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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
X SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
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: 1-8408
THE ADVEST GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0950444
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
90 State House Square
Hartford, Connecticut 06103
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 509-1000
NONE
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 8,604,783 Shares
Class Outstanding at July 31, 1997
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THE ADVEST GROUP, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1997 and September 30, 1996 3
Condensed Consolidated Statements of Earnings
Three and Nine Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 13
2
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<TABLE>
Part I. Financial Information
Item 1. Financial Statements
The Advest Group, Inc.
Condensed Consolidated Balance Sheets
In thousands, except share and per share amounts June 30, 1997 September 30, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Cash and short-term investments
Cash and cash equivalents $ 8,119 $ 11,461
Cash and securities segregated under federal and other regulations 264 265
--------------------------------------
8,383 11,726
--------------------------------------
Receivables
Brokerage customers, net 402,555 352,434
Loans, net 196,489 195,288
Securities borrowed 200,208 219,919
Brokers and dealers 7,714 5,394
Other 12,632 11,212
--------------------------------------
819,598 784,247
--------------------------------------
Securities
Trading, at market value 97,797 93,937
Held to maturity (market values of $21,184 and $22,876) 21,325 22,959
Available for sale, at market value 12,721 15,127
--------------------------------------
131,843 132,023
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Other assets
Equipment and leasehold improvements, net 14,710 14,187
Other 24,733 22,994
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39,443 37,181
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$ 999,267 $965,177
======================================
Liabilities & shareholders' equity
Liabilities
Brokerage customers 317,057 282,618
Deposits 173,968 191,186
Securities loaned 205,800 213,996
Short-term borrowings 52,292 39,301
Securities sold, not yet purchased, at market value 44,135 47,438
Compensation and benefits 21,045 21,517
Checks payable 17,416 16,976
Brokers and dealers 5,788 7,634
Other 15,215 14,973
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852,716 835,639
Long-term borrowings 47,134 19,744
Subordinated borrowings 0 20,552
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899,850 875,935
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Shareholders' equity
Common stock, par value $.01, authorized 25,000,000 shares,
issued 10,796,404 and 10,710,289 shares 108 107
Paid-in capital 70,413 68,842
Retained earnings 44,066 34,754
Net unrealized loss on securities available for sale, net of taxes (139) (223)
Treasury stock, at cost, 2,207,564 and 2,306,948 shares (14,468) (14,182)
Unamortized restricted stock compensation (563) (56)
--------------------------------------
99,417 89,242
--------------------------------------
$ 999,267 $ 965,177
======================================
<FN>
See Notes to Consolidated Financial Statements
3
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The Advest Group, Inc.
Condensed Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
In thousands, except per share amounts 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Commissions $ 29,659 $ 30,247 $ 88,003 $ 84,253
Interest 14,778 14,046 44,410 41,263
Principal transactions 11,044 9,404 31,589 29,570
Investment banking 9,293 7,357 23,277 22,421
Asset management and administration 6,457 5,246 18,423 14,727
Gain on sale of investment
advisory business 57 627 57 627
Other 1,453 1,685 5,342 6,700
----------- ----------- ----------- -----------
Total revenues 72,741 68,612 211,101 199,561
----------- ----------- ----------- -----------
Expenses
Compensation and benefits 41,086 39,593 118,478 111,661
Interest 8,032 7,515 24,236 21,987
Communications 6,100 5,199 16,921 15,023
Occupancy and equipment 4,573 3,913 13,352 13,408
Business development 1,565 1,799 4,597 4,316
Professional 1,423 1,430 4,618 4,020
Brokerage, clearing and exchange 1,195 1,085 3,534 3,129
Provision for credit losses and
asset devaluation 191 708 509 1,224
Other 2,677 1,761 7,618 7,095
