UNITED STATES
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 30, 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 1-9143
--------
RODMAN & RENSHAW CAPITAL GROUP, INC.
- -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3111956
- ----------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
120 S. LaSalle Street, Chicago, Illinois 60603
- -------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code312/977-7800
--------------
Former fiscal year ended on last Friday in June
- -------------------------------------------------------------------
(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 November 4, 1994: 4,576,837
par value $.09.
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements -
Condensed Consolidated Statements of Financial Condition
as of September 30, 1994 (unaudited) and June 24, 1994.
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended September 30, 1994 and
September 24, 1993.
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended September 30, 1994 and
September 24, 1993.
Notes to Condensed Consolidated Financial Statements
(unaudited) - September 30, 1994.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
September 30,
1994 June 24,
(Unaudited) 1994
------------ ----------
ASSETS
Cash and cash equivalents
(including reverse repurchase
agreements: 9/30/94 - $86,941;
06/24/94 - $13,423) $ 86,352 $ 13,998
Cash and short-term investments
required to be segregated under
federal regulations (including
resale agreements:
9/30/94 - $615; 06/24/94 - $32,500) 6,676 36,837
Receivables:
Customers 33,634 57,254
Brokers, dealers and clearing
organizations 189,569 132,458
Miscellaneous 7,664 5,726
Securities owned, at market 187,200 40,936
Memberships in security and
commodity exchanges at cost
(market value 9/30/94 - $7,036;
06/24/94 - $7,000) 3,854 3,854
Furniture, fixtures and leasehold
improvements, at cost, less
accumulated depreciation and
amortization 9/30/94 - $6,947;
6/24/94 - $7,408) 2,217 1,987
Prepaid expenses and other assets 4,947 5,057
Recoverable income taxes 1,379 1,979
Deferred income taxes - Net of
valuation allowance:
09/30/94 - $5,181;
06/24/94 - $4,518) 578 578
------------ ----------
$ 524,070 $ 300,664
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable
to banks $ 175,341 $ 23,242
Short-term note payable
to affiliate 10,000 10,000
Payables:
Customers 108,976 118,657
Brokers, dealers and clearing
organizations 58,923 79,828
Miscellaneous 5,460 1,082
Securities sold but not yet
purchased, at market 117,414 13,788
Accrued commissions 2,287 1,715
Accounts payable and accrued
expenses 13,155 15,013
------------ ----------
$ 491,556 $ 263,325
Liabilities subordinated to the
claims of general creditors 3,874 6,750
Stockholders' equity:
Convertible non-voting preferred
stock, Series A, $.01 par value:
5,000,000 shares authorized;
150 issued at 9/30/94 and 6/24/94 - -
Common stock, $.09 par value:
20,000,000 shares authorized;
4,577,000 issued at 9/30/94
and 6/24/94 412 412
Additional paid-in capital 30,935 30,935
Retained earnings (accumulated
deficit) (2,707) (758)
------------ ----------
28,640 30,589
------------ ----------
$ 524,070 $ 300,664
============ ==========
See Notes to Condensed Consolidated Financial Statements
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited in thousands, except per share)
THREE MONTHS ENDED
September 30, September 24,
1994 1993
------------ ------------
REVENUES: $ $
Commissions 6,694 7,680
Principal 5,656 10,133
Interest 4,350 2,322
Fee Income 2,058 2,615
Other 609 3,605
------------ ------------
TOTAL REVENUES 19,367 26,355
EXPENSES:
Employee compensation and benefits 12,062 13,539
Commissions, floor brokerage
and clearing 1,778 1,918
Interest 2,922 1,437
Occupancy and equipment 1,580 1,473
Communications 1,575 1,573
Professional fees 522 1,112
Other operating expenses 862 1,505
------------ ---------
TOTAL EXPENSES 21,301 22,557
------------ ---------
Income (loss) before taxes (1,934) 3,798
Tax provision 15 939
------------ ---------
NET INCOME (LOSS) $ (1,949) $ 2,859
============ =========
Earnings (loss) per Share Data:
Net income (loss) per share
and common equivalent
Primary ($0.43) $0.61
Fully Diluted ($0.43) $0.58
Weighted Average Shares
and Common Share Equivalent 4,577 4,909
See Notes to Condensed Consolidated Financial Statements
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
September 30, September 24,
1994 1993
------------ -------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Income (Loss) $ (1,949) $ 2,859
Adjustments to reconcile net
income (loss) to net cash flows
from operating activities:
Depreciation and amortization 220 332
Deferred income taxes 0 11
Net change in certain assets
and liabilities:
Cash and short-term investments
required to be segregated under
federal regulations 30,161 16,993
Receivables from and payables
to customers, brokers, dealers
