UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1995
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 0-15105
SCOTT & STRINGFELLOW FINANCIAL, INC.
(Exact name of Registrant as specified in its charter)
Virginia 54-1315256
State or other jurisdiction of I.R.S. Employer Identification No.
Incorporation or Organization
909 East Main Street Richmond, Virginia 23219
(Address of principal executive offices) (zip code)
(804) 643-1811
(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 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 ....
On September 10, 1995, there were 2,123,552 shares of Scott & Stringfellow
Financial, Inc. Common stock, par value $.10, issued and outstanding.
SCOTT & STRINGFELLOW FINANCIAL, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 29, 1995 (unaudited) and June 30, 1995 3
Consolidated Statements of Income (unaudited) -
Three months ended September 29, 1995
and September 30, 1994 4
Consolidated Statements of Cash Flows (unaudited) -
Three months ended September 29, 1995
and September 30, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
EXHIBITS
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCOTT & STRINGFELLOW FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 29, June 30,
1995 1995
ASSETS
Cash and cash equivalents $ 5,276,625 $ 3,761,381
Cash segregated under Federal regulations 3,819 5,803
Receivable from brokers, dealers and
clearing organizations 3,711,788 2,325,615
Receivable from customers 69,188,836 64,968,861
Trading and investment securities,
at market value 11,847,309 13,366,267
Exchange memberships, at adjusted cost 838,100 838,100
Equipment and leasehold improvements,
less depreciation and amortization 2,135,596 2,162,680
Deferred income taxes 379,429 325,429
Other assets 6,717,402 5,511,907
Total Assets $ 100,098,904 $ 93,266,043
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Drafts payable $ 2,446,014 $ 1,425,385
Short term bank loans 5,100,000 6,600,000
Payable to brokers, dealers and clearing
organizations 865,837 892,994
Payable to customers 54,314,573 50,782,579
Securities sold, but not yet purchased,
at market value 706,083 570,788
Accounts payable, accrued compensation
and other liabilities 10,230,259 7,756,451
Total Liabilities 73,662,766 68,028,197
Stockholders' Equity
Common stock, $0.10 par value; Authorized
10,000,000 shares; Issued and outstanding
2,123,624 and 2,107,620 shares 212,362 210,762
Additional paid-in capital 10,153,326 9,964,773
Retained earnings 16,070,450 15,062,311
Total Stockholders' Equity 26,436,138 25,237,846
Total Liabilities and Stockholders' Equity $ 100,098,904 $ 93,266,043
See accompanying notes to consolidated financial statements.
SCOTT & STRINGFELLOW FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended September 29, 1995 and September 30, 1994
(Unaudited)
September 29, September 30,
1995 1994
REVENUES
Commissions $ 9,461,983 $ 6,520,830
Principal transactions 2,610,248 2,856,147
Investment banking 2,998,486 1,372,445
Interest and dividends 1,602,005 1,301,710
Advisory and administrative service fees 911,094 644,806
Other 70,578 71,811
Total Revenues 17,654,394 12,767,749
EXPENSES
Employee Compensation and benefits 11,261,163 8,120,442
Communications 792,303 740,068
Occupancy and equipment 741,733 552,349
Advertising and sales promotion 356,535 344,663
Postage, stationery and supplies 488,084 404,869
Brokerage, clearing and exchange fees 312,961 240,460
Data processing 259,384 216,276
Interest 558,041 359,805
Other operating expenses 977,969 863,354
Total Expenses 15,748,893 11,842,286
Income before income taxes 1,905,501 925,463
Income taxes 685,000 336,000
NET INCOME $ 1,220,501 $ 589,463
Earnings per share $0.57 $0.28
Dividends declared per share $0.10 $0.10
Weighted average common shares and
common stock equivalents outstanding 2,124,061 2,099,119
See notes to consolidated financial statements.