----------- ----------- ----------- -----------
Total expenses 66,842 63,003 193,863 181,863
----------- ----------- ----------- -----------
Income before taxes 5,899 5,609 17,238 17,698
Provision for income taxes 2,536 2,524 7,412 7,964
----------- ----------- ----------- -----------
Net income $ 3,363 $ 3,085 $ 9,826 $ 9,734
=========== =========== =========== ===========
Net income per common and common equivalent shares:
Primary $ 0.38 $ 0.35 $ 1.12 $ 1.11
Assuming full dilution $ 0.37 $ 0.32 $ 1.07 $ 1.01
Cash dividend per common share $ 0.03 $ - $ 0.06 $ -
Average common and common equivalent shares outstanding:
Primary 8,951 8,758 8,797 8,763
Assuming full dilution 9,052 10,275 9,454 10,287
<FN>
See Notes to Consolidated Financial Statements
4
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<TABLE>
The Advest Group,Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended June 30,
In thousands 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,826 $ 9,734
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,907 5,864
Provision for credit losses and asset devaluation 509 1,224
Gain on sale of investment advisory business (57) (627)
Loss on retirement of debentures 608 -
Deferred income taxes 45 2,426
Other 442 (1,735)
(Increase) decrease in operating assets:
Receivables from brokerage customers (50,191) (55,324)
Securities borrowed 19,711 (73,901)
Receivables from brokers and dealers (2,320) (1,562)
Trading securities (3,860) (46,218)
Cash and securities segregated under federal and other regulations 1 31,015
Other (2,107) 1,434
Increase (decrease) in operating liabilities:
Brokerage customers 34,439 (23,757)
Securities loaned (8,196) 59,284
Brokers and dealers (1,846) (6,197)
Checks payable 440 13,685
Other (3,386) 33,539
------------ ------------
Net cash used for operating activities (35) (51,116)
------------ ------------
FINANCING ACTIVITIES
Net decrease in deposits (17,218) (32,618)
Proceeds from short-term borrowings 24,717 -
Repayment of short-term borrowings (17,766) (5,208)
Short-term brokerage borrowings, net 5,500 62,145
Proceeds from long-term borrowings 37,750 4,250
Repayment of long-term borrowings (9,820) -
Retirement of debentures (20,545) -
Other (909) (942)
------------ ------------
Net cash provided by financing activities 1,709 27,627
------------ ------------
INVESTING ACTIVITIES
Proceeds from (payments for):
Sales of available for sale securities 3,818 19,080
Maturities of available for sale securities 1,389 1,191
Maturities of held to maturity securities 18,651 17,436
Purchases of available for sale securities (91) (3,068)
Purchases of held to maturity securities (17,000) (18,986)
Sale of Investment advisory businesses, net 160 656
Loans sold 20,694 45,637
Sales of OREO, net 716 3,395
Principal collections on loans 29,279 17,002
Loans originated (55,270) (41,758)
Other (7,362) (5,714)
------------ ------------
Net cash (used for) provided by investing activities (5,016) 34,871
------------ ------------
(Decrease) increase in cash and cash equivalents (3,342) 11,382
Cash and cash equivalents at beginning of period 11,461 7,294
------------ ------------
Cash and cash equivalents at period end $ 8,119 $ 18,676
============ ============
Interest paid $ 24,136 $ 21,310
Income taxes paid $ 5,554 $ 7,243
Non-cash activities:
Securities available for sale from held to maturity $ - $ 9,962
Securitization of mortgages $ 2,633 $ 17,398
<FN>
See Notes to Consolidated Financial Statements.
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements:
The consolidated financial statements include the accounts of The Advest
Group, Inc. and all subsidiaries (collectively the "Company"). Principal
operating subsidiaries are Advest, Inc. ("Advest"), a broker-dealer and Advest
Bank and Trust (the "Bank"), a federal savings bank. The Company provides
diversified financial services including securities brokerage, trading,
investment banking, consumer lending, trust and asset management.
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. Management
believes that all adjustments (consisting of normal recurring accruals)
necessary for a fair statement of the results of operations for the periods
have been included. All material intercompany accounts and transactions have
been eliminated. Certain fiscal 1996 amounts have been reclassified in the
accompanying consolidated financial statements to provide comparability with
the current year presentation. The results of operations for the interim
periods are not necessarily indicative of the results for a full year.
