FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 001-13731
Friedman, Billings, Ramsey Group, Inc.
(Exact name of Registrant as specified in its charter)
Virginia 54-1837743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Nineteenth Street North
Arlington, VA 22209
(Address of principal executive offices) (Zip code)
(703) 312-9500
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Title Outstanding
Class A Common Stock 17,894,534 shares as of July 31, 2001
Class B Common Stock 28,222,529 shares as of July 31, 2001
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001
INDEX
Page
Number (s)
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements - (unaudited)
Consolidated Balance Sheets-
June 30, 2001 and December 31, 2000 3
Consolidated Statements of Operations-
Three Months Ended June 30, 2001 and 2000 4
Six Months Ended June 30, 2001 and 2000 5
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-19
Item 3. Changes in Information about Market Risk 20
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20-21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 21
EXHIBIT INDEX 21
2
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 30, December 31,
2001 2000
---------- -----------
ASSETS
Cash and cash equivalents $ 53,324 $ 52,337
Restricted cash 2,814 --
Receivables:
Investment banking 5,133 4,696
Asset management fees 2,718 1,806
Affiliates 508 1,849
Other 2,227 2,744
Due from clearing broker 22,149 11,840
Marketable and trading securities, at market value 22,541 18,447
Bank securities 12,102 --
Long-term investments 123,657 142,950
Bank loans, net 4,542 --
Prepaid expenses and other assets 4,025 5,377
Furniture, equipment, software and leasehold improvements,
net of accumulated depreciation and amortization of
$14,636 and $10,636, respectively 13,315 10,173
MMA management contracts 19,293 --
--------- ---------
Total assets $ 288,348 $ 252,219
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Trading account securities sold but not yet purchased, at market value: $ 6,800 $ 930
Accounts payable and accrued expenses 12,691 11,348
Accrued compensation and benefits 23,264 22,849
Bank deposits 18,092 --
Employee stock loan program payable, net 18,603 --
Deferred tax liability 1,760 1,760
Long-term secured debt 6,825 776
--------- ---------
Total liabilities 88,035 37,663
--------- ---------
Commitments and contingencies (Note 10) -- --
Shareholders' equity:
Preferred Stock, $0.01 par value, 15,000,000 shares authorized,
none issued and outstanding -- --
Class A Common Stock, $0.01 par value, 150,000,000 shares
authorized, 22,158,239 and 17,455,406 shares issued, respectively 222 175
Class B Common Stock, $0.01 par value, 100,000,000 shares authorized,
28,222,529 and 32,910,029 shares issued and outstanding, respectively 282 329
Additional paid-in capital 210,104 210,164
Employee stock loan program receivable, 3,382,400 shares (18,603) --
Treasury stock, at cost, 897,971 shares (6,552) (7,188)
Accumulated other comprehensive income (loss) 3,685 (1,128)
Retained earnings 11,175 12,204
--------- ---------
Total shareholders' equity 200,313 214,556
--------- ---------
Total liabilities and shareholders' equity $ 288,348 $ 252,219
========= =========
See notes to consolidated financial statements.
3
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
Three Months
Ended June 30,
------------------------------
2001 2000
---------- ---------
Revenues:
Investment banking:
Underwriting $ 9,414 $ 1,205
Corporate finance 18,057 8,741
Investment gains 5,340 --
Institutional brokerage:
Principal transactions 5,383 12,788
Agency commissions 5,962 4,627
Asset management:
Base management fees 5,191 2,206
Incentive allocations 301 7,849
Net investment income 3,498 3,768
Interest, dividends and other 2,006 2,352
---------- ---------
Total revenues 55,152 43,536
---------- ---------
Expenses:
Compensation and benefits 32,756 25,209
Business development and professional services 8,205 4,391
Clearing and brokerage fees 1,588 1,539
Occupancy and equipment 2,883 2,373
Communications 1,498 1,267
Interest expense 334 319
Other operating expenses 2,778 2,373
---------- ---------
Total expenses 50,042 37,471
---------- ---------
Net income before taxes 5,110 6,065
Income tax provision -- 785
---------- ---------
Net income $ 5,110 $ 5,280
========== =========
Basic and diluted earnings per share $ 0.10 $ 0.11
========== =========
Weighted average shares outstanding:
Basic 49,209 49,106
========== =========
Diluted 49,230 50,065
========== =========
See notes to consolidated financial statements.
4
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
Six Months
Ended June 30,
------------------------------
2001 2000
---------- ---------
Revenues:
Investment banking:
Underwriting $ 17,068 $ 11,711
Corporate finance 20,301 14,931
Investment gains 5,340 --
Institutional brokerage:
Principal transactions 11,355 18,789
Agency commissions 12,527 10,303
Asset management:
Base management fees 8,098 4,380
Incentive allocations (2,743) 44,452
Net investment income 1,413 868
Interest, dividends and other 4,246 4,345
---------- ---------
Total revenues 77,605 109,779
---------- ---------
Expenses:
Compensation and benefits 49,007 71,432
Business development and professional services 13,531 9,008
Clearing and brokerage fees 3,320 3,106
Occupancy and equipment 5,383 4,696
Communications 2,665 2,448
Interest expense 415 541
Other operating expenses 4,313 3,927
---------- ---------
Total expenses 78,634 95,158
---------- ---------
Net (loss) income before taxes (1,029) 14,621
Income tax provision -- 2,924
---------- ---------
Net (loss) income $ (1,029) $ 11,697
========== =========
Basic (loss) earnings per share $ (0.02) $ 0.24
========== =========
Diluted (loss) earnings per share $ (0.02) $ 0.23
========== =========
Weighted average shares outstanding:
Basic 49,298 49,064
========== =========
Diluted 49,298 50,996
========== =========
See notes to consolidated financial statements.
