FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Under 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1996
or
[ ] Transition Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the transition period of
to
Commission File Number 08016
OLD STONE CORPORATION
(Exact name of registrant as specified in its charter)
Rhode Island 050341273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
957 Warren Avenue
East Providence, Rhode Island 02914
(Address of Principal Executive Offices) Zip Code
(401) 434-3314
(Registrant's Telephone Number, Including Area Code)
* 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 and 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:
The number of shares outstanding of the registrant's Common Stock, $1.00 par
value, as of June 30, 1996; 8,246,175
INDEX
PART I FINANCIAL INFORMATION: PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets 1
June 30, 1996 and December 31, 1995
Consolidated Statements of Operations 2
For the Three Months and Six Months Ended
June 30 1996 and 1995
Consolidated Statements of Changes 3
in Stockholders'
Equity (Deficit) -
For the Three Months Ended June 30,
1996 and 1995
Consolidated Statements of Cash Flows 4
For the Three Months Ended June 30, 1996
and 1995.
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 3. Defaults Upon Senior Securities 9
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in Thousands)
June 30, December 31,
1996 1995
Unaudited
ASSETS
Cash $ 38 $ 272
Short-term investments 544 424
Loans (net of reserve for loan losses of $112 in
1996 and 1995) 75 76
Accrued interest receivable 7 7
Other assets 76 286
------ -----
TOTAL ASSETS $ 740 $1,065
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Other liabilities $1,167 $1,369
----- -----
TOTAL LIABILITIES 1,167 1,369
REDEEMABLE PREFERRED STOCK
Preferred stock, series B, $1.00 par value;
1,046,914 shares authorized, issued and
outstanding 20,005 19,908
(Liquidation value $20,938)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $1.00 par value; 25,000,000 shares
authorized; 8,300,175 shares issued in 1996
and 1995 8,300 8,300
Additional paid-in capital 91,981 92,077
Surplus 30,000 30,000
Accumulated deficit (149,570) (149,446)
Treasury stock, at cost; 54,000 shares in 1996
and 1995 ( 1,143) ( 1,143)
----- -----
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 20,432) (20,212)
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 740 $ 1,065
======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in Thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30
1996 1995 1996 1995
---- ---- ---- ----
INCOME:
<S> <C> <C> <C> <C>
Interest income $ 5 $12 12 $25
Securities gains, net 16 9 27 17
Other income 43 53 82 85
-- -- --- ---
TOTAL INCOME 64 74 121 127
-- --- --- ---
EXPENSES:
Salaries and employee benefits 45 45 85 84
Net occupancy expense 8 8 15 17
Equipment expense, including depreciation 2 3 4 6
Other expenses 62 64 141 137
-- --- --- ---
TOTAL EXPENSES 117 120 245 244
--- --- --- ---
(Loss) from continuing operations
before income taxes ( 53) ( 46) ( 124) ( 117)
Income taxes -0- -0- -0- 1
--- --- --- -
NET (LOSS) ($53) ($ 46) ($124) ($118)
== === === ===
NET (LOSS) AVAILABLE FOR
COMMON STOCKHOLDERS ($730) ($723) ($1,478) ($1,472)
AVERAGE SHARES OUTSTANDING 8,246,175 8,246,175 8,246,175 8,246,175
========= ========= ========= =========
(LOSS) PER SHARE ($.09) ($.09) ($.18) ($.18)
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Six Months Ended June 30, 1996 and 1995
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional Accumulated
Common Paid-In Treasury
Stock Capital Surplus (Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994 $8,300 $92,274 30,000 ($148,975) ($1,143) ($19,544)
Net (loss) (118) ( 118)
Accretion of discount on
preferred stock, series B ( 98) (98)
----- ----
June 30, 1995 $8,300 $92,176 $30,000 ($149,093) ($1,143) ($19,760)
====== ======= ======= ========== ======== =========
December 31, 1995 $8,300 $92,077 $30,000 ($149,446) ($1,143) ($20,212)
Net (loss) ( 124) ( 124)
Accretion of discount on
preferred stock, series B ( 96) ( 96)
----- -----
June 30, 1996 $8,300 $91,981 $30,000 ($149,570) ($1,143) ($20,432)
====== ======= ======= ========== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
Operating activities:
<S> <C> <C>
Net (loss) ($ 124) ($ 118)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
(Increase) in interest receivable -0- ( 1)
Other, net 9 ( 90)
--------- -------
Net cash provided (used) by operating
activities ( 115) ( 209)
Investing activities:
Net (increase) decrease in investments ( 120) 206
Net decrease in loans 1 1
--------- --------
Net cash provided by investing activities ( 119) 208
---------- -------
(Decrease) in cash ( 234) ( 1)
Cash at beginning of period 272 32
-------- -------
Cash at end of period $ 38 $ 31
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
OLD STONE CORPORATION NOTES TO FINANCIAL STATEMENTS Six Months Ended
June 30, 1996 and 1995 (Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
COMPANY DESCRIPTION AND BASIS OF PRESENTATION
Until January 28, 1993, Old Stone Corporation (the "Company" or "OSC") was a
unitary savings and loan holding company which conducted substantially all of
its business primarily through its ownership of Old Stone Bank, a Federal
Savings Bank and its subsidiaries (the "Bank" or "Old Stone"). On January 29,
1993, the Office of Thrift Supervision of the United States Department of the
Treasury (the "OTS") placed the Bank into receivership due to the Bank being
critically undercapitalized. The OTS created a new institution, Old Stone
Federal Savings Bank ("Old Stone Federal") to assume all deposits and certain
assets and liabilities of Old Stone. The Resolution Trust Corporation (the
"RTC") was appointed Receiver to handle all matters related to Old Stone and as
Conservator of Old Stone Federal.
