<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
x Quarterly Report Under Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For Quarter Ended September 30, 1995 Commission File No. 1-10594
H. W. KAUFMAN FINANCIAL GROUP, INC.
(exact name of registrant as specified in its charter)
Michigan 38-1903339
---------------------------- ---------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
30833 NORTHWESTERN HIGHWAY
SUITE 220
FARMINGTON HILLS, MI 48334
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (810) 932-9000
-----------------
Indicated by a check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- ---
As of November 2, 1995 there were 3,440,467 shares of Common Stock outstanding.
The aggregate market value of the voting stock held by non-affiliates (672,622
shares) based upon the closing price of such stock on the American Stock
Exchange on November 2, 1995 was approximately $5,338,937.
As of September 30, 1995 there were 3,440,467 shares of Common Stock at a par
value of $.0025 per share issued and outstanding.
Documents Incorporated by Reference
NONE
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<PAGE> 2
H. W. KAUFMAN FINANCIAL GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements 3
Consolidated Balance Sheets at 4 - 5
September 30, 1995 and December 31, 1994
Consolidated Statements of Income for
the nine months and the three months 6
ended September 30, 1995 and 1994
Consolidated Statements of Cash Flows 7 - 8
for the nine months ended September 30,
1995 and 1994
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Consolidated
Results of Operations 9 - 15
PART II. OTHER INFORMATION
ITEM 5. Other Information 16 - 17
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
The consolidated Financial Statements included herewith have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the Consolidated Financial Statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented
not misleading.
In the opinion of the Company's Management, the Financial Statements for three
months and nine months ended September 30, 1995 and 1994 reflect all
adjustments for normal recurring accruals which are necessary to present a fair
statement of the results for the period then ended. It is suggested that these
Financial Statements be read in conjunction with the audited, consolidated
Financial Statements and notes thereto submitted in the Company's Form 10-K
filing for the year ended December 31, 1994.
The results for the nine months ended September 30, 1995, are not necessarily
indicative of the results of the entire year of 1995.
On April 17, 1995, the Company reported a 10% Stock Dividend payable to
shareholders of record as of May 1, 1995. 311,977 additional shares of Common
Stock were issued on May 17, 1995. The weighted average number of shares
outstanding on the Consolidated Statements of Income only, have been adjusted
to reflect the May 17, 1995 Stock Dividend.
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<PAGE> 4
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,*
1995 1994
------------ -------------
<S> <C> <C>
ASSETS
------
CURRENT:
Cash and cash equivalents $ 8,813,996 $10,370,260
Marketable securities, market value
Available-for-sale 4,363,512 3,983,853
Receivables:
Trade 25,269,419 23,575,263
Notes 5,025,170 2,456,921
Other 211,151 107,194
Prepaid expenses and other current
assets 1,099,696 1,000,589
----------- -----------
TOTAL CURRENT ASSETS 44,782,944 41,494,080
----------- -----------
IMPROVEMENTS AND EQUIPMENT:
Furniture, fixtures and equipment 4,172,109 3,319,261
Improvements to leased premises 592,293 583,043
----------- -----------
4,764,402 3,902,304