SCOTT & STRINGFELLOW FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 29, 1995 and September 30, 1994
(Unaudited)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,220,501 $ 589,463
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 185,808 155,246
Deferred income taxes -54,000 99,000
Changes in assets and liabilities:
Cash segregated under Federal regulations 1,984 8,118
Receivable from brokers, dealers and
clearing organizations -1,386,173 136,877
Receivable from customers -4,219,975 -945,003
Trading securities 1,584,057 -2,921,031
Other assets -1,119,418 -172,724
Payable to brokers, dealers and
clearing organizations -27,157 602,651
Payable to customers 3,531,994 5,322,718
Securities sold, but not yet purchased 135,295 -257,354
Accounts payable, accrued compensation
and other liabilities 2,472,209 -1,082,338
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIE 2,325,125 1,535,623
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in drafts payable 1,020,629 -6,583,783
Net change in short term bank loans -1,500,000 4,800,000
Net change in securities sold
under agreements to repurchase 0 -21,250
Cash dividends paid -210,762 -193,019
Purchase and retirement of common stock 0 -323,043
Issuance of common stock 190,153 136,841
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES -499,980 -2,184,254
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of not readily
marketable securities 29,166 36,421
Purchases of not readily marketable securities -94,265 -9,625
Proceeds from disposition of investment real estate 0 804,638
Proceeds from disposition of equipment 0 2,170
Purchases of equipment and leasehold improvements -165,130 -157,055
Repayment of loans receivable 46,532 196,259
Increase in loans receivable -126,204 -380,000
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES -309,901 492,808
Net increase (decrease) in cash and cash equivalents 1,515,244 -155,823
Cash and cash equivalents at beginning of period 3,761,381 2,410,867
Cash and cash equivalents at end of period $ 5,276,625 $ 2,255,044
Cash paid during the period for interest $ 574,310 $ 372,061
Cash paid during the period for income taxes 388,481 170,234
See notes to consolidated financial statements.
SCOTT & STRINGFELLOW FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 29,1995
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Scott & Stringfellow Financial, Inc. and its subsidiaries (collectively the
"Company"), Scott & Stringfellow, Inc. ("S&S"), Scott & Stringfellow Capital
Management, Inc. ("SSCM"), and Scott & Stringfellow Realty, Inc. S&S, the
Company's principal subsidiary, is a broker-dealer registered under the
Securities Exchange Act of 1934. SSCM is an investment advisor registered
under the Investment Advisors Act of 1940.
These interim consolidated financial statements are unaudited; however, such
information reflects all normal recurring adjustments which, in the opinion
of management, are necessary for a fair presentation of the results for the
period in accordance with generally accepted accounting principles. The
nature of the Company's business is such that the results of any interim
period are not necessarily indicative of the results which might be expected
for the full fiscal year. The notes included herein should be read in
conjunction with the notes to the consolidated financial statements included
in the Company's annual audited report for the fiscal year ended June 30,
1995.
2. NET CAPITAL REQUIREMENTS
As a registered broker-dealer and a member of the New York Stock Exchange
("NYSE"), the Company's wholly-owned subsidiary, S&S, is subject to the
Securities and Exchange Commission's Uniform Net Capital Rule (Rule 15c3-1).
S&S has elected to utilize the alternative method of the Rule, which
prohibits a broker-dealer from engaging in any transactions which would
cause its "net capital" to be less than 2% of its "aggregate debit balances"
arising from customer transactions, as those terms are defined in the Rule.
The NYSE may also impose restrictions on S&S's business if its net capital
falls below 5% of aggregate debit balances. At September 29, 1995, S&S's
net capital of $16,684,701 was 23% of its aggregate debit balances and was
$15,240,375 in excess of its minimum regulatory requirement.
3. COMMON STOCK
During the quarter ended September 29, 1995, the Company issued 1,800 shares
of common stock pursuant to the exercise of employee stock options for net
proceeds of $17,626. The Company also issued 14,204 shares of common stock
to the Employee Stock Purchase Plan for net proceeds of $169,014. The
Company repurchases its common shares in the open market under a plan
approved by the Board of Directors. During the quarter, there were no
repurchases of shares under the Company's stock repurchase program. The
Company had remaining authority to repurchase 114,800 shares at September
29, 1995. All per share items for the comparative prior period have been
adjusted to reflect the effect of a 6:5 stock split which was distributed
as a 20% stock dividend to shareholders on August 26, 1994.
4. LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time named as defendants
in legal actions incidental to its securities brokerage and investment
banking activities. Management believes that all pending claims and
lawsuits of which it has knowledge will be resolved with no material adverse
effect on the overall financial condition of the Company, although the
resolution of such matters might have a material adverse impact on the
operating results for any given quarterly accounting period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's primary subsidiary, S&S, conducts a full-service, securities
brokerage and investment banking business through 27 branch offices located in
Virginia, North Carolina and West Virginia. Its primary business is retail
securities brokerage with an emphasis on equity securities, municipal bonds and
mutual funds. Other significant activities and services include institutional
securities brokerage, management of and participation in the underwriting of
corporate and municipal securities, investment management services through
SSCM, corporate and municipal financial advisory services, trading of fixed
income and equity securities, primary investment research and money market cash
management services. As of September 29, 1995, the Company employed 481 people
including 213 employees with full-time Investment Broker responsibilities.
The Company's profitability, to a large degree, is sensitive to the volume of
trading in securities and the volatility and general level of securities'
market prices. Approximately 79% of the Company's total revenue is generated
by commissions and sales credits, or mark-ups, on securities transactions.