The statements should be read in conjunction with the Notes to
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report for the year ended September 30, 1996, as filed with the Securities and
Exchange Commission on Form 10-K.
2. Summary of Significant Accounting Policies:
Derivatives
Advest uses derivatives (exclusively exchange-traded options and financial
futures contracts) solely to manage the risk associated with its municipal and
corporate bond trading inventories. Derivative transactions are entered into
when inventory levels exceed pre-determined thresholds specified in Advest's
hedging policy, which was developed and is reviewed at least annually by the
chief executive officer of the Company. Derivatives are considered off-balance
sheet instruments because their notional amounts are not recorded on the
balance sheet, however, the fair values of Advest's futures contracts, which
are based on quoted market prices, are reflected in the consolidated balance
sheet within trading securities and the changes therein are reflected in the
operating activities section of the consolidated statement of cash flows.
Futures contracts are marked to market daily. Unrealized gains and losses and
realized gains and losses from the termination or sale of the futures contracts
are reflected in revenue from principal transactions.
The Bank enters into interest rate swap and cap contracts as part of its
interest rate risk management strategy. Such instruments are held for purposes
other than trading. These swaps and caps are intended to maintain a targeted
level of net interest margin between the return on the Bank's interest earning
assets and the cost of funds. Interest rate swaps involve the exchange of fixed
and floating rate interest payments based on an underlying notional amount. The
Bank accrues interest expense based on a fixed contract rate and accrues
interest income based on a floating rate, which floating rate is reset
according to the contract index (usually tied to 3-month LIBOR), and settled
quarterly. Interest rate cap contracts provide that, in exchange for the
payment of an initial premium, the Bank will receive payments from the
counterparty in the event that interest rates rise
6
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above a predetermined level (the "strike rate"). The Bank amortizes the premium
monthly over the term of the cap contract as interest expense, and accrues
interest income when the reset of the contract rate (usually tied to 3-month
LIBOR) exceeds the strike rate, settled quarterly.
Interest income and interest expense arising from interest rate swap and
cap contracts are recorded as components of accrued interest in the
consolidated balance sheet , as components of cash flows from operating
activities in the consolidated statement of cash flows, and as components of
interest expense in the consolidated statement of earnings. In the unlikely
event of perceived inability of a counterparty to meet the terms of a contract,
the Bank would record interest income on a cash basis. Unamortized premiums
paid on cap contracts are recorded as a component of deposits in the
consolidated balance sheet, with amortization of such premiums reflected as a
component of cash flows from operating activities in the consolidated statement
of cash flows and as a component of interest expense in the consolidated
statement of earnings.
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statements
of Financial Accounting Standards ("SFAS") 125, "Accounting for Transfers and
Servicing for Financial Assets and Extinguishments of Liabilities" and SFAS
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125". As required, the Company adopted SFAS 125 as of January 1, 1997,
which did not have a material impact on the Company's financial condition or
results of operations. The Company will adopt SFAS 127 in its 1998 fiscal year,
as required, and has not made a determination as to whether the implementation
will have a material impact on the Company's financial condition or results of
operations.
The FASB issued SFAS 128, "Earnings Per Share" and SFAS 129, "Disclosure
of Information about Capital Structure" in February 1997. The Company will
adopt these pronouncements in its 1998 fiscal year, as required. The
implementation of SFAS 128 and SFAS 129 will not have a material impact on the
Company's financial condition or results of operations.
The FASB issued SFAS 130, "Reporting Comprehensive Income" and SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information" in June
The Company will adopt these pronouncements in its 1999 fiscal year, as
required. The Company is reviewing the provisions of both statements and has
not yet been determined whether implementation of SFAS 130 and SFAS 131 will
have a material impact on the Company's financial condition or results of
operations.