Less accumulated depreciation and
amortization (2,323,539) (1,689,590)
----------- -----------
NET IMPROVEMENTS AND EQUIPMENT 2,440,863 2,212,714
----------- -----------
OTHER ASSETS:
Goodwill, net of accumulated
amortization of $1,576,300 and
$1,338,408 2,138,744 1,481,636
Covenants not to compete, net of
accumulated amortization of
$540,083 and $418,892 348,917 174,108
Other intangible assets, net of
accumulated amortization of
$1,293,949 and $819,106 2,176,005 1,692,848
Miscellaneous 982,068 849,047
----------- -----------
TOTAL OTHER ASSETS 5,645,734 4,197,639
----------- -----------
$52,869,541 $47,904,433
=========== ===========
</TABLE>
* Condensed from the 1994 Audited Financial Statements
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<PAGE> 5
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,*
1995 1994
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------- --- ------------- ------
CURRENT LIABILITIES:
Accounts payable:
Insurance companies $33,812,312 $31,559,820
Customer advance payments 2,314,961 2,137,937
Other 1,253,694 598,603
Accruals:
Taxes, other than on income 2,354,586 2,566,699
Compensation 1,958,192 2,097,202
Other 341,931 210,666
Current portion of long-term obligation 1,024,816 425,000
----------- -----------
TOTAL CURRENT LIABILITIES 43,060,492 39,595,927
NOTE PAYABLE - LONG TERM 602,836 425,000
DEFERRED REVENUE 1,151,369 1,115,132
----------- -----------
TOTAL LIABILITIES 44,814,697 41,136,059
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.0025 par - 7,500,000
shares authorized; Outstanding
3,440,467 in 1995 and 3,123,043
in 1994 8,601 7,808
Additional paid-in capital 3,743,027** 1,953,069**
Retained earnings 4,200,846** 4,906,265**
Change in Fair Value of Investments 102,370 (98,768)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,054,844 6,768,374
----------- -----------
$52,869,541 $47,904,433
=========== ===========
</TABLE>
* Condensed from 1994 Audited Financial Statements
**Additional paid-in capital and Retained earnings have been adjusted to
reflect the 10% stock dividend distributed on May 17, 1995 and
the 10% stock dividend distributed on May 5, 1994.
-5-
<PAGE> 6
H. W. KAUFMAN FINANCIAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
COMMISSIONS AND FEES $44,181,777 $39,264,652 $15,476,498 $13,561,432
COST OF COMMISSIONS AND FEES 19,070,690 16,903,250 6,390,992 5,645,165
----------- ---------- ----------- ----------
Gross profit 25,111,087 22,361,402 9,085,506 7,916,267
----------- ---------- ----------- ----------
DIVISIONAL OPERATING EXPENSES 17,299,877 15,425,227 5,861,386 5,128,322
GENERAL & ADMINISTRATIVE 5,435,687 4,873,688 1,814,471 1,624,174
----------- ---------- ----------- ----------
Total operating expenses 22,735,564 20,298,915 7,675,857 6,752,496
----------- ---------- ----------- ----------
Operating income 2,375,523 2,062,487 1,409,649 1,163,771
OTHER INCOME 606,163 374,508 211,228 156,064
----------- ---------- ----------- ----------
Income before income taxes 2,981,686 2,436,995 1,620,877 1,319,835
TAXES ON INCOME 1,368,174 1,079,195 617,000 488,000
----------- ---------- ----------- ----------
NET INCOME $ 1,613,512 $1,357,800 $ 1,003,877 $ 831,835
=========== ========== =========== ==========
EARNINGS PER SHARE $ .47 $ .40* $ .29 $ .24*
=========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,447,096 3,426,163 3,450,457 3,426,709
</TABLE>
Interim results are not necessarily indicative of the results of operations for
a full year.
*Weighted average number of shares outstanding and earnings per share have been
adjusted to reflect the 10% stock dividend distributed on May 5, 1994 and the
10% stock dividend distributed on May 17, 1995.
