<PAGE>
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 June 30, 1999 Commission File No. 0-9377
------------------- ---------
KINNARD INVESTMENTS, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0972952
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(State of incorporation) (I.R.S. Employer identification number)
920 Second Avenue South, Minneapolis, Minnesota 55402 (612) 370-2700
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(Address of principal executive offices) Telephone number
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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 August 10, 1999: 5,040,415
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I
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..............................10
PART II
OTHER INFORMATION....................................................16
</TABLE>
2
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
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(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,121 $2,689
Receivable from clearing firm 421 1,009
Miscellaneous receivables 3,256 3,527
Trading securities, at market 11,202 8,221
Office equipment at cost, less accumulated depreciation
of $3,050 and $2,540, respectively 1,632 1,888
Investment securities, at fair value 14,051 16,918
Income tax receivable 1,229 1,456
Deferred income taxes 425 242
Other assets 362 414
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Total assets $34,699 $36,364
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Securities sold but not yet purchased, at market $805 $257
Accrued compensation 3,352 3,770
Other accounts payable and accrued expenses 2,537 2,831
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Total liabilities 6,694 6,858
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Shareholders' equity
Preferred stock, authorized 1,000 shares; none issued or outstanding 0 0
Undesignated stock, authorized 12,000 shares; none issued or outstanding 0 0
Common stock, $.02 par value; authorized 12,000 shares; issued and
outstanding 5,040 and 5,483 shares, respectively 101 110
Additional paid-in capital 7,095 9,265
Retained earnings 20,809 20,131
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Total shareholders' equity 28,005 29,506
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Total liabilities and shareholders' equity $34,699 $36,364
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</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
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(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenues:
Commissions $4,347 $3,793 $8,524 $7,436
Principal transactions 5,520 3,573 10,569 8,780
Investment banking 1,462 1,640 2,024 3,621
Interest 418 323 811 698
Other 859 784 1,824 1,513
- ---------------------------------------------------------------------------------------------------------------------------
Total operating revenues 12,606 10,113 23,752 22,048
- ---------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Compensation and benefits 8,433 8,058 16,063 16,773
Floor brokerage and clearance 944 873 1,910 1,847
Communications 191 228 389 409
Occupancy and equipment 1,250 1,443 2,686 2,860
Other 1,411 1,557 2,411 2,726
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 12,229 12,159 23,459 24,615
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Operating income (loss) 377 (2,046) 293 (2,567)
Net gains (losses) on investment account 200 (203) 872 764
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Pretax income (loss) 577 (2,249) 1,165 (1,803)
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Income tax expense (benefit) 253 (906) 487 (723)
Net income (loss) $324 ($1,343) $678 ($1,080)
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Earnings (loss) per common share:
Basic $0.06 ($0.22) $0.13 ($0.18)
Diluted $0.06 ($0.22) $0.13 ($0.18)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Stock Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 6,027 $120 $12,710 $23,199 $36,029
- -----------------------------------------------------------------------------------------------------------------------------
Issuance of shares under employee
stock option plan 68 1 230 231
Issuance of new shares 325 7 1,700 1,707
Repurchase of stock (465) (9) (2,694) (2,703)
Net income 308 308
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Balance, December 31, 1997 5,955 119 11,946 23,507 35,572
- -----------------------------------------------------------------------------------------------------------------------------
Issuance of shares under employee
stock purchase plan 13 0 78 78
Issuance of shares under employee
stock option plan 81 2 379 381
Repurchase of stock (566) (11) (3,138) (3,149)
Net loss (3,376) (3,376)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 5,483 110 9,265 20,131 29,506
- -----------------------------------------------------------------------------------------------------------------------------
Issuance of shares under employee
stock option plan 17 0 68 68
