<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT 1
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the fiscal year Ended December 31, 1994 Commission File No. 1-10594
H.W. KAUFMAN FINANCIAL GROUP, INC.
(exact name of registrant as specified in its charter)
MICHIGAN 38-1903339
- ----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
Common Stock, $.0025 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes _____ No __X__
The aggregate market value of Common Stock, par value $.0025, held by
non-affiliates (604,316 shares) was approximately $3,021,580 on March 14, 1995
(based upon the closing sale price on the American Stock Exchange).
As of March 20, 1995, there were 3,123,043 shares of Common Stock, par value
$.0025 outstanding.
Documents Incorporated by Reference
NONE
-1-
<PAGE> 2
DESCRIPTION OF AMENDMENT
On April 5, 1994, the Board of Director's declared a 10% stock dividend to
shareholders of record as of April 19, 1994, payable on May 5, 1994 resulting
in 283,093 additional shares issued.
This amendment is to value the transaction based on the market value of the
additional shares of Common Stock issued. Retained Earnings was charged for
$1,451,560 and, accordingly, credited to Additional Paid-in Capital.
<PAGE> 3
INDEX TO H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants A-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets A-3 - A-4
Statements of Income A-5
Statements of Stockholders' Equity A-6
Statements of Cash Flows A-7 - A-8
SUMMARY OF ACCOUNTING POLICIES A-9 - A-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A-12 - A-19
</TABLE>
Financial statement schedules have not been filed because conditions requiring
filing do not exist or the required information is given in the consolidated
financial statements, including the notes thereto.
A-1
<PAGE> 4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
H.W. Kaufman Financial Group, Inc.
Southfield, Michigan
We have audited the accompanying consolidated balance sheets of H.W. Kaufman
Financial Group, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of H.W.
Kaufman Financial Group, Inc. and subsidiaries at December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. As discussed in the Summary of
Accounting Policies, the Company changed its method of accounting for
marketable securities in 1994.
BDO Seidman
BDO SEIDMAN
Troy, Michigan
January 31, 1995
A-2
<PAGE> 5
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1994 1993
ASSETS ---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 10,370,260 $ 9,296,749
Marketable securities (Note 1) 3,983,853 3,527,058
Receivables
Trade 23,575,263 19,560,167
Notes 2,456,921 2,528,779
Other 107,194 491,240
Prepaid expenses and other current assets (Note 10) 1,000,589 873,084
--------------- --------------
TOTAL CURRENT ASSETS 41,494,080 36,277,077
--------------- --------------
IMPROVEMENTS AND EQUIPMENT
Furniture, fixtures and equipment 3,319,261 2,238,317
Improvements to leased premises 583,043 71,105
--------------- --------------
3,902,304 2,309,422
Less accumulated depreciation and amortization 1,689,590 1,208,030
--------------- --------------
NET IMPROVEMENTS AND EQUIPMENT 2,212,714 1,101,392
--------------- --------------
OTHER
Goodwill, net of accumulated amortization of
$1,338,408 and $1,088,036 1,481,636 1,843,008
Covenants not to compete, net of accumulated
amortization of $418,892 and $403,626 174,108 370,083
Other intangible assets, net of accumulated
amortization of $819,106 and $1,034,098 1,692,848 781,927
Miscellaneous (Note 11) 849,047 892,130
--------------- --------------
TOTAL OTHER ASSETS 4,197,639 3,887,148
--------------- --------------
$ 47,904,433 $ 41,265,617
=============== ==============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
A-3
<PAGE> 6
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1994 1993
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Payables
Insurance companies $ 31,559,820 $ 27,998,807
Customer advance payments 2,137,937 1,430,111
Other 598,603 574,174
Accruals
Taxes, other than on income 2,566,699 2,408,403
Compensation 2,097,202 1,770,699
Other 210,666 616,823
Current portion of long-term obligation (Note 4) 425,000 -
-------------- --------------
TOTAL CURRENT LIABILITIES 39,595,927 34,799,017
LONG TERM OBLIGATION, less current portion (Note 4) 425,000 -
-------------- --------------
TOTAL LIABILITIES 40,020,927 34,799,017
-------------- --------------
DEFERRED REVENUE 1,115,132 898,813
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 8)
STOCKHOLDERS' EQUITY (Notes 5, 6 and 7)
Common stock, $.0025 par - 7,500,000 shares
authorized; 3,123,043 outstanding in 1994
and 2,830,230 outstanding in 1993 7,808 7,075
Additional paid-in capital 1,953,069 459,329
Retained earnings 4,906,265 5,101,383
Net unrealized loss on marketable securities (98,768) -
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 6,768,374 5,567,787
-------------- --------------
$ 47,904,433 $ 41,265,617
============== ==============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
A-4
<PAGE> 7
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
-------------- --------------- -----------------
<S> <C> <C> <C>
COMMISSIONS AND FEES $ 52,363,586 $ 44,924,237 $ 39,131,000
COST OF COMMISSIONS AND FEES 22,745,536 19,878,228 17,088,265
-------------- --------------- ---------------