and clearing organizations (64,077) (5,356)
Miscellaneous receivables (1,938) 672
Securities owned (146,264) (23,222)
Prepaid expenses and other
assets 110 (94)
Recoverable income taxes 600 329
Miscellaneous payables 4,378 1,320
Securities sold but not
yet purchased 103,626 5,255
Accrued commissions 572 (231)
Accounts payable and accrued
expenses (1,858) 1,864
------------ -------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES (76,419) 732
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase/sale of furniture,
fixtures and leasehold
improvements (450) 223
Sale of exchange memberships 0 453
------------ -------------
NET CASH FLOWS FROM INVESTING
ACTIVITIES (450) 676
<PAGE>
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase (decrease) in
short-term notes payable
to banks 152,099 (1,348)
Payment of liabilities
subordinated to claims of
general creditors (2,876) 0
Proceeds from issuance of
common stock in connection
with stock option plan 0 32
------------ -------------
NET CASH FLOWS FROM FINANCING
ACTIVITIES 149,223 (1,316)
NET INCREASE IN CASH AND
CASH EQUIVALENTS 72,354 92
Cash and cash equivalents at
beginning of period 13,998 1,121
------------ -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 86,352 $ 1,213
============ =============
See Notes to Condensed Consolidated Financial Statements
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The unaudited condensed consolidated financial statements of Rodman
& Renshaw Capital Group, Inc. and subsidiaries (collectively, the
"Company") 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 of the
Company, all adjustments considered necessary for a fair
presentation of the financial condition and results of operations of
the Company for the periods presented have been included. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended June 24, 1994.
NOTE B - ASSETS SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
- --------------------------------------------------------------
The Company is holding in safekeeping $71,189,000 and $46,580,000 of
securities owned by customers as of September 30, 1994 and June 24,
1994, respectively. These securities are not included in the
Statement of Financial Condition.
NOTE C - NET CAPITAL REQUIREMENT AND DIVIDEND RESTRICTIONS
- ----------------------------------------------------------
The Company's primary subsidiary, Rodman & Renshaw, Inc.("Rodman"),
a registered broker-dealer and futures commission merchant, is
subject to the minimum net capital rules of the Securities and
Exchange Commission (the "SEC") (Rodman has elected to use the
alternative net capital method permitted by the SEC rule), Commodity
Futures Trading Commission (the "CFTC"), and the capital rules of
the New York Stock Exchange, Inc. (the "NYSE"), of which Rodman is a
member. These rules require that Rodman maintain minimum net
capital, as defined in such rules, equal to the greater of 2% of
aggregate debits arising from customer transactions or $1,000,000,
or 4% of the funds required to be segregated for customers pursuant
to the Commodity Exchange Act, exclusive of the market value of
commodity options purchased by option customers. The NYSE may
require a member firm to reduce its business if its net capital is
less than the greater of $125,000 or 6% of the funds required to be
segregated and may prohibit a member firm from expanding its
business or paying cash dividends if resulting net capital would be
less than the greater of $150,000 or 7% of the funds required to be
segregated. At September 30, 1994, and June 24, 1994, Rodman had
net capital of $12.94 million and $30.70 million, respectively, or
$7.53 million and $25.33 million, respectively, in excess of
required net capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The results of operations should be read in conjunction with the
Company's condensed consolidated statements of income. The
Company's principal activities -- securities and commodities
brokerage, principal trading for servicing its customers, and
investment banking services -- are highly competitive and extremely
volatile. The earnings of the Company are subject to wide
fluctuations since many factors over which the Company has little or
no control -- such as the overall volume of activity in the
securities, futures and options markets and the volatility and
general level of market prices -- may affect its operations. In
addition, results of operations of any particular interim period may
not be indicative of results to be expected for the transition
period ending December 31, 1994.
Revenues for the quarter ended September 30, 1994 totalled $19.37
million, down from $26.35 million for the previous year's first
quarter. During the fiscal year ended June 24, 1994, the Company's
revenues decreased due to reduced volume in the securities and
futures markets and a significant reduction of producing employees.
