<PAGE> 1
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 1-13940
--------------------------------------------------------
EVEREN CAPITAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-4019175
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 West Wacker Drive
Chicago, Illinois 60601
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 574-6000
----------------------
Indicate by checkmark 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 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
----- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Shares outstanding as of
October 30, 1996:
$.01 par value common stock - 16,549,842
<PAGE> 2
INDEX
-----
Page
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition -
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations - Three and nine
months ended September 30, 1996 and 1995 4
Consolidated Statement of Changes in Stockholders' Equity -
Nine months ended September 30, 1996 5
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis -
Results of Operations
Liquidity and Capital Resources 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 31
EXHIBIT INDEX 32
</TABLE>
2
<PAGE> 3
PART 1. Financial Information
Item 1. Financial Statements
EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Cash and cash equivalents $18,037 $14,585
Cash and securities segregated under
federal and other regulations 16,237 15,556
Receivables from:
Customers 756,679 648,659
Brokers and dealers 81,883 145,762
Others 55,074 51,496
Securities owned, at market 143,616 141,256
Securities purchased under agreements to resell 609,087 1,308,495
Investment in mortgage-backed certificates
available-for-sale, at fair value 146,225 156,457
Fixed assets, at cost, net 34,594 49,403
Other assets 22,104 18,958
------------- ------------
$1,883,536 $2,550,627
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Bank loans payable $191,000 $297,800
Payables to:
Customers 190,912 223,757
Brokers and dealers 291,804 78,410
Collateralized mortgage obligations 140,419 143,878
Securities sold, not yet purchased, at market 75,204 91,632
Securities sold under agreements to repurchase 563,093 1,282,788
Deferred income taxes 23,507 26,118
Accounts payable, accrued expenses and
other liabilities 205,779 246,328
------------- ------------
1,681,718 2,390,711
------------- ------------
Exchangeable preferred stock, $.01 par value per share;
10,000,000 shares authorized; 1,244,168 shares
issued and outstanding at December 31, 1995 - 28,343
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value per share; 40,000,000
shares authorized, 12,083,065 and 11,496,970 shares issued
and 11,738,892 and 11,493,731 outstanding at September 30, 1996 and
December 31, 1995, respectively 121 115
Nonvoting common stock, $.01 par value per share;
400,000 shares authorized, 216,150 and 107,400 shares issued and 210,950
and 107,400 outstanding at September 30, 1996 and December 31, 1995,
respectively 2 1
Additional paid-in capital 176,132 449,396
Unrealized gain (loss) on available-for-sale securities, net of
income taxes (4,387) 11,497
Unearned KSOP shares - (22,875)
Unearned restricted stock (1,616) -
Treasury stock, at cost, 349,373 and 3,239 shares at September 30, 1996 and
December 31, 1995, respectively (5,175) (22)
Accumulated deficit - (306,539)
Retained earnings (since January 1, 1996) 36,741 -
------------- ------------
201,818 131,573
------------- ------------
$1,883,536 $2,550,627
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
1996 1995 1996 1995
---------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 50,741 $ 51,188 $ 168,450 $140,712
Principal transactions 26,389 33,670 91,734 91,264
Investment banking 11,677 8,220 38,660 31,573
Asset management 14,776 13,636 42,488 39,425
Other 7,234 11,493 32,442 34,586
Interest and dividends 18,270 20,497 55,739 61,725
-------------- -------------- ------------ ------------
Total revenues 129,087 138,704 429,513 399,285
Interest expense 8,613 12,942 27,070 39,960
-------------- -------------- ------------ ------------
Net revenues 120,474 125,762 402,443 359,325
-------------- -------------- ------------ ------------
Expenses:
Compensation and benefits 75,601 98,378 251,219 252,372
Brokerage and clearance 3,773 3,329 10,621 8,832
Communications 8,883 10,085 28,771 31,454
Occupancy and equipment 9,676 21,687 29,952 43,770
Promotional 4,326 3,568 12,682 10,054
Other 6,640 17,219 26,571 45,472
-------------- -------------- ------------ ------------
Total non-interest expenses 108,899 154,266 359,816 391,954
Gain on sale of subsidiary - - 50,181 -
-------------- -------------- ------------ ------------
Income (loss) before income taxes and extraordinary charge 11,575 (28,504) 92,808 (32,629)
Income tax expense (benefit) 5,165 (9,125) 37,172 (10,538)
-------------- -------------- ------------ ------------
Net income (loss) before extraordinary charge 6,410 (19,379) 55,636 (22,091)
Extraordinary charge on early retirement
of debt, net of income taxes of $1,561 (2,900) - (2,900) -
-------------- -------------- ------------ ------------
Net income (loss) $ 3,510 $ (19,379) $ 52,736 $(22,091)
============== ============== ============ ============
Dividends on exchangeable preferred stock $ - $ 2,130
============== ============
Net income applicable to common stock before
extraordinary charge $ 6,410 $ 53,506
============== ============
Net income applicable to common stock $ 3,510 $50,606
============== ============
Weighted average number of common shares outstanding 12,556,397 10,553,275
============== ============
Per share of common stock:
Net income before extraordinary charge $.51 $5.07
Extraordinary charge on early retirement of debt (.23) (.27)
-------------- ------------
Net income $ .28 $ 4.80
============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Unrealized gain Unearned
Paid-In Unearned (loss) on available- ESOP
Voting Non-voting Capital restricted stock for-sale securities Shares
------ ------------- ---------- ---------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $115 $ 1 $449,396 $ - $11,497 $(22,875)
Quasi-reorganization adjustments
at January 1, 1996:
Restatement of assets and
liabilities to estimated fair
value (3,675)
Transfer of deficit and unrealized
gain at January 1, 1996 to
additional paid-in capital (295,042) (11,497)
Amount received from former
parent under indemnification
agreement 6,626
Release of KSOP shares 8,029 22,875
Issuance of additional non-voting
restricted stock 1 1,515 (1,444)
Issuance of additional common stock 6 7,197 (172)
Dividends on exchangeable
preferred stock
Dividends on common stock
Unrealized gain (loss) on available -
for-sale securities for the period (4,387)
Accretion of exchangeable preferred
stock to redemption value (14)
Permanent tax benefit related to stock
options 2,100
Purchase of treasury stock
Net income
------ ------------- ------------ ------------ -------------- ----------
Balances at September 30, 1996 $121 $ 2 $176,132 $(1,616) $(4,387) $ -
====== ============= ============ ============ ============== ==========
</TABLE>
<TABLE>
<CAPTION>
Retained Total
Treasury Accumulated Earnings Stockholders'
Stock Deficit (since 1/1/96) Equity
------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $ (22) $(306,539) $ - $131,573
Quasi-reorganization adjustments
at January 1, 1996:
Restatement of assets and
liabilities to estimated fair
value (3,675)
Transfer of deficit and unrealized
gain at January 1, 1996 to
additional paid-in capital 306,539 -
Amount received from former
parent under indemnification
agreement 6,626
Release of KSOP shares 30,904
Issuance of additional non-voting
restricted stock 72
Issuance of additional common stock 7,031
Dividends on exchangeable
preferred stock (2,130) (2,130)
Dividends on common stock (13,865) (13,865)
Unrealized gain (loss) on available -
for-sale securities for the period (4,387)
Accretion of exchangeable preferred
stock to redemption value (14)
Permanent tax benefit related to stock
options 2,100
Purchase of treasury stock (5,153) (5,153)
Net income 52,736 52,736
-------- ----------- --------- -------------
Balances at September 30, 1996 $(5,175) $ - $36,741 $201,818
======== =========== ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 52,736 $ (22,091)
Adjustments to reconcile income (loss) to net cash flows
from operating activities:
Extraordinary charge for early retirement of debt 4,461 -
Gain on sale of subsidiary (50,181) -
Release of KSOP shares 8,029 -
Amortization of unearned restricted stock 155 -
Depreciation and amortization 9,759 12,325
Deferred income taxes 4,140 1,000
Change in assets and liabilities:
Cash and securities segregated under federal
and other regulations (681) (1,137)
Receivables from/payables to:
Customers (140,865) 8,702
Brokers and dealers 275,361 (5,886)
Affiliates - 1,434
Others (13,859) (5,318)
Securities owned (2,360) 32,818
Securities purchased under agreements to resell 699,408 (261,433)
Other assets (532) 20,566
Securities sold, not yet purchased (16,428) (15,224)
Securities sold under agreements to repurchase (719,695) 314,184
Accounts payable, accrued expenses,
and other liabilities (40,712) 25,249
--------- ---------
Net cash flows from operating activities 68,736 105,189
--------- ---------
Cash flows from investing activities:
Net proceeds from sale of subsidiary 59,346 -
Purchase of investments in mortgage-backed securities (9,505) (19,836)
Collections of principal on investments in mortgage-
backed securities 12,990 -
Proceeds from sale of fixed assets 2,120 -
Acquisition of fixed assets, net (6,644) (961)
--------- ---------
Net cash flows from investing activities 58,307 (20,797)
--------- ---------
Cash flows from financing activities:
Release of shares related to KSOP loan 22,875 -
Amount collected under indemnification agreement 12,876 -
Proceeds from the issuance of collateralized mortgage obligations 9,422 20,521
Repayment of collateralized mortgage obligations (12,881) -
Decrease in bank loans payable, net (106,800) (100,011)
Proceeds from issuance of common stock 7,031 -
Dividend on exchangeable preferred stock (1,084) -
Dividend on common stock (13,865) -
Retirement of subordinated debt (36,012) -
Purchase of treasury stock (5,153) -
--------- ---------
Net cash flows from financing activities (123,591) (79,490)
--------- ---------
Increase in cash and cash equivalents 3,452 4,902
Cash and cash equivalents at beginning of the period 14,585 10,522
--------- ---------
Cash and cash equivalents at end of period $ 18,037 $ 15,424
========= =========
Supplemental disclosure of cash flow information-
interest paid $ 28,559 $ 33,698
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
(1) GENERAL INFORMATION
-------------------
The consolidated financial statements, prepared in accordance with
generally accepted accounting principles, include the accounts of EVEREN
Capital Corporation and its subsidiaries (the "Company"). The
consolidated financial statements are unaudited. However, in the opinion
of management, such financial statements include all adjustments,
consisting of normal recurring accruals, necessary for the fair
presentation of the accompanying consolidated financial statements.
