THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
Three Months Ended Nine Months
September 30, September 30
<S> <C> <C> <C> <C>
1995 1994 1995 1994
Income:
Net sales $ 6,843,000 11,178,000 17,036,000
Cost of sales 5,422,000 9,529,000 13,810,000
Gross profit 1,421,000 1,649,000 3,226,000
Equity in earnings of First Indiana 961,000 724,000 3,008,000 1,901,000
Realized investment gains 4,000 98,000
Gain on sale of assets 1,293,000
Dividend and interest income 177,000 11,000 310,000 49,000
--------- --------- --------- ---------
Total income 1,142,000 2,156,000 6,358,000 5,176,000
Expenses:
Selling expenses 133,000 210,000 397,000
General and administrative expense 224,000 537,000 1,131,000 1,384,000
Interest expense 44,000 110,000 243,000 328,000
--------- --------- --------- ---------
Total expenses 268,000 780,000 1,584,000 2,109,000
Income before taxes & minority int. 874,000 1,376,000 4,774,000 3,067,000
Income tax expense 347,000 560,000 1,886,000 1,226,000
--------- --------- --------- ---------
527,000 816,000 2,888,000 1,841,000
Minority interest in loss of sub. 23,000 - 70,000
--------- --------- --------- ---------
Net income $527,000 $839,000 $2,888,000 $1,911,000
========= ========= ========= =========
Net income per share $.32 $.50 $1.76 $1.15
Average shares outstanding 1,649,401 1,671,646 1,643,974 1,658,914
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1259
<SECURITIES> 7042
<RECEIVABLES> 1641
<ALLOWANCES> 9
<INVENTORY> 0
<CURRENT-ASSETS> 9943
<PP&E> 241
<DEPRECIATION> 193
<TOTAL-ASSETS> 37986
<CURRENT-LIABILITIES> 1042
<BONDS> 0
<COMMON> 1829
0
0
<OTHER-SE> 27091
<TOTAL-LIABILITY-AND-EQUITY> 37986
<SALES> 11178
<TOTAL-REVENUES> 15887
<CGS> 9529
<TOTAL-COSTS> 11113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> 4774
<INCOME-TAX> 1886
<INCOME-CONTINUING> 2888
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2888
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
</TABLE>
THE SOMERSET GROUP, INC. CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
ASSETS September 30 December 31, September 3
<S> <C> <C> <C>
1995 1994 1994
Current assets
Cash and cash equivalents $1,259,000 $2,006,000 $681,000
Short-term investments, at market 7,042,000 --- ---
Trade accounts, notes & other receivables
less allowance for doubtful accounts 1,632,000 6,070,000 4,395,000
Contracts in progress, unbilled 1,769,000 2,988,000
Inventories 390,000 364,000
Prepaid expenses 10,000 109,000 80,000
Deferred income taxes --- --- 23,000
-------- -------- --------
Total current assets 9,943,000 10,344,000 8,531,000
Investments
First Indiana Corporation (market values of
$37,750,000, $23,782,000 & $27,794,000) 26,748,000 24,265,000 23,769,000
Property, plant and equipment, at cost
Land 393,000 685,000
Buildings 2,738,000 2,800,000
Production and delivery equipment 6,593,000 7,809,000
Office furniture and equipment 241,000 556,000 541,000
Construction in progress --- --- 38,000
-------- -------- --------
241,000 10,280,000 11,873,000
Less accumulated depreciation 193,000 6,126,000 6,093,000
-------- -------- --------
48,000 4,154,000 5,780,000
Other assets
Notes receivable 787,000 487,000 487,000
Other 460,000 554,000 744,000
-------- -------- --------
1,247,000 1,041,000 1,231,000
Total Assets 37,986,000 39,804,000 39,311,000
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3-
_____________________________________________________________________________
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY September 30 December 31, September 30
1995 1994 1994
<S> <C> <S> <C> <C> <C>
Current liabilities
Current portion of long term debt $ $ $24,000
Trade accounts payable 421,000 808,000 1,128,000
Accrued compensation 32,000 837,000 653,000
Taxes, other than income taxes 48,000 194,000 235,000
Billing in excess of costs & recognized profit --- 451,000 286,000
Deferred income taxes --- 22,000 ---
Income taxes 211,000 437,000 ---
Other accrued expenses 330,000 743,000 440,000
--------- --------- ---------
Total current liabilities 1,042,000 3,492,000 2,766,000
Long term debt, less current portion
Capitalized leases --- --- 42,000
Notes payable 2,500,000 5,500,000 5,500,000
--------- --------- ---------
Total long term debt 2,500,000 5,500,000 5,542,000
Deferred income taxes 5,524,000 4,383,000 4,320,000
Minority interest in subsidiary --- --- 968,000
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 4,986,000 4,979,000 4,979,000
Unrealized gains on short term investments 34,000 --- ---
Retained earnings 23,690,000 20,999,000 20,285,000
--------- --------- ---------
