<TABLE>
THE SOMERSET GROUP, INC. CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Income:
Net sales $6,843,000 $4,427,000 $17,036,000 $10,228,000
Cost of sales 5,422,000 3,540,000 13,810,000 8,402,000
---------- ---------- ---------- ----------
Gross profit 1,421,000 887,000 3,226,000 1,826,000
Equity in earnings
of First Indiana Corp. 724,000 934,000 1,901,000 2,764,000
Other 11,000 50,000 49,000 82,000
---------- ---------- ---------- ----------
Total income 2,156,000 1,871,000 5,176,000 4,672,000
Expenses:
Selling expenses 133,000 126,000 397,000 361,000
General & administrative
expenses 537,000 388,000 1,384,000 1,162,000
Interest expense 110,000 134,000 328,000 394,000
---------- ---------- ---------- ----------
Total expenses 780,000 648,000 2,109,000 1,917,000
Operating income before income
taxes & minority interes 1,376,000 1,223,000 3,067,000 2,755,000
Income tax expense 560,000 481,000 1,226,000 1,089,000
---------- ---------- ---------- ----------
816,000 742,000 1,841,000 1,666,000
Minority interest in
subsidiary 23,000 9,000 70,000 9,000
---------- ---------- ---------- ----------
Net income 839,000 751,000 1,911,000 1,675,000
========== ========== ========== ==========
Income per share $0.50 $0.46 $1.15 $1.03
========== ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements
</TABLE>
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 681000
<SECURITIES> 0
<RECEIVABLES> 4415000
<ALLOWANCES> 20000
<INVENTORY> 36400
<CURRENT-ASSETS> 8531000
<PP&E> 11873000
<DEPRECIATION> 6093000
<TOTAL-ASSETS> 39311000
<CURRENT-LIABILITIES> 2766000
<BONDS> 0
<COMMON> 1829000
0
0
<OTHER-SE> 28301000
<TOTAL-LIABILITY-AND-EQUITY> 39311000
<SALES> 17036000
<TOTAL-REVENUES> 17036000
<CGS> 13810000
<TOTAL-COSTS> 2109000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 328000
<INCOME-PRETAX> 3067000
<INCOME-TAX> 1226000
<INCOME-CONTINUING> 1911000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1911000
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
<TABLE>
THE SOMERSET GROUP, INC. CONSOLIDATED BALANCE SHEET
ASSETS September 30, December 31, September 30,
1994 1993 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 681,000 2,459,000 1,088,000
Trade Accounts, notes and
other receivables less
allowance for doubtful
accounts 4,395,000 2,730,000 3,731,000
Contracts in progress,
unbilled 2,988,000 1,127,000 1,739,000
Inventories 364,000 365,000 302,000
Prepaid expenses 80,000 95,000 114,000
Deferred income taxes 23,000 23,000 228,000
--------- --------- ---------
Total current assets 8,531,000 6,799,000 7,202,000
Investments
First Indiana Corp. (market
values of $27,557,000
$24,890,000 and
$27,794,000 23,769,000 21,873,000 21,097,000
Property, plant and equipment, at cost
Land 685,000 685,000 660,000
Buildings 2,800,000 2,773,000 2,762,000
Production equipment 7,809,000 6,145,000 6,058,000
Office furniture 541,000 506,000 496,000
Construction in progress 38,000 848,000 26,000
--------- --------- ---------
11,873,000 10,957,000 10,002,000
Less accumulated
depreciation 6,093,000 5,678,000 5,534,000
--------- --------- ---------
5,780,000 5,279,000 4,468,000
Other assets 1,231,000 1,044,000 1,000,000
Total assets 39,311,000 34,995,000 33,767,000
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements
</TABLE>
-3-
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31, September 30,
1994 1993 1993
<S> <C> <C> <C>
Current liabilities
Current portion of long
term debt 24,000 0 27,000
Trade accounts payable 1,128,000 805,000 855,000
Accrued compensation 653,000 432,000 307,000
Taxes, other than income taxes 235,000 184,000 170,000
Billing in excess of costs and
recognized profit 286,000 147,000 0
Other accrued expenses 440,000 346,000 434,000
--------- --------- ---------
Total 2,766,000 1,914,000 1,793,000
Long-term debt, less current portion
Capitalized leases 42,000 0 119,000
