SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8186
Interra Financial Incorporated
(Exact name of registrant as specified in its charter)
DELAWARE 41-1228350
(State or other jurisdiction (IRS Employer
of incorporation of organization) Identification
Number)
Dain Bosworth Plaza, 60 South Sixth Street
Minneapolis, Minnesota 55402-4422
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 371-7750
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of July 31, 1997, the Company had 12,293,369 shares of
common stock outstanding.
INTERRA FINANCIAL AND SUBSIDIARIES
REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
Page
----
I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets.................... 1
Consolidated Statements of Operations.......... 2
Consolidated Statements of Cash Flows.......... 3
Notes to Consolidated Financial Statements..... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 6
II. OTHER INFORMATION:
Item 1. Legal Proceedings.............................. 9
Item 4. Submission of Matters to a Vote of
Security Holders............................... 11
Item 6. Exhibits and Reports on Form 8-K............... 12
Signatures..................................... 13
Index of Exhibits.............................. 14
Exhibits....................................... 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERRA FINANCIAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1997 1996
------------------------
(Unaudited)
Assets:
Cash and cash equivalents............... $26,776 $34,387
Cash and short-term investments
segregated for regulatory purposes..... - 15,000
Receivable from customers............... 967,999 1,035,847
Receivable from brokers and dealers..... 327,475 202,040
Securities purchased under agreements
to resell.............................. 231,867 81,631
Trading securities owned, at market..... 508,422 288,824
Equipment, leasehold improvements and
buildings, at cost, net .............. 36,278 32,946
Other receivables....................... 69,055 75,685
Deferred income taxes................... 42,026 39,704
Other assets............................ 19,352 21,361
--------- ---------
$2,229,250 $1,827,425
========= =========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings................... $206,655 $25,000
Drafts payable.......................... 68,840 69,989
Payable to customers.................... 672,337 869,641
Payable to brokers and dealers.......... 451,557 229,852
Securities sold under repurchase
agreements............................. 109,563 57,967
Trading securities sold, but not yet
purchased, at market................... 220,930 58,805
Accrued compensation.................... 80,719 119,244
Other accrued expenses and accounts
payable................................ 94,819 93,751
Subordinated and other debt............. 21,812 27,290
--------- ---------
1,927,232 1,551,539
--------- ---------
Shareholders' equity:
Common stock............................ 1,536 1,522
Additional paid-in capital.............. 84,955 81,316
Retained earnings....................... 215,527 193,048
--------- ---------
302,018 275,886
--------- ---------
$2,229,250 $1,827,425
========= =========
<FN>
See accompanying notes to consolidated financial statements.
INTERRA FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
------------------ -----------------
Revenues:
Commissions............... $63,060 $58,325 $126,687 $113,185
Principal transactions.... 34,490 42,449 76,514 88,927
Investment banking and
underwriting............ 23,202 23,876 49,070 50,018
Interest.................. 26,475 26,026 55,209 52,956
Asset management.......... 10,609 8,476 21,109 16,580
Correspondent clearing.... 4,585 4,678 9,647 8,507
Other..................... 6,083 3,746 10,340 8,182
------- ------- ------- -------
Total revenues............ 168,504 167,576 348,576 338,355
Interest expense.......... 12,373) (13,733) (26,483) (28,478)
------- ------- ------- -------
Net revenues.............. 156,131 153,843 322,093 309,877
------- ------- ------- -------
Expenses Excluding Interest:
Compensation and benefits. 96,449 95,751 197,933 192,863
Communications............ 11,328 10,781 22,637 20,865
Occupancy and equipment... 10,276 8,739 20,039 17,328
Travel and promotional.... 7,475 6,596 14,052 11,392
Floor brokerage and
clearing fees............ 2,790 2,837 5,717 5,304
Other..................... 10,314 9,185 19,827 18,882
------- ------- ------- -------
Total expenses excluding
interest................. 138,632 133,889 280,205 266,634
------- ------- ------- -------
Earnings:
Earnings before income
taxes.................... 17,499 19,954 41,888 43,243
Income tax expense........ (6,362) (6,926) (14,996) (15,135)
------- ------- ------- -------
Net earnings.............. $11,137 $13,028 $26,892 $28,108
======= ======= ======= =======
Earnings per common and
common equivalent share:
Primary................... $ 0.85 $ 1.03 $ 2,05 $ 2.23
======= ======= ======= =======
Fully diluted............. $ 0.85 $ 1.03 $ 2.04 $ 2.21
======= ======= ======= =======
<FN>
See accompanying notes to consolidated financial statements.
