<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 September 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 November 4, 1999:
4,895,415
<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>
- ----------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,189 $2,689
Receivable from clearing firm 3,738 1,009
Miscellaneous receivables 4,484 3,527
Trading securities, at market 6,557 8,221
Office equipment at cost, less accumulated depreciation
of $3,350 and $2,540, respectively 1,440 1,888
Investment securities, at fair value 14,803 16,918
Income taxes receivable 756 1,456
Deferred income taxes 426 242
Other assets 268 414
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Total assets $34,661 $36,364
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Securities sold but not yet purchased, at market $248 $257
Accrued compensation 2,815 3,770
Other accounts payable and accrued expenses 4,570 2,831
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Total liabilities 7,633 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 7,500 shares; issued and
Outstanding 4,895 and 5,483 shares, respectively 98 110
Additional paid-in capital 6,489 9,265
Retained earnings 20,441 20,131
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 27,028 29,506
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Total liabilities and shareholders' equity $34,661 $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 Nine Months Ended
September 30, September 30,
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenues:
Commissions $3,814 $3,535 $12,338 $10,970
Principal transactions 5,316 2,974 15,885 11,755
Investment banking 1,012 1,116 3,036 4,738
Interest 465 414 1,276 1,112
Other 810 776 2,634 2,289
- ----------------------------------------------------------------------------------------------------------------------------
Total operating revenues 11,417 8,815 35,169 30,864
- ----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Compensation and benefits 7,695 7,238 23,758 24,011
Floor brokerage and clearance 888 729 2,797 2,576
Communications 183 269 573 678
Occupancy and equipment 1,218 1,359 3,904 4,219
Merger related costs 385 0 385 0
Other 1,611 1,123 4,022 3,849
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 11,980 10,718 35,439 35,333
- ----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (563) (1,903) (270) (4,469)
Net gains (losses) on investment account (90) (1,545) 782 (782)
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Pretax income (loss) (653) (3,448) 512 (5,251)
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Income tax expense (benefit) (285) (1,380) 202 (2,102)
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Net income (loss) ($368) ($2,068) $310 ($3,149)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Basic ($0.07) ($0.36) $0.06 ($0.53)
Diluted ($0.07) ($0.36) $0.06 ($0.53)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</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
- ----------------------------------------------------------------------------------------------------------------------------
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 (605) (12) (2,844) (2,856)
Net income 310 310
- ----------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 (unaudited) 4,895 $98 $6,489 $20,441 $27,028
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers and clearing firm $32,820 $31,034
Cash paid to suppliers and employees (35,194) (36,817)
Interest:
Received 1,276 1,112
Income tax refunded 851 98
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (247) (4,573)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of:
Investment securities 11,332 14,544
Office equipment 0 59
Purchase of:
Investment securities (8,435) (9,790)
Office equipment (362) (1,477)
Funds released from escrow 0 1,593
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,535 4,929
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 68 459
Repurchase of common stock (2,856) (2,825)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,788) (2,366)
- ------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (500) (2,010)
Cash and cash equivalents at beginning of period 2,689 3,886
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $2,189 $1,876
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- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
-----------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH USED IN OPERATING ACTIVITIES:
Net income (loss) $310 ($3,149)
Adjustments to reconcile net income (loss) to net cash
Used in operating activities:
Depreciation and amortization 810 696
Net unrealized (gain) loss on investment securities (1,720) 506
Net realized loss on sale of investment securities 938 276
Deferred income taxes (184) (220)
(Increase) decrease in:
Receivable from clearing firm (2,729) (3,376)
Miscellaneous receivables (957) (434)
Trading securities at market 1,664 5,120
Income taxes receivable 700 (1,758)
Other assets 146 327
Increase (decrease) in:
Due to clearing firm 0 (1,069)
Securities sold but not yet purchased, at market (9) (463)
Accrued compensation (955) (842)
Other accounts payable and accrued expenses 1,739 (187)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities ($247) ($4,573)
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</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 three and nine months ended September 30, 1999 are
not necessarily indicative of the results to be expected for the year
ending December 31, 1999.