Notes payable 5,500,000 5,500,000 3,000,000
Subordinated debentures 0 0 2,446,000
--------- --------- ---------
5,542,000 5,500,000 5,565,000
Deferred income taxes 4,320,000 3,163,000 2,998,000
Minority interest in subsidiary 968,000 514,000 90,000
Shareholders' equity
Common stock without par value,
authorized 4,000,000 shares,
issued 1,829,408 shares 1,829,000 1,829,000 1,829,000
Capital in excess of stated value 4,979,000 4,887,000 4,887,000
Equity in unrealized gains(losses)
of First Indiana Corp. (14,000) 0 0
Retained earnings 20,299,000 18,751,000 18,171,000
----------- ----------- -----------
27,093,000 25,467,000 24,887,000
Less 190,717, 224,510 and 224,873
treasury shares, at cost 1,378,000 1,563,000 1,566,000
----------- ----------- -----------
Total 25,715,000 23,904,000 23,321,000
Total 39,311,000 34,995,000 33,767,000
========== ========== ==========
</TABLE>
-4-
<TABLE>
THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 839,000 751,000 1,911,000 1,675,000
Add items not affecting cash
Minority interest in sub. (23,000) (9,000) (70,000) (9,000)
Depreciation & amortizati 160,000 132,000 516,000 386,000
Deferred income taxes 533,000 430,000 1,134,000 993,000
Equity in earnings of First
indiana Corporation (724,000) (934,000) (1,901,000) (2,764,000)
Dividends received from First
Indiana Corporation 202,000 132,000 585,000 398,000
Other, net 18,000 7,000 (4,000) 9,000
Changes in operating assets and liabilities
Trade accounts, notes and other
receivables (373,000) (938,000) (1,665,000) (457,000)
Contracts in progress, unbilled
and inventories (744,000) 461,000 (1,860,000) (273,000)
Prepaid expenses 20,000 (41,000) 15,000 (69,000)
Accounts payable and accrued
expenses 644,000 333,000 828,000 376,000
Accrued income taxes 0 125,000 0 125,000
--------- --------- --------- ---------
Cash provided by operations 552,000 449,000 (511,000) 390,000
Cash flows from investing activities:
Increase in investment in First
Indiana Corporation 0 0 (573,000) 0
Purchase of property, plant
and equipment (219,000) (94,000) (1,015,000) (250,000)
Proceeds from sale of asset 0 0 3,000 0
Decreaase in other assets 6,000 (75,000) (187,000) (3,000)
--------- --------- --------- ---------
Net cash from investing (213,000) (169,000) (1,772,000) (253,000)
Cash flows from financing activities:
Proceeds from minority interest
investment in subsidiary 0 99,000 525,000 99,000
Proceeds from long-term
borrowings 0 0 72,000 0
Principal payments on long
term borrowings (6,000) (7,000) (6,000) (22,000)
Reissue of treasury shares 43,000 0 167,000 0
Purchase of treasury shares (89,000) 0 (89,000) 0
Payment of cash dividends (164,000) 0 (164,000) 0
--------- --------- --------- ---------
Net cash from financing (216,000) 92,000 505,000 77,000
--------- --------- --------- ---------
Increase in cash & equivalents 123,000 372,000 (1,778,000) 214,000
Cash & equivalents at the
beginning of period 558,000 716,000 2,459,000 874,000
--------- --------- --------- ---------
Cash & equivalents at the
end of the period 681,000 1,088,000 681,000 1,088,000
========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements
</TABLE>
-5-
<TABLE>
THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FROM JANUARY 1, 1993 TO SEPTEMBER 30, 1994
Equity in
Capital in Unrealized losses
Common Excess of First Indiana Retained Treasury
Stock Stated value Corporation Earnings Shares Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993 1,829,000 4,887,000 0 16,494,000 (1,570,000) 21,640,000
Net income Jan 1, 1993 to Sept 30, 1993 1,675,000 1,675,000
Shares of stock reissued from treasury
shares for 401(k) plan 2,000 4,000 6,000
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1993 1,829,000 4,887,000 0 18,171,000 (1,566,000) 23,321,000
Net income Oct 1, 1993 to Dec 31, 1993 544,000 544,000
Shares of stock issued for 401(k) plan 1,000 3,000 4,000
