-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LedFFDv58D7b/2mb932uH/dl+JyRjAeJIpRG+3HbWMVMlcw/QH5TsRqF8lo83Ts1 1yK3wIYbqA6ENtpXRTe/3A== 0000720672-96-000015.txt : 19960813 0000720672-96-000015.hdr.sgml : 19960813 ACCESSION NUMBER: 0000720672-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960628 FILED AS OF DATE: 19960812 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STIFEL FINANCIAL CORP CENTRAL INDEX KEY: 0000720672 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 431273600 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09305 FILM NUMBER: 96608850 BUSINESS ADDRESS: STREET 1: 500 N. BROADWAY STREET 2: 14TH FLOOR CITY: ST LOUIS STATE: MO ZIP: 63102-2188 BUSINESS PHONE: 3143422000 MAIL ADDRESS: STREET 1: 500 N BROADWAY CITY: ST LOUIS STATE: MO ZIP: 63102-2188 10-Q 1 FORM 10-Q; DATED JUNE 28, 1996 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (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 28, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9305 STIFEL FINANCIAL CORP. (Exact name of registrant as specified in its charter) DELAWARE 43-1273600 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 500 N. Broadway, St. Louis, Missouri 63102-2188 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 314-342-2000 (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to 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 / / Shares of common stock outstanding at June 28, 1996: 4,463,647 par value $.15. Exhibit Index is on page 19. 2 Stifel Financial Corp. And Subsidiaries Form 10-Q Index June 28, 1996 PAGE PART I. FINANCIAL CONDITION ---- Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition -- June 28, 1996 and December 31, 1995 3-4 Consolidated Statements of Operations -- Three Months Ended June 28, 1996 and June 30, 1995 5 Consolidated Statements of Operations -- Six Months Ended June 28, 1996 and June 30, 1995 6 Consolidated Statements of Cash Flows-- Six Months Ended June 28, 1996 and June 30, 1995 7-8 Notes to Consolidated Financial Statements 9-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 3 PART I. FINANCIAL CONDITION Item 1. Financial Statements (Unaudited) STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 28, December 31, 1996 1995 (Unaudited) (Note) ASSETS ------------ ------------ Cash and cash equivalents $ 8,694,361 $ 6,344,042 Cash segregated for the exclusive benefit of customers 480,704 776,286 Receivable from brokers and dealers 7,441,081 16,423,620 Receivable from customers, less allowance for doubtful accounts of $812,570 and $804,916, respectively 162,761,966 156,903,772 Securities owned, at market value 24,721,326 19,520,771 Membership in exchanges, at cost (approximate market value: $2,408,000 and $1,904,000, respectively) 513,015 513,015 Office equipment and leasehold improvements, at cost, less allowances for depreciation and amortization of $10,280,235 and $12,517,487, respectively 2,716,536 3,014,464 Goodwill, net of accumulated amortization of $953,964 and $826,608, respectively 3,857,896 3,985,252 Notes and non-securities receivable from employees, net of allowance for doubtful receivables of $2,915,984 and $3,002,220, respectively 4,196,739 4,328,431 Deferred tax asset 4,190,167 3,901,939 Miscellaneous other assets 9,738,931 11,063,079 ------------ ------------ $229,312,722 $226,774,671 ============ ============ NOTE: The Consolidated Statement of Financial Condition at December 31, 1995 has been derived from the audited financial statements at that date. See Notes to Consolidated Financial Statements. 4 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED) June 28, December 31, 1996 1995 (Unaudited) (Note) ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Short-term borrowings from banks $ 65,225,000 $ 86,450,000 Payable to brokers and dealers 62,596,945 23,127,421 Payable to customers, including free credit balances of $13,529,711 and $21,078,544, respectively 21,133,538 31,806,213 Market value of securities sold, but not yet purchased 2,271,208 2,744,276 Drafts payable 12,118,389 17,866,638 Accrued employee compensation 10,128,516 9,525,863 Accounts payable and accrued expenses 9,045,312 9,648,898 Long-term debt 10,150,000 10,760,000 ------------ ------------ Total Liabilities 192,668,908 191,929,309 Subordinated note 50,000 50,000 Stockholders' equity Common stock 681,134 681,134 Additional paid-in capital 19,490,314 19,622,646 Retained earnings 16,996,086 15,753,713 ------------ ------------ 37,167,534 36,057,493 Less cost of stock in treasury 497,611 1,162,376 Less unamortized expense of restricted stock awards 76,109 99,755 ------------ ------------ Total Stockholders' Equity 36,593,814 34,795,362 ------------ ------------ $229,312,722 $226,774,671 ============ ============ NOTE: The Consolidated Statement of Financial Condition at December 31, 1995 has been derived from the audited financial statements at that date. See Notes to Consolidated Financial Statements. 