The consolidated statement of financial condition as of September 30, 1999
and other financial information for the three and nine months ended
September 30, 1999 and 1998 are unaudited, but management 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 includes the
activities of the Company's 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
activities. 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 Nine months ended
---------------------------------------------------------------------------------------------------------------
September 30, 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Retail sales $6,767 $5,587 $20,759 $18,603
Equity capital markets 2,913 1,417 7,974 6,710
Fixed income 1,068 1,468 4,947 4,361
Other 669 343 1,489 1,190
---------------------------------------------------------------------------------------------------------------
11,417 8,815 35,169 30,864
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Operating income (loss):
Retail sales 1,277 675 3,734 1,698
Equity capital markets 11 (1,640) (469) (2,703)
Fixed income 9 340 907 790
Other (1,860) (1,278) (4,442) (4,254)
---------------------------------------------------------------------------------------------------------------
($563) ($1,903) ($270) ($4,469)
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. ACQUISITION OF MILLER & SCHROEDER FINANCIAL, INC.
On August 6, 1999 the Company exercised its right to terminate a Merger
Agreement with MI Acquisition Corporation. $385,000 of merger related
costs, including $68,000 that had been previously capitalized, are
included in other operating expenses in 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 on Form 10-K for the
year ended December 31, 1998.
The following table sets forth a summary of three and nine month increases
(decreases) in operating revenues and operating income for 1999 versus 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1999
- ----------------------------------------------------------------------------------------------------------------------------
Three months Nine months
ended Ended
September 30, September 30,
--------------------------------------------------------------------------
Change % Change %
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues:
Retail sales $1,180 21.1% $2,156 11.6%
Equity capital markets 1,496 105.6 1,264 18.8
Fixed income (400) (27.2) 586 13.4
Other 326 95.0 299 25.1
--------------------------------------------------------------------------
Total operating revenues 2,602 29.5 4,305 13.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Operating income:
Retail sales 602 89.2 2,036 119.9
Equity capital markets 1,651 100.7 2,234 82.6
Fixed income (331) (97.4) 117 14.8
Merger related costs (385) (100.0) (385) (100.0)
Other (197) (15.4) 197 4.6
--------------------------------------------------------------------------
Total operating income 1,340 70.5 4,199 94.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net gains on investment account 1,455 94.2 1,564 200.0
--------------------------------------------------------------------------
Pretax income 2,795 81.1 5,763 109.8
--------------------------------------------------------------------------
Income tax expense 1,095 79.4 2,304 109.7
--------------------------------------------------------------------------
Net income $1,700 82.2% $3,459 109.8%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarterly and nine-month operating revenues improved compared to last year due
to increased retail sales force productivity, continued strong fixed income
underwriting activity and continued market interest in smaller market
capitalization companies in which the Company makes a market. Higher volume
partially offset by lower clearing costs contributed to increased operating
expenses compared to last year's third quarter.
A net investment portfolio loss of $90 thousand for the quarter compares to a
net loss of $1,545 thousand in the prior year's third quarter. A year-to-date
net investment portfolio gain of $782 thousand compares to a net loss of $782
thousand for the same period last year. The Company's investment account gains
and losses may fluctuate significantly from period to period as they have in the
past.
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 third quarter due to
increased transaction levels, improved investment executive productivity and
continued high levels of retail investor interest. Products that recorded
significant revenue increases included OTC principal, OTC agency, municipals,
unit trusts, cash management and interest income. This strong third quarter
activity contributed to an overall 11.6% increase in revenues for the nine month
period.
The operating profit of Retail Sales in the current quarter was $1.3 million,
compared to $675 thousand for the prior year quarter and $3.7 million for the
current nine month period compared to $1.7 million for the same nine month
period last year. The improvement was due to the revenue increase, the closing
of unprofitable offices and implementation of operating efficiencies.
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.
