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, 1997
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, 1997
Common Stock $.625 par value 21,034,273
<PAGE>
<PAGE>
INDEX
MORGAN KEEGAN, INC. and Subsidiaries
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements
of Financial Condition. . . . . . . . January 31, 1997 and July 31, 1996
Consolidated Statements
of Income . . . . . . . . . . . . . . Three months and six months ended
January 31, 1997 and 1996
Consolidated Statements
of Cash Flows . . . . . . . . . . . . Six months ended
January 31, 1997 and 1996
Notes to Consolidated
Financial Statements. . . . . . . . . January 31, 1997
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
January 31 July 31
1997 1996
(unaudited)
(in thousands)
<TABLE>
ASSETS <C> <C>
Cash $ 14,283 $ 17,156
Securities segregated for regulatory
purposes, at market 264,800 225,200
Deposits with clearing organizations
and others 9,168 7,655
Receivable from brokers and dealers and
clearing organizations 30,104 16,978
Receivable from customers 314,264 314,436
Securities purchased under agreements
to resell 102,282 69,278
Securities owned, at market 328,053 229,278
Memberships in exchanges, at cost
(market value-$3,109,000 at 1-31-97;
$3,722,000 at 7-31-96) 719 719
Furniture, equipment and leasehold
improvements, (less allowances for
depreciation and amortization $12,848,000
at 1-31-97; $13,362,000 at 7-31-96) 22,569 18,492
Building and improvements, at cost (less
allowance for depreciation $368,000 at
1-31-97; and $92,000 at 7-31-96) 19,632 19,908
Other assets 34,722 27,548
$1,140,596 $946,648
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 81,570 $ 31,400
Mortgage note payable 19,849 19,965
Commercial paper 80,704 42,928
Payable to brokers and dealers and
clearing organizations 9,234 9,201
Payable to customers 531,700 484,547
Customer drafts payable 13,003 14,456
Securities sold under agreements to
repurchase 97,393 54,826
Securities sold, not yet purchased,
at market 68,011 62,972
Other liabilities 51,438 57,345
952,902 777,640
Stockholders' equity
Common Stock, par value $.625 per share:
authorized 100,000,000 shares;
21,034,273 shares issued and outstanding
at 1-31-97; 20,437,597 at 7-31-96 13,146 12,773
Additional paid-in capital 6,050 1,511
Retained earnings 168,498 154,724
187,694 169,008
$1,140,596 $946,648
</TABLE>
See accompanying notes.<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
MORGAN KEEGAN, INC. and Subsidiaries
Three Months Ended Six Months Ended
January 31 January 31
(in thousands, except per share amounts)
<TABLE> <C> <C> <C> <C>
1997 1996 1997 1996
REVENUES
Commissions $19,884 $15,800 $ 36,297 $31,151
Principal transactions 28,635 29,582 56,739 58,786
Investment banking 14,121 13,077 23,489 24,588
Interest 15,644 13,654 30,378 23,196
Other 5,243 5,344 11,039 8,676
TOTAL 83,527 77,457 157,942 146,397
EXPENSES
Compensation 41,772 39,442 79,266 76,686
Floor brokerage and
clearance 1,174 1,106 2,432 2,175
Communications 5,280 4,063 10,712 8,611
Travel and promotional 2,262 2,090 4,165 3,847
Occupancy and equipment
costs 3,977 3,012 7,421 5,674
Interest 10,769 9,050 21,104 14,180
Taxes, other than income
taxes 2,546 2,140 4,011 3,272
Other operating expense 1,073 1,637 2,408 2,805
68,853 62,540 131,519 117,250
INCOME BEFORE INCOME TAXES 14,674 14,917 26,423 29,147
INCOME TAX EXPENSE 5,400 5,700 9,800 11,100
NET INCOME $ 9,274 $ 9,217 $ 16,623 $ 18,047
NET INCOME PER SHARE $ 0.45 $ 0.45 $ 0.81 $ 0.89
DIVIDENDS PER SHARE $ 0.07 $ 0.06 $ 0.14 $ 0.12
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
MORGAN KEEGAN, INC. and Subsidiaries
Six Months Ended
January 31
1997 1996
(in thousands)
<TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES <C> <C>
Net Income $16,623 $18,047
Adjustments to reconcile net income to
cash used for operating activities:
Depreciation and amortization 3,012 1,874
Deferred income taxes (670) (780)
Amortization of restricted stock 1,500 780
20,465 19,921
(Increase) decrease in operating assets:
Receivable from brokers and dealers and
clearing organizations (13,126) (36,376)
Deposits with clearing organizations
and others (1,513) (320)
Receivable from customers 172 (4,918)
Securities segregated for regulatory purposes (39,600) (21,200)
Securities owned (98,775) (80,742)
Other assets (6,504) (4,822)
Increase (decrease) in operating liabilities:
