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 March 25, 1994
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
This Form 10-Q is for the first quarter of the new calendar year-end
(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 March 25, 1994: 4,012,772 par value $.15.
Exhibit Index is on page 13.
<PAGE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition --
March 25, 1994 and December 31, 1993 3-4
Consolidated Statements of Operations --
Three Months Ended March 25, 1994 and March 26, 1993 5
Consolidated Statements of Cash Flows --
Three Months Ended March 25, 1994 and March 26, 1993 6-7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 25, 1994 December 31,1993
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and cash equivalents $5,967,874 $6,542,052
Cash and U.S. Government securities segregated
for the exclusive benefit of customers 1,262,448 1,261,480
Receivable from brokers and dealers 7,069,994 16,462,295
Receivable from customers (less allowance
for doubtful accounts of $1,123,293
at March 25, 1994 and $1,435,058 at
December 31, 1993) 133,506,626 153,373,372
Securities owned, at market value 61,471,159 86,510,135
Membership in exchanges, at cost
(approximate market value:
$1,745,000 at March 25, 1994 and
$1,514,000 at December 31, 1993) 513,015 513,015
Office equipment and leasehold
improvements, at cost, (less
allowances for depreciation and
amortization of $13,460,690 at
March 25, 1994 and $12,973,124 at
December 31, 1993), respectively 4,920,209 4,760,453
Non-securities receivable from employees 3,273,248 2,754,086
Goodwill and other intangible assets 4,540,280 4,590,998
Miscellaneous other assets 10,583,780 11,435,070
------------ ------------
$233,108,633 $288,202,956
============ ============
</TABLE>
NOTE: The Consolidated Statement of Financial Condition at December 31, 1993
has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 25, 1994 December 31,1993
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings from banks $85,875,000 $136,950,000
Payable to brokers and dealers 36,257,188 24,522,655
Payable to customers 24,638,220 36,323,885
Market value of securities sold,
but not yet purchased 4,998,949 3,906,547
Drafts payable 11,220,268 14,376,402
Employee compensation 7,490,352 8,987,033
Obligation under capital lease 765,450 931,274
Accounts payable and accrued expenses 9,857,877 10,835,943
Long-term debt 10,760,000 10,760,000
------------ ------------
Total Liabilities 191,863,304 247,593,739
Stockholders' equity
Common stock 617,886 617,886
Additional paid-in capital 17,340,326 17,268,905
Retained earnings 24,341,046 24,161,663
------------ ------------
42,299,258 42,048,454
Less cost of stock in treasury 906,687 1,240,452
Less unamortized expense of restricted
stock awards 147,242 198,785
------------ ------------
Total Stockholders' Equity 41,245,329 40,609,217
------------ ------------
$233,108,633 $288,202,956
============ ============
</TABLE>
NOTE: The Consolidated Statement of Financial Condition at December 31, 1993
has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 25, 1994 March 26, 1993
<S> <C> <C>
REVENUES
Commissions $ 7,020,230 $ 6,905,090
Principal transactions 4,492,938 5,846,951
Investment banking 4,938,723 6,111,305
Interest 2,434,551 2,221,582
Sale of investment company shares 3,276,705 2,963,437
Sale of insurance products 617,666 487,872
Sale of unit investment trusts 984,631 900,699
Other 2,061,521 1,333,651
---------- ----------
25,826,965 26,770,587
EXPENSES
Employee compensation & benefits 16,679,357 16,929,595
Commissions & floor brokerage 484,873 610,791
Communications & office supplies 1,980,308 1,731,220
Occupancy & equipment rental 2,154,543 1,850,515
Promotional 812,999 727,118
Interest 1,289,147 1,349,937
Other operating expenses 2,136,355 1,471,680
---------- ----------
25,537,582 24,670,856
INCOME BEFORE INCOME TAXES 289,383 2,099,731
Provision for income taxes 110,000 703,050
------------ ------------
NET INCOME $ 179,383 $ 1,396,681
============ ============
Net income per share:
Primary $0.04 $0.35
Fully diluted $0.04 $0.30
Dividends declared per share $0.000 $0.025
Average common equivalent shares outstanding:
Primary 4,121,359 4,019,889
Fully Diluted 5,346,249 5,274,250
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 25, 1994 March 26, 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 179,383 $ 1,396,681
Non-cash items included in earnings:
Depreciation and amortization 563,619 510,049
Bonus notes amortization 171,375 151,747
Deferred compensation 100,639 103,181
Provision for litigation and bad debt 97,093 150,000
Unrealized losses on investments - - 349,938
Amortization of restricted stock awards 51,543 46,200
------------ ------------
1,163,652 2,707,796
Decrease (increase) in operating
receivables:
Customers 19,866,746 ( 1,065,264)
Brokers and dealers 9,392,301 ( 4,547,755)
(Decrease) increase in operating payables:
Customers (11,685,665) ( 7,325,370)
Brokers and dealers 11,734,533 1,927,666
(Increase) decrease in other receivables
and assets:
Cash & U.S. Government securities
segregated for the exclusive benefit
of customers ( 968) 3,698,795
Securities owned 25,038,976 72,521,947
Other assets 603,726 1,787,962
Increase (decrease) in liabilities:
Securities sold not yet purchased 1,092,402 1,443,805