INTERRA FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended June 30,
1997 1996
-------------------------
Cash flows from operating activities:
Net earnings............................ $26,892 $28,108
Adjustments to reconcile earnings to
cash provided (used) by operating
activities:
Depreciation and amortization.......... 5,581 4,585
Deferred income taxes.................. (2,322) (802)
Other non-cash items................... 5,190 4,276
Cash and short-term investments
segregated for regulatory purposes..... 15,000 74,000
Net payable to brokers and dealers..... 96,270 50,348
Securities purchased under agreements
to resell............................. (150,236) (64,570)
Net trading securities owned and
trading securities sold, but not yet
purchased............................. (57,473) 137,438
Short-term borrowings and drafts
payable of securities companies....... 155,506 (5,338)
Net receivable from/payable to
customers............................. (129,456) (107,133)
Securities sold under repurchase
agreements............................ 51,596 (69,245)
Accrued compensation................... (38,525) (14,830)
Other.................................. 8,095 (9,701)
------- -------
Cash provided (used) by operating
activities............................. (13,882) 27,136
------- -------
Cash flows from financing activities:
Proceeds from:
Revolving credit agreement, net....... 25,000 -
Issuance of common stock.............. 1,480 947
Payments for:
Subordinated and other debt........... (6,784) (7,607)
Dividends on common stock............. (4,413) (3,148)
------- -------
Cash provided (used) by financing
activities............................. 15,283 (9,808)
------- -------
Cash flows from investing activities:
Payments for equipment, leasehold
improvements and other................ (9,012) (5,767)
------- -------
Increase/(decrease) in cash and cash
equivalents............................ (7,611) 11,561
Cash and cash equivalents:
At beginning of period................. 34,387 26,167
------- -------
At end of period....................... $26,776 $37,728
======= =======
<FN>
Income tax payments totaled $24,068,000 and $21,228,000 and
interest payments totaled $26,238,000 and $26,202,000 during the
six months ended June 30, 1997 and 1996, respectively.
During the six months ended June 30, 1997 and 1996, respectively,
the Company had non-cash financing activity of $2,173,000 and
$1,559,000 associated with the crediting of common stock to
deferred compensation plan participants.
See accompanying notes to consolidated financial statements.
INTERRA FINANCIAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Condensed Consolidated Financial Statements
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with the instructions
for Form 10-Q and do not include all the information and
footnotes required by generally accepted accounting principles
for complete financial statements and should be read in
conjunction with the consolidated financial statements and
related notes included in the Company's Annual Report on Form 10-
K for the year ended December 31, 1996. In the opinion of
management, all adjustments necessary for a fair presentation of
such interim consolidated financial statements have been
included. All such adjustments are of a normal recurring nature.
The results of operations for the three-month period ended June
30, 1997, are not necessarily indicative of results for
subsequent periods.
Certain prior year amounts in the financial statements have
been reclassified to conform to the 1997 presentation.
B. Trading Activities and Financial Instruments with Off-Balance-
Sheet Risk
Dain Bosworth and Rauscher Pierce Refsnes are dealers in
corporate, tax-exempt and governmental fixed income securities
and corporate equity securities and may recognize profits or
losses on transactions in, or fluctuations in the value of, such
securities held in inventory. Internal guidelines intended to
limit the size and risk of inventories maintained have been
established and are periodically reviewed. These inventories are
positioned primarily for distribution to Dain Bosworth's and
Rauscher Pierce Refsnes' individual and institutional clients in
order to meet those clients' needs.
Dain Bosworth and Rauscher Pierce Refsnes sell securities not
yet purchased (short sales) for their own accounts primarily to
hedge their fixed income trading inventories. The establishment
of short positions exposes the Company to off-balance-sheet
market risk in the event prices increase, as the Company may be
obligated to acquire the securities at prevailing market prices.