Certain information and footnotes normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to Securities and Exchange
Commission ("SEC") rules and regulations. Accordingly, these financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1995 Annual Report on Form
10-K.
All material intercompany balances and transactions have been eliminated.
Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. Actual results could differ from
those estimates. The results of operations for interim periods are not
necessarily indicative of results for the entire year.
(2) RECLASSIFICATIONS
-----------------
Certain reclassifications have been made in prior period financial
statements to conform to the current period financial statement
presentation.
(3) NET CAPITAL RULE
----------------
EVEREN Securities, Inc. ("EVEREN Securities") and EVEREN Clearing Corp.
("EVEREN Clearing"), the Company's broker-dealer subsidiaries, are
subject to the Uniform Net Capital Rule of the SEC. Both EVEREN
Securities and EVEREN Clearing operate under the alternative method, as
defined, of computing minimum net capital. At September 30, 1996 EVEREN
Securities had net capital of approximately $121.0 million which was
approximately $120.0 million in excess of its required minimum net
capital. At September 30, 1996 EVEREN Clearing had net capital of
approximately $67.3 million which was approximately $51.4 million in
excess of its required minimum net capital. Such net capital
requirements could restrict the ability of these subsidiaries to make
dividend distributions to their respective parents.
7
<PAGE> 8
EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
(4) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company has been named as a defendant in various legal actions in
connection with its securities and commodities business. Some of these
lawsuits involve claims for substantial amounts. Although the ultimate
outcome of these suits cannot be ascertained at this time, it is the
opinion of management, after consultation with outside counsel, that the
resolution of such suits will not have a material adverse effect on the
consolidated financial position of the Company, but may be material to
the Company's operating results for any particular period, depending upon
the level of the Company's income for such period.
In the normal course of business, the Company enters into various
contractual commitments involving future settlement. These include
futures, forwards, options and securities sold, not yet purchased. These
transactions are executed either over-the-counter or are exchange-traded,
and are used primarily to hedge the Company's securities inventory. Many
of these products have maturities that do not extend beyond one year.
Transactions relating to such commitments which were open at September
30, 1996 and subsequently settled had no material effect on the
consolidated financial position of the Company.
(5) QUASI-REORGANIZATION
--------------------
The Company, with approval from its Board of Directors, implemented a
quasi-reorganization to reflect the emergence of the Company as an
ongoing, independent organization and to enable the Company to present
more accurately the new organization's cumulative performance. The
quasi-reorganization was effective January 1, 1996 and all assets and
liabilities were adjusted to fair value as of that date. This resulted
in a reduction of net assets of $3.7 million. The quasi-reorganization
also resulted in the transfer of the accumulated deficit as of January 1,
1996 of $306.5 million to additional paid-in capital. The balance in
retained earnings at September 30, 1996 represents the accumulated net
earnings available to common stockholders arising subsequent to the date
of the quasi-reorganization.
(6) SALE OF SUBSIDIARY
------------------
On April 30, 1996 the Company completed the sale of BETA Systems, Inc., a
wholly-owned data processing and quote services subsidiary, for $63.5
million. The sale, which resulted in an after-tax gain of approximately
$30.2 million, is included in the Company's results of operations for the
nine months ended September 30, 1996.
8
<PAGE> 9
EVEREN CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
(7) EXCHANGE OF PREFERRED STOCK AND EARLY RETIREMENT OF SUBORDINATED DEBENTURES
---------------------------------------------------------------------------
On June 17, 1996 the Company exchanged all of its outstanding shares of
Exchangeable Preferred Stock for 13.5 percent Junior Subordinated
Debentures due 2007 (the "Debentures").
On July 30, 1996 the Company issued a notice calling all of the outstanding
Debentures for redemption on September 16, 1996 at a price of 112% of
principal, plus accrued interest. This redemption resulted in an
after-tax extraordinary charge of $2.9 million due to the early
extinguishment of debt which is included in the Company's third quarter
results of operations.
(8) DIVIDEND ON COMMON STOCK
------------------------
On July 22, 1996 the Board of Directors authorized the Company to pay a
cash dividend of $1.18 per share of common stock on August 5, 1996 to
holders of record as of July 23, 1996. Subsequently, the KSOP used its
share of the dividend to repay the balance of its loan to the Company,
thereby releasing substantially all remaining unallocated KSOP shares to
employee participant accounts.
(9) SUBSEQUENT EVENT
----------------
On October 8, 1996 the Company completed its initial public offering,
whereby 4.6 million shares of common stock were sold at a price of $18.50
per share. Included in the offering were 600,000 shares sold pursuant to
an underwriting over-allotment option. The initial public offering
resulted in net proceeds of approximately $78 million to the Company which
were used to reduce bank loans payable. The common stock is listed on the
New York Stock Exchange under the symbol EVR.
Supplemental net income per share of common stock after eliminating the
after-tax interest expense related to the Debentures and after giving
effect only to the number of shares of common stock sold in the offering,
the net proceeds of which were used to repay certain bank borrowings
(approximately 2.1 million shares) are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 September 30, 1996
------------------ ------------------
Per share of common stock:
<S> <C> <C>
Net income before
extraordinary charge $.50 $3.86
Extraordinary charge on
early retirement of debt (.20) (.21)
----- -----
Net income $.30 $3.65
===== =====
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto contained in Item 1 of this
quarterly report. In addition to historical information, the following
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
those anticipated in these forward-looking statements as a result of certain
factors including those discussed in "Business Environment."
BUSINESS ENVIRONMENT
The Company's principal business activity, retail broker-dealer
operations, as well as its investment banking, institutional sales, investment
advisory, clearing and other services, are highly competitive and subject to
various risks, volatile trading markets and fluctuations including economic and
securities market conditions, changes in interest rates, competitive conditions
within the industry and regulatory developments. Consequently, the results of
operations for a particular period may not be indicative of results to be
expected for other periods.
Industry market conditions were generally favorable during 1995 and the
first six months of 1996. By mid-1995, interest rates stabilized and began to
trend downward, positively impacting fixed income securities prices and both
the institutional and the retail sectors of the securities industry. In
addition, favorable economic conditions created a stronger retail demand for
equity securities and related products beginning in mid-1995 and continuing
through the first half of 1996. The third quarter of 1996 was dominated by
increased volatility in the equity markets which contributed to higher levels
of investor caution and overall lower trading volume.
COMPANY DEVELOPMENTS
Management believes that until its separation from Kemper Corporation
("Kemper"), ownership uncertainty adversely impacted the Company in a number of
areas, most notably, the Company's ability to recruit and retain qualified
revenue-producing personnel, the productivity of the Company's brokerage
network and the Company's participation in investment banking transactions. As
a result of these ownership uncertainties and increased market volatility,
management implemented a defensive strategy focusing on the retention of its
existing workforce, a resizing of its operations, and general cost containment.
Management believes these factors had the effect of depressing the Company's
performance, despite the generally favorable market conditions during much of
this time period. Upon its separation from Kemper on September 13, 1995, the
ownership uncertainty was resolved. In anticipation of, and in conjunction
with, this separation, the Company incurred several non-recurring charges
during the third quarter of 1995 as discussed below under "--Results of
Operations." Management believes ownership resolution has contributed to a
significant turnaround in the Company's profitability, aided in the retention
and recruiting of quality employees, and enabled the Company to implement
certain strategic initiatives.