GROSS PROFIT 29,618,050 25,046,009 22,042,735
-------------- --------------- ---------------
DIVISIONAL OPERATING EXPENSES 20,766,008 18,123,092 15,791,950
GENERAL AND ADMINISTRATIVE EXPENSES 6,169,386 5,130,113 4,418,106
-------------- --------------- ---------------
TOTAL OPERATING EXPENSES 26,935,394 23,253,205 20,210,056
-------------- --------------- ---------------
OPERATING INCOME 2,682,656 1,792,804 1,832,679
OTHER INCOME - NET (Note 9) 537,668 548,897 395,391
-------------- --------------- ---------------
INCOME BEFORE TAXES ON INCOME 3,220,324 2,341,701 2,228,070
TAXES ON INCOME (Note 10) 1,453,000 1,036,000 1,014,500
-------------- --------------- ---------------
NET INCOME $ 1,767,324 $ 1,305,701 $ 1,213,570
============== =============== ===============
EARNINGS PER SHARE $ .57 $ .42 $ .39
============== =============== ===============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
A-5
<PAGE> 8
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Common Stock Additional Unrealized Loss
--------------- Paid-In Retained on Marketable
Shares Amount Capital Earnings Securities TOTAL
--------------- ---------- -------- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1992 2,827,230 $7,067 $ 449,586 $ 3,430,279 $ - $3,886,932
Less dividends paid ($.14 per
share of common stock) - - - (395,810) - (395,810)
Net income - - - 1,213,570 - 1,213,570
--------- ------ ---------- ----------- -------- ----------
BALANCE, December 31, 1992 2,827,230 7,067 449,586 4,248,039 - 4,704,692
Less dividends paid ($.16 per
share of common stock) - - - (452,357) - (452,357)
Shares issued upon exercise of
stock options 3,000 8 9,743 - - 9,751
Net income - - - 1,305,701 - 1,305,701
--------- ------ ---------- ----------- -------- ----------
BALANCE, December 31, 1993 2,830,230 7,075 459,329 5,101,383 - 5,567,787
Effect of adopting SFAS No. 115
as of January 1, 1994, net of
tax effect - - - - 125,883 125,883
Less dividends paid ($.18 per
share of common stock) - - - (509,459) - (509,459)
Shares issued in accordance with
employee stock purchase plan 7,720 20 35,685 - - 35,705
Shares issued upon exercise of
stock options 2,000 5 6,495 - - 6,500
10% stock dividend issued (Note 5) 283,093 708 1,451,560 (1,452,983) - (715)
Net change in unrealized gain
(loss) on marketable securities,
net of tax effect - - - - (224,651) (224,651)
Net income - - - 1,767,324 - 1,767,324
--------- ------ ---------- ----------- -------- ----------
BALANCE, December 31, 1994 3,123,043 $7,808 $1,953,069 $ 4,906,265 $(98,768) $6,768,374
========= ====== ========== =========== ========= ==========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
A-6
<PAGE> 9
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
-------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,767,324 $ 1,305,701 $ 1,213,570
Adjustments to reconcile net income to net
cash provided by operating activities
Amortization of intangible assets 1,094,043 1,036,537 1,040,177
Depreciation and amortization 645,227 378,911 291,204
Deferred income taxes 46,700 (168,700) 5,000
Loss on disposition of equipment 22,430 3,617 18,618
Loss (gain) on sale of marketable securities 18,894 (96,128) (4,022)
Changes in assets and liabilities, net
of effects from purchase transactions
Increase in receivables (3,559,192) (3,516,612) (4,263,267)
Decrease (increase) in prepaid
expenses and other current assets (109,711) 77,548 (227,228)
Decrease (increase) in miscellaneous assets 43,083 (250,549) (145,914)
Increase in payables 4,293,268 4,152,267 7,278,448
Increase in accruals 78,642 601,160 1,732,946
Increase (decrease) in deferred revenue 216,319 794,492 (270,679)
-------------- -------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,557,027 4,318,244 6,668,853
-------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of marketable securities 183,587 309,953 304,140
Purchase of improvements and equipment (1,778,979) (542,214) (470,142)
Purchase of marketable securities (822,538) (836,425) (1,239,497)
Payments for purchase of books of business (597,617) (74,500) (664,632)
-------------- -------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (3,015,547) (1,143,186) (2,070,131)
-------------- -------------- ---------------
</TABLE>
A-7
<PAGE> 10
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (510,174) (452,357) (395,810)
Proceeds from the issuance of common stock 42,205 9,751 -
Reduction of long-term obligations - (450,000) (950,000)
-------------- -------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (467,969) (892,606) (1,345,810)
-------------- -------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,073,511 2,282,452 3,252,912
CASH AND CASH EQUIVALENTS,
beginning of year 9,296,749 7,014,297 3,761,385
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS,
end of year $ 10,370,260 $ 9,296,749 $ 7,014,297
============== ============== ===============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
A-8
<PAGE> 11
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
<TABLE>
<S><C>
BUSINESS The Company and its subsidiaries sell specialty insurance products and services
as general agents and brokers to independent insurance agents through a network
of branch offices located in a number of states. In addition, through
subsidiaries, the Company provides premium financing on insurance coverages.
