FORM 10-Q
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, 1999
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 0-8016
OLD STONE CORPORATION
(Exact name of registrant as specified in its charter)
Rhode Island 05-0341273
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
957 Warren Avenue
East Providence, Rhode Island 02914
(Address of Principal Executive Offices) Zip Code
(401) 434-4632
(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, $1.00 par
value, as of June 30, 1999; 8,297,046.238
<PAGE>
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets - 1
June 30, 1999 and December 31, 1998
Consolidated Statements of Operations - For the Three and Six 2
Months Ended June 30, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity 3
(Deficit) - For the Six Months Ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows - For the Six Months Ended 4
June 30, 1999 and 1998
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
PART II - OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 3. Defaults Upon Senior Securities 10
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS
($ In Thousands)
June 30, December 31,
1999 1998
Unaudited
ASSETS
<S> <C> <C>
Cash $ 3 $ 4
Short-term investments 107 105
Loans (net of reserve for loan losses of $29 in
1999 and in 1998) 29 30
Other assets 268 276
---------- ----------
TOTAL ASSETS $ 407 $ 415
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Other Liabilities $ 1,386 $ 1,344
--------- ---------
TOTAL LIABILITIES 1,386 1,344
REDEEMABLE PREFERRED STOCK
Preferred stock, series B, $1.00 par value;
1,046,914 shares authorized, issued and
outstanding (Liquidation value $20,938) 20,592 20,496
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $1.00 par value; 25,000,000 shares
authorized; 8,300,175 shares issued in 1999
and 1998 8,300 8,300
Additional paid-in capital 91,393 91,489
Surplus 30,000 30,000
Accumulated deficit ( 150,121) ( 150,071)
Treasury stock, at cost; 54,000 shares in 1999
and 1998 ( 1,143) ( 1,143)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 21,571) ( 21,425)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 407 $ 415
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ In Thousands except for per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
INCOME:
<S> <C> <C> <C> <C>
Interest income $ 4 $ 5 $ 7 $ 8
Other income 98 42 184 93
-------- -------- ---------- -------
TOTAL INCOME 102 47 191 101
-------- -------- ---------- -------
EXPENSES:
Salaries and employee benefits 42 42 80 80
Net occupancy expense 3 2 5 5
Equipment expense, including depreciation 2 2 3 3
Other expenses 91 66 153 107
-------- -------- ---------- --------
TOTAL EXPENSES 138 112 241 195
-------- -------- ---------- --------
(Loss) from continuing operations
before income taxes ( 36) ( 65) ( 50) ( 94)
Income taxes -0- -0- -0- -0-
-------- ---------- --------- ---------
NET (LOSS) ($ 36) ($ 65) ($ 50) ($ 94)
======== ========== ========= =========
NET (LOSS) AVAILABLE FOR
COMMON STOCKHOLDERS ($ 713) ($ 742) ($ 1,404) ($ 1,448)
(LOSS) PER SHARE ($ .09) ($ .09) ($ .17) ($ .17)
======== ========== ========= =========
AVERAGE SHARES OUTSTANDING 8,297,046 8,297,046 8,297,046 8,297,046
======== ========== ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Six Months Ended June 30, 1999 and 1998
($ in Thousands)
(Unaudited)
Additional
Common Paid-In Accumulated Treasury
Stock Capital Surplus (Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997 $ 8,300 $ 91,685 $ 30,000 ($149,958) ($1,143) ($ 21,116)
Net (loss) ( 94) ( 94)
Accretion of discount on
preferred stock, series B _______ ( 96) ________ _________ _______ ( 96)
------- -------- -------- --------- ------- ----------
June 30, 1998 $ 8,300 $ 91,589 $ 30,000 ($150,052) ($1,143) ($ 21,306)
======= ======== ======== ========= ======= ==========
December 31, 1998 $ 8,300 $ 91,489 $ 30,000 ($150,071) ($1,143) ($ 21,425)
Net (loss) ( 50) ( 50)
Accretion of discount on
preferred stock, series B _______ ( 96) ________ _________ _______ ( 96)
------- -------- -------- --------- ------- ---------
June 30, 1999 $ 8,300 $ 91,393 $ 30,000 ($150,121) ($1,143) ($ 21,571)
======= ======== ======== ========= ======= ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1999 and 1998
($ In Thousands)
(Unaudited)
1999 1998
---- ----
Operating activities:
<S> <C> <C>
Net (loss) ($ 50) ($ 94)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Other, net ( 50) ( 44)
--------- ---------
Net cash provided (used) by operating activities -0- ( 138)
Investing activities:
Net (increase) decrease in investments ( 2) 121
Net (increase) decrease in loans 1 ( 1)
---------- ---------
Net cash provided (used) by investing activities ( 1) 120
(Decrease) in cash ( 1) ( 18)
Cash at beginning of period 4 27
---------- ---------
Cash at end of period $ 3 $ 9
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
OLD STONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1999 and 1998
(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
deemed critically undercapitalized by the regulators. The OTS created a new
institution, Old Stone Federal Savings Bank ("Old Stone Federal") to assume all
deposits and other liabilities and to purchase certain assets of Old Stone. The
Resolution Trust Corporation (the "RTC") was appointed Receiver to handle all
matters related to Old Stone and was appointed 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, 1999 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, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. 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, 1998. All material
intercompany transactions and balances have been eliminated. Certain previously
reported amounts have been restated to conform with the current presentation.