As a result of the receivership of the Bank, the Company has undergone material
changes in the nature of its business and is no longer operating as a unitary
savings and loan holding company. As of June 30, 1996 the Company's business
activities included its only surviving subsidiary, Old Stone Securities Company,
a registered securities broker-dealer which provides brokerage services to
retail and institutional clients.
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 Article 10 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 and operating results for the six months ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and notes thereto included in the Old Stone Corporation's
Annual Report on Form 10-K for the year ended December 31, 1995. All material
intercompany transactions and balances have been eliminated. Certain previously
reported amounts have been restated to conform with the current presentation.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1996 and 1995
($ in Thousands except for per share data)
(Unaudited)
NOTE 2 - (LOSS) PER SHARE
The calculation of loss per share is as follows ($ in thousands, except for per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY (LOSS):
<S> <C> <C> <C> <C>
Net (loss) ($53) ($ 46) ($124) ($118)
Deduct accretion of discount on
series B preferred stock and
preferred dividends 677 677 1,354 1,354
--- --- ----- -----
Net (loss) applicable to common ($730) ($723) ($1,478) ($1,472)
=== === ===== =====
stock
ALLOCATION OF PRIMARY (LOSS):
(Loss) from continued operations ($53) ($ 46) ($124) ($118)
Deduct accretion of discount on
series B preferred stock
and preferred dividends 677 677 1,354 1,354
--- --- ----- -----
TOTAL NET (LOSS) ($730) ($723) ($1,478) ($1,472)
=== === ===== =====
Average shares outstanding 8,246,175 8,246,175 8,246,175 8,246,175
========= ========= ========= =========
PRIMARY (LOSS) PER
COMMON SHARE ($.09) ($.09) ($.18) ($.18)
==== ==== ==== ====
</TABLE>
NOTE 3 - REDEEMABLE PREFERRED STOCK:
On October 6, 1991, the annual dividend of $2.40 per share of the Preferred
Series B stock was suspended. As of June 30, 1996, cumulative preferred
dividends of $11,934,820 ($11.40 per share) had not been declared or paid.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CURRENT OPERATIONS
As a result of the Bank Closing, the Corporation's present business activities
include its only surviving significant subsidiary, Old Stone Securities Company,
a registered securities broker-dealer which provides brokerage services to
retail and institutional clients.
Old Stone Securities' loss before income taxes was ($42,415) for the six month
period ended June 30, 1996, compared to a loss of ($44,000) for the six month
period ended June 30, 1995.
Management has invested, and intends in the future to invest, the Corporation's
assets on a short-term basis. While the Corporation's Board of Directors has
considered selling Old Stone Securities, the Board has determined not to do so
at the present time.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Corporation had $.7 million in assets, $1.1 million in
total liabilities, $20.0 million in redeemable preferred stock, and a
stockholders' deficit of ($20.4) million, compared to $1.1 million in assets,
$1.4 million in total liabilities, $19.9 million in redeemable preferred stock
and stockholders' deficit of ($20.2) million at December 31, 1995.
The Corporation's assets are currently being invested short-term, and expenses
have been reduced to a level that management believes is commensurate with the
Corporation's current activities pending resolution of any potential claims.
RESULTS OF OPERATIONS
Total income decreased $10,000 for the three month period ended June 30, 1996 as
compared to the same period in 1995. This decrease was primarily attributable to
a decrease in interest income of $7,000, and a decrease in other income of
$10,000, offset by an increase in securities gains of $7,000 in the 1996 period
over the comparable period in 1995. Total income year to date decreased by
$6,000 as compared to the same period in 1995. The decrease was primarily
attributable to reductions in other income of $3,000 and a reduction in interest
income of $13,000 offset by an increase in securities gains of $10,000 in the
1996 period over the comparable period in 1995.
Interest income was $5,000 and $12,000 respectively, for the three month periods
ended June 30, 1996 and 1995. Other income was $43,000 for the three month
period ended June 30, 1996, compared to $53,000 for the three month period ended
June 30, 1995.
Total expenses decreased $3,000 for the three month period ended June 30, 1996
as compared to the three month period ended June 30, 1995. The decrease was
primarily attributable to a reduction in other expenses of $2,000 over the
comparable period in 1995.
Total expenses year to date increased $1,000 as compared to the same period in
1995.