Repurchase of stock (460) (9) (2,238) (2,247)
Net income 678 678
- -----------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 (unaudited) 5,040 $101 $7,095 $20,809 $28,005
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</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
---------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers and clearing firm $21,096 $20,743
Cash paid to suppliers and employees (23,285) (24,510)
Interest:
Received 811 698
Income taxes paid (received) (443) 99
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,821) (2,970)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities 9,173 10,001
Purchase of:
Office equipment (307) (1,340)
Investment securities (5,434) (9,520)
Funds released from escrow 0 1,593
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 3,432 734
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 68 414
Repurchase of common stock (2,247) (305)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (2,179) 109
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Decrease in cash and cash equivalents (568) (2,127)
Cash and cash equivalents at beginning of period 2,689 3,886
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $2,121 $1,759
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
-------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH USED IN OPERATING ACTIVITIES:
Net income (loss) $678 ($1,080)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 563 469
Net unrealized (gain) loss on investment securities 367 (129)
Net realized gain on sale of investment securities (1,239) (635)
Deferred income taxes (183) 67
(Increase) decrease in:
Receivable from clearing firm 588 (1,229)
Miscellaneous receivables 271 (84)
Trading securities at market (2,981) 732
Income tax receivable 227 (673)
Other assets 52 144
Increase (decrease) in:
Due to clearing firm 0 (1,069)
Securities sold but not yet purchased, at market 548 (112)
Accrued compensation (418) (788)
Other accounts payable and accrued expenses (294) 1,435
Income taxes payable 0 (18)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities ($1,821) ($2,970)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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, 1998. The results of operations for
the six months ended June 30, 1999 are not necessarily indicative
of the results to be expected for the year ended December 31,
1999.
The consolidated statement of financial condition as of June 30,
1999 and other financial information for the six months ended June
30, 1999 and 1998 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.
NOTE 2. COMMITMENTS AND CONTINGENT LIABILITIES
John G. Kinnard is a defendant in various actions relating to it
business, some of which involve claims for unspecified amounts.
Although the resolution of these matters cannot be predicted with
certainty, management believes that while their outcome 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.
NOTE 3. SEGMENTS
The Company's reportable segments are: retail sales, equity
capital markets, fixed income and other. The retail segment
consists of various retail branch locations and the financial
services division. Equity capital markets consists of equity
trading, institutional sales, research and investment banking.
Fixed income includes the origination, trading and institutional
sales of fixed income securities. Other consists of general
corporate and administrative support functions. The Company does
not provide balance sheet data for segment reporting as this data
is not measured.
Information concerning operations in these segments of business is
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
Three months Ended Six months ended
- ---------------------------------------------------------------------------------------------------------------
June 30, 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Retail sales $7,096 $6,472 $13,992 $13,016
Equity capital markets 2,628 1,777 5,061 5,293
Fixed income 2,467 1,458 3,879 2,893
Other 415 406 820 846
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12,606 10,113 23,752 22,048
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Operating income (loss):
Retail sales 1,277 842 2,457 1,023
Equity capital markets (57) (1,296) (479) (1,063)
Fixed income 662 266 898 450
Other (1,505) (1,858) (2,583) (2,977)
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$377 ($2,046) $293 ($2,567)
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- ---------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4. ACQUISITION OF MILLER & SCHROEDER FINANCIAL, INC.
The Company announced on August 6, 1999 that it had notified MI
Acquisition Corporation of the exercise of its right to terminate
the Merger Agreement between the two companies. Capitalized costs
of $68,000 recorded as of June 30, 1999 in contemplation of the
merger will be expensed during the third quarter. Additional
estimated costs of approximately $300,000 will be expensed during
the third quarter.
9
<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 - Form 10-K for the year ended
December 31, 1998.
