<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 quarterly period ended June 30, 2000 Commission File No. 0-9377
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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
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(Address of principal executive offices)
(612)-370-2700
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(Registrant's telephone number, including area code)
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
----- ------
As of August 7, 2000, 4,975,281 shares of the Registrant's $0.02 par value
common stock were issued and outstanding.
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. 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
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.....................................................................................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....................................13
PART II OTHER INFORMATION..................................................................................14
Item 1. Legal Proceedings .............................................................................14
Item 6. Exhibits and Reports on Form 8-K ...............................................................14
Signatures .............................................................................................15
Exhibits Index .........................................................................................16
Exhibits ...............................................................................................17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------- -------------------- --------------------
June 30, December 31,
2000 1999
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(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $10,263 $8,018
Receivable from clearing firm 4,085 590
Miscellaneous receivables 4,028 2,899
Trading securities, at market 9,366 12,976
Office equipment at cost, less accumulated depreciation
of $4,089 and $3,594, respectively 989 1,247
Investment securities, at fair value 11,392 13,992
Deferred income taxes 702 354
Other assets 290 351
---------------------------------------------------------------------------------- -------------------- --------------------
Total assets $41,115 $40,427
================================================================================== ==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Securities sold but not yet purchased, at market 514 844
Accrued compensation 5,457 6,233
Other accounts payable and accrued expenses 2,563 3,158
Income taxes payable 1,241 1,228
---------------------------------------------------------------------------------- -------------------- --------------------
Total liabilities 9,775 11,463
================================================================================== ==================== ====================
Shareholders' equity
Common stock, $.02 par value; authorized 12,000 shares; issued
and outstanding 4,909 and 4,782 shares, respectively 98 96
Additional paid-in capital 6,641 6,028
Retained earnings 24,601 22,840
---------------------------------------------------------------------------------- -------------------- --------------------
Total shareholders' equity 31,340 28,964
---------------------------------------------------------------------------------- -------------------- --------------------
Total liabilities and shareholders' equity $41,115 $40,427
================================================================================== ==================== ====================
</TABLE>
See accompanying 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,
------------------------------------------------- ---------------- ----------------- ----------------- ----------------
2000 1999 2000 1999
------------------------------------------------- ---------------- ----------------- ----------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Commissions $4,225 $4,347 $10,256 $8,524
Principal transactions 5,848 5,520 15,172 10,569
Net gains/(losses) on investment account (239) 200 (591) 872
Investment banking 1,878 1,462 4,266 2,024
Interest 542 418 1,212 811
Other 963 859 1,924 1,824
------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Total revenues 13,217 12,806 32,239 24,624
------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Expenses:
Compensation and benefits 9,048 8,433 21,718 16,063
Floor brokerage and clearance 1,096 944 2,593 1,910
Communications 204 191 404 389
Occupancy and equipment 1,221 1,250 2,513 2,686
Other 1,224 1,411 2,075 2,411
------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Total expenses 12,793 12,229 29,303 23,459
------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Income before income taxes 424 577 2,936 1,165
Income tax expense 170 253 1,175 487
------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Net income $254 $324 $1,761 $678
================================================= =============== ================= ================= ================
Earnings per common share:
Basic $0.05 $0.06 $0.36 $0.13
Diluted $0.05 $0.06 $0.34 $0.13
================================================= =============== ================= ================= ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Total
Common Stock Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
------------------------------------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 5,955 $119 $11,946 $23,507 $35,572
------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Issuance of shares under the employee
Stock purchase plan 13 0 78 78
Issuance of shares under the 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 the employee
Stock option plan 59 1 367 368
Repurchase of stock (760) (15) (3,604) (3,619)
Net income 2,709 2,709
------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Balance, December 31, 1999 4,782 96 6,028 22,840 28,964
------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Issuance of shares under the employee 19 0 113 113
stock purchase plan
Issuance of shares under the employee
stock option plan 108 2 500 502
Net income 1,761 1,761
------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Balance, June 30, 2000 (unaudited) 4,909 $98 $6,641 $24,601 $31,340
================================================= ============== ============== ============== ============== ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
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KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
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Six Months Ended
June 30,
-------------------------------------------------------------------------------- -------------------------------------------
2000 1999
-------------------------------------------------------------------------------- ---------------------------------------- --
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers and clearing firm $ 31,404 $ 21,096
Cash paid to suppliers and employees (31,248) (23,285)
Interest received 1,212 811
Income taxes paid (1,510) (443)
-------------------------------------------------------------------------------- --------------------- ---------------------
Net cash used in operating activities (142) (1,821)
-------------------------------------------------------------------------------- --------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities 2,765 9,173
