SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996 Commission File No. 0-9377
KINNARD INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0972952
(State of incorporation) (I.R.S. Employer identification number)
920 Second Avenue South, Minneapolis, Minnesota 55402 (612) 370-2700
(Address of principal executive offices) Telephone number
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 at least the past 90 days. Yes X No _____
Shares of $0.02 par value common stock outstanding at November 12, 1996:
6,008,563
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONTENTS
PART I ......... Page
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statements of financial condition................3
Consolidated statements of operations.........................4
Consolidated statements of shareholders' equity...............5
Consolidated statements of cash flows.........................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................12
PART II
OTHER INFORMATION................................................14
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,599 $ 5,766
Receivable from clearing firm and other broker-dealers 5,813 4,324
Receivable from customers 16,440 9,734
Miscellaneous receivables 2,635 1,549
Trading securities, at market 8,027 10,226
Office equipment at cost, less accumulated depreciation
of $4,089 and $3,604, respectively 1,950 1,740
Investment securities, at fair value 10,068 11,827
Other assets 808 731
------- -------
Total assets $54,340 $45,897
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable $ 5,100 $ 6,307
Due to clearing firm and other broker-dealers 876 405
Payable to customers 3,780 3,184
Securities sold but not yet purchased, at market 1,406 1,659
Employee compensation and related taxes payable 6,869 3,649
Other accounts payable and accrued expenses 5,745 4,489
Income taxes payable 55 346
Deferred tax liability 482 553
------- -------
Total liabilities 24,313 20,592
------- -------
Shareholders' equity
Preferred stock, authorized 1,000 shares; none issued or outstanding 0 0
Undesignated stock, authorized 16,500 shares; none issued or outstanding 0 0
Common stock, $.02 par value; authorized 7,500 shares; issued and
outstanding 6,009 and 6,257 shares, respectively 120 125
Additional paid-in capital 12,679 13,680
Retained earnings 17,228 11,500
------- -------
Total shareholders' equity 30,027 25,305
------- -------
Total liabilities and shareholders' equity $54,340 $45,897
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Commission income $9,457 $6,901 $30,484 $19,543
Principal transactions 7,948 9,290 28,884 24,269
Investment account income 1,087 2,070 5,128 6,585
Investment banking 1,181 1,968 4,737 3,706
Interest 804 511 2,062 1,333
Other 1,195 798 3,470 2,131
------ ------ ------- -------
Total revenues 21,672 21,538 74,765 57,567
------ ------ ------- -------
Operating Expenses:
Compensation and benefits 10,182 11,387 35,826 29,511
Bank commissions 4,298 2,619 13,063 6,973
Floor brokerage and clearance 1,174 1,225 3,833 3,180
Communications 314 306 947 936
Occupancy and equipment 1,653 1,432 4,733 4,303
Litigation settlements 317 232 959 2,223
Other 1,834 2,390 5,847 5,834
------ ------ ------- -------
Total operating expenses 19,772 19,591 65,208 52,960
------ ------ ------- -------
Income before income taxes 1,900 1,947 9,557 4,607
Income tax expense 761 812 3,829 1,889
------ ------ ------- -------
Net income $1,139 $1,135 $5,728 $2,718
------ ------ ------- -------
Earnings per common share:
Primary $0.19 $0.18 $0.94 $0.44
Fully diluted $0.19 $0.18 $0.93 $0.43
------ ------ ------- -------
Weighted average number of common and
common equivalent shares outstanding:
Primary 6,085 6,272 6,101 6,212
Fully diluted 6,140 6,276 6,190 6,283
====== ====== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Additional Unearned
Common Stock Issued Paid-in Compen- Retained
Shares Amount Capital sation Earnings
------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 6,033 $121 $13,245 ($107) $11,930
------ ------ ------- -------- --------
Dividends on common stock ($.10 per share) (598)
Exercise of warrants 21 0 47
Issuance of shares under employee
stock option plan 57 1 299
Repurchase of stock (230) (4) (730)
Amortization of unearned compensation 81
Net loss (3,210)
------ ------ ------- -------- --------
Balance, December 31, 1994 5,881 118 12,861 (26) 8,122
------ ------ ------- -------- --------
Forfeiture of restricted shares and adjustment
to common stock dividend (1) (5) 6 2
Exercise of warrants 381 7 850
Issuance of shares under employee
stock option plan 11 0 22
Repurchase of stock (15) 0 (48)
Amortization of unearned compensation 20
Net income 3,376
------ ------ ------- -------- --------
Balance, December 31, 1995 6,257 125 13,680 0 11,500
------ ------ ------- -------- --------
Issuance of shares under employee
stock purchase plan 11 0 51
Issuance of shares under employee
stock option plan 31 1 77
Repurchase of stock (290) (6) (1,129)