5 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended June 28, 1996 June 30, 1995 ------------- ------------- REVENUES Commissions $ 8,339,185 $ 7,339,724 Principal transactions 4,858,796 5,258,027 Investment banking 3,772,992 4,379,242 Interest 3,368,995 3,084,843 Sale of investment company shares 2,455,085 2,066,331 Sale of insurance products 717,267 559,912 Sale of unit investment trusts 418,626 472,314 Other 6,776,020 2,587,730 ----------- ----------- 30,706,966 25,748,123 EXPENSES Employee compensation & benefits 18,192,058 15,369,093 Commissions & floor brokerage 618,310 620,733 Communication & office supplies 1,707,851 1,967,431 Occupancy & equipment rental 1,791,558 2,060,807 Promotional 450,235 488,147 Interest 2,065,253 1,995,378 Other operating expenses 3,640,665 2,653,558 ----------- ----------- 28,465,930 25,155,147 ----------- ----------- INCOME BEFORE INCOME TAXES 2,241,036 592,976 Provision for income taxes 880,000 244,762 ----------- ----------- NET INCOME $ 1,361,036 $ 348,214 =========== =========== Net income per share: Primary $ 0.30 $ 0.08 Fully diluted $ 0.26 $ 0.08 Dividends declared per share $ 0.03 $ 0.03 Average common equivalent shares outstanding: Primary 4,551,991 4,462,280 Fully Diluted 5,923,074 5,834,672 See Notes to Consolidated Financial Statements. 6 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended June 28, 1996 June 30, 1995 ------------- ------------- REVENUES Commissions $16,315,236 $14,228,389 Principal transactions 9,159,596 10,614,116 Investment banking 4,917,867 5,126,995 Interest 6,558,853 6,282,533 Sale of investment company shares 4,919,062 4,137,745 Sale of insurance products 1,299,267 1,108,126 Sale of unit investment trusts 994,216 899,126 Other 9,980,307 5,245,629 ----------- ----------- 54,144,404 47,642,659 EXPENSES Employee compensation & benefits 32,717,797 28,942,245 Commissions & floor brokerage 1,220,372 1,194,770 Communication & office supplies 3,466,885 4,122,670 Occupancy & equipment rental 3,612,496 4,031,375 Promotional 933,906 1,011,684 Interest 4,007,559 4,082,673 Other operating expenses 5,686,492 3,983,140 ----------- ----------- 51,645,507 47,368,557 ----------- ----------- INCOME BEFORE INCOME TAXES 2,498,897 274,102 Provision for income taxes 988,000 109,849 ----------- ----------- NET INCOME $ 1,510,897 $ 164,253 =========== =========== Net income per share: Primary $ 0.33 $ 0.04 Fully diluted $ 0.31 $ 0.04 Dividends declared per share $ 0.06 $ 0.06 Average common equivalent shares outstanding: Primary 4,523,298 4,450,246 Fully Diluted 5,908,634 5,820,319 See Notes to Consolidated Financial Statements. 7 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 28, 1996 June 30, 1995 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,510,897 $ 164,253 Non-cash items included in earnings: Depreciation and amortization 787,996 1,018,879 Bonus notes amortization 499,880 464,444 Deferred compensation 292,652 476,678 Deferred tax benefit (288,228) (16,613) Provision for litigation and bad debt 1,561,589 400,000 Unrealized gains on investments (13,387) (130,255) Amortization of restricted stock awards 27,144 61,670 ------------ ------------ 4,378,543 2,439,056 (Increase) decrease in operating receivables: Customers (5,865,848) 4,915,488 Brokers and dealers 8,982,539 6,052,172 (Decrease) increase in operating payables: Customers (10,672,675) (2,873,539) Brokers and dealers 39,469,524 (7,218,852) Decrease (increase) in assets: Cash segregated for the exclusive benefit of customers 295,582 (4,079) Securities owned (5,200,555) 27,876 Notes receivable from officers and employees (878,352) (774,949) Miscellaneous other assets (1,005,154) (168,620) (Decrease) increase in liabilities: Securities sold, not yet purchased (473,068) 3,372,336 Drafts payable, accounts payable and accrued expenses, and accrued employee compensation (7,390,291) (4,516,068) ------------ ------------ Cash Provided By Operating Activities $ 21,640,245 $ 1,250,821 ------------ ------------ See Notes to Consolidated Financial Statements. 