Many of the Company's activities have high operating costs which do not
decrease proportionately with reduced levels of activity and may even increase
during such periods. Moreover, many of these operating costs may increase at
a proportionately greater rate than revenues during periods of increased
activity. While the Company attempts to build non-sales revenue and places
emphasis on control of fixed costs, its profitability is adversely affected by
sustained periods of reduced transaction volume or loss of brokerage clients.
The Company's profitability is also adversely affected when it is unable to
compensate for increases in fixed costs through the pricing of its services.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 29, 1995
The Company reported record results for the first quarter of its 1996 fiscal
year. Net income was $1,220,501, or $0.57 per share, up 107% compared to
$589,463, or $0.28 per share, in the same period last year.
Total revenues for the quarter were a record $17,654,394, an increase of 38%
from $12,767,749 reported for the first quarter of fiscal 1995. The increase
in total revenues was primarily attributable to an increase in investment
banking revenues of $1,626,041, or 119%, and an increase in commissions
revenues from agency transactions of $2,941,953, or 45%. These revenue
increases were driven by the prevailing strong equity market and the completion
of two managed common stock offerings in the period. Other than the fixed
income area, all of the Company's business units saw increased revenues
compared to the first quarter of last year. Revenue from advisory and
administrative service fees also increased sharply, from $644,806 to $911,094,
as a result of growth in the Company's money market product area, asset
management business, and the recent implementation of an enhanced postage and
handling charge.
Total expenses increased by 33% to $15,748,893 from $11,842,286 in the year-
earlier period. This increase was primarily attributable to a 39% increase in
employee compensation and benefits, the Company's largest expense item, as a
result of increased commissions expense and other forms of variable
compensation associated with the higher overall levels of revenue and
profitability. Certain categories of other operating expenses also increased
significantly from the year-earlier quarter. Notably, occupancy and equipment
increased by 34%, or $189,384, due primarily to higher rent expense associated
with the Company's ongoing renovation of its Richmond headquarters building.
Brokerage, clearing and exchange fees increased by 30% as a result of increased
transaction volumes. Overall, non-compensation, non-interest expenses
increased by 17%.
Interest and dividend revenues increased by 23% to $1,602,005, reflecting a 20%
increase in interest revenue from customers as the Company's margin lending
business continues to expand. Average customer receivable balances were
approximately 12% higher during the quarter ended September 29, 1995 than
during the comparable period one year ago. Interest expense increased by 55%
from $359,805 to $558,041, primarily reflecting higher average borrowing levels
used to finance the higher customer receivable balances. Overall, interest and
dividend income, net of interest expense, increased by $102,059, or 11%, from
1994.
LIQUIDITY AND CAPITAL RESOURCES
As set forth in the Consolidated Statement of Cash Flows contained in this
report, the Company's primary sources of cash flow are the net cash provided
from the earnings of the Company and from increases in the amounts payable to
customers and other short-term indebtedness incurred in the normal course of
the Company's securities brokerage business.
For the three month period ended September 29, 1995, net cash from operations
before changes in operating assets and liabilities was $1,352,309. Cash flow
from operations was also provided by an increase of $3,531,994 in amounts
payable to customers, representing a 7% increase in credit balances in customer
brokerage accounts. The largest use of cash in operating activities was an
increase of $4,219,875 in customer receivables reflecting a 6% increase in this
balance from the beginning to the end of the quarter. After the net change in
all other operating asset and liability accounts, net cash provided by
operating activities was $2,325,125. Because of the nature of the Company's
business, the changes in operating asset and liability account balances
relative to net income for any particular accounting period can be quite large
and somewhat arbitrary and therefore not very useful indicators of long-term
trends in the Company's liquidity and capital resources.
Net cash flow of $499,980 was used by financing activities, principally
including a net repayment of short term bank borrowings of $1,500,000,
partially offset by a net increase in drafts payable of $1,020,629. Common
stock transactions used net cash of $20,609 as new issuances of stock partially
offset cash dividends paid. Investing activities during the period used net
cash of $309,901, which included $165,130 in purchases of equipment and
leasehold improvements. Over the three month period, the Company's overall net
cash position improved by $1,515,244.
At September 29, 1995, approximately 90% of the Company's assets were liquid,
consisting mainly of cash or assets readily convertible into cash. The
Company's largest asset is its receivable from customers, representing
borrowings from the Company by customers to finance the purchase of securities
on margin. Such receivables from customers are substantially financed by
customer credit balances (excess funds kept by customers with the Company),
short-term bank borrowings and equity capital. The Company utilizes short-term
bank borrowings under established lines of credit with several banking
institutions. A total of $58,000,000 in approved lines of credit was available
to the Company at September 29, 1995, of which $5,100,000 was outstanding. The
Company had no other debt obligations outstanding at that date.
