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 JANUARY 31, 1996
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 January 31, 1996
Common Stock $.625 par value 20,728,096
PAGE
<PAGE>
INDEX
MORGAN KEEGAN, INC. and Subsidiaries
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements
of Financial Condition. . . . . . . . January 31, 1996 and July 31, 1995
Consolidated Statements
of Income . . . . . . . . . . . . . . Three months and six months ended
January 31, 1996 and 1995
Consolidated Statements
of Cash Flows . . . . . . . . . . . . Six months ended
January 31, 1996 and 1995
Notes to Consolidated
Financial Statements. . . . . . . . . January 31, 1996
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> January 31 July 31
1996 1995
(unaudited)
<S> (in thousands)
ASSETS
<C> <C>
Cash $ 17,397 $ 22,287
Securities segregated for regulatory
purposes, at market 247,200 226,000
Deposits with clearing organizations
and others 7,975 7,655
Receivable from brokers and dealers and
clearing organizations 61,422 25,046
Receivable from customers 265,625 260,707
Securities purchased under agreements
to resell 48,287 91,861
Securities owned, at market 290,657 209,915
Memberships in exchanges, at cost
(market value-$2,741,000 at 1-31-96;
$2,367,000 at 7-31-95) 719 719
Furniture, equipment and leasehold
improvements, (less allowances for
depreciation and amortization $10,807,000
at 1-31-96; $12,159,000 at 7-31-95) 14,597 13,037
Other assets 30,667 25,065
$984,546 $882,292
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $144,120 $127,649
Commercial paper 25,880 7,468
Payable to brokers and dealers and
clearing organizations 17,259 5,387
Payable to customers 491,348 438,518
Customer drafts payable 12,852 13,774
Securities sold under agreements to
repurchase 12,630 35,360
Securities sold, not yet purchased,
at market 68,314 68,430
Other liabilities 54,091 46,249
826,494 742,835
Stockholders' equity
Common Stock, par value $.625 per share:
authorized 100,000,000 shares;
20,728,096 shares issued and outstanding
at 1-31-96; 20,168,703 at 7-31-95 12,955 12,605
Additional paid-in capital 3,319 712
Retained earnings 141,778 126,140
158,052 139,457
$984,546 $882,292
</TABLE>
See accompanying notes.
PAGE
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
MORGAN KEEGAN, INC. and Subsidiaries
<TABLE>
Three Months Ended Six Months Ended
January 31 January 31
(in thousands, except per share amounts)
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES
Commissions $15,800 $10,775 $ 31,151 $ 20,864
Principal transactions 29,582 21,358 58,786 42,999
Investment banking 13,077 10,829 24,588 25,236
Interest 13,654 9,349 23,196 16,903
Other 5,344 2,956 8,676 5,472
TOTAL 77,457 55,267 146,397 111,474
EXPENSES
Compensation 39,442 28,161 76,686 58,136
Floor brokerage and
clearance 1,106 923 2,175 1,796
Communications 4,063 3,769 8,611 7,644
Travel and promotional 2,090 1,295 3,847 2,751
Occupancy and equipment
costs 3,012 2,376 5,674 4,527
Interest 9,050 6,496 14,180 11,193
Taxes, other than income
taxes 2,140 1,811 3,272 2,984
Other operating expense 1,637 899 2,805 1,935
62,540 45,730 117,250 90,966
INCOME BEFORE INCOME TAXES 14,917 9,537 29,147 20,508
INCOME TAX EXPENSE 5,700 3,600 11,100 7,800
NET INCOME $ 9,217 $ 5,937 $ 18,047 $ 12,708
NET INCOME PER SHARE $ 0.45 $ 0.29 $ 0.89 $ 0.62
DIVIDENDS PER SHARE $ 0.06 $ 0.05 $ 0.12 $ 0.11
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
MORGAN KEEGAN, INC. and Subsidiaries
<TABLE>
Six Months Ended
January 31
1996 1995
<S> (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES <C> <C>
Net Income $18,047 $12,708
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 1,874 1,562
Deferred income taxes (780) 90
Amortization of restricted stock 780 720
19,921 15,080
(Increase) decrease in operating assets:
Receivable from brokers and dealers and
clearing organizations (36,376) 3,065
Deposits with clearing organizations
and others (320) (4,714)
Receivable from customers (4,918) (6,398)
Securities segregated for regulatory purposes (21,200) (96,400)
Securities owned (80,742) 26,395
Other assets (4,822) (8,359)
Increase (decrease) in operating liabilities:
Payable to brokers and dealers and clearing
organizations 11,872 (286)
Payable to customers 52,830 106,861
Customer drafts payable (922) (1,594)
Securities sold, not yet purchased (116) 17,940