5
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months
Ended June 30,
------------------------------
2001 2000
---------- ---------
Cash flows from operating activities:
Net (loss) income $ (1,029) $ 11,697
Non-cash items included in earnings--
Incentive allocations and net investment (income)
loss from long-term investments 6,108 (45,320)
Depreciation and amortization 3,136 2,435
Other 134 --
Deferred income taxes -- 2,924
Changes in operating assets:
Restricted cash 6,926 --
Receivables--
Investment banking (437) (2,080)
Asset management fees (912) 2,768
Affiliates 1,341 (63)
Other 2,192 822
Due from clearing broker (10,309) (4,967)
Marketable and trading securities (4,094) (1,147)
Bank securities 1,147 --
Bank loans, net (2,894) --
Prepaid expenses and other assets 340 243
Changes in operating liabilities:
Trading account securities sold but not
yet purchased 5,870 1,097
Accounts payable and accrued expenses 379 (1,603)
Bank deposits (5,706) --
Accrued compensation and benefits 415 42,605
---------- ---------
Net cash provided by operating activities 2,607 9,411
---------- ---------
Cash flows from investment activities:
MMA/Rushmore acquisition (17,500) --
Purchases of fixed assets (1,493) (2,868)
Sales (purchases) of long-term investments, net 17,107 (6,045)
---------- ---------
Net cash used in investing activities (1,886) (8,913)
---------- ---------
Cash flows from financing activities:
Long-term secured debt (310) (287)
Proceeds from issuance of common stock -- 1,065
Issuance of treasury common stock 576 483
---------- ---------
Net cash provided by financing activities 266 1,261
---------- ---------
Net increase in cash and cash equivalents 987 1,759
Cash and cash equivalents, beginning of period 52,337 43,743
---------- ---------
Cash and cash equivalents, end of period $ 53,324 $ 45,502
========== =========
See notes to consolidated financial statements.
6
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)-(Unaudited)
1. Basis of Presentation:
The consolidated financial statements of Friedman, Billings, Ramsey Group,
Inc. and subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q. Therefore, they do not include all
information required by generally accepted accounting principles for complete
financial statements. The interim financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the periods
presented. All significant intercompany accounts and transactions have been
eliminated in consolidation. The results of operations for interim periods are
not necessarily indicative of the results for the entire year. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 2000 included on
Form 10-K filed by the Company under the Securities Exchange Act of 1934.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts in the consolidated financial statements and notes for
prior periods have been reclassified to conform to the current period
presentation.
2. MMA/Rushmore Acquisition:
On April 1, 2001, the Company completed the acquisition of Money
Management Associates, LP ("MMA") and Rushmore Trust and Savings, FSB
("Rushmore"). MMA was a privately-held investment adviser with $933.4 million in
assets under management as of March 31, 2001. Together, MMA and Rushmore are the
investment adviser, servicing agent or administrator for more than 20 mutual
funds. Upon closing, Rushmore was rechartered as a national bank and was named
FBR National Bank & Trust ("FBR Bank"). The FBR Bank will offer traditional
banking services (lending, deposits, cash management, trust services and serve
as a transfer agent and custodian), along with mutual fund accounting. Under the
terms of the agreement, the Company acquired MMA/Rushmore for $17.5 million in
cash at closing and a $9.7 million non-interest-bearing installment note payable
over a ten-year period.
The total purchase price of $25.1 million, including capitalized
transaction costs of $1.4 million and the present value of the installment note
at 9%, was allocated (in millions):
MMA management contracts $ 19.6
Bank equity 5.5
------
$ 25.1
======
The acquisition of MMA/Rushmore was accounted for as a purchase and
resulted in the recording of $19.6 million of Management Contracts on the
balance sheet. These Management Contracts were previously unrecognized
intangible assets of MMA. These Management Contracts will be amortized
straight-line over 15 years for both book and tax purposes. Income related to
these management contracts is recognized as earned usually based on invested
assets and a stated management fee percentage.
The accounting policies related to other significant accounts related to
FBR Bank:
7
2. MMA/Rushmore Acquisition, continued:
o Bank Securities - Represent FBR Bank's investments in Mortgage-Backed
Securities (MBS) which are carried at fair value and classified as
Available for Sale under SFAS 115. Unrealized gains and losses on such
MBS are reported as other comprehensive income in shareholders'
equity. Interest income from the MBS is recognized using the effective
interest rate method.
o Bank Loans - Bank Loans are carried at cost less an allowance for loan
losses. Impairment of Loans is recorded under SFAS 114, "Accounting by
Creditors for Impairment of a Loan". The loss allowance as of June 30,
2001 is $0.1 million. Interest Income from the Loans is recognized
using the effective interest rate method.
o Bank Deposits - Represent deposits held by FBR Bank for its customers.
Interest Expense is recognized based on the deposit balance and the
stated interest rate paid.
The Company's pro-forma condensed consolidated results of operations,
excluding the results of the acquired business were (in millions):
Three months ended Six months ended
June 30, 2001 June 30, 2001
------------------ ----------------
Revenue $ 52.6 $ 75.0
Compensation expense 31.9 48.1
Other operating expense 15.5 27.7
Interest expense 0.1 0.1
------ ------
Net income before taxes 5.1 (1.0)
Pro-forma income tax provision -- --
------ ------
Net income $ 5.1 $ (1.0)
====== ======
3. Comprehensive Income:
The components of comprehensive income are (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
------- ------- -------- -------
Net income $ 5,110 $ 5,280 $ (1,029) $11,697
Other comprehensive income:
Net change in unrealized investment
gains (losses) related to
available-for-sale securities,
bank securities and investment in
FBR Asset Investment Corporation 2,293 (414) 4,813 1,423
------- -------- -------- -------
Comprehensive income $ 7,403 $ 4,866 $ 3,784 $13,120
======= ======= ======== =======
4. Long-Term Investments, Incentive Allocations and Net Investment Income:
Long-term investments consist of the following (in thousands):
June 30, December 31,
2001 2000
-------- ------------
Equity method investments:
Venture capital and other proprietary
investment partnerships $ 54,284 $ 72,773
FBR Asset Investment Corporation 36,062 30,054
Marketable securities 4,920 5,370
Private debt investments 7,500 17,837
Cost method investments 16,235 7,208
Other 4,656 9,708
-------- --------
$123,657 $142,950
======== ========
8
4. Long-Term Investments, Incentive Allocations and Net Investment Income,
continued:
FBR Technology Venture Partners, L.P. ("TVP")
---------------------------------------------
As of June 30, 2001, TVP's investments include equity investments in
securities of development-stage and early-stage, privately and publicly held
technology companies. The disposition of the privately held investments is
generally restricted due to the lack of a ready market and may remain restricted
for a period of time even if a company becomes public. TVP's investments may
represent significant portions of the issuer's equity and they may carry special
contractual privileges, as well as certain restrictions, not applicable to other
security holders. As a result, precise valuation for the private and restricted
investments is a matter of judgment and the determination of fair value must be
considered only an approximation. Public company investments are valued based on
the June 30, 2001 closing price. During the quarter ended June 30, 2001, the
partnership made no distributions.
