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, 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 1-9143
--------
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.)
233 S. Wacker Drive, Suite 4500, Chicago, IL 60606
- -------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 312/526-2000
--------------
- -------------------------------------------------------------------
(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 November 1, 1996: 6,645,802
par value $.09.
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements -
Condensed Consolidated Statements of Financial Condition
as of September 30, 1996 (unaudited) and December 31, 1995.
Condensed Consolidated Statements of Operations (unaudited)
for the three and nine months ended September 30, 1996 and
September 30, 1995.
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1996 and
September 30, 1995.
Notes to Condensed Consolidated Financial Statements
(unaudited) - September 30, 1996.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
<TABLE>
SEPTEMBER 30
1996 DECEMBER 31
(unaudited) 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,746 $ 9,001
Securities purchased under agreements
to resell - 2,204
Cash and short-term investments required to
be segregated under federal regulations 8,784 7,398
Receivables:
Customers 8 49,544
Brokers, dealers, and clearing
organizations 5,152 16,298
Securities owned - at market 7,371 16,489
Memberships in securities and commodities
exchanges at cost(market value 09/30/96 -
$1,356; 12/31/95 - $1,219) 272 272
Furniture, fixtures and leasehold improvements,
at cost, less accumulated depreciation and
amortization (09/30/96 - $5,242; 12/31/95 -
$5,132) 7,904 8,560
Prepaid expenses and other assets 14,766 9,567
Deferred income taxes (Net of valuation
allowance: 09/30/96 - $21,585;
12/31/95 - $17,059) - -
__________ ___________
$ 53,003 $ 119,333
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings from banks $ - $ 30,672
Short-term note payable to affiliate 26,500 26,500
Payables:
Customers 8,560 18,914
Brokers, dealers, and clearing
organizations - 13,549
Securities sold but not yet purchased,
at market 1,127 4,964
Accrued commissions 1,852 2,155
Accounts payable and accrued expenses 14,333 21,136
_________ ___________
52,372 117,890<PAGE>
Liabilities subordinated to the claims
of general creditors - -
Stockholders' equity:
Convertible non-voting preferred stock,
$.01 par value, 5,000,000 shares authorized;
175 shares issued at 09/30/96 and 50 shares
issued at 12/31/95 - -
Common stock, $.09 par value: 20,000,000
shares authorized; 6,646,000 issued at
09/30/96 and 12/31/95 598 598
Additional paid-in capital 48,249 35,749
Accumulated deficit (48,216) (34,904)
__________ ___________
631 1,443
__________ ___________
$ 53,003 $ 119,333
========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
<TABLE>
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 3,643 $ 5,399 $ 15,370 $ 19,973
Principal 6,548 7,411 22,938 19,241
Interest 427 1,813 1,788 9,051
Fee income 1,240 3,269 6,276 6,252
Other 121 1,211 354 2,590
_________ ________ ________ ________
TOTAL REVENUES 11,979 19,103 46,726 57,107
EXPENSES:
Employee compensation
and benefits 10,307 15,609 36,701 40,958
Commissions, floor brokerage
and clearance 1,083 754 3,235 3,280
Interest 1,121 2,470 3,506 8,150
Communications 1,321 2,234 4,301 6,508
Occupancy and equipment 1,676 2,509 4,846 5,484
Professional fees 845 941 2,094 3,256
Other operating expense 1,997 1,174 5,355 3,289
_________ ________ ________ _______
TOTAL EXPENSES 18,350 25,691 60,038 70,925
_________ ________ ________ ________
Loss before taxes (6,371) (6,588) (13,312) (13,818)
Tax expense - (1,620) - (601)
_________ ________ ________ ________
NET LOSS $ (6,371) $ (8,208) $(13,312) $(14,419)
========= ======== ======== ========
Earnings per share data:
NET LOSS PER COMMON SHARE $ (0.96) $ (1.24) $ (2.00) $ (2.25)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 6,646 6,646 6,646 6,410
</TABLE>
See Notes to Condensed Consolidated Financial Statements<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
NINE MONTHS ENDED
September 30 September 30
1996 1995
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,312) $ (14,419)
Adjustments to reconcile net loss to
net cash flows provided by
operating activities:
Equity in earnings in limited partnerships (1,192) -
Reserve on loans advanced to
limited partnerships 428 -
Gain on sale of fixed assets (8)
Gain on sale of exchange memberships - (771)
Deferred income taxes - 413
Depreciation and amortization 785 891
Net changes in operating assets
and liabilities:
Securities purchased under
agreements to resell 2,204 33,054
Cash and short-term investments
required to be segregated under
federal regulations (1,386) 14,387
Receivables from and payables
to customers, brokers, dealers
and clearing organizations 36,779 (51,594)
Recoverable income taxes
and income taxes payable - 1,330
Securities owned 9,118 106,792
Prepaid expenses and other assets (1,435) (4,373)
Securities sold but not yet purchased (3,837) (85,920)
Accrued commissions (303) 232