PRINCIPLES OF The consolidated financial statements include the accounts of the Company and its
CONSOLIDATION subsidiaries, all of which are wholly-owned. All significant intercompany
accounts have been eliminated.
MARKETABLE The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
SECURITIES 115, "Accounting for Certain Investments in Debt and Equity Securities" as of
January 1, 1994. In accordance with SFAS No. 115, prior years' financial
statements have not been restated to reflect the change in accounting method. The
effect of adopting SFAS No. 115, as of January 1, 1994, was to increase
stockholders' equity (net of income taxes) by $125,883.
At January 1, 1994, marketable equity and debt securities have been categorized
as available-for-sale and as a result are stated at market value. At December 31,
1994 and 1993 all marketable equity and debt securities are classified as current
assets. Unrealized gains or losses, net of the tax effects, are included as a
component of stockholders' equity until realized.
At December 31, 1993, marketable equity securities were stated at the lower of
aggregate cost or market. At December 31, 1993, marketable securities included in
current assets had a market value of $3,736,863.
RECEIVABLES The Company considers all receivables to be fully collectible; as a result, no
allowance for doubtful accounts is considered necessary. If amounts become
uncollectible, they are charged to operations when that determination is made.
Notes receivable arise from the Company offering short-term premium financing to
insureds. Interest rates on premium financing contracts ranged from 8% to 18%
(approximately 15% average in 1994) and the related interest is included in
commissions and fees.
</TABLE>
A-9
<PAGE> 12
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
<TABLE>
<S> <C>
IMPROVEMENTS, Improvements and equipment are stated at cost. Depreciation is computed over the
EQUIPMENT AND estimated useful lives of assets ranging from three to ten years using accelerated
DEPRECIATION methods for both financial reporting and income tax purposes.
OTHER ASSETS Other assets include amounts assigned to goodwill, covenants not to compete,
agency contracts and policyholder lists obtained in the acquisitions of "books of
business." These intangibles are being amortized on a straight-line basis over
two to five years, except for goodwill which is amortized over various periods
not to exceed twelve years.
FIDUCIARY FUNDS Premiums receivable from agents are reported as assets and premiums payable, net
of commissions earned, to the insurance carriers are reported as liabilities.
Premiums collected from agents and not yet remitted to the carriers are held in a
fiduciary capacity and invested in short-term investments until remitted.
Certain states require that funds be maintained in segregated accounts for the
payment of specific liabilities. At December 31, 1994, cash and certificates of
deposit of approximately $2,300,000 were restricted for the payment of such
liabilities.
REVENUE Commissions are recognized when the insurance agents are invoiced. Commissions
RECOGNITION relating to return or additional premiums or adjustments are recognized when they
occur.
Profit-sharing commissions from insurance carriers are recognized when earned and
reasonably estimatable. Some of the carriers may subsequently adjust the
commissions based on actual policy experience. Adjustments resulting in
overpayments are applied to future commissions based on the Company's agreement
with individual carriers and are reflected as deferred revenue in the financial
statements while underpayments from carriers are recorded as a receivable.