Net income 5,728
------ ------ ------- -------- --------
Balance, September 30, 1996 (unaudited) 6,009 $120 $12,679 $0 $17,228
====== ====== ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
(Unaudited)
------ -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers, broker-dealers and clearing agencies $61,922 $45,072
Cash paid to suppliers and employees (60,596) (46,382)
Minority interest 5
Interest:
Received 2,062 1,333
Paid (205) (49)
Income taxes refunded (paid) (4,191) 923
------ -------
Net cash provided by (used in) operating activities (1,008) 902
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities 13,901 26,786
Purchase of:
Office equipment (833) (331)
Investment securities (7,014) (25,907)
------ -------
Net cash provided by investing activities 6,054 548
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (repurchase) of common stock (1,006) 826
Net borrowings (payments) on notes payable and
revolving credit agreements (1,207) 1,715
Dividends paid 0 (147)
------ -------
Net cash provided by (used in) financing activities (2,213) 2,394
------ -------
Increase in cash and cash equivalents 2,833 3,844
Cash and cash equivalents at beginning of period 5,766 2,750
------ -------
Cash and cash equivalents at end of period $8,599 $6,594
====== =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
(Unaudited)
------- -------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $5,728 $2,718
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 623 701
Unearned compensation 0 17
Net unrealized (gain) loss on investment securities 83 (3,117)
Net realized gain on sale of investment securities (5,211) (3,468)
Net realized loss on sale of assets 0 14
Deferred income taxes (71) 545
(Increase) decrease in:
Receivable from clearing firm and other brokers-dealers (1,489) (3,025)
Receivable from customers (6,706) (3,201)
Miscellaneous receivables (1,086) (335)
Trading securities, at market 2,199 471
Income tax receivable 0 1,187
Other assets (77) 254
Increase (decrease) in:
Due to clearing firm and other broker-dealers 471 (1,030)
Payable to customers 596 541
Securities sold but not yet purchased, at market (253) 628
Employee compensation and related taxes payable 3,220 3,148
Income taxes payable (291) 1,080
Other accounts payable and accrued expenses 1,256 3,774
------- -------
Net cash provided by (used in) operating activities ($1,008) $902
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The accompanying consolidated financial statements of Kinnard Investments, Inc.,
(the "Company") have been prepared in conformity with generally accepted
accounting principles and should be read in conjunction with the Company's
annual report for the year ended December 31, 1995. The results of operations
for the nine months ended September 30, 1996 are not necessarily indicative of
the results to be expected for the year ended December 31, 1996.
The consolidated statement of financial condition as of September 30, 1996 and
other financial information for the nine months ended September 30, 1996 and
1995, are unaudited, but management of the Company believes that all adjustments
(consisting only of normal recurring adjustments) necessary for a fair statement
of the results of operations for the periods have been included.
For comparability, certain 1995 amounts have been reclassified to conform with
the presentation for 1996. The reclassifications had no effect on net income or
shareholders' equity as previously reported.
Note 2. Net Capital Requirements
Pursuant to the net capital provisions of the Securities Exchange Act of 1934,
the Company's subsidiaries, John G. Kinnard and Company, Incorporated ("JGK"),
and PRIMEVEST Financial Services, Inc. ("PFS"), are required to maintain a
minimum net capital as defined under such provisions. Also under this rule,
JGK's ratio of aggregate indebtedness to net capital may not exceed 15 to 1, and
PFS's percentage of net capital to aggregate debit items, both as defined, must
be greater than 2%. Broker-dealers may be prohibited from expanding their
business or declaring cash dividends if certain requirements are not met. For
JGK, the restrictions would apply if its ratio of aggregate indebtedness to net
capital is greater than 10 to 1, and for PFS, if its net capital is less than 5%
of aggregate debit balances.
At September 30, 1996, JGK had net capital of $7.1 million, a net capital
requirement of $668,000 and a ratio of aggregate indebtedness to net capital of
1.36 to 1. PFS had net capital of $2.8 million, a net capital requirement of
$274,000 and a ratio of net capital to aggregate debit items of 20%.
Note 3. Shareholders' Equity
During the first nine months of 1996, the Company repurchased 290,000 shares of
its common stock at a total cost of $1.1 million. The Board of Directors has
authorized the repurchase of up to 1.1 million shares of the Company's common
stock, of which a total of 548,000 shares have been repurchased as of September
30, 1996.