Payable to brokers and dealers and clearing
organizations 33 11,872
Payable to customers 47,153 52,830
Customer drafts payable (1,453) (922)
Securities sold, not yet purchased 5,039 (116)
Other liabilities (5,907) 7,842
(114,481) (76,872)
Cash used for operating activities (94,016) (56,951)
CASH FLOWS FROM FINANCING ACTIVITIES
Commercial paper 37,776 18,412
Mortgage note payable (116)
Issuance of Common Stock 3,555 2,777
Retirement of Common Stock (142) (601)
Dividends paid (2,850) (2,408)
Short-term borrowings 50,170 16,471
Securities purchased under agreements to resell (33,004) 43,574
Securities sold under agreements to repurchase 42,567 (22,730)
Cash provided by financing activities 97,956 55,495
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for furniture, equipment and
leasehold improvements (6,813) (3,434)
Cash used for investing activities (6,813) (3,434)
Decrease in Cash (2,873) (4,890)
Cash at Beginning of Period 17,156 22,287
Cash at End of Period $ 14,283 $17,397
</TABLE>
Income tax payments were $9,792,000 and $10,392,000 for the six month period
ending January 31, 1997 and 1996, respectively. Interest payments were
$20,872,000 and $14,055,000 for the same periods, respectively.
See accompanying notes. <PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MORGAN KEEGAN, INC. and Subsidiaries
January 31, 1997
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, 1997 are not necessarily indicative of the
results that may be expected for the year ending July 31, 1997. 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, 1996.
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, 1997, M.K. & Co. had net capital of
$109,208,811 which was 34% of its aggregate debit balances and $102,758,495
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 $83,527,000 for
the quarter ended January 31, 1997--surpassing the previous record of
approximately $79,297,000 for the third quarter of fiscal 1996. Revenues for
the quarter exceeded the same quarter of the previous year by approximately
8%. The most significant factor of this increase is the continued growth of
the Registrant's retail branch system. The revenues for the retail branch
system increased approximately $4,208,000 or 12% over the same period of the
previous year.
Operating expenses increased from approximately $62,540,000 in the second
quarter of fiscal 1996 to approximately $68,853,000 in the second quarter of
fiscal 1997. This 10% increase is attributable to a 6% increase in
compensation, which is in direct proportion to the increase in revenues.
Communication expenses increased approximately 30% during the same period as
emphasis on maintaining and improving the branch communications network
continued.
Net income also was at a record level for the quarter ended January 31, 1997.
Net income was approximately $9,274,000 or $0.45 per share compared to
approximately $9,217,000 or $0.45 per share which was the previous record
established in the same period of the previous year. Market conditions
continue to remain favorable as the Dow Jones Industrial Average moved closer
to 7000 during this quarter.
Total revenues for the six months ended January 31, 1997 were also at record
levels. Revenues were approximately $157,942,000 up from approximately
$146,397,000 for the same period in the previous year. The most significant
increase in revenues was in commission income. This 17% increase is a result
of the bullish market conditions that have enhanced the equity and fixed
income market conditions over the last several quarters.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MORGAN KEEGAN, INC. and Subsidiaries
Results of Operations (continued)
Year-to-date operating expenses increased approximately 12% to $131,519,000
from approximately $117,250,000 for the six months ended January 31, 1996.
Factors contributing to this increase include a $2,580,000 increase in
employee compensation, a $2,101,000 increase in communications and a
$6,924,000 increase in interest expenses. These increases are relative to
the increase in revenues and trading volumes for the six month period.
Net income for the six months was approximately $16,623,000 or $0.81 per
share slightly down from the same period in the previous year when record-
level net income was approximately $18,047,000 or $0.89 per share.
