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 March 28, 2003
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 0-19483
SWS GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware |
75-2040825 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 1201 Elm Street, Suite 3500, Dallas, Texas |
75270 | |
| (Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code (214) 859-1800
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ü No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ü No
As of May 7, 2003, there were 16,958,987 shares of the registrant’s common stock, $.10 par value, outstanding.
SWS GROUP, INC. AND SUBSIDIARIES
INDEX
| PART I. FINANCIAL INFORMATION |
||
| Item 1. Financial Statements |
||
| Consolidated Statements of Financial Condition March 28, 2003 (unaudited) and June 28, 2002 |
1 | |
| Consolidated Statements of Income (Loss) and Comprehensive Loss For the three and nine months ended March 28, 2003 and March 28, 2002 (unaudited) |
2 | |
| Consolidated Statements of Cash Flows For the nine months ended March 28, 2003 and March 28, 2002 (unaudited) |
3 | |
| 4 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
35 | |
| 35 | ||
| PART II. OTHER INFORMATION |
||
| 35 | ||
| 36 | ||
| 36 | ||
| 36 | ||
| 36 | ||
| 36 | ||
| 37 | ||
| 38 | ||
| 39 | ||
| 40 |
From time to time, we make statements (including some contained in this Report) that predict or forecast future events, depend on future events for their accuracy, embody projections or assumptions or that otherwise contain “forward-looking information.” These statements may relate to anticipated changes in revenues or earnings per share, anticipated changes in our businesses or in the amount of client assets under management, anticipated expense levels or expectations regarding financial market conditions.
We caution readers that any forward-looking information provided by us is not a guarantee of future performance. Actual results may differ materially as a result of various factors, some of which are outside of our control. Included among these factors are those discussed in “Management Discussion and Analysis of Financial Condition and Results of Operation –Overview,” “-Critical Accounting Policies and Estimates” and “- Market Risk” and those discussed in our periodic reports filed with and available from the Securities and Exchange Commission. All forward-looking statements made by us speak only as of the date on which they are made, and we undertake no obligations to update them to reflect events or circumstances occurring after the date on which they were made or to reflect the occurrence of unanticipated events.
SWS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 28, 2003 and June 28, 2002
(In thousands, except par values and share amounts)
| March (unaudited) |
June |
|||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ |
136,530 |
|
$ |
24,777 |
| ||
| Assets segregated for regulatory purposes |
|
487,732 |
|
|
442,707 |
| ||
| Marketable equity securities available for sale |
|
3,736 |
|
|
3,932 |
| ||
| Receivable from brokers, dealers and clearing organizations |
|
2,484,235 |
|
|
1,770,055 |
| ||
| Receivable from clients, net |
|
309,281 |
|
|
467,131 |
| ||
| Loans held for sale, net |
|
154,527 |
|
|
103,124 |
| ||
| Loans, net |
|
355,561 |
|
|
345,538 |
| ||
| Securities owned, at market value |
|
110,765 |
|
|
103,888 |
| ||
| Other assets |
|
96,719 |
|
|
102,501 |
| ||
| $ |
4,139,086 |
|
$ |
3,363,653 |
| |||
| Liabilities and Stockholders’ Equity |
||||||||
| Short-term borrowings |
$ |
45,550 |
|
$ |
37,600 |
| ||
| Payable to brokers, dealers and clearing organizations |
|
2,405,110 |
|
|
1,764,741 |
| ||
| Payable to clients |
|
672,802 |
|
|
747,534 |
| ||
| Deposits |
|
591,583 |
|
|
265,370 |
| ||
| Securities sold, not yet purchased, at market value |
|
57,761 |
|
|
19,657 |
| ||
| Drafts payable |
|
29,221 |
|
|
34,531 |
| ||
| Advances from Federal Home Loan Bank |
|
15,446 |
|
|
160,468 |
| ||
| Other liabilities |
|
67,596 |
|
|
69,920 |
| ||
| Exchangeable subordinated notes |
|
6,340 |
|
|
6,785 |
| ||
|
|
3,891,409 |
|
|
3,106,606 |
| |||
| Minority interest in consolidated subsidiaries |
|
1,934 |
|
|
1,762 |
| ||
| Stockholders’ equity: |
||||||||
| Preferred stock of $1.00 par value. Authorized 100,000 shares; none issued |
|
— |
|
|
— |
| ||
| Common stock of $.10 par value. Authorized 60,000,000 shares, issued 17,612,940 and outstanding 16,865,126 shares at March 31,2003; issued 17,601,705 and outstanding 17,240,570 shares at June 28, 2002 |
|
1,761 |
|
|
1,760 |
| ||
| Additional paid-in capital |
|
243,340 |
|
|
247,199 |
| ||
| Accumulated deficit |
|
(1,245 |
) |
|
— |
| ||
| Accumulated other comprehensive income – unrealized holding gain (loss), net of tax of $6,169 at March 28, 2003 and $6,177 at June 28, 2002 |
|
11,457 |
|
|
11,472 |
| ||
| Deferred compensation, net |
|
1,500 |
|
|
1,502 |
| ||
| Treasury stock (747,814 shares at March 28,2003 and 361,135 shares at June 28, 2002, at cost) |
|
(11,070 |
) |
|
(6,648 |
) | ||
| Total stockholders’ equity |
|
245,743 |
|
|
255,285 |
| ||
| Commitments and contingencies |
||||||||
| $ |
4,139,086 |
|
$ |
3,363,653 |
| |||
See accompanying Notes to Consolidated Financial Statements.
