SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 31, 1995
COMMISSION FILE NO. 1-9015
MORGAN KEEGAN, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-1153850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Fifty Front Street
Memphis, Tennessee 38103
(Address of principal executive (Zip Code)
offices)
901-524-4100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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 at least the past 90 days. Yes X No .
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. YES NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practical date.
Class Outstanding at October 31, 1995
Common Stock $.625 par value 20,127,528
<PAGE>
INDEX
MORGAN KEEGAN, INC. and Subsidiaries
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements
of Financial Condition. . . . . . . . October 31, 1995 and July 31, 1995
Consolidated Statements
of Income . . . . . . . . . . . . . . Three months ended
October 31, 1995 and 1994
Consolidated Statements
of Cash Flows . . . . . . . . . . . . Three months ended
October 31, 1995 and 1994
Notes to Consolidated
Financial Statements. . . . . . . . . October 31, 1995
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 1. Legal proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MORGAN KEEGAN, INC. and Subsidiaries
<TABLE>
October 31 July 31
1995 1995
(unaudited)
<S> (in thousands)
ASSETS
<C> <C>
Cash $ 11,708 $ 22,287
Securities segregated for regulatory
purposes, at market 214,200 226,000
Deposits with clearing organizations
and others 7,975 7,655
Receivable from brokers and dealers and
clearing organizations 43,266 25,046
Receivable from customers 270,997 260,707
Securities purchased under agreements
to resell 67,204 91,861
Securities owned, at market 299,053 209,915
Memberships in exchanges, at cost
(market value-$2,586,000 at 10-31-95;
$2,367,000 at 7-31-95) 719 719
Furniture, equipment and leasehold
improvements, (less allowances for
depreciation and amortization $13,167,000
at 10-31-95; $12,159,000 at 7-31-95) 13,738 13,037
Other assets 28,493 25,065
$957,353 $882,292
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $170,042 $127,649
Commercial paper 15,989 7,468
Payable to brokers and dealers and
clearing organizations 16,952 5,387
Payable to customers 454,913 438,518
Customer drafts payable 16,432 13,774
Securities sold under agreements to
repurchase 31,862 35,360
Securities sold, not yet purchased,
at market 57,471 68,430
Other liabilities 46,709 46,249
810,370 742,835
Stockholders' equity
Common Stock, par value $.625 per share:
authorized 100,000,000 shares;
20,127,528 shares issued and outstanding
at 10-31-95; 20,168,703 at 7-31-95 12,580 12,605
Additional paid-in capital 637 712
Retained earnings 133,766 126,140
146,983 139,457
$957,353 $882,292
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
MORGAN KEEGAN, INC. and Subsidiaries
<TABLE>
Three Months Ended
October 31
(in thousands, except
per share amounts)
1995 1994
<S> <C> <C>
REVENUES
Commissions $15,351 $10,089
Principal transactions 29,203 21,641
Investment banking 11,512 14,407
Interest 9,542 7,554
Other 3,332 2,515
TOTAL 68,940 56,206
EXPENSES
Compensation 37,243 29,975
Floor brokerage and clearance 1,068 873
Communications 4,548 3,875
Travel and promotional 1,756 1,456
Occupancy and equipment costs 2,662 2,151
Interest 5,131 4,697
Taxes, other than income taxes 1,133 1,173
Other operating expense 1,169 1,035
54,710 45,235
INCOME BEFORE INCOME TAXES 14,230 10,971
INCOME TAX EXPENSE 5,400 4,200
NET INCOME $ 8,830 $ 6,771
NET INCOME PER SHARE $ 0.44 $ 0.33
DIVIDENDS PER SHARE $ 0.06 $ 0.05
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
MORGAN KEEGAN, INC. and Subsidiaries
<TABLE>
Three Months Ended
October 31
1995 1994
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 8,830 $ 6,771
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 871 761
Deferred income taxes (335) 30
Amortization of restricted stock 390 360
9,756 7,922
(Increase) decrease in operating assets:
Receivable from brokers and dealers and
clearing organizations (18,220) 9,206
Deposits with clearing organizations
and others (320) (4,709)
Receivable from customers (10,290) (35,577)
Securities segregated for regulatory purposes 11,800 (37,400)
Securities owned (89,138) (49,981)
Other assets (3,093) (8,208)
Increase (decrease) in operating liabilities:
Payable to brokers and dealers and clearing
organizations 11,565 1,989
Payable to customers 16,395 85,269
Customer drafts payable 2,658 (2,721)
Securities sold, not yet purchased (10,959) 29,464
Other liabilities 460 1,995
(89,142) (10,673)
Cash used for operating activities (79,386) (2,751)
CASH FLOWS FROM FINANCING ACTIVITIES
Commercial paper 8,521 (3,308)
Issuance of Common Stock 12 26
Retirement of Common Stock (502) (2,260)
Dividends paid (1,204) (1,080)
Short-term borrowings 42,393 75,274
Securities purchased under agreements to resell 24,657 (59,916)
Securities sold under agreements to repurchase (3,498) 16,188
Cash provided by financing activities 70,379 24,924
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for furniture, equipment and
leasehold improvements (1,572) (1,818)
Membership in exchanges (41)
Cash used for investing activities (1,572) (1,859)
Increase (decrease) in Cash (10,579) 20,314
Cash at Beginning of Period 22,287 12,854
Cash at End of Period $11,708 $33,168
</TABLE>
Income tax payments were $918,000 and $956,000 for the three month period
ending October 31, 1995 and 1994, respectively. Interest payments were
$5,024,000 and $4,683,000 for the same periods, respectively.
See accompanying notes.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MORGAN KEEGAN, INC. and Subsidiaries
October 31, 1995
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Morgan Keegan,
Inc. and its wholly owned subsidiaries (collectively referred to as the
Registrant). The accompanying unaudited consolidated financial statements
have been prepared in accordance 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. Operating results for
the three months ended October 31, 1995 are not necessarily indicative of the
results that may be expected for the year ending July 31, 1996. For further
information, refer to the financial statements and notes hereto included in
the Registrant's annual report on Form 10-K for the year ended July 31, 1995.
NOTE B - NET CAPITAL REQUIREMENT
As a registered broker/dealer and member of the New York Stock Exchange, the
registrant's brokerage subsidiary, Morgan Keegan & Company, Inc. (M.K. & Co.)
is subject to the Securities and Exchange Commission's (SEC) uniform net
capital rule. The broker/dealer subsidiary has elected to operate under the
alternative method of the rule, which prohibits a broker/dealer from engaging
in any securities transactions when its net capital is less than 2% of its
aggregate debit balances, as defined, arising from customer transactions.
The SEC may also require a member firm to reduce its business and restrict
withdrawal of subordinated capital if its net capital is less than 4% of
aggregate debit balances, and may prohibit a member firm from expanding its
business and declaring cash dividends if its net capital is less than 5% of
aggregate debit balances. At October 31, 1995, M.K. & Co. had net capital of
$90,724,037 which was 32% of its aggregate debit balances and $85,044,409 in
excess of the 2% net capital requirement.
NOTE C - INCOME TAXES
The principal reason for the difference between the Registrant's effective
tax rate and the federal statutory rate is the non-taxable interest earned on
municipal bonds.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MORGAN KEEGAN, INC. and Subsidiaries
Morgan Keegan, Inc. (The Registrant) operates a full service regional
brokerage business through its principal subsidiary, Morgan Keegan & Company,
Inc. (M.K. & Co.). M.K. & Co. is involved in the highly competitive business
of origination, underwriting, distribution, trading and brokerage of fixed
income and equity securities and also provides investment advisory services.
While M.K. & Co. regularly participates in the trading of some derivative
securities for its customers, this trading is not a major portion of M.K. &
Co.'s business. M.K. & Co. typically does not underwrite high yield
securities, and normally is not involved in bridge loan financings or any
other ventures that management believes may not be appropriate for its
strategic approach. Many highly volatile factors affect revenues, including
general market conditions, interest rates, investor sentiment and world
affairs, all of which are outside the Registrant's control. However, certain
expenses are relatively fixed. As a result, net earnings can vary
significantly from quarter to quarter, regardless of management's efforts to
enhance revenues and control costs.
Results of Operations
The Registrant recognized record revenues of approximately $68,940,000 for
the quarter ended October 31, 1995. This was a 23% increase over the
previous year's first quarter revenues of approximately $56,206,000. For the
quarter, commissions increased 52% and principal transactions increased 35%
over the same period of the previous year. These increases are the result of
higher volume of retail business coinciding with branch office expansion
during the last few years.
Operating expenses for the quarter were approximately $54,710,000 or 21%
higher compared to approximately $45,235,000 for the same period in the
previous year. The largest component of this increase was employee
compensation which increased 24% over the previous year. This increase is in
direct relation to the increase in revenues.
Net income for the quarter rose to a record level of approximately $8,830,000
or $0.44 per share surpassing the previous firm record of approximately
$8,810,000 or $0.40 per share set in the second quarter of fiscal 1994. Net
income exceeded the same period of fiscal 1995's net income of approximately
$6,771,000 or $0.33 per share by 30%. These results come from management's
continued emphasis on long-term growth and expansion of the retail branch
system. Favorable market conditions were enhanced during the quarter as
interest rates leveled off after almost a year of interest rate swings.
Liquidity and Capital Resources
High liquidity is reflected in the Registrant's statement of financial
condition with approximately 96% of its assets consisting of cash or assets
readily convertible into cash. Financing resources include the Registrant's
equity capital, commercial paper, short-term borrowings, repurchase
agreements and other payables. For the three month period ended October 31,
1995, cash flows from operating activities decreased $79,386,000 compared
with a decrease of $2,751,000 for the three months ended October 31, 1994.
The change resulted primarily from an increase in the level of inventory
carried to service the Registrant's customers.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MORGAN KEEGAN, INC. and Subsidiaries
Liquidity and Capital Resources (continued)
Cash flows from financing activities increased $70,379,000 for the three
month period ended October 31, 1995 compared with an increase of $24,924,000
in the same period of the previous year. The increase was a result of the
increase in short-term borrowings used to offset the operating effect of the
increases in the receivables from brokers and dealers and clearing
organizations and receivable from customers.
Investing activities resulted in a $1,572,000 decrease in cash flows of the
current period compared to a $1,859,000 decrease in the previous period.
This is primarily due to the continued efforts to implement upgrades to the
branch office network system and the implementation of a new
telecommunications system.
At October 31, 1995, the Registrant's broker/dealer subsidiary, which is
regulated under the SEC's uniform net capital rule, had net capital of
$90,724,037 which was $85,044,409 in excess of the 2% net capital
requirement. During the quarter, the Registrant declared and paid cash
dividends of $0.06 per share on the shares outstanding.
The Registrant continued the stock repurchase program begun in November,
1993. During the quarter, the Registrant repurchased 43,600 shares for an
aggregate price of $503,100. Since the beginning of the repurchase program
in 1994, the Registrant has purchased 3,087,189 shares for $26,628,664.
<PAGE>
MORGAN KEEGAN, INC. and Subsidiaries
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal proceedings
Morgan Keegan & Company, Inc. is subject to various claims
incidental to its securities business. While the ultimate
resolution of pending litigation and claims cannot be
predicted with certainty, based upon the information currently
known, management is of the opinion that it has meritorious
defenses and has instructed its counsel to vigorously defend
such lawsuits and claims, and that liability, if any, resulting
from all litigation will have no material adverse effect on the
Registrant's consolidated financial condition.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
1. Computation of Earnings per Share
<PAGE>
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.
Morgan Keegan, Inc.
Registrant
BY /s/ Joseph C. Weller
Joseph C. Weller
EVP, CFO, Sec.-Treas.
Date: December 4, 1995
<PAGE>
<PAGE>
PART II OTHER INFORMATION (Continued)
MORGAN KEEGAN, INC. and Subsidiaries
Item 6. Exhibit a.1.
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<TABLE>
Three Months Ended
October 31
1995 1994
<S> <C> <C>
PRIMARY
Average Shares outstanding 20,158,409 20,393,361
Net effect of dilutive stock options
based on the treasury stock method
using average market price.
112,820 39,567
TOTAL 20,271,229 20,432,928
Net Income $ 8,829,690 $ 6,770,562
Per Share Amount $ 0.44 $ 0.33
FULLY DILUTED
Average shares outstanding 20,158,409 20,393,361
Net effect of dilutive stock options
based on the treasury stock method
using the quarter end market price,
if higher than average market price. 112,820 39,567
TOTAL 20,271,229 20,432,928
Net Income $ 8,829,690 $ 6,770,562
Per Share Amount $ 0.44 $ 0.33
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from
the Morgan Keegan, Inc. Form 10-Q for the period ended October 31,
1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> OCT-31-1995
<CASH> 11,708
<RECEIVABLES> 300,837
<SECURITIES-RESALE> 281,404
<SECURITIES-BORROWED> 21,401
<INSTRUMENTS-OWNED> 299,053
<PP&E> 13,738
<TOTAL-ASSETS> 957,353
<SHORT-TERM> 170,042
<PAYABLES> 486,132
<REPOS-SOLD> 31,862
<SECURITIES-LOANED> 2,165
<INSTRUMENTS-SOLD> 57,471
<LONG-TERM> 0
<COMMON> 12,580
0
0
<OTHER-SE> 134,403
<TOTAL-LIABILITY-AND-EQUITY> 957,353
<TRADING-REVENUE> 29,203
<INTEREST-DIVIDENDS> 9,542
<COMMISSIONS> 15,351
<INVESTMENT-BANKING-REVENUES> 11,512
<FEE-REVENUE> 3,332
<INTEREST-EXPENSE> 5,131
<COMPENSATION> 37,243
<INCOME-PRETAX> 14,230
<INCOME-PRE-EXTRAORDINARY> 14,230
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,830
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