The Company's investment in TVP of $6,231 represents 5% of the Company's
total long-term investments and 2% of the Company's total assets as of June 30,
2001. The following table summarizes TVP's income statement information (in
thousands):
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Investment income $ 7 $ 86 $ 8 $ 123
Total expenses 343 326 681 649
------ -------- -------- --------
Net investment loss (336) (240) (673) (526)
Unrealized (depreciation)
appreciation of investments (354) 29 (75,719) 183,596
Net realized gains on investments 22 28,663 57,600 39,822
------ -------- -------- --------
Net (loss) income $ (668) $ 28,452 $(18,792) $222,892
====== ======== ======== ========
FBR Asset Investment Corporation ("FBR-Asset")
----------------------------------------------
During the quarter ended June 30, 2001, the Company recorded $1,596 of net
investment income in the statement of operations for its proportionate share
(reflecting share repurchases) of FBR-Asset's net income. The Company also
recorded, in other comprehensive income, $2,127 of unrealized investment gains
for its proportionate share of FBR-Asset's net unrealized gains related to
available-for-sale securities. As of June 30, 2001, the net unrealized gain
related to FBR-Asset and included in the Company's accumulated other
comprehensive income was $4,801.
The Company's investment in FBR-Asset of $36,062 represents 26% of the
Company's total long-term investments and 13% of the Company's total assets as
of June 30, 2001. The following table summarizes FBR-Asset's income statement
information (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
------------------- --------------------
2001 2000 2001 2000
------- --------- -------- --------
Gross revenues $ 6,127 $ 5,914 $ 9,307 $ 12,237
Total expenses 2,451 3,065 4,938 6,655
------- ------- -------- --------
Net income before net investment gains (losses) 3,676 2,849 4,369 5,582
Net investment gains (losses) 348 (118) (217) (4,979)
------- ------- -------- --------
Net income $ 4,024 $ 2,731 $ 4,152 $ 603
======= ======= ======== ========
9
4. Long-Term Investments, Incentive Allocations and Net Investment Income,
continued:
FBR Ashton, L.P. ("Ashton")
---------------------------
As of June 30, 2001, Ashton's investments were comprised of securities
primarily in the financial services industry. During the quarter ended June 30,
2001, the Company recorded $1,908 of net investment income in the statement of
operations for its proportionate share of Ashton's net income.
The Company's investment in Ashton of $18,504 represents 14% of the
Company's total long-term investments and 6% of the Company's total assets as of
June 30, 2001. The following table summarizes Ashton's income statement
information (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
------- ------- ------- -------
Gross revenues $ 456 $ 351 $ 9,307 $ 741
Total expenses 491 359 4,938 654
------- ------- -------- -------
Net (loss) income before net investment income (35) (8) 4,369 87
Net investment income (losses) 6,478 30 (217) (24)
------- ------- --------- --------
Net income $ 6,443 $ 22 $ 4,152 $ 63
======= ======= ======= =======
Available-For-Sale Securities
-----------------------------
During the second quarter, the Company recorded $(996) of "other than
temporary" loss in the statement of operations as net investment loss. As of
June 30, 2001, the unrealized loss related to available-for-sale securities was
$(1,116) and included in accumulated other comprehensive income.
5. Executive Officer Compensation:
During 2001, certain of the Company's executive officers are eligible for
bonuses under the Key Employee Incentive Plan (the "Plan"). As of June 30, 2001,
the Company has not accrued any executive officer compensation related to this
plan. Compensation, if any, related to the Plan will be paid subsequent to
December 31, 2001.
6. Income Taxes:
The Company has a net operating loss ("NOL") carryforward to offset future
taxable income. As of June 30, 2001, the Company has a gross NOL carryforward of
$31.4 million that expires through 2019. The Company has provided a valuation
allowance against its deferred tax assets based on its ongoing assessment of
realizability of the deferred tax assets. This assessment includes analyzing
future taxable income, a significant component of which is dependent on the
realizability of the investment partnerships' and venture funds' unrealized
gains that have been recorded for financial reporting purposes, but not for
income tax purposes.
7. Shareholders' Equity:
On June 26, 2001 the Company repurchased 4,228,000 shares of Class B
common stock from an executive officer of the Company for $5.50 per share. The
shares were converted to Class A common stock and sold to other company
employees at the same price. Upon settlement of the repurchase and sales
transactions on July 5, 2001, the Company received 20% ($1.10 per share) of the
purchase price in cash from the employees, and received five-year, limited
recourse promissory notes from the employees with interest accruing at 6.5%
accreting to principal for the remaining purchase price.
10
7. Shareholders' Equity, continued:
For accounting purposes, the portion of the employee share purchase
financed by the Company (80%) is considered a stock option, and deducted from
shareholders' equity. These shares are deducted from shares outstanding, similar
to treasury stock, in computing book value and earnings per share. As a result,
the $18,603 financed by the Company, and related 3,382,400 of common shares is
reflected as a receivable in shareholders' equity. As the employees repay the
loans, shareholders' equity and shares outstanding will increase. In addition,
the interest earned on the employee loans will be added to paid-in-capital and
excluded from net income. Because the stock purchase and sale agreement were
entered into in June and did not settle until July, the obligations of the
respective parties are reflected as a net payable on the balance sheet as of
June 30, 2001.