30,539,000 27,807,000 27,093,000
Less 196,331, 190,662 & 190,717
treasury shares, at cost 1,619,000 1,378,000 1,378,000
--------- --------- ---------
Total shareholders' equity 28,920,000 26,429,000 25,715,000
Total Liabilities and Shareholders' Equity $37,986,000 $39,804,000 $39,311,000
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-4-
THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Period January 1, 1994 to September 30, 1995
(unaudited)
<TABLE>
Capital in Unrealized
Common Excess of Gains on Retained Treasury
Stock Stated Value Investments Earnings Shares Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994 $1,829,000 $4,887,000 $ --- $18,751,000 ($1,563,000) $23,904,000
Net income Jan. 1 to Sept. 1, 1994 --- --- --- 1,911,000 --- 1,911,000
Shares of common stock issued in
connection with restricted grants,
401(k) plan & exercise of options --- 92,000 --- (199,000) 274,000 167,000
Purchase of treasury shares --- --- --- --- (89,000) (89,000)
Cash dividends paid --- --- --- (164,000) --- (164,000)
Equity in other capital changes of
First Indiana Corporation, net
of deferred income taxes --- --- --- (14,000) --- (14,000)
_________ _________ _________ _________ _________ _________
Balance September 30, 1994 1,829,000 4,979,000 --- 20,285,000 (1,378,000) 25,715,000
Net income Oct. 1 to Dec. 1, 1994 --- --- --- 700,000 --- 700,000
Equity in other capital changes of
First Indiana Corporation, net
of deferred income taxes --- --- --- 14,000 --- 14,000
_________ _________ _________ _________ _________ _________
Balance December 31, 1994 1,829,000 4,979,000 --- 20,999,000 (1,378,000) 26,429,000
Net income Jan. 1 to Sept. 1, 1995 --- --- --- 2,888,000 --- 2,888,000
Shares of common stock issued in
connection with restricted grants,
401(k) plan & exercise of options --- 7,000 --- 64,000 176,000 247,000
Purchase of treasury shares --- --- --- --- (417,000) (417,000)
Cash dividends paid --- --- --- (327,000) --- (327,000)
Unrealized gains on short term
investments --- --- 34,000 --- --- 34,000
Equity in other capital changes of
First Indiana Corporation, net of
deferred income taxes --- --- --- 66,000 --- 66,000
_________ _________ _________ _________ _________ _________
Balance September 30, 1995 $1,829,000 $4,986,000 $34,000 $23,690,000 ($1,619,000) $28,920,000
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-5-
THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
<S> <C> <C> <C> <C>
1995 1994 1995 1994
Cash flows from operating activities:
Net income $527,000 $839,000 $2,888,000 $1,911,000
Add (deduct) items not affecting cash:
Minority interest in loss of subsidiary --- (23,000) --- (70,000)
Depreciation and amortization 4,000 160,000 250,000 516,000
Deferred income taxes 732,000 533,000 1,119,000 1,134,000
Gain on sale of assets --- --- (1,293,000) ---
Equity in earnings of First Indiana Corporation (961,000) (724,000) (3,008,000)(1,901,000)
Dividends received from First Indiana Corporation 211,000 202,000 634,000 585,000
Unrealized gains on investments 34,000 --- 34,000 ---
Other 7,000 18,000 7,000 (4,000)
Changes in operating assets and liabilities:
Trade accounts, notes, and other receivables 1,995,000 (373,000) 4,438,000 (1,665,000)
Contracts in progress, unbilled and inventories 451,000 (744,000) 2,159,000 (1,860,000)
Prepaid expenses 15,000 20,000 99,000 15,000
Accounts payable and accrued expenses (1,433,000) 644,000 (2,203,000) 828,000
Accrued income taxes payable (737,000) --- (226,000) ---
--------- --------- --------- ---------
Cash provided (used) by operating activities 845,000 552,000 4,898,000 (511,000)
Cash flows from investing activities:
Proceeds from sale of assets --- --- 5,144,000 3,000
Increase in investment in First Indiana Corporation --- --- (573,000)
Purchase of property, plant and equipment --- (219,000) (44,000)(1,015,000)
Decrease (increase) in other assets 1,000 6,000 94,000 (187,000)
Decrease (increase) in long term notes receivable 8,000 --- (300,000) ---
Increase in short term investments (3,633,000) --- (7,042,000) ---
--------- --------- --------- ---------
Net cash provided (used) by investing activities (3,624,000) (213,000) (2,148,000)(1,772,000)
Cash flows from financing activities:
Proceeds from minority interest investment in subsidi 525,000
Proceeds from (repayment of) long term debt (6,000) (3,000,000) 66,000
Reissue of treasury stock 32,000 43,000 247,000 167,000
Purchase of treasury stock (350,000) (89,000) (417,000) (89,000)
Cash dividends paid (163,000) (164,000) (327,000) (164,000)
--------- --------- --------- ---------