RESULTS OF OPERATIONS
The following table sets forth a summary of second quarter and six
month increases (decreases) in the categories of revenues and
expenses for 1999 versus 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------------------------------------------
Three months Six months
ended ended
June 30 Change Percent June 30 Change Percent
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Retail sales $7,096 $624 9.6% $13,992 $976 7.5%
Equity capital markets 2,628 851 47.9 5,061 (232) (4.4)
Fixed income 2,467 1,009 69.2 3,879 986 34.1
Other 415 9 2.2 820 (26) (3.1)
------------------------------- -----------------------------
Total operating revenues 12,606 2,493 24.7 23,752 1,704 7.7
------------------------------- -----------------------------
Operating income:
Retail sales 1,277 435 51.7 2,457 1,434 140.2
Equity capital markets (57) 1,239 95.6 (479) 584 54.8
Fixed income 662 396 148.9 898 448 99.6
Other (1,505) 353 19.0 (2,583) 394 13.2
------------------------------- -----------------------------
Total operating income (loss) 377 2,423 118.4 293 2,860 111.4
------------------------------- -----------------------------
Net gains on investment account 200 403 198.5 872 108 14.1
Pretax income 577 2,826 125.7 1,165 2,968 164.6
Income tax expense 253 1,159 127.9 487 1,210 167.4
------------------------------- -----------------------------
Net income $324 $1,667 124.1% $678 $1,758 162.7%
- --------------------------------------------------------------------------------- ---------------------------------------------
</TABLE>
10
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The improved quarterly data compared to the same quarter last year reflected
stronger investor interest in the overall market as well as interest in the
smaller market capitalization companies that the Company follows. Also
contributing to the improvement was a record quarter in the Company's fixed
income business as well as retail efforts. This continued investor interest
based on a stronger overall market contributed to the positive results for the
current six month period compared to the same period last year.
RETAIL SALES. The Retail Sales business segment consists of various branch
locations and the financial services division. Revenue is generated primarily on
commissions generated by the sale of financial products and services to
individual investors.
The improvement in retail revenues continued during the second quarter due to
increased transaction levels and improved investment executive productivity. The
major investment indices continued in an upward fashion which continued to fuel
retail investor interest. Products that recorded significant revenue increases
included OTC agency, listed equity securities, options, unit trusts, cash
management and interest income. This activity during the second quarter
strengthened contributed to the overall 7.5% increase in revenues for the six
month period.
The operating profit of Retail Sales in the current quarter was $1.3
million,compared to $842 thousand for the prior year quarter and $2.5 million
for the current six month period compared to $1.0 million for the same six month
period last year. The improvement was due to the revenue increase, the closing
of unprofitable offices, implementation of operating efficiencies, and a
reduction in clearing charges. As a result of converting its clearing business
to NationsBank Montgomery Securities in June 1998, the Company continues to
benefit from lower transaction fees to process most trades.
EQUITY CAPITAL MARKETS. Equity Capital Markets consists of equity trading,
institutional sales, research and investment banking. Investment banking
includes the fees earned on public equity underwritings, private placements and
merger and acquisition transactions.
The increase in Equity Capital Markets revenue for the current quarter compared
to the same quarter last year was the result of higher trading volumes and
renewed investor interest in the small-cap equity market in which the Company
specializes. Yet the current six month period trails the comparable six month
period primarily due to reduced investment banking activity. Equity investment
banking was off from last year which had the firm's largest underwriting during
the second quarter of 1998 added to two underwritings in the first quarter of
1998 versus no underwritings during the first half of 1999. The timing of
investment banking activity can vary significantly from period to period based
on market conditions and other factors. The decline in equity investment banking
activity along with thinner trading spreads contributed to the decline in
operating income for both the comparable quarter and six month results.
FIXED INCOME. Fixed income includes the origination, trading and institutional
sale of fixed income securities. The Fixed Income group results are driven
largely by activity of the originations department which raises capital for
municipal and corporate clients located primarily in the Upper Midwest.
Fixed Income operating revenues increased by $1.0 million for both the quarter
and six month period versus the same periods in the prior year. Origination
activity increased significantly from the prior year as the Company completed
its largest ever public finance transaction in the current quarter. This
activity contributed to the increase of $400 thousand for the current quarter
and six month period compared to the same periods last year. Other revenue
changes included increases in cash management and municipal bond sales.
11
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
CORPORATE. Corporate consists of various administrative functions required to
support the revenue generating business units such as Accounting, Human
Resources and Marketing.
The operating loss in the Corporate area continued to lessen versus the same
periods last year as the Company has continued to benefit from implemented
efficiencies that enable a reduction of corporate expenses. The Company
converted to a new clearing firm during the second quarter of 1998 which
incurred additional expenses leading to a more positive comparison to the second
quarter and six month results of 1999.