The Company is subject to the net capital requirements of the Securities and
Exchange Commission ("SEC") and the New York Stock Exchange which are designed
to measure the general financial soundness and liquidity of broker-dealers.
The Company has consistently operated well in excess of the minimum
requirements. At September 29, 1995, the Company's net capital of $16,684,701
exceeded the minimum requirement by $15,240,375. Net capital was comprised
entirely of stockholders' equity less certain regulatory adjustments.
Management believes that funds provided by earnings combined with its existing
liquid capital base and its present lines of credit, are fully adequate to meet
the Company's financing needs for the foreseeable future.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None Reportable
Item 2. Changes in Securities - None Reportable
Item 3. Defaults upon Senior Securities - None Reportable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Scott & Stringfellow Financial, Inc.
was held in Richmond, Virginia on October 17, 1995.
Four persons were nominated and elected to the Company's Board of Directors.
Robert L. Hintz was elected to a three year term with 1,918,599 share votes
for and 2,982 share votes withheld. John Sherman, Jr., was elected to a
three year term with 1,918,599 share votes for and 2,982 share votes
withheld. David Plageman was elected to a three year term with 1,918,479
share votes for and 3,102 share votes withheld. William P. Schubmehl was
elected to a three year term with 1,918,479 share votes for and 3,102 share
votes withheld. Steven C. DeLaney was elected to a two year term with
1,918,479 share votes for and 3,102 share votes withheld. One person,
Carroll D. Moore, was nominated for Director from the floor and was not
elected with 1,921,581 share votes against and 16 share votes for.
A motion, solicited by proxy, was approved to increase by 150,000 shares the
total number of shares authorized for issuance and purchase under the
Company's Employee Stock Purchase Plan with 1,676,033 share votes for,
26,501 share votes against, and 2,480 share votes abstaining.
A motion, solicited by proxy, was approved to ratify the selection of KPMG
Peat Marwick LLP as independent certified public accountants for the fiscal
year ending June 28, 1996 with 1,916,992 share votes for, 1,438 share votes
against, and 3,031 share votes abstaining.
A motion from the floor to recall R. Gordon Smith from the Board of
Directors was not approved with 1,921,581 share votes against and 16 share
votes for.
A motion from the floor requesting that certain records be made available to
a shareholder was not approved with 1,921,581 share votes against and 16
share votes for.
Item 5. Other Information - None Reportable
Item 6: Exhibits and Reports on 8-K
(a) Exhibits
Exhibit 11 - Statement Re: Computation of Per Share Earnings - See
Separate Document
Financial Data Schedule BD - See Separate Document
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
September 29, 1995.
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.
SCOTT & STRINGFELLOW FINANCIAL, INC.
(Registrant)
Signatures Date
/S/ William P. Schubmehl November 13, 1995
- ------------------------------
William P. Schubmehl
President and Chief Executive Officer
(Principal Executive Officer)
/S/ Steven C. DeLaney November 13, 1995
- ------------------------------
Steven C. DeLaney
First Vice President and Chief Financial Officer
(Principal Financial Officer)<PAGE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
For the Three Months Ended September 29, 1995 September 30, 1994
Primary Fully Diluted Primary Fully Diluted
Weighted average shares
outstanding:
Common shares 2,109,345 2,109,345 2,090,583 2,090,583
Dilutive shares
available under
stock options 14,716 16,607 8,536 8,565
Weighted average common
shares and common
stock equivalents
outstanding 2,124,061 2,125,95 2,099,119 2,099,148
Net earnings applicable
to common shares $1,220,501 $1,220,50 $589,463 $589,463
Earnings per share $0.57 $0.57 $0.28 $0.28
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> BD
<RESTATED>
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-28-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> SEP-29-1995
<CASH> 5,280,444
<RECEIVABLES> 69,696,424
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 3,204,200
<INSTRUMENTS-OWNED> 11,847,309
<PP&E> 2,135,596
<TOTAL-ASSETS> 100,098,904
<SHORT-TERM> 5,100,000
<PAYABLES> 67,774,783
<REPOS-SOLD> 0
<SECURITIES-LOANED> 81,900
<INSTRUMENTS-SOLD> 706,083
<LONG-TERM> 0
<COMMON> 212,362
0
0
<OTHER-SE> 26,223,776
<TOTAL-LIABILITY-AND-EQUITY> 100,098,904
<TRADING-REVENUE> 2,610,248
<INTEREST-DIVIDENDS> 1,602,005
<COMMISSIONS> 9,461,983
<INVESTMENT-BANKING-REVENUES> 2,998,486
<FEE-REVENUE> 911,094
<INTEREST-EXPENSE> 558,041
<COMPENSATION> 11,261,163
<INCOME-PRETAX> 1,905,501
<INCOME-PRE-EXTRAORDINARY> 1,220,501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,220,501
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