Purchases of:
Office equipment (237) (307)
Investment securities (756) (5,434)
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Net cash provided by investing activities 1,772 3,432
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 615 68
Repurchase of common stock -- (2,247)
-------------------------------------------------------------------------------- --------------------- ---------------------
Net cash provided by (used in) financing activities 615 (2,179)
-------------------------------------------------------------------------------- --------------------- ---------------------
Increase (decrease) in cash and cash equivalents 2,245 (568)
Cash and cash equivalents at beginning of period 8,018 2,689
-------------------------------------------------------------------------------- --------------------- ---------------------
Cash and cash equivalents at end of period $10,263 $2,121
================================================================================ ===================== =====================
</TABLE>
See accompanying 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,
-------------------------------------------------------------------------------- -------------------------------------------
2000 1999
-------------------------------------------------------------------------------- --------------------- ---------------------
(Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES:
Net income $1,761 $678
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 495 563
Net unrealized loss on investment securities 1,290 367
Net realized gain on sale of investment securities (699) (1,239)
Deferred income taxes (348) (183)
(Increase) decrease in:
Receivable from clearing firm (3,495) 588
Miscellaneous receivables (1,129) 271
Trading securities, at market 3,610 (2,981)
Income tax receivable 227
Other assets 61 52
Increase (decrease) in:
Securities sold but not yet purchased, at market (330) 548
Accrued compensation (776) (418)
Other accounts payable and accrued expenses (595) (294)
Income taxes payable 13 --
-------------------------------------------------------------------------------- --------------------- ---------------------
Net cash used in operating activities ($142) ($1,821)
================================================================================ ===================== =====================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
7
<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 on
Form 10-K for the year ended December 31, 1999. The results of
operations for the three and six month periods ended June 30, 2000
are not necessarily indicative of the results to be expected for
the year ending December 31, 2000.
The consolidated statement of financial condition as of June 30,
2000 and other financial information for the three and six month
periods ended June 30, 2000 and 1999, 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. BINDING ARBITRATION AWARD
On December 10, 1999, the National Association of Securities
Dealers ("NASD") issued a binding arbitration award for $16.6
million in favor of the Company and against Dain Rauscher
Corporation ("Dain") and several of its investment executives who
were wrongfully recruited by Dain from the Company from 1997 to
1999.
NASD arbitration awards are not subject to appeal. While Dain has
filed a motion with the Hennepin County District Court (the
"Court") to vacate the arbitration panel's decision, the Company
believes that vacature is unlikely due to the narrow grounds upon
which a binding arbitration award may be vacated. Under both
Federal and Minnesota Arbitration Acts, the Court must find
evidence of fraud, corruption, misconduct or partiality on the
part of the arbitration panel, or that the panel exceeded its
powers in rendering its award decision.
The award included compensatory damages of $9.1 million, punitive
damages of $7.1 million and reimbursement of legal costs of $350
thousand. Under NASD Rules, Dain is required to pay interest on
the unpaid settlement amount based on a statutory interest rate of
5.5%. Upon exhaustion of all vacature efforts, the Company
anticipates recognizing up to $16.6 million in revenue from the
settlement, plus interest income during the period that the
settlement remains unpaid. Recognition of such revenue may result
in additional compensation and income tax expense.
8
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BINDING ARBITRATION AWARD (CONTINUED)
The following unaudited pro forma information has been prepared
assuming that the binding arbitration settlement and related
accrued interest had been recognized at the end of the period
presented after the impact of certain adjustments to revenue,
employee compensation based on current formulas and the related
income tax effects thereof.
PRO FORMA STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
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Six-month period ended June 30, 2000
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<S> <C>
Revenues $ 49,252
Expenses $ 32,440
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Income before income taxes 16,812
Income tax expense 6,725
----------------------------------------------------------------------------
Net income $ 10,087
============================================================================
Earnings per common share:
Basic $ 2.07
Diluted $ 1.96
Book value per common share: $ 8.08
----------------------------------------------------------------------------
</TABLE>
NOTE 3. OTHER COMMITMENTS AND CONTINGENT LIABILITIES
John G. Kinnard and Company, Incorporated ("John G. Kinnard") is a
defendant in various actions relating to its 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 4. 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.
9
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SEGMENTS (CONTINUED)
Information concerning operations in these segments of business is
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
---------------------------------------------------------------------------------------------------------------
June 30, 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue:
Retail sales $8,348 $7,096 $19,607 $13,992
Equity capital markets 3,429 2,628 9,026 5,061
Fixed income 1,193 2,467 3,075 3,879
Other 247 615 531 1,692
---------------------------------------------------------------------------------------------------------------
13,217 12,806 32,239 24,624
===============================================================================================================
Pretax income (loss):
Retail sales 1,482 1,277 3,898 2,457
Equity capital markets 222 (57) 1,296 (480)
Fixed income 50 662 485 898
Other (1,330) (1,305) (2,743) (1,710)
---------------------------------------------------------------------------------------------------------------
$424 $577 $2,936 $1,165
===============================================================================================================
</TABLE>
NOTE 5. PENDING ACQUISITION
On June 5, 2000, the Company entered into a definitive merger
agreement with Stockwalk.com Group, Inc. (Stockwalk) and SW
Acquisition, Inc., a subsidiary of Stockwalk, whereby the
Company's securities brokerage and investment banking firms will
be combined under the Stockwalk holding company.