Securities sold under repurchase agreement - - (36,906,900)
Drafts payable, accrued expenses, and
employee compensation ( 5,737,635) ( 5,060,617)
------------ ------------
CASH PROVIDED BY OPERATING ACTIVITIES $ 51,468,068 $ 29,182,065
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 25, 1994 March 26, 1993
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES - from
previous page $ 51,468,068 $ 29,182,065
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments for
short-term borrowings from banks (51,075,000) (34,400,000)
Proceeds from:
Employee stock purchase plan 611,688 - -
Exercised stock options 45,406 109,775
Payments for:
Purchase of treasury stock ( 342,886) ( 294,400)
Restricted Stock Awards - - ( 20,361)
Principal payments under capital leases ( 165,824) ( 147,892)
Cash Dividends - - ( 93,037)
------------ ------------
CASH USED FOR FINANCING ACTIVITIES (50,926,616) (34,845,915)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of investments 7,048 14,633
Sale of office equipment and leasehold
improvements 281 - -
Payments for:
Acquisition of office equipment and
leasehold improvements ( 639,242) ( 390,643)
Acquisition of investments ( 2,657) ( 2,657)
Bonus notes ( 481,060) ( 394,000)
------------ ------------
CASH USED FOR INVESTING ACTIVITIES ( 1,115,630) ( 772,667)
Decrease in cash & cash equivalents ( 574,178) ( 6,436,517)
Cash and cash equivalents-beginning of period 6,542,052 12,436,988
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 5,967,874 $ 6,000,471
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Income tax payments $ 116,000 $ 1,712,259
Interest payments $ 1,629,941 $ 1,548,230
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
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
months ended March 25, 1994 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1994. For further
information, refer to the financial statements and notes thereto included in
the Company's annual report on Form 10-K for the five-month transition period
ended December 31, 1993.
NOTE B - NET CAPITAL REQUIREMENT
As a registered broker-dealer and member of the New York Stock Exchange,
the Company's brokerage subsidiary, Stifel, Nicolaus & Company, Incorporated
(SN & Co.), is subject to the Securities and Exchange Commission's (SEC)
uniform net capital rules. The broker-dealer subsidiary 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 March 25, 1994, SN &
Co. had net capital of $21,517,501 which was 14.3% of its aggregate debit
balances and $18,502,141 in excess of the 2% net capital requirement.
NOTE C - INCOME TAXES
Effective August 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." This
statement requires, among other provisions, that deferred taxes be adjusted
to reflect current rates. The adoption of SFAS No. 109 did not have a
material effect on the Company's financial condition or result of operations.
NOTE D - SUBSEQUENT EVENT
On April 19, 1994, the board of directors declared the regular quarterly
dividend of $0.03 per share, payable on May 17, 1994 to stockholders of record
May 3, 1994.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
In 1993, the Company changed its fiscal year-end from the last Friday in July
to a calendar year-end. The five-month transition period ended December 31,
1994 has been presented in the transition period Form 10-K. As a result of
this fiscal year-end change, calendar year 1993 has been recast for
comparative purposes.
Net Income, for the three months ended March 25, 1994, was $179,000, a
$1,218,000 (87.2%) decrease from net income of $1,397,000 reported for the
same period last year. Primary earnings per share decreased $0.31 (88.6%) to
$0.04 from $0.35. The diminished results are primarily attributable to
significant unrealized losses in the municipal bond inventory caused by higher
interest rates and market fears of inflation. In adhering to management's
commitment for planned growth, additional expenses were incurred with the
opening of new retail sales branches. SN & Co. increased the number of
branches and Investment Executives to 76 (8.6%) and 381 (5.5%), respectively,
compared to March 26, 1993.
Total revenues, for the three months ended March 25, 1994, were $25,827,000
as compared to $26,771,000, a decrease of $944,000 (3.5%), from the year
earlier quarter.
Principal transactions decreased $1,354,000 (23.2%), from the same period one
year earlier, primarily due to unrealized losses in the municipal bond
inventory, as discussed above.
Investment banking revenues decreased $1,172,000 (19.2%) principally due to
decreased municipal bond refundings as interest rates rise.
Principally as a result of adding more Investment Executives, agency
commissions, sale of investment company shares, sale of insurance products,
and sale of unit investment trusts increased $115,000 (1.7%), $314,000
(10.6%), $130,000 (26.6%), and $84,000 (9.3%), respectively.
Other revenues increased $727,000 (54.5%), primarily due to an increase in
investment advisory fees which increased $461,000 (164.7%) to $740,000 from
$280,000 in the previous year, as a result of fees generated by Todd Investment
Advisors, Inc. (TIA), which was acquired in December 1993. In addition, during
the first calendar quarter of 1993, the Company incurred an unrealized loss of
$350,000 to account for a reduced valuation of an investment.