Equity in other capital changes of First
Indiana, net of deferred taxes 35,000 35,000
------------ ------------ ------------ ------------ ------------ ------------
Balance December 31, 1993 1,829,000 4,887,000 0 18,751,000 (1,563,000) 23,904,000
Net income Jan 1, 1994 to Sept 30, 1994 1,911,000 1,911,000
Stock issued for 401(k) plan 4,000 8,000 12,000
Stock issued from exercise of
stock options (12,000) 126,000 114,000
Stock issued in connection with
restricted stock grants 104,000 (203,000) 140,000 41,000
Equity in other capital changes of First
Indiana net of deferred taxes (14,000) (14,000)
Dividends paid (164,000) (164,000)
Purchase of treasury shares (89,000) (89,000)
------------ ------------ ------------ ------------ ------------ ------------
1,829,000 4,979,000 (14,000) 20,299,000 (1,378,000) 25,715,000
=========== =========== =========== =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
-6-
THE SOMERSET GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
September 30, 1994
1. Principles of Consolidation: The consolidated financial statements
include the accounts of The Somerset Group, Inc. ("the Company") and its
100% owned subsidiaries and, since August 1, 1993, a 51% owned
subsidiary.Significant intercompany transactions and accounts have been
eliminated.
2. Investment in First Indiana Corporation: The Company's investment in
First Indiana Corporation is stated at cost, adjusted for the Company's
share of undistributed earnings, and includes adjustments under the
purchase method of accounting. Capital changes of First Indiana
Corporation are reflected as a separate component of retained earnings.
The Company's percentage of ownership of First Indiana Corporation was
20.4% at September 30, 1994, and 20.6% at December 31, 1993 and
September 30, 1993. The Company's equity in earnings of First Indiana
Corporation shown in the Consolidated Statements of Income is before
income taxes. Federal and state income taxes applicable to the
equity earnings are contained as a component of total federal and state
income tax expense.
3. Construction Contracts: The Company uses the percentage-of-completion
method for reporting profits from construction contracts for financial
tements purposes. The units-of-production method is utilized in the
computation.
4. Seasonality: The sales and income figures reported for the three months
and nine months are not representative of the results for the entire
year. The construction related portion of the registrant's business is
seasonal in nature.
5. Inventories: Inventories consisted of raw materials and operating
supplies.
6. Minority Interest: During 1993, the Company sold a 49% interest in a
wholly-owned inactive subsidiary. Following the sale, the subsidiary
commenced building a new facility for the manufacture of prestressed
concrete beams and girders to be marketed for use in the construction of
highway bridges. The result of operations for this subsidiary and the
accompanying minority interest are included in the consolidated
financial statements since August 1, 1993.
7. Federal and State Income Taxes: The accumulated balance of unremitted
income from First Indiana Corporation as of December 31, 1991 is
expected to be received by the Company in the form of cash dividends,
and accordingly deferred tax expense had been provided under a method
that assumes the Company will receive a "Dividend Received Deduction"
upon receipt of the income. The effective tax rate for federal and
state income tax was 7.9% through December 31, 1991 under this method.
Effective January 1, 1992, the Company adopted the policy of providing
federal and state income taxes on accumulation of unremitted income at
rates in effect for capital transactions. The effective
tax rate for federal and state income tax was 39.5% for unremitted
income recorded subsequent to January 1, 1992.