10
<PAGE> 11
Effective January 1, 1996, the Company implemented a quasi-reorganization
and revalued its assets and liabilities to fair value as of that date. This
revaluation resulted in a reduction in net assets of $3.7 million. The
quasi-reorganization also resulted in the transfer of the accumulated deficit
as of January 1, 1996 of $306.5 million to additional paid-in capital. Such
revaluation has not had and will not in the future have any significant impact
on the operating results of the Company. The balance in retained earnings at
September 30, 1996 represents the accumulated net earnings available to common
stockholders arising subsequent to the date of the quasi-reorganization. The
quasi-reorganization as of January 1, 1996 was effected in order to reflect the
emergence of the Company as a new organization, signal the end of its
transition from a wholly-owned subsidiary to a fully independent company and
enable the Company to present more accurately the new organization's cumulative
performance.
Consistent with its strategy to focus on core businesses, the Company
completed the sale of BETA Systems, Inc., a wholly-owned data processing and
quote service subsidiary on April 30, 1996, for $63.5 million. The sale, which
resulted in an after-tax gain of approximately $30.2 million, is reflected in
the Company's second quarter results. Based upon an internal financial
analysis, management believes that the loss of BETA's net income will be more
than offset by increased net interest income combined with reduced data
processing and quote services expenses resulting from new five-year operating
agreements executed in connection with the sale.
On June 17, 1996 the Company exchanged all of its outstanding Exchangeable
Preferred Stock for an aggregate $32.2 million principal amount of Debentures.
On July 30, 1996 the Company issued a notice calling all of the outstanding
Debentures for redemption on September 16, 1996 at a price of 112% of principal
or $36.0 million, plus accrued interest. This early redemption was funded
principally through $36.0 million of bank borrowings and resulted in an
extraordinary charge of approximately $2.9 million after-tax in the quarter
ending September 30, 1996.
On July 25, 1996 the Company entered into a joint venture agreement (the
"JVA"), pursuant to which it will acquire an initial 20% ownership interest in
Mentor Investment Group, Inc. ("Mentor"), the asset management subsidiary of
Wheat First Butcher Singer, Inc., for no direct cash consideration. Under the
terms of the JVA, the Company's ownership interest may increase to as much as
50%. This joint venture will be accounted for as an equity investment, and
future operating results will include the Company's proportionate share of the
earnings or losses of Mentor.
On August 5, 1996 the Company paid a cash dividend of $1.18 per share on
its shares outstanding as of July 23, 1996. This dividend allowed the KSOP to
repay the balance of its loan to the Company, incurred in connection with its
separation from Kemper, and allowed the release of substantially all of the
remaining unallocated KSOP shares to employee participant accounts. This
release of unallocated KSOP shares required the recording of compensation
expense of approximately $3.4 million (after-tax) which is included in the
Company's results of operations for the nine months ended September 30, 1996.
As a result of this dividend and the repayment by the KSOP of the loan with
the proceeds thereof, all shares held in the KSOP have been treated as
outstanding in the Company's financial statements at September 30, 1996.
11
<PAGE> 12
On October 8, 1996 the Company completed its initial public offering,
whereby 4.6 million shares of its common stock $.01 par value ("Common Stock")
were sold at a price of $18.50 per share. The initial public offering resulted
in net proceeds of approximately $78 million to the Company, which were used to
reduce bank loans payable. The Common Stock is listed on the New York Stock
Exchange.
EQUITY PARTICIPATION OF EMPLOYEES
Upon the completion of the Company's initial public offering, the
Company's current employees and directors, through the KSOP and otherwise, will
own approximately 75% of the outstanding Common Stock. Management believes
that significant employee ownership fosters a culture that encourages strong
performance and provides employees the opportunity to participate in the future
performance of the Company.
On September 13, 1995 the KSOP purchased 10,437,781 shares of Common
Stock, representing 96.6% of the then outstanding shares of Common Stock, from
Kemper. Kemper agreed to indemnify the Company for the first $20.0 million of
employer contributions (other than 401(k) contributions) to the KSOP. During
the quarter ended September 30, 1996, Kemper paid the remaining amounts due to
the Company pursuant to such agreement. The receipt of such payments is
recorded as additional paid-in capital and is not reflected in the Company's
Statement of Operations.
Immediately following the separation from Kemper, 3,654,685 shares of
Common Stock held in the KSOP, but not yet allocated to the account of any
specific KSOP participant, were reoffered (i.e., KSOP participants were given
an opportunity to allocate a portion of their plan account assets previously
otherwise invested to an investment in such shares) to KSOP participants in an
aggregate amount not to exceed $25.0 million (the "Founders' Offering"). The
price per share in the Founders' Offering of $6.8405 was equal to the price per
share initially paid by the KSOP. Subject to the terms of the Founders'
Offering and the contribution limitations of the Internal Revenue Code of 1986,
as amended (the "Code"), the Company made a contribution to the KSOP in an
amount equal to one-half of the amount invested in Common Stock by each
participant in the Founders' Offering.
Employee response to the Founders' Offering resulted in subscriptions
substantially higher than $25 million. As a result, in December 1995 the
Company, through the KSOP, offered additional shares of Common Stock to those
KSOP participants who participated in the Founders' Offering up to the amount
oversubscribed. An additional $4.6 million of participant assets was allocated
to an investment in an aggregate 670,949 shares of Common Stock through this
offering.
In order to provide additional ownership opportunities to employees, in
the second quarter of 1996, the Company instituted three new employee benefit
plans to provide current and future employees the opportunity to acquire Common
Stock outside of the KSOP. In connection with these plans, the Company
recognizes additional compensation expense equal to the difference
12
<PAGE> 13
between the fair value of the Common Stock issued and the amount of cash
compensation otherwise payable or cash paid under each respective plan. In the
absence of a public market, fair value, as used in all of the equity
participation plans, is based upon periodic valuation analyses prepared by an
independent investment banking firm.
COMPONENTS OF REVENUES AND EXPENSES
Revenues. Commissions include revenue generated by executing listed and
over-the-counter transactions as agent, as well as commissions earned on the
sales of mutual funds, insurance, annuities and certain other products.
Principal transactions consist of gains and losses from the trading of
securities by the Company as principal, including principal sales credits.
Investment banking revenue includes merger and acquisition fees, other advisory
fees and underwriting revenue, which is comprised of underwriting selling
concessions, management fees and underwriting fees. Asset management revenue
primarily includes managed account fees and 12b-1 distribution fees. Other
revenue includes transaction and account fees, correspondent clearing and
execution income and miscellaneous income. Interest income primarily
represents interest earned on customer margin accounts and interest income on
securities owned and investments in mortgage-backed certificates. Net revenues
equal total revenues less interest expense. Interest expense includes interest
paid on bank borrowings, collateralized securities transactions with brokers
and dealers and collateralized mortgage obligations.
Expenses. Compensation and benefits expense include sales, trading and
incentive compensation, which are primarily variable based on revenue
production, and salaries, payroll taxes, and employee benefits, which are
relatively fixed in nature. Brokerage and clearance expense include the cost
of securities clearance, floor brokerage and exchange fees. Communications
expense includes charges for telecommunications, news and market data services,
customer statements and depreciation on data processing and telecommunications
equipment. Occupancy and equipment expense include rent and operating expenses
for the Company's facilities, expenditures for repairs and maintenance, and
depreciation of furniture, fixtures and leasehold improvements. Promotional
expense includes travel, entertainment and advertising. Other expense includes
professional services, litigation expenses, office expenses, dues and
assessments, and other miscellaneous expenses.
13
<PAGE> 14
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
revenues:
<TABLE>
<CAPTION>
Consolidated Statements of Operations Data:
Three months Nine months
ended September 30, ended September 30,
---------------------- --------------------
1996 1995 1996 1995
---- ---- ---- -----
<S> <C> <C> <C> <C>
Revenue:
Commissions 42.1% 40.7% 41.9% 39.2%
Principal transactions 21.9 26.8 22.8 25.4
Investment banking 9.7 6.5 9.6 8.8
Asset management 12.3 10.8 10.6 11.0
Other 6.0 9.1 8.1 9.6
Interest 15.2 16.3 13.8 17.2
----- ----- ----- -----
Total revenues 107.2 110.2 106.8 111.2
Interest expense 7.2 10.2 6.8 11.2
----- ----- ----- -----
Net revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Expenses:
Compensation and benefits 62.8 78.2 62.4 70.2
Brokerage and clearance 3.1 2.6 2.6 2.4
Communications 7.4 8.0 7.2 8.7
Occupancy and equipment 8.0 17.2 7.4 12.2
Promotional 3.6 2.8 3.2 2.8
Other 5.5 13.7 6.6 12.6
----- ----- ----- -----
Total non-interest expenses 90.4 122.5 8.4 108.9
----- ----- ----- -----
Gain on sale of subsidiary - - 12.5 -
----- ----- ----- -----
Income (loss) before income taxes
and extraordinary charge 9.6 (22.5) 23.1 (8.9)
Income tax expense (benefit) 4.3 (7.3) 89.2 (2.9)
----- ------- ----- -----
Net income (loss) before
extraordinary charge 5.3 (15.2) 13.9 (6.0)
Extraordinary charge on early retirement
of debt, net of income taxes (2.4) - (0.7) -
----- ------- ----- -----
Net income (loss) 2.9% (15.2)% 13.2% (6.0)%
====== ======= ===== =====
- -------------------------
</TABLE>
14
<PAGE> 15
Three and Nine Months Ended September 30, 1996 Compared to Three and
Nine Months Ended September 30, 1995
The Company experienced strong operating results for the nine months ended
September 30, 1996 compared to the corresponding period in 1995. Revenues
increased in most of the Company's businesses, expenses as percentages of
revenues declined, and net income (without giving effect to the substantial
gain realized from the sale of BETA) improved significantly. Management
attributes these results to two principal factors. First, favorable conditions
prevailed in the equity markets during the first half of 1996, reflecting
continued investor optimism concerning inflation and interest rate stability.