The net gain on the investment account of $200 thousand in the current quarter
compares to a net loss of $203 thousand in the prior year. The net gain for the
current six month period was $872 thousand compared to $764 thousand for the
same period last year. The Company's investment account has historically been a
volatile source of income, and may change significantly from period to period.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
A large portion of the Company's assets are cash and assets readily convertible
to cash. The liquid portions 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 $625 thousand at
June 30, 1999, are stated at fair value, which is determined by management's
best estimate.
Between December 31, 1998 and June 30, 1999, trading securities increased $3.0
million, and securities sold but not yet purchased increased by $548 thousand.
Both long and short inventories are generally maintained to facilitate customer
transactions rather than for market speculation.
Based on the Company's current liquidity positions, 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 Company's investment account is invested in fixed income securities,
publicly traded equity securities and privately placed equity securities. Equity
securities are frequently held as a result of past investment banking activities
performed by the Company. In addition, the Company may utilize outside advisors
to manage a portion of the investment portfolio.
The value of certain securities held in the investment account can fluctuate
significantly, with the resulting valuation changes being reported as net gains
or losses on the investment account. These fluctuations in value can have a
material impact on reported earnings.
FINANCING ACTIVITIES
John G. Kinnard maintains a credit facility in order to meet short-term
operating needs. At December 31, 1998 and June 30, 1999 there were no
outstanding balances under this facility.
12
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCING ACTIVITIES (CONTINUED)
During the first six months of 1999, the Company repurchased 460,000 shares of
its common stock at a total cost of $2.2 million. For the full year of 1998, a
total of 566,000 shares were repurchased at a cost of $3.1 million. The Board of
Directors has authorized the repurchase of up to 1.6 million shares of the
Company's common stock, of which a total of 737,000 shares have been repurchased
as of June 30, 1999.
The company announced on August 6, 1999 that it had notified MI Acquisition
Corporation of the exercise of its right to terminate the Merger Agreement
between the two companies. Capitalized costs of $68,000 recorded as of June 30,
1999 in contemplation of the merger will be expensed during the third quarter.
Additional estimated costs of approximately $300,000 will be expensed during the
third quarter.
YEAR 2000 ISSUE
Year 2000 readiness presents corporate-wide challenges for all companies. The
Company recognizes the importance of the Year 2000 issues and its impact on
information technology and non-information technology systems. As a result, the
Company is actively managing efforts to plan, allocate resources, and monitor
progress to achieve Year 2000 readiness.
The executive sponsor for the Company's Year 2000 project is JGK's Chief
Executive Officer and Chairman of the Board. The managing executive is JGK's
Senior Vice President of Corporate Development. Reporting to the managing
executive is the Year 2000 Committee, which is lead by the Director of the
MIS/Communications department and includes managers from most major functional
areas of the Company. This group is responsible for managing critical success
factors, implementation of action plans, and reporting progress to executive
management.
The Company believes that is has adequate staffing and human resources to
complete its Year 2000 plan. Although retention has not been an issue, the
Company does rely on certain key individuals who may be difficult to replace in
timely fashion if they were to leave.
The Company has defined mission critical systems as those systems whose loss
would cause an immediate stoppage or significant impairment to core business
areas. Systems identified as mission critical include back office data, quote
delivery, trading, communication and accounting systems. In addition, the
Company clears its trades through a third-party clearing firm upon whose systems
it is reliant.
The majority of internal systems with a Year 2000 problem were addressed in
calendar year 1998. The Company's capital budget does not specifically identify
expenditures related to the Year 2000, although many items in the capital budget
relate to upgrading or replacing application that are not Year 2000 compliant.
During 1998, the Company spent $1.5 million for capital equipment (which
includes software purchases) versus $1.1 million in 1997. The cost to remediate
the small number of systems that are not currently Year 2000 compliant has not
been determined, although the Company does not expect such costs to have a
material effect on the Company's consolidated financial statements, and expects
to fund such costs from working capital.