-7-
<PAGE>
8. Average Shares Outstanding: Income per share is base on the average
number of common shares and common share equivalents (stock options)
oustanding during the periods. Included in the average shares
outstanding for the three months ended September 30, 1994 were 30,421
equivalent shares, and at September 30, 1993 there were 31,860
equivalent shares. There were 31,746 equivalent shares included in
average shares outstanding for the nine months ended September 30, 1994,
and 20,826 shares included for the nine months ended September 30, 1993.
The Company had 45,950 shares, 65,950 shares, and 74,950 shares of its
stock reserved for future stock option grants as of September 30, 1994,
December 31, 1993, and September 30, 1993.
9. Treasury Shares: Treasury shares issued to fund employee benefit plans
are valued at average cost of all treasury shares at the date of
issuance.
10. The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
-8-
<PAGE>
PART I
Item 1 - Financial Statements
The information required by Rule 10.01 of Rgulation S-X is presented on
the previous pages.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
During the third quarter and for the first nine months of 1994, the
Company experienced a surge in sales compared to 1993. Sales of
construction products and services accounted for the sales increase and
increased gross profit, while equity income from First Indiana
Corporation compared to 1993 was lower for both the third quarter and
for the year to date.
For the three months ended September 30, 1994, the Company recorded net
income of $839,000, or $.50 per share, compared to $751,000, or $.46 per
share for the same period last year; an increase of 12%. Net income for
the first nine months of 1994 amounted to $1,911,000, or $1.15 per
share, compared to $1,675,000, or $1.03 per share last year; an increase
of 14%. Sales of construction products and services rose sharply during
the quarter and were 55% above last year, at over $6.8 million, compared
to $4.4 million. Several major projects were in progress during the
three months. Some of these will continue through the end of the year
and beyond. The projects include a parking garage and a sports stadium.
In addition, the company's line of prestressed wall panels continues to
be used in the construction of major warehouse and manufacturing
facilities, and represented the major portion of the sales increase.
Sales for the nine months of the year were 67% ahead of last year, at
$17 million, compared to $10.2 million in 1993; in fact, sales for the
first nine months of 1994 were 17% above sales for the entire year of
1993. Gross profit on the incrased sales rose 60% during the quarter
from $887,000 to $1,421,000. As a percent of sales, gross profit
remained relatively stable at 20.8% compared to 20.0% during the three
months. This comparison in indicative of the increase in the volume of
products sold at approximately the same mix of product lines as last
year. For the nine months, gross profit rose 77% from $1,826,000 to
$3,226,000. Sixty-seven percent of the increase was due to volume
increase and 10% was a result of sales of higher margin product lines,
especially wall panels for warehouse and manufacturing facilities.
The Company's equity income from First Indiana Corporation fell 22%
during the third quarter when compared to last year. The lower earnings
were not unexpected, since First Indiana reported record earnings in
1993, primarily as a result of home mortgage refinancing that slowed in
1994 as interest rates moved upward. First Indiana's third quarter
earnings were 11% above those for the second quarter. For the first
nine months of 1994, First Indiana added $1.9 million of income before
tax to the company's consolidated results, compared to $2.8 million last
year; a decrease of 31%.
-9-
<PAGE>
The Bank's margin rose to 4.01% for the quarter ended September 30,
1994, compared with 3.78% one year ago. The margin for the nine months
ended September 30, 1994 was 3.93%, compared with 3.51% last year. Net
interest income for the three and nine months ended September 30, 1994,
amounted to $12.4 million and $36.1 million, compared with $12.0 million
and $33.2 million in 1993. Total assets remained unchanged at $1.3
billion. Shareholders' equity grew to $119 million, compared with $111
million one year ago. First Indiana is implementing a strategy to
increase its focus on being a niche bank with efficient processes and
systems. First Indiana intends to excel in targeted markets with
carefully chosen products and streamlined processes. The Bank will
concentrate on residential mortgage, home equity, and construction and
other business lending. During the quarter, First Indiana discontinued
its indirect auto lending business and increased its focus on these
areas of real estate lending where it has a significant market share and
a wide variety of products. Selling and general and administrative
expenses were higher for both the third quarter and the first nine
months of 1994 compared to 1993. These increases were a direct result
of the increase in sales during the 1994 periods compared to 1993.