The first quarter 1994 total expenses rose $867,000 (3.5%) to $25,538,000 from
$24,671,000 in the prior year, primarily due to opening additional offices
and recruiting new Investment Executives. Expenses relating to rent and
depreciation, communication and supplies, travel and promotion increased by
$305,000 (16.5%), $249,000 (14.4%), and $86,000 (11.8%), respectively. Other
Expense increased $664,000 (45.1%), largely as a result of increased
professional fees resulting from an ongoing SEC investigation and increased
employment and recruitment fees.
Employee compensation and benefits decreased a net $250,000 (1.5%). Salaries
and benefits increased $1,085,000 (19.8%), principally due to increased support
staff for new offices and the addition of TIA. Incentive compensation
decreased $1,335,000 (11.7%) in proportion to the decrease in revenues and
profits.
<PAGE>
Net Interest increased $273,000 (31.3%) to $1,145,000 from $872,000 in the
prior year's quarter, due to favorable borrowing rates and increases in margin
interest revenues.
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, and levels of securities inventory affect the amount of
the Company's financing requirements.
For the three months ended March 25, 1994, cash and cash equivalents decreased
$574,000 (7.4%) to $7,230,000 from $7,804,000 in December 31, 1993. Cash
provided by the decrease in securities owned of $25,039,000, which resulted
principally from decreased holdings of municipal securities inventory, and
cash provided by the decrease in operating receivables of $29,259,000, was
used primarily for repayment of short-term bank borrowings which decreased
$51,075,000.
SN & Co. is subject to certain requirements of the Securities and Exchange
Commission with regard to liquidity and capital requirements (see Note B of
the Notes to Consolidated Financial Statements). At March 25, 1994, SN & Co.
had net capital of $21,517,501 which exceeded the minimum net capital
requirements by $18,502,141.
Management believes that funds from operations and available informal
short-term credit arrangements of $119,625,000, at March 25, 1994, will provide
sufficient resources to meet the present and anticipated financial needs.
In addition, SN & Co. has obtained a commitment from a financial institution
to provide a revolving subordinated loan. The subordinated loan will enhance
the Company's ability to obtain temporary capital for underwriting and other
commitments.
Subsequent to the first quarter closing the Company wrote down the value of
SN & Co.'s inventory, principally municipal bonds, approximately $1,300,000.
Management does not feel that further reductions in the value of the bonds are
necessary however fears of rising interest rates and uncertainty about the
market may cause further reductions in the value of the inventory. Management
believes the firm is adequately capitalized to sustain future potential write
downs, should they occur.
Present market conditions and the low backlog for municipal underwritings may
cause future investment banking revenues and related principal transaction
revenues to vary significantly downward from prior periods. Correspondingly,
variable compensation expense related to the production of these revenues will
also vary downward. Management has taken steps to eliminate certain fixed
costs associated with this revenue production; and is continuing its efforts
to grow the number of Investment Executives to increase retail revenue
production and is currently evaluating day-to-day operations for increased
efficiencies and cost reduction opportunities.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material changes, during the quarter ended March 25, 1994, in
the legal proceedings previously reported in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993. Such information is hereby
incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. (Referenced to Sequential
Item 601(b) of Regulation S-K) Description Page Number
------------------------------ ----------------------- -----------
11 Computation of 14
Earnings Per Share
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 25,
1994.
<PAGE>
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: May 6, 1994 By /s/ Gregory F. Taylor
Gregory F. Taylor
(Chief Executive Officer)
Date: May 6, 1994 By /s/ Mark D. Knott
Mark D. Knott
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
------- ------------------------------------------------------ -----------
11 Computation of Earnings Per Share 14
<TABLE>
EXHIBIT 11
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 25, 1994 March 26, 1993
-------------- --------------
Fully Fully
Primary Diluted Primary Diluted
<S> <C> <C> <C> <C>
Net Income $ 179 $ 179 $1,397 $1,397
After-tax interest savings assuming conversion
of Senior Convertible Notes (1) - - 174 - - 174
------ ------ ------ -----
Net income adjusted for after tax interest
savings $ 179 $ 353 $1,397 $1,571
====== ====== ====== ======
Average number of common shares outstanding
during the period 3,999 3,999 3,906 3,906
Additional shares assuming exercise of stock
options (2) 122 122 114 143
Additional Shares assuming conversion of
Senior Convertible Notes (3) - - 1,225 - - 1,225
----- ----- ----- -----
Average number of common shares used to
calculate earnings per share 4,121 5,346 4,020 5,274
===== ===== ===== =====
Net earnings per share $0.04 (4)$0.04 $0.35 $0.30
===== ===== ===== =====
</TABLE>
(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. 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. 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.
(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 $8.1640 per share.
(4) Computes to $0.07 net fully diluted earnings per share. Since this is
anti-dilutive, fully diluted earnings per share is equivalent to primary
earnings per share.