Second, this period reflects the continued benefits of ownership resolution,
which, in management's opinion, has enhanced employee morale, focus and
productivity, and has allowed management to concentrate on its key strategic
initiatives.
Total revenue increased $30.2 million or 8% to $429.5 million for the nine
months ended September 30, 1996 from $399.3 million for the nine months ended
September 30, 1995. Revenues increased in most of the Company's major product
areas during the first three quarters of 1996. For the three months ended
September 30, 1996, total revenue decreased $9.6 million or 7% to $129.1
million from $138.7 million for the corresponding quarter in 1995. Net
revenues increased $43.1 million or 12% to $402.4 million for the nine months
ended September 30, 1996 from $359.3 million for the nine months ended
September 30, 1995. Net revenues decreased $5.3 million or 4% to $120.5
million for the three months ended September 30, 1996 from $125.8 million for
the same period in 1995. Revenues in the third quarter of 1996 were adversely
effected by the market volatility and decreased transactional volume seen
throughout the industry.
Commission revenue increased $27.7 million or 20% to $168.5 million for
the nine months ended September 30, 1996 from $140.8 million for the nine
months ended September 30, 1995, due to increased business in both the retail
and institutional areas, consistent with the overall growth in listed share
volume on all the major equity exchanges. During this period the Company
benefited from a 13% increase in average production per investment consultant
(commissions, principal sales credits and 12b-1 and managed account fees
credited to the production of all investment consultants divided by the average
number of investment consultants during the period) when compared to the same
period in 1995. Commission revenue decreased slightly, $0.5 million or 1%, to
$50.7 million for the three months ended September 30, 1996 from $51.2 million
for the three months ended September 30, 1995, as increased volatility in the
equity markets during the third quarter of 1996 weakened investor confidence.
Principal transactions revenue increased $0.5 million or 1% to $91.7
million for the nine months ended September 30, 1996 from $91.2 million for the
nine months ended September 30, 1996, due to the strong trading volumes
generated in the Company's retail sector throughout the first half of 1996 and
a significant increase in trading gains and principal sales credits from
over-the-counter equity transactions, consistent with improved market
conditions. Principal transactions revenue decreased $7.3 million or 22% to
$26.4 million for the three months ended September 30, 1996 from $33.7 million
for the corresponding period in 1995.
Investment banking revenue increased $3.5 million and $7.1 million or 42%
and 22% to $11.7 million and $38.7 million respectively, for the three and nine
months ended September 30,
15
<PAGE> 16
1996 from $8.2 million and $31.6 million for the three and nine months ended
September 30, 1995. The increase in investment banking revenues is indicative
of the increased underwriting activity seen throughout the industry and the
Company's participation in a larger number of transactions. In addition,
management believes that resolution of the Company's past ownership
uncertainties has increased the Company's ability to participate in this type
of business.
Asset management revenue increased $1.1 million and $3.1 million or 8% to
$14.8 million and $42.5 million respectively, for the three and nine months
ended September 30, 1996 from $13.7 million and $39.4 million for the three and
nine months ended September 30, 1995, due primarily to increased managed
account fees and increased 12b-1 distribution fees in 1996, consistent with the
strong mutual fund inflows seen throughout the industry in 1995 and 1996.
Other income decreased $4.3 million and $2.2 million or 37% and 6% to $7.2
million and $32.4 million respectively, for the three and nine months ended
September 30, 1996 from $11.5 million and $34.6 million respectively, for the
three and nine months ended September 30, 1995. This resulted primarily from
reduced service fee revenue in the current period due to the sale of BETA in
the second quarter of 1996.
Interest and dividend income decreased $2.2 million and $6.0 million or
11% and 10% to $18.3 million and $55.7 million for the three and nine months
ended September 30, 1996, respectively, from $20.5 million and $61.7 million
for the three and nine months ended September 30, 1995, respectively, due to
lower average inventory balances and a lower average rate of interest earnings
on margin accounts. The decline in interest and dividend income was more than
offset by decreases in interest expense of $4.3 million and $12.9 million or
33% and 32% to $8.6 million and $27.1 million for the three and nine months
ended September 30, 1996, respectively, from $12.9 million and $40.0 million
for the three and nine months ended September 30, 1995. This decrease in
interest expense was the net result of reduced costs of financing lower levels
of securities inventories and customer margin accounts, and reduced levels of
long-term debt which resulted from the separation from Kemper and the early
repayment of the KSOP debt.
Total non-interest expenses decreased $45.4 million and $32.1 million or
29% and 8% to $108.9 million and $359.8 million for the three and nine months
ended September 30, 1996, respectively, from $154.3 million and $391.9 million
for the three and nine months ended September 30, 1995, respectively. The
decreases were the net result of non-recurring charges totaling $33.3 million
pre-tax incurred in connection with or as a result of the Company's separation
from Kemper in the third quarter of 1995 and the continued impact of cost
containment efforts. The $33.3 million pre-tax ($22.0 million after-tax) of
non-recurring charges are made up of the following: (i) $6.0 million of
expenses related to changing and publicizing the Company's name, (ii) $10.6
million of expenses associated with the Company's decisions to sublease to
third parties, rather than to use in the Company's business, a significant
portion of its 115,000 square feet of office space in Houston, Texas and to
move its Denver, Colorado operations from a 153,000 square feet owned building
to a new leased facility; (iii) $14.2 million for an initial contribution and a
matching contribution to the KSOP related to the Founders' Offering; and (iv)
$2.5 million in compensation expense as a result of the vesting of previously
restricted stock issued to senior management as part of the separation from
Kemper. Excluding these non-recurring charges, total non-interest expenses
decreased $12.1
16
<PAGE> 17
million or 10% to $108.9 million for the three months ended September 30, 1996
and increased $1.2 million to $359.8 million for the nine months ended
September 30, 1996. This increase is the net result of increased commission
expense, resulting from the increased commission revenues offset by the
continued cost containment efforts.
Compensation and benefits expense decreased $22.8 million and $1.2 million
or 23% and 1% to $75.6 million and $251.2 million for the three and nine months
ended September 30, 1996, respectively, from $98.4 million and $252.4 million
for the three and nine months ended September 30, 1995, respectively. Included
in 1995 compensation and benefits expense are non-recurring charges of $16.7
million related to the vesting of restricted stock issued to senior management,
and the initial and matching KSOP contributions related to the Founders'
Offering. Excluding these items, compensation and benefits expense decreased
$6.1 million (7%) and increased $15.6 million (7%) for the three and nine
months ended September 30, 1996, respectively, compared to the same periods in
1995 primarily as a result of increased production-based compensation related
to the strong market conditions in the first half of 1996. Compensation and
benefits as a percentage of net revenues declined to 62% in this period from
70% (66% excluding the non-recurring charges) in the first nine months of 1995.
This decrease reflects the fixed nature of a significant portion of this
expense as well as the decrease in production-based payout to retail
investment consultants that was implemented in the third quarter of 1995.
Brokerage and clearance expense increased $0.5 million and $1.8 million or
15% and 20% to $3.8 million and $10.6 million for the three and nine months
ended September 30, 1996, respectively, from $3.3 million and $8.8 million for
the three and nine months ended September 30, 1995. This increase was directly
related to the increased transaction volume in the current period and was
consistent with the 12% increase in commission and principal transaction
revenues recorded during the nine months ended September 30, 1996 when compared
with the period in 1995.
Communications expense decreased $1.2 million and $2.7 million or 12% and
9% to $8.9 million and $28.8 million for the three and nine months ended
September 30, 1996, respectively, from $10.1 million and $31.5 million for the
three and nine months ended September 30, 1995, mainly due to decreased
electronic data processing costs in the 1996 periods resulting from the sale of
BETA.