Increases in commissions and other forms of incentive based compensation
were the primary cause for the increases. There was not an increase in
the net number of employees in these categories. Interest expense was
lower for both the third quarter and the nine month periods due to the
replacement on October 1, 1993 of long-term 10% subordinated debentures
with long-term bank debt at a lower interest rate.
Capital Resources and Liquidity
The Company's liquidity and capital resources remained in a relatively
strong position at September 30, 1994. The ratio of current assets to
current liabilities stood at 3.1 to 1.0 at September 30, 1994, compared
to 3.6 to 1.0 at December 31, 1993 and 4.0 to 1.0 at September 30, 1993.
Net working capital increased to $5.8 million, compared to $4.9 million
at December 31, 1993, and $5.6 million at September 30, 1993. The
decline in current ratio at September 30, 1994 compared to September 30,
1994 was primarily a result of the use of cash for the purchase of
capital equipment and additional shares of First Indiana Corporation
which are long-term assets. Operations provided cash of $552,000 during
the three months ended September 30, 1994 and used cash of $511,000
during the first nine months of 1994. During the third quarter of last
year operations provided cash of $449,000 and $390,000 for the nine
month period. The increased usage of cash during the nine months of
1994 (a net change of over $900,000) wa a result of the increase in
sales and volume levels of the construction operations that required
significant amounts of working capital. The value of accounts
receivable, contracts in progress-unbilled, and inventories increased
over $3.5 million since December 31, 1993. Because of the seasonal
nature of the construction industry, the first half of a year is
historically a period of cash usage as projects commence on-site
activity following the winter searson. This trend starts to reverse
during the third quarter. The fourth quarter is normally the strongest
period for cash generation as construction activity slows and cash is
received from projects completed. The trend has continued in 1994 and
is particularly evident from the increase in accounts receivable and
contracts in progress-unbilled.
-10-
<PAGE>
During the nine months, $573,000 was also expended to purchase 34,999
additional shares of First Indiana Corporation, and $1,015,000 was used
to purchase property, plant and equipment, primarily for a bridge
product manufacturing facility that commenced production during the
first quarter of 1994. Long-term debt was essentially unchanged in total
between September 30, 1994, December 31, 1993, and September 30, 1993.
However, the components of the long-term debt changed. Subsequent to
September 30, 1993, the 10% subordinated debenture was retired early and
replaced with bank debt at a lower rate, and the Company exercised its
option to purchase land that had been acquired under a lease/purchase
agreement. During 1994, a lease/purchase agreement was entered for one
major unit of material handling equipment. The Company intends to fund
its replacement capital expenditures from working capital generated from
operations, and will incur outside borrowing for acquisitions or major
expansions of facilities. There are no acquisitions currently under
consideration, and the major portion of expenditures for a new bridge
products manufacturing facility have been incurred. Working capital
needs of the Company are influenced by weather conditions, since a major
portion of its operations are conducted outdoors in the construction
industry. Also, the timing of progress payment on construction projects
can cause major fluctuations in cash flow. Because of these
fluctuations during the year, the Company has $3 million in bank credit
facilities available for use during the peak periods of the cycle.
Shareholders equity at September 30, 1994, amounted to $25.7 million, or
$15.69 per share, compared to $14.89 at December 31, 1993, and $14.53 at
September 30, 1993.
-11-
PART II
OTHER INFORMATION
Item 1 through 6
The information required by these items has been omitted as it is
not applicable.
Reports Filed on Form 8-K
No reports on Form 8-K were filed during the nine months ended
September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
THE SOMERSET GROUP, INC.
(Registrant)
By __________________________________________
Marni McKinney Jakubovie,
President and COO
By __________________________________________
Joseph M. Richter,
Executive Vice President,
CFO and Treasurer
DATE: Nobember 3, 1994
-12-