8 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) Six Months Ended June 28, 1996 June 30, 1995 ------------- ------------- Cash Provided By Operating Activities - from previous page $ 21,640,245 $ 1,250,821 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net payments for short-term borrowings from banks (21,225,000) (3,845,000) Proceeds from: Subordinated borrowings - - 4,000,000 Employee stock purchase plan 616,669 755,274 Exercised stock options - - 123,507 Dividend reinvestment plan 6,802 5,544 Payments for: Settlement of long-term debt (760,000) (760,000) Purchases of stock for treasury (94,536) (342,757) Principal payments under capital leases (154,160) (126,789) Cash dividends (268,524) (250,876) ------------ ------------ Cash Used For Financing Activities (21,878,749) (441,097) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from: Sale of office equipment and leasehold improvements 7,612 499,149 Sale of investments 3,509,914 1,139,091 Payments for: Acquisition of office equipment and leasehold improvements (178,001) (1,022,883) Acquisition of investments (750,702) (142,411) ------------ ------------ Cash Provided By Investing Activities 2,588,823 472,946 ------------ ------------ Increase in cash and cash equivalents 2,350,319 1,282,670 Cash and cash equivalents - beginning of period 6,344,042 6,925,192 ------------ ------------ Cash and Cash Equivalents - end of period $ 8,694,361 $ 8,207,862 ============ ============ Supplemental disclosure of cash flow information: Income tax payments $ 884,396 $ 341,777 Interest payments $ 4,084,126 $ 4,115,303 Schedule of noncash investing and financing activities: Fixed assets acquired under capital lease $ 240,000 $ - - Assumption of debt for investment $ 150,000 $ - - See Notes to Consolidated Financial Statements. 9 STIFEL FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The consolidated financial statements include the accounts of Stifel Financial Corp. and its subsidiaries (collectively referred to as the Company). The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 28, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. During the six-month period ended June 28, 1996, the Company wrote off $2,838,292 which represented fully amortized capital leases. NOTE B - NET CAPITAL REQUIREMENT As a registered broker-dealer and member of the New York Stock Exchange, the Company's principal subsidiary, Stifel, Nicolaus & Company, Incorporated (SN & Co.), is subject to the Securities and Exchange Commission's (SEC) uniform net capital rules. SN & Co. has elected to operate under the alternative method of the rule, which prohibits a broker-dealer from engaging in any securities transactions when its net capital is less than 2% of its aggregate debit balances, as defined, arising from customer transactions. The SEC may also require a member firm to reduce its business and restrict withdrawal of subordinated capital if its net capital is less than 4% of aggregate debit balances, and may prohibit a member firm from expanding its business and declaring cash dividends if its net capital is less than 5% of aggregate debit balances. At June 28, 1996, SN & Co. had net capital of $20,882,857 which was 12% of its aggregate debit balances and $17,378,893 in excess of the 2% net capital requirement. 10 NOTE C - PLAN OF RESTRUCTURING During the fourth quarter of 1994, the Board of Directors of the Company approved a restructuring and downsizing plan for the Company which was implemented beginning in December 1994, and involved the closing or downsizing of 31 office locations and termination of approximately 70 officers and employees. Detail of the activity during the first six months related to the restructuring accruals recorded at December 31, 1994 are as follows: Balance at Balance at December Payments June 31, 1995 /Charges 28, 1996 ---------- -------- ---------- Net lease commitments for closed offices $895,460 $102,212 $793,248 Severance pay, extended benefits and receivables written off for terminated employees 66,515 - - 66,515 Abandonment of leasehold improvements 8,729 8,729 - - -------- -------- -------- Total $970,704 $110,941 $859,763 ======== ======== ======== Such amounts are included in the consolidated statement of financial condition under the caption of Accounts payable and accrued expenses at June 28, 1996 and December 31, 1995. NOTE D - SALE OF OKLAHOMA-BASED ASSETS On May 25, 1995, the Company sold the majority of the assets of its Oklahoma-based operations to Capital West Financial Corporation ("Capital West"). Capital West is primarily owned by former employees of the Company. Included in the sale were the majority of the assets related to the Company's retail offices in Oklahoma, several retail offices in Texas, and the Oklahoma-based public finance, institutional trading, and sales departments. The Company received cash, secured and senior notes, and warrants to purchase a minority interest in Capital West. In addition, Capital West assumed or subleased certain office and equipment lease obligations of the Company. The sale resulted in the reduction of approximately 70 investment executives and approximately 50 support staff located in 26 branch offices. 