</TABLE>
A-10
<PAGE> 13
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
<TABLE>
<S> <C>
TAXES ON INCOME Beginning in 1993, the financial statements reflect adoption of the liability
method of accounting for income taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes." Financial
statements presented for 1992 reflect income taxes under the deferral method
previously required. The cumulative effect as of January 1, 1993 of adopting SFAS
No. 109 was insignificant.
Deferred income taxes are recorded to reflect the future tax consequences of
temporary differences between the financial reporting bases and tax bases of the
Company's assets and liabilities.
EARNINGS PER SHARE Earnings per share are computed on the basis of the weighted average number of
common shares outstanding during each year. The dilutive effect of the
outstanding common stock options is included in the earnings per share
calculation. The weighted average number of common shares outstanding was
3,114,867, 3,111,580 and 3,110,503 for the years ended December 31, 1994, 1993
and 1992, respectively.
Fully diluted earnings per share amounts are not presented because they are not
materially dilutive.
STATEMENTS OF For purposes of the statements of cash flows, the Company considers all money
CASH FLOWS market funds and certificates of deposit with an original maturity of three
months or less to be cash equivalents.
</TABLE>
A-11
<PAGE> 14
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S><C>
1. MARKETABLE The following information pertains to marketable equity securities and debt
SECURITIES securities classified as available for sale at December 31, 1994:
<CAPTION>
Gross
Aggregate Unrealized Aggregate
Fair Holding Cost
Value Losses Basis
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Equities and Stock &
Bond Mutual Funds $ 3,271,739 $ 12,369 $ 3,284,108
Bonds and Bond Mutual Funds 712,114 152,245 864,359
----------------------------------------------------------------------------------
TOTAL $ 3,983,853 $ 164,614 $ 4,148,467
==================================================================================
Proceeds, gross realized gains, and gross realized losses from the sale of
securities classified as available for sale for the year ended December 31, 1994,
were $183,587, $3,601, and $22,495, respectively. For the purpose of determining
gross realized gains and losses, the cost of securities sold is based upon
specific identification method.
The unrealized gain (loss) on available-for-sale securities decreased by $374,418
(before the effect of income taxes) for the year ended December 31, 1994.
2. LINE OF CREDIT The Company has a $500,000 unsecured line of credit available with a bank.
AGREEMENTS Borrowings under the line of credit are due on demand and bear interest at the
bank's variable base rate. During the years ended December 31, 1994 and 1993,
there were no borrowings under this agreement.
One of the Company's subsidiaries has a $2,500,000 line of credit available with
the bank to be utilized for insurance premium financing. Borrowings under the
line of credit are due on demand, bear interest at the bank's variable base rate
plus 1/4 percent, and are secured by substantially all of the Company's assets.
During the years ended December 31, 1994 and 1993, there were no borrowings under
this agreement.
</TABLE>
A-12
<PAGE> 15
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
3. EMPLOYEE The Company has established a retirement plan which allows employees to
BENEFIT PLAN contribute a portion of their salaries under section 401(k) of the Internal
Revenue Code. The Company has agreed to match 50% of the contributions of each
employee up to 6% of the employee's salary with an annual cap of $3,000 per
employee. In addition, the Company can make an additional contribution to the
plan in an amount determined by the Board of Directors. These contributions are
discretionary but may not exceed 12 percent of the annual aggregate compensation
(as defined) paid to all participating employees. The expense for this plan for
the years ended December 31, 1994, 1993 and 1992 was $243,784, $220,548, and
$183,813, respectively.
4. LONG-TERM In connection with the acquisition of all the assets and book of business of a
OBLIGATION broker in 1994, the Company entered into a promissory note payable for $850,000.
This promissory note is non-interest bearing and requires payments of $425,000 in
1995 and 1996.
5. STOCKHOLDERS' On April 5, 1994, the Company declared a 10% common stock dividend to
EQUITY stockholders of record on April 19, 1994, distributed on May 5, 1994. Retained
earnings and additional paid in capital were charged for $1,452,983 and
$1,451,560, respectively, as a result of the issuance of 283,093 shares of the
Company's common stock and cash of $715 paid in lieu of fractional shares. The
weighted average number of shares outstanding and per share amounts have been
restated for periods prior to the stock dividend.
6. EMPLOYEE STOCK On July 1, 1994 the Company initiated an employee stock purchase plan whereby all
PURCHASE PLAN full-time employees may withhold up to 10% of their earnings to purchase Company
common stock. On each June 30 and December 31, the Company uses the withheld
funds to purchase shares of stock at the then current market price. Accordingly,
no compensation expense is recorded in connection with the plan. The shares to be
sold to participants under this plan are authorized and unissued shares of the
Company's common stock.
