-----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, Cw/eFFMg8B63/tLRBgNi/qOtCKlvFphBKeLgiiWyd+ZJ0sNZ0H0sk0hvNGMPHIi4 tX5rcsNjoe9QEM2CBqyF/w== 0000720672-96-000023.txt : 19961113 0000720672-96-000023.hdr.sgml : 19961113 ACCESSION NUMBER: 0000720672-96-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19961112 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: 96659107 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 SEPTEMBER, 27, 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 September 27, 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 September 27, 1996: 4,452,431 par value $.15. Exhibit Index is on page 20. 2 Stifel Financial Corp. And Subsidiaries Form 10-Q Index September 27, 1996 PAGE PART I. FINANCIAL CONDITION ---- Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition -- September 27, 1996 and December 31, 1995 3-4 Consolidated Statements of Operations -- Three Months Ended September 27, 1996 and September 29, 1995 5 Consolidated Statements of Operations -- Nine Months Ended September 27, 1996 and September 29, 1995 6 Consolidated Statements of Cash Flows-- Nine Months Ended September 27, 1996 and September 29, 1995 7-8 Notes to Consolidated Financial Statements 9-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 6. Exhibits and Reports on Form 8-K 17-18 Signatures 19 3 PART I. FINANCIAL CONDITION Item 1. Financial Statements (Unaudited) STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands) September 27, December 31, 1996 1995 (Unaudited) (Note) ------------- ------------ ASSETS Cash and cash equivalents $ 7,241 $ 6,344 Cash segregated for the exclusive benefit of customers 482 776 Receivable from brokers and dealers 22,149 16,424 Receivable from customers, less allowance for doubtful accounts of $833 and $805, respectively 157,226 156,904 Securities owned, at market value 19,124 19,521 Membership in exchanges, at cost (approximate market value: $2,169 and $1,904, respectively) 513 513 Office equipment and leasehold improvements, at cost, less allowances for depreciation and amortization of $10,589 and $12,517, respectively 2,559 3,015 Goodwill, net of accumulated amortization of $1,031 and $827, respectively 4,564 3,985 Notes and non-securities receivable from employees, net of allowance for doubtful receivables of $2,758 and $3,002, respectively 3,872 4,328 Deferred tax asset 3,403 3,902 Miscellaneous other assets 10,456 11,063 -------- -------- $231,589 $226,775 ======== ======== 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) (In thousands) September 27, December 31, 1996 1995 (Unaudited) (Note) ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Short-term borrowings from banks $ 50,225 $ 86,450 Payable to brokers and dealers 81,705 23,127 Payable to customers, including free credit balances of $8,897 and $21,079, respectively 21,454 31,806 Market value of securities sold, but not yet purchased 3,494 2,744 Drafts payable 10,711 17,867 Accrued employee compensation 9,805 9,526 Accounts payable and accrued expenses 7,294 9,650 Long-term debt 10,150 10,760 -------- -------- Total Liabilities 194,838 191,930 Subordinated note - - 50 Stockholders' equity Common stock 681 681 Additional paid-in capital 19,490 19,622 Retained earnings 17,231 15,754 -------- -------- 37,402 36,057 Less cost of stock in treasury 577 1,162 Less unamortized expense of restricted stock awards 74 100 -------- -------- Total Stockholders' Equity 36,751 34,795 -------- -------- $231,589 $226,775 ======== ======== 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 (In thousands, except per share amounts) (UNAUDITED) Three Months Ended September 27, September 29, 1996 1995 ------------- ------------- REVENUES Commissions $ 6,974 $ 7,113 Principal transactions 4,378 4,244 Investment banking 2,878 2,643 Interest 3,510 3,162 Sale of investment company shares 2,327 2,126 Sale of insurance products 618 447 Sale of unit investment trusts 375 509 Other 3,143 2,811 ------- ------- 24,203 23,055 EXPENSES Employee compensation & benefits 14,437 13,756 Commissions & floor brokerage 626 557 Communication & office supplies 1,744 1,636 Occupancy & equipment rental 1,767 1,905 Promotional 523 400 Interest 2,093 1,926 Other operating expenses 2,238 2,393 ------- ------- 23,428 22,573 ------- ------- INCOME BEFORE INCOME TAXES 775 482 Provision for income taxes 317 320 ------- ------- NET INCOME $ 458 $ 162 ======= ======= Net income per share: Primary $ 0.10 $ 0.04 Fully diluted $ 0.10 $ 0.04 Dividends declared per share $ - - $ 0.03 Average common equivalent shares outstanding: Primary 4,545 4,470 Fully Diluted 5,916 5,820 See Notes to Consolidated Financial Statements. 