3. Capital and Regulatory Requirements:
Advest is subject to the net capital rule adopted and administered by the
New York Stock Exchange, Inc. ("NYSE") and the Securities and Exchange
Commission. Advest has elected to compute its net capital under the alternative
method of the rule which requires the maintenance of minimum net capital equal
to 2% of aggregate debit balances arising from customer transactions, as
defined. The NYSE also may require a member firm to reduce its business if 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 net capital is
less than 5% of aggregate debit balances. At June 30, 1997, Advest's regulatory
net capital of $52.1 million was 11.61% of aggregate debit balances and
exceeded required net capital by $43.1 million.
Under state bank regulatory restrictions, the Bank is required to
maintain a minimum level of capital and to limit annual dividends to the total
of the current and prior two years retained net income. As a result of these
restrictions, the Bank with an accumulated deficit at June 30, 1997 is
prohibited from declaring dividends. At June 30, 1997, the Bank's leverage
7
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capital, risk-based and Tier 1 capital ratios were 6.94%, 10.03% and 8.77%,
respectively, which met all regulatory requirements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company provides diversified financial services including securities
brokerage, trading, investment banking, consumer lending, trust and asset
management. All aspects of the Company's business are highly competitive and
regulated and impacted by a variety of factors outside of its control including
the economy, interest rates, the political climate and investor sentiment.
Consequently, revenues and operating results can vary significantly from one
reporting period to the next.
The Company paid quarterly dividends of $.03 per share on April 15, 1997
and July 15, 1997. Previously, the Company had not paid a dividend since
December 1990.
The Company reported net income of $3.4 million ($.38 per share) for its
third quarter ending June 30, 1997 compared with net income of $3.1 million
($.35 per share) a year ago, a 9% increase. Total revenues for the quarter
increased 6% to a record high $72.7 million and total expenses increased 6% to
$66.8 million. At June 30, 1997, book value per share was $11.58.
Advest, Inc.
An equity market correction seemed imminent early in the June quarter as
investors responded negatively to a 0.25% hike in the fed funds rate the last
week of March. The markets rebounded several weeks into the quarter as investor
sentiment shifted in the wake of good economic news and strong earnings reports
of corporate issuers. The major equity indices achieved record highs during the
quarter which also contributed to a late quarter underwriting surge.
Advest's pre-tax income was $6.3 million compared with $5.5 million last
year, a 15% increase. Total revenues increased 8% to $67.8 million, a record
high. Investment banking revenues were $9.3 million, a 26% year-to-year gain
and the highest level in firm history. Corporate Finance completed five merger
and acquisition transactions totaling more than $120 million and participated
in four underwritings raising over $128 million for clients. Public Finance
sole or co-managed 17 deals raising in excess of $2 billion. Asset management
revenues increased 20% to $5.8 million, a record high for the ninth consecutive
quarter.
Advest Bank and Trust
The Bank was profitable for a seventh consecutive quarter, remains in
full compliance with all capital and regulatory requirements and is deemed a
"well-capitalized" bank. The Bank posted pre-tax earnings of $.1 million for
both the current and year earlier quarters.
At June 30, 1997, the Bank's nonperforming assets ("NPAs") were $5.5
million (2.5% of total bank assets) compared with $3.2 million (1.4% of total
bank assets) a year ago. Total assets were $216.5 million, a decline of 8% from
$235.3 million last year. Earning assets were 95.6% of total assets compared
with 96.8% last year.
8
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Results of Operations
Three Months Ended June 30, 1997 Versus
Three Months Ended June 30, 1996
Net revenues, total revenues less interest expense, were $64.7 million,
an increase of $3.6 million (6%). Current and prior year revenues include $.1
million and $.6 million of gains, respectively, from the fiscal 1995 sale of
the Company's six taxable Advantage Family Funds which sales agreement called
for additional payments contingent on net assets and future fund sales. Current
quarter expenses, excluding interest, increased $3.3 million (6%) to $58.8
million, primarily related to higher firm payroll and sales-related
compensation at Advest. The effective tax rate was 43% in the current quarter
compared with 45% last year. The lower rate is related to lower state tax
obligations, primarily in Connecticut.