All other operating expenses excluding the 1995 non-recurring charges of
$16.6 million pre-tax related to the sublease and relocation and the Company's
name change, decreased $5.2 million and $13.5 million or 20% and 16% to $20.6
million and $69.2 million for the three and nine months ended September 30,
1996, respectively, from $25.8 million and $82.7 million for the three and nine
months ended September 30, 1995, respectively, primarily due to the continued
realization of benefits from cost containment programs initiated in previous
years. All other operating expenses as a percentage of net revenues declined
to 17% for the nine months ended September 30, 1996 from 23% for the nine
months ended September 30, 1995. Specifically, when comparing the three and
nine months ended September 30, 1996 and 1995, occupancy and equipment
(excluding $10.6 million of non-recurring charges for the sublease and
relocations)
17
<PAGE> 18
decreased $1.4 million and $3.2 million or 13% and 10%; promotional expense
increased $0.8 million and $2.6 million or 21% and 26%; and other expenses
decreased $0.9 million and $9.2 million or 12% and 26% respectively, after
excluding a $6.0 million expense related to the Company's name change and a
$3.7 million charge related to the failure of an EVEREN Clearing correspondent
firm, following the firm's failure to meet a $4.3 million margin call. While
the Company believes that this failure was an isolated event which is not
indicative of a trend, the Company initiated more stringent credit and risk
management procedures in order to reduce the risk of any such future losses.
See--"Risk Management." The increase in promotional expense during the 1996
periods was due to increased advertising expenses incurred to promote the
Company.
The Company's income tax expense for the three and nine months ended
September 30, 1996 was $5.2 million and $37.2 million, respectively, which
represented effective tax rates on income before taxes of 45% and 40%,
respectively, compared to a 32% effective benefit rate for the three and nine
months ended September 30, 1995. The effective rate increase for 1996 is due
primarily to certain non-deductible compensation expenses related to
appreciation on the shares of Common Stock released to the KSOP (and
subsequently allocated to participants) and higher state and local income
taxes.
Net income before extraordinary charge increased $25.8 million and $77.7
million to $6.4 million and $55.6 million for the three and nine months ended
September 30, 1996, respectively, from net losses of $19.4 million and $22.1
million for the corresponding periods in 1995. The extraordinary charge of
$2.9 million after-tax was recorded in the third quarter of 1996 related to the
early retirement of the Company's junior subordinated debentures.
Net income increased $22.9 million and $74.8 million to $3.5 million and
$52.7 million for the three and nine months ended September 30, 1996,
respectively, from net losses of $19.4 million and $22.1 million for the three
and nine months ended September 30, 1995, respectively.
18
<PAGE> 19
QUARTERLY RESULTS
The information set forth below is derived from unaudited quarterly
operations results of the Company for each quarter of 1995 and the three
quarters of 1996. The data has been prepared by the Company on a basis
consistent with the consolidated financial statements included elsewhere in
this report and includes all adjustments, consisting principally of normal
recurring accruals that the Company considers necessary for a fair presentation
thereof. These operating results are not necessarily indicative of the
Company's future performance.
<TABLE>
<CAPTION>
Three months ended
-----------------------------
9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
------- -------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
Revenue:
Commissions $50,741 $ 60,277 $ 57,431 $ 49,591 $ 51,188 $ 47,189 $ 42,336
Principal transactions 26,389 34,469 30,875 30,863 33,670 30,180 27,414
Investment banking 11,677 16,540 10,442 15,520 8,220 11,807 11,546
Asset management 14,776 13,231 14,480 13,907 13,636 13,031 12,759
Other 7,234 13,486 11,722 14,552 11,493 12,112 10,978
Interest 18,270 19,278 18,191 19,452 20,497 20,460 20,768
------- -------- -------- -------- --------- -------- -------
Total revenues 129,087 157,281 143,141 143,885 138,704 134,779 125,801
Interest expense 8,613 9,203 9,254 12,567 12,942 13,368 13,651
------- -------- -------- -------- --------- -------- -------
Net revenues 120,474 148,078 133,887 131,318 125,762 121,411 112,150
Expenses:
Compensation and benefits 75,601 88,893 86,725 83,101 98,378 (2) 80,193 73,801
Brokerage and clearance 3,773 3,899 2,949 2,590 3,329 2,729 2,774
Communications 8,883 9,567 10,321 10,305 10,085 10,703 10,666
Occupancy and equipment 9,676 10,052 10,224 10,714 21,687 (2) 10,929 11,154
Promotional 4,326 4,375 3,982 3,453 3,568 3,269 3,218
Other 6,640 10,881 9,049 10,504 17,219 (2) 12,568 15,683
------- -------- -------- -------- --------- -------- ------
Total non-interest expenses 108,899 127,667 123,250 120,667 154,266 120,391 117,296
Gain on sale of subsidiary - 50,181 (1) - - - - -
------- -------- -------- -------- --------- -------- -------
Income (loss) before taxes 11,575 70,592 10,637 10,651 (28,504) 1,020 (5,146)
Income tax expense (benefit) 5,165 28,173 3,831 4,413 (9,125) 517 (1,930)
------- -------- -------- -------- --------- -------- -------
Net income (loss) before
extraordinary charge 6,410 42,419 6,806 6,238 (19,379) 503 (3,216)
Extraordinary charge, net of
income taxes (2,900) - - - - - -
------- -------- -------- -------- --------- -------- -------
Net income (loss) $ 3,510 $ 42,419 (1) $ 6,806 $ 6,238 $ (19,379) (2) $ 503 $ (3,216)
======= ======== ======== ======== ========= ======== =======
</TABLE>
(1) Includes a $50.2 million pre-tax ($30.2 million after-tax) gain on the sale
of BETA.
(2) Includes $33.3 million pre-tax ($22.0 million after-tax) of non-recurring
charges incurred in connection with the separation from Kemper as
discussed under "Results of Operations." On a pre-tax basis, excluding
these charges, compensation and benefits expense would decrease $16.7
million to $81.7 million from $98.4 million; occupancy and equipment
expense would decrease $10.6 million to $11.1 million from $21.7 million;
and other expenses would decrease $6.0 million to $11.2 million from $17.2
million.
19
<PAGE> 20
The following table sets forth certain financial data as a percentage of net
revenues.
<TABLE>
<CAPTION>
Three months ended
--------------------
9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
------- ------- --------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Commissions 42.1% 40.7% 42.9% 37.8% 40.7% 38.9% 37.7%
Principal transactions 21.9 23.3 23.1 23.5 26.8 24.9 24.4
Investment banking 9.7 11.2 7.8 11.8 6.5 9.7 10.3
Asset management 12.3 8.9 10.8 10.6 10.8 10.7 11.4
Other 6.0 9.1 8.8 11.1 9.1 10.0 9.8
Interest 15.2 13.0 13.6 14.8 16.3 16.9 18.5
------- ------- --------- --------- ------- ------- -------
Total revenues 107.2 106.2 107.0 109.6 110.2 111.1 112.1
Interest expense 7.2 6.2 7.0 9.6 10.2 11.1 12.1
------- ------- --------- --------- ------- ------- -------
Net revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- --------- --------- ------- ------- -------
Expenses:
Compensation and benefits 62.8 60.0 64.8 63.3 78.2 (3) 66.1 65.8
Brokerage and clearance 3.1 2.6 2.2 2.0 2.6 2.2 2.5
Communications 7.4 6.5 7.7 7.8 8.0 8.8 9.5
Occupancy and equipment 8.0 6.8 7.6 8.2 17.2 (3) 9.0 9.9
Promotional 3.6 3.0 3.0 2.6 2.8 2.7 2.9
Other 5.5 7.3 6.8 8.0 13.7 (3) 10.4 14.0
------- ------- --------- --------- ------- ------- -------
Total non-interest expenses 90.4 86.2 92.1 91.9 122.5 99.2 104.6
------- ------- --------- --------- ------- ------- -------
Gain on sale of subsidiary - 33.9 (2) - - - - -
------- ------- --------- --------- ------- ------- -------
Income (loss) before taxes 9.6 47.7 7.9 8.1 (22.5) 0.8 (4.6)
Income tax expense (benefit) 4.3 19.0 2.9 3.4 (7.3) 0.4 (1.7)
Net income (loss) before
extraordinary charge, net of
income taxes 5.3 28.7 5.0 4.7 (15.2) 0.4 (2.9)
======= ======= ========= ========= ======= ======= =======
Net income (loss) 2.9% (1) 28.7% (2) 5.0% 4.7% (15.2)% (3) 0.4% (2.9)%
======= ======= ========= ========= ======= ======= =======
</TABLE>
(1) Includes a $2.9 million after-tax charge related to the early retirement of
the Company's junior subordinated debentures.
(2) Includes a $50.2 million pre-tax or 33.9% ($30.2 million after-tax or
20.4%) gain on the sale of BETA.
(3) Includes $33.3 million pre-tax ($22.0 million after-tax or 17.4%) of net
revenues for non-recurring charges incurred in connection with the
separation from Kemper discussed under "Results of Operations." On a
pre-tax basis, excluding these charges, compensation and benefits expense
would decrease 13.3% to 64.9% from 78.2%; occupancy and equipment expense
would decrease 8.4% to 8.8% from 17.2%; and other expenses would decrease
4.8% to 8.9% from 13.7%.