</TABLE>
A-13
<PAGE> 16
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S><C>
The maximum number of shares available under this plan during all offerings is
300,000 shares. Since the inception of the plan, employees had purchased a total
of 7,720 shares at $4.625 per share. Total receipts to the Company were $35,705.
7. STOCK OPTIONS On July 25, 1989, the stockholders approved the Company's 1989 Stock Option and
Incentive Plan ("1989 Stock Option Plan") for the granting of incentive and
non-qualified stock options and restricted stock awards to the officers, key
employees and directors of the Company. A total of 412,500 shares of the
Company's common stock has been reserved for issuance under the 1989 Stock Option
Plan. Stock options may be granted under the plan at a price not less than the
fair market value of the stock on the date the option
is granted and must be exercisable by the date fixed by the Company, but not
later than ten years after the date of grant. Stock options granted under the
1989 Stock Option Plan are not generally exercisable until one year after they
are granted, and the restrictions attached to the restricted stock awards do not
normally expire until at least one year after the award is made.
Changes in stock options outstanding are summarized as follows:
<CAPTION>
Shares Option Price
----------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, January 1, 1992 16,500 $ 2.95
Granted - -
Exercised - -
Expired or terminated (1,100) 2.95
------ ----------------
BALANCE, December 31, 1992 15,400 2.95
Granted 22,000 5.45
Exercised (3,300) 2.95
Expired or terminated (1,100) 2.95
------ ----------------
BALANCE, December 31, 1993 33,000 2.95 and 5.45
------ ----------------
</TABLE>
A-14
<PAGE> 17
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Shares Option Price
---------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, December 31, 1993 33,000 2.95 and 5.45
Granted - -
Exercised (2,200) 2.95
Expired or terminated - -
BALANCE, December 31, 1994 30,800 $ 2.95 and 5.45
=================================================================================
EXERCISABLE, December 31, 1994 30,800 $ 2.95 and 5.45
=================================================================================
8. COMMITMENTS LITIGATION
AND CONTINGENCIES
At December 31, 1994, the Company is a defendant in several lawsuits. To the
extent that the lawsuits may be found in favor of the plaintiffs, and to the
extent that these matters may not be covered by the Company's errors and
omissions insurance policy, the Company may be liable in these matters. In the
opinion of management, such liabilities would not have a significant affect on
the financial position of the Company.
EMPLOYMENT AGREEMENTS
The Company has certain agreements with branch managers, key employees and
officers to award bonuses based upon earnings. Expenses incurred under these
bonus arrangements approximated $1,306,000, $1,102,000 and $867,000 during the
years ended December 31, 1994, 1993 and 1992, respectively.
</TABLE>
A-15
<PAGE> 18
<TABLE>
<S><C>
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPERATING LEASES
The Company operates in leased office facilities in various locations under
operating leases with terms ranging from one to seven years with renewal options
for additional periods. Office equipment and vehicles are also leased for terms
of up to four years. Many leases provide that the Company shall pay for real
estate and personal property taxes, maintenance, insurance and other expenses.
Future minimum rentals under non-cancelable operating leases as of December 31,
1994 are as follows: 1995 - $1,655,000; 1996 - $1,223,000; 1997 - $1,103,000;
1998 - $895,000; and 1999 - $753,000.
Rent expense for the years ended December 31, 1994, 1993 and 1992 was $1,797,597,
$1,831,356 and $1,452,440, respectively.