8. Net Capital Requirements:
The Company's U.S. broker-dealer subsidiaries are subject to the
Securities and Exchange Commission's Uniform Net Capital Rule which requires the
maintenance of minimum net capital and requires the ratio of aggregate
indebtedness to net capital, both as defined by the rule, not to exceed 15 to 1.
The Company's U.K. broker-dealer subsidiary is subject to the net capital rules
of the Securities and Futures Authority. As of June 30, 2001, the broker-dealer
subsidiaries had aggregate net capital of $20.1 million, which exceeded the
requirements by $17.3 million.
9. Earnings (Loss) Per Share:
Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. The diluted earnings per share calculation also includes the
impact of dilutive options.
As of June 30, 2001 and 2000, respectively, 12,370,800 and 8,321,191
options to purchase shares of common stock were outstanding. As of June 30, 2001
and 2000, respectively, 5,671,962 and 962,917 of the total outstanding options
were exercisable.
10. Commitments and Contingencies:
As of June 30, 2001, the Company is not a defendant or plaintiff in any
lawsuits or arbitrations that are expected to have a material adverse effect on
the Company's financial condition. The Company is a defendant in a small number
of civil lawsuits and arbitrations (together "litigation") relating to its
various businesses. In addition, the Company is subject to regulatory oversight
relating to its various businesses. There can be no assurance that these matters
will not have a material adverse effect on the Company's financial condition or
results of operations in a future period. However, based on management's review
with counsel, including a review of the reserves set aside for litigation,
resolution of these matters is not expected to have a material adverse effect on
the Company's financial condition or results of operations.
Many aspects of the Company's business involve substantial risks of
liability and litigation. Underwriters, broker-dealers and investment advisers
are exposed to liability under Federal and state securities laws, other Federal
and state laws and court decisions, including decisions with respect to
underwriters' liability and limitations on indemnification, as well as with
respect to the handling of customer accounts. For example, underwriters may be
held liable for material misstatements or omissions of fact in a prospectus used
in connection with the securities being offered and broker-dealers may be held
liable for statements made by their securities analysts or other personnel. In
certain circumstances, broker-dealers and asset managers may also be held liable
by customers and clients for losses sustained on investments. In recent years,
there has been an increasing incidence of litigation involving the securities
industry, including class actions that seek substantial damages. The Company is
also subject to the risk of litigation, including litigation that may be without
merit. As the Company intends to actively defend such litigation, significant
11
10. Commitments and Contingencies, continued:
legal expenses could be incurred. An adverse resolution of any future litigation
against the Company could materially affect the Company's operating results and
financial condition.
As of June 30, 2001, the Company had $22.9 million of unfunded commitments
to various investment partnerships that may be called over the next 10 years.
11. Segment Information:
The Company considers its capital markets, asset management and online
financial services operations to be three separate reportable segments. The
Company developed systems and methodologies to allocate overhead costs to its
business units and, accordingly, presents segment information consistent with
internal management reporting. There are no significant revenue transactions
between the segments. The following table illustrates the financial information
for its segments for the periods presented (in thousands):
Online
Capital Asset Financial Consolidated
Markets Management Services Totals
------- ---------- --------- ------------
Three Months Ended June 30, 2001
- --------------------------------
Total revenues $44,103 $10,930 $ 119 $ 55,152
Pre-tax (loss) income 4,108 2,147 (1,145) 5,110
Three Months Ended June 30, 2000
- --------------------------------
Total revenues 26,979 16,374 183 43,536
Pre-tax income (loss) 1,732 6,004 (1,671) 6,065
Six Months Ended June 30, 2001
- ------------------------------
Total revenues 67,720 9,672 213 77,605
Pre-tax (loss) income 1,111 253 (2,393) (1,029)
Six Months Ended June 30, 2000
- ------------------------------
Total revenues 57,968 51,318 493 109,779
Pre-tax income (loss) 5,142 12,625 (3,146) 14,621
12. Subsequent Events:
On August 3, 2001, the Company exercised an option to repurchase 772,000
shares of Class B common stock from an executive officer of the Company for
$5.50 per share. The shares were converted to Class A common stock and sold to
other company employees on the same terms as the employee share purchase on June
26, 2001.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following analysis of the consolidated financial condition and results
of operations of Friedman, Billings, Ramsey Group, Inc. (the "Company") should
be read in conjunction with the unaudited Consolidated Financial Statements as
of June 30, 2001 and 2000, and the Notes thereto and the Company's 2000 Annual
Report on Form 10-K.
BUSINESS ENVIRONMENT
Our principal business activities: investment banking (capital raising
and merger and acquisition and advisory services), institutional brokerage and
asset management (including proprietary investments are linked to the capital
markets. In addition, our business activities are focused to a large extent on
small and mid-cap stocks in the financial services, real estate, technology and
energy sectors, although our research coverage and associated brokerage
activities increasingly involve larger-cap stocks and other sectors. By their
nature, our business activities are highly competitive and are not only subject
to general market conditions, volatile trading markets and fluctuations in the
volume of market activity, but also to the conditions affecting the companies
and markets in our areas of focus. In the second quarter, although the economic
slowdown that began in the second half of 2000 continued, we experienced an
increase in underwriting and private placement activity in two of our focused
industry sectors: the financial institutions and real estate sectors. The
economic slowdown continued to adversely affect equity valuations, particularly
in the technology sector. Secondary equity market trading activity remained
under pressure and the advent of decimal pricing has adversely affected
secondary equity market trading margins.
Our revenues and net income are subject to substantial positive and
negative fluctuations due to a variety of factors that cannot be predicted with
great certainty. These factors include the overall condition of the economy and
the securities markets as a whole and of the sectors on which we focus. For
example, a significant portion of the performance based or incentive revenues
that we recognize from our venture capital, private equity and asset management
activities is based on the value of securities held by the funds we manage.
Increases in value from these activities include unrealized gains that may be
reduced from one period to another. The downturn in the technology sector has
adversely affected this portion of our business and caused us to reduce certain
unrealized gains in securities held by these funds while the improvement in the
financial institutions sector has generated gains. Although, when market
conditions permit, we take steps to realize or lock-in gains on these
securities, these securities are often illiquid and therefore, the value of
these securities is subject to increased market risk. Fluctuations in revenues
and net income also occur due to the overall level of market activity which,
among other things, affects the flow of investment dollars and the size, number
and timing of investment banking transactions. In addition, a downturn in the
level of market activity can lead to a decrease in brokerage commissions.