Under the terms of the merger agreement, the Company's
shareholders will receive $6.00 in cash and a fraction of a share
of Stockwalk common stock in exchange for each share of the
Company's common stock that they own. The number of shares of
Stockwalk common stock to be received will be determined based
upon the average closing price of Stockwalk common stock for the
20 trading days ending on the trading day immediately prior to the
date on which all of the conditions in the merger agreement have
been satisfied.
If the average closing price of Stockwalk common stock during the
measurement period is between $9.00 and $15.00 per share, the
Company's shareholders will receive one-half of a share of
Stockwalk common stock together with $6.00 in cash for each share
of the Company's common stock that they own. If the average
closing price of Stockwalk common stock during the measurement
period is above $15.00 per share, the Company's shareholders will
receive a fraction of a share of Stockwalk common stock with a
nominal value equal to $7.50, together with $6.00 in cash, for
each share of the Company's common stock that they own. If the
average closing price of Stockwalk common stock during the
measurement period is less than $9.00 per share, the Company's
shareholders will receive a fraction of a share of Stockwalk
common stock with a nominal value equal to $4.50, together with
$6.00 in cash, for each share of the Company's common stock that
they own.
The merger is subject to regulatory and shareholder approval, and
is expected to be completed in the third quarter of 2000. The
meeting of the Company's shareholders to approve the merger
transaction has been scheduled for September 5, 2000.
10
<PAGE>
ITEM 2. 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 of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
RESULTS OF OPERATIONS
The following table sets forth a summary of second quarter increases
(decreases) in segment revenue and expenses for 2000 versus 1999:
<TABLE>
<CAPTION>
--------------------------------- ---------------------------------- ----------------------------------
--------------------------------- ---------------------------------- ----------------------------------
(IN THOUSANDS)
Three months Six months
Ended ended
June 30, 2000 June 30, 2000
---------------- ----------------- ----------------- ----------------
Change % Change %
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Operating Revenues:
Retail sales $ 1,252 17.6% $ 5,615 40.1%
Equity capital markets 801 30.5 3,965 78.3
Fixed income (1,274) (51.6) (804) (20.7)
Other (368) (59.8) (1,161) (68.6)
---------------- ----------------- ----------------- ----------------
Total operating revenues 411 3.2 7,615 30.9
---------------- ----------------- ----------------- ----------------
Operating income:
Retail sales 205 16.1 1,441 58.7
Equity capital markets 279 N.M. 1,776 N.M.
Fixed income (612) (92.5) (413) (46.0)
Other (25) (1.9) (1,033) (60.4)
---------------- ----------------- ----------------- ----------------
Pretax income (153) (26.5) 1,771 152.0
---------------- ----------------- ----------------- ----------------
Income tax expense (83) (32.8) 688 141.3
---------------- ----------------- ----------------- ----------------
Net income $ (70) (21.6%) 1,083 159.7%
================================= ================ ================= ================= ================
</TABLE>
Quarterly and six-month operating revenues improved compared to last year due to
increased retail sales force productivity and increased corporate finance
transactions. A portion of the increase was offset by a decline in fixed income
origination activity and losses in the investment account. Increased
compensation expenses based on year-to-date profitability as well as investment
portfolio losses and merger-related expenses contributed to a decrease in net
income in the second quarter of 2000 compared to the second quarter of 1999.
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.
11
<PAGE>
The $1.3 million or 17.6% increase in retail revenues over the second quarter of
1999 and the $5.6 million or 40.1% increase over the six months ended June 30,
1999 were a result of increased transaction levels and improved investment
executive productivity. Revenues from OTC principal and agency equity
transactions and options, as well as revenues from corporate finance offerings
increased significantly over the same period of the prior year. In addition,
managed account fees increased over 50% compared to the first six months of last
year as total assets in the managed account program continue to grow.
The operating profit of Retail Sales in the six months ended June 30, 2000 was
$3.9 million, an increase of $1.4 million or 58.7% over the first six months of
1999. The improvement in profits was commensurate with the increase in revenues.
Operating leverage on fixed costs within retail increased as salaries and
benefits expenses were flat versus the prior year, while certain fixed costs
were reduced as a result of closing unprofitable branch offices.