1
SWS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss) and Comprehensive Loss
For the three and nine months ended March 28,2003 and March 28, 2002
(In thousands, except per share and share amounts)
(Unaudited)
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| Fiscal 2003 |
Fiscal 2002 Restated |
Fiscal 2003 |
Fiscal 2002 Restated |
|||||||||||||
| Net revenues from clearing operations |
$ |
4,034 |
|
$ |
8,247 |
|
$ |
14,208 |
|
$ |
24,931 |
| ||||
| Commissions |
|
19,701 |
|
|
19,477 |
|
|
60,370 |
|
|
55,597 |
| ||||
| Interest |
|
22,352 |
|
|
26,996 |
|
|
71,363 |
|
|
98,530 |
| ||||
| Investment banking, advisory and administrative fees |
|
5,579 |
|
|
10,352 |
|
|
19,574 |
|
|
30,651 |
| ||||
| Net gains on principal transactions (including net gains on the sale of Knight Trading Group, Inc. (“Knight”) common stock of $4,312 and $19,788 for the three and nine months ended March 28, 2002.) |
|
4,578 |
|
|
8,968 |
|
|
14,144 |
|
|
34,047 |
| ||||
| Other |
|
3,017 |
|
|
3,479 |
|
|
11,747 |
|
|
12,118 |
| ||||
|
|
59,261 |
|
|
77,519 |
|
|
191,406 |
|
|
255,874 |
| |||||
| Commissions and other employee compensation |
|
30,365 |
|
|
32,554 |
|
|
94,540 |
|
|
103,473 |
| ||||
| Interest |
|
8,667 |
|
|
12,748 |
|
|
29,795 |
|
|
54,499 |
| ||||
| Occupancy, equipment and computer service costs |
|
7,853 |
|
|
12,549 |
|
|
24,597 |
|
|
35,752 |
| ||||
| Communications |
|
3,590 |
|
|
5,226 |
|
|
11,442 |
|
|
14,482 |
| ||||
| Floor brokerage and clearing organization charges |
|
1,325 |
|
|
2,225 |
|
|
4,862 |
|
|
6,159 |
| ||||
| Advertising and promotional |
|
763 |
|
|
1,065 |
|
|
2,471 |
|
|
6,749 |
| ||||
| Other |
|
7,413 |
|
|
9,623 |
|
|
23,356 |
|
|
27,207 |
| ||||
|
|
59,976 |
|
|
75,990 |
|
|
191,063 |
|
|
248,321 |
| |||||
| Income (loss) before income taxes and minority interest in consolidated subsidiaries |
|
(715 |
) |
|
1,529 |
|
|
343 |
|
|
7,553 |
| ||||
| Income tax expense (benefit) |
|
(477 |
) |
|
617 |
|
|
(403 |
) |
|
3,965 |
| ||||
| Income (loss) before minority interest in consolidated subsidiaries |
|
(238 |
) |
|
912 |
|
|
746 |
|
|
3,588 |
| ||||
| Minority interest in consolidated subsidiaries |
|
(472 |
) |
|
(428 |
) |
|
(917 |
) |
|
(352 |
) | ||||
| Net income (loss) |
|
(710 |
) |
|
484 |
|
|
(171 |
) |
|
3,236 |
|||||