Agency commissions declined $.6 million (2%) to $29.7 million. A 22%
year-to-year gain in June substantially offset declines in April and May,
reflecting the quarter end rally in the equity markets. Commissions on over-
the-counter issues declined $1.0 million (16%) while listed securities
increased $.5 million (5%) in the current quarter.
Investment banking revenues increased $1.9 million (26%), led by a $1.2
million (107%) increase in merger and acquisition fees and a $.8 million (251%)
increase in consulting and valuation fees.
Revenue from principal transactions increased $1.6 million (17%) to $11.0
million, primarily as a result of Nasdaq trading profits of $.2 million in the
current quarter compared with a loss of $1.3 million last year. Trading profits
for municipal and corporate bonds improved $.6 million and $.5 million,
respectively. Commissions on equities declined $.8 million (16%) and
commissions on debt securities declined $.2 million (4%).
Asset management revenues increased $1.2 million (23%) to $6.5 million.
Advest's income increased $1.0 million (20%) primarily as a result of a $.8
million 26% increase in managed account fees.
Net interest income increased 3% to $6.7 million. Advest's net interest
gained $.5 million (10%), primarily due to increased margin debits and trading
securities, partly offset by increased bank borrowing and reduced interest
spreads. The Bank's net interest income declined $.3 million (15%) due
primarily to a smaller asset base and a year-to-year increase in NPAs. In
addition, the Bank's cost of funds is higher due to a declining deposit base
with a concurrent trend towards higher cost deposits, such as CDs, as a well as
increased advances from the Federal Home Loan Bank resulting from the lower
deposit base.
Other income declined $.2 million primarily due to lower Nasdaq execution
fees resulting from SEC order entry rule changes implemented earlier this year
and a decline in sales of residential mortgages at the Bank.
Compensation costs increased $1.5 million (4%) primarily due to higher
general payroll and related taxes. Communications costs increased $.9 million
(17%), primarily related to sales volume-driven increases in clearing costs and
postage as well as higher service bureau, news service and other charges
related to firm-wide technology and software upgrades. Occupancy and equipment
costs increased $.7 million (17%) due to higher rent as well as increased
depreciation and service agreement costs related to technology upgrades. The
provision for credit losses and asset devaluation declined $.5 million (73%)
primarily due to a $.4 million decline in provisions at the Bank. Other
expenses increased $.9 million (52%) primarily as a result of increased
computer software costs, licenses and fees, error account and settlement
expenses at Advest and higher OREO costs at the Bank.
9
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Nine Months Ended June 30, 1997 Versus
Nine Months Ended June 30, 1996
Net revenues increased $9.3 million (5%) to $186.9 million. Year-to-date
asset management and net interest revenues are consistent with the June quarter
analysis. Net expenses increased $9.8 million (6%) to $169.6 million. Year-to-
date compensation and communication costs and the provision for credit losses
and asset devaluation are consistent with the June quarter discussion.
Agency commissions increased $3.8 million (4%), led by listed securities,
up $2.4 million (6%), and over-the-counter commissions, up $1.1 million (7%).
Revenue from principal transactions increased $2.0 million (7%) to $31.6
million. Over-the-counter and corporate bond trading results improved from
losses of $1.5 million and $.1 million, respectively, to profits of $.2 million
and $1.2 million, respectively. Municipal trading profits increased $.5 million
(38%). Trading gains were partly offset by a decline $1.4 million (9%) in bond
commissions, reflective of the robust equity markets.
Investment banking revenues increased $.9 million (4%), as the 26%
current quarter gain more than offset a decline through the first half of the
fiscal year. Equity and unit trust underwriting commissions each increased $.8
million, up 12% and 43%, respectively. Consulting and valuation fees increased
$1.1 million (144%). Corporate finance underwriting fees declined $.6 million
(21%) primarily as a result of a substantial conversion fee in the prior year.
Prior year revenues also include a $1.1 million gain on the exercise of
warrants.
Other income decreased $1.4 million (20%) to $5.3 million primarily due
to a $.9 million prior year gain on the sale of an equity investment held by
Advest, lower Nasdaq execution fee income and decline in gains on sales of
residential mortgages at the Bank.