Accounts payable and accrued expenses (6,803) 7,398
NET CASH FLOWS PROVIDED BY ___________ __________
OPERATING ACTIVITIES 21,046 7,412
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and
leasehold improvements (129) (7,314)
Sale of exchange memberships - 4,349
NET CASH FLOWS USED IN ___________ __________
INVESTING ACTIVITIES (129) (2,965)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term
borrowings from banks (30,672) (15,095)
Proceeds from short-term note payable
to affiliate - 6,500
Payment of notes subordinated to
claims of general creditors - (1,374)
Proceeds from issuance of convertible
non-voting preferred stock 9,500 -
NET CASH FLOWS USED IN ___________ __________
FINANCING ACTIVITIES (21,172) (9,969)<PAGE>
NET DECREASE IN CASH AND CASH
EQUIVALENTS (255) (5,522)
Cash and cash equivalents at beginning
of period 9,001 7,011
___________ ___________
Cash and cash equivalents at end of period $ 8,746 $ 1,489
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (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. Although the
Company has stock options outstanding, such stock options do not have a
dilutive effect on earnings per share; accordingly, the primary and fully
diluted loss per share calculations are not different. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Report on Form 10-K for
the year ended December 31, 1995.
NOTE B - ASSETS SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
- --------------------------------------------------------------
The Company was holding in safekeeping $712,000 and $1,664,000 of
securities owned by customers as of September 30, 1996, and December 31,
1995, respectively. In accordance with applicable regulations, these
securities are not included in the Condensed Consolidated 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"), 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. Rodman has elected to use
the alternative net capital method permitted by the SEC rule. At
December 31, 1995, these rules required that Rodman maintain minimum
net capital, as defined in such rules, equal to the greater of 2% of
aggregate debits arising from customer securities transactions or
$1,000,000, or 4% of the funds required to be segregated for
customers pursuant to the Commodity Exchange Act. In January 1996,
Rodman changed its business operation from a clearing securities
broker to a non-clearing securities broker whereby Rodman's customer
accounts are introduced and cleared by a contracted clearing broker
on a fully disclosed basis. As a result of this conversion, Rodman's
minimum net capital requirement pursuant to these rules was reduced
to the greater of $250,000 or 4% of the funds required to be segregated
for commodities customers. At September 30, 1996, and December 31, 1995,
Rodman had net capital, as defined, of $7.6 million and $15.4 million,
respectively, or $7.3 million and $14.3 million, respectively, in excess
of the minimum net capital.
On August 30, 1996, Rodman transferred all futures related activity to
an affiliate, Rodman & Renshaw Futures, Inc. ("RRFI"), a futures
commission merchant. RRFI is subject to the minimum net capital
rules of the CFTC which is the greater of $250,000 or 4% of the funds
required to be segregated for commodities customers.
The National Futures Association (the "NFA") may require a member firm to
reduce its business if its net capital is less than 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 7% of the funds required to be segregated. At
September 30, 1996, RRFI had net capital, as defined, of $.5 million
which exceeds the minimum net capital requirement.
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 and interest rates -- may affect its operations. In
addition, results of operations for any particular interim period may
not be indicative of results to be expected for the year ending
December 31, 1996.
Despite market correction and volatility in July, and significantly
lower overall underwriting volume, the Company reported an improvement
in net losses of 22% in the 1996 third quarter as compared to the same
period last year. This improvement was acheived in spite of a
37% reduction in revenue.
REVENUES
Revenues were $12.0 million in the third quarter of 1996, a decline of
$7.1 million as compared to the same 1995 period. Investment Banking
and Institutional Equities revenues declined in both July and August
reflecting weak demand in the market for small cap stocks.
September's results for these business units however, were 59% better
than the same period last year as market demand partially rebounded.
The combination of a weak July and August equity market environment
and the closing of several retail branch offices resulted in a revenue
decline versus the third quarter of 1995. Excluding the reduction of
revenue from the Commodities business which management significantly
reduced in 1995, year to date 1996 revenue levels were comparatively
flat with 1995. Principal transactions of $22.9 million in 1996 were
$3.7 million higher than the prior year reflecting the start-up of
Institutional business in the second quarter of 1995.