During the first nine months of 1996, 31,000 options with exercise prices of
$1.98 to $4.75 per shares were exercised, generating proceeds of $78,000.
Note 4. Commitments and Contingent Liabilities
JGK is a defendant in various actions relating to its business, some of which
involve claims for unspecified amounts. Although the ultimate outcome of these
other matters cannot be predicted with certainty, the Company's management
believes that while the outcome of these matters may have a material effect on
the earnings in a particular period, the outcome will not have a material
adverse effect on the financial condition of the Company.
In the normal course of business, the Company enters into underwriting and other
commitments. The ultimate settlement of such transactions open at quarter-end is
not expected to have a material effect on the financial statements.
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Sale of Subsidiary
On October 31, 1996, the Company completed the sale of PFS to ReliaStar
Financial Corporation ("ReliaStar"). The sale price was $15.5 million in cash,
of which $1.5 million was placed in escrow to secure indemnification obligations
to ReliaStar. In addition, prior to the sale PFS made a dividend of its
investment account with a market value of $854,000 to the Company. The after-tax
gain on the sale is estimated to be $6.5 million or $1.08 per share.
The following unaudited condensed consolidated statement of financial condition
was prepared to reflect the sale of PFS as if the transaction had occurred as of
September 30, 1996, and the unaudited pro forma condensed consolidated
statements of operations as if the transaction occurred at the beginning of the
respective nine and twelve month periods. These financial statements have been
prepared based on the foregoing and on certain assumptions described in the
notes thereto. Such statements should be read in conjunction with the historical
financial statements of the Company, including the notes thereto, which are
included in the Company's Annual Report on form 10-K for the year ended December
31, 1995. The following pro forma financial statements do not purport to be
indicative of the results of operations which may be reported in the future:
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited) (In thousands)
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Net assets Pro forma Pro forma
September 30, 1996 As reported of PFS adjustments statements
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $8,599 ($415) $8,184
Restricted cash 0 0 1,500 a 1,500
Receivables 24,888 (19,398) 5,490
Trading securities, at market 8,027 (214) 7,813
Office equipment, net 1,950 (645) 1,305
Investment securities 10,068 (854) 17,854 a,b,c 27,068
Other assets 808 (600) 208
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total assets $54,340 ($22,126) $19,354 $51,568
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Liabilities
Notes payable $5,100 ($8,100) $3,000 b $0
Payable to broker-dealers and customers 4,656 (4,655) 1
Securities sold but not yet purchased 1,406 (112) 1,294
Compensation and related taxes payable 6,869 (1,329) 5,540
Other accounts payable and accruals 5,745 (2,161) 3,584
Income taxes payable 55 (306) 4,357 d 4,106
Deferred tax liability 482 (327) 327 c 482
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total liabilities 24,313 (16,990) 7,684 15,007
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Shareholders' equity
Common stock 120 (815) 815 e 120
Additional paid-in capital 12,679 (1,301) 1,301 e 12,679
Retained earnings 17,228 (3,020) 9,554 d,e 23,762
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total shareholders' equity 30,027 (5,136) 11,670 36,561
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total liabilities and shareholders' equity $54,340 ($22,126) $19,354 $51,568
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Sale of Subsidiary (continued)
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In thousands, except per share data)
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Operations Pro forma Pro forma
Nine Months ended September 30, 1996 As reported of PFS adjustments statements
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Commission income $30,484 ($19,979) $10,505
Principal transactions 28,884 (1,645) (181) g 27,058
Investment account income 5,128 (116) 116 h 5,128
Investment banking 4,737 (32) 4,705
Interest 2,062 (946) 1,116
Other 3,470 (2,051) 145 f 1,564
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total revenues 74,765 (24,769) 80 50,076
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Compensation and benefits 35,826 (5,553) 30,273
Bank commissions 13,063 (13,063) 0
Other 16,319 (3,868) 115 f 12,566
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total expenses 65,208 (22,484) 115 42,839
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Income before income taxes 9,557 (2,285) (35) 7,237
Income tax expense 3,829 (925) (14) i 2,890
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Net income $5,728 ($1,360) ($21) $4,347
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Primary earnings per share $0.94 ($0.22) $0.00 $0.71
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In thousands, except per share data)
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Operations Pro forma Pro forma
Year ended December 31, 1995 As reported of PFS adjustments statements
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Commission income $26,810 ($15,539) $11,271
Principal transactions 31,787 (1,462) (255) g 30,070
Investment account income 6,563 (378) 378 h 6,563
Investment banking 5,303 (42) 5,261
Interest 1,926 (619) 1,307
Other 2,944 (1,511) 204 f 1,637
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total revenues 75,333 (19,551) 327 56,109
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Compensation and benefits 38,748 (5,112) 33,636
Bank commissions 9,775 (9,775) 0
Other 21,124 (4,104) 59 f 17,079
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total expenses 69,647 (18,991) 59 50,715
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Income before income taxes 5,686 (560) 268 5,394
Income tax expense 2,310 (225) 107 i 2,192
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Net income $3,376 ($335) $161 $3,202
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Primary earnings per share $0.54 ($0.05) $0.03 $0.51
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Sale of Subsidiary (continued)
Notes to Unaudited Pro Forma Condensed Financial Statements
a) Of the $15.5 million of proceeds from the sale of PFS, $1.5 million that
is held in escrow is recorded as restricted cash, and the remaining $14.0
million is classified as investments.