The Company periodically hedges its fixed income trading
inventories with financial futures or interest-rate option
contracts. The Company may also trade treasury option contracts
for its own account. Such option and financial futures contracts
expose the Company to off-balance-sheet market risk in the event
that the changes in interest rates do not closely correlate with
the change in the inventory price. Transactions in futures
contracts are conducted through regulated exchanges which
guarantee performance of counterparties and are settled in cash
on a daily basis, thereby minimizing credit risk. Maintaining
futures contracts typically requires the Company to deposit cash
or securities with an exchange or other financial intermediary as
security for its obligations. Additional cash or securities may
be required to be deposited thereafter due to fluctuations in the
market value of the futures contract. In writing option
contracts, the Company receives a premium from the purchaser in
exchange for incurring an obligation to purchase or sell
securities upon exercise of the option. These obligations may
require the Company to purchase securities at prices higher than
prevailing market prices or sell securities at prices below
prevailing market prices in order to fulfill its obligations
under the contracts. The Company does not enter into foreign
currency contracts or, other than as described, other derivative
financial instruments with off-balance-sheet risk. Derivative
financial instruments held or issued are immaterial to the
consolidated financial statements. The Company's exposure to
credit risk is represented by the fair value of trading
securities owned.
In the normal course of business the Company's activities
involve the execution, settlement and financing of various
securities transactions. These activities may expose the Company
to off-balance-sheet credit and market risks in the event the
customer or counterparty is unable to fulfill its contractual
obligations. Such risks may be increased by volatile trading
markets.
In the normal course of business Dain Bosworth and Rauscher
Pierce Refsnes enter into when-issued underwriting and purchase
commitments. Transactions relating to such commitments open at
year end and subsequently settled had no material effect on the
consolidated financial statements.
The Company seeks to control the risks associated with its
customer activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal
guidelines. The Company monitors required margin levels daily
and, pursuant to such guidelines, requires customers to deposit
additional collateral or to reduce positions when necessary.
Market declines could, however, reduce the value of collateral
below the amount loaned, plus accrued interest, before the
collateral could be sold.
A portion of the Company's customer activity involves the sale
of securities not yet purchased (short sales) and the writing of
option contracts. Such transactions may require the Company to
purchase or sell financial instruments at prevailing market
prices in order to fulfill the customer's obligations in the
event the customer fails to perform.
The Company lends money subject to reverse repurchase
agreements. All positions are collateralized, primarily with U.S.
government or U.S. government agency securities. The Company
generally takes physical possession of securities purchased under
agreements to resell. Such transactions may expose the Company to
risk in the event such borrowers do not repay the loans and the
value of collateral held is less than that of the underlying
receivable. These agreements provide the Company with the right
to maintain the relationship between market value of the
collateral and the receivable.
The Company may pledge firm or customer margin securities for
bank loans, repurchase agreements, securities loaned or to
satisfy margin deposits of clearing organizations. All
repurchase agreements are collateralized by cash or securities
delivered by the Company. In the event the counterparty is
unable to return such securities pledged, the Company may be
exposed to the risks of acquiring the securities at prevailing
market prices or holding collateral possessing a market value
less than that of the related pledged securities. The Company
seeks to control these risks by monitoring the market value of
securities pledged and requiring adjustments of collateral levels
where necessary.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with Item 7
(Management's Discussion and Analysis) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
Summary
Consolidated net earnings declined $1.9 million or 15 percent
during the 1997 second quarter compared with the second quarter
of 1996 and declined $1.2 million or 4 percent during the 1997
first half compared with the same period of the previous year.
Net revenues increased slightly, up 1 percent and 4 percent,
respectively, over the second quarter and first half of 1996.
Second quarter net revenues declined 6 percent from the record
levels of the 1997 first quarter as the Federal Reserve Board's
March 1997 increase in short-term interest rates negatively
impacted the prices and volumes of securities traded of and
issued by corporations with small to medium-sized market
capitalizations, the predominant type of corporate securities
which Dain Bosworth and Rauscher Pierce Refsnes underwrite, trade
and sell. This event negatively impacted the underwriting and
trading results of the Company's Equity Capital Markets
businesses. During the quarter, however, prices and volumes of
listed securities, which typically are issued by larger
capitalized corporations, as well as mutual funds, increased over
both first quarter 1997 levels and 1996 first half levels and,
accordingly, assisted the Company's commission-generating Private
Client and Institutional Equity Sales Groups to post improved
results in the second quarter and first half of 1997 versus the
comparable periods of 1996.