Interest income in 1996 declined significantly versus both the third
quarter and the first nine month period of 1995 as the Company reduced
its security inventory positions and converted to a non-clearing
broker-dealer and futures commission merchant. The decline in other
income was primarily due to the absence of the sale of certain exchange
seats relating to the Commodities business in the third quarter of 1995.
EXPENSES
Expense levels for the third quarter of 1996 declined $7.3 million, or
29%, reflecting significant improvement versus 1995. For the first nine
months, expenses declined $10.9 million, an improvement versus the prior
year, again with reductions in almost every major category as
Management's fixed expense reduction programs began to produce
material results. As of September 30, 1996 the Company had realized
a reduction of over 16% in the number of total employees versus
September 1995. These expense reductions were partly offset by higher
compensation levels for key Research and Investment Banking hires as these
businesses are being enhanced to support the Company's business initiatives
in these areas.
Generally, floor brokerage, clearance and communications all declined as
compared to 1995, mainly reflecting savings from changes in the business
line mix. Interest expense also declined versus both 1995 periods,
primarily reflecting the decrease in securities inventory positions
consistent with the change in business mix.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are substantially comprised of cash, receivables
and securities inventory, which are all highly liquid. The principal
sources of financing are stockholders' equity, customer payables,
short-term loans from banks and affiliates, and other payables.
As a registered broker-dealer and futures commission merchant,
Rodman and RRFI are required by the SEC and CFTC to maintain specific
amounts of net capital to meet its customers' obligations. As of
September 30, 1996, Rodman and RRFI's net capital, as defined,
exceeds the net capital requirement.
On June 22, 1994, the Company borrowed $10 million from Confia, S.A.,
Institucion de Banca Multiple, Abaco Grupo Financiero ("Confia, S.A."),
an affiliated company of the Company's majority stockholder, Abaco Casa
de Bolsa, S.A. de C.V., Abaco Grupo Financiero ("Abaco"). During 1995,
the Company obtained additional loans from Confia, S.A. in an aggregate
amount of $16.5 million. The Company required the additional loans in
order to continue to conduct its business because losses were eroding
its net capital. The loans were consolidated and renewed on June 3, 1996,
for a six month term ending December 3, 1996, at an annual interest rate
of 12%. On February 9, 1996, the Company also received a letter from
Abaco Grupo Financiero, S.A. de C.V. ("Parent") whereby Parent agreed to
continue to unconditionally support the Company and Rodman for the next
year, up to and including March 31, 1997 ("Letter of Support"). Based
upon the Letter of Support, management believes that it is the intention of
Confia, S.A. to renew the $26.5 million loan when it becomes due. A
renewal may be on different terms than the original loan, depending upon
market conditions and Confia, S.A.'s internal lending policies at the
time of renewal.
The Company entered into a Note Conversion Agreement with Confia, S.A. dated
September 29, 1995 and amended November 10, 1995, pursuant to which Confia,
S.A. has the right to convert all or a portion of the Company's outstanding
indebtedness to equity in the Company. The number of shares of common stock
to be issued upon a conversion would be determined by dividing the amount of
indebtedness to be converted by the book value per share of common stock as
of the end of the Company's most recent fiscal quarter (provided, however,
that if such book value per share were equal to or less than $.09, which is
the par value per share of the common stock, the denominator would be $.09).
Indebtedness is convertible only if the conversion receives stockholder
approval or if the conversion is made in connection with a rights offering
to all stockholders at the same effective per share price for a number of
shares proportional to the number to be issued upon the conversion. Confia,
S.A. may transfer the conversion right to Abaco or another corporation
within the group of affiliated companies.
In addition, in December 1995, the Company issued to Abaco 50 shares of
non-voting preferred stock at a price per share of $100,000, which shares
are convertible into Company common stock. In a conversion, the $5 million
preferred stock purchase price would be divided by the book value per share
of common stock as of the end of the most recent month to determine the
number of shares of common stock to be issued (provided, however, that if
such book value per share were equal to or less than $.09, which is the par
value per share of the common stock, the denominator would be $.09). The
preferred stock is convertible only in connection with a rights offering
to all stockholders at the same effective per share price of a number of
shares proportional to the number to be issued upon conversion at a price
per share equal to such book value per share or par value, as the case may be.
Accordingly, in the event of such a rights offering, each stockholder would
have the opportunity to purchase a sufficient number of shares at the offering
price to maintain his or her percentage ownership of the Company.