Net cash provided (used ) by financing activities (481,000) (216,000) (3,497,000) 505,000
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents (3,260,000) 123,000 (747,000)(1,778,000)
Cash and cash equivalents at beginning of period 4,519,000 558,000 2,006,000 2,459,000
--------- --------- --------- ---------
Cash and cash equivalents at end of period $1,259,000 $681,000 $1,259,000 $681,000
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-6-
THE SOMERSET GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1995
1. Basis of Presentation: The accompanying unaudited consolidated
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 Article
10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally
accepted accounting principles for complete financial
statement presentation.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. For further information,
refer to the corresponding financial statements and footnotes
thereto included in the Registrant s annual report on Form 10-
K for the year ended December 31, 1994.
2. Sale of Construction Operations: The Company sold its
construction operations during the second quarter of 1995.
The assets were sold to two buyers in separate transactions,
and included all property, plant and equipment applicable to
the operations and the assumption by the buyers of
construction projects under contract and in progress at the
closing dates. Inventories and receivables for contracts-in-
progress, unbilled, relating to the contracts assumed by the
buyers were also included in the sale transactions. Except
for a $300,000 promissory note secured by real estate and
buildings, the assets were sold for cash. The Company
realized a gain before income taxes of $1,293,000 from the
sales, that after income tax provisions amounted to net income
of $782,000, or $.47 per share.
3. 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
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.
-7-
PART I
Item 1 - Financial Statements
The information required by Rule 10.01 of Regulation 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.
Net income for the third quarter of 1995 was lower than last year
because of the sale of the company s construction operations during
the second quarter. Earnings of these operations were included in
the 1994 third quarter results, with no corresponding amounts in
the 1995 quarter.
Net income for the quarter amounted to $527,000, or $.32 per share,
compared to $839,000, or $.50 per share earned last year. For the
first nine months, net income reached $2,888,000, or $1.76 per
share, compared to $1,911,000, or $1.15 per share, an increase of
53%.
Income from investment activity rose substantially during the
quarter, as we temporarily invested the cash provided from the sale
of the construction operations. Expenses were also much lower, as
we phased out costs associated with the construction businesses.
Expenses totaled $268,000 for the quarter, compared to $780,000
last year; a decrease of 66%. However, the effect of these
improvements on net income fell short of matching income generated
from the construction operations last year.
Lower earnings, as compared to prior periods, are a natural result
of the transformation of the Company into a financial services
entity and will continue for the short term until the Company
enters new businesses to replace the income from the operations
sold.
Equity income from First Indiana Corporation increased 33% during
the quarter to $961,000, compared to $724,000 last year, and
increased 58% for the nine months to $3,008,000, compared to
$1,901,000 in 1994.
First Indiana continued to experience strong growth in loans and
net interest margin during the quarter. The Bank s focus on real
estate finance helped build core earnings, and the favorable
interest-rate environment stimulated loan demand and helped net
interest rate margin to rise above four percent during the quarter.
First Indiana also continued a trend of loan growth through home
equity and residential construction loans. In addition, the
residential mortgage loan servicing portfolio expanded through the
purchase of loan servicing rights.
The gain from the sale of the assets of the construction
operations, contained in the amounts for the nine-month period,
amounted to $1,293,000 before income taxes. Net income after taxes
from the gain on sale amounted to $782,000, and increased per share
earnings $.47 for the nine months. The assets and business sold
constituted all sales, cost of sales, and gross profit contained in
the Consolidated Statements of Income.