Results of Operations:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
Unaudited, in thousands) 1997 1996 1997 1996
------------------ -----------------
Net Revenues:
Dain Bosworth Incorporated $101,494 $ 98,193 $211,030 $201,505
Rauscher Pierce Refsnes,
Inc. 45,799 48,141 93,602 94,310
Corporate, other and
eliminations 8,838 7,509 17,461 14,062
------- ------- ------- -------
$156,131 $153,843 $322,093 $309,877
======= ======= ======= =======
Earnings (Loss) before
income taxes:
Dain Bosworth Incorporated $11,166 $13,250 $27,958 $30,409
Rauscher Pierce Refsnes,
Inc. 4,751 6,856 9,972 11,469
Corporate, other and
eliminations 1,582 (152) 3,958 1,365
------- ------- ------- -------
$17,499 $19,954 $41,888 $43,243
======= ======= ======= =======
Commission revenues increased $4.7 million or 8 percent from
the 1996 second quarter and $13.5 million or 12 percent from the
1996 first half as a result of increased sales of mutual funds,
listed securities and insurance and annuity products to
individual and institutional investors. The quarterly commission
revenue increases were partially offset by decreases in sales of
over-the-counter equity securities sold on an agency basis.
Contributing also to the commission revenue increase were
increases of approximately 20 percent in the New York Stock
Exchange's average daily trading volumes as well as general
increases in securities prices for the quarter and year-to-date
periods versus the comparable periods of 1996.
Revenues from principal transactions declined $8.0 million or
19 percent from the 1996 second quarter due to lower volumes,
prices and spreads earned in trading over-the-counter equity
securities, which became less popular investments for individuals
and institutions beginning with the Federal Reserve Board's
increase in short-term interest rates beginning in March 1997.
Partially offsetting these second quarter decreases were
increases in tax-exempt and taxable fixed income sales and
trading. For the 1997 first half, revenues from principal
transactions declined $12.4 million or 14 percent due to similar
declines in revenues from over-the-counter equity securities and
declines in sales and trading of taxable fixed income securities,
which were partially offset by increases in revenues from sales
and trading of tax-exempt fixed income securities.
Investment banking and underwriting revenues declined $0.7
million or 3 percent during the second quarter and $1.0 million
or 2 percent for the year-to-date period. For the quarter, the
revenue decline was primarily attributable to a reduction in
underwriting transactions for corporate clients and declines in
syndicate participations of corporate securities offerings. For
the year-to-date period, the decline is primarily the result of
lower municipal underwriting activity and lower levels of
syndicate participations partially offset by the first quarter
increase in corporate underwriting transactions.
Net interest income increased $1.8 million and $4.2 million,
respectively, or 17 percent each, for the quarter and year-to-
date period. The increases were primarily due to 21-percent and
22-percent increases in average margin loan balances,
respectively. The margin loan increases were due principally to
the transfer of several large customer accounts from competitors
during the 1996 third quarter. The resulting increase in net
interest income was partially offset by the effects of 48-
percent and 41-percent declines, respectively, in customer credit
balances versus the comparable periods of 1996, along with the
corresponding decline in short-term investments segregated for
regulatory purposes precipitated by the 1996 second half transfer
of approximately $340 million of customer credit balances to
Company-sponsored money market funds. The transfers occurred as
a result of the Company offering new cash management products to
certain segments of its customers.
Asset management revenues increased $2.1 million or 25 percent
for the quarter and $4.5 million or 27 percent for the first half
due to increases in volumes of assets in fee-based, managed
account programs at Dain Bosworth and Rauscher Pierce Refsnes
and, to a lesser degree, increases of approximately 30 percent in
assets under management at Interra Advisory.
In the 1997 second quarter, correspondent clearing revenues
approximated those of the prior year quarter and increased $1.1
million or 27 percent in the 1997 first half versus 1996 first
half. The year-to-date increase is principally the result of
increased correspondent trade volumes resulting from favorable
market conditions and growth in the size of such correspondents.
Compensation and benefits expense increased $.7 million or 1
percent during the 1997 second quarter and $5.1 million or 3
percent during the 1997 first half versus the comparable periods
of 1996. The increase for both periods is primarily the result
of increased commissions paid to revenue-producing employees
generating higher levels of operating revenues plus the effects
of 4-percent and 5-percent increases in the average number of
employees for the quarter and year-to-date, respectively, and
general salary increases. The majority of such increases were
offset by reduced levels of incentive compensation expense due to
lower levels of profitability.