<PAGE>
<TABLE>
<CAPTION>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1999 and 1998
($ 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):
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
PRIMARY (LOSS):
<S> <C> <C> <C> <C>
Net (loss) ($ 36) ($ 65) ($ 50) ($ 94)
Deduct accretion of discount on
series B preferred stock and
preferred dividends 677 677 1,354 1,354
--------- ---------- ---------- ----------
Net (loss) applicable to common stock ($ 713) ($ 742) ($ 1,404) ($ 1,448)
========= ========== ========== ==========
ALLOCATION OF PRIMARY (LOSS):
(Loss) from continued operations ($ 36) ($ 65) ($ 50) ($ 94)
Deduct accretion of discount on
series B preferred stock
and preferred dividends 677 677 1,354 1,354
--------- ---------- ------ ----------
TOTAL NET (LOSS) ($ 713) ($ 742) ($ 1,404) ($ 1,448)
======== ========== ========== ==========
Average shares outstanding 8,297,046 8,297,046 8,297,046 8,297,046
========= ========= ======-=== ==========
PRIMARY (LOSS) PER
COMMON SHARE ($ .09) ($ .09) ($ .17) ($ .17)
========= ========= ========== ==========
</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, 1999, cumulative preferred
dividends of $19,472,600 ($18.60 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' income before taxes was $19,517 for the six month period
ended June 30, 1999, compared to a loss of $12,931 for the six month period
ended June 30, 1998.
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, 1999, the Corporation had $.4 million in assets, $1.4 million in
total liabilities, $20.6 million in redeemable preferred stock, and a
stockholders' deficit of ($21.6) million, compared to $.4 million in assets,
$1.3 million in total liabilities, $20.5 million in redeemable preferred stock
and stockholders' deficit of ($21.4) million at December 31, 1998.
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 increased $55,000 for the three month period ended June 30, 1999 as
compared to the same period in 1998. This increase was primarily attributable to
an increase in other income of $56,000 in the 1999 period over the comparable
period in 1998. Total income year to date increased by $90,000 as compared to
the same period in 1998. The increase was primarily attributable to an increase
in other income of $91,000 in the 1999 period over the comparable period in
1998.
Interest income was $4,000 and $5,000 respectively, for the three month periods
ended June 30, 1999 and 1998. Other income was $98,000 for the three month
period ended June 30, 1999, compared to $42,000 for the three month period ended
June 30, 1998.
Total expenses increased $26,000 for the three month period ended June 30, 1999
as compared to the three month period ended June 30, 1998. The increase was
attributable to an increase in other expenses of $25,000 of which were primarily
legal and professional expenses, over the comparable period in 1998.
Total expenses year to date increased $46,000 as compared to the same period in
1998, of which were primarily attributable to legal and professional fees.
The Corporation's primary operating expenses have been legal and accounting
expenses as well as the operating expenses of Old Stone Securities Company.
Operating expenses (including salaries and benefits) were $138,000 for the three
month period ended June 30, 1999, compared to $112,000 for the same period in
1998. Operating expenses year to date were $241,000 compared to $195,000 for the
same period in 1998.
As a result of the foregoing, the Corporation reported net loss of ($36,000) for
the three month period ended June 30, 1999, compared to ($65,000) for the same
period in 1998.
The loss per share available for common stockholders was ($.09) for the three
month period ended June 30, 1999 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, 1998 after the deduction of preferred
dividends of $677,000. No preferred or common dividends have been paid since the
second quarter of 1991 and the Corporation does not expect to pay dividends in
the foreseeable future. Further, the Corporation is prohibited from paying
dividends on the Common Stock until the aggregate deficiency on the preferred
stock dividends is paid in full. Total loss per share year to date, was ($.17)
as compared to ($.17) for the same period in 1998.
<PAGE>
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
("FSLIC")) in exchange for the Bank's purchasing certain assets and assuming
certain liabilities of two FSLIC-insured thrift institutions supervised by the
FHLBB, agreed among other things to provide Plaintiffs with certain valuable
capital credits and authorized Plaintiffs to treat those credits and supervisory
goodwill as regulatory capital to be amortized over a period of 25 to 30 years
on the Bank's regulatory financial statements. Furthermore, the Corporation
entered into a Net Worth Maintenance Stipulation in which it agreed to maintain
the net worth of the Bank at agreed upon regulatory levels, which included the
capital credits and supervisory goodwill in the calculation thereof.
Following the passage of the Financial Institutions Reform, Recovery, and
Enforcement Act in August, 1989, the OTS (successor in interest to the FHLBB)
required the Bank to discontinue treating these capital credits and supervisory
goodwill as part of regulatory capital and caused the Bank to write off
immediately approximately $80 million of such capital credits and supervisory
goodwill. Based upon this breach, 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.
Following the Bank Closing, the Bank's claims and the claims of the Corporation
were split into two separate actions. The Corporation's claims are separate and
distinct from the claims of the Bank. An agency of the Defendant serves as
Receiver for the Bank and is maintaining the Bank's claims against the
Defendant.
On February 27, 1998, the Corporation filed a motion for summary judgment which
the Defendant is opposing. The Court has not ruled on this motion. The
Corporation and the Defendant are currently involved in discovery proceedings
which are expected to be completed on or before August 31, 1999.
There are several similar cases pending before the U.S. Court of Federal Claims.
The Corporation's case is dependent, in part, upon the outcome of cases which
are currently being, or will soon be, litigated on damages. No prediction as to
the timing or the outcome of the Corporation's case can be made at this time.
<PAGE>
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, 1999 was
$19,472,600.
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 13, 1999 /s/Geraldine Nelson
---------------------------------------
Geraldine Nelson
President and Treasurer
(Chief Executive and Chief Accounting
Officer)