Therefore, net income and revenues in any particular period may not be
representative of full-year results and may vary significantly from year to year
and from quarter to quarter.
The financial services industry continues to be affected by the
intensifying competitive environment, as demonstrated by consolidation through
mergers and acquisitions, as well as significant growth in competition in the
market for brokerage and investment banking services. The relaxation of banks'
barriers to entry into the securities industry and expansion by insurance
companies into traditional brokerage products, coupled with the repeal of laws
separating commercial and investment banking activities, have increased the
number and size of companies competing for a similar customer base many of which
have greater capital resources with which to pursue these activities.
In order to improve our ability to offer debt or equity financing to our
investment banking clients, Friedman, Billings, Ramsey & Co., Inc. ("FBRC") our
principal investment banking subsidiary, entered into an agreement during the
second quarter of 2001 with our minority subsidiary, FBR Asset Investment
Corporation ("FBR-Asset") pursuant to which FBR-Asset will be entitled, subject
to the conditions described below, to receive 10% of the net cash fees earned by
FBRC as a result of investment banking engagements of FBRC by entities in which
FBR-Asset commits to make an equity investment or a loan. FBR-Asset's right to
be paid 10% of the net cash fees earned by FBRC will be conditioned on, among
other factors, whether FBR-Asset's commitment to invest in or lend to the entity
that engages FBRC is a contributing factor in the
13
BUSINESS ENVIRONMENT, continued
entity's decision to engage FBRC, facilitates the provision of investment
banking services to the entity by FBRC, or assists in facilitating the
completion of a transaction. Subsequent to June 30, 2001, FBR-Asset completed a
secondary offering of 4,500,000 shares raising approximately $98.3 million in
additional equity.
In order to compete in this increasingly competitive environment, we
continually evaluate each of our businesses across varying market conditions for
competitiveness, profitability and alignment with our long-term strategic
objectives, including the diversification of revenue sources. As a result, we
may choose, from time to time, to reallocate resources based on the
opportunities for profitability and revenue growth for each of our businesses
relative to our commitment of resources. As reflected by our April 2001
acquisition of MMA/Rushmore, which added money market, fixed income and equity
mutual funds, we believe that it is important to diversify and strengthen our
revenue base by increasing the segments of our business that offer a recurring
and more predictable source of revenue.
RESULTS OF OPERATIONS
Three months ended June 30, 2001 compared to three months ended June 30, 2000
The Company's revenues increased 27% from $43.5 million in 2000 to $55.2
million in 2001 primarily due to an increase in investment banking revenues and,
to a lesser extent, an increase in asset management revenues offset by a
decrease in institutional brokerage revenue.
Underwriting revenue increased from $1.2 million in 2000 to $9.4 million
in 2001. The increase is attributed to more lead-managed transactions completed
in 2001 and higher fees per transaction, in addition to a larger number of
transactions. During the second quarter of 2001, the Company managed five public
offerings, of which the Company lead-managed four, raising $391.4 million and
generating $9.4 million in revenues. During the second quarter of 2000, the
Company managed two public offerings, neither of which was lead-managed, raising
$65.3 million and generating $1.2 million in revenues. The average size of
underwritten transactions for which we were a lead or co-manager increased from
$32.7 million in 2000 to $78.3 million in 2001.
Corporate finance revenue increased 108% from $8.7 million in 2000 to
$18.1 million in 2001 due primarily to an increase in the number and size of
private placement transactions completed. In 2000, the Company completed one
private placement generating $3.6 million in revenues compared to two completed
transactions in 2001 generating $15.5 million in revenues, net of $1.7 million
in revenues paid to FBR-Asset related to the fee sharing agreement with FBRC.
During the second quarter of 2001, FBR-Asset participated in a private placement
of the common stock of Saxon Capital Acquisition Corporation, where FBRC acted
as the placement agent. M&A and advisory fee revenue decreased from $5.1 million
in 2000 to $2.6 million in 2001; however, we completed two M&A transactions in
2000 compared to three in 2001.
In connection with certain capital raising transactions, the Company has
received and holds warrants for the stock of the issuing companies, which are
generally exercisable at the respective offering price of the transaction. The
Company has previously carried the warrants at nominal values, and recognized
profits, if any, only when realized due to the restrictions on the warrants and
underlying securities, and the uncertainty surrounding the valuation of the
warrants. Based on the lapsing of restrictions and the development of a trading
history for these publicly traded securities, the Company reassessed the
valuation models and methodology for the warrants. As such, the Company has
valued warrants on publicly traded stocks, where the restriction periods have
lapsed, using an undiscounted Black-Scholes valuation model. The Company
recorded an unrealized investment banking gain of $4.5 million in the second
quarter as a result of the change in valuation estimates.
Institutional brokerage revenue from principal transactions decreased 58%
from $12.8 million in 2000 to $5.4 million in 2001 primarily due to trading
gains of $6.7 million in 2000 attributable to the Company's ability, as a market
maker for its own account, to take advantage of an increase in market volatility
in the technology sector.
14
RESULTS OF OPERATIONS
Three months ended June 30, 2001 compared to three months ended June 30, 2000,
continued
Institutional brokerage agency commissions increased 30% from $4.6 million
in 2000 to $6.0 million in 2001 primarily due to increased customer trading
attributed to, among other things, greater penetration of institutional accounts
through broader research coverage and sales and trading services.
Asset management base management fees increased 136% from $2.2 million in
2000 to $5.2 million in 2001 primarily due to additional fees earned as a result
of our acquisition of MMA/Rushmore and, to a lesser extent, our other managed
vehicles.
Asset management incentive allocations decreased significantly from $7.8
million in 2000 to $0.3 million in 2001. Incentive allocations in 2000 are
primarily from TVP.