The upward trend in the Company's net revenues for the seven quarterly
periods ended September 30, 1996 reflects recent favorable retail brokerage
industry market conditions and general stability in the fixed income markets,
combined with ownership certainty which has resulted in improved investment
consultant retention, recruitment and average production, as well as increased
investment banking activity.
Net revenues during this seven-quarter period follow the same positive
trend, with the Company realizing the benefit of declining non-customer/dealer
related interest expense as a result
20
<PAGE> 21
of the elimination of certain long-term debt owed to Kemper and the accelerated
repayment of the KSOP loans.
While in absolute dollar amounts, non-interest expenses have trended up
during the seven periods (excluding the third quarter 1995 non-recurring
charges of $33.3 million pre-tax discussed previously), such absolute dollar
increases are generally attributable to compensation and benefits expense and
brokerage and clearance expense, all of which are significantly correlated to
revenue growth. As a percentage of net revenues, non-interest expenses have
trended downward during such periods which trend management believes to be a
result of the Company's cost containment focus.
Net income (both in absolute dollar amounts and as a percentage of net
revenues) also reflects a positive trend during this seven-quarter period, with
the exception of the third quarter of 1995 which includes the $22.0 million
(after-tax) of non-recurring charges discussed previously.
LIQUIDITY AND CAPITAL RESOURCES
Holding Company
EVEREN Capital Corporation ("EVEREN Capital") is the parent holding
company for EVEREN Securities Holdings, Inc. ("ESHI,") the holding company for
the Company's operating subsidiaries. As the parent, EVEREN Capital expects to
receive dividends, interest on any loans and payments for federal income tax
from its subsidiaries. Dividends and other distributions, as well as certain
interest payments, to EVEREN Capital from its registered broker-dealer
subsidiaries, which are expected to be EVEREN Capital's primary sources of
liquidity, are restricted as to amounts which may be paid by applicable law
regulations. The "net capital" rules are the primary regulatory restrictions.
EVEREN Capital's rights (and the rights of its stockholders and creditors) to
participate in the assets of any subsidiary are also subject to prior claims of
the subsidiary's creditors, including customers of the broker-dealer
subsidiaries (except to the extent the Company itself may be a creditor with
recognized claims). See Note 3 of Notes to Consolidated Financial Statements
contained in Item 1 of this report. On August 5, 1996, the Company paid a cash
dividend of $1.18 per common share to holders of record as of July 23, 1996,
enabling the KSOP to repay its remaining loan due the Company with the dividend
proceeds it received. Since the separation from Kemper, the Company has also
generated funds from bank loans, the sale of BETA and the issuance of Common
Stock to employees and to the public.
The Board of Directors intends to pay quarterly dividends of $.09 per
share on the outstanding shares of Common Stock beginning in the fourth quarter
of 1996.
The Company believes that its current level of equity capital, combined
with funds generated from operations and the net proceeds of approximately $78
million from its initial public offering, completed on October 8, 1996, will be
adequate to fund its capital needs for the foreseeable future.
21
<PAGE> 22
Operating Subsidiaries
The assets of EVEREN Securities, Inc. and EVEREN Clearing Corp., the
Company's primary operating subsidiaries (the "Subsidiaries") are highly liquid
with the majority consisting of securities inventories and collateralized
receivables, both of which fluctuate depending on the levels of customer
business. Collateralized receivables consist primarily of securities purchased
under agreements to resell ("resale agreements") and securities borrowed, both
of which are secured by U.S. government and agency securities and highly
marketable corporate debt and equity securities. In addition, the Subsidiaries
have significant receivables from customers, brokers and dealers which turn
over rapidly. The Subsidiaries' total assets or the individual components of
total assets vary significantly from period to period because of changes
relating to customer needs and economic and market conditions. A relatively
small percentage of total assets is fixed or held for a period of longer than
one year. The Company's total assets at September 30, 1996 and December 31,
1995, were approximately $1.9 billion and $2.6 billion, respectively.
The majority of the Subsidiaries assets are financed through daily
operations by securities sold under repurchase agreements, securities sold not
yet purchased, bank loans, and through payables to customers, brokers and
dealers including securities loaned. Short-term funding is generally obtained
at rates related to Federal funds, LIBOR and money market rates. Other
borrowing costs are negotiated depending upon prevailing market conditions.
The Company monitors overall liquidity by tracking the extent to which
unencumbered marketable assets exceed short-term unsecured borrowings. The
Company maintains borrowing relationships with a broad range of banks,
financial institutions, counterparties and others. At September 30, 1996, the
Subsidiaries had approximately $600 million in uncommitted and committed bank
credit lines with seven banks.
Repurchase agreements are used primarily for customer accommodation
purposes and to finance the Company's inventory positions in U.S. government
and agency securities. These positions provide products and liquidity for
customers and are not maintained for the Company's investment or market
speculation. The level of activity fluctuates significantly depending on
customer needs; however, these fluctuations have no material effect on cash
flows, liquidity or capital resources. The Company monitors the collateral
position and counterparty risk on these transactions daily. See "Risk
Management."
The Subsidiaries are capital intensive. In addition to normal operating
requirements, capital is required to cover financing and regulatory charges on
securities inventories, investment banking commitments and investments in fixed
assets. The Company's overall capital needs are continually reviewed to ensure
that its capital base can appropriately support the anticipated needs of the
Subsidiaries. Management believes that existing capital, funds from operations
and current credit facilities will be sufficient to finance the operating
subsidiaries' ongoing businesses. The majority of the Subsidiaries' assets are
funded with liabilities that reprice on a matched basis, generally producing a
positive spread. As a result, the Company has modest exposure to fluctuations
in interest rates (other than the effect of interest rate volatility on market
conditions and prices of fixed income securities, and the impact on the
Company's revenues).
22
<PAGE> 23
CASH FLOWS
The Company's statements of consolidated cash flows classify cash flow
into three broad categories: cash flows from operating activities, investing
activities and financing activities. The Company's net cash flows are
principally associated with operating and financing activities, which support
the Company's trading, customer and banking activities.
Nine Months Ended September 30, 1996 and 1995
Cash and cash equivalents at September 30, 1996 and 1995 totaled $18.0
million and $15.4 million, respectively, representing increases of $3.5 million
and $4.9 million for the nine months ended September 30, 1996 and 1995 when
compared to the respective year-end balances.
For the nine months ended September 30, 1996 and 1995, cash provided from
operating activities was used primarily in financing activities to reduce bank
loans payable. Cash flows from investing activities for the first nine months
of 1996 were further bolstered by the $63.5 million in gross proceeds from the
sale of BETA.
Cash provided by operating activities totaled $68.7 million and $105.2 million
in the first nine months of 1996 and 1995, respectively. In 1996, the net
change in receivables from and payables to customers, dealers, affiliates and
others of $120.6 million and the decrease in securities purchased under
agreements to resell of $699.4 million were primary sources of operating cash
flow. An increase in securities owned of $2.4 million and decreases in
securities sold under agreements to repurchase of $719.7 million and securities
sold, not yet purchased of $16.4 million used operating cash flow. In
1995, the net change in receivables from and payables to customers, dealers,
affiliates and others of $1.1 million, a decrease in securities owned of $32.8
million and a decrease in other assets of $20.6 million and an increase in
securities sold under agreements to repurchase of $314.2 million generated
operating cash flow. An increase in securities purchased under agreements to
resell of $261.4 million and a decrease in securities sold, not yet purchased
of $15.2 million used operating cash flow.
For the first nine months of 1996, cash provided from investing activities
of $58.3 million resulted from the $59.3 million of net proceeds from the sale
of BETA and the $2.1 million of cash proceeds from the sale of fixed assets
which were partially offset by $6.6 million of fixed asset purchases. For the
first nine months of 1995, the Company used $20.8 million for investing
activities, which was comprised of $19.8 million net cash flows used in its
mortgage-backed securities investing activities and approximately $1.0 million
used for the purchase of fixed assets.
For the first nine months of 1996, the Company's financing activities used
$123.6 million, primarily the result of repayment of $106.8 million of bank
loans, cash dividend payments of $1.1 million during the second quarter on the
Exchangeable Preferred Stock and $13.9 million during the third quarter on its
Common Stock, and $36.0 million used to retire its junior subordinated
debentures. This was offset to some extent by the combination of: collection
of $12.9 million under the Kemper indemnification, $22.9 million related to the
repayment by the KSOP of its mirror loan to the Company, and receipt of $7.0
million in proceeds from the issuance of additional shares of Common Stock
under Company stock plans. In 1995, financing activities
23
<PAGE> 24
consisted of $20.5 million of proceeds from the issuance, in excess of
repayments, of collateralized mortgage obligations and the repayment of $100.0
million of bank loans.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are financial instruments, the payments on which are linked to
the prices, or relationships between prices, of securities or commodities,
interest rates, currency exchange rates or other financial measures
(collectively referred to as "cash market instruments"). Derivatives enable
the Company and its clients to manage their exposure to interest rates and
currency exchange rates, and security and other price risks. Derivatives
include structured notes, swaps, futures or forward contracts and options.