During the quarter ended June 24, 1994, the Company initiated
several changes to increase revenues and reduce expenses. Total
revenues increased $6.44 million or 50% for the quarter ended
June 24, 1994.
For the most recent quarter, the Company recorded a net loss of
$1.95 million, or 43 cents per share. For the quarter ended
September 24, 1993, the Company reported net income of $2.86
million, or 61 cents per common share and common share equivalent.
REVENUES
Commission revenue fell 13% to $6.69 million for the quarter ended
September 30, 1994, from $7.68 million in the year earlier quarter
due to the aforementioned decrease in producing employees.
Revenues from principal transactions include mark-ups and realized
and unrealized gains and losses on securities held for resale.
Principal transaction revenues decreased 44% to $5.66 million for
the quarter ended September 30, 1994 from the year earlier quarter.
Interest revenue is derived primarily from financing customer
security purchases and from investments which are maintained
pursuant to the rules and regulations of the SEC and the CFTC
pertaining to segregation of customer funds. Interest revenues
increased by $2.03 million for the quarter ended September 30, 1994
as compared to the quarter ended September 24, 1993, due principally
to increases in security inventory positions and retail customer
margin receivables and higher prevailing interest rates.
Other revenues for the quarter ended September 24, 1993, included
nonrecurring net gains of $2,551,000 from the sale of the Company's
London futures and option operations and Chicago Stock Exchange
specialist operation.
EXPENSES
Employee compensation and benefit expense decreased by 11% for the
quarter ended September 30, 1994 from the year earlier quarter.
This decrease is attributable to the variable nature of certain
compensation related to decreases in commissions, principal revenues
and fee income.
Interest expense increased $1.48 million or 103% to $2.92 million
for the three-month period ended September 30, 1994 from the year
earlier quarter. This increase is due to interest paid on the
short-term note payable to affiliate and increased balances of
short-term notes payable to banks to finance larger security
inventory positions and higher prevailing interest rates as compared
to the same period last year.
Clearance and floor brokerage expense, which is variable in nature,
decreased 7% for the quarter, in line with the lower revenues.
Professional fees for the quarter ended September 24, 1993, included
certain fees related to the ownership change transaction concluded
in December, 1993.
A valuation allowance equal to the federal income tax benefit has
been recorded.
LIQUIDITY AND CAPITAL RESOURCES
Effective June 24, 1994, the Company issued to its majority
stockholder Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo
Financiero ("Abaco") for $15,000,000 150 shares of nonvoting
preferred stock convertible into the Company's common stock at a
rate of $7.25 of the preferred stock purchase price per share of
common stock. The conversion remains subject to approval by the
Company's stockholders, which is expected at a special meeting
planned for January 1995. Upon such approval, the preferred stock
held by Abaco will convert automatically into 2,068,965 shares of
common stock without any further payment or other action by Abaco.
In spite of the loss reported for the quarter ended September 30,
1994, the Company's Statement of Financial Condition at
September 30, 1994 reflects a strong and liquid financial position
because of the $15,000,000 capital contribution by Abaco. Including
the recent capital addition, the total capital was $28.64 million or
$4.31 per share, assuming conversion of the preferred stock and
$6.26 per share without assuming that conversion, as compared to
$33.80 million, or $7.72 per share at September 24, 1993.
Subordinated liabilities of $3,874,000 represented 9% of
capitalization as of September 30, 1994, as compared to 19% of
capitalization as of September 24, 1993.
On June 22, 1994, the Company borrowed $10,000,000, which bears a
fixed interest rate, from Confia, S.A., Institucion de Banca
Multiple, Abaco Grupo Financiero ("Confia S.A."), an affiliated
company of Abaco. The stated due date of the loan is December 19,
1994, but it is the non-binding intention of management of the
Company and Confia, S.A. to renew this borrowing at that time. Such
renewal may be on different terms than the original loan, depending
upon market factors and Confia, S.A.'s internal lending policies.
Rodman's various subordinated borrowings have maturities at dates
within the next twelve months, as follows:
December 31, 1994 $1,374,000
June 24, 1995 $10,000,000
September 30, 1995 $2,500,000
The scheduled repayment on December 31, 1994, will be funded from
cash reserves. The $10,000,000 subordinated borrowing is part of a
senior subordinated revolving credit facility between Rodman and the
Company terminating on June 15, 1998, which facility is currently
funded by the company loan from Confia, S.A. discussed above. It is
the intention of management of the Company and Rodman to extend this
subordinated borrowing through June 1998. To the extent that such
subordinated borrowing is required for Rodman's continued compliance
with minimum net capital requirements, it may not be repaid. This
in turn would prohibit the ability of the Company to repay the
$10,000,000 borrowing to Confia, S.A. The other subordinated
borrowings are from unrelated parties.