The support referred to in the February 9, 1996 letter may include,
with previous receipt of requisite approvals from Mexican governmental
authorities, infusions of capital, conversion of short-term debt to
long-term debt or conversion of short or long-term debt to equity, if
required, to continue to sustain Rodman's operations and allow it to maintain
the required net capital pursuant to the SEC's Uniform Net Capital Rule 15c3-1.
To that end, Parent had agreed to provide the Company with a total of $9.5
million in equity capital in March and April, 1996. On March 29, 1996, Parent
provided $5 million of that total through the purchase by Abaco of 50
additional shares of non-voting preferred stock at a price per share of
$100,000. On April 30, 1996, Abaco provided the remaining $4.5 million
through the purchase of 45 additional shares of non-voting preferred stock
at a price per share of $100,000. The terms of such shares are substantially
identical to those of the preferred stock issued in December, 1995, as
discussed above. The balance sheet as of September 30, 1996 reflects the
issuance to Abaco of an additional 30 shares of non-voting preferred
stock at a price per share of $100,000 for a total of $3 million pursuant to
an understanding with Abaco reached during the third quarter. The terms of
of such shares also are substantially identical to those issued in
December 1995, and the cash consideration was received from Abaco on
November 14, 1996. At September 30, 1996, the book value per share of the
Company's common stock was approximately $0.09. Full conversion of the
Company's preferred stock held by Abaco at such price, assuming only Abaco's
exercise of its conversion rights, would entail the issuance of approximately
198 million shares of common stock. In the event that the Company's
outstanding indebtedness to Confia also were converted at such price, such
conversion would entail the issuance of an additional 295 million shares
of common stock.
The Company currently has subordinated loans outstanding to Rodman, its
broker-dealer subsidiary, in an aggregate amount of $26.5 million. The loans
are funded by the Company's borrowing from Confia, S.A. discussed above. It
is the intention of management of the Company and Rodman to extend these
subordinated borrowings through June, 1998. To the extent that such
subordinated borrowings are required for Rodman's continued compliance with
minimum net capital requirements, they may not be repaid. In the event that
the borrowing between the Company and Confia, S.A. is not renewed or
converted, Rodman will be required to curtail its business activities
substantially in order to reduce its minimum net capital requirements, and
then it would seek regulatory approval to repay its subordinated debt to the
Company.
The Uniform Net Capital Rule also provides that the total outstanding principal
amounts of a broker-dealer's indebtedness under certain subordination
agreements, the proceeds of which are included in its net capital, may not
exceed for a period in excess of 90 days, 70% of the sum of the total
outstanding principal amounts of all subordinated indebtedness included in
net capital plus stockholders' equity (the "debt/equity ratio"). At
December 31, 1995, Rodman's debt/equity ratio was 78.2%. In January 1996,
the Company and Rodman converted $5 million from short-term to long-term
subordinated debt, which is treated as equity for purposes of the Uniform
Net Capital Rule, thereby reducing the debt/equity ratio to 60%. As of
September 30, 1996, the debt/equity ratio was 58%.
In the nine months ended September 30, 1996, the Company provided cash and
cash equivalents of $18.0 million from operating activities. In the
nine months ended September 30, 1995, the Company's operations provided
$7.4 million.
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following exhibits are included
herein or are incorporated by reference
(27.1) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the
quarter ended September 30, 1996.
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 13, 1996 By: /s/ William C. Dennis Jr.
---------------------------------
William C. Dennis, Jr.
Chief Financial Officer
Date: November 13, 1996 By: /s/ Charles W. Daggs, III
----------------------------------
Charles W. Daggs, III
President and Chief Executive
Officer
C:\USERS\EDGAR\10Q996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,530,000
<RECEIVABLES> 5,160,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 7,371,000
<PP&E> 7,904,000
<TOTAL-ASSETS> 53,003,000
<SHORT-TERM> 26,500,000
<PAYABLES> 24,745,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 1,127,000
<LONG-TERM> 0
<COMMON> 598,000
0
0
<OTHER-SE> 33,000
<TOTAL-LIABILITY-AND-EQUITY> 53,003,000
<TRADING-REVENUE> 22,938,000
<INTEREST-DIVIDENDS> 1,788,000
<COMMISSIONS> 15,370,000
<INVESTMENT-BANKING-REVENUES> 6,276,000
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 3,506,000
<COMPENSATION> 36,701,000
<INCOME-PRETAX> (13,312,000)
<INCOME-PRE-EXTRAORDINARY> (13,312,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,312,000)
<EPS-PRIMARY> (2.00)
<EPS-DILUTED> (2.00)
</TABLE>