9. OTHER INCOME - Other income - net is comprised of the following:
NET
Year Ended December 31, 1994 1993 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income $ 556,562 $ 452,322 $ 388,603
Net realized gains (losses) on the
sale of marketable securities (18,894) 96,128 4,022
Miscellaneous - 447 2,766
----------------------------------------------------------------------------------
TOTAL OTHER INCOME - NET $ 537,668 $ 548,897 $ 395,391
==================================================================================
</TABLE>
A-16
<PAGE> 19
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
10. TAXES ON Provisions for federal and state income taxes in the consolidated statements of
INCOME income are comprised of the following components:
<CAPTION>
Year Ended December 31, 1994 1993 1992
<S> <C> <C> <C>
----------------------------------------------------------------------------------
CURRENT TAX EXPENSE
Federal $ 1,179,000 $ 1,062,000 $ 855,000
State and local 227,300 142,700 154,500
----------------------------------------------------------------------------------
TOTAL CURRENT 1,406,300 1,204,700 1,009,500
DEFERRED TAX (BENEFIT)
EXPENSE - federal 46,700 (168,700) 5,000
----------------------------------------------------------------------------------
TOTAL TAXES ON INCOME $ 1,453,000 $ 1,036,000 $ 1,014,500
==================================================================================
Deferred tax assets are included with other current assets and are comprised of
the following:
<CAPTION>
December 31, 1994 1993 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Accrued compensation $ 123,000 $ 117,000 $ 31,300
Unrealized loss on marketable
securities 56,000 - -
Intangibles 54,000 - -
Accrued lease termination fee - 60,000 -
Accrued self-insured health
expenses - 37,000 14,000
----------------------------------------------------------------------------------
GROSS DEFERRED TAX ASSETS 233,000 214,000 45,300
----------------------------------------------------------------------------------
Deferred tax assets valuation
allowance - - -
$ 233,000 $ 214,000 $ 45,300
==================================================================================
</TABLE>
A-17
<PAGE> 20
<TABLE>
H.W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income as a result of the following differences:
<CAPTION>
Year Ended December 31, 1994 1993 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME TAXES AT STATUTORY
RATE $ 1,095,000 $ 796,000 $ 758,000
INCREASE IN TAXES RESULTING FROM
State and local taxes, net of
federal income tax benefit 150,000 94,000 102,000
Amortization of goodwill 123,000 123,000 141,000
Other 85,000 23,000 13,500
----------------------------------------------------------------------------------
TOTAL TAXES ON INCOME $ 1,453,000 $ 1,036,000 $ 1,014,500
==================================================================================
EFFECTIVE TAX RATE 45.1% 44.2% 45.5%
==================================================================================
11. RELATED PARTY At December 31, 1994 and 1993 the Company had a non-interest bearing receivable
TRANSACTIONS of $697,663 and $614,029 due from a stockholder/officer's irrevocable trust. The
receivable represents premium payments on split dollar life insurance policies on
the stockholder/officer. The Company has a security interest in the policies to
the extent of premiums advanced.
12. MAJOR The Company acts as an intermediary between insurance carriers and independent
CUSTOMERS insurance agents who use the Company to find insurance coverage for the agents'
customers. No one insurance agent accounts for over ten percent of the Company's
commissions and fees. However, the Company placed a significant amount of
insurance coverage with one insurance carrier. Approximately 26%, 29% and 33% of
the Company's commissions and fees for the years ended December 31, 1994, 1993
and 1992 were attributable to insurance placed with one insurance carrier.
</TABLE>
A-18
<PAGE> 21
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
13. SUPPLEMENTAL Year Ended December 31, 1994 1993 1992
DISCLOSURES OF
CASH FLOW CASH PAID DURING THE YEAR FOR
INFORMATION <S> <C> <C> <C>
Taxes on income $ 1,683,299 $ 1,086,216 $ 721,052
Interest 10,224 36,313 63,477
===================================================================================
NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1994, the Company purchased all of the assets and book of business of a broker
for $1,200,000. In conjunction with the acquisition, the Company issued a
promissory note payable for $850,000 (see Note 4).
14. SELECTED
QUARTERLY
FINANCIAL DATA
(UNAUDITED)
<CAPTION>
Three Months Ended
-------------------------------------------------
March 31, June 30, September 30, December 31,
-----------------------------------------------------------------------------------
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
1994
Commissions and fees $ 12,262 $13,442 $ 13,561 $ 13,099
Gross profit 6,794 7,651 7,916 7,257
Net income 93 433 832 409
Earnings per share .03 .14 .26 .13
===================================================================================
1993
Commissions and fees $ 10,288 $11,318 $ 11,616 $11,702
Gross profit 5,727 6,188 6,545 6,586
Net income 62 269 460 515
Earnings per share .02 .09 .15 .17
===================================================================================
</TABLE>
A-19
<PAGE> 22
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 August 29, 1995 /s/ Herbert W. Kaufman
--------------- ------------------------
Herbert W. Kaufman
President
Date August 29, 1995 /s/ Gerald F. Wesolowski
--------------- ------------------------
Gerald F. Wesolowski
Chief Financial Officer
-31-
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
23 Consent of BDO Seidman, LLP
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
H.W. Kaufman Financial Group, Inc.
Southfield, Michigan
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement on Form S-8 of our report
dated January 31, 1995, relating to the consolidated financial statements of
H.W. Kaufman Financial Group, Inc. appearing in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Troy, Michigan
August 29, 1995