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<PAGE> 7
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,613,512 $1,357,800
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation expense 644,452 422,407
Amortization of intangible assets 833,926 811,515
Deferred income taxes -- 22,827
Decrease (increase) in accounts
receivable (4,153,290) (2,118,616)
Decrease (increase) in prepaid expenses
and other current assets (182,649) 394,127
Decrease (increase) in miscellaneous
assets (133,021) 24,927
Increase (decrease) in accounts
payable 2,267,806 4,590,693
Increase (decrease) in accrued
expenses (421,726) (195,847)
Increase (decrease) in accrued
income taxes 48,000 (191,703)
Abandonment of leasehold improvements -- 23,678
Write-off of intangibles -- 65,786
(Gain) loss on sale of assets 7,147 --
(Gain) loss on sale of marketable
securities (16,000) 18,894
Increase/(decrease) in deferred
revenue 36,237 216,319
----------- -----------
Net cash provided by
operating activities 544,394 5,442,807
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES;
Proceeds from the sale of marketable
securities 204,443 183,587
Proceeds from the sales of assets 2,500 --
Purchase of marketable securities (232,872) (648,116)
Purchase of books of business (1,349,000) (462,000)
Purchase of improvements and equipment (882,248) (1,557,325)
Cash received in Business acquisition 1,109,699 --
----------- -----------
Net cash used by
investing activities (1,147,478) (2,483,854)
----------- -----------
</TABLE>
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<PAGE> 8
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Concluded)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid $ (564,061) $ (510,177)
Proceeds from stock issuance 35,881 6,501
Reduction of Long Term Debt (425,000) --
----------- -----------
Net cash used by
financing activities (953,180) (503,676)
----------- -----------
NET INCREASE (DECREASE) IN CASH (1,556,264) 2,455,277
CASH AND CASH EQUIVALENTS,
beginning of year 10,370,260 9,296,749
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 8,813,996 $11,752,026
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the nine months ended:
Income taxes $1,000,000 $ 710,000
Interest $ 11,896 $ --
</TABLE>
NOTE: During the third quarter ending September 30, 1995, the Company
purchased all of the Common Stock of a broker for $1,199,632. In conjunction
with the acquisition, the Company acquired assets at fair value in the amount
of $1,373,321 and assumed liabilities of $973,689. The Company paid $500,000 of
the purchase price in the 3rd quarter of 1995 and issued notes payable for the
remaining $699,632.
-8-
<PAGE> 9
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Consolidated Results of Operations
Liquidity and Capital Resources
On September 30, 1995, the Company's Financial condition reflects a working
capital of $1,722,452, tangible net worth of $3,391,178 and stockholders'
equity of $8,054,844. This compares to a working capital of $1,428,869,
tangible net worth of $2,968,572, and stockholders' equity of $6,398,288 at
September 30, 1994. The improvement in working capital and tangible net worth
reflects the continued profitability of the Company over last year and the
$1,151,369 addition to Deferred Revenue during the 1st Quarter of 1995.
Financial highlights from the September 30, 1995 and 1994 financials are
presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
Description 1995 1994
- ----------- ----------- -----------
<S> <C> <C>
Total Current Assets $44,782,944 $40,856,031
Total Assets 52,869,541 47,365,582
Total Current Liabilities 43,060,492 39,427,162
Total Liabilities 44,814,697 40,967,294
Retained Earnings 4,200,846(1) 4,496,738(1)
Total Stockholders' Equity 8,054,844 6,398,288
Gross Profit 25,111,087 22,361,402
Net Income before Taxes 2,981,686 2,436,995
Net Income after Taxes 1,613,512 1,357,800
Net Income per Share $.47 $.40
</TABLE>
NOTE (1): On April 5, 1994, the Board of Directors declared a 10% stock
dividend payable to shareholders of record as of April 19, 1994. 283,093
additional shares of Common Stock were issued on May 5, 1994. On April 17,
1995, the Board of Directors declared a 10% stock dividend payable to
shareholders of record as of May 1, 1995. 311,977 additional shares of Common
Stock were issued on May 17, 1995. These transactions were treated for
accounting purposes as stock splits effected in the form of dividends.
Retained earnings was charged $1,451,560 in 1994 and $1,754,091 in 1995, and,
accordingly, credited to Additional Paid-in Capital, resulting, however, in no
change from such transfer to Total Stockholders' Equity or Net Income.
-9-
<PAGE> 10
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Consolidated Results of Operations (continued)
Results of Operations
The entitlement "Commission and Fees" on the Consolidated Statements of Income
consist of three components, (1) commissions, (2) fees and (3) profit-sharing
commissions and volume bonuses.