11 The Company received secured and senior notes with a face amount of $1,850,000 bearing interest at a 10% annual rate with the final payments due May 24, 2000, in connection with the sale of its Oklahoma-based assets. The notes were recorded at a discounted rate of 17%. The Company has deferred recognition of the gain on the sale in the amount of $570,120 and has deferred recognition of any interest income related to the notes until such time that Capital West has demonstrated the ability to generate earnings and cash flow to fund interest and principal payments when scheduled. The notes receivable net of the discount of $335,617 and deferred gain of $570,120 are included in the statement of financial condition under the caption "Miscellaneous other assets" at June 28, 1996 and December 31, 1995. Pro forma financial information assuming the transaction had taken place on January 1, 1995 is presented below: Six Months Ended June 30, 1995 Pro Forma Combined Results of Operations ---------------- Revenue $44,190,439 Net Income $ 606,600 Earnings per primary share $ 0.14 The above pro forma results do not purport to be indicative of results which actually would have occurred had the sale been made on January 1, 1995. NOTE E - SUBSEQUENT EVENT On June 30, 1987, the Company's Board of Directors declared a distribution of one preferred stock purchase right for each share of the Company's common stock. On July 23, 1996, the Company's Board of Directors approved the redemption of these shareholder rights and the adoption of a new Shareholder Rights Plan. Shareholders of record on August 12, 1996 will receive a payment of $0.05 per share, representing the redemption price for the existing rights. Payable date is August 22, 1996. This payment will be in lieu of the regular quarterly dividend of $0.03 per share. 12 In addition, on July 23, 1996, the Company's Board of Directors authorized and declared a dividend distribution of one right for each outstanding share of common stock, par value $0.15 per share. The dividend will be distributed to stockholders of record on August 12, 1996. Each right will entitle the registered holder to purchase one one-hundredth of a share of a Series A Junior Participating Preferred Stock, par value $1.00 per share, at an exercise price of $35 per right. The rights become exercisable on the tenth day after public announcement that a person or group has acquired 15 percent or more of the Company's common stock or upon commencement or announcement of intent to make a tender offer for 15 percent or more of the outstanding shares of common stock without prior written consent of the Company. If the Company is acquired by any person after the rights become exercisable, each right will entitle its holder to purchase shares of common stock at one-half the then current market price, and in the event of a subsequent merger or other acquisition of the Company, to buy shares of common stock of the acquiring entity at one-half of the market price of those shares. The rights may be redeemed by the Company prior to becoming exercisable by action of the Board of Directors at a redemption price of $.01 per right. These rights will expire, if not previously exercised, on August 12, 2006. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three months ended June 1996 and June 1995 The Company recorded a net income of $1,361,000 for the quarter ended June 28, 1996 compared to a net income of $348,000 for the same period one year earlier for an increase of $1,013,000 (291.1%). The primary earnings per share was $0.30 compared to the previous year's primary earnings per share of $0.08. The increases in revenues and net income were primarily attributable to increased commissions resulting from a robust retail market, continued improvement in retail productivity, realized gains on sales of investments and a reduction in administrative costs. Total revenues increased $4,959,000 (19.3%) to $30,707,000 from $25,748,000 as all categories of revenue increased with the exception of principal transactions, investment banking income, and sale of unit investment trusts. Commissions, sale of investment company shares, and sale of insurance products increased $999,000 (13.6%) to $8,339,000 from $7,340,000, $389,000 (18.8%) to $2,455,000 from $2,066,000, and $157,000 (28.0%) to $717,000 from $560,000, respectively, due to a very strong retail market as aforementioned. Other revenues increased $4,188,000 (161.8%) to $6,776,000 from $2,588,000 as a result of increased gains on investments, managed account fees, investment advisory fees, clearing income, money market distribution fees, and wire service income which increased $3,297,000, $381,000, $51,000, $117,000, $126,000, and $65,000, respectively. Gains on investments primarily resulted from the exercise of warrants generated by the corporate finance department related to an underwriting and the ultimate sale of the shares received for the exercise of those warrants. Managed account fees increased because of the growth of the managed account program which was introduced in November, 1994. Investment advisory fees increased due to increases in portfolio values. Clearing income increased as a direct result of clearing for Capital West Securities, Inc. which began in June, 1995. Money market distribution fees increased due to the increase in money market fund balances. Wire service income increased due to increased volume. Principal transactions decreased $399,000 (7.6%) to $4,859,000 from $5,258,000 due primarily to decreased sales of fixed income products and inventory trading losses incurred from those same fixed income products. Investment Banking decreased $606,000 (13.8%) to $3,773,000 from $4,379,000 due largely to reduced corporate and public offerings and fewer significant merger and acquisition transactions. Sale of unit investment trusts decreased $53,000 (11.2%) to $419,000 from $472,000, principally due to lower quantities of product available. 14 Total expenses increased $3,311,000 (13.2%) to $28,466,000 from $25,155,000 primarily as a result of increased employee compensation and benefits. Employee compensation and benefits increased $2,823,000 (18.4%) to $18,192,000 from $15,369,000 primarily as a result of increased variable compensation, which increased $3,266,000 coincidentally with increased production and profitability. The increase in variable compensa- tion was offset by a decrease in fixed salaries and benefits which decreased $443,000 as a result of the downsizing and restructuring plan implemented in the fourth quarter of 1994 and the sale of the Oklahoma division to Capital West Financial Corp. (see Notes C and D to the unaudited Consolidated Financial Statements). Gross interest revenues increased $284,000 (9.2%) due mostly to higher margin receivable balances. The gross interest revenues were partially offset by an increase in interest expenses of $70,000 (3.5%) because of slightly higher average short-term borrowings from banks. Net interest retention in- creased $214,000 (19.6%) to $1,304,000 from $1,090,000. The aforementioned downsizing and restructuring plan and the sale of the Oklahoma division to Capital West Financial Corp. reduced the number of retail office locations. The reduction of office locations contributed to the reduction in occupancy and equipment, communication and office supplies and promotional expenses which decreased $269,000 (13.1%), $259,000 (13.2%) and $38,000 (7.8%), respectively. Other expense increased $987,000 (37.2%) to $3,641,000 from $2,654,000 primarily as a result of increased settlements and bad debt expense which increased $1,179,000. Settlements increased due to a sizable litigation settlement reached in the second quarter of 1996. This increase was offset by a decrease in professional fees and insurance of $150,000 and $49,000, respectively. Six months ended June 1996 and June 1995 The Company recorded a net income of $1,511,000 for the six months ended June 28, 1996, compared to a net income of $164,000 for the same period one year earlier for an increase of $1,347,000 (821.3%). The primary earnings per share was $0.33 compared to the previous year's $0.04 per share. The increases were primarily attributable to the same reasons as previously indicated in the three months ended discussion. Total revenues increased $6,501,000 (13.6%) to $54,144,000 from $47,643,000 as all categories of revenue increased with the exception of principal transactions and investment banking revenues. 