6 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (UNAUDITED) Nine Months Ended September 27, September 29, 1996 1995 ------------- ------------- REVENUES Commissions $23,289 $21,341 Principal transactions 13,537 14,858 Investment banking 7,796 7,771 Interest 10,069 9,445 Sale of investment company shares 7,246 6,264 Sale of insurance products 1,917 1,555 Sale of unit investment trusts 1,370 1,408 Other 13,123 8,056 ------- ------- 78,347 70,698 EXPENSES Employee compensation & benefits 47,155 42,698 Commissions & floor brokerage 1,846 1,751 Communication & office supplies 5,211 5,759 Occupancy & equipment rental 5,380 5,937 Promotional 1,457 1,412 Interest 6,100 6,009 Other operating expenses 7,924 6,376 ------- ------- 75,073 69,942 ------- ------- INCOME BEFORE INCOME TAXES 3,274 756 Provision for income taxes 1,305 430 ------- ------- NET INCOME $ 1,969 $ 326 ======= ======= Net income per share: Primary $ 0.43 $ 0.07 Fully diluted $ 0.41 $ 0.07 Dividends declared per share $ 0.06 $ 0.09 Average common equivalent shares outstanding: Primary 4,533 4,459 Fully Diluted 5,912 5,809 See Notes to Consolidated Financial Statements. 7 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED) Nine Months Ended September 27, September 29, 1996 1995 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,969 $ 326 Non-cash items included in earnings: Depreciation and amortization 1,202 1,508 Bonus notes amortization 787 654 Deferred compensation 380 396 Deferred tax benefit 499 1,005 Provision for litigation and bad debt 2,188 1,040 Unrealized losses (gains) on investments 36 (130) Amortization of restricted stock awards 42 81 -------- -------- 7,103 4,880 (Increase) decrease in operating receivables: Customers (350) (6,485) Brokers and dealers (5,725) 10,063 (Decrease) increase in operating payables: Customers (10,352) (1,394) Brokers and dealers 58,578 (7,821) Decrease (increase) in assets: Cash segregated for the exclusive benefit of customers 294 (7) Securities owned 397 (1,264) Notes receivable from officers and employees (1,030) (948) Miscellaneous other assets (1,216) (9) Increase (decrease) in liabilities: Securities sold, not yet purchased 750 (619) Drafts payable, accounts payable and accrued expenses, and accrued employee compensation (11,806) (9,111) -------- -------- Cash Provided By (Used For) Operating Activities $ 36,643 $(12,715) -------- -------- See Notes to Consolidated Financial Statements. 8 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) (UNAUDITED) Nine Months Ended September 27, September 29, 1996 1995 ------------- ------------- Cash Provided By (Used For) Operating Activities - from previous page $ 36,643 $(12,715) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net (payments) proceeds for short-term borrowings from banks (36,225) 13,900 Proceeds from: Employee stock purchase plan 617 755 Exercised stock options - - 124 Dividend reinvestment plan 10 9 Payments for: Settlement of long-term debt (760) (760) Purchases of stock for treasury (190) (512) Principal payments under capital leases (253) (194) Subordinated borrowings (50) - - Cash dividends (492) (376) -------- -------- Cash (Used For) Provided By Financing Activities (7,343) 12,946 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from: Sale of office equipment and leasehold improvements 23 915 Sale of investments 3,520 1,578 Payments for: Acquisition of office equipment and leasehold improvements (362) (1,082) Acquisition of investments (1,584) (90) -------- -------- Cash Provided By Investing Activities 1,597 1,321 -------- -------- Increase in cash and cash equivalents 897 1,552 Cash and cash equivalents - beginning of period 6,344 6,925 -------- -------- Cash and Cash Equivalents - end of period $ 7,241 $ 8,477 ======== ======== Supplemental disclosure of cash flow information: Income tax payments $ 904 $ 344 Interest payments $ 6,379 $ 6,283 Schedule of noncash investing and financing activities: Fixed assets acquired under capital lease $ 240 $ - - Assumption of debt for investment $ 150 $ - - 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 nine months ended September 27, 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 nine-month period ended September 27, 1996, the Company wrote off $2,838,000 of office equipment which represented fully amortized capital leases no longer in service. 