"Commissions" are amounts earned by the Company and are equal to a percentage
ranging from approximately 15% to 22% of the premiums invoiced under insurance
coverage placed by the Company. Commissions are paid by the insurance carriers
that have placed insurance coverages through the Company. Commissions are
somewhat lower when the Company is acting as an insurance broker as compared to
when the Company is acting as an insurance agent under a general agency
agreement with an insurance carrier. Insurance carriers can and do
unilaterally modify commission rates from time to time.
"Fees" are amounts received by the Company for services rendered to the
referring insurance agents, and include inspection fees, policy-writing fees
and underwriting fees. The types of fees that may be charged by the Company
are determined by state regulations and, therefore, vary by state.
"Profit-sharing commissions and volume bonuses" are paid by several insurance
carriers, but principally by one carrier, for whom the Company acts as a
general agent. Profit-sharing commissions are based upon a ratio of the amount
of premiums invoiced by the Company for insurance coverages placed with the
applicable insurance carrier and the loss-experience of such insurance carriers
under such coverages during the computation period. Because the volume of
business placed with a carrier and loss-ratios vary from year to year, and
because insurance carriers can and do unilaterally modify profit-sharing
commissions to satisfy their own objectives, the amount of profit sharing
commissions may vary dramatically from period to period. Volume bonuses are
additional commissions paid by several carriers for increased sales. The
recognition of the profit-sharing commissions and volume bonuses adds no
additional costs to the Company's operations as all costs attributable to their
generation have already been recorded when the policies are placed with the
carrier. Accordingly, profit-sharing commissions and volume bonuses tend to
impact heavily on gross profit.
-10-
<PAGE> 11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Consolidated Results of Operations (continued)
Commissions and fees are recognized as revenue when the Company invoices the
independent insurance agent for the insurance coverage placed for his client.
Generally, the Company invoices the insurance agent only after a particular
insurance coverage is "bound" (accepted by the insurance carrier and by the
agent's client). Commissions and fees are recognized when invoiced and are not
recognized incrementally over the period of the underlying insurance policy.
In other words, on a 12-month policy, the Company will recognize commissions
and fees at the time the policy is invoiced, rather than recognizing 1/12 of
the commission in each month that the policy is in force.
Profit-sharing commissions are recorded when received from insurance carriers.
Some of the carriers may subsequently adjust the profit-sharing commissions
based on actual policy experience. Adjustments resulting in underpayments are
recorded as accounts receivable in the financial statements, while overpayments
are reflected as deferred revenue and are applied to future profit-sharing
commissions based on the Company's agreement with individual carriers.
"Cost of commissions and fees" consists, almost entirely, of the portion of
gross commissions and fees that is paid by the Company as commissions to the
referring independent insurance agents for doing business through the Company.
"Divisional operating expense" consists of direct costs and expenses of
operating the branch offices including salaries of branch office managers and
employees, rent, utilities, telephone, employee benefits, payroll taxes, other
expenses and costs incurred directly by or for the benefit of branch offices.
"General and administrative expenses" consist of salaries of executives and
central administrative officers and employees, payroll taxes for such
employees, central computer expenses, general insurance costs, legal and
accounting and other general and administrative expenses and costs deemed
attributable by management to the operations of the Company as a whole.
"Other income (expenses) - net" consists principally of gains (or losses) from
investments by the Company in various securities, dividends on such securities
and interest earned by the Company on various short-term investments.
-11-
<PAGE> 12
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Consolidated Results of Operations (continued)
Summaries of results of operations and comparisons for the comparable nine
months ended September 30, 1995 and September 30, 1994; for the three months
ended September 30, 1995 compared to the three months ended September 30, 1994;
and for the three months ended September 30, 1995 compared to the three
months ended June 30, 1995.