The Company's assets are substantially comprised of customer-related
receivables and securities inventory, both of which are highly
liquid. The principal source of financing are stockholders' equity,
customer payables, and other payables. Additionally, the Company
maintains established lines of credit with large financial
institutions which include daily demand loans, letters of credit and
reverse repurchase agreements to meet financing needs. The Company
does not participate in domestic merchant banking activities or
bridge loans.
In the quarter ended September 30, 1994, the Company used cash and
cash equivalents of $76.4 million from operating activities
primarily related to the increase in security inventory positions.
In September, 1993, the Company's operations generated $732,000.
In the quarter ended September 30, 1994, the Company used $450,000
in investing activities, primarily the result of new office openings
in Dallas and San Francisco. In September, 1993, investing
activities provided $676,000, primarily from the sale of exchange
memberships.
In the quarter ended September 30, 1994, the Company generated
$149.2 million from financing activities. In September 1993,
financing activities used $1.35 million.
Although the Company is anticipating two office relocations during
the next year, the Company is negotiating major tenant build-out
concessions to attempt to minimize the impact on the Company's
liquidity. The Company does not anticipate any other major capital
acquisitions or investments during the next year. Future
expenditures, if any, are expected to be funded by cash generated
from operations and other traditional means of financing.
As a registered broker-dealer and futures commission merchant,
Rodman is required by the SEC and CFTC to maintain specific amounts
of net capital to meet its customer obligations. As of
September 30, 1994, Rodman's net capital, as defined, was $12.94
million, which was $7.53 million in excess of required net capital.
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following exhibits are included
herein or are incorporated by reference
(11.1) Statement regarding computation of net
income per share
(27.1) Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated June 24, 1994 was filed
during the quarter ended September 30, 1994. This
filing reported under Item No. 5 of the rules of Form 8-
K the execution of a Stock Purchase Agreement between
the Company and Abaco and the fixing of the conversion
price for the preferred stock issued thereunder.
<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.
RODMAN & RENSHAW CAPITAL GROUP, INC.
(Registrant)
Date: November 14, 1994 By: /s/ John T. Hague
---------------------------------
John T. Hague
Chief Financial Officer
Date: November 14, 1994 By: /s/ Charles W. Daggs, III
----------------------------------
Charles W. Daggs, III
President and Chief Executive
Officer
<PAGE>
EXHIBIT 11.1
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(Shares and dollars in thousands except per share amounts)
THREE MONTHS ENDED
September 30, September 24,
1994 1993
------------ ------------
1. Net income $ (1,949) $ 2,859
============ ============
PRIMARY NET INCOME PER COMMON SHARE:
Shares:
2. Weighted average number of common
shares outstanding 4,576 4,374
------------ ------------
3. Incremental shares:
Dilutive common stock options - 305
------------ ------------
4. TOTAL 4,576 4,679
============ ============
5. Primary net income per
common share (1 divided by 4) (0.43) 0.61
============ ============
FULLY DILUTED NET INCOME PER
COMMON SHARE:
Shares:
6. Weighted average number of
common shares outstanding 4,576 4,374
------------ ------------
7. Incremental shares:
Dilutive common stock options - 535
------------ ------------
8. TOTAL 4,576 4,909
============ ============
9. Fully diluted net income per
common share (1 divided by 8) (0.43) 0.58
============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JUN-25-1994
<PERIOD-END> SEP-30-1994
<CASH> 93,027,000
<SECURITIES> 187,200,000
<RECEIVABLES> 230,867,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 521,853,000
<PP&E> 2,217,000
<DEPRECIATION> 220,000
<TOTAL-ASSETS> 524,070,000
<CURRENT-LIABILITIES> 491,556,000
<BONDS> 0
<COMMON> 412,000
0
0
<OTHER-SE> 28,228,000
<TOTAL-LIABILITY-AND-EQUITY> 524,070,000
<SALES> 6,694,000
<TOTAL-REVENUES> 19,367,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,301,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,922,000
<INCOME-PRETAX> (1,934,000)
<INCOME-TAX> 15,000
<INCOME-CONTINUING> (1,949,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,949,000)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> 0
</TABLE>