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 was the result of a $1.6 million
or 98% increase in trading revenue from $1.7 million in the first six months of
1999 to $3.3 million in the six months ended June 30, 2000. Investment banking
revenues increased substantially as the Company generated $321,000 in revenue
from the E-Funds public offering in the second quarter of 2000, and generated
additional revenue from several private placement offerings completed during the
second quarter of 2000. There were no significant investment banking
transactions in the first six months of 1999. The timing and magnitude of
investment banking activity can vary significantly from period to period based
on market conditions and investor appetite for new equity offerings.
Equity Capital Markets group operating income of $1,296,000 in the first six
months of 2000 compares to an operating loss of $480,000 in the first six months
of 1999. The increase is primarily the result of higher trading and investment
banking revenues offset by commission expense and other variable compensation
expense. Salaries expense for the group declined significantly from the first
six months of 1999 as a more focused strategy for corporate finance and research
was implemented in the first six months of 2000.
FIXED INCOME. Fixed Income includes the origination, trading and institutional
sale of fixed income securities. The Fixed Income group results are driven
largely by the activity of the originations department which raises capital for
municipal and corporate clients located primarily in the Upper Midwest.
Fixed Income revenues decreased by $804,000 or 20.7% from the first six months
of 1999. Fixed income origination revenue decreased $448,000 from the first six
months of 1999 as a result of a decrease in the number and size of bond
originations. Revenues for the institutional sales and trading of other fixed
income securities were down reflecting the continued trend of low volume for
originations and sales activities which started in the fourth quarter of 1999.
Fixed income operating income decreased $413,000 from the first six months of
1999 reflecting the lower revenues for both originations and trading partially
offset by lower incentive compensation and occupancy costs.
CORPORATE. Corporate consists of the Company's investment portfolio and various
administrative functions including Accounting, Human Resources and Marketing,
which are required to support revenue generating business units.
The operating loss in Corporate increased by $1.0 million or 60.4% as a result
of losses on the investment account during the first six months of 2000. The net
loss on the investment account of $591,000 in the six month period ended June
30, 2000 compares to a net gain of $872,000 in the first six months of 1999. The
Company's investment account has historically been a volatile source of income,
and may change significantly from period to period. A portion of the losses
versus the comparable period of 1999 were offset by operating cost savings of
$700,000 from the first six months of 1999. Incentive compensation and benefits
costs based on Company profitability increased for the six months ended June 30,
2000 versus the same period last year commensurate with increases in corporate
profitability over the same 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
12
<PAGE>
OPERATING ACTIVITIES (CONTINUED)
portions of trading and investment securities, which totaled $1,144,000 at June
30, 2000, are stated at fair value, which is determined by management consistent
with prior pricing practices.
Between December 31, 1999 and June 30, 2000 trading securities decreased $3.6
million and securities sold but not yet purchased decreased by $330,000. 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 line 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, including warrants and private placement securities, are frequently
held as a form of compensation for past investment banking services performed by
the Company. The Company may utilize outside advisors to manage a portion of the
investment portfolio consistent with the Company's investment policy.
The value of certain securities held in the investment account may fluctuate
significantly, with the resulting valuation changes being reported as net gains
or losses on the investment account. These fluctuations in value may have a
material impact on reported earnings.
FINANCING ACTIVITIES
John G. Kinnard maintains two discretionary credit facilities in order to meet
short-term operating needs totaling $10 million. At December 31, 1999 and June
30, 2000 there were no outstanding balances under these facilities.
During the first six months of 2000, the Company repurchased no shares of its
common stock. For the full year of 1999, a total of 760,000 shares were
repurchased at a cost of $3.6 million. Remaining shares authorized by the Board
of Directors for repurchase at June 30, 2000 are 1,231,491.
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 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 industry, 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, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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, 2000 and assessed the related market risk. This inventory is turned
over frequently throughout 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.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 . LEGAL PROCEEDINGS
See Note 2 in Notes to Consolidated Financial Statements
contained in Part I above and incorporated herein by
reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11 Statement Regarding Computation of Per Share
Earnings
27 Financial Data Schedule (filed in electronic
format only)
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during
the second quarter of 2000:
- The Company filed a Current Report on Form 8-K
dated June 7, 2000, announcing that it had entered
into an Agreement and Plan of Merger, dated
June 5, 2000, with Stockwalk.com Group, Inc.
14
<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
Chief Financial Officer and Treasurer
(duly authorized officer and principal
financial and accounting officer)
Dated: August 9, 2000
15
<PAGE>
KINNARD INVESTMENTS, INC.
(Commission File Number: 0-9377)
EXHIBIT INDEX
for
Form 10-Q for the quarterly period ended June 30, 2000
EXHIBIT
-------
11 Statement Regarding Computation of Per Share Earnings (filed in
electronic form only)
27 Financial Data Schedule (filed in electronic form only)
16