<TABLE>
<CAPTION>
Nine Months Ended Percent
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 Change
------------------ -------------------------
<S> <C> <C> <C>
Commission & Fee Income $44,181,777 $39,264,652 12.52 %
Cost of Commissions & Fees 19,070,690 16,903,250 12.82 %
Total Operating Expenses 22,735,564 20,298,915 12.00 %
Income Before Income Taxes 2,981,686 2,436,995 22.35 %
Net Income 1,613,512 1,357,800 18.83 %
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Percent
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 Change
------------------ ---------------------------
<S> <C> <C> <C>
Commission & Fee Income $15,476,498 $13,561,432 14.12 %
Cost of Commissions & Fees 6,390,992 5,645,165 13.21 %
Total Operating Expenses 7,675,857 6,752,496 13.67 %
Income Before Income Taxes 1,620,877 1,319,835 22.81 %
Net Income 1,003,877 831,835 20.68 %
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Percent
SEPTEMBER 30, 1995 JUNE 30, 1995 Change
------------------ ----------------------
<S> <C> <C> <C>
Commission & Fee Income $15,476,498 $15,349,483 0.83 %
Cost of Commissions & Fees 6,390,992 6,929,023 (7.77)%
Total Operating Expenses 7,675,857 7,782,873 (1.38)%
Income Before Income Taxes 1,620,877 847,586 91.23 %
Net Income 1,003,877 454,203 121.02 %
</TABLE>
At the third quarter ended September 30, 1995 the Company had 37 operating
locations in 21 states compared to 34 in the quarter ended September 30, 1994.
On September 26, 1995 the Company acquired Cravens, Dargan & Company and
Cravens Dargan Energy & Marine Company, both of Houston, Texas.
-12-
<PAGE> 13
PART I - FINANCIAL INFORMATION (continued)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Commission and fee income increased $4,917,125 or 12.52% to $44,181,777 for the
nine months ended September 30, 1995 from $39,264,652 for the nine months ended
September 30, 1994. The increase reflects increased sales over last year at
existing offices and the additional sales of the Illinois R. B. Jones/Burns &
Wilcox office and the Gerry McLaughlin Agency which were acquired March 31,
1995 and February 15, 1995 respectively.
Profit sharing commissions in the nine months ended September 30, 1995 were
$1,899,127 and accounted for approximately 4.3% of commission and fee revenue
as compared to $1,710,876 or 4.4% of commissions and fees for the comparable
period in 1994.
Gross profit increased $2,749,685 or 12.3% to $25,111,087 for the nine months
ended September 30, 1995 as compared to $22,361,402 for the nine months ended
September 30, 1994. Gross profit as a percentage of commission and fee income
decreased to 56.8% for the nine months ended September 30, 1995 as compared to
57.0% for the comparable period in 1994, due primarily to increased commissions
to agents.
Total operating expenses, including both divisional and general and
administrative expenses, were $22,735,564 for the nine months ended September
30, 1995 compared to $20,298,915 for the nine months ended September 30, 1994.
The aggregate dollar amount of total operating expenses increased due to higher
insurance, payroll, and rent expense resulting from recent acquisitions and
expansion of existing offices. Total operating expenses as a percentage of
commission and fee income decreased to 51.5% for the nine months ended
September 30, 1995 from 51.7% for the nine months ended September 30, 1994.
Amortization expense for the nine months ended September 30, 1995 was $833,927
compared to $877,300 for the nine months ended September 30, 1994.
Other income was $606,163 for the nine months ended September 30, 1995 as
compared to $374,508 in the comparable period in fiscal 1994. The increase was
due to additional amounts invested and higher interest rates.
The Company's provision for income taxes for the nine months ended September
30, 1995 was $1,368,174 compared to $1,079,195 for the comparable period last
year.
As a result of the forgoing factors, net income increased to $1,613,512 for the
nine months ended September 30, 1995 from $1,357,800 for the nine months ended
September 30, 1994.