Expenses other than compensation and benefits increased $4.0
million or 11 percent and $8.5 million or 12 percent over the
1996 second quarter and first half, respectively, due chiefly to
: (1) travel and promotional costs associated with the generation
of new business; (2) volume-driven increases in communications
market-data and clearing services; (3) increased occupancy and
equipment costs associated with office expansions and office
operating costs, including real estate taxes, and equipment
upgrades; and (4) costs associated with systems upgrades and
conversions.
Effect of Recent Accounting Standards
In June 1996 the Financial Accounting Standards Board (FASB)
issued Statement No. 125 (SFAS 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of
Liabilities." Subsequently the FASB issued Statement No. 127
(SFAS 127), which deferred the effective date of certain
provisions of SFAS 125 until 1998. The Company intends to adopt
the applicable provisions of SFAS 125 when required in 1998 and
does not expect the adoption to have a material effect on its
consolidated financial statements.
In February 1997 the FASB issued Statement No. 128 (SFAS
128), "Earnings Per Share." The Company intends to adopt SFAS
128 when required in the fourth quarter of 1997 and does not
expect the adoption to have a material effect on reported
earnings per share amounts.
In June 1997 the FASB issued Statement No. 130 (SFAS 130),
"Reporting Comprehensive Income." The Company intends to adopt
SFAS 130 when required in 1998 and does not expect the adoption
to have a material effect on its reported income.
LIQUIDITY AND CAPITAL RESOURCES
On April 30, 1997, the Company's Board of Directors adopted a
Shareholder Rights Plan ("the Plan"). Under the Plan, the Board
declared a dividend of one preferred share purchase right
("Right") for each outstanding share of common stock of the
Company. The dividend was payable to the shareholders of record
as of May 12, 1997. The Rights are attached to and automatically
trade with the outstanding shares of the Company's common stock
until they are distributed and become exercisable under the terms
of the Plan.
On April 30, 1997, the Company's Board of Directors also
approved the filing of a universal "shelf registration" statement
with the Securities and Exchange Commission. It would permit the
Company to sell at its discretion up to $200 million in secured
or unsecured debt, or equity securities. Management intends to
file the shelf registration statement in the third quarter of
1997. The Company may use the proceeds for acquisition financing,
subsidiary financing, or other corporate purposes.
The Company has no current plans to issue any "shelf" securities.
On June 27, 1997, the Company entered into a $50 million
committed, unsecured revolving credit facility to replace the $15
million facility that expired on June 30, 1997. The new facility
expires on June 25, 1998 and may be extended for up to three
additional one-year periods.
As described in Note J of the Consolidated Financial Statements
of the Company's 1996 Annual Report on Form 10-K, Interra
Clearing Services, Dain Bosworth and Rauscher Pierce Refsnes must
comply with certain regulations of the Securities and Exchange
Commission and New York Stock Exchange, Inc. measuring
capitalization and liquidity. All three broker-dealers continue
to operate above minimum net capital standards. At June 30,
1997, net capital was $77.1 million at Interra Clearing, which
was 7.3 percent of aggregate debit balances and $24.5 million in
excess of the 5-percent requirement. At June 30, 1997, Dain
Bosworth and Rauscher Pierce Refsnes had net capital of $40.1
million and $23.3 million, respectively, in excess of their
minimum requirements.
During the 1997 first quarter, the Company increased its
regular quarterly dividend on its common stock to $.18 per share,
an increase of $.03 per share over the previous rate of $.15 per
share. The determination of the amount of future cash dividends,
if any, to be declared and paid will depend on the Company's
future financial condition, earnings and available funds.
In August 1996 the Company's Board of Directors approved a
100,000 share extension of its previously completed common stock
repurchase plan. Purchases of the common stock may be made from
time to time at prevailing prices in the open market, by block
purchases, or in privately negotiated transactions. The
repurchased shares will be used for the Company's employee stock
incentive and other benefit plans, or for other corporate
purposes. Through July 31, 1997, no shares had been repurchased
pursuant to this extension.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and/or its subsidiaries are defendants in various
civil actions and arbitrations incidental to their businesses
involving alleged violations of federal and state securities laws
and other laws. Some of these actions involve claims for
substantial damages. A detailed description of certain of such
actions is included in Item 3 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996. The following
description of recent developments relating to pending and
threatened legal proceedings should be read in conjunction with
such Item 3.