Increased Equity Capital Markets revenue for the current quarter compared to the
same quarter last year resulted from higher trading volumes, continued investor
interest in the small-cap equity market in which the Company specializes, and
increased investment banking activity. The Company completed two public
financings in the current quarter, compared to one private placement in the
third quarter of 1998. Increased trading volumes and the third quarter public
financings also contributed to nine month revenue increases over the prior
year's nine month period. The timing of investment banking activity can vary
significantly from period to period based on market conditions and other factors
contributing to fluctuations in revenues and operating profits.
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 decreased by $400 thousand for the quarter, and
increased by $586 for the nine month period versus the same periods in the prior
year. Origination activity decreased significantly in the third quarter of 1999
from the third quarter of 1998. The nine month increase over last year is due to
record second quarter 1999 activity, which included the Company's largest ever
public finance transaction. Other revenue changes included an increase in
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 Operations, Client
Services, Accounting, Human Resources and Marketing.
The Company has continued to benefit, overall, from improved operating
efficiencies. However, increased professional services expenditures contributed
to higher Corporate operating losses in the current three and nine month periods
compared to the same periods in the prior year.
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 $1.8 million at
September 30, 1999, are stated at fair value, which is determined by
management's best estimate.
Between December 31, 1998 and September 30, 1999, trading securities decreased
$1.7 million, and securities sold but not yet purchased increased by $9
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 September 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 nine months of 1999, the Company repurchased 605,000 shares of
its common stock at a total cost of $2.8 million. For the full year of 1998, a
total of 566,000 shares were repurchased at a cost of $3.1 million. To date, the
Board of Directors has authorized the repurchase of up to 2.6 million shares of
the Company's common stock, of which a total of 2,224,000 shares have been
repurchased as of September 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 were expensed during the third quarter.
Additional costs of $317,000 were also 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 the Chief Executive
Officer and Chairman of the Board. The managing executive is the 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.
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
had a material effect on the Company's consolidated financial statements, and
all such costs have been funded with 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 completed point-to-point
testing of both its mission critical and non-mission critical systems. No
material system deficiencies have resulted from tests conducted as of the
reporting date.
13
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 ISSUE (CONTINUED)
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.
The Company has developed a written contingency plan to provide for continuity
under various scenarios. The contingency plan will continue to be monitored,
updated and modified during the remaining months of 1999 as the Company
completes its plan to address the Year 2000 issue. The Company also continues to
monitor and respond to Year 2000 related updates and recommendations from its
vendors and other third parties.
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 September 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 4 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
None.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - 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
(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.
16
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
The following reconciliation illustrates the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter ended Nine months ended
------------------------- -----------------------
9/30/99 9/30/98 9/30/99 9/30/98
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $(368) ($2,068) $310 ($3,149)
- -----------------------------------------------------------------------------------------
Weighted average number of 4,983 5,789 5,134 5,943
common shares outstanding
Dilutive effect of stock options and 0 0 18 0
Warrants
Weighted average number of 4,983 5,827 5,152 6,003
common and potential dilutive
common shares outstanding
- -----------------------------------------------------------------------------------------
Basic earnings (loss) per share $(0.07) $(0.36) $0.06 $(0.53)
Diluted earnings (loss) per share $(0.07) $(0.36) $0.06 $(0.53)
- -----------------------------------------------------------------------------------------
</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/ Paul H. Perseke
----------------------------------
Paul H. Perseke
Treasurer (principal financial and
accounting officer)
Date 11/9/99
-------------------
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 September 30, 1999
27 Financial Data Schedule (filed in electronic form only):
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,189
<RECEIVABLES> 8,222
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 21,360
<PP&E> 1,440
<TOTAL-ASSETS> 34,661
<SHORT-TERM> 0
<PAYABLES> 7,385
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 248
<LONG-TERM> 0
0
0
<COMMON> 98
<OTHER-SE> 26,930
<TOTAL-LIABILITY-AND-EQUITY> 34,661
<TRADING-REVENUE> 15,885
<INTEREST-DIVIDENDS> 1,276
<COMMISSIONS> 12,338
<INVESTMENT-BANKING-REVENUES> 3,036
<FEE-REVENUE> 2,634
<INTEREST-EXPENSE> 0
<COMPENSATION> 23,758
<INCOME-PRETAX> 512
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