Other liabilities 7,842 (16,661)
(76,872) 19,849
Cash provided by (used in) operating activities (56,951) 34,929
CASH FLOWS FROM FINANCING ACTIVITIES
Commercial paper 18,412 (5,235)
Issuance of Common Stock 2,777 2,196
Retirement of Common Stock (601) (5,019)
Dividends paid (2,408) (2,147)
Short-term borrowings 16,471 12,600
Securities purchased under agreements to resell 43,574 (162,640)
Securities sold under agreements to repurchase (22,730) 126,877
Cash provided by (used in) financing activities 55,495 (33,368)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for furniture, equipment and
leasehold improvements (3,434) (3,325)
Membership in exchanges (41)
Cash used for investing activities (3,434) (3,366)
Increase (decrease) in Cash (4,890) (1,805)
Cash at Beginning of Period 22,287 12,854
Cash at End of Period $17,397 $11,049
</TABLE>
Income tax payments were $10,392,000 and $8,934,000 for the six month period
ending January 31, 1996 and 1995, respectively. Interest payments were
$14,055,000 and $11,267,000 for the same periods, respectively.
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MORGAN KEEGAN, INC. and Subsidiaries
January 31, 1996
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 six months ended January 31, 1996 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 January 31, 1996, M.K. & Co. had net capital of
$93,582,507 which was 33% of its aggregate debit balances and $87,968,965 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 $77,457,000 for
the quarter ended January 31, 1996--surpassing the previous record of
approximately $68,940,000 set in the first quarter of the current fiscal
year. This revenue level represents a 40% increase over the same period of
the previous fiscal year. Revenues for the quarter ended January 31, 1995
totaled approximately $55,267,000. The largest components of this increase
include a 47% increase in commissions and a 39% increase in principal
transactions. These increases are the result of the Registrant's continued
growth in the retail branch system, taking advantage of the favorable market
for investors including lower interest rates and political stability.
Operating expenses increased from $45,730,000 in the second quarter of fiscal
1995 to $62,540,000 for the same period ended January 31 of fiscal 1996.
This 37% increase in expenses for the quarter over the same period of the
previous year is comprised of an approximate 40% increase in salary expense
which is proportionate to the increase in revenues for the quarter. Travel
and entertainment expense increased approximately 60% due to continued branch
expansion and upgrading the communications network.
Net income for the quarter rose to a record level of approximately $9,217,000
or $.45 per share surpassing the record of $.44 per share set during the
first quarter ended October 31, 1996. Net income for the quarter ended
January 31, 1995 was approximately $5,937,000 or $.29 per share. Bullish
markets continued throughout the quarter for both equity and fixed income
products.
Total revenues were approximately $146,397,000 for the first six month period
of the current fiscal year compared to approximately $111,474,000 for the six
month period ended January 31, 1995. This 31% increase is composed of a 49%
increase in commissions and a 37% increase in principal transactions.
Relative market conditions, such as short-term interest rate volatility,
stabilized in the current fiscal year enhancing market conditions in both the
retail and institutional markets.
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MORGAN KEEGAN, INC. and Subsidiaries
Results of Operations (continued)
Operating expenses year-to-date increased approximately 29% to $117,250,000
from approximately $90,966,000 for the six months ended January 31, 1995.
The largest components of this increase were a 32% increase in employee
compensation and a 27% increase in interest expense. Both of these increases
are in direct proportion with the 31% increase in sales volume.
Net income for the six month period ended January 31, 1996 was approximately
$18,047,000 or $.89 per share establishing a new record for any six month
period in the Registrant's history. Net income for the same period in the
previous fiscal year was approximately $12,708,000 or $.62 per share.