Asset management net investment income decreased 8% from $3.8 million in
2000 to $3.5 million in 2001. Net investment income in 2001 includes gross gains
of $7.3 million offset by losses of $(3.8) million as follows: $1.9 million of
net investment income from investments in venture capital and other proprietary
investment partnerships; $1.6 million of net investment income generated from
our investment in FBR-Asset; and $1.7 million of realized gains related to
private, mezzanine investments offset by $(1.0) million of "other than
temporary" unrealized depreciation related to an available-for-sale security and
$(0.7) million of net investment loss related to losses on our marketable
securities. Net investment income in 2000 included $1.9 million of net
investment income from investments in our managed partnerships and $1.9 million
of net investment income generated from our investment in FBR-Asset.
Unrealized gains related to our investments that are included in
"accumulated other comprehensive income" in our balance sheet totaled $3.7
million as of June 30, 2001. If and when we liquidate these or determine that
the decline in value of these investments is "other than temporary", a portion
or all of the losses will be recognized as investment losses in the statement of
operations during the period in which the liquidation or determination is made.
Our investment portfolio is also exposed to future downturns in the markets and
private debt and equity securities are exposed to deterioration of credit
quality, defaults and downward valuations. On a quarterly basis, we review the
valuations of our private debt and equity investments. If and when we determine
that the net realizable value of these investments is less than our carrying
value, we will reflect the reduction as an investment loss.
Net interest, dividends, and other revenue (net of interest expense)
decreased 15% from $2.0 million in 2000 to $1.7 million in 2001 due to lower
cash balances and lower interest rates.
Total expenses increased 33% from $37.5 million in 2000 to $50.0 million
in 2001 due primarily to an increase in variable compensation expense associated
with increased revenues and, to a lesser extent, an increase in business
development and professional services.
Compensation and benefits expense increased 30% from $25.2 million in 2000
to $32.8 million in 2001. This increase was primarily due to an increase in
compensation associated with underwriting and corporate finance revenue.
Business development and professional services increased 86% from $4.4
million in 2000 to $8.2 million in 2001 primarily due to an increase in
consulting expenses associated with recruiting investment banking, research,
sales and trading professionals and an increase in travel associated with the
increase in underwriting activity.
Clearing and brokerage fees were fairly stable increasing 7% from $1.5
million in 2000 to $1.6 million in 2001. As a percentage of institutional
brokerage revenue, clearing and brokerage fees increased from 9% in 2000
compared to 14% 2001, due primarily to $6.7 million of trading gains in 2000.
15
RESULTS OF OPERATIONS
Three months ended June 30, 2001 compared to three months ended June 30, 2000,
continued
Occupancy and equipment expense increased 21% from $2.4 million in 2000 to
$2.9 million in 2001 primarily due to expenses in connection with the
MMA/Rushmore acquisition in April 2001. Depreciation and amortization expense
increased $0.3 in 2001 compared to 2000.
Communications expense increased 15% from $1.3 million in 2000 to $1.5
million in 2001 primarily due to expenses in connection with the MMA/Rushmore
acquisition in April 2001.
Other operating expenses increased 17% from $2.4 million in 2000 to $2.8
million in 2001 primarily due to expenses in connection with the MMA/Rushmore
acquisition in April 2001.
RESULTS OF OPERATIONS
Six months ended June 30, 2001 compared to six months ended June 30, 2000
The Company's revenues decreased 29% from $109.8 million in 2000 to $77.6
million in 2001 primarily due to higher asset management revenue, particularly
incentive allocations related to FBR Technology Venture Partners, L.P. ("TVP"),
in 2000. Additionally, in 2001, there was a decrease in revenue from
institutional brokerage offset by an increase in investment banking revenues.
Underwriting revenue increased 46% from $11.7 million in 2000 to $17.1
million in 2001. The increase is attributed more lead-managed transactions
resulting in higher fees per transaction. During the first six months of 2001,
the Company managed eight public offerings, of which the Company lead-managed
seven, raising $574.0 million and generating $17.1 million in revenues. During
the first six months of 2000, the Company managed 12 public offerings, of which
the Company lead-managed one, raising $2.9 billion and generating $11.7 million
in revenues. The average size of underwritten transactions for which we were a
lead or co-manager decreased from $241.7 million in 2000 to $71.2 million in
2001.
Corporate finance revenue increased 36% from $14.9 million in 2000 to
$20.3 million in 2001 due primarily to an increase in the size of private
placement transactions completed. In 2000, the Company completed two private
placements generating $4.8 million in revenues compared to two completed
transactions in 2001 generating $15.6 million in revenues, net of $1.7 million
in revenues paid to FBR-Asset related to the fee sharing agreement with FBRC.
During the second quarter of 2001, FBR-Asset participated in a private placement
of the common stock of Saxon Capital Acquisition Corporation, where FBRC acted
as the placement agent. M&A and advisory fee revenue decreased from $10.1
million in 2000 to $4.7 million in 2001; however, we completed two M&A
transactions in 2000 compared to six in 2001.
In connection with certain capital raising transactions, the Company has
received and holds warrants for the stock of the issuing companies, which are
generally exercisable at the respective offering price of the transaction. The
Company has previously carried the warrants at nominal values, and recognized
profits, if any, only when realized due to the restrictions on the warrants and
underlying securities, and the uncertainty surrounding the valuation of the
warrants. Based on the lapsing of restrictions and the development of a trading
history for these publicly traded securities, the Company reassessed the
valuation models and methodology for the warrants. As such, the Company has
valued warrants on publicly traded stocks, where the restriction periods have
lapsed, using an undiscounted Black-Scholes valuation model. The Company
recorded an unrealized investment banking gain of $4.5 million in the second
quarter as a result of the change in valuation estimates.
Institutional brokerage revenue from principal transactions decreased 39%
from $18.8 million in 2000 to $11.4 million in 2001 primarily due to trading
gains of $5.4 million in 2000 attributable to the Company's ability, as a market
maker for its own account, to take advantage of an increase in market volatility
in the technology sector.
16
RESULTS OF OPERATIONS
Six months ended June 30, 2001 compared to three months ended June 30, 2000,
continued
Institutional brokerage agency commissions increased 21% from $10.3
million in 2000 to $12.5 million in 2001 primarily due to increased customer
trading attributed to, among other things, greater penetration of institutional
accounts through broader research coverage and sales and trading services.
