<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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)
<PAGE> 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.
<PAGE> 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)
<PAGE> 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)
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)
====== ====== ====== ======
<PAGE>
(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.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-27-1996
<CASH> 7,723
<RECEIVABLES> 166,304
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 16,943
<INSTRUMENTS-OWNED> 19,124
<PP&E> 2,559
<TOTAL-ASSETS> 231,589
<SHORT-TERM> 50,225
<PAYABLES> 49,511
<REPOS-SOLD> 0
<SECURITIES-LOANED> 81,458
<INSTRUMENTS-SOLD> 3,494
<LONG-TERM> 10,150
<COMMON> 681
0
0
<OTHER-SE> 36,070
<TOTAL-LIABILITY-AND-EQUITY> 231,589
<TRADING-REVENUE> 13,537
<INTEREST-DIVIDENDS> 10,069
<COMMISSIONS> 33,822
<INVESTMENT-BANKING-REVENUES> 7,796
<FEE-REVENUE> 2,003
<INTEREST-EXPENSE> 6,100
<COMPENSATION> 47,155
<INCOME-PRETAX> 3,274
<INCOME-PRE-EXTRAORDINARY> 3,274
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,969
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.41
</TABLE>