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 September 27, 1996, SN & Co. had net capital of $21,006,000 which was 12% of its aggregate debit balances and $17,611,000 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 nine months related to the restructuring accruals recorded at December 31, 1994 are as follows: Balance at Balance at December Payments September 31, 1995 /Charges 27, 1996 ---------- -------- ---------- Net lease commitments for closed offices $895,000 $195,000 $700,000 Severance pay, extended benefits and receivables written off for terminated employees 67,000 67,000 - - Abandonment of leasehold improvements 9,000 9,000 - - -------- -------- -------- Total $971,000 $271,000 $700,000 ======== ======== ======== Such amounts are included in the consolidated statement of financial condition under the caption of Accounts payable and accrued expenses at September 27, 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 $570,000 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 Company received payments of $79,000 toward the notes during the nine months ended September 27, 1996. The notes receivable net of the discount of $336,000 and deferred gain of $570,000 are included in the statement of financial condition under the caption "Miscellaneous other assets" at September 27, 1996 and December 31, 1995. In August of 1996, the Company amended the purchase price of the assets sold to provide Capital West the opportunity to extinguish their debt with a lump sum payment of $950,000 on or before December 16, 1996. If Capital West does not tender payment by December 16, 1996, then the terms of the initial agreement will continue to apply. Pro forma financial information assuming the transaction had taken place on January 1, 1995 is presented below: Pro Forma Combined Results of Operations Nine Months Ended September 29, 1995 ------------------ Revenue $67,246,000 Net Income $ 811,000 Earnings per primary share $ 0.18 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 -- RELATED PARTY TRANSACTIONS The Company has receivables aggregating $1,976,000 at September 27, 1996 and December 31, 1995, from two former employees who were also directors and officers of the Company. These receivables arose from employment contracts which were to be earned or forgiven if performance criteria defined in the contracts were met. In 1994, the employees terminated with the Company. The Company filed suits to recover the balance of the receivables. In October 1996, a NASD Regulation, Inc. Office of Dispute Resolution arbitration awarded the Company $1,260,000 in compensatory damages plus interest from one of the two former employees. The Company continues to pursue collection on these receivables. NOTE F - SUBSEQUENT EVENT On October 22, 1996, the board of directors declared a regular quarterly dividend of $0.03 per share, payable on November 19, 1996 to stockholders of record November 5, 1996. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three months ended September 1996 and September 1995 The Company recorded a net income of $458,000 for the quarter ended September 27, 1996 compared to a net income of $162,000 for the same period one year earlier for an increase of $296,000 (182.7%). The primary earnings per share was $0.10 compared to the previous year's primary earnings per share of $0.04. The increases in revenues and net income were primarily attributable to strong investment banking activity, continued improvement in retail productivity, and controlling administrative costs. Total revenues increased $1,148,000 (5.0%) to $24,203,000 from $23,055,000 as all categories of revenue increased with the exception of commissions and sale of unit investment trusts. Sale of investment company shares and sale of insurance products increased $201,000 (9.5%) to $2,327,000 from $2,126,000 and $171,000 (38.3%) to $618,000 from $447,000, respectively. The increase in sale of investment company shares was representative of the industry-wide stock-fund inflows in August and September of 1996. Sale of insurance products increased as result