UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 24, 2005
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 | (I.R.S. Employer | |
| incorporation or organization) | 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 x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of April 29, 2005, there were 17,393,626 shares of the registrant’s common stock, $.10 par value outstanding.
SWS GROUP, INC. AND SUBSIDIARIES
| PART I. FINANCIAL INFORMATION |
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| Item 1. | Financial Statements | |||
| Consolidated Statements of Financial Condition March 24, 2005 and June 25, 2004 (unaudited) |
1 | |||
| 2 | ||||
| 3 | ||||
| 5 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 43 | ||
| Item 4. | Controls and Procedures | 43 | ||
| PART II. OTHER INFORMATION |
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| Item 1. | Legal Proceedings | 43 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44 | ||
| Item 3. | Defaults Upon Senior Securities | 44 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 44 | ||
| Item 5. | Other Information | 44 | ||
| Item 6. | Exhibits | 44 | ||
| 45 | ||||
| 46 | ||||
SWS Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 24, 2005 and June 25, 2004
(In thousands, except par values and share amounts)
(Unaudited)
| March |
June |
|||||||
| Assets | ||||||||
| Cash and cash equivalents |
$ | 33,840 | $ | 88,589 | ||||
| Assets segregated for regulatory purposes |
358,143 | 367,070 | ||||||
| Marketable equity securities available for sale |
2,647 | 7,038 | ||||||
| Receivable from brokers, dealers and clearing organizations |
3,271,714 | 3,107,287 | ||||||
| Receivable from clients, net |
381,136 | 421,799 | ||||||
| Loans held for sale, net |
145,098 | 79,083 | ||||||
| Loans, net |
564,021 | 462,957 | ||||||
| Securities owned, at market value |
202,572 | 136,199 | ||||||
| Securities purchased under agreements to resell |
70,480 | 4,909 | ||||||
| Goodwill |
11,645 | 8,183 | ||||||
| Other assets |
72,604 | 59,536 | ||||||
| $ | 5,113,900 | $ | 4,742,650 | |||||
| Liabilities and Stockholders’ Equity | ||||||||
| Short-term borrowings |
$ | 64,400 | $ | — | ||||
| Payable to brokers, dealers and clearing organizations |
3,201,518 | 3,050,748 | ||||||
| Payable to clients |
660,387 | 691,456 | ||||||
| Deposits |
525,158 | 501,094 | ||||||
| Securities sold, not yet purchased, at market value |
147,288 | 88,957 | ||||||
| Drafts payable |
36,864 | 32,212 | ||||||
| Advances from Federal Home Loan Bank |
118,419 | 36,576 | ||||||
| Other liabilities |
96,962 | 82,968 | ||||||
| Exchangeable subordinated notes |
— | 8,604 | ||||||
| 4,850,996 | 4,492,615 | |||||||
| Minority interest in consolidated subsidiaries |
1,079 | 2,396 | ||||||
| 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 17,956,032 and outstanding 17,302,302 shares at March 24, 2005; issued 17,817,444 and outstanding 17,109,925 shares at June 25, 2004 |
1,795 | 1,781 | ||||||
| Additional paid-in capital |
248,440 | 245,391 | ||||||
| Retained earnings |
20,419 | (2,718 | ) | |||||
| Accumulated other comprehensive income – unrealized holding gain (loss), net of tax of $231 at March 24, 2005 and $6,910 at June 25, 2004 |
431 | 12,833 | ||||||
| Deferred compensation, net |
420 | 834 | ||||||
| Treasury stock (653,730 shares at March 24, 2005 and 707,519 shares at June 25, 2004, at cost) |
(9,680 | ) | (10,482 | ) | ||||
| Total stockholders’ equity |
261,825 | 247,639 | ||||||
| Commitments and contingencies |
||||||||
| $ | 5,113,900 | $ | 4,742,650 | |||||
See accompanying Notes to Consolidated Financial Statements.