Certain types of derivatives, including forwards and certain options, are
traded in the OTC markets. Other types of derivatives, including futures
contracts and listed options, are traded on regulated exchanges.
Based on relative notional amounts, management believes that the Company's
derivative activities are not as extensive as those of many of its competitors.
The Company does not engage in the speculative trading of derivatives.
Instead, the Company has focused its derivative activities on trading in
forward and futures contracts in U.S. government and agency issued or
guaranteed securities as hedges against the Company's securities inventory
positions. The Company also executes transactions in exchange-traded futures
contracts and listed options on behalf of its clients.
The Company has entered into certain futures and options contracts on a
limited basis in the ordinary course of its business to hedge or modify
exposures to interest rate fluctuations related to its unit investment trust
product originations and interest-sensitive securities in its inventory. Given
the limited use of such derivatives, the Company has not incurred and does not
expect to incur any material losses relating to its derivative investments that
would not be substantially offset with corresponding gains on the securities
hedged. Both the securities hedged and the derivative instruments are carried
on the statement of financial condition at their market values. Gains and
losses, both realized and unrealized, from both the hedged securities and the
derivative instruments are included in current operating results.
RISK MANAGEMENT
The Company monitors its market and counterparty risk on a daily basis
through a number of control procedures designed to identify and evaluate the
various risks to which the Company is expected.
The Company often acts as principal in customer-related transactions in
financial instruments which expose the Company to market risks. The Company
makes dealer markets in certain equity securities, investment-grade corporate
debt, high-yield securities, U.S. government and agency securities, mortgages
and mortgage-backed securities, and municipal fixed-income securities. As
such, the Company maintains securities inventories to facilitate customer
transactions. The Company covers its exposure to market risk by limiting its
net long or short positions, both overall and by individual product area, by
limiting the number of days inventory is
24
<PAGE> 25
held, by selling or buying similar instruments and by utilizing various
derivative financial instruments such as futures and forward and option
contracts. The Company believes its philosophy, risk management and hedging
practices result in carefully managed market exposure and reduced earnings
volatility.
At September 30, 1996 and December 31, 1995, the Company's securities
owned and securities sold, not yet purchased consisted of the following (in
thousands):
<TABLE>
<CAPTION>
9/30/96 12/31/95
-------- --------
<S> <C> <C>
OWNED
-----
Obligations of the U.S. Government
or its agencies $ 61,586 $ 62,808
State and municipal obligations 10,952 22,333
Corporate debt obligations 60,204 44,954
Corporate stocks and warrants 9,575 9,205
Other 1,299 1,956
-------- --------
$143,616 $141,256
======== ========
SOLD, NOT YET PURCHASED
-----------------------
Obligations of the U.S. Government
or its agencies $ 55,525 $ 70,130
State and municipal obligations 584 601
Corporate debt obligations 12,452 13,809
Corporate stocks and warrants 6,332 7,085
Other 311 7
-------- --------
$ 75,204 $ 91,632
======== ========
</TABLE>
The Company manages risk exposure utilizing mechanisms involving various
levels of management. The Company's Risk Management Committee assists senior
management in managing risk associated with trading and inventory accounts. The
primary function of this committee is to establish and monitor position limits
for these accounts on an ongoing basis. Current and proposed underwriting and
other commitments are subject to due diligence reviews by senior management as
well as professionals in the appropriate business and support units involved.
The Company's trading activities result in the creation of inventory
positions. Position and exposure reports are prepared daily by operations
staff. Such reports are distributed to and reviewed independently on a daily
basis by the Company's Inventory Risk Management Committee as well as members
of senior management including the Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer. In addition, the corporate accounting
group prepares a daily consolidated summarized position report indicating both
long and short exposure. These reports, which are distributed to various
levels of management throughout the Company, enable senior management to
control inventory levels and monitor results of the trading areas.
25
<PAGE> 26
The Company also reviews and monitors, at various levels of management,
inventory aging, pricing, concentration and securities ratings.
In addition to position and exposure reports, the Company produces a daily
revenue report which summarizes the trading, interest, commissions, fees,
underwriting and other revenue items for each of the trading departments.
Daily revenue is reviewed for various risk factors and is independently
verified by the Inventory Risk Management Committee. The daily revenue report
is summarized by the corporate accounting group and distributed to various
levels of management throughout the Company, and, together with the position
and exposure report, enables senior management to monitor and control overall
activity of the trading areas.
Credit risk related to various financing activities is reduced by the
industry practice of obtaining and maintaining possession and control of
collateral. The Company monitors its exposure to counterparty risk on a daily
basis through the use of credit exposure information and the monitoring of
collateral values. The Company's credit department is responsible for
reviewing counterparties to establish appropriate exposure limits for a variety
of transactions. In addition, the Company actively manages the credit exposure
relating to its trading activities by monitoring the creditworthiness of
counterparties and their related trading limits on an ongoing basis, requesting
additional collateral when deemed necessary and limiting the amount and
duration of exposure to individual counterparties.
The Company seeks to control the risks associated with its investment
banking activities through a process that results in a thorough review by
various committees of the risks associated with all of significant transactions
prior to accepting an engagement. The Company currently has various commitment
and other review committees. Each such committee is chaired by a member of
senior management and has at least one additional senior management member.
Other committee members include employees who provide expertise in the
evaluation and analysis of proposed transactions brought before the particular
committee.
The Company's risk management effort also includes an emphasis on
compliance. Retail branch managers and other supervisors are required to
engage in specific review and other tasks, and complete various reports, as
part of their supervisory responsibilities. The Company's compliance
department professionals monitor the Company's retail and capital markets
activities, conduct periodic and other examinations, respond to any customer
complaints that arise and interface with the various regulatory agencies that
have jurisdiction over the Company and its business.
PART II Other Information
Item 1. Legal Proceedings
Many aspects of the Company's business involve substantial risks of
liability.
26
<PAGE> 27
Like other securities brokerage firms, the Company has been named as a defendant
in class action and other suits and has in the past been subject to substantial
settlements and judgments.
Following are descriptions of certain of the lawsuits in which the Company
is currently a named defendant. The Company intends to vigorously defend itself
against the allegations in each of such actions. Although there can be no
assurances, the Company does not believe that the ultimate outcome of any of
this litigation, individually or in the aggregate, will have a material adverse
effect on its financial condition. Due, however, to the relatively early stage
of each of these lawsuits and the lack of information currently available,
management cannot accurately make estimates of potential loss, if any, or
assure that such lawsuit will have no material adverse effect on the Company's
results of operations in any particular period.
In Re NASDAQ Market-Maker Antitrust Litigation. In December 1994 a
consolidated amended class action complaint was filed in the United States
District Court for the Southern District of New York against thirty-three
broker-dealer market makers in The NASDAQ National Market System ("NASDAQ")
traded securities, including EVEREN Securities, alleging the defendants had
conspired to fix the "spread" between bid and asked prices for NASDAQ traded
securities in violation of Section 1 of the Sherman Act. On behalf of a
purported class allegedly including all United States customers of the
defendants who purchased or sold securities on NASDAQ during a period from May
1989 through May 1994, plaintiffs claim damage in that allegedly they paid more
for securities purchased on NASDAQ, or received less on securities sold, than
they would have but for the alleged conspiracy. Compensatory damages, treble
damages, attorney's fees and costs and other relief are being sought against
each of the defendants on a joint and several basis. In August 1995 the Court
granted defendants' motion to dismiss on the ground that plaintiffs had failed
to specify the stocks in which the alleged collusion had occurred. Plaintiffs
then filed a further amended complaint identical in substance to the dismissed
one listing over 1,000 securities allegedly the subject of the claimed
conspiracy. Defendants have filed their answer denying the material
allegations of such complaint. Discovery is proceeding.
In addition, allegations of collusion among market-makers became the
subject of investigations by the Antitrust Division of the Department of
Justice ("DOJ"), the SEC and the NASD. EVEREN Securities and other market
makers have responded to Civil Investigative Demands by the DOJ and to
subpoenas by the SEC. On July 17, 1996 DOJ filed a civil complaint against 24
market makers, other than EVEREN Securities, alleging that a common
understanding arose among the defendants and other market makers to adhere to a
quoting convention for the purpose of fixing the inside spread on a substantial
number of NASDAQ stocks in violation of the antitrust laws and announced that
the market makers named in that complaint had entered into a settlement
agreement with the DOJ.