-8-
The assets were sold to two buyers, in separate transactions, and
included the businesses operated under the trade names of American
Precast Concrete, Span-Deck of Indiana, Concrete Carriers, Inc.,
and Precast Concrete Systems, Inc. The assets sold included
property, plant and equipment applicable to the operations the
assumption of the construction contracts with customers for
projects not completed at the closing dates. Inventories and the
contracts-in-progress unbilled receivables relating to the
contracts assumed by the buyers were also included in the sale
transactions.
The sale of the construction operations was initiated as part of a
strategic plan to further expand the Company s involvement in
financial services. The Board of Directors and management saw
little opportunity for expansion of the construction business, and
the highly cyclical nature of the construction industry made it
difficult to maintain and increase profitability on a consistent
basis. The sale has enhanced the Company s ability to engage in a
full range of financial services that had been limited by federal
regulations, as a result of Somerset s status as a registered
federal savings and loan holding company, and has provided cash for
expansion in the financial services industry.
Management s focus has been to select specialized products and
service areas that will best fulfill this strategy and result in
long-term growth for our shareholders.
The investigations of possible acquisition candidates are
proceeding with caution, but with determination. Management has
not yet made any firm commitments in any one specific area, but
continues to conduct in-depth analyses of several areas and hopes
to be reporting new developments in the near future.
Capital Resources and Liquidity.
The Company s liquidity and capital resources were greatly improved
from a relatively strong position at December 31, 1994, as a result
of the sale of the construction operations.
The ratio of current assets to current liabilities stood at 9.5 to
1.0 at September 30, 1995, compared to 3.0 to 1.0 at December 31,
1994, and 3.1 to 1.0 at September 30, 1994. Net working capital
increased to over $8.9 million, compared to $6.9 million at
December 31, 1994, and $5.8 million at September 30, 1994. These
increases were a result of the increase in net income during the
first nine months of 1995 and funds provided by the asset sales.
For the first nine months of 1995, operations provided cash of
approximately $5 million compared to cash used by operations of
over $500 thousand for the same period of 1994. The increase in
net income combined with the discontinuance of the construction
operations caused a reduction in trade accounts, notes and other
receivables, contracts in progress, unbilled, and inventories, as
we commenced the liquidation of working capital assets and
liabilities of the construction operations that are not being
replaced with the new activity.
The asset sales did not include accounts receivable and other
components of working capital. We will continue to generate cash
as we finalize the affairs of these operations. When completed, we
expect that we will have generated additional cash of approximately
$1 million.
The sale of construction related property, plant and equipment
provided $5 million of cash. $3 million of the proceeds were used
for early retirement of long-term debt, and the remainder was
invested in short-term temporary investments.
The Company paid $327,000 in cash dividends ($.20 per share) to
shareholders during the first nine months of 1995, compared to
$164,000 ($.10 per share) in 1994, and expects to pay cash
dividends on a semiannual basis in the future.
-9-
The ratio of long-term debt to equity stood at .09 to 1.00 at
September 30, 1995, compared to .21 to 1.00 at December 31, 1994
and .22 to 1.00 at September 30, 1994. The ratio improved as a
result of the increase in shareholders equity and the retirement
of $3 million of long-term debt. The increase in shareholders
equity resulted primarily from the increase in earnings.
Shareholders equity at September 30, 1995 amounted to $28.9
million, or $17.71 per share, compared to $16.13 at December 31,
1994 and $15.69 at September 30, 1994.
The strategic plan for expansion in the financial services industry
includes the possible placement of additional long-term debt in
order to increase the size of an acquisition. The amount of debt
(if any) will depend on the size and cash flow of any such
acquisition.
-10-
PART II
OTHER INFORMATION
Items 1 through 3
The information required by these items has been omitted as it is
not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
The sale of the precast/prestressed concrete operations was
approved at the Shareholders Meeting of April 27, 1995.
Information on this matter is incorporated herein by reference to
the Definitive Proxy Statement filed on April 11, 1995.
Items 5 and 6
The information required by these items has been omitted as it is
not applicable.
Reports Filed on Form 8-K
No. Form 8-K was filed during the three months ended September 30,
1995.
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 s/Marni McKinney Jakubovie
Marni McKinney Jakubovie,
President and COO
By s/Joseph M. Richter
Joseph M. Richter,
Executive Vice President,
CFO and Treasurer
DATE: November 7, 1995
-11-