of individual investors using annuities as an alternative tax- advantaged investment option. These increases were offset by slight decreases in commissions and sale of unit investment trusts of $139,000 (2.0%) to $6,974,000 from $7,113,000 and $134,000 (26.3%) to $375,000 from $509,000, respectively. Principal transactions increased $134,000 (3.2%) to $4,378,000 from $4,244,000 due primarily to decreased inventory trading losses over last year's comparable period. Investment Banking increased $235,000 (8.9%) to $2,878,000 from $2,643,000 due largely to an increased number of participation in syndicate equity offerings. Other revenues increased $332,000 (11.8%) to $3,143,000 from $2,811,000, primarily as a result of increased managed account fees and money market distribution fees. Managed account fees increased because of the growth of the managed account program which was introduced in November 1994. Money market distribution fees increased due to the increase in money market fund balances. Gross interest revenues increased $348,000 (11.0%) due chiefly to higher margin receivable balances. Interest expense increased $167,000 (8.7%) as a result of increased loan activity to fund margin receivables. Net interest retention increased $181,000 (14.6%) to $1,417,000 from $1,236,000. 13 Total expenses increased $855,000 (3.8%) to $23,428,000 from $22,573,000 primarily as a result of increased employee compensation and benefits. Employee compensation and benefits increased $681,000 (5.0%) to $14,437,000 from $13,756,000 primarily as a result of increased variable compensation, which increased $488,000 (5.5%) coincidentally with increased revenue production and profitability. Fixed compensation increased $194,000 due primarily to routine increases to salaried employees. All other expense categories increased due to the increased sales activity except for the occupancy & equipment rental, which decreased primarily as a result of savings related to the re-negotiation and extension of the corporate headquarters' office lease and the decrease in depreciation related to a purchase of capital equipment in the first quarter of 1995 which was subsequently written-down in the fourth quarter of 1995. Other expense decreased $155,000 (6.5%) to $2,238,000 from $2,393,000 primarily as a result of the decrease in professional fees of $748,000. The decrease in professional fees is substantially due to the extraordinarily large legal fees incurred during the third quarter of 1995. This decrease was partially offset by increases in settlements & bad debt expense and service bureau expenses of $505,000 and $76,000, respectively. Settlements increased due to significant litigation settlements reached in the third quarter of 1996. Nine months ended September 1996 and September 1995 The Company recorded a net income of $1,969,000 for the nine months ended September 27, 1996, compared to a net income of $326,000 for the same period one year earlier for an increase of $1,643,000 (504.0%). The primary earnings per share was $0.43 compared to the previous year's $0.07 per share. The increases in revenues and net income were primarily attributable to increased commissions resulting from a high level of retail investor activity, continued improvement in retail productivity, realized gains on sales of investments and a continued concentration on improvements to contain administrative costs. Total revenues increased $7,649,000 (10.8%) to $78,347,000 from $70,698,000 as all categories of revenue increased with the exception of principal transactions and sales of unit investment trusts. Commissions, sale of investment company shares, and sale of insurance products increased $1,948,000 (9.1%) to $23,289,000 from $21,341,000, $982,000 (15.7%) to $7,246,000 from $6,264,000, and $362,000 (23.3%) to $1,917,000 from $1,555,000, respectively, due to a high level of retail investor activity and improved retail productivity, as aforementioned. 