Asset management base management fees increased 84% from $4.4 million in
2000 to $8.1 million in 2001 primarily due to additional fees earned as a result
of our acquisition of MMA/Rushmore and, to a lesser extent, our other managed
vehicles.
Asset management incentive allocations decreased significantly from $44.5
million in 2000 to $(2.7) million in 2001. Incentive allocations in 2000 are
primarily from TVP.
Asset management net investment income increased 56% from $0.9 million in
2000 to $1.4 million in 2001. Net investment income in 2001 includes gross gains
of $8.6 million offset by losses of $(7.2) million as follows: $(1.0) million of
net investment loss from investments in venture capital and other proprietary
investment partnerships; $2.0 million of net investment income generated from
our investment in FBR-Asset; and $1.7 million of realized gains related to
private, mezzanine investments offset by $(1.0) million of "other than
temporary" unrealized depreciation related to an available-for-sale security and
$(0.4) million of net investment loss related to losses on our marketable
securities. Net investment income in 2000 included $7.4 million of net
investment income from investments in our managed partnerships, $1.4 million of
net investment income generated from our investment in FBR-Asset offset by
$(7.9) million in write-downs of our private equity and private debt
investments.
Unrealized gains related to our investments that are included in
"accumulated other comprehensive income" in our balance sheet totaled $3.7
million as of June 30, 2001. If and when we liquidate these or determine that
the decline in value of these investments is "other than temporary", a portion
or all of the losses will be recognized as investment losses in the statement of
operations during the period in which the liquidation or determination is made.
Our investment portfolio is also exposed to future downturns in the markets and
private debt and equity securities are exposed to deterioration of credit
quality, defaults and downward valuations. On a quarterly basis, we review the
valuations of our private debt and equity investments. If and when we determine
that the net realizable value of these investments is less than our carrying
value, we will reflect the reduction as an investment loss.
Net interest, dividends, and other revenue (net of interest expense)
remained unchanged at $3.8 million in 2000 and 2001.
Total expenses decreased 17% from $95.2 million in 2000 to $78.6 million
in 2001 due primarily to a decrease in variable compensation expense offset by
an increase in business development and professional services.
Compensation and benefits expense decreased 31% from $71.4 million in 2000
to $49.0 million in 2001. This decrease was primarily due to a decrease in asset
management revenue, particularly incentive allocations related to TVP, offset by
an increase in compensation associated with underwriting and corporate finance
revenue.
Business development and professional services increased 50% from $9.0
million in 2000 to $13.5 million in 2001 primarily due to an increase in travel
associated with the increase in underwriting activity and consulting expenses
associated with recruiting investment banking, research, sales and trading
professionals.
Clearing and brokerage fees were fairly stable increasing 6% from $3.1
million in 2000 to $3.3 million in 2001. As a percentage of institutional
brokerage revenue, clearing and brokerage fees increased from 11% in 2000
compared to 14% 2001, due primarily to $5.4 million of trading gains in 2000.
17
RESULTS OF OPERATIONS
Six months ended June 30, 2001 compared to three months ended June 30, 2000,
continued
Occupancy and equipment expense increased 15% from $4.7 million in 2000 to
$5.4 million in 2001 primarily due to expenses in connection with the
MMA/Rushmore acquisition in April 2001. Depreciation and amortization expense
increased $0.4 in 2001 compared to 2000.
Communications expense increased 13% from $2.4 million in 2000 to $2.7
million in 2001 primarily due to expenses in connection with the MMA/Rushmore
acquisition in April 2001.
Other operating expenses increased 10% from $3.9 million in 2000 to $4.3
million in 2001 primarily due to expenses in connection with the MMA/Rushmore
acquisition in April 2001.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have satisfied our liquidity and regulatory capital
needs through three primary sources: (1) internally generated funds; (2) equity
capital contributions; and (3) credit provided by banks, clearing brokers, and
affiliates of our principal clearing broker. We have required the use, and may
continue the use, of temporary subordinated loans in connection with regulatory
capital requirements to support our underwriting activities.
Our principal assets consist of cash and cash equivalents, receivables,
securities held for trading purposes and long-term investments. As of June 30,
2001, liquid assets consisted primarily of cash and cash equivalents of $53.3
million and a $22.1 million receivable for cash on deposit with the Company's
clearing broker. Cash equivalents of $53.3 million consist primarily of money
market funds invested in debt obligations of the U.S. government. We had
borrowing capacity (borrowing against security positions) from FBRC's clearing
broker of approximately $9.6 million as of June 30, 2001 and a total of $40.0
million in a committed subordinated revolving loan from an affiliate of the
Company's clearing broker that is allowable for net capital purposes. The
Company intends to replace this agreement upon expiration in December 2001.
Long-term investments consist primarily of investments in managed
partnerships, including venture capital funds in which we serve as managing
partner, available-for-sale securities, our investment in FBR-Asset and
long-term debt and equity investments in privately held companies. The decrease
in the Company's long-term investments is primarily due to net sales of
long-term investments of $18.8 million. Although the investments in venture
capital funds and other limited partnerships are for the most part illiquid, the
underlying investments of such entities may be in publicly traded, equity and
debt securities, some of which may be restricted due to contractual "lock-up"
requirements. The Company is continually evaluating and implementing various
strategies designed to minimize its risk of loss from potential market declines
of securities underlying its long-term investments. During 2000 and the first
six months of 2001, the Company employed option strategies that were indexed to
common equity shares held by certain of the Company's managed investment
partnerships. The options are subject to fair value accounting. Total realized
and unrealized gains of $2.5 million were recognized during 2001 and included in
net investment income in the statement of operations. As of June 30, 2001, the
outstanding options had a fair value of $3.0 million, and were subsequently
realized for $2.9 million.