-13-
<PAGE> 14
PART I - FINANCIAL INFORMATION (continued)
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Commission and fee income increased $1,915,066 or 14.12% to $15,476,498 for the
three months ended September 30, 1995 compared to $13,561,432 for the three
months ended September 30, 1994. The increase in commission and fee income is
attributable to expanded sales of existing offices and the additional sales of
the Illinois R. B. Jones/Burns & Wilcox office and the Gerry McLaughlin Agency
which were acquired March 31, 1995 and February 15, 1995 respectively.
Profit sharing commissions in the three months ended September 30, 1995 were
$1,117,497 and accounted for 7.2% of commission and fee income compared to
$910,459 or 6.7% of commission and fee income for the three months ended
September 30, 1994. Profit sharing commissions in the third quarter of fiscal
1995 and 1994 respectively, included the recognition of $1,115,132 and $898,813
of deferred revenue.
Gross profit increased to $9,085,506 for the three months ended September 30,
1995 from $7,916,267 for the three months ended September 30, 1994. Gross
profit as a percentage of commission and fee income, was 58.7% in the three
months ended September 30, 1995 compared to 58.4% for the three months ended
September 30, 1994 due primarily to the effect of higher profit sharing
commissions in the 3rd Quarter of 1995.
Total operating expenses, including both divisional and general and
administrative expenses, were $7,675,857 for the three months ended September
30, 1995 compared to $6,752,496 for the comparable period last year. Total
operating expenses as a percentage of commission and fee income decreased to
49.6% for the three months ended September 30, 1995 from 49.8% for the three
months ended September 30, 1994. The aggregate dollar amount of total
operating expenses increased due to higher insurance, payroll and rent expense.
Amortization expense for the three months ended September 30, 1995 was $288,370
versus $259,937 for the comparable period last year.
Other income increased $55,164 to $211,228 for the three months ended September
30, 1995 compared to $156,064 for the comparable period last year. The
increase was due to higher interest and dividend income.
The Company's provision for income taxes for the three months ended September
30, 1995 increased to $617,000 as compared to $488,000 for the three months
ended September 30, 1994. The increase is due primarily to increased
profitability in the third quarter of fiscal 1995 compared to the comparable
period in fiscal 1994.
As a result of the forgoing factors, net income of $1,003,877 was recorded for
the three months ended September 30, 1995 compared to $831,835 in the
comparable period in fiscal 1994.
-14-
<PAGE> 15
PART I - FINANCIAL INFORMATION (continued)
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND JUNE 30, 1995
Commission and fee income increased to $15,476,498 for the third quarter ended
September 30, 1995 from $15,349,483 for the second quarter ended June 30, 1995.
In the third quarter the Company recognized $1,117,497 in profit sharing
commissions, of which $1,115,132 was from deferred revenue, versus $236,244 in
profit sharing commissions in the second quarter.
Profit sharing commissions in the three months ended September 30, 1995
accounted for approximately 7.2% of commission and fee revenue compared to 1.5%
for the three months ended June 30, 1995.
Gross profit for the three months ended September 30, 1995 was $9,085,506
compared to $8,420,460 for the three months ended June 30, 1995. The increase
was primarily due to increased profit sharing commissions.
Gross profit as a percentage of commission and fee income was 58.7% for the
quarter ended September 30, 1995 and 54.9% in the previous quarter.
Total operating expenses, including both divisional and general and
administrative expenses, were $7,675,857 for the three months ended September
30, 1995 and $7,782,873 for the three months ended June 30, 1995.
Other income for the three months ended September 30, 1995 was $211,228
compared to $209,999 for the second quarter of fiscal 1995.
The Company's provision for income taxes was $617,000 for the third quarter
ended September 30, 1995 compared to $393,383 in the previous quarter.
As a result of the forgoing factors, net income of $1,003,877 was recorded for
the three months ended September 30, 1995 compared to income of $454,203 for
the three months ended June 30, 1995.