As a member of the Securities Industry Association, the Company is updated on
the progress of industry-wide testing, and was a direct participant in the
industry tests conducted in early 1999. The Company has been conducting
point-to-point testing of both its mission critical and non-mission critical
systems, and expects to complete this process by September 30, 1999. No material
system deficiencies have resulted from tests conducted as of the reporting date.
Because the Company operates as a fully-disclosed broker-dealer, a large portion
of its information systems are provided by third parties. If these outside
information providers, which include securities exchanges, clearing agencies and
other financial institutions, should experience a significant disruption as a
result of the Year 2000 problem, such disruption could affect the Company's
ability to conduct business and may have a material adverse effect on the
Company's results of operations.
13
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 ISSUE (CONTINUED)
The Company has developed a written contingency plan to provide for continuity
under various scenarios. The contingency plan will be updated and modified
during 1999 as the Company makes additional progress in addressing the Year 2000
issue.
CAUTIONARY STATEMENTS
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 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, 1998.
14
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The primary market risk exposure of the Company is the impact that market and
interest rate volatility may have on the value of financial securities and
underwriting commitments. The Company manages this risk exposure through a
process of internal controls, due diligence and management review. Position
limits for trading and inventory controls are established and monitored on an
ongoing basis. The trading inventory is turned over frequently throughout the
year. Securities held in the investment portfolio are guided by an investment
policy and are reviewed on a regular basis. Current and proposed underwriting
and other banking commitments are subject to due diligence reviews by the
appropriate business unit as well as by senior management.
The Company has evaluated its financial securities and underwriting commitments
at June 30, 1999 and assessed the related market risk. This inventory is turned
over frequently through the year. Based on this evaluation, in the opinion of
management, the market risk associated with the Company's financial securities
may have a material effect on the earnings in a particular period, but will not
have a material adverse effect on the financial condition of the Company.
15
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
See Note 2 in Notes to Consolidated Financial Statements.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were voted on at the Registrant's
Annual Meeting held on May 20, 1999:
1. Amend the Bylaws to provide for staggered election of directors.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF
VOTES FOR VOTES AGAINST ABSTENTIONS NUMBER OF BROKER
NONVOTES
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2,240,876 883,140 4,575 1,618,605
----------------------------------------------------------------------------------------------
</TABLE>
1. Set the number of directors at eight (8).
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF
VOTES FOR VOTES AGAINST ABSTENTIONS NUMBER OF BROKER
NONVOTES
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,675,008 53,613 18,575 0
----------------------------------------------------------------------------------------------
</TABLE>
1. Election of Directors.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
NUMBER OF VOTES FOR NUMBER OF BROKER
WITHHELD
----------------------------------------------------------------------------------------------
<S> <C> <C>
Ronald A. Erickson 4,162,924 584,272
----------------------------------------------------------------------------------------------
William F. Farley 3,999,624 747,572
----------------------------------------------------------------------------------------------
John J. Fauth 4,076,624 670,572
----------------------------------------------------------------------------------------------
Stephen H. Fischer 4,162,997 584,199
----------------------------------------------------------------------------------------------
John H. Grunewald 4,162,924 584,272
----------------------------------------------------------------------------------------------
Andrew J. O'Connell 4,112,924 634,712
----------------------------------------------------------------------------------------------
Robert D. Potts 4,076,024 671,172
----------------------------------------------------------------------------------------------
Robert S. Spong 4,112,124 635,072
----------------------------------------------------------------------------------------------
</TABLE>
ITEM 5 - OTHER INFORMATION
On August 6, 1999, the Company notified MI
Acquisition Corporation ("MIAC") of the exercise of its right
to terminate the Agreement and Plan of Merger dated May 16,
1999 (the "Merger Agreement"), among the Company, MIAC and a
wholly owned subsidiary of the Company. A copy of the press
release announcing the Company's decision to terminate the
Merger Agreement is attached as Exhibit 99 hereto.
16
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
(CONTINUED)
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule (filed in electronic
format only)
99 Press release dated August 6, 1999 announcing
exercise of right to terminate Merger
Agreement
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K filed on June 4, 1999.