b) Elimination of $3.0 million of intercompany loans between PFS and KII
that were repaid by ReliaStar prior to closing of the sale.
c) Reflects the dividend of investment securities with a market value of
$854,000 from PFS to the Company, and transfer of the associated deferred
tax liability.
d) Represents the after-tax gain on sale of PFS, estimated at $6.5 million,
net of accrued income taxes of $4.4 million.
e) Elimination of the Company's investment in PFS.
f) Entries to reflect the elimination of inter-company activity between PFS
and other entities of the Company.
g) Represents a decrease in principal revenues relating to PFS
discontinuing the routing of its order flow through JGK.
h) Represents the income earned on investment securities held at PFS that
were transferred to the Company prior to the sale in the form of a
dividend.
i) To record the estimated income tax expense (benefit), computed at an
incremental effective rate of 40%, on the pro forma adjustments.
Earnings on the $15.5 million of proceeds from the sale of PFS were not
factored into either interest income or investment account earnings in the
unaudited pro forma condensed consolidated statements of operations.
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with Management's Discussion and
Analysis contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
Results of Operations
Revenues and net income for the quarter ended September 30, 1996 were relatively
unchanged compared to a year ago due to market fluctuations and comparison to
what had been record quarterly revenues in the third quarter of 1995. Revenues
for the quarter were $21.7 million versus $21.5 million for the same quarter
last year, while primary earnings per share were 19 cents versus 18 cents in the
prior year. The Dow Jones Industrial Average and Nasdaq Composite indices
increased 4.0% and 3.5% respectively during the current quarter.
For the nine months ended September 30, 1996, net income was $5.7 million, or 94
cents per share, on revenues of $74.8 million. This compares to net income of
$2.7 million, or 44 cents per share, on revenues of $57.6 million for the same
period a year ago.
Commission income increased 37% and 56% versus the comparable three and nine
month periods in 1995. Sales of mutual funds, variable annuity products and
over-the-counter securities were the products with the largest increases. The
growth of commission income benefited from the industry trend of significant
investments into mutual funds and from PFS developing new relationships with
financial institutions.
Revenues from principal transactions during the quarter declined $1.3 million or
14% from the prior year. The decline was due to lower transaction levels and
volatility of securities in which the Company makes a market. However, principal
transaction revenues for the nine months increased 19% from the comparable
period last year on the strength of equity trading results during the first half
of 1996.
Income resulting from the change in valuation of the investment account declined
47% for the quarter and 22% for the nine month period. The firms investment
account has historically produced volatile results.
Income from investment banking in the quarter declined $787,000 from the prior
year as the Company completed one private placement versus one initial public
offering and three private financings during the same quarter last year. Revenue
for the nine month period increased $1.0 million from the same period in 1995
due to stronger activity in the second quarter of 1996.
Interest income rose due primarily to higher levels of customer margin balances.
Other income increased 50% and 63% for the three and nine month periods due to
an increase in fee-based income.
Employee compensation for the quarter declined $1.2 million or 11% from the
prior year due in part to a charge in the prior year related to a Separation
Agreement in addition to a decrease in employee commission generated revenues.
For the three month period, bank commissions increased 64% as a result of a
similar increase in associated revenues. Floor brokerage and clearing fees
declined modestly due to lower principal transactions. Occupancy and equipment
rose 15% due in part to costs associated with converting to a new trading system
and the implementing of other new technologies. Other expenses declined 23% as a
result of expenses in the prior year related to the settlement of litigation and
cancellation of a private equity fund.