Midwest Life Insurance Litigation
Colorado action - On July 3, 1997, a Colorado jury returned
a verdict awarding 12 plaintiffs damages of $4.75 million,
including $1.3 million in compensatory damages, $1.65
million in emotional distress damages and $1.8 million in
punitive damages, for breach of fiduciary duty, negligent
performance of an assumed duty to monitor and advise as to
the safety of their Midwest Life annuity contracts,
negligent misrepresentation, deceit based on fraudulent
misrepresentation and fraudulent concealment. In addition,
the court entered judgment for prejudgment interest of
approximately $1.5 million.
The 12 plaintiffs in this initial trial were Midwest Life
policyholders selected by plaintiffs' counsel to have their
cases tried first from the 232 individual plaintiffs in the
Colorado action. In Colorado, unlike other states, there was
not guaranty association coverage in place at the time
Midwest Life became insolvent. As a result of Dain
Bosworth's lobbying efforts, such coverage was adopted in
1994 and each of the plaintiffs was reimbursed for his or
her losses up to $100,000 plus accrued interest by the
Colorado guaranty association. In addition, plaintiffs and
the guaranty association between them received approximately
$.30 for each $1.00 of loss in liquidation payments from the
liquidator of Midwest Life's estate.
The Company and Dain Bosworth have filed post-trial motions
seeking to have the judgment in favor of these plaintiffs
set aside and, if necessary, will appeal. The Company
believes that the Court erred by, among other things,
withholding key evidence from the jury, including evidence
concerning Dain Bosworth's efforts to obtain guaranty
association coverage for plaintiffs' losses and evidence
concerning the reimbursements plaintiffs received for their
losses. The Company is seeking to have the judgment set
aside and, if necessary, will appeal on this and other
grounds.
Washington and Iowa actions - Trials are currently
scheduled to begin in the actions brought by the guaranty
associations in Washington and Iowa in early October and
early December 1997, respectively.
New Claim Filed by MWL Liquidator - In June 1997 an
eleventh complaint, captioned John A. Dixon, Jr., as
Commissioner of Insurance Ad Hoc, for the State of Louisiana
v. The Midwest Life Insurance Company/Midwest Life Insurance
Company, In Liquidation vs. Interra Financial, Inc., Dain
Bosworth Incorporated, and the Central National Life
Insurance Company of Omaha, was brought in the Nineteenth
Judicial District Court of the State of Louisiana. The case
has since been removed to the United States District Court
for the Middle District of Louisiana. In this action, the
liquidator of the Midwest Life estate alleges RICO
violations, breach of fiduciary duty, and conspiracy to
breach fiduciary duty and is seeking to recover in excess of
$59 million in compensatory damages, treble damages,
interest, costs, attorney's fees and other relief. The
plaintiff challenges certain coinsurance transactions
entered into by Midwest Life and Central National Life
Insurance Company beginning in 1980. By Louisiana statute,
the compensatory damages sought in this case would in large
part be distributed to the insurance guaranty associations
and individual policyholders who are plaintiffs or real
parties in interest in the ten actions previously described
in Item 3 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
The Company and Dain Bosworth believe that they have
substantial and meritorious defenses available in the above
action and in all of the actions relating to the Midwest
Life insolvency and they are defending themselves vigorously
in such actions.
Orange County Related Claims
Threatened SEC Proceeding - The Securities and Exchange
Commission (the "SEC") has authorized an action against
Rauscher Pierce Refsnes and one current and one former
employee, for alleged violation of certain antifraud
provisions under the Securities Act of 1933 and the
Securities Exchange Act of 1934 in connection with an
additional 12 taxable one-year note offerings for an
aggregate of $580 million and one pooled Tax Revenue
Anticipation Note offering for $300 million. The offerings
were made by certain school districts and cities during 1993
and 1994 and the proceeds were invested in the Orange County
Investment Pool. Rauscher Pierce Refsnes acted either as
underwriter or financial advisor in connection with each of
these transactions. The SEC has indicated that it intends
to file this action in the United States District Court for
the Central District of California and to seek injunctive
and other ancillary relief. Rauscher Pierce Refsnes is
engaged in discussions with the SEC in an effort to
resolve this matter on satisfactory terms prior to or in
lieu of the filing of a federal complaint. If an action is
brought, Rauscher Pierce Refsnes believes that it has
substantial and meritorious defenses available and intends
to defend this threatened action vigorously.