15 Commissions, sale of investment company shares, sale of insurance products, and sale of unit investment trusts increased $2,087,000 (14.7%) to $16,315,000 from $14,228,000, $781,000 (18.9%) to $4,919,000 from $4,138,000, $191,000 (17.2%) to $1,299,000 from $1,108,000, and $95,000 (10.6%) to $994,000 from $899,000, respectively, due to a very strong retail market as aforementioned. Other revenues increased $4,734,000 (90.2%) to $9,980,000 from $5,246,000 as a result of increased gains on investments, managed account fees, exchange membership execution fees, investment advisory fees, clearing income, wire service income, and money market distribution fees which increased $2,781,000, $775,000, $379,000, $153,000, $307,000, $51,000, and $274,000, respectively. These increases are due to the same reasons as noted in the three month's comments. Principal transactions decreased $1,454,000 (13.7%) to $9,160,000 from $10,614,000 due primarily to decreased sales of fixed income products and inventory trading losses incurred from those same fixed income products. Investment banking revenues declined due to less corporate finance activity. Total expenses increased $4,277,000 (9.0%) to $51,646,000 from $47,369,000 primarily as a result of increased employee compensation and benefits. Employee compensation and benefits increased $3,776,000 (13.0%) to $32,718,000 from $28,942,000 primarily as a result of increased variable compensation, which increased $4,784,000 (27.3%) to $22,309,000 from $17,525,000 concurrently with increased production and profit- ability. The increase in variable compensation was offset by a decrease in fixed salaries and benefits which decreased $1,009,000 (8.8%) to $10,409,000 from $11,418,000 as a result of the downsizing and restructuring plan implemented in the fourth quarter of 1994 and the sale of the Oklahoma division to Capital West Financial Corp. (see Notes C and D to the unaudited Consoli- dated Financial Statements). Gross interest revenues increased $276,000 (4.4%) due to higher margin receivable balances. Interest expenses decreased $75,000 (1.8%) due mainly to less interest paid to customers. Net interest retention increased $351,000 (16.0%) to $2,551,000 from $2,200,000. The reduction of office locations aforementioned in the three month discussion contributed to the reduction of communication and office supplies, occupancy and equipment and promotional expenses which decreased $656,000 (15.9%), $419,000 (10.4%) and $78,000 (7.7%), respectively. 16 Other expense increased $1,703,000 (42.8%) to $5,686,000 from $3,983,000 as a result of increased settlements and bad debt expense, charitable contributions, and professional fees, which increased $1,528,000, $143,000, and $127,000, respectively. Settlements and bad debt expense increased due to litigation settlements and increased activity. Charitable contributions increased primarily due to a credit to expense for a write-off of certain philanthropic commitments in the first half of 1995 which had previously been accrued. Professional fees increased primarily as a result of audit fees related to the 1995 annual audit. Liquidity and Capital Resources The Company's assets are highly liquid, consisting mainly of cash or assets readily convertible into cash. These assets are financed primarily by the Company's equity capital, customer credit balances, short-term bank loans, proceeds from securities lending, long-term senior convertible notes, and other payables. Changes in securities market volumes, related customer borrowing demands, underwriting activity, and levels of securities inventory affect the amount of the Company's financing requirements. Because of the nature of the Company's business, the changes in operating assets and liability account balances relative to net income for any particular accounting period can be quite large and somewhat arbitrary and therefore are not very useful indicators of long-term trends in the Company's cash flow from operations. In the six months ended June 28, 1996, cash and cash equivalents increased $2,350,000 (37.0%) to $8,694,000 from $6,344,000 at December 31, 1995. The increase in cash was substantially a result of cash provided from investing activity of $2,589,000. The cash provided from investing activity primarily consisted of proceeds for the sales of investments of $3,510,000 and partially offset by payments for investments and fixed assets of $751,000 and $178,000, respectively. Cash