(c) EARNINGS PER SHARE
Basic earnings per share are based upon the weighted
average number of common shares outstanding during the
reporting period. Diluted earnings per share take into
account the dilutive effect, if any, of stock options
and other potential dilutive common shares outstanding
during the period.
The following reconciliation illustrates the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED SIX MONTHS ENDED
------------- ----------------
6/30/99 6/30/98 6/30/99 6/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $324 ($1,343) $678 ($1,080)
--------------------------------------------------------------------------------------
Weighted average number of 5,055 5,990 5,207 5,982
common shares outstanding
Dilutive effect of stock options and 16 0 17 0
Warrants
Weighted average number of 5,071 5,990 5,224 5,982
common and potential dilutive
common shares outstanding
--------------------------------------------------------------------------------------
Basic earnings (loss) per share $0.06 $(0.22) $0.13 $(0.18)
Diluted earnings (loss) per share $0.06 $(0.22) $0.13 $(0.18)
--------------------------------------------------------------------------------------
</TABLE>
17
<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/ George F. Stroebel
-------------------------------------------
George F. Stroebel
Chief Financial Officer (principal financial
officer and chief accounting officer)
Date 08/10/99
-----------------------
18
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
KINNARD INVESTMENTS, INC.
(Commission File Number: 0-9377)
EXHIBIT INDEX
for
Form 10-Q for the quarter ended June 30, 1999
<TABLE>
<CAPTION>
Exhibit Description Method of Filing
<C> <S> <S>
27 Financial Data Schedules Electronic transmission
99 Press Release dated August 6, 1999 Electronic transmission
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,121
<RECEIVABLES> 3,677
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 25,253
<PP&E> 1,632
<TOTAL-ASSETS> 34,699
<SHORT-TERM> 0
<PAYABLES> 5,889
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 805
<LONG-TERM> 0
0
0
<COMMON> 101
<OTHER-SE> 27,904
<TOTAL-LIABILITY-AND-EQUITY> 34,699
<TRADING-REVENUE> 10,569
<INTEREST-DIVIDENDS> 811
<COMMISSIONS> 8,524
<INVESTMENT-BANKING-REVENUES> 2,024
<FEE-REVENUE> 1,824
<INTEREST-EXPENSE> 0
<COMPENSATION> 16,063
<INCOME-PRETAX> 1,165
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 678
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
EXHIBIT NO. 99
KINNARD INVESTMENTS, INC. ANNOUNCES TERMINATION OF PROPOSED
ACQUISITION OF MILLER & SCHROEDER FINANCIAL, INC.
MINNEAPOLIS (August 6, 1999) Minneapolis-based financial services firm Kinnard
Investments, Inc. (Nasdaq: KINN) today announced that it has notified Miller &
Schroeder Financial, Inc., a closely held Minneapolis fixed-income investment
banker, of the exercise of its right to terminate the Merger Agreement between
the two companies.
"Consummation of this acquisition would not be in the best interest of Kinnard
shareholders," said William F. Farley, Chairman and Chief Executive Officer of
Kinnard. "We are experiencing growth and strength in our core businesses and
will focus our efforts on continued growth of our retail, fixed income and
equity activities."
Kinnard is a full-service investment-banking firm with 13 branch offices in
three states, and 286 employees. The Company is a member of the Securities
Investor Protection Corporation (SIPC) and the Chicago Stock Exchange.
This statement contains certain forward-looking statements, which may involve
known and unknown risk, uncertainties and other factors not under Kinnard's
control which may cause actual results, performance and achievements of Kinnard
to be materially different from the results, performance or expectations of
Kinnard. These factors include, but are not limited to those detailed in
Kinnard's periodic filings with the Securities and Exchange Commission.
Kinnard Investments, Inc., is a Minneapolis-based financial services holding
company engaged in securities brokerage, trading, investment banking, fixed
income products, asset management and related financial services. The Company's
common stock is traded on the NASDAQ National Market System under the symbol
"KINN." Kinnard's website is < http://www.jgkinnard.com/>.