State of Arizona Refunding Transaction -- Threatened SEC
Proceeding
The SEC also has authorized an action against Rauscher
Pierce Refsnes and a former employee for alleged violation
of certain antifraud provisions under the Securities Act of
1933, the Securities Exchange Act of 1934 and the Investment
Advisors Act of 1940 in connection with a $130 million
refunding issue by the State of Arizona in 1992, on which
Rauscher Pierce Refsnes served as financial advisor.
Rauscher Pierce Refsnes purchased government securities and
sold them to the escrow trustee in the transaction. The SEC
has indicated that it intends to file this action in a
United States District Court and to seek injunctive and
other ancillary relief. Rauscher Pierce Refsnes is engaged
in discussions with the SEC in an effort to resolve
this matter on satisfactory terms prior to or in lieu of the
filing of a federal complaint. If an action is brought,
Rauscher Pierce Refsnes believes that it has substantial and
meritorious defenses available and intends to defend itself
vigorously in this threatened action.
While the outcome of any litigation is uncertain, management,
based in part upon consultation with legal counsel as to certain
of the actions pending against the Company and/or its
subsidiaries, believes that the resolution of all matters pending
against the Company and its subsidiaries will not have a material
adverse effect on the consolidated financial condition or results
of operations of the Company as set forth in the consolidated
financial statements contained herein.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the regular Annual Meeting of Stockholders of the Company
held on April 30, 1997, the stockholders elected ten directors
and ratified the appointment of KPMG Peat Marwick L.L.P. as the
registrant's independent auditors.
Voting results of each of those items were as follows:
Election of Directors:
For Withheld
---------- --------
J. C. Appel 10,471,354 227,418
J. E. Attwell 10,472,491 226,281
S. S. Boren 9,701,754 997,018
F. G. Fitz-Gerald 10,475,384 223,388
W. Johnstone 10,475,329 223,443
W. F. Mondale 10,465,732 233,040
C. A. Rundell, Jr. 10,474,299 224,473
R. L. Ryan 10,475,369 223,403
A. R. Schulze, Jr. 10,473,454 225,318
I. Weiser 10,474,401 224,371
For Against Abstain
---------- ------- -------
Ratification of Appointment
of Auditors 10,553,859 107,099 37,814
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item No. Item Method of Filing
4.1 Credit Agreement dated June 27, 1997. Filed herewith.
4.2 Rights Agreement Dated April 30, 1997. Incorporated by
reference to
the Company's
Registration
Statement on
Form 8-A dated
May 1, 1997.
11 Computation of Net Earnings Per Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended June
30, 1997.
Items Reported:
Item 5 - Other Events (Announcement of Adoption and Description
of Shareholder Rights Plan Dated April 30, 1997).
Date of Report - April 30, 1997.
Financial Statements Filed - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTERRA FINANCIAL INCORPORATED
Registrant
Date: August 13, 1997 By: Louis C. Fornetti
----------------------
Louis C. Fornetti
Executive Vice President
and Chief Financial
Officer
(Principal Financial
Officer)
By: Daniel J. Reuss
----------------------
Daniel J. Reuss
Senior Vice President,
Corporate Controller
and Treasurer
(Principal Accounting
Officer)
INTERRA FINANCIAL AND SUBSIDIARIES
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1997
(a) Exhibits
Item No. Item Method of Filing
- -------- ------------------------------------- ----------------
4.1 Credit Agreement dated June 27, 1997. Filed herewith.
4.2 Rights Agreement Dated April 30, 1997. Incorporated by
reference to
the Company's
Registration
Statement on
Form 8-A dated
May 1, 1997.
11 Computation of Net Earnings Per Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended June
30, 1997.
Items Reported:
Item 5 - Other Events (Announcement of Adoption and Description
of Shareholder Rights Plan Dated April 30, 1997).
Date of Report - April 30, 1997.
Financial Statements Filed - None.