provided by operating activities was primarily used for payment of short-term borrowings from banks. The cash provided by operating activities was principally attributed to net income adjusted for non-cash charges of $4,167,000, a decrease in operating receivables of $3,117,000, and an increase in operating payables of $28,797,000. The cash provided was partly offset by cash used for increases in securities owned, notes receivable from officers and employees, and other assets of $5,201,000, $878,000, and $794,000, respectively, and decreases of drafts payable, accounts payable and accrued expenses, and accrued employee compensation and market value of securities sold, not yet purchased of $7,390,000 and $473,000, respectively. SN & Co. is subject to requirements of the Securities and Exchange Commission with regard to liquidity and capital requirements (see Note B of the Notes to unaudited Consolidated Financial Statements). At June 28, 1996, SN & Co. had net capital of approximately $20,883,000 which exceeded the minimum net capital requirements by approximately $17,379,000. 17 During 1994, SN & Co. obtained a revolving subordinated note in the amount of $5,500,000. The subordinated note was intended to be used to finance underwritings and was available for additional advances until January 31, 1996. At June 28, 1996, SN & Co. had an advance of $50,000 against this revolving subordinated note which is due January 31, 1997. Management believes that funds from operations and available unused informal and formal short-term credit arrangements of $139,775,000 at June 28, 1996, will provide sufficient resources to meet the present and anticipated financial needs. The Company has $2,916,000 in receivables from Investment Executives and other employees who terminated employment with the Company. The Company intends to vigorously pursue collection of these receivables and does not anticipate that the outcome of these activities will adversely affect liquidity or capital resources. 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings There were no material changes, during the six months ended June 28, 1996, in the legal proceedings previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Such information is hereby incorporated by reference. 19 Item 6. Exhibits and Reports on Form 8-K (a) Exhibit No. (Reference to Item 601(b) of Regulation S-K) Description ------------------------- ----------- 11 Computation of Earnings Per Share 27 Financial Data Schedule (furnished to the Securities and Exchange Commission for Electronic Data Gathering, Analysis, and Retrieval [EDGAR] purposes only) (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended June 28, 1996. The Company filed a report on Form 8-K dated July 23, 1996. This report Form 8-K contained information under Item 5. Other Events. On July 23, 1996, the Board of Directors of Stifel Financial Corp. approved the redemption of certain rights under an existing Shareholder Rights Plan and the adoption of a new Shareholder Rights Plan. Shareholders of record on August 12, 1996 will receive a payment of $0.05 per share, representing the redemption price for the existing rights. Payable date is August 22, 1996. This payment will be in lieu of the regular quarterly dividend of $0.03 per share. Under the new Shareholder Rights Plan, there will be a dividend distribution of one right for each outstanding share of common stock, par value $0.15 per share. The dividend will be distributed to stockholders of record on August 12, 1996. Each right will entitle the registered holder to purchase one one-hundredth of a share of a Series A Junior Participating Preferred Stock, par value $1.00 per share, at an exercise price of $35 per right. The rights become exercisable on the tenth day after public announcement that a person or group has acquired 15 percent or more of the Company's common stock or upon commencement or announcement of intent to make a tender offer for 15 percent or more of the outstanding shares of common stock without prior written consent of the Company. If the Company is acquired by any person after the rights become exercisable, each right will entitle its holder to purchase shares of common stock at a one-half the then current market price, and in the event of a subsequent merger or other acquisition of the Company, to buy shares of common stock of the acquiring entity at one-half of the market price of those shares. The rights may be redeemed by the Company prior to becoming exercisable by action of the Board of Directors at a redemption price of $.01 per right. These rights will expire, if not previously exercised, on August 12, 2006. 