Liquidity and Capital Resources
High liquidity is reflected in the Registrant's statement of financial
condition with approximately 93% 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 months ended January 31, 1997,
cash flows used for operating activities increased by $37,065,000 which is
primarily due to an increase of securities owned of $98,775,000.
Cash flows from financing activities were $96,956,000 for the six month
period ended January 31, 1997 compared to $55,495,000 for the same period in
the previous year. The increase was a result of the increase in short-term
borrowings used to carry the increased inventory positions.
Investing activities resulted in a $6,813,000 decrease in cash flows for the
current year compared to a $3,434,000 decrease in the previous year. The
primary factor causing this increase is the continued effort to upgrade and
maintain a state-of-the-art communications network.
At January 31, 1997, the Registrant's broker/dealer subsidiary, which is
regulated under the SEC's uniform net capital rule, had net capital of
$109,208,811 which was $102,758,495 in excess of the 2% net capital
requirement. During the quarter, the Registrant declared and paid cash
dividends of $0.07 per share on the shares outstanding.
The Registrant is authorized to repurchase its own stock under the stock
repurchase program begun in November, 1993. During the quarter no stock was
repurchased under the plan; year-to-date the Registrant has repurchased
11,600 shares for an aggregate price of $142,100. Since the beginning of the
repurchase program, the Registrant has purchased 3,438,789 shares for
$30,801,989.
<PAGE>
<PAGE>
MORGAN KEEGAN, INC. and Subsidiaries
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
On November 22, 1996, at the Registrant's annual meeting of its
shareholders, 81% of the 20,437,596 shares outstanding at
September 30, 1996 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
Results of vote: 99.2% 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
11. Computation of Earnings per Share
b. Reports on Form 8-K
No reports were filed during the quarter on Form 8-K<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 14, 1997
<PAGE>
<PAGE>
PART II OTHER INFORMATION (Continued)
MORGAN KEEGAN, INC. and Subsidiaries
Item 6. a. Exhibit 11.
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
Three Months Ended Six Months Ended
January 31 January 31
<TABLE> <C> <C> <C> <C>
1997 1996 1997 1996
PRIMARY
Average Shares outstanding 20,584,541 20,291,170 20,518,484 20,238,684
Net effect of dilutive
stock options based on
the treasury stock
method using average
market price. 113,849 99,550 103,388 106,536
TOTAL 20,698,390 20,390,720 20,621,872 20,345,220
Net Income $ 9,273,758 $ 9,217,217 $16,622,575 $18,046,907
Per Share Amount $ 0.45 $ 0.45 $ 0.81 $ 0.89
FULLY DILUTED
Average shares outstanding 20,584,541 20,291,170 20,518,484 20,238,684
Net effect of dilutive
stock options based on
the treasury stock
method using the
quarter end market
price,if higher
than average
market price. 113,849 99,550 103,388 106,536
TOTAL 20,698,390 20,390,720 20,621,872 20,345,220
Net Income $ 9,273,758 $ 9,217,217 $16,622,575 $18,046,907
Per Share Amount $ 0.45 $ 0.45 $ 0.81 $ 0.89
</TABLE>
<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,
1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 14,283
<RECEIVABLES> 332,668
<SECURITIES-RESALE> 367,082
<SECURITIES-BORROWED> 20,868
<INSTRUMENTS-OWNED> 328,053
<PP&E> 42,201
<TOTAL-ASSETS> 1,140596
<SHORT-TERM> 162,274
<PAYABLES> 549,696
<REPOS-SOLD> 97,393
<SECURITIES-LOANED> 4,241
<INSTRUMENTS-SOLD> 68,011
<LONG-TERM> 19,849
0
0
<COMMON> 13,146
<OTHER-SE> 174,548
<TOTAL-LIABILITY-AND-EQUITY> 1,140,596
<TRADING-REVENUE> 28,635
<INTEREST-DIVIDENDS> 15,644
<COMMISSIONS> 19,884
<INVESTMENT-BANKING-REVENUES> 14,121
<FEE-REVENUE> 5,243
<INTEREST-EXPENSE> 10,769
<COMPENSATION> 41,772
<INCOME-PRETAX> 14,674
<INCOME-PRE-EXTRAORDINARY> 14,674
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,274
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