14 Other revenues increased $5,067,000 (62.9%) to $13,123,000 from $8,056,000 as a result of increased gains on investments, managed account fees, investment advisory fees, clearing income, and money market distribution fees which increased $2,793,000, $1,122,000, $133,000, $277,000, and $374,000, 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. Principal transactions decreased $1,321,000 (8.9%) to $13,537,000 from $14,858,000 due primarily to decreased sales of fixed income products and inventory trading losses incurred from those same fixed income products. Gross interest revenues increased $624,000 (6.6%) due chiefly to higher margin receivable balances. Interest expenses increased $91,000 (1.5%) due mainly to increased loan activity. As a result, net interest retention increased $533,000 (15.5%) to $3,969,000 from $3,436,000. Total expenses increased $5,131,000 (7.3%) to $75,073,000 from $69,942,000 primarily as a result of increased employee compensation and benefits. Employee compensation and benefits increased $4,457,000 (10.4%) to $47,155,000 from $42,698,000 primarily as a result of increased variable compensation, which increased $5,272,000 (20.0%) to $31,649,000 from $26,377,000 concurrently with increased production and profitability. The increase in variable compensation was offset by a decrease in fixed salaries and benefits which decreased $815,000 (5.0%) to $15,505,000 from $16,320,000 as a result of the sale of the Oklahoma division to Capital West Financial Corp. (see Note D to the unaudited Consolidated Financial Statements). The reduction of office locations aforementioned contributed to the reduction of communication and office supplies and occupancy and equipment which decreased $548,000 (9.5%) and $557,000 (9.4%), respectively. The three months ended discussion of the decrease of occupancy and equipment also contributed to the nine months decrease. 15 Other expense increased $1,548,000 (24.3%) to $7,924,000 from $6,376,000 as a result of increased settlements and bad debt expense, charitable contributions, and computer service bureau fees, which increased $1,979,000, $134,000, and $102,000, 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. The increase was partially offset by a decrease of $620,000 in professional fees, which decreased due to the extraordinarily large legal fees incurred in the first nine months of 1995. 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 nine months ended September 27, 1996, cash and cash equivalents increased $897,000 (14.1%) to $7,241,000 from $6,344,000 at December 31, 1995. The increase in cash was substantially a result of cash provided from investing activity of $1,597,000. The cash provided from investing activity primarily consisted of proceeds for the sales of investments of $3,520,000 and partially offset by payments for investments and fixed assets of $1,584,000 and $362,000, 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 $7,103,000 and an increase in operating payables of $48,225,000. The cash provided was partly offset by cash used for increases in operating receivables, notes receivable from officers and employees, and other assets of $6,076,000, $1,030,000, and $1,215,000, respectively, and decreases of drafts payable, accounts payable and accrued expenses, and accrued employee compensation of $11,805,000. 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 September 27, 1996, SN & Co. had net capital of approximately $21,006,000 which exceeded the minimum net capital requirements by approximately $17,611,000. 16 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. During the third quarter ended September 27, 1996, SN & Co. reimbursed the remaining advance of $50,000 against this revolving subordinated note. Management believes funds from operations and available unused informal and formal short-term credit arrangements of $154,775,000 at September 27, 1996, will provide sufficient resources to meet the present and anticipated financial needs. The Company has receivables aggregating $1,976,000 at September 27, 1996 and December 31, 1995, from two former employees who were also directors and officers of the Company. These receivables arose from employment contracts which were to be earned or forgiven if performance criteria defined in the contracts were met. In 1994, the employees terminated with the Company. The Company filed suits to recover the balance of the receivables. In October 1996, a NASD Regulation, Inc. Office of Dispute Resolution arbitration awarded the Company $1,260,000 in compensatory damages plus interest from one of the two former employees. 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. 