20 SIGNATURES Pursuant to the requirement of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STIFEL FINANCIAL CORP. (Registrant) Date: August 9, 1996 By /s/ Gregory F. Taylor Gregory F. Taylor (Chief Executive Officer) Date: August 9, 1996 By /s/ Stephen J. Bushmann Stephen J. Bushmann (Principal Financial and Accounting Officer) 21 STIFEL FINANCIAL CORP. AND SUBSIDIARIES EXHIBIT INDEX June 28, 1996 Exhibit Number Description ------- ----------- 11 Computation of Earnings Per Share 27 Financial Data Schedule (furnished to the Securities and Exchange Commission for Electronic Data Gathering, Analysis, and Retrieval [EDGAR] purposes only) EX-11 2 EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 STIFEL FINANCIAL CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In Thousands, Except Per Share Amounts) (UNAUDITED) Three Months Ended June 28, 1996 June 30, 1995 Fully Fully Primary Diluted Primary Diluted Net income $1,361 $1,361 $ 348 $ 348 After-tax interest savings assuming Conversion of Senior Convertible Notes (1) - - 172 - - 170 ------ ------ ------ ------ Net income adjusted for after-tax interest savings $1,361 $1,533 $ 348 $ 518 ====== ====== ====== ====== Average number of common shares outstanding during the period 4,470 4,470 4,410 4,410 Additional shares assuming exercise of stock options (2) 82 103 52 75 Additional Shares assuming conversion of Senior Convertible Notes (3) - - 1,350 - - 1,350 ----- ----- ----- ----- Average number of common shares used to calculate earnings per share 4,552 5,923 4,462 5,835 ===== ===== ===== ===== Net earnings per share $0.30 $0.26 $0.08 $0.08(4) ===== ===== ===== ===== Six Months Ended June 28, 1996 June 30, 1995 Fully Fully Primary Diluted Primary Diluted Net income $1,511 $1,511 $ 164 $ 164 After-tax interest savings assuming conversion of Senior Convertible Notes (1) - - 343 - - 337 ------ ------ ------ ------ Net income adjusted for after-tax interest savings $1,511 $1,854 $ 164 $ 501 ====== ====== ====== ====== Average number of common shares outstanding during the period 4,456 4,456 4,396 4,396 Additional shares assuming exercise of stock options (2) 67 103 54 74 Additional Shares assuming conversion of Senior Convertible Notes (3) - - 1,350 - - 1,350 ----- ----- ----- ----- Average number of common shares used to calculate earnings per share 4,523 5,909 4,450 5,820 ===== ===== ===== ===== Net earnings per share $0.33 $0.31 $0.04 $0.04(4) ===== ===== ===== ===== (1) Represents the after-tax interest savings resulting from assumed conversion of $10,000,000 aggregate principal 11.25% Senior Convertible Notes. (2) Represents the number of shares of common stock issuable on the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options and assumed purchases of stock from the Employee Stock Purchase Plan (ESPP). For primary earnings per share computations, these purchases were assumed to have been made at the average market price of the common stock during the period or that part of the period for which the option was outstanding or shares assumed purchased through the ESPP. For fully diluted earnings per share computations, these purchases were assumed to have been made at the greater of the market price of the common stock at the end of the period or average market price of the common stock during the period or that part of the period for which the option was outstanding or shares assumed purchased through the ESPP. (3) Represents the number of shares of common stock issuable upon conversion of $10,000,000 aggregate principal 11.25% Senior Convertible Notes at a conversion price of $7.4059 per share. (4)Net fully diluted earnings per share computes to $0.09 and $0.09 for three months and six months ended June 30, 1995, respectively. Since these are anti-dilutive, fully diluted earnings per share is equivalent to primary earnings per share. EX-27 3 EXHIBIT 27 - FINANCIAL DATA SCHEDULE - ARTICLE BD
BD THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DATED JUNE 28, 1996 AND THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JAN-01-1996 JUN-28-1996 9,175,065 168,741,386 0 5,558,400 24,721,326 2,716,536 229,312,722 65,225,000 54,254,841 0 60,767,859 2,271,208 10,150,000 681,134 0 0 35,912,680 229,312,722 9,159,596 6,558,853 23,527,781 4,917,867 1,374,957 4,007,559 32,717,797 2,498,897 2,498,897 0 0 1,510,897 0.33 0.31
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