-15-
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 16, 1995, a lawsuit was commenced in the Circuit Court for the
County of Oakland, Michigan, Case No. 95-499008-CZ, relating to the
proposed merger and naming as defendants the Company, each of its
Directors and AJK and Acquisition. The plaintiff is Richard N. Frank,
and he purports to represent a class which includes shareholders of the
Company other than the defendants. The complaint sets forth general
allegations that, among others, the Directors breached their fiduciary
duties to the shareholders by "grossly" undervaluing the Company and
its shares, by failing to obtain a fair price and that Herbert W.
Kaufman and Alan J. Kaufman agreed to set a low per share buy-out price
and that each defendant aided and abetted the other in such attempt.
The principal relief sought is a declaration as a class action and
recovery of damages in an unspecified amount against all defendants,
including attorney fees and all costs. The Company does not anticipate
that this lawsuit will affect the consummation of the Merger and filed
its answer to the lawsuit on July 7, 1995 denying the plaintiff's
allegations. On November 8, 1995, pursuant to the Company's motion to
dismiss the case, based upon the alleged prematurity of the plaintiff's
filing before the merger has even occurred, the Circuit Court dismissed
the plaintiff's action without prejudice to refile should the merger be
consummated. The Company intends to contest it vigorously should it be
refiled.
Item 2. Changes in Securities
No information called for by this item is applicable for the
period covered by this report.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
As previously announced, the Company entered into a merger
agreement with AJK Acquisition Company, a corporation formed
by Alan J. Kaufman, the son of Herbert W. Kaufman, which, if
successful, will result in each outstanding share being exchanged for
cash in the amount of $8.20. The board of directors agreed to the
merger, subject to the shareholders' meeting expected to occur within
the next several months.
-16-
<PAGE> 17
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
No exhibits are being filed with this Form 10-Q.
(b) Reports on Form 8-K
Two reports on Form 8-K were filed since April 1, 1995. The
first was filed on June 5, 1995 and described under its Item 5 the
execution of the Agreement and Plan of Merger dated as of May 26, 1995
among the Company, AJK Enterprises Inc. and AJK Acquisition Company.
Pursuant to the Merger Agreement, each share of the Company's Common
Stock will be converted into the right to receive $8.20 should the
merger be successful.
On July 3, 1995 the Company filed an additional Form 8-K under
Item 5 to disclose the lawsuit referred to above in Part II, Item 1.
-17-
<PAGE> 18
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND ITS CONSOLIDATED SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H. W. Kaufman Financial Group, Inc.
Registrant
Date November 10, 1995 /s/ Herbert W. Kaufman
---------------------------------
Herbert W. Kaufman
President
Date November 10, 1995 /s/ Gerald F. Wesolowski
---------------------------------
Gerald F. Wesolowski
Chief Financial Officer
-18-
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
27 -- Financal Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR 3RD QUARTER 10-Q WITH YEAR-END DATA
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> SEP-30-1995 DEC-31-1994
<CASH> $8,813,996 $10,370,260
<SECURITIES> $4,363,512 $3,983,853
<RECEIVABLES> $30,294,589 $26,032,184
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> $44,782,944 $41,494,080
<PP&E> $4,764,402 $3,902,304
<DEPRECIATION> $2,323,539 $1,689,590
<TOTAL-ASSETS> $52,869,541 $47,904,433
<CURRENT-LIABILITIES> $43,060,492 $39,595,927
<BONDS> $602,836 $425,000
<COMMON> $8,601 $7,808
0 0
0 0
<OTHER-SE> $8,046,243 $6,760,566
<TOTAL-LIABILITY-AND-EQUITY> $52,869,541 $47,904,433
<SALES> 0 0
<TOTAL-REVENUES> $44,181,777 $52,363,586
<CGS> 0 0
<TOTAL-COSTS> $19,070,690 $22,745,536
<OTHER-EXPENSES> $22,735,564 $26,935,394
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> $2,981,686 $3,220,324
<INCOME-TAX> $1,368,174 $1,453,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> $1,613,512 $1,767,324
<EPS-PRIMARY> $0.47 $0.57
<EPS-DILUTED> 0 0
</TABLE>