As of June 30, 2001, a majority, by value, of the underlying assets of
the investment partnerships and FBR-Asset were equity securities of domestic,
publicly traded companies or, in the case of FBR-Asset, mortgage-backed
securities. These underlying investments are marked to market, subject to
liquidity discounts in the case of securities that are subject to contractual
"lock-up" requirements or regulatory restrictions (including Rule 144) or
otherwise not readily marketable, and we record our proportionate share of
unrealized gains and losses. To the extent the underlying investments in the
investment partnerships, FBR-Asset and direct investments are not marketable
securities, they are valued at estimated fair values. In 2001, we recorded net
realized and unrealized gains from our investments of $1.4 million and incentive
allocations that represent unrealized losses and realization events related to
our partnership interests and underlying securities of $(2.7) million. We also
maintain, as a separate component of shareholders' equity,
18
LIQUIDITY AND CAPITAL RESOURCES, continued
$3.7 million of accumulated other comprehensive income, representing $(1.1)
million of unrealized losses on our direct investments and $4.8 million of
unrealized gains representing our proportionate share of FBR-Asset's unrealized
gains. As of June 30, 2001, the recorded value of our long-term investment
securities and our marketable and trading securities (net of short positions)
was $139.4 million. The net potential loss in fair value, using a 10%
hypothetical decline in reported value, was $13.9 million.
As of June 30, 2001, we had net operating losses ("NOL") for tax purposes
of $31.4 million that expire through 2019. We maintain a partial valuation
allowance related to the NOL and deferred tax assets, in general because, based
on the weight of available evidence, it is more likely than not that a portion
of the net deferred tax assets may not be realized.
We believe that the Company's current level of equity capital and
committed line of credit, including funds generated from operations, are
adequate to meet our liquidity and regulatory capital requirements and other
activities. We may, however, seek debt or equity financing, in public or private
transactions, or otherwise re-deploy assets, to provide capital for corporate
purposes and/or to fund strategic business opportunities, including possible
acquisitions, joint ventures, alliances or other business arrangements which
could require substantial capital outlays. Our policy is to evaluate strategic
business opportunities, including acquisitions and divestitures, as they arise.
In connection with certain capital raising transactions, the Company has
received and holds warrants for the stock of the issuing companies, which are
generally exercisable at the respective offering price of the transaction. The
Company has previously carried the warrants at nominal values, and recognized
profits, if any, only when realized due to the restrictions on the warrants and
underlying securities, and the uncertainty surrounding the valuation of the
warrants. Based on the lapsing of restrictions and the development of a trading
history for these publicly traded securities, the Company reassessed the
valuation models and methodology for the warrants. As such, the Company has
valued warrants on publicly traded stocks, where the restriction periods have
lapsed, using an undiscounted Black-Scholes valuation model. The Company
recorded an unrealized investment banking gain of $4.5 million in the second
quarter as a result of the change in valuation estimates.
We constantly review our capital needs and sources, the cost of capital
and return on equity, and we seek strategies to provide favorable returns on
capital. In evaluating our anticipated capital needs and current cash resources
during 1998, our Board of Directors authorized a share repurchase program of up
to 2.5 million shares of our Company's Class A Common Stock. Since announcing
the share repurchase program, the Company purchased 1,468,027 shares as of June
30, 2001. 570,056 of the purchased shares were reissued to employees pursuant to
our Employee Stock Purchase Plan.
19
Item 3. Changes in Information About Market Risk
None.
Forward-Looking Statements
This Form 10-Q includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Some of the forward-looking
statements can be identified by the use of forward-looking words such as
"believes", "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "estimates" or "anticipates" or the negative of those words
or other comparable terminology. Such statements include, but are not limited
to, those relating to the effects of growth, our principal investment
activities, levels of assets under management and our current equity capital
levels. Forward-looking statements involve risks and uncertainties. You should
be aware that a number of important factors could cause our actual results to
differ materially from those in the forward-looking statements. These factors
include, but are not limited to, competition among venture capital firms and the
high degree of risk associated with venture capital investments, the effect of
demand for public offerings, mutual fund and 401(k) and pension plan inflows or
outflows, volatility of the securities markets, available technologies,
government regulation, economic conditions and competition for business and
personnel in the business areas in which we focus, fluctuating quarterly
operating results, the availability of capital to us and risks related to online
commerce. We will not necessarily update the information presented or
incorporated by reference in this Form 10-Q if any of these forward-looking
statements turn out to be inaccurate. For a more detailed discussion of the
risks affecting our business see our Form 10-K for 2000 and especially the
section "Business--Factors Affecting Our Business, Operating Results and
Financial Condition".
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June 7, 2001 at
which shareholders took the following actions:
1. The election of the six directors of the Company.
2. The approval of the FBR Key Employee Incentive Plan.
3. The approval of the FBR Non-Employee Director Stock Compensation Plan.
4. The ratification of the appointment of Arthur Andersen LLP as the
Company's independent auditors for 2001.
The results of the voting in connection with the preceding items were as
follows:
1. Election of Directors: A total of 91,119,296 votes were received for
this item.
For Against Abstain
Emanuel J. Friedman 90,643,721 - 475,575
Eric F. Billings 90,642,799 - 476,497
W. Russell Ramsey 90,617,755 - 501,541
Daniel J. Altobello 90,835,355 - 283,941
Wallace L. Timmeny 90,835,355 - 283,941
Mark R. Warner 90,809,855 - 309,441
20
Item 4. Submission of Matters to a Vote of Security Holders, continued
2. Approval of the FBR Key Employee Incentive Plan:
A total of 85,535,209 votes were received for this item.
For Against Abstain
--- ------- -------
84,444,094 1,079,281 11,834
3. Approval of the FBR Non-Employee Director Stock Compensation Plan:
A total of 91,119,296 votes were received for this item.
For Against Abstain
--- ------- -------
89,490,834 1,609,202 19,260
4. Ratification of the Appointment of Arthur Andersen LLP:
A total of 91,119,296 votes were received for this item.
For Against Abstain
--- ------- -------
91,059,263 48,235 11,798
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
none
(b) Reports on Form 8-K
o July 26, 2001: second quarter 2001 results
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Friedman, Billings, Ramsey Group, Inc.
8/14/01 By: /s/ Kurt R. Harrington
- --------------- -------------------------------
Date Kurt R. Harrington,
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
21