome of the investigationsor the timing of their resolution. As a consequence and in accordancewith our accounting policy, we have accrued a reserve for assessments in anamount estimated to be the minimum of the potential range of loss with respectthereto.

 

A number of purported class action proceedings wereinitiated against us and certain of our officers and directors in the UnitedStates District Court for the Southern District of New York. Certain of theselawsuits assert that by reason of LaBranche & Co. LLC’s allegedly illegalspecialist trading activity during the period covered by the NYSEinvestigation, we violated Section 10(b) of the Securities Exchange Act of1934 and Rule 10b-5 promulgated thereunder by materially misrepresenting ourfinancial performance during class periods alleged to have begun as early asAugust 1999 and to conclude on October 15, 2003 and that the namedplaintiffs suffered economic harm by reason of the resulting decline in thepublic trading price of shares of our common stock. The remaining purportedclass action lawsuits have been commenced against us, certain of our officersand directors and other large NYSE specialist firms in the United StatesDistrict Court for the Southern District of New York on behalf of persons orentities who purchased and/or sold shares of stocks of NYSE and American StockExchange listed companies for which the named firms acted as specialists duringa class period alleged to have begun on October 17, 1998 and to concludeon October 15, 2003. Additionally, a purported shareholder derivative actionproceeding has been initiated in the Supreme Court of the State of New York,New York County by two of our shareholders alleging breach of fiduciary duty byour directors and certain of our officers in connection with the allegedwrongdoing described above. As stated above, we believe that LaBranche & Co. LLC has acted properly.The defendants deny all allegations of wrongdoing in all of these proceedings.As also stated above, however, there can be no assurance as to the outcome of the NYSE and SEC investigations orthe timing of their resolution and thus, there can be no assurance as to theultimate outcome or timing of the resolution of these proceedings. As notedabove, LaBranche & Co. LLC is still awaiting materials from the NYSEexplaining the nature, scope and basis supporting the NYSE’s claims and, inturn, the claims in the class and

 

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derivative action proceedings described in thisparagraph. As a consequence, we are unable to estimate the amount or potentialrange of loss with respect thereto.

 

The range of possible resolutions in both the NYSE andSEC investigations and the class action proceedings against us could includedeterminations and judgments against us or settlements that could requiresubstantial payments by us, including the costs of defending suchinvestigations and suits, which could have a material adverse effect on ourfinancial condition, results of operations and cash flows.

 

The Company and, in particular, certain of thebusiness operations conducted by LFSI’s predecessor in interest, ROBB PECKMcCOOEY Clearing Corporation, have been the target, from time to time, ofvarious 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, we believe,based on our understanding of the facts of these proceedings, that theirultimate resolution, in the aggregate, will not have a material adverse effect onour financial condition or results of operations.

 

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

 

*Wehave included in this Form 10-Q filing, and from time to time our managementmay make, statements which may constitute “forward-looking statements” withinthe meaning of the safe harbor provisions of The Private Securities LitigationReform Act of 1995. The Company’s quarterly and annual operating results areaffected by a wide variety of factors that could materially and adverselyaffect actual results, including a decrease in trading volume on the NYSE orthe AMEX, excessive volatility in the equity securities market and changes inthe value of our securities positions. As a result of these and other factors,we may experience material fluctuations in future operating results on aquarterly or annual basis, which could materially and adversely affect ourbusiness, financial condition, operating results and stock price. An investmentin the Company 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-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Readers are cautioned that any suchforward-looking statements are not guarantees of future performance, and sincesuch statements involve risks and uncertainties, the actual results andperformance of the Company and the specialist industry may turn out to bematerially different from the results expressed or implied by suchforward-looking statements. Given these uncertainties, readers are cautionednot to place undue reliance on such forward-looking statements. The Companyalso disclaims any obligation to update its view of any such risks oruncertainties or to publicly announce the result of any revisions to theforward-looking statements made in this report.

 

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## **Item 6.**                              Exhibits and Reports onForm 8-K.

 
| (a)    |   | *Exhibits.*            |
|--------|--------|------------------------|
|   |   |                   |
|   |   | **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  September 30, 2003. |
|   |   |                   |   |   |
|   |   | 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  September 30, 2003. |
|   |   |                   |   |   |
| (b)    |   | *Reports on Form 8-K.* |

 

**None**

 

 

All other items of thisreport 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.

 

 
| November 14, 2003 | 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  September 30, 2003. |
|             |   |                                                                                                                                                                                                                                                                                                               |
| 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 September 30, 2003.       |

 

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