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings There were no material changes, during the nine months ended September 27, 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. The Company has receivables aggregating $1,976,000 at September 27, 1996 and December 31, 1995, from two former employees who were also directors and officers of the Company. These receivables arose from employment contracts which were to be earned or forgiven if performance criteria defined in the contracts were met. In 1994, the employees terminated with the Company. The Company filed suits to recover the balance of the receivables. In October 1996, a NASD Regulation, Inc. Office of Dispute Resolution arbitration awarded the Company $1,260,000 in compensatory damages plus interest from one of the two former employees. 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) 18 (b) Reports on Form 8-K The Company filed a report on Form 8-K during the quarter ended September 27, 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 received a payment of $0.05 per share, representing the redemption price for the existing rights. Payable date was August 22, 1996. This payment was in lieu of the regular quarterly dividend of $0.03 per share. Under the new Shareholder Rights Plan, there was a dividend distribution of one right for each outstanding share of common stock, par value $0.15 per share. The dividend was distributed to stockholders of record on August 12, 1996. Each right entitles 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. The Company filed a report on Form 8-K dated October 29, 1996. This report Form 8-K contained information under Item 4. "Changes in registrant's certifying accountants". The Board of Directors of Stifel Financial Corp., upon the recommendation of its Audit Committee, has determined to replace Coopers & Lybrand L.L.P. as the registrant's independent auditors for the year ended December 31, 1996. 19 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: November 8, 1996 By /s/ Gregory F. Taylor Gregory F. Taylor (Chief Executive Officer) Date: November 8, 1996 By /s/ Stephen J. Bushmann Stephen J. Bushmann (Principal Financial and Accounting Officer) 20 STIFEL FINANCIAL CORP. AND SUBSIDIARIES EXHIBIT INDEX September 27, 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 September 27, 1996 September 29, 1995 Fully Fully Primary Diluted Primary Diluted Net income $ 458 $ 458 $ 162 $ 162 After-tax interest savings assuming conversion of Senior Convertible Notes (1) - - 129 - - 157 ------ ------ ------ ------ Net income adjusted for after-tax interest savings $ 458 $ 587 $ 162 $ 319 ====== ====== ====== ====== Average number of common shares outstanding during the period 4,461 4,461 4,394 4,394 Additional shares assuming exercise of stock options (2) 84 105 76 76 Additional Shares assuming conversion of Senior Convertible Notes (3) - - 1,350 - - 1,350 ------ ------ ------ ------ Average number of common shares used to calculate earnings per share 4,545 5,916 4,470 5,820 ====== ====== ====== ====== Net earnings per share $ 0.10 $ 0.10 $ 0.04 $ 0.04(4) ====== ====== ====== ====== Nine Months Ended September 27, 1996 September 29, 1995 Fully Fully Primary Diluted Primary Diluted Net income $1,969 $1,969 $ 326 $ 326 After-tax interest savings assuming conversion of Senior Convertible Notes (1) - - 472 - - 473 ------ ------ ------ ------ Net income adjusted for after-tax interest savings $1,969 $2,441 $ 326 $ 799 ====== ====== ====== ====== Average number of common shares outstanding during the period 4,457 4,457 4,395 4,395 Additional shares assuming exercise of stock options (2) 76 105 64 64 Additional Shares assuming conversion of Senior Convertible Notes (3) - - 1,350 - - 1,350 ------ ------ ------ ------ Average number of common shares used to calculate earnings per share 4,533 5,912 4,459 5,809 ====== ====== ====== ====== Net earnings per share $ 0.43 $ 0.41 $ 0.07 $ 0.07(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 $0.05 for the three months ended September 29, 1995 and $0.14 for the nine months ended September 29, 1995. 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 SEPTEMBER 27, 1996 AND THE STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-27-1996 7,723 166,304 0 16,943 19,124 2,559 231,589 50,225 49,511 0 81,458 3,494 10,150 681 0 0 36,070 231,589 13,537 10,069 33,822 7,796 2,003 6,100 47,155 3,274 3,274 0 0 1,969 0.43 0.41
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