- 1 -
SWS Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three and nine months ended March 24, 2005 and March 26, 2004
(In thousands, except per share and share amounts)
(Unaudited)
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| March 24, 2005 |
March 26, 2004 |
March 24, 2005 |
March 26, 2004 |
|||||||||||||
| Net revenues from clearing operations |
$ | 3,306 | $ | 4,678 | $ | 10,697 | $ | 14,964 | ||||||||
| Commissions |
19,408 | 24,753 | 62,937 | 73,080 | ||||||||||||
| Interest |
42,706 | 23,013 | 108,225 | 71,154 | ||||||||||||
| Investment banking, advisory and administrative fees |
7,084 | 7,765 | 20,390 | 19,711 | ||||||||||||
| Net gains on principal transactions |
4,551 | 5,087 | 30,323 | 14,612 | ||||||||||||
| Other |
4,385 | 4,404 | 17,940 | 11,966 | ||||||||||||
| 81,440 | 69,700 | 250,512 | 205,487 | |||||||||||||
| Commissions and other employee compensation |
34,423 | 37,399 | 101,769 | 106,699 | ||||||||||||
| Interest |
21,880 | 8,003 | 49,602 | 24,595 | ||||||||||||
| Occupancy, equipment and computer service costs |
6,262 | 7,002 | 19,828 | 21,553 | ||||||||||||
| Communications |
2,495 | 3,442 | 8,680 | 9,939 | ||||||||||||
| Floor brokerage and clearing organization charges |
1,177 | 1,381 | 4,346 | 4,830 | ||||||||||||
| Advertising and promotional |
568 | 745 | 2,493 | 2,504 | ||||||||||||
| Other |
5,827 | 8,142 | 18,155 | 22,909 | ||||||||||||
| 72,632 | 66,114 | 204,873 | 193,029 | |||||||||||||
| Income before income tax expense and minority interest in consolidated subsidiaries |
8,808 | 3,586 | 45,639 | 12,458 | ||||||||||||
| Income tax expense |
3,104 | 1,806 | 15,848 | 4,618 | ||||||||||||
| Income before minority interest in consolidated subsidiaries |
5,704 | 1,780 | 29,791 | 7,840 | ||||||||||||
| Minority interest in consolidated subsidiaries |
(111 | ) | (299 | ) | (626 | ) | (820 | ) | ||||||||
| Net income |
5,593 | 1,481 | 29,165 | 7,020 | ||||||||||||
| Other comprehensive income (loss): |
||||||||||||||||
| Net holding gains and losses, net of tax of $158 and $327 for the three and nine months ended March 24, 2005 and ($300) and $1,056 for the three and nine months ended March 26, 2004 |
(114 | ) | (561 | ) | 52 | 2,668 | ||||||||||
| Reclassification for hedging activities, net of tax of $9 for the nine months ended March 24, 2005 and $284 and $781 for the three and nine months ended March 26, 2004 |
— | 527 | 17 | (1,450 | ) | |||||||||||
| Maturity of DARTSSM, net of tax of $6,262 |
— | — | (12,471 | ) | — | |||||||||||
| Net income (loss) recognized in other comprehensive income |
(114 | ) | (34 | ) | (12,402 | ) | 1,218 | |||||||||
| Comprehensive income |
$ | 5,479 | $ | 1,447 | $ | 16,763 | $ | 8,238 | ||||||||
| Earnings per share - basic |
||||||||||||||||
| Net income |
$ | 0.32 | $ | 0.09 | $ | 1.70 | 0.41 | |||||||||
| Weighted average shares outstanding – basic |
17,275,934 | 17,121,144 | 17,194,927 | 17,097,709 | ||||||||||||
| Earnings per share – diluted |
||||||||||||||||
| Net income |
$ | 0.32 | $ | 0.09 | $ | 1.68 | $ | 0.41 | ||||||||
| Weighted average shares outstanding – diluted |
17,501,027 | 17,290,101 | 17,389,953 | 17,292,354 | ||||||||||||
See accompanying Notes to Consolidated Financial Statements.
- 2 -
SWS Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 24, 2005 and March 26, 2004
(In thousands)
(Unaudited)
| For the Nine Months Ended |
||||||||
| March 24, 2005 |
March 26, 2004 (see “- Restatement of Cash Flow Statement”) |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 29,165 | $ | 7,020 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
4,666 | 4,623 | ||||||
| Amortization of discounts on loans purchased |
(808 | ) | (831 | ) | ||||
| Provision for doubtful accounts |
3,550 | 3,241 | ||||||
| Deferred income tax expense (benefit) |
(1,590 | ) | 756 | |||||
| Deferred compensation |
779 | 754 | ||||||
| Gain on sale of loans |
(593 | ) | (1,502 | ) | ||||
| Loss on sale of fixed assets |
48 | — | ||||||
| (Gain) loss on sale of real estate |
(214 | ) | 430 | |||||
| Gain on maturity of DARTSSM |
(23,567 | ) | — | |||||
| Equity in undistributed losses on investments |
612 | 4,088 | ||||||
| Net change in minority interest in consolidated subsidiaries |
(1,317 | ) | 511 | |||||
| Change in operating assets and liabilities: |
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