Liquidity and Capital Resources
High liquidity is reflected in the Registrant's statement of financial
condition with approximately 95% 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 six month period ended January 31,
1996, cash flows used in operating activities were $56,951,000 compared to
$34,929,000 being provided by operating activities for the six months ended
January 31, 1995. The noted change in the current year cash flows from
operations is relative to the Registrant's increase in revenue volume and the
level of inventories carried and customer receivables necessary to satisfy
customer demands at the higher levels.
Cash flows provided by financing activities were $55,495,000 for the six
month period ended January 31, 1996 compared to $33,368,000 being used in
financing activities in the same period of the previous year. The increase
was attributed to higher short-term borrowings, necessary to finance higher
customer borrowings and inventory levels.
Investing activities resulted in a $3,434,000 use of cash flows for the
current period compared to a $3,366,000 cash out flow 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 January 31, 1996, the Registrant's broker/dealer subsidiary, which is
regulated under the SEC's uniform net capital rule, had net capital of
$93,582,507 which was $87,968,965 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 8,500 shares for an
aggregate price of $97,750. The Registrant has repurchased 52,100 shares for
and aggregate price of $600,850 for the six month period ended January 31,
1996. Since the beginning of the repurchase program in 1994, the Registrant
has purchased 3,095,689 shares for $26,726,414.
PAGE
<PAGE>
MORGAN KEEGAN, INC. and Subsidiaries
PART II OTHER INFORMATION
Item 1. Legal proceedings
The Registrant and its subsidiaries 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
On November 21, 1995, at the Registrant's annual meeting of its
shareholders, 77% of the 20,168,704 shares outstanding at September
30, 1995 were represented by proxy. A quorum as declared present
for the conduct of business and the following proposals were voted
on:
Proposal 1: Election of the directors from the following nominees
to serve the registrant for the ensuing year:
Allen B. Morgan, Jr. John W. Stokes, Jr.
William W. Deupree, Jr. Kenneth F. Clark, Jr.
Joseph C. Weller Peter S. Wilmott
Donald Ratajczak James E. Harwood, III
Results of vote: 100% of the votes cast were in favor of this
proposal.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
1. Computation of Earnings per Share
PAGE
<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: March 15, 1996
<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 Six Months Ended
January 31 January 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PRIMARY
Average Shares outstanding 20,291,170 20,332,602 20,238,684 20,351,493
Net effect of dilutive
stock options based on
the treasury stock
method using average
market price. 99,550 30,422 106,536 33,329
TOTAL 20,390,720 20,363,024 20,345,220 20,384,822
Net Income $ 9,217,217 $ 5,937,390 $18,046,907 $12,707,952
Per Share Amount $ 0.45 $ 0.29 $ 0.89 $ 0.62
FULLY DILUTED
Average shares outstanding 20,291,170 20,332,602 20,238,684 20,351,493
Net effect of dilutive
stock options based on
the treasury stock
method using the
quarter end market
price,if higher
than average
market price. 99,550 30,422 106,536 33,329
TOTAL 20,390,720 20,363,024 20,345,220 20,384,822
Net Income $ 9,217,217 $ 5,937,390 $18,046,907 $12,707,952
Per Share Amount $ 0.45 $ 0.29 $ 0.89 $ 0.62
</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
January 31, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000729600
<NAME> MORGAN KEEGAN, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-2
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 17,397
<RECEIVABLES> 306,508
<SECURITIES-RESALE> 295,487
<SECURITIES-BORROWED> 28,514
<INSTRUMENTS-OWNED> 290,657
<PP&E> 14,597
<TOTAL-ASSETS> 984,546
<SHORT-TERM> 144,120
<PAYABLES> 521,121
<REPOS-SOLD> 12,630
<SECURITIES-LOANED> 338
<INSTRUMENTS-SOLD> 68,314
<LONG-TERM> 0
<COMMON> 12,955
0
0
<OTHER-SE> 145,097
<TOTAL-LIABILITY-AND-EQUITY> 984,546
<TRADING-REVENUE> 29,582
<INTEREST-DIVIDENDS> 13,654
<COMMISSIONS> 15,800
<INVESTMENT-BANKING-REVENUES> 13,077
<FEE-REVENUE> 5,344
<INTEREST-EXPENSE> 9,050
<COMPENSATION> 39,442
<INCOME-PRETAX> 14,917
<INCOME-PRE-EXTRAORDINARY> 14,917
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,217
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