The Corporation's primary operating expenses have been insurance, legal and
accounting fees as well as the operating expenses of OSSC. Operating expenses
(including salaries and benefits) were $117,000 for the three month period ended
June 30, 1996, compared to $120,000 for the same period in 1995. Operating
expenses year to date were $245,000 compared to $244,000 for the same period in
1995.
As a result of the foregoing, the Corporation reported a net loss of ($53,000)
for the three month period ended June 30, 1996 compared to a net loss of
($46,000) for the same period in 1995.
The loss per share available for common stockholders was ($.09) for the three
month period ended June 30, 1996 after the deduction of preferred dividends of
$677,000. The loss per share available for common stockholders was ($.09) for
the three month period ended June 30, 1995 after the deduction of preferred
dividends of $677,000. No preferred or common dividends have been paid since the
second quarter of 1991 and the Corporation does not expect to pay dividends in
the foreseeable future. Further, the Corporation is prohibited from paying
dividends on the Common Stock until the aggregate deficiency on the preferred
stock dividends is paid in full. Total loss per share year to date, as well as
for the same period in 1995, was ($.18).
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On September 16, 1992, the Corporation and the Bank ("Plaintiffs")
instituted a suit against the United States ("Defendant") in the U.S. Court of
Federal Claims. In connection with certain government-assisted acquisitions by
Plaintiffs in the 1980's, the Defendant (through its agencies the Federal Home
Loan Bank Board ("FHLBB") and the Federal Savings and Loan Insurance
Corporation) in exchange for the Bank's purchasing certain assets and assuming
certain liabilities of Defendant, agreed among other things to provide
Plaintiffs with certain valuable capital credits and authorized Plaintiffs to
treat those credit as regulatory capital. The Defendant authorized Plaintiffs to
amortize such capital credits along with the goodwill created by such
acquisitions over a period of 25 to 30 years.
Following the passage of the Financial Institutions Reform, Recovery, and
Enforcement Act in August, 1989, the Office of Thrift Supervision (successor in
interest to the FHLBB) required the Bank to discontinue treating these capital
credits as part of regulatory capital and caused the Bank to write off
immediately approximately $80 million of such capital credits and approximately
$10 million of such goodwill. In this suit Plaintiffs allege breach of contract
by the United States, resulting in substantial injury to Plaintiffs, effecting a
taking of Plaintiffs' property without just compensation, and unjustly enriching
the Defendant at the expense of Plaintiffs. Plaintiffs seek compensation for the
damages caused by the breach, just compensation for the property taken, and
disgorgement of the amounts by which the Defendant has been unjustly enriched.
The Defendant has filed a counterclaim against the Corporation for alleged
breach of the Corporation's net worth maintenance agreement. The Corporation has
filed an answer denying such counterclaim.
The case is one of several similar cased pending before the U.S. Court of
Federal Claims. The case as to the Corporation was stayed pending the outcome of
certain other suits. On July 1, 1996, the U.S. Supreme Court held that the
Defendant was liable to certain other plaintiff thrift holding companies in
cases arising out of similar sets of facts (the WINSTAR litigation.) The
Corporation must now prove that its facts are similar enough to the facts in
WINSTAR to fall within the WINSTAR holding, and if successful, must then prove
its damages.
The impact of the Bank Closing on the Plaintiffs' claims is unclear since
the amended complaint filed by the Corporation on September 28, 1995 named only
the Corporation as a plaintiff. An agency of the Defendant now acts as receiver
for the Bank and has filed a motion for leave to intervene in the litigation on
behalf of the Bank. No prediction as to the outcome of this case can be made at
this time.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Corporation discontinued dividends to holders of its Cumulative
Voting Convertible Preferred Stock, Series B (the "preferred Stock"), during
1991 and does not expect to pay any dividends on such stock for the foreseeable
future. As a result of the failure to pay dividends on the Preferred Stock for
more than four quarters, the holders of the Preferred Stock collectively are
entitled to elect a number of directors of the Corporation constituting twenty
percent (20%) of the total number of directors of the Corporation at the next
meeting of stockholders at which directors are to be elected. Until the
aggregate deficiency is declared and fully paid on the Preferred Stock, the
Corporation may not declare any dividends or make any other distributions on or
redeem the Common Stock. The total amount of the arrearage as of June 30, 1996
was $11,934,820.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD STONE CORPORATION
Date: August , 1996 /s/Geraldine Nelson
_________________________
Geraldine Nelson
President and Treasurer
(Chief Executive and Chief
Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000074273
<NAME> None
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> APR-1-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 0
<CASH> 38,000
<RECEIVABLES> 7,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 544,000
<PP&E> 11,000
<TOTAL-ASSETS> 740,000
<SHORT-TERM> 0
<PAYABLES> 1,167,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
20,005,000
0
<COMMON> 8,300,000
<OTHER-SE> (28,732,000)
<TOTAL-LIABILITY-AND-EQUITY> 740,000
<TRADING-REVENUE> 27,000
<INTEREST-DIVIDENDS> 12,000
<COMMISSIONS> 81,000
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 85,000
<INCOME-PRETAX> (124,000)
<INCOME-PRE-EXTRAORDINARY> (124,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