Professional fees increased $.6 million (15%) due to increased personnel
agency fees and consulting costs. Occupancy and equipment costs were
substantially unchanged from 1996 to 1997, however, the 1996 period included a
$1.0 million cost related to an early lease termination. Ongoing occupancy and
equipment costs increased due to higher rent as well as increased depreciation
and service agreement costs related to technology upgrades. Other expenses
increased $.5 million primarily due to a $.6 million current year charge
related to the retirement of the Company's convertible debentures.
Liquidity and Capital Resources
Nine Months Ended June 30, 1997
In December 1996, AGI issued $35 million 7.95% seven year senior notes in
an unsecured private placement transaction with three institutional investors.
In December 1996, the Company repaid its full outstanding indebtedness of $4.4
million, including accrued interest and fees, under a loan from a third party
bank. On January 30, 1997, the Company redeemed $20.3 million outstanding
principal amount of its 9% convertible subordinated debentures due 2008. The
redemption price was 101.2% of the par value of the debentures, together with
accrued interest. A total of 18,716 shares was issued to debenture holders
electing to convert $.3 million par value of debentures into the Company's
common stock at the conversion price of $13.57. Cash was issued in lieu of
fractional shares. The conversion of the debentures eliminates the potential
dilution of the Company's common stock by 15%.
During the March 1997 quarter, AGI loaned Advest $10.0 million at a rate
of 8% per annum, utilizing proceeds of its $35.0 million subordinated
borrowing. The loan is unsecured and subordinated to certain other corporate
obligations. The purpose of the loan was to increase
10
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Advest's regulatory net capital. On April 1, 1997, Advest repaid in full an
outstanding secured equipment note in the amount of $6.3 million to an
unrelated third party lender.
The Company paid quarterly dividends of $.03 per share on April 15, 1997
and July 15, 1997. The total amount paid was $.6 million.
Advest's payables to brokerage customers increased $34.4 million (12%)
and together with a $5.5 million (16%) increase in short-term borrowings and
the $10 million subordinated loan from AGI financed the $50.1 million (14%)
increase in margin debits.
There have been no other material changes to the Company's liquidity or
capital resources since September 30, 1996.
Part II. Other Information
Item 1. Legal Proceedings
The Company has been named as defendant in a number of lawsuits arising
principally from its securities and investment banking business. Some of these
actions involve claims by plaintiffs for substantial amounts. While results of
litigation cannot be predicted with certainty, in the opinion of management,
based on discussion with counsel, the outcome of these matters will not result
in a material adverse effect on the financial condition or future results of
operations of the Company.
Item 2. Changes in Securities
During the current quarter the Company assigned 4,618 shares of its
common stock as compensation to employees under separate Employment Agreements.
Item 4. Submission of Matters to a Vote of Security Holders
As described in the Company's Report on Form 10-Q for the quarter ended
March 31, 1997, at the Company's Annual Meeting held on January 30, 1997,
Sanford Cloud, Jr., Grant W. Kurtz, Barbara L. Pearce and Allen Weintraub were
reelected as directors to serve for three year terms expiring in 2000. The
following corrects the information as to continuing directors set out in that
Form 10-Q. The terms of office of the following continuing directors expire in
1998: George A. Boujoukos, William B. Ellis, Anthony A. LaCroix. The terms of
office of the following continuing directors expire in 1999: Richard G. Dooley,
Robert W. Fiondella and John A. Powers.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 -- Computation of Net Income Per Share
Exhibit 27 -- Financial Data Schedule (Selected financial data - for
EDGAR electronic filing only to SEC)
The interim financial information contained herein has been subjected to
a review by Coopers & Lybrand L.L.P., the registrant's Independent
Accountants, whose report is included on page 12 of this filing.