Subsequent to the end of the quarter, the Company completed the sale of PFS to
ReliaStar Financial Corporation. The sale price was $15.5 million in cash, of
which $1.5 million was placed in escrow to secure indemnification obligations to
ReliaStar. In addition, prior to the sale PFS made a dividend of its investment
account with a market value of $854,000 to the Company. The after-tax gain on
the sale is estimated to be $6.5 million or approximately $1.08 per share.
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations (continued)
For the nine months ended September 30, 1996, PFS revenues were $24.8 million or
33% of consolidated revenue, and net income was $1.4 million or 24% of
consolidated profits. Total assets and shareholders' equity at September 30,
1996 were $22.1 million and $5.1 million respectively. See Note 5 of the Notes
to Consolidated Financial Statements for pro forma financial statements
reflecting this transaction.
Liquidity and Capital Resources
Operating Activities
A large portion of the Company's assets are cash and assets readily convertible
to cash. The liquid portion of the Company's trading and investment securities
are stated at quoted market values and are readily marketable. The less liquid
portions of trading and investment securities, which totaled $3.6 million at
September 30, 1996, are stated at fair value, which is determined by
management's best estimate.
Between December 31, 1995 and September 30, 1996, trading securities decreased
$2.2 million and securities sold but not yet purchased decreased by $253,000.
Both long and short inventories are generally maintained to facilitate customer
transactions rather than for market speculation.
As securities broker-dealers, JGK and PFS are required by SEC regulations to
meet certain liquidity and capital standards. Both companies have been in
compliance with these regulations at all times.
Based on the Company's current liquidity position, available bank lines and
operating plans, it is anticipated that the Company has sufficient resources to
meet the cash requirements of its operations in the foreseeable future.
Investing Activities
The majority of investing activities during the current period resulted from the
sale and purchase of securities held in the investment account. A large portion
of the investment account is comprised of liquid investment-grade fixed income
securities.
Financing Activities
The Company's subsidiaries maintain various credit facilities in order to meet
short-term operating needs. At September 30, 1996 and December 31, 1995 there
were outstanding balances of $5.1 million and $6.3 million, respectively, under
these facilities. The outstanding debt was used primarily to finance customer
margin balances at PFS.
During the first nine months of 1996, the Company repurchased 290,000 shares of
its common stock at a total cost of $1.1 million. The Board of Directors has
authorized the repurchase of up to 1.1 million shares of the Company's common
stock, of which a total of 548,000 shares have been repurchased as of September
30, 1996.
Cautionary Statements
As provided under the Private Securities Reform Act of 1995, the Company wishes
to caution investors of the following factors which could affect the Company's
results of operations and cause such results to differ materially from those
anticipated in forward-looking statements made in this document or elsewhere by
or on behalf of the Company: volatility in the securities markets, risks in the
ownership and underwriting of securities, consolidation in the financial
services industries, volatility in earnings and losses of investment securities,
competition, government regulation, customer litigation and arbitration, and
off-balance-sheet credit and market risks. For a more complete discussion of
these and other factors, see the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
See Note 4 in Notes to Consolidated Financial Statements.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - OTHER INFORMATION
None
ITEM 5 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KINNARD INVESTMENTS, INC.
/s/ Daniel R. Sass
Controller
(principal accounting officer)
Date 11/12/96
<PAGE>
KINNARD INVESTMENTS, INC.
--------------------
EXHIBIT INDEX
to
Form 10-Q
for Quarter Ended September 30, 1996
--------------------
Exhibit
Number Description
27 Financial Data Schedule (filed in electronic format only)
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,599
<RECEIVABLES> 24,888
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 18,095
<PP&E> 1,950
<TOTAL-ASSETS> 54,340
<SHORT-TERM> 5,100
<PAYABLES> 4,656
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 1,406
<LONG-TERM> 0
0
0
<COMMON> 120
<OTHER-SE> 29,907
<TOTAL-LIABILITY-AND-EQUITY> 54,340
<TRADING-REVENUE> 28,884
<INTEREST-DIVIDENDS> 2,062
<COMMISSIONS> 30,484
<INVESTMENT-BANKING-REVENUES> 4,737
<FEE-REVENUE> 3,470
<INTEREST-EXPENSE> 0
<COMPENSATION> 35,826
<INCOME-PRETAX> 9,557
<INCOME-PRE-EXTRAORDINARY> 9,557
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,728
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.93
</TABLE>