Cuyahoga County, Ohio Litigation (Jones, et al. v. McDonald & Co., et
al.). In August 1995 a lawsuit was filed in the Court of Common Pleas of
Cuyahoga County, Ohio on behalf of the County of Cuyahoga (the "County"), the
State of Ohio and the Board of County Commissioners against eight
broker-dealers and banks, including EVEREN Securities, relating to investment
losses suffered by the County and its Secured Assets Fund Earnings program (the
"S.A.F.E. Fund"). Plaintiffs' second amended complaint alleges that the
defendants facilitated and assisted the staff of the County's investment
department in engaging in certain investment
27
<PAGE> 28
activity that was risky and speculative and that violated the S.A.F.E. Fund's
policies and procedures and certain state laws. The investments at issue
consisted of fixed-income securities, specifically U.S. Treasuries and
government agency securities, financed by reverse repurchase transactions.
When interest rates rose dramatically in 1994, resulting in a decline in the
value of the County's investment portfolio, the County terminated the S.A.F.E.
program, liquidated its portfolio and incurred losses. Thereafter, the County
Treasurer was convicted of dereliction of duty and the County's Chief
Investment Officer pled guilty to dereliction of duty and falsification. The
complaint seeks unspecified compensatory damages and punitive damages, costs
and attorneys' fees, alleging investment losses in the "tens of millions of
dollars." News reports have indicated that the County incurred investment
losses exceeding $100 million. The complaint alleges breach of fiduciary duty
and negligence by EVEREN Securities and the other defendants. The complaint
also alleges fraud, misrepresentation and violation of the Ohio securities law
by three defendants other than EVEREN Securities in connection with certain of
the County's securities issuances. The Ohio Supreme Court has disqualified all
Cuyahoga County judges from hearing the case, and a retired judge from another
Ohio county has been assigned.
Estate of Braunstein, et al. v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., et al. EVEREN Securities is named as a defendant, together with ten
other broker-dealers, in a purported class action lawsuit filed in the Supreme
Court of the State of New York, County of New York, in May 1994. Plaintiffs
purport to state claims individually and on behalf of a class of all
individuals or entities who have had accounts with one or more of the
defendants in which they have had free credit balances from which the
defendants have derived economic benefit for which they have not accounted to
the plaintiffs. The complaint purports to assert causes of action for breach
of fiduciary duty and unjust enrichment. Plaintiffs allege that defendants
unlawfully retained interest earned on free credit balances in broker-dealer
accounts. Plaintiffs seek compensatory damages, the imposition of a
constructive trust, an injunction to require the payment of interest on free
credit balances, costs and attorneys' fees. In June 1995 the court granted
defendants' motion to dismiss for failure to state a cause of action.
Plaintiffs then filed an amended complaint containing similar claims.
Defendants motion to dismiss the amended complaint was denied. Defendants have
filed an answer in the case, and discovery has commenced. In September 1996,
the court denied without prejudice plaintiffs' motion for class certification.
EVEREN Clearing v. Brod, et al. EVEREN Clearing has initiated this New
York Stock Exchange arbitration proceeding seeking to recover from Brod, a
failed correspondent clearing firm, and its principals approximately $5.3
million in losses primarily resulting from unsatisfied margin calls and other
losses incurred as a result of Brod's failure. Brod and its principals have
asserted various defenses to EVEREN Clearing's claims, and Brod and one of the
principals have filed counterclaims in which they seek to recover approximately
$25.7 million in alleged damages as the result of EVEREN Clearing's termination
of its clearing agreement with Brod. EVEREN Clearing has asserted various
defenses to such counterclaims. An arbitration hearing began in late September
1996.
In addition to the matters described above, the Company is currently a
defendant in various civil actions and arbitrations arising out of its
activities as a broker-dealer in securities. Some of such actions involve
allegations of misconduct by Company employees, and other actions involve
claims against the Company by current or former employees. The Company does
not
28
<PAGE> 29
believe that any such matters will have a material adverse effect on its
financial condition or results of operations.
Item 2. Changes in Securities
On July 30, 1996, the Company issued a notice calling all of the
outstanding Debentures for redemption on September 16, 1996 at a price of 112%
of principal or $36.0 million, plus accrued interest.
On October 3, 1996, EVEREN Capital amended and restated its Certificate of
Incorporation (the "Certificate of Incorporation"). The amendments to the
Certificate of Incorporation included: (i) an increase in the number of
shares of capital stock that EVEREN Capital is authorized to issue to
110,000,000, of which 10,000,000 are designated preferred stock, par value $.01
per share (the "Preferred Stock"), and 100,000,000 are designated common stock,
$.01 per share (the "Common Stock"); (ii) the reclassification and conversion
of each authorized share of nonvoting common stock, par value $.01 per share
("Nonvoting Common Stock"), whether or not then currently outstanding, into one
share of Common Stock and the elimination of the provision in the Certificate
of Incorporation for Nonvoting Common Stock, and any references thereto; and
(iii) the requirement that any action required or permitted to be taken by the
stockholders be taken at a duly called annual or special meeting of
stockholders, that no such action may be taken by any consent in writing of the
stockholders and that such provision may be amended or repealed only by an
affirmative vote of the holders of at least 75 percent of the then outstanding
Common Stock at a duly called meeting (the "Charter Amendments"). As a result
of the elimination of the provision for Nonvoting Common Stock in the
Certificate of Incorporation, all non-qualified stock options which had
previously been granted to acquire shares of the Nonvoting Common Stock were
converted into non-qualified stock options to acquire shares of the Common
Stock on a share for share basis.
Item 4. Submission of Matters to a Vote of Security Holders
On or about August 22, 1996, the EVEREN Capital Board of Directors began
soliciting the written consents of the holders of the Common Stock to approve
the Charter Amendments referred to in Item 2. above. EVEREN Capital received
written consents with respect to 11,461,579 shares of Common Stock, and of that
number 10,915,657 shares were voted in favor of the Charter Amendments and
545,922 shares were voted against the Charter Amendments.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Articles of Incorporation. (Amended and Restated Certificate
of Incorporation effective as of October 3, 1996 is incorporated
herein by reference to Exhibit number 3.1 to Amendment No. 1 to
the EVEREN Capital Form S-1 (No. 333-09163) filed with the
Securities and Exchange Commission on September 6, 1996.)
3(ii) By-Laws. (Amended By-Laws effective as of October 11, 1996
are incorporated herein by reference to Exhibit number 3.2 to
Amendment No. 1 to
29
<PAGE> 30
the EVEREN Capital Form S-1 (No. 333-09163) filed with the
Securities and Exchange Commission on September 6, 1996.)
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
EVEREN has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EVEREN CAPITAL CORPORATION
Date: November 14, 1996 By: /s/Daniel D. Williams
---------------------------------
Daniel D. Williams
Senior Executive Vice President
Chief Financial Officer and Treasurer
(Principal Financial Officer)
By: /s/Thomas M. Mansheim
---------------------------------
Thomas M. Mansheim
Senior Vice President
Controller and Chief Accounting Officer
31
<PAGE> 32
EXHIBIT INDEX
Exhibit No. Description Page No.
- ---------- ----------- --------
3.1 Articles of Incorporation. (Amended and Restated
Certificate of Incorporation effective as of October 3,
1996 is incorporated herein by reference to Exhibit number
3.1 to Amendment No. 1 to the EVEREN Capital Form S-1 (No.
333-09163) filed with the Securities and Exchange
Commission on September 6, 1996.)
3.2 By-Laws. (Amended By-Laws effective as of October 11,
1996 are incorporated herein by reference to Exhibit
number 3.2 to Amendment No. 1 to the EVEREN Capital Form
S-1 (No. 333-09163) filed with the Securities and Exchange
Commission on September 6, 1996.)
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
32
<PAGE> 1
EXHIBIT 11
EVEREN CAPITAL CORPORATION
PRO FORMA COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
1995 1995
------------------ ------------------
<S> <C> <C>
Net loss $ (19,379) $ (22,091)
Less:
Pro Forma Preferred Dividends
(13.5% of liquidation value) - (2,130)
----------- -----------
Pro Forma Net Income (loss) Applicable to
Common Stock $ (19,379) $ (24,221)
=========== ===========
Pro Forma Net Loss Per Share of Common Stock $ (1.54) $ (2.30)
=========== ===========
Pro Forma Weighted Average Number of Common
Stock Outstanding: 12,556,397 10,553,275
=========== ===========
</TABLE>
33
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000945770
<NAME> EVEREN CAPITAL CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,037,000
<SECURITIES> 143,616,000
<RECEIVABLES> 55,074,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34,594,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,883,536,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 121,000
0
0
<OTHER-SE> 201,697,000
<TOTAL-LIABILITY-AND-EQUITY> 1,883,536,000
<SALES> 168,450,000
<TOTAL-REVENUES> 429,513,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 359,816,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,070,000
<INCOME-PRETAX> 92,808,000
<INCOME-TAX> 37,172,000
<INCOME-CONTINUING> 55,636,000
<DISCONTINUED> 0
<EXTRAORDINARY> 2,900,000
<CHANGES> 0
<NET-INCOME> 52,736,000
<EPS-PRIMARY> 4.80
<EPS-DILUTED> 0
</TABLE>