(b) Reports on Form 8-K
None
11
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Report of Independent Accountants
To the Shareholders and Board of Directors of
The Advest Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of The
Advest Group, Inc. and subsidiaries as of June 30, 1997, and the related
condensed consolidated statements of earnings for the three-month and nine-
month periods ended June 30, 1997 and 1996, and cash flows for the nine-month
periods ended June 30, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and making
inquires of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the aforementioned financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1996, and the
related statements of earnings, changes in shareholders' equity and cash flows
for the year then ended (not presented herein), and in our report, dated
October 23, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of September 30, 1996, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
July 16, 1997
12
<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant duly caused this report to be signed on its behalf by the
thereunto duly authorized.
The Advest Group, Inc.
Registrant
Date August 8, 1997 /s/ Allen Weintraub
Allen Weintraub,
Chairman of the Board and
Chief Executive Officer
Date August 8, 1997 /s/ Martin M. Lilienthal
Martin M. Lilienthal,
Senior Vice President and
Chief Financial Officer
13
<PAGE>
Exhibit Index
Exhibit Description Page
11 Computation of Net Income Per Share 15-16
27 Financial Data Schedule (Selected financial data
- for EDGAR electronic transmission only for SEC.) 17
14
<PAGE>
Exhibit 11
The Advest Group, Inc. and Subsidiaries
Computation of Net Income Per Common Share
For the quarters ended June 30,
----------------------------------------
Assuming
Primary Full Dilution
In thousands, except ------------------ -----------------
per share amounts 1997 1996 1997 1996
- -------------------------------------------------------------------------
Net income $3,363 $3,085 $3,363 $3,085
Interest expense
on debentures, net -- -- -- 208
------ ------ ------ ------
Net income applicable
to common stock $3,363 $3,085 $3,363 $3,293
====== ====== ====== ======
Average number of common
shares outstanding during
the period 8,559 8,443 8,559 8,443
Additional shares assuming:
Exercise of stock options 392 315 493 317
Conversion of debentures -- -- -- 1,515
------ ------ ------ ------
Average number of common
shares outstanding 8,951 8,758 9,052 10,275
====== ====== ====== ======
Net income per common share $ .38 $ .35 $ .37 $ .32
====== ====== ====== ======
15
<PAGE>
Exhibit 11
(Continued)
The Advest Group, Inc. and Subsidiaries
Computation of Net Income Per Common Share
For the nine months ended June 30,
----------------------------------------
Assuming
Primary Full Dilution
In thousands, except ----------------- -------------------
per share amounts 1997 1996 1997 1996
- -----------------------------------------------------------------------
Net income $9,826 $9,734 $ 9,826 $ 9,734
Interest expense
on debentures, net -- -- 274 624
------ ------ ------- -------
Net income applicable to
common stock $9,826 $9,734 $10,100 $10,358
====== ====== ======= =======
Average number of common
shares outstanding during
the period 8,480 8,422 8,480 8,422
Additional shares assuming:
Exercise of stock options 317 341 368 350
Conversion of debentures -- -- 606 1,515
------ ------ ------- -------
Average number of common
shares outstanding 8,797 8,763 9,454 10,287
====== ====== ======= =======
Net income per common share $ 1.12 $ 1.11 $ 1.07 $ 1.01
====== ====== ======= =======
16
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 8383
<RECEIVABLES> 619390
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 200208
<INSTRUMENTS-OWNED> 131843
<PP&E> 14710
<TOTAL-ASSETS> 999267
<SHORT-TERM> 52292
<PAYABLES> 212387
<REPOS-SOLD> 0
<SECURITIES-LOANED> 205800
<INSTRUMENTS-SOLD> 44135
<LONG-TERM> 47134
<COMMON> 108
0
0
<OTHER-SE> 99309
<TOTAL-LIABILITY-AND-EQUITY> 999267
<TRADING-REVENUE> 11044
<INTEREST-DIVIDENDS> 14778
<COMMISSIONS> 29659
<INVESTMENT-BANKING-REVENUES> 9293
<FEE-REVENUE> 6457
<INTEREST-EXPENSE> 8032
<COMPENSATION> 41086
<INCOME-